In: Accounting
Which of the following costs of goodwill should be capitalized?
Costs of goodwill from a business combination accounted for as a purchase |
Costs of developing goodwill internally |
|
a) |
No |
No |
b) |
No |
Yes |
c) |
Yes |
No |
d) |
Yes |
Yes |
c) Yes , No
i.e Goodwill from business combination can be capitalized whereas cost of developing goodwill internally cannot be capitalized
Goodwill is technically an intangible asset, but is usually listed separately on a company’s balance sheet. Goodwill is only recognized through an acquisition of a company or business combination and is calculated as the difference between the amount of money paid to acquire a company and the fair or book value of the acquired company’s net assets.
Internally generated goodwill is within the scope of IFRS but is not recognized as an asset because it is not an identifiable resource.
Expenditure for an intangible item is recognized as an expense, unless the item meets the definition of an intangible asset, i.e 1) it is probable that there will be future economic benefits from the asset; and 2) the cost of the asset can be reliably measured.
The cost of generating an intangible asset internally is often difficult to measure and distinguish from the cost of maintaining or enhancing the entity’s operations. For this reason, internally generated goodwill is not recognized as an intangible asset.