goodwill.
prithwish sengupta
(Querist) 30 December 2010
This query is : Resolved
is purchased goodwill an intangible asset?
can depreciation be charged on such goodwill @ 25%?
pls answer and refer case law if any.
thanking you.
B K Raghavendra Rao
(Expert) 30 December 2010
Goodwill is an intangible asset and cannot be depreciated.
Advocate. Arunagiri
(Expert) 02 January 2011
Amortization of intangible assets
a. Intangible assets
--> amortized over the periods of benefits.
b. The period of amortization
--> should not exceed forty years.
c. It is assumed that
--> the value of intangible assets will
eventually disappear.
Goodwill can be described as the additional value obtained from an acquisition over and above the value of the net assets acquired. This additional value does not last for ever. Like other non-current assets, its value erodes over time. It is therefore appropriate to depreciate or amortise goodwill over a number of years after a subsidiary has been acquired.
When goodwill is amortised:
* The charge for amortisation each year is treated as an expense in the consolidated income statement.
* The value of goodwill in the consolidated balance sheet is its original value minus accumulated amortisation.
The goodwill arising at acquisition must be amortised (depreciated) over its estimated economic life, through the income statement.
