Amortize Goodwill or not?

Question

I am taking accounting and I was wondering does goodwill depreciate?

Answer 1

Goodwill is the subject of IFRS 3.

Recognition and measurement of goodwill.
Goodwill is recognised by the acquirer as an asset from the acquisition date and is initially measured as the excess of the cost of the business combination over the acquirer's share of the net fair values of the acquiree's identifiable assets, liabilities and contingent liabilities. [IFRS 3.51]

No amortisation of goodwill.
After initial recognition, the acquirer shall measure goodwill acquired in a business combination at cost less any accumulated impairment losses.
Goodwill acquired in a business combination shall not be amortised. Instead, the acquirer shall test it for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, in accordance with IAS 36 Impairment of Assets. [IFRS 3.55]

Negative goodwill.
If the acquirer's interest in the net fair value of the acquired identifiable net assets exceeds the cost of the business combination, that excess (sometimes referred to as negative goodwill) must be recognised immediately in the income statement as a gain. Before concluding that "negative goodwill" has arisen, however, IFRS 3 requires that the acquirer reassess the identification and measurement of the acquiree's identifiable assets, liabilities, and contingent liabilities and the measurement of the cost of the combination. [IFRS 3.56]

For disclosure requirements regarding pls refer to IFRS 3.

Answer 2

Amortize Goodwill

Answer 3

Goodwill is not amortized because it has an indefinite life.

Answer 4

No. Current FASB guidance prohibits companies from amortizing goodwill. Firms must, however, evaluate goodwill annually for possible impairment and write it down if it's been impaired.