Black, Inc. has just purchased a subsidiary that is estimated to have goodwill of $500k, black will amortize this goodwill for the maximum number of year allowed. what is the amount of the annual amortization for this good will? A$20K B$12.5k C Goodwill is an intangible asset and cannot be amortized D$25K Answer is B, because the maximum amortization period is 40 years. Where did they get this? I referred back to Book3 Pg150. the last paragraph says goodwill is subject to an annual impairment review, cannot be amortized. i am confused now. Anybody knows?
The impairment review is for “organic” goodwill, not from aquiring companies. The question above refers to goodwill from an aquisition. I believe that’s what confused you. I’d double check the books.
The book indeed said that goodwill can not be amortized but only impaired. And i think it means the acquisition goodwill. Does maximum number of year allowed (40) must be memorized?
Is this an old question? Because goodwill used to be amortized, but can no longer be amortized, only tested for impairment. Also i thing the only time one would recogonize goodwill under GAAP is when one acquires a company.
I am so glad this thread finally got attention. it is a practice question for June 2007 test
There is no such thing as “organic goodwill”. You can’t just come in to work one morning and say “Hey, people really like my company. let’s record some goodwill!” All goodwill originates from acquisitions. It is defined as the excess of the purchase price of the FMV of identifiable assets (and this can include dollars allocated to other types of specifically identifiable intangibles) bought and liabiltiies assumed. It used to be mnadatory to amortize it over a period not to exceed 40 years. but they changed the rules a few years ago to the current impairment test. Note that this is US GAAP, not IAS. Don’t recall those rules off of the top of my head.
My bad on the wording organic, tried to explain it how I thought of it. I do remember that the book does’t clarify the fact that amortization of goodwill is only for aquisitions. There is a good post from a day or two ago on the LII forum, specifically about this.
singlesong80, where are you getting your questions? I mean the source, it seems like your questions are a bit sketchy, maybe you should try the CFAI online exams instead…