Question

Goodwill should:

1. be written off as soon as possible against retained earnings.
2. absent impairment, not be written off because it has an indefinite life.
3. written off as soon as possible as an expense.
4. amortized over a maximum of forty years.

For accounting purposes, goodwill:

1. is recorded whenever a company achieves a level of net income that exceeds the industry average.
2. is recorded when a company purchases another business.
3. is expensed in the period it is recorded because benefits from goodwill are difficult to identify.
4. is never recorded.

Answer 1

Answer is Option B)

Goodwill is annually tested for impairment. Impairment charge is recorded when fair value of the business is below book value of net assets. If there are conditions indicating carrying value is not recoverable impairment test is performed. Hence Answer is Option B)

Options A) , C) and D) are not the right answers because goodwill is not written unless there is impairment

Answer is Option B)

Goodwill is recorded when company pays more consideration than fair value of net assets acquired from another business. Fair value of Net assets = Fair value of Assets - Fair value of Liabilities . Goodwill is reported as Long term asset or non current asset on the Balance sheet of the acquirer

Options A), C) and D) are not the right answers because goodwill is recorded only when company purchases another business. Goodwill is not an expense and not recorded because of level of net income exceeding the industry average.