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<p>1) It should be amortised over a maximum period of20 years2) It should be amortized over a maximum period of10 years3) Goodwill has an infinite life4) Good will is not amortised but is reviewed for impairment annually</p>
Option4
Thanks everyone. I guess I should have been more clear about the Financial Reporting Standard one should refer to. I guess most of my respected colleagues here follow the US GAAP and I am not quite sure of that, so it may be the right treatment most of you are mentioning and I am grateful for your input in this regard.However, referring to the IFRS (International Financial Reporting STandards) in particular IFRS3 Business Combinations devised by the IASB it is option4. Good will could previously be amortised upto a maximum of20 years. However, its no longer the case and Goodwill has an indefinite life but it needs to be reviewed for impairnent annually. Thoroughly grateful though to my friends for providing me with a different insight though.
The correct answer No.2
2) It should be amortized over a maximum period of10 years
US rules permit15 years.
Prior to this month, the FASB last addressed the question of what to do with goodwill in2001– over a decade ago. And before that it was30 years since they addressed it. Not the fastest-changing rule in accounting.
Actually, accounting for goodwill has been somewhat controversial since the1970s when the rule was first established. At that time, if companies merged using the purchase method of accounting, the acquiring company often booked goodwill — defined as the difference between what was paid and the actual fair value of the assets. This goodwill was amortized against earnings for a period not to exceed40 years.
In2001, all that changed and companies could no longer amortize goodwill. Instead, they were required to evaluate goodwill each year to see if it had diminished in value. This annual valuation was time-consuming and expensive, especially for private companies given their more limited resources. Under a new private-company alternative, private companies can choose to avoid the annual valuation in favor of amortizing goodwill
2) It should be amortized over a maximum period of10 years
In the U.S. accounting rules required goodwill to be amortized to expense over a period not to exceed40 years.
