Question

When SB Corporation purchased Banner Corporation in the current year, SB recorded $1,500,000 of goodwill. How...

When SB Corporation purchased Banner Corporation in the current year, SB recorded $1,500,000 of goodwill.

How should SB account for the goodwill after the acquisition?

The goodwill should be amortized straight-line over its estimated useful life.

The value of the goodwill should be increased each year by the amount of net income earned by Banner.

The goodwill should be written down each year by the amount of net income earned by Banner.

The goodwill should remain on SB’s books as a long-term asset, and should not be amortized because it has an indefinite life.

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Answer #1

How should SB account for the goodwill after the acquisition?
Answer is Option (1) The goodwill should be amortized straight-line over its estimated useful life.

Goodwill arises in case of merger or acquisition is made for a consideration exceeding the net worth of Target Business.
That good will shown in the Balance sheet of Acquiring company as intangible asset.
Accounting treatment for goodwill:
Goodwill can be amortized on a straight-line basis over its estimated useful life life (not to exceed 10 years) .
If the goodwill value declines at any time, then impairment can be charged to adjust the declined value.

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