Which of the following statements is correct regarding accounting treatment of goodwill?
A) Goodwill is recorded as an asset and is not written off as an expense unless its fair value is less than its book value.
B) Goodwill is recorded as an asset and amortized over 5 years regardless of any change in value.
C) Goodwill is recorded as an asset and amortized over 40 years unless its fair value decreases.
D) Goodwill is expensed immediately in the year acquired.

Question

Quizplus · Accepted Answer

Goodwill is initially recorded as an asset on the balance sheet at the time of acquisition. It is not amortized over a fixed period but is tested annually for impairment. If the fair value of goodwill falls below its book value, an impairment loss is recognized on the income statement. However, if the fair value is greater than the book value, it remains on the balance sheet as an asset. Goodwill is not expensed immediately in the year of acquisition, nor is it amortized over a fixed period of time.

Which of the Following Statements Is Correct Regarding Accounting Treatment