Which of the following statements is correct regarding accounting treatment of goodwill?
A) Goodwill is recorded as an asset and then amortized over a period of 5 years.
B) Goodwill is recorded as an asset. It is not amortized but must be tested for impairment each year.
C) Goodwill is recorded as an asset and amortized over 40 years unless its value decreases.
D) Goodwill is expensed immediately in the year of purchase.

Question

Quizplus · Accepted Answer

Goodwill is recorded as an asset initially, but it is not amortized. Instead, it must be tested for impairment every year to ensure that its value has not decreased. Impairment occurs when the value of the asset falls below the recorded value, and if that happens, the company needs to adjust the goodwill value accordingly. Therefore, option B is the correct statement regarding accounting treatment of goodwill.

Which of the Following Statements Is Correct Regarding Accounting Treatment