Answer
Companies record goodwill only when there is an exchange transaction that involves the purchase of entire business. When entire business is purchase, Goodwill is the amount paid in excess of the fair market value of assets acquired. Goodwill is not amortized because it is considered to have an indefinite life. However, it must be written down if a company determines the value of goodwill has been permanently impaired.
Work Step by Step
The accounting entry for amortization of goodwill is as under:
Amortization expense – Goodwill dollars XXX
Goodwill dollars XXX
(To record Goodwill amortization)
