Question

Under what circumstances is it appropriate to record goodwill in the accounts? How should goodwill, properly recorded on the books, be written off in order to conform with generally accepted accounting principles?

Short answer

When goodwill is gained through purchase, it is recorded in the accounts. Goodwill is not amortized but tests for installation a minimum of one time in a year.

Step-by-step solution

Written off of Goodwill

Goodwill may be amortized in a straight-line fashion over a ten-year period. If the value of the asset decreases over time, as it did in the case of Autonomy's goodwill, an impairment charge is necessary.

When to record Goodwill

When goodwill is gained through purchase, it is recorded in the accounts. Because goodwill obtained in a corporate combination has an infinite life, it should not be amortized but should be tested for installation at least once a year.