Question

In examining financial statements, financial analysts often write off goodwill immediately. Comment on this procedure.

Short answer

The experts merely indicate that they feel that presenting goodwill on the balance sheet does not offer readers of financial statements any meaningful information.

It's impossible to say if this is accurate, but it's worth noting that it looks counterintuitive to pay for goodwill and then quickly write it off, denying that it has any value.

Step-by-step solution

Meaning of Financial Statements

Financial statements are written records that describe a company's operations and financial performance. Government authorities, accountants, corporations, and others frequently audit financial accounts to verify accuracy and for tax, financing, and investment purposes.

Written Down Goodwill

Goodwill can be amortized on a straight-line basis over a period not to exceed 10 years. If at any time, the value declines, as happened rapidly with goodwill related to Autonomy, then an impairment charge is required.