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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Under what conditions is purchased goodwill amortized? Explain how a company determines if goodwill is impaired.

To determine

Explain the conditions under which the purchased goodwill is amortized, and explain the manner in which the company determines the goodwill impairment.

Explanation

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.

Goodwill: Goodwill is the good reputation developed by a company over years. This is recorded as an intangible asset, and is quantified when other company acquires. Goodwill should be recorded only when one company is acquired by another company. Goodwill value would be impaired, if the book value of goodwill is less than fair market value.

Explain the conditions under which the purchased goodwill is amortized, and explain the manner in which the company determines the goodwill impairment as follows:

Goodwill is considered as the indefinite intangible asset (unlimited life), hence it would not be amortized over its useful life. But, a company must review its goodwill for impairment at least annually or whenever events or changes that would occur and indicate the impairment...

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