If at the end of the year, goodwill is worth more than at the beginning of the year, then an entry must be made to increase the goodwill.

Question

Quizplus · Accepted Answer

Goodwill is an intangible asset that is not subject to amortization like other intangibles. Its value is not based on any tangible or identifiable asset of a company, but rather on its reputation, brand value, loyalty among customers, and other factors. Therefore, its value may change over time due to various internal and external factors.

However, under generally accepted accounting principles (GAAP), goodwill is tested annually for impairment, which means that its carrying value is compared with its fair value to determine whether it has been impaired or not. If its fair value is less than its carrying value, an impairment loss is recognized in the income statement, which reduces the goodwill.

Therefore, the increase in goodwill value alone does not warrant an entry to increase it; rather, it should be tested for impairment to ensure that it is not overstated.

If at the End of the Year, Goodwill Is Worth