Blogger
Share this content
0
2
14939

Goodwill Amortisation

We prepare accounts which are unaudited and the director wants to know why we have amortised goodwill. I have been told by our accountants that goodwill must be amortised by law under the Companies Act. I have explained this to our director but he said that the goodwill in one of his other companies is not amortised and can't understand why we have to amortise it when our accounts aren't audited. Can anyone provide any further information on this subject for me?

Replies

Please login or register to join the discussion.

FRS10

It's correct that assets with a finite life are required to be depreciated/amortised, Financial Reporting Standard 10 includes a rebuttable presumption that goodwill cannot have a life exceeding 20 years, however some companies may construct a case to argue that goodwill has an indefinite life and should not be amortised. Where that is the case an impairment review needs to be carried out each year to ensure that the carrying value of the goodwill is still valid and its useful life still cannot be determined.

Thanks (0)

IAS

Are the other company's accounts prepared under UK GAAP or using International Accounting Standards?

If it's the former, then the goodwill should be amortised over its estimated useful economic life. As noted above, the rebuttable presumption in FRS10 is that this life will not exceed 20 years. If it does exceed that, then annual impairment review are required.

If the accounts are prepared under International Accounting Standards, then Goodwill is not amortised but instead is reviewed for impairment every year.

Thanks (0)