FRS 10: Goodwill and intangible assets

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FRS 10 deals with accounting requirements of goodwill and intangible assets. The standard itself recognises that goodwill obtained during an acquisition is not an asset, like other assets, nor is it an immediate loss in value, explains Steve Collings. 

Instead, the standard recognises that goodwill is essentially the difference between the cost of an investment shown in the acquirer’s financial statements and the values that have been attributed to the various assets and liabilities subjected to the acquisition in the consolidated financial statements and is referred to in the standard as ‘purchased goodwill’. Purchased goodwill can be positive, whereby the acquisition cost exceeds the aggregate fair values of the identifiable assets and liabilities; whilst negative goodwill arises when the purchase consideration is less than the fair values of the identifiable assets and liabilities. 

The objective of FRS 10 is to ensure that goodwill and intangible assets capitalised in an entity’s balance sheet are charged to the profit and loss account over their useful economic lives. The standard then goes on to say that its objective is also to ensure that users can determine the impact that goodwill and intangible assets has on the financial position and performance of the reporting entity.

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  • Classes of intangible assets
  • Recognition and measurement
  • Useful lives and amortisation
  • Impairment issues


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About Steven Collings


Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.


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By atajhya
02nd Oct 2012 12:20

A quick question to Steve

Dear Steve

I had a quick question on intangible assets and want to check if you can advise if I am allowed to capitalise the cost.


My organisation consultant developed the well-being at work survey website. Cost includes salary cost of the consultant who develop the survey and UK national survey database cost done by a different company. This survey website is generating us revenue as we are selling licences per head to different companies to use these survey so that they can carry out well-being check of their employees in comapred to national average. Our management is intersted in capitalising the cost incurred which is approximately £34K.

I would very much appreciate your comment and advise on this.



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By mdoyle
02nd Oct 2012 12:25

Accounts Treatment - Tax Treatment

Internally-generated goodwill

The standard prohibits internally-generated goodwill being recognised in the financial statements (FRS 10.8). Many practitioners have been criticised by their professional body over recent years for inappropriately recognising internally-generated goodwill on a balance sheet, particularly when a client incorporates.


Can someone please confirm for me if this article is totally unrelated to the post/pre April 2002 generated goodwill and the tax relief on amortisation as i'm getting confused between the accounts treatment and the tax treatment. Reading the above article i would say the accounts treatment is never to recognise on the balance sheet, however, the tax treatment seems to be you can get relief on amortisation of internally generated goodwill depending on whether or not it was generated pre or post April 2002?


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By Bryan
02nd Oct 2012 13:58

The issue of goodwill due to incorporation was always a niggle with inspectors because it was clear on non audit jobs that goodwill was recognised on balance sheet that was internally generated which is in contravention of the rules. Certainly back in the early noughties when incorporation was rife this would be on inspectors hit lists!

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02nd Oct 2012 18:33

Internally generated - no amortisation

There's no tax deduction for a company's own internally generated goodwill, even if the business was set up post-1 April 2002.  If the company acquires the goodwill of another business, that acquisition cost can be amortised, or written off at 4% on a straight line basis if the accounts don't permit amortisation, for tax purposes.

If you incorporate a business, it should be possible to get the 4% quasi-amortisation deduction for the goodwill of the business if and to the extent that you can persuade HMRC that the goodwill isn't personal to the individual whose business is incorporated, or attached to a property, or otherwise unavailable. My understanding of the accounting standards (which is definitely subject to challenge, as I'm a lawyer!) is as in the article - that the company should not (under accounting standards) be putting the goodwill on the balance sheet and amortising it.

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By Bryan
03rd Oct 2012 08:21

Certainly from an inspectors point of view the issue as muted in the article is about firms that include goodwill on incorporation that does not have evidence of it actually being transferred from an individual or group of individuals to a company. This is where firms used to run into difficulty. The tax issues are one thing and accounting issues another. In my experience to comply with the standard one would need evidence that the goodwill is not internally generated such as an independent valuation. Failing that how can you demonstrate compliance with UK GAAP?

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By sylou
03rd Oct 2012 15:00

Goodwill on incorporation

Is this article saying then, that goodwill on incorporation should never be shown on the accounts?

We have been including this for years and have never had it challenged.  I was under the impression it wasn't counted as internally generated because it was generated by the sole trader, not the limited company.

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By TC2
03rd Oct 2012 15:09

Goodwill on Incorporation

"If you incorporate a business  - the company should not (under accounting standards) be putting the goodwill on the balance sheet and amortising it." ......

Now I'm confused.  A Ltd Company is a separate entity from an individual.  If a Ltd Company has only just been formed, how can the goodwill have been internally generated?  In my view, that's impossible.  It seems extraordinary that HMRC will allow tax relief for the amortisation but the accounting standards won't let me show it on the balance sheet.  It's usually the other way round!

And a practical question: If neither the goodwill nor the amortisation are mentioned anywhere in the accounts, is the amortisation simply deducted in the tax calculations?


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03rd Oct 2012 15:46

Can of Worms!

Leaving aside the taxation relief on goodwill and any CGT on the owner arising from the transfer of the goodwill, going back to the early noughties, the general consensus of opinion appeared to be to create internal goodwill by incorporation which would be a debit to the Balance Sheet and a credit to the director's loan account. This would then be available for the director to draw upon. If goodwill is not recognised in the company accounts, this would leave a lot of directors with seriously overdrawn loan accounts!

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By TC2
03rd Oct 2012 16:40

Can of Worms - Yes!

Roland Rat - yes, a can of worms, I'm only just realising how big a can!

So do we keep two sets of accounts: one for HMRC and one for ROW?

I wonder what happened to True and Fair.  If a Ltd Company buys a going concern, then they've bought it - related parties or not.  I haven't noticed the lack of an independent valuation affecting other significant areas of accounting practice.  If the method of valuation is documented and HMRC accepts it, isn't that reasonable enough? 


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03rd Oct 2012 18:03


A new partnership acquires a business and  90% of the  purchases consideration is goodwill. After four years the partnership is incorporated and all the assets are transferred into the new company, including original goodwill ,at cost. The question arises:a) Is the yearly amortised amount of say 5% per annum straight line basis allowable for tax purposes.b/ Do the accounts comply with FRS 10. Are there any CGT implications for the partners.?


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04th Oct 2012 08:48

Election needed

"If neither the goodwill nor the amortisation are mentioned anywhere in the accounts, is the amortisation simply deducted in the tax calculations?"

If there's no amortisation in the accounts then the only tax deduction for post-1 April 2002 acquired goodwill is the 4% straight-line deduction - this requires an election, which will effectively let HMRC know that the company has acquired an intangible asset which is not being amortised. If the asset is not on the balance sheet then this election may get some scrutiny, but the definition of an intangible fixed asset for tax purposes isn't bound by the accounts (s713(3) CTA 2009).

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By halesir
04th Oct 2012 10:45


We are having interesting "discussions" with HMRC and Valuation Office iro purchased goodwill in the Care Home sector. This has been ongoing for several years now but seems no nearer conclusion. From conversations with individual Inspectors and Valuers it appears that HMRC are looking for a suitable test case but have so far been unsuccessful. What are other practioners experiences in such cases?  ,  H  experiences in such cas

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By tadek
07th Oct 2012 10:48

FRS 10

Dear Sir - i am a little confused as to which Financical Standard you refer to, is it International Financial Standard 10 [IFRS10] or a local UK financial standard ??? if a local financial stadard could you provide a reference to the domestic institute standard setting body - from International Subscriber

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10th Jul 2015 08:08

Acquire a company already had goodwill

Dear Sir,

Company A acquire Group B  which has 3 companies. As at June, Co A hold 90% shares in Group B and the interest in Group B increased to 100% in December. At the acquisition date, Group B had higher fair value and Company A bought in negative goodwill. The Company A reporting date is June.


I understand that the goodwill in the book of Group B will not show in Company A as at June. I try the line by line combine balance sheet item. How to eliminate goodwill line in Group B as at June?

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