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Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts?
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Why accounting standard 26 (AS 26) specified that self generated goodw...
Accounting Standard 26 (AS 26) and Self-Generated Goodwill
Accounting Standard 26 (AS 26) deals with the accounting and valuation of intangible assets. According to this accounting standard, self-generated goodwill is not recognized as an asset and is not recorded in the books of accounts. This means that a company cannot record the value of its own goodwill in its financial statements.
What is Self-Generated Goodwill?
Self-generated goodwill is the goodwill that is created by a company's own efforts, such as its reputation, customer base, and brand recognition. It is not acquired through a merger or acquisition, but rather through the company's own business operations. Self-generated goodwill is considered to be an intangible asset because it is not a physical asset and cannot be touched or seen.
Why is Self-Generated Goodwill Not Recognized as an Asset?
AS 26 specifies that self-generated goodwill is not recognized as an asset because it is difficult to measure its value accurately. The value of goodwill is based on the expectation of future profits, and it is difficult to predict future profits accurately. Therefore, the accounting standard requires that self-generated goodwill is not recorded in the books of accounts.
Additionally, if self-generated goodwill is recognized as an asset, it would lead to inconsistency in financial reporting. Different companies may value their goodwill differently, and it would be difficult to compare the financial statements of companies that have recognized self-generated goodwill as an asset.
Exceptions to the Rule
There are some exceptions to the rule that self-generated goodwill is not recognized as an asset. For example, if a company acquires another company, the goodwill that is acquired in the acquisition is recognized as an asset. Additionally, if a company has purchased a trademark or patent, the value of the trademark or patent is recognized as an asset.
Conclusion
In conclusion, AS 26 specifies that self-generated goodwill is not recognized as an asset and is not recorded in the books of accounts. This is because it is difficult to measure the value of self-generated goodwill accurately and recognizing it as an asset would lead to inconsistency in financial reporting. However, there are some exceptions to the rule, such as when a company acquires another company or purchases a trademark or patent.
Community Answer
Why accounting standard 26 (AS 26) specified that self generated goodw...
Because books of accounts records only those things for which money or money's worth paid,,, and in this case nothing is paid by firm
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Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts?
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Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts?.
Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why accounting standard 26 (AS 26) specified that self generated goodwill is not recognised as an assets ,ie not recorded in the book of accounts?.
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