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Accounting Test Time - Valuation of Goodwill 1 - Class 12, Acountancy Video Lecture - Commerce
FAQs on Accounting Test Time - Valuation of Goodwill 1 - Class 12, Acountancy Video Lecture - Commerce
| 1. What is goodwill in accounting? |  |
Ans. Goodwill in accounting refers to the intangible asset that represents the reputation, customer base, and brand value of a company. It is the difference between the purchase price of a company and the fair value of its identifiable net assets.
| 2. How is goodwill calculated? | |
Ans. Goodwill is calculated by subtracting the fair value of a company's identifiable net assets from the purchase price paid for the company. It is important to note that goodwill can only be recognized when an acquisition takes place.
| 3. Can goodwill have a negative value? | |
Ans. Yes, goodwill can have a negative value. This occurs when the purchase price paid for a company is less than the fair value of its identifiable net assets. In such cases, the negative goodwill is recognized as a gain in the acquirer's financial statements.
| 4. How is goodwill tested for impairment? | |
Ans. Goodwill is tested for impairment annually or whenever there is an indication of potential impairment. The impairment test involves comparing the carrying amount of the reporting unit (including goodwill) with its fair value. If the carrying amount exceeds the fair value, impairment is recognized.
| 5. Can goodwill be amortized? | |
Ans. No, goodwill cannot be amortized. Instead, it is subject to an annual impairment test to assess whether its carrying amount exceeds its fair value. If impairment is identified, the carrying amount of goodwill is reduced accordingly. Amortization is only applicable to certain intangible assets with finite useful lives.
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