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How do you amortize goodwill?

Author:
Harold Averkamp, CPA, MBA

Definition of Amortize Goodwill

Prior to 2001, to amortize goodwill meant to consistently and in uniform increments move the reported amount of the intangible asset goodwill from the balance sheet to the income statement over a period not to exceed 40 years.

In June 2001, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which ended the automatic amortization of goodwill to expense on the income statement.

Today, the amount of goodwill reported on the balance sheet must be reviewed annually to see if there is an impairment, and potentially record an impairment loss.

Private companies may opt to amortize goodwill generally over a 10-year period and thereby minimize the cost and complexity involved with testing for impairment.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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