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I need to get this straight in my head:
Goodwill is an intangible asset that is created on purchase (not internally generated)
Intangible assets with finite lives are amortised over that life
Intangible assets with an indefinite life should not be amortisedGoodwill recognised in a business combination should not be amortised
Does “business combination” always mean “consolidated accounts” as opposed to a company purchasing another company?
i.e. goodwill in consolidated accounts from one company having a stake in another is not amortised, but goodwill in the stand alone accounts resulting from one company acquiring another is (if it has a finite life)?Also I read that FRS 102 has stipulated that if the useful life of goodwill cannot be estimated reliably then it should be amortised over a life not exceeding 5 years – is there a similar provision in IAS 38?
Hi,
There is much debate about a business combination and most of the time we are looking at a subsidiary being acquired but it does also relate to the purchase of the trade and assets of an entity too. Wherever the goodwill arises from it will never be amortised, unless it is an SME and applying IFRS for SMEs.
No, FRS102 is totally separate to IAS38, so no requirement for amortisation,
Thanks
Aha, I see! IFRS for SMEs!
Now I get it, so, having taken a look, under IFRS for SMEs there IS provision to amortise goodwill and that if the useful life cannot be estimated reliably then amortisation cannot exceed 10 years.
Thanks very much for the pointer, I was beginning to wonder about why the UK was allowing amortisation when IFRS was not. Interesting that IFRS for SMEs does not have a size limit, just can’t be a public company, seems quite generous
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