GOODWILL - AN ACCOUNTING CONUNDRUM

Goodwill is often thought of as an abstract concept such as the "reputation of a firm", and often goes unnoticed in analysis of a company's finances. This single factor can be much more significant than many realize. Goodwill is not abstract but has a definitive monetary value which, as an investment, can be ascertained to the penny. It is the result of an acquisition which resulted in an excess in cost of acquisition above the revalued assets minus liabilities. Since its inception in the late nineteenth century, it has been debated. But M&A activity has been on the increase in recent years, and it may soon be impossible to ignore the impact goodwill may have both on the asset side of the balance sheet and the shareholder's equity. This paper argues that in the end, amortizing the goodwill to cycle it off the balance sheet, while not perfect, is probably better than keeping it on the balance sheet awaiting impairment. The question is therefore: Should goodwill be amortized, and how consistent ids this with current accounting practices?