ExpertEasy2 marksMultiple Choice
ACCA · Question 33 · Recording Transactions: Intangible Assets
Section A
Which of the following best describes the accounting treatment for internally generated goodwill?
Section A
Which of the following best describes the accounting treatment for internally generated goodwill?
Answer options:
A.
It is capitalized and amortized over its useful economic life.
B.
It is capitalized and tested annually for impairment.
C.
It cannot be capitalized as an intangible asset.
D.
It is recognized in other comprehensive income.
How to approach this question
Recall the rules of IAS 38 regarding internally generated assets. Goodwill cannot be reliably measured or separated from the business, so it cannot be recognized.
Full Answer
C.It cannot be capitalized as an intangible asset.✓ Correct
IAS 38 Intangible Assets explicitly prohibits the recognition of internally generated goodwill. This is because it is not an identifiable resource controlled by the entity that can be measured reliably at cost. Only purchased goodwill (arising on consolidation) is recognized.
Common mistakes
Confusing internally generated goodwill with purchased goodwill (which is capitalized and tested for impairment).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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