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As explained within the Chapter 8, intangible asset, Australian accounting standards now prohibit goodwill from being subject to amortisation.
As explained within the Chapter 8, intangible asset, Australian accounting standards now prohibit goodwill from being subject to amortisation. Rather, there is a requirement that goodwill be subject to impairment testing. In relation to impairment testing of goodwill, Petersen and Plenborg (2010, p.420) state:
Many argue that an impairment test only approach seems a logical step in the development of accounting for goodwill. First, the underlying logic for removing the traditional amortization methodology is that the amortization on a straight-line basis over a number of years contains no information value for those using financial statements (Jennings et al., 2001). Moreover, IFRS 3 (IASB, 2004b) no longer requires that companies perform the almost impossible task of estimating the useful life of goodwill (Jansson et al. 2004). Second, the impairment approach should provide users of financial statements with better information, as goodwill is not automatically amortized (Colquitt and Wilson, 2002; Bens and Heltzer, 2005). Finally, goodwill impairment tests would be operational and capture a decline in the value of goodwill (Donnelly and Keys, 2002).
