Business CombinationsMCQQuestion 5758 of 6
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What is the accounting treatment for goodwill arising from a business combination?

Options

AAmortize goodwill over its useful life
BImpair goodwill annually
CRecognize goodwill as a revenue item
DDeduct goodwill from equity
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Correct Answer

✅ Option B — Impair goodwill annually

All Options:

  • AAmortize goodwill over its useful life
  • BImpair goodwill annually ✓
  • CRecognize goodwill as a revenue item
  • DDeduct goodwill from equity

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Detailed Solution & Explanation

The accounting treatment for goodwill involves recognizing it as an asset and subjecting it to annual impairment testing. The impairment test involves comparing the carrying value of goodwill to its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use.
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Key Concepts to Understand

Combination

A selection of objects where order does not matter.

Goodwill

An intangible asset representing the good reputation, brand name, customer loyalty, and earning capacity of a business over and above its net tangible assets. It arises in accounting during partnership changes or business acquisitions.

More Questions from Business Combinations

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Explain the concept of control in the context of business combinations and its significance in determining the accounting treatment.

Discuss the provisions of Ind AS 103 relating to the accounting treatment for business combinations.

Analyze the impact of business combinations on the financial statements of the acquirer and the acquiree.

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