Goodwill
Goodwill is the excess paid to acquire a business over the fair value of its identifiable net assets, reflecting unrecorded value such as reputation and customer loyalty; it is subject to annual impairment testing rather than amortisation.
What it is
See it move
AquaTech pays €8.5m to acquire a rival whose identifiable net assets are worth €7.0m at fair value — assets of €10.0m less liabilities of €3.0m. The €1.5m difference is goodwill, recognised as an intangible asset on the consolidated balance sheet. It is not amortised; instead it is reviewed annually for impairment, and any write-down cannot later be reversed.
The formula
Variables
- total consideration paid to acquire the business (€)
- fair value of acquired identifiable assets minus fair value of assumed liabilities at the acquisition date (€)
Goodwill is not amortised under IFRS or US GAAP; it is tested for impairment at least annually and written down if its recoverable amount falls below its carrying value.
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB treats acquired goodwill as a wasting asset with a finite life. The excess paid over the fair value of the net assets obtained is capitalised and then written off through planned amortisation across the years over which it is expected to benefit the business. Where a reliable useful life cannot be estimated, the Commercial Code falls back on a default write-off over ten years, so the balance sheet figure declines steadily and predictably regardless of how the acquired business actually performs.
IFRS
IFRS takes the opposite view: under IFRS 3 acquired goodwill is not amortised at all. Instead it sits on the balance sheet at cost and is tested for impairment at least once a year under IAS 36, and more often if events suggest its value has fallen. The carrying amount therefore stays flat until an impairment test forces a write-down, which tends to arrive later and in larger, lumpier amounts than the smooth annual charge an HGB entity would report.
FR · PCGWhere national-GAAP intuition diverges from the international standard
PCG (French)
French rules land between the two. Acquired goodwill is amortised when its useful life can be identified as limited; when management judges the life to be indefinite, no amortisation is charged and the asset is instead tested for loss in value. A ten-year period is used as a practical default where a limited life exists but cannot be measured reliably, so many French entities still report a regular amortisation charge that an IFRS reporter would not.
IFRS
Under IFRS the question of a finite or indefinite life does not arise for goodwill, because goodwill is never amortised. The only mechanism that reduces its carrying amount is the annual impairment test of IAS 36, making the IFRS profit charge event-driven rather than time-driven.
Edlintics’ own explanatory summary — not official IFRS Foundation or national standard-setter guidance.