Financial Accounting · Intangible non-current assets and amortisation

Purchased Goodwill and Other Intangibles in ACCA FA

Updated 11 October 2026 · Fact-checked

Purchased goodwill is the amount paid for a business above the fair value of its identifiable net assets. It is recognised as an intangible asset only when bought. Internally generated goodwill and brands are never recognised. Purchased goodwill is not amortised but tested yearly for impairment, and impairment losses are never reversed.

Understand Purchased Goodwill and Other Intangibles

Goodwill is the extra value a business has beyond its separate assets and liabilities. It comes from things like reputation, customer loyalty, skilled staff and location. You cannot identify or sell these things separately from the business.

Purchased goodwill arises when you buy a business. You pay a price. You compare it with the fair value of the identifiable net assets you receive. If you pay more, the difference is goodwill. It is recognised as a non-current intangible asset because a transaction has given it a reliable cost.

Internally generated goodwill is the value a business builds up itself. IAS 38 does not allow it to be recognised. There is no objective cost, and it cannot be separated from the business. The same applies to internally generated brands, mastheads, publishing titles, customer lists and similar items. Their cost cannot be distinguished from the cost of developing the business as a whole. The spending is written off to profit or loss as incurred. A brand that you buy from another party can be recognised at cost.

As ACCA examines it, purchased goodwill is not amortised. Instead it is tested for impairment at least every year (IAS 36). If its recoverable amount falls below its carrying amount, you write it down and charge the loss to profit or loss. An impairment loss on goodwill can never be reversed later. Other intangibles with a finite life are amortised over their useful life.

When a business is sold, goodwill is part of what is disposed of. Any gain or loss is the proceeds less the carrying amount, shown in profit or loss. Goodwill in the statement of financial position stays at cost less impairment, so its carrying amount can only fall.

Key formulas to remember

Purchased goodwill: Goodwill = Consideration paid − Fair value of identifiable net assets acquired; Net assets means identifiable assets less liabilities, all at fair value, not book value. A positive result is goodwill.
Carrying amount of goodwill: Carrying amount = Cost − Accumulated impairment losses; No amortisation is charged on goodwill.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount (if carrying amount is higher); Recoverable amount is the higher of fair value less costs of disposal and value in use.
Gain or loss on disposal: Gain or loss = Proceeds − Carrying amount; Shown in profit or loss, not in revenue.
Recognition rule: Purchased goodwill: recognise. Internally generated goodwill and brands: do not recognise.; Spending on internal goodwill and brands is an expense when incurred.

How to solve Purchased Goodwill and Other Intangibles questions

Use this method for any calculation or theory question on purchased goodwill and intangibles.

1Decide if the item was purchased or generated internally. Internal goodwill and brands: stop, nothing is capitalised.
2Find the consideration paid. Include only the price for the business, not unrelated costs.
3Find the fair value of the identifiable net assets. Use fair values given, not book values. Subtract liabilities taken over.
4Calculate goodwill as consideration minus net assets at fair value.
5Check for impairment. Compare carrying amount with recoverable amount. Write down any shortfall.
6Do not amortise goodwill. Amortise other finite-life intangibles over their useful life.
7Record the double entry: Dr Goodwill, Cr Cash on purchase; Dr Impairment expense, Cr Goodwill on impairment.
8On disposal, remove the carrying amount and report the gain or loss in profit or loss.

Quickest way: Three-question shortcut

When to use it: Use this for multiple choice and number entry questions where time is short.

Ask: was it bought? If not, the answer is zero capitalised.
Ask: is it goodwill? If yes, no amortisation, only impairment.
Compute price minus fair value of net assets. Then subtract any impairment to get the carrying amount.
Scan the options. Reject any that use book values or include amortisation of goodwill.

Common mistakes in Purchased Goodwill and Other Intangibles

Capitalising an internally generated brand because it is clearly valuable.
Students think value means asset. IAS 38 needs a reliable cost that can be separated from the business.
Fix: Remember that only purchased brands are recognised. Internal brand spending goes to profit or loss.
Amortising purchased goodwill.
Students apply the rule for other intangibles to all intangibles.
Fix: Goodwill is tested for impairment only. No annual amortisation charge.
Using book value of net assets instead of fair value.
The statement of financial position figures are easier to spot.
Fix: Use the fair values given. Adjust for any revalued assets before you subtract.
Reversing an impairment of goodwill when values recover.
Students remember reversals for other assets.
Fix: Goodwill impairment is never reversed.
Forgetting to deduct liabilities when finding net assets.
Students add up assets and stop.
Fix: Net assets are assets minus liabilities, all at fair value.
Putting an impairment loss in other comprehensive income or in equity.
Confusion with revaluation surplus.
Fix: Goodwill impairment is an expense in profit or loss.

Worked examples

Example 1

Alpha buys the business of Beta for $500,000. Beta's identifiable assets have a fair value of $620,000 and its liabilities have a fair value of $200,000. Calculate the goodwill and state how it is treated at the year end if it is not impaired.

Show the solution

Net assets at fair value = $620,000 − $200,000 = $420,000.
Goodwill = $500,000 − $420,000 = $80,000.
Goodwill is recognised as an intangible non-current asset.
No amortisation is charged. It stays at $80,000 if the impairment review shows no loss.

Answer: Goodwill is $80,000, carried at cost with no amortisation.

Example 2

Using the goodwill of $80,000 above, at the next year end its recoverable amount is $65,000. Calculate the impairment loss and the carrying amount. Also, Alpha spent $30,000 on advertising to build its own brand. State the treatment.

Show the solution

Carrying amount before test = $80,000.
Recoverable amount = $65,000, which is lower.
Impairment loss = $80,000 − $65,000 = $15,000, charged to profit or loss.
New carrying amount = $65,000.
The $30,000 spent on the internally generated brand cannot be capitalised, so it is expensed in profit or loss.

Answer: Impairment loss $15,000; goodwill carrying amount $65,000; brand spending of $30,000 is an expense.

Exam tips

Look for the word purchased. It decides whether you recognise anything.
In multiple response questions, pick the statements that say goodwill is not amortised and impairment is not reversed.
Check whether net assets are given at book or fair value. Use fair value.
For number entry, show the subtraction in your head: price, then net assets, then impairment.
Do not confuse this with research and development, where a development cost can be capitalised if criteria are met.

Practice questions from Intangible non-current assets and amortisation

Purchased Goodwill and Other Intangibles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsPurchased Goodwill and Other Acquired Intangibles

Purchased Goodwill and Other Intangibles: frequently asked questions

Why can't internally generated brands be capitalised under IAS 38?

Their cost cannot be reliably separated from the cost of developing the business as a whole. There is also no objective transaction to measure value. So the spending is expensed when incurred.

What is the difference between purchased and internally generated goodwill?

Purchased goodwill arises when you buy a business and pay more than the fair value of its net assets. Internally generated goodwill builds up over time inside a business. Only the purchased kind is recognised.

Is purchased goodwill amortised in ACCA FA?

No. It is tested for impairment at least annually. Any impairment loss is charged to profit or loss and cannot be reversed.

How do I calculate goodwill in ACCA FA?

Take the consideration paid and subtract the fair value of the identifiable net assets acquired. A positive answer is goodwill. Then deduct any impairment to get the carrying amount.