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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

Which of the following correctly describes the accounting for goodwill and amortisation under IFRS in the consolidated financial statements?

Under IFRS, purchased goodwill is not amortised. Instead it is reviewed for impairment at least once a year, and any impairment loss is recognised in profit or loss. Amortising it over a fixed period or writing it off to reserves is not allowed.

  1. APurchased goodwill is amortised over a maximum of 20 years
  2. BPurchased goodwill is not amortised but is tested annually for impairmentCorrect
  3. CPurchased goodwill is amortised over its useful life and also tested annually for impairment
  4. DPurchased goodwill is written off to retained earnings on acquisition

Explanation

Under IFRS 3 and IAS 36, goodwill has an indefinite life for accounting purposes and is not amortised. It is tested for impairment at least annually. Amortising it over a set period is not permitted.

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