Treatment of Goodwill Arising on Amalgamation as per AS 14

Treatment of Goodwill Arising on Amalgamation

Goodwill arising on amalgamation represents a payment made in anticipation of future income and it is appropriate to treat it as an asset to be amortised to income on a systematic basis over its useful life. Due to the nature of goodwill, it is frequently difficult to estimate its useful life with reasonable certainty. Such estimation is, therefore, made on a prudent basis. Accordingly, it is considered appropriate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified.

Factors which may be considered in estimating the useful life of goodwill arising on amalgamation include:

(a) the foreseeable life of the business or industry;

(b) the effects of product obsolescence, changes in demand and other economic factors;

 (c) the service life expectancies of key individuals or groups of employees;

 (d) expected actions by competitors or potential competitors; and

(e) legal, regulatory or contractual provisions affecting the useful life

Priyansh Minocha

Priyansh Minocha is C.E.O and Director at Amonest India Private Limited and Founder at Casolutionsglobal

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