How is goodwill treated under UK GAAP?

Goodwill is an intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets. Under UK Generally Accepted Accounting Practice (UK GAAP), goodwill is treated with specific emphasis on its ongoing valuation and reporting.

The correct treatment is that goodwill is amortized over its estimated useful life. This means that instead of being recognized as a permanent asset, the value of goodwill is systematically reduced over a specified period. This amortization reflects the consumption of the economic benefits associated with goodwill, which may diminish over time due to various factors such as changes in the market or within the acquired entity itself.

Amortizing goodwill aligns with the principle of matching expenses with revenues, allowing companies to recognize the expense associated with the acquisition in their profit and loss statements over the period that the goodwill is expected to contribute to generating revenue. This contrasts with the treatment of some other intangible assets, which may be subject to different amortization periods or even indefinite lives depending on their characteristics.

The other options do not accurately reflect the treatment of goodwill under UK GAAP. While impairment reviews are necessary for all intangible assets, the specific protocol for goodwill is the regular amortization, thereby ensuring that any potential decline in value is proactively addressed through systematic expense