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    Does elimination of the amortization of goodwill make sense

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    Does the elimination of the amortization of goodwill make sense to you?

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    Hi there,

    Here is some information for you regarding the amortization of goodwill:

    The purchase method of accounting for M&A requires that one company be the buyer and the other company be the seller. The excess of the purchase price over the seller's book value is called "goodwill." The goodwill has to be amortized or charged against earnings over a period of years instead of being all charged against earnings in the year of the M&A transaction that created the goodwill. This effectively converts the stock of goodwill into an annual flow of charges against earnings over a number of years.

    In 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141 and 142 regarding accounting for business combinations and intangible assets. The new rules prohibit the pooling of interests method of accounting and eliminate goodwill amortization.

    Under the new rules, goodwill will remain on the balance sheet but must be tested at least annually for impairment in a two-step process. Companies must allocate intangibles and goodwill to each reporting ...