Robinson Company purchased Franklin Company at a price of $2,500,000. The fair market value of the net assets purchased equals $1,800,000. 1. What is the amount of goodwill that Robinson records at the purchase date? 2. Does Robinson amortize goodwill at year-end? 3. Robinson believes that its employees provide superior customer service, and through their efforts, Robinson believes it has created $900,000 of goodwill. Should Robinson Company record this goodwill?

Goodwill is defined as the excess in amount of the purchase price of a company over the fair value at acquisition. It is intangible in nature, meaning it can not be physically separated from the other assets. Example are patent, brand name, good employee relation.

1.

Goodwill calculation

Purchase price - $2,500,000

Fair value - $1,800,000

Goodwill - $700,000

2.

No

Under the IAS 36, impairment of assets, goodwill is not amortized but annually tested for impairment as amortization is applicable to intangible assets with a definite useful life while intangible assets with indefinite useful life are annually tested for impairment to evaluate a loss in value experienced.

3

No

Under IAS 38, Internally generated goodwill are not recognized as no related cost is incurred towards achieving a future benefit