Accounting for Goodwill is covered under which Accounting Standard:
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A key rule under AS 26 is that "Internally Generated Goodwill" should not be recognized as an asset. Only "Purchased Goodwill" appears on the Balance Sheet because a verifiable cost was incurred to acquire it.
Step 1: Understanding the Concept:
Accounting Standards are a set of principles, standards, and procedures that define the basis of financial accounting policies and practices.
Goodwill is an intangible asset that represents the value of a company’s reputation, customer base, and brand identity. Step 2: Detailed Explanation:
The Institute of Chartered Accountants of India (ICAI) issues specific standards for various assets and liabilities.
1. AS 26 (Intangible Assets): This standard explicitly prescribes the accounting treatment for intangible assets.
It states that Goodwill should be recognized in the books of accounts only when some consideration in money or money’s worth has been paid for it.
2. AS 3: Deals with Cash Flow Statements.
3. AS 4: Deals with Contingencies and Events Occurring After the Balance Sheet Date.
4. AS 27: Relates to Financial Reporting of Interests in Joint Ventures. Step 3: Final Answer:
Since Goodwill is an intangible asset, its accounting treatment is governed by AS 26.