Accounting for Excess Purchase Price: Goodwill or Expense? Instructional Issues

Abstract

The current trend of accounting for excess purchase price that relates to intangible items not identified as separate assets, in a business acquisition, is to account for it either by expensing or capitalizing it. Even though current standards suggest that companies capitalize the excess as goodwill, in many instances, the current practice is to expense it. In this article, we discuss the issue as an example of how accounting is being challenged constantly by unique and sometimes very aggressive accounting policies for managing net income by management. The example also gives instructors an opportunity to incorporate several issues related to accounting policy, accounting alternatives, and subjective judgment into their financial accounting courses.