The rationale for accounting for goodwill

Abstract

This paper discusses the basis for accounting for goodwill on acquisitions in the UK under the assumption that a primary purpose of financial statements is to monitor and motivate the financial performance of management. It establishes a case against the immediate write-off of goodwill to reserves and in favour of the capitalisation and amortisation of purchased goodwill. As the limited objective of the analysis is the improvement of current practice, the argument proceeds by reference to historical cost accounting.