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How do I verify the Goodwill appearing in the b...

How do I verify the Goodwill appearing in the books of the company I am auditing?

How do I verify the Goodwill appearing in the books of the company I am auditing?

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Chiranjibi Chapagain Mar. 09, 2018

Goodwill arises from business connections, trade name or reputation of an enterprise. AS 26, “Intangible Assets”, states that internally generated goodwill is not to be recognised as an asset, as it is not an identifiable resource controlled by the enterprise that can be measured reliably at cost. As per AS 10, “Accounting for Fixed Assets”, goodwill should be recorded in the books, only when some consideration in money or money’s worth has been paid for it. In light of the above discussions, the following points are to be noted for verification of goodwill-

  • Examine the vendors’ agreement on the basis of which assets of the running business have been acquired by the company as per the books of account or a specific amount has been paid for the goodwill.
  • Ensure that whenever business is acquired at a price, payable in cash or otherwise, which is in excess of the value of net assets taken over, such excess amount is the goodwill.
  • Ensure that only the amount paid to the vendors not represented by tangible or intangible assets, the value of which can be measured reliably has been debited to goodwill account.
  • See that goodwill has not been shown in the company’s books by writing up the value of its assets, on revaluation, or by writing back the amount of goodwill earlier written off.
  • Ensure that the goodwill not yet written off has been properly disclosed as per Schedule III requirements.
  • See that the goodwill is being amortised as per financial prudence over a reasonable period.

How do I verify the Goodwill appearing in the books of the company I am auditing?

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