Question

Goodwill recovery differs between GAAP and tax rules in that GAAP requires corporations to (amortize/impair) goodwill whereas tax law requires corporations to (amortize/impair) goodwill. True or false?

Answer 1

Answer:

Impair and Amortize respectively.

Explanation:

Goodwill is the excess of purchase price over the fair market value of a company’s net assets.

A challenge of goodwill accounting is that it's treated differently under tax accounting and another under GAAP accounting.

Any goodwill created in an acquisition structured as an asset sales is tax deductible and amortizable over 15 years along with other intangible assets that fall under IRC section 197.

Under GAAP accounting, goodwill is not amortized but rather tested annually for impairment regardless of whether the acquisition is an asset/338 or stock sale.