Question

Which of the following observations concerning "goodwill" is NOT correct?

A) Once written down, it may be written up for recoveries.
B) It must be tested for impairment at least annually.
C) A goodwill impairment loss must be reported as a separate line item within income from continuing operations unless it relates to discontinued operations.
D) It must be reported as a separate line item in the balance sheet.

Answer 1

The incorrect observation about goodwill is that it must be reported as a separate line item in the balance sheet; instead, it is included within the 'Intangible assets' or 'Goodwill and Intangible assets' line item.

Step-by-step explanation:

The observation concerning goodwill that is NOT correct is D) It must be reported as a separate line item in the balance sheet. Goodwill is recognized as an intangible asset in the balance sheet, but it is not reported as a separate line item. Instead, it is included within a line item, often labeled as 'Intangible assets' or 'Goodwill and Intangible assets.' According to accounting standards, such as the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), the treatment of goodwill involves the following:

• Goodwill must be tested for impairment at least annually, or more frequently if there are indicators of impairment.
• A goodwill impairment loss must be reported as a separate line item within income from continuing operations, unless it relates to discontinued operations.
• Unlike other assets, once goodwill has been written down due to impairment, it cannot be written back up in subsequent periods.