Final answer:
Purchased goodwill is capitalized on the balance sheet but is not systematically amortized over a 60-month period under current accounting standards. Instead, it is either amortized over a longer period (10 years) by privately-held companies or subjected to annual impairment tests by public companies.
Step-by-step explanation:
When a company acquires another business, the excess amount paid over the fair market value of its net assets is recorded as purchased goodwill on the balance sheet. According to the generally accepted accounting principles (GAAP), purchased goodwill should indeed be capitalized; however, it is no longer amortized on a systematic basis over a certain period, as was the case in the past. Under Accounting Standards Update (ASU) 2014-02, which is a part of the Financial Accounting Standards Board (FASB) guidelines, privately-held companies may choose to amortize goodwill on a straight-line basis over a period of 10 years, or less if the company can demonstrate that another useful life is more appropriate.
For public companies and other entities that are required to follow the public business entity guidance, goodwill is not amortized but instead is tested for impairment at least annually. This means that companies must evaluate whether the value of goodwill has been diminished and record an impairment loss if necessary. The statement about a 60-month amortization period is outdated, as such a straightforward method of amortization no longer applies to goodwill accounting under current FASB standards.