Goodwill Must Be Amortized!
Nevada Corporation purchased Stardust Club for $2,000,000, which included $500,000 for goodwill. Nevada Corporation incurs large promotional and advertising expenses to maintain Stardust Club’s popularity. As the annual financial statements are being prepared, the CPA of Nevada Corporation, N. Ander Thal, insists that some of the goodwill be amortized against revenue. Thal received his accounting degree in 1971 and cites APB Opinion No. 17, which requires goodwill to be written off over a maximum life of 40 years. Marie Stevenson, Nevada Corporation’s controller, feels that amortization of the purchased goodwill in the same periods as heavy expenses are incurred to maintain the goodwill in effect creates a double charge against income of the period. Stevenson argues that no write off of goodwill is necessary and that goodwill has actually increased in value. In addition, Stevenson claims that current GAAP does not require goodwill to be amortized. Evaluate these two positions.