Definition
Goodwill is an intangible asset arising from a business acquisition, equal to the excess of the purchase price over the fair value of the identifiable net assets acquired. It represents the value of intangibles that cannot be separately identified: customer loyalty, reputation, assembled workforce, brand value not attributed to specific trademarks, and any synergies the buyer expects to extract from combining the acquired business with its own operations. Goodwill cannot be generated internally; only acquired.
What goodwill means in practice
For a bookkeeper, goodwill appears on the balance sheet only when the business has completed an acquisition. In the absence of acquisitions, goodwill is zero. When an acquisition happens, the bookkeeper records goodwill as part of the acquisition accounting: the purchase price is allocated across the acquired assets and liabilities at fair value; any residual is goodwill.
The accounting treatment after recognition depends on the framework. Under full IFRS (and the equivalents AASB, NZ IAS, SFRS(I), and CA IFRS-elected entities), goodwill is not amortised; instead it is tested for impairment annually. Under UK FRS 102 and Canadian ASPE (for private companies), goodwill is amortised over its useful life, capped at 10 years under FRS 102 where useful life cannot be estimated reliably.
A practical example: a UK SaaS business acquires a smaller competitor for 800,000 on 1 April 2026. The fair value of identifiable net assets is 450,000 (cash 50,000, AR 80,000, equipment 60,000, identifiable intangibles like customer lists 250,000, less AP 70,000). The remaining 350,000 is goodwill. Under FRS 102, the bookkeeper amortises the goodwill over 10 years: 35,000 per year. The customer-list intangible (with its own useful life of 5 years) amortises at 50,000 per year. Total annual amortisation from the acquisition: 85,000.
How goodwill works by country
United Kingdom
FRS 102 Section 19 requires goodwill to be amortised over useful life, capped at 10 years where life cannot be estimated reliably. Most UK SMBs on FRS 102 amortise goodwill over 10 years for this reason. Full IFRS (IAS 36) adopters do not amortise goodwill; impairment testing only. The Corporate Intangible Fixed Assets regime provides tax deduction for goodwill acquired after April 2002 (the deduction generally tracks the accounting amortisation).
Australia
AASB 3 Business Combinations and AASB 136 Impairment govern goodwill. Goodwill is not amortised under AASB; annual impairment testing applies. The tax treatment is the notable difference from the UK: goodwill acquired post-1985 is not deductible for income tax in Australia. The accounting amortisation (if any) is added back; no tax allowance replaces it.
Canada
ASPE Section 3064 (private companies) allows goodwill amortisation at the entity’s election. IAS 36 (public and IFRS adopters) requires impairment testing only. CRA’s Class 14.1 (5% declining balance) covers acquired goodwill for tax since 1 January 2017 (it replaced the Eligible Capital Expenditure regime). The half-year rule applies to first-year claims.
New Zealand
NZ IFRS 3 and NZ IAS 36 govern. Goodwill is not amortised; impairment testing only. The tax treatment: goodwill is not deductible for income tax in NZ. The accounting impairment write-down (if any) is added back in the income tax computation.
Singapore
SFRS(I) 3 and SFRS(I) 36 govern. Goodwill is not amortised; impairment testing only. The tax treatment: goodwill is not deductible for Singapore corporate tax. The accounting impairment write-down is added back in the corporate tax computation.
Related terms
Goodwill is one specific category of intangible asset:
- Intangible assets is the broader category goodwill belongs to.
- Amortization is the periodic expense for goodwill under FRS 102 and ASPE.
- Fixed assets is the wider category that includes both tangibles and intangibles.
- The balance sheet is where goodwill appears under non-current assets.
- Net profit is affected by goodwill amortisation or impairment write-downs.
See also
For the broader intangibles framework, see the intangible assets entry; for the amortisation mechanics, see amortization.
FAQ
See the answered questions above for how goodwill is created, amortise vs impair, and negative goodwill.