Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

15. GAAP vs IFRS

GAAP vs. IFRS: Adjusting Entries

Financial Accounting

15. GAAP vs IFRS

GAAP vs. IFRS: Adjusting Entries

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Multiple Choice

According to GAAP, how is goodwill accounted for after its initial recognition?

Goodwill is amortized over a maximum period of 20 years.

Goodwill is expensed immediately in the year of acquisition.

Goodwill is revalued to fair value at each reporting date.

Goodwill is not amortized but is tested annually for impairment.

Verified step by step guidance

Understand the concept of goodwill: Goodwill is an intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets. It represents factors like brand reputation, customer relationships, and intellectual property.

Review GAAP guidelines for goodwill accounting: According to Generally Accepted Accounting Principles (GAAP), goodwill is not amortized over time. This differs from other intangible assets that may be amortized.

Learn about impairment testing: Instead of amortization, goodwill is tested annually for impairment. Impairment occurs when the carrying value of goodwill exceeds its recoverable amount, indicating a loss in value.

Understand the process of impairment testing: Companies compare the fair value of the reporting unit (or cash-generating unit) to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, an impairment loss is recognized.

Recognize the financial reporting implications: Any impairment loss is reported in the income statement as an expense, reducing the value of goodwill on the balance sheet. This ensures that the financial statements reflect the current value of goodwill.