Question: Buildings, equipment, patents, databases, and the like all have costs that will be assigned to expense
over an expected life as they help generate revenues. Goodwill is a different type of asset. It either represents a
subsidiary attribute (such as customer loyalty) that is too nebulous to be recognized specifically as an intangible
asset or an extra payment made by the parent as a result of the negotiation process. What happens to a cost
labeled as goodwill after the date a subsidiary is acquired? How does Microsoft or Yahoo! account for their
large goodwill balances over time? Is this asset like land that simply continues to be reported at historical cost
potentially forever or, possibly, like equipment that is depreciated systematically over some anticipated useful life?
Answer: Because goodwill is the one asset on a balance sheet that is not tied to an identifiable benefit, no attempt
is made to determine an anticipated life. Consequently, unlike most intangibles, the assigned cost is not amortized
to expense. A goodwill balance can remain unchanged for decades after a subsidiary is purchased. However, the
reported figure is reduced immediately if the value is ever judged to be impaired. Attributes such as customer
loyalty or a talented workforce might continue in place for years or disappear in a short period of time. If goodwill
is merely a premium paid to acquire a subsidiary, the justification for that excess amount could vanish quickly
through poor management decisions or environmental factors. The value of all assets is tentative but probably
none is more so than goodwill.