Question

Accounting for Goodwill is covered under which Accounting Standard:

• A. AS 26
• B. AS 3
• C. AS 4
• D. AS 27

Hint:

A key rule under AS 26 is that "Internally Generated Goodwill" should not be recognized as an asset. Only "Purchased Goodwill" appears on the Balance Sheet because a verifiable cost was incurred to acquire it.

Answer 1

The Correct Option is A

Concept: Accounting Standards are issued to ensure transparency, reliability, and consistency in financial reporting. Goodwill is classified as an intangible asset, as it lacks physical substance but provides long-term economic value to a firm.

Step 1: Identify the relevant Accounting Standard for intangible assets.
The question seeks the specific standard governing Goodwill.
• AS 26 (Intangible Assets): This standard specifically prescribes the accounting treatment for all intangible assets, including Goodwill. It dictates that Goodwill should only be recognized in the books of accounts when some consideration in money or money’s worth has been paid for it (e.g., during the purchase of a business).
• Other Standards: AS 3 covers Cash Flow Statements, AS 4 deals with Contingencies and Events Occurring After the Balance Sheet Date, and AS 27 relates to Financial Reporting of Interests in Joint Ventures. Since Goodwill falls under the definition of an intangible asset, its accounting treatment is governed strictly by AS 26.