Questions: True or false: Goodwill acquired in a business combination is amortized over its estimated service life. False

The answer is False: Goodwill acquired in a business combination is amortized over its estimated service life.

Explanation: 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. According to generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), goodwill is not amortized. Instead, it is tested annually for impairment. This means that companies must review the value of goodwill each year to determine if it has decreased. If the value has decreased, an impairment loss is recorded, which reduces the carrying amount of goodwill on the balance sheet.

Here’s a brief explanation of why the other option is incorrect:

• True: This option is incorrect because, under current accounting standards, goodwill is not amortized over its estimated service life. Instead, it is subject to annual impairment testing.