Question

What is meant by Purchased Goodwill?

Answer 1

Purchased Goodwill arises when one business buys another business and the purchase consideration paid is more than the value of net tangible assets received. It can never exist in a new business except by purchase. The purchased goodwill is shown on the assets side of the balance sheet. AS-10 provides that only purchased goodwill should be shown in the books of accounts. Price paid for the goodwill purchased depends upon the purchaser's expectations of future profits.