• The depreciable amount of an intangible asset should be allocated on a systematic basis over its estimated useful life. (known as amortisation)
• Amortisation should commence when the asset is available for use.
• Estimation of the useful life of an intangible asset generally becomes less reliable as the length of the useful life increases. Therefore as per AS-26 adopts the presumption that the useful life of an intangible asset is unlikely to exceed ten years.
• Therefore goodwill is amortised over maximum of 10 year.
• A variety of amortisation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life.
• These method includes the straight line method, reducing balance method, unit of production method.
• Goodwill arising on business purchases represents the payment made in anticipation of future income.
• It is appropriate to treat it as an asset to be amortised to income on a systematic basis over its useful life.
• Due to nature of goodwill, it is considered appropriate to amortise goodwill over period not exceeding 5 years unless somewhat longer period can be justified. (AS-14)

Example

Goodwill  10 Crs
    Say, company expects that during next 4 years such goodwill should be written off as per     straight line method.
    Therefore, amortisation of goodwill will be 2.5 lakhs per year.