What characterizes goodwill in terms of accounting?

Goodwill is defined as an intangible asset that arises when a company acquires another business and pays a premium over the fair market value of the identifiable net assets acquired. This premium reflects factors such as brand reputation, customer relationships, and proprietary technology.

The correct characterization of goodwill is that it is only reduced during impairment or acquisition. Goodwill does not get amortized over time like other intangible assets; instead, it remains on the balance sheet indefinitely unless it undergoes an impairment testing process that could lead to a reduction in its value. Under U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), goodwill is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that it might be impaired.

In contrast, goodwill is not reported at market value; it reflects the price paid for acquisition above the fair value of identifiable assets and liabilities rather than fluctuating with market conditions. Additionally, goodwill is not a physical asset, as it does not have a tangible form like property or equipment, thus it's categorized as an intangible asset on the balance sheet.