Which statement best describes Goodwill after an acquisition?

Goodwill represents the premium that a company pays over the fair value of the net identifiable assets of a business during an acquisition. It reflects intangible assets such as brand reputation, customer relationships, and synergies expected from the acquisition.

The correct answer indicates that goodwill is usually reassessed for impairment periodically, which is essential for accurate financial reporting. Companies must review goodwill at least annually or more frequently if there are indicators that its value may have declined. Impairment occurs when the carrying amount of goodwill exceeds its fair value, prompting a write-down that must be reflected in the financial statements. This reassessment ensures that the goodwill on the balance sheet accurately represents its current value, given that it does not have a finite life.

In contrast, goodwill does not typically increase over time; rather, it remains static until impairments occur or a new acquisition happens. It also does not have a direct correlation to cash flows, as goodwill is an accounting measure rather than a cash-generating asset. Additionally, goodwill is classified as an intangible asset, located on the asset side of the balance sheet, not in current liabilities. Thus, the notion of periodic reassessment for impairment is critical to accurate accounting and reflects the importance of monitoring the value of acquired intangibles.