Treatment of goodwill during conversion

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Suppose there was an LLP with a loss. We converted that LLP into a pvt ltd company and took over the loss as goodwill. Which is now sitting in our balance sheet as an asset. What is the subsequent treatment of this? 

1. Can this goodwill be depreciated and is it eligible for income tax depreciation? if yes for how many years?

2. Or can this goodwill be written off to P&L

Replies (2)

Goodwill is not eligible for depreciation as per the Indian Income Tax Act. However, it can be amortized over a period of time not exceeding five years for accounting purposes as per the Companies Act, 2013. The amount of amortization is usually determined based on the expected useful life of the asset, which could be shorter than five years in some cases.

Goodwill can also be written off to the profit and loss account (P&L) if it is determined that the asset has become impaired, i.e., its carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use. If the recoverable amount is less than the carrying amount of the goodwill, then the difference is recognized as an impairment loss in the P&L account.

But isn't there an exception because so a case law where goodwill arising out of amalagamation/acquisition is eligible for depreciation?


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