Why we show goodwill in balance sheet ?

Goodwill normally arises in the business combination i.e only when the purchase consideration (payable in cash or otherwise)is more than the fair value of the identifiable assets and liabilites.

Goodwill in business combination basically represents the synergies of benefits which acquirer will obtain from the business of the acquiree. In absence of these synergies such goodwill needs to impaired immediately. Thus, goodwill is recognised as it paid in cash or otherwise by the acquirer.There is no way to link this with the principle of conservatism.

Accordingly, accounting standard doesnt allow recognition of self generated goodwill.

Hope the above explanation clears your doubt.

Thanks

Can you please Explain me the Meaning of this line " In absence of these synergies such goodwill needs to impaired immediately"

And Thankx for such a nice answer!!

As Sachin said no self generated  goodwill can appear in balance sheet,only purchased goodwill can appear in balance sheet, if we dont show good will then also it will not create a problem as to matching concept it will be having impact on disclosure concept

"In absence of these synergies such a goodwill needs to be impaired immediately" -

Normally in a business combination, the valuation of the acquiree is done based on certain assumptions about the future. These assumptions sometimes may not turn out to be true as we go forward in business. Accordingly the syngeries expected from the business combinations may not materialise in future.

In these circumstances goodwill paid and recognised at the time of business combination must be impaired immediately.

Hope it will be clear to u.

Thanks

Ok last quetion , Can a Company create Goodwill using Advetisments ??

and What are Basis to write off Goodwill ??

Well self generated goodwill is not permitted by accounting standards. Please check the indian accounting standard or International accounting standard 26 for indicators (external indicators and internal indicators) of impairment.

Thanks