When does goodwill arise on amalgamation? Comment on its amortization. How will you estimate the useful life of the goodwill? Differentiate goodwill and capital reserve as per AS-14.

Goodwill arising on amalgamation represents a payment made in anticipation of future income and 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 difficult to estimate its useful life, but estimation is done on a prudent basis. Accordingly, it should be appropriate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified. The following factors are to be taken into account in estimating the useful life of goodwill: the forcible life of the business or industry; the effects of product obsolescence, changes in demand and other economic factors; the service life expectancies of key individuals or groups of employees; expected actions by competitors or potential competitors; and legal, regulatory or contractual provisions affecting the useful life. Goodwill Vs. Capital reserve as per AS-14: Goodwill is the excess of the price paid in a purchase over the fair value of the net identifiable assets acquired. Capital reserve is the excess of the fair value (agreed value) of the net identifiable assets acquired over the purchase price.