Measuring and recognizing the nature of goodwill

The nature of goodwill is ill understood, making it difficult to determine appropriate accounting measurement methods. Examining the use of historical cost, market price, and net present value as measurement methods, this review highlights pitfalls in determining the correct value of goodwill in financial statements for accurate profit measurement. The paper demonstrates that the use of market value as proxy for fair value determination of goodwill value for recognition in financial statements is more a convenience for verification to establish social order rather than a measure of the accurate economic worth of goodwill.