FRS 10 Goodwill and Intangible Assets

FRS 10 (December 1997) (PDF)

FRS 10 was effective for accounting periods ending on or after 23 December 1998. It was withdrawn for accounting periods beginning on or after 1 January 2015, when FRS 102 became effective. ​

The objective of FRS 10 is to ensure that purchased goodwill and intangible assets are charged to the profit and loss account (income statement) in the periods in which they are depleted.

The standard takes the view that goodwill arising on an acquisition (ie, the cost of acquisition less the aggregate of the fair value of the purchased entity's identifiable assets and liabilities) is neither an asset like other assets nor an immediate loss in value. Rather, it forms a bridge between the cost of an investment shown as an asset in the acquirer's own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements. Although purchased goodwill is not in itself an asset, its inclusion amongst the assets of the reporting entity, rather than as a deduction from shareholders' equity, recognises that goodwill is part of a larger asset, the investment, for which management remains accountable.

An intangible item may meet the definition of an asset when access to the future economic benefits that it represents is controlled by the reporting entity, whether through custody or legal protection. However, intangible assets fall into a spectrum ranging from those that can readily be identified and measured separately from goodwill to those that are essentially very similar to goodwill. The basic principles set out in the standard for accounting for intangible assets that are similar in nature to goodwill are therefore closely aligned with those set out for goodwill.

The standard requires purchased goodwill and certain intangible assets to be capitalised and, in most circumstances, to be amortised systematically through the profit and loss account (usually over 20 years or less). Impairment reviews must be undertaken, particularly if the goodwill or intangible asset is regarded as having an infinite life and is therefore not being amortised. Internally generated goodwill should not be capitalised and internally developed intangible assets should be capitalised only where they have a readily ascertainable market value.