Goodwill, research and development and derecognition

In this lesson

1. 0:00 Introduction to Goodwill
2. 0:28 Purchased versus Internally Generated Goodwill
3. 2:01 Goodwill Summary and Impairment Testing
4. 3:13 Research and Development Distinction
5. 4:13 Development Capitalisation Criteria
6. 6:23 R&D Project Accounting Example
7. 8:51 Derecognition of Intangible Assets

About this lesson

This lesson covers the critical distinction between purchased and internally generated goodwill, the PIRATE criteria for capitalising development costs, and the derecognition process — all essential for Financial Reporting and Strategic Business Reporting papers. By mastering these concepts, you'll confidently handle intangible asset recognition and avoid costly exam mistakes on consolidation and asset valuation questions. Goodwill is the premium you pay when acquiring a company above the value of its separable net assets. Only purchased goodwill is recognised in group accounts; internally generated goodwill is never capitalised because its value cannot be reliably measured until a business combination occurs. Purchased goodwill is not amortised but must be tested annually for impairment — a key distinction from other intangibles. Research and development is the only internally generated intangible you can recognise as an asset. Research (acquiring knowledge) is always expensed; development (applying knowledge to create new products or processes) is capitalised only if it meets all six PIRATE criteria: probable future benefit, intention to complete, reliable cost measurement, adequate resources, technical feasibility, and expected profitability. If any criterion fails, development costs are written off as expenses. Derecognition removes an intangible from your balance sheet on disposal or when no future benefits are expected. The gain or loss on derecognition equals proceeds minus carrying amount. If the intangible was previously revalued, you must also remove the revaluation surplus by debiting it to retained earnings — the same process you'd use for property, plant and equipment.

Duration: 10m