Abstract
Accounting for business combinations and goodwill has been placed on the list of current issues of the Financial Accounting Standards Board (FASB). There are 2 basic views of goodwill. Goodwill can represent: 1. an above-normal earnings capacity, or 2. various assets of the acquired firm that currently are not disclosed in its balance sheet. However, neither of these 2 views is likely to result in the complete elimination of goodwill, because the interaction of its components results in synergism. Application of the measurability criterion -- one of the FASB's main principles of asset recognition -- to business combinations suggests that the residual amount must not be capitalized. Therefore, a 2-step approach is proposed: 1. All tangible and intangible assets that form the basis for the excess payment must be identified, capitalized, and amortized. 2. Any remaining unidentifiable portion of the excess should be written off against equity on the acquisition date.