Ataahua Ltd has acquired a major manufacturing division from Yemba Ltd. The accountant, Mr Zhen, has shown the board of directors of Ataahua Ltd the financial information regarding the acquisition. Mr Zhen calculated a residual amount of $45 000 to be reported as goodwill in the accounts. The directors are not sure whether they want to record goodwill on Ataahua Ltd’s statement of financial position. Some directors are not sure what goodwill is or why the company has bought it. Other directors even query whether goodwill is an asset, with some being concerned with future effects on the statement of profit or loss and other comprehensive income.

Required 

Prepare a report for Mr Zhen to present to the directors to help them understand the nature of goodwill and how to account for it.