Adelaide Ltd has acquired Happy Shoes manufacturing division from Leongatha Ltd.

The accountant, Ms Lyn, has shown the board of directors of Adelaide Ltd the financial

information regarding the acquisition. Ms Lyn 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 Adelaide 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

Advise Ms Lyn about the nature of goodwill and how to account for it.