Alloy Ltd has acquired a Blink manufacturing division from LGIA Ltd. The accountant,

Mr Lee, has shown the board of directors of Alloy Ltd the financial information regarding

the acquisition. Mr Lee 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 Alloy

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 Mr Lee about the nature of goodwill and how to account for it.