Goodwill is only charged to the profit and loss (P&L) statement when there is an indication that its carrying value may be impaired, i.e., when the value of goodwill has decreased due to a loss in its revenue-generating capacity or some other adverse effect. If a company’s revenue-generating potential remains intact and there is no evidence of impairment, goodwill will indeed remain on the balance sheet.
Goodwill is considered to have an indefinite life, meaning it is not subject to amortization but is tested for impairment annually, or more frequently if there are indications of potential impairment. If the company’s operations continue to generate revenue and demonstrate no decline in service potential, there would be no immediate need to charge goodwill to the P&L statement. In such cases, the goodwill will remain on the balance sheet as an intangible asset.
However, it’s important to note that while goodwill may not be impaired due to a lack of deterioration in the company’s revenue-generating capacity, it could still be subject to potential impairment in the future if certain factors change. The assessment of goodwill impairment considers various factors beyond just revenue decline, such as changes in market conditions, legal or regulatory changes, increased competition, and changes in the economic environment. As long as these factors do not trigger an impairment loss, goodwill will continue to appear on the balance sheet as an intangible asset with indefinite life.
