APB Opinions 16 and 17 require goodwill to be capitalized as an intangible asset for acquisitions after October 31, 1970. The APB did not break new ground with this practice. It was first promulgated by the Committee on Accounting Procedure in Accounting Research Bulletin 24 issued in 1944. This method of accounting generally is considered to be the most appropriate method. One problem with capitalization of goodwill is determining the proper amount to capitalize.
Current practice follows the residuum approach.
One way of correcting the misuse of goodwill is through the hidden assets approach. Under this approach, the excess purchase price that companies pay over the fair market value of the assets is for assets that are not shown on or are hidden from the balance sheet. These hidden assets can be both tangible and intangible. They include typical assets like fully depreciated tangible assets still in use, small tools expensed when purchased, patents expensed when developed, as well as atypical assets such as market distribution rights, key personnel, and location contracts. Hidden assets should be identified and recorded on the balance sheet, then amortized over their appropriate useful lives.