Legal or Contractual Rights

When a parent acquires another company, all intangibles held by that subsidiary must be identified and consolidated at fair value but only if either of two criteria are met. Recognizing these assets is necessary if legal or contractual rights are held or the intangible can be separated from the company and sold. Other amounts are often included in the acquisition price to compensate for identifiable intangibles (such as customer loyalty) that do not meet either of these criteria. Or an extra payment is necessary simply to entice the owner to sell. In either situation, this additional amount is reported as goodwill, an intangible asset that then appears on the consolidated balance sheet. Goodwill is not amortized over time but rather is checked periodically for impairment with a loss recognized if the value has declined.