Walk into Infosys’s office in Bengaluru and you will instantly feel its goodwill — global brand, top talent, decades of trust. Yet open Infosys’s Balance Sheet and you will hardly find any goodwill of its own. Surprised? Welcome to the world of AS-26 / Ind AS 38.
1. The Two Types — Quick Recap
| Basis | Purchased Goodwill | Self-Generated Goodwill |
| Origin | Bought through acquisition | Built internally over time |
| Cost | Measurable (consideration paid) | Not reliably measurable |
| Recognition | Recorded as Intangible Asset | Never recorded |
| Examples | TCS acquiring Postbank Systems AG | Brand value of Amul, Tata Salt |
2. The Governing Standards
AS-26 — Intangible Assets (Indian GAAP)
- Issued by ICAI, mandatory from 01 April 2003.
- Para 35: “Internally generated goodwill should not be recognised as an asset.”
- Reason: cost cannot be identified separately from the cost of developing the business as a whole.
Ind AS 38 — Intangible Assets (IFRS-converged)
- Applicable to listed and large companies in India.
- Para 48: “Internally generated goodwill shall not be recognised as an asset.”
- Same logic, harmonised globally.
3. Why Self-Generated Goodwill Is Not Recorded
- Cost cannot be measured reliably — you cannot separate goodwill creation from normal operating expenses.
- It is not an identifiable resource — it does not arise from contractual or legal rights.
- Recognising it would inflate assets, mislead investors, and allow profit manipulation.
- Conservatism principle — record only what you have actually paid for.
4. How Purchased Goodwill is Calculated
Goodwill = Purchase Consideration − Fair Value of Net Identifiable Assets
5. Subsequent Treatment
Under AS-26
- Amortise over useful life (presumed not more than 10 years).
- Test for impairment if indicators exist.
Under Ind AS 38 / Ind AS 36
- No amortisation — goodwill has indefinite useful life.
- Mandatorily test for impairment annually (Ind AS 36).
6. Real Indian Examples
- HDFC Bank merger with HDFC Ltd. (2023) — created ₹thousands of crore of purchased goodwill.
- Tata Motors’ acquisition of Jaguar Land Rover — major purchased goodwill recognised at consolidation.
- Infosys, TCS standalone — almost no goodwill, because brand is self-generated.
Analytical Sums
Final Insight
Goodwill in the Balance Sheet is not a measure of how respected the company is — it’s a measure of how much was paid by someone to acquire that respect. That’s exactly why AS-26 / Ind AS 38 keep us honest.
Swathika B is an MBA graduate in Finance & Business Analytics , the founder of The Commerce Lab. With a strong academic foundation in B.Com BFSI and hands-on experience in financial analysis, data analytics, and business studies, she created this platform to make Commerce and Accountancy simple, practical, and exam-ready for students across India.