Evolution of APB Opinion No. 17 Accounting for Intangible Assets; A study of the U.S. position on accounting for goodwill

              The Accounting Historians Journal Vol. 8, No. 1 Spring 1981
Wesley T. Andrews, Jr. TEXAS A&M UNIVERSITY
THE EVOLUTION OF APB OPINION NO. 17 ACCOUNTING FOR INTANGIBLE ASSETS; A STUDY OF THE U.S. POSITION ON ACCOUNTING FOR GOODWILL
Abstract: The paper traces the development of the current valuation concept of goodwill from 1900 to 1970, when the present position was articulated. The paper suggests that there may be alternative bases for goodwill valuation and concludes that additional research is needed on the subject.
One of the most delicate and difficult problems in accounting today is the valuation of goodwill. The profession's current position on this subject is contained in Accounting Principles Board Opinion No. 171 which concludes that (a) only the cost of intangible assets, including goodwill, acquired from other enterprises or individuals should be recorded on the books, (b) the amount paid represents the proper valuation basis for the goodwill (i.e., the traditional his-toric cost principle is applicable), and (c) goodwill, once recorded on the books, should be amortized systematically to income over a period not to exceed forty years.
The purpose of this paper is to trace the development of this position in the United States from 1900 to 1970. Such a historical review suggests that, in the past, although we have tried and re-jected various alternative concepts of goodwill valuation, there may be alternative valuation bases for goodwill which will make today's financial statements containing goodwill more meaningful.
The organization of the paper partitions the time period 1900 to 1970, into four periods, as follows:
1900 to 1932 1932 to 1944 1944 to 1957 1957 to 1970.
The reason for this partitioning is that (a) 1932 represents the date of entry of the American Institute of Accountants (now, American