Abstract Not much has been said about goodwill upon financial statements. Of three books on goodwill and its treatment in the accounts no mention was made of goodwill upon the balance sheet or profit-and-loss statement. A few writers have given their views as to its position in the balance sheet or have stated its proper position without giving reasons for their point of view. Again, but few writers have considered the question of whether amortized goodwill should be charged to current profit and loss or to surplus directly. In this paper, an attempt has been made to give a fairly complete discussion of these theoretical questions. In addition, the practical side of these questions is considered through the introduction and analysis of a number of recent financial statements of outstanding industrial concerns. The first question discussed in this article, and probably the most important, regards the placement of goodwill on the balance sheet. The Federal Reserve Board bulletin of 1917 recommended that the amount of goodwill be shown as a subtraction from the surplus and capital stock of the corporation.

Abstract Accountants, almost without exception, agree that goodwill should not be recognized in accounts until a bona fide purchase has been made. They are fully aware of the fact that goodwill created by a concern is just as valuable and in most instances, more valuable to that concern than to the firm which might make a specific purchase of that goodwill. Apparently there are a number of valid reasons which could be given in support of this position taken by accountants, other than the use of the term goodwill in connection with the watered stock frauds of the past. It is a generally accepted rule in accounting that it is the function of accounts to show the costs of assets, not the present value. This view may appear illogical at first sight. However, since an asset may have more than one value at a particular date, and since the actual cost of the asset to the organization is the only one which is capable of accurate determination, the latter, however, appears to provide a more realistic basis for the development of accounting principles, in spite of the fact that it encounters an obstacle in the situs of legal title.

Abstract Reviews the book "Auditing," by Thomas W. Byrnes, K. Lanneau Baker, and C. Aubrey Smith.