What should be done with internally generated goodwill according to IAS 38?

According to IAS 38, internally generated goodwill should be expensed immediately. This standard stipulates that internally generated goodwill cannot be recognized as an asset on the statement of financial position. The rationale behind this is that goodwill is inherently difficult to measure accurately when it is generated internally, primarily due to the subjective nature of how future economic benefits can be assessed and the uncertainties involved.

Internally generated goodwill is not considered a controllable or identifiable asset that can provide future economic benefits, unlike purchased goodwill, which can directly be tied to the acquisition of another business and has a clear basis for valuation. This treatment helps maintain transparency in financial reporting and ensures that the balance sheet reflects only assets that meet the criteria for recognition under the asset definition as per the accounting framework.