31.205-49
Goodwill
Costs related to the amortization, expensing, write-off, or write-down of goodwill are always unallowable on government contracts.
Overview
FAR 31.205-49 addresses the treatment of goodwill in government contract cost accounting. Goodwill is defined as an intangible asset that arises when a business is acquired for more than the fair value of its identifiable net assets. This section makes clear that any costs associated with the amortization, expensing, write-off, or write-down of goodwill are unallowable for reimbursement under government contracts. This applies regardless of how goodwill is represented in the contractor’s financial statements.
Key Rules
- Definition of Goodwill
- Goodwill is the excess purchase price over the fair value of identifiable assets minus liabilities in a business acquisition.
- Unallowability of Goodwill Costs
- Costs for amortization, expensing, write-off, or write-down of goodwill are not allowable under government contracts.
Responsibilities
- Contracting Officers: Must ensure that proposed or claimed costs do not include unallowable goodwill costs.
- Contractors: Must exclude all costs related to goodwill from proposals, billings, and incurred cost submissions.
- Agencies: Should review cost submissions for compliance with this prohibition.
Practical Implications
- This rule prevents contractors from charging the government for the financial impact of goodwill, ensuring that only tangible and identifiable intangible assets are considered allowable costs. Contractors must be diligent in segregating goodwill costs from allowable expenses, as improper inclusion can lead to disallowance or audit findings.