Types of goodwill

There are two types of goodwill, Institutional (Enterprise) or Professional (Personal).

Institutional goodwill may be described as the intangible value that would continue to inure to

the business without the presence of specific owner. Professional goodwill may be described as

the intangible value attributable solely to the efforts of or reputation of an owner of the business.

The key difference between the two types of goodwill is whether the goodwill is transferable

upon a sale to a third party without a non-competition agreement.

Calculating goodwill

In order to calculate goodwill, the fair market value of identifiable assets and liabilities of the

company acquired is deducted from the purchase price. For instance, if company A acquired

100% of company B, but paid more than the net market value of company B, a goodwill occurs.

In order to calculate goodwill, it is necessary to have a list of all of company B's assets and

liabilities at fair market value.

Fair market value

Accounts Receivable $10

Inventory $5

Accounts payable $6

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Total Net assets = $10 + $5 - $6 = $9