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Accounts Assignment: Goodwill
Accounts Assignment: Goodwill
Goodwill
Goodwill is an intangible asset that is
associated with the purchase of one company
by another. Specifically, goodwill is the portion
of the purchase price that is higher than the
sum of the net fair value of all of the assets
purchased in the acquisition and the liabilities
assumed in the process. The value of a
company’s brand name, solid customer base,
good customer relations, good employee
relations, and proprietary technology represent
some reasons why goodwill exists.
KEY TAKEAWAYS
Goodwill is an intangible asset that accounts
for the excess purchase price of another
company.
Items included in goodwill are proprietary or
intellectual property and brand recognition,
which are not easily quantifiable.
Goodwill is calculated by taking the purchase
price of a company and subtracting the
difference between the fair market value of the
assets and liabilities.
Companies are required to review the value of
goodwill on their financial statements at least
once a year and record any impairments.
Goodwill is different from most other
intangible assets, having an indefinite life,
while most other intangible assets have a
finite useful life.
Some features of goodwill:
Be an intangible asset which cannot be seen;
It cannot be separated from the business like a
physical asset can;
Its value is not relative to any investment
amounts or costs;
This value is subjective and depends on the
person (customer) judging it; and
It is subject to wild and unpredictable
fluctuations in response to externalities.