write a paragraph about goodwill
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INVESTING FINANCIAL ANALYSIS
Goodwill Definition
REVIEWED BY MARSHALL HARGRAVE Updated Feb 20, 2019
What Is Goodwill?
Goodwill is an intangible asset associated with the purchase of one company by another. Specifically, goodwill is recorded in a situation in which the purchase price is higher than the sum of the fair value of all identifiable tangible and intangible 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 any patents or proprietary technology represent some examples of goodwill.
The Formula for Goodwill Is
Goodwill = Purchase price - (Asset fair value + Liabilities fair value)
Goodwill Formula. Investopedia
Where:
P = Purchase price of the target company
A = Fair market value of assets
L = Fair market value of liabilities
How to Calculate Goodwill
The process for calculating goodwill is fairly straightforward in principle but can be quite complex in practice. To determine goodwill, take the purchase price of a company and subtract the fair market value of identifiable assets and liabilities.
Goodwill
What Does Goodwill Tell You?
The value of goodwill typically arises in an acquisition—when an acquirer purchases a target company. The amount the acquiring company pays for the target company over the target’s book value usually accounts for the value of the target’s goodwill. If the acquiring company pays less than the target’s book value, it gains negative goodwill, meaning that it purchased the company at a bargain in a distress sale.
Goodwill is recorded as an intangible asset on the acquiring company's balance sheet under the long-term assets account. Under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), companies are required to evaluate the value of goodwill on their financial statements at least once a year and record any impairments. Goodwill is considered an intangible (or non-current) asset because it is not a physical asset like buildings or equipment.
Goodwill is an intangible asset and most intangible of all assets which is hard to measure and more difficult to count. During 20th century idea of goodwill has changed significantly. Earlier days goodwill was thought as good and valuable relationships of proprietor of business with his customers.
Present concept is wider that it encompasses more intangible economic factors of business enterprise and accountants which now considers that goodwill results from evaluation of earning power of business by investors. Pronouncements on accounting for goodwill in US and Canada goes equally to goodwill rising upon acquisition of net assets of business, preparation of financial statements when purchase method of accounting is followed for investments in companies consolidated.