Goodwill Accounting
The accounting treatment for the premium paid when acquiring a business above its identifiable net assets, representing intangible value from reputation and relationships.
Goodwill Accounting
The accounting treatment for the premium paid when acquiring a business that exceeds the fair value of its identifiable net assets, representing intangible value such as reputation, customer relationships, and intellectual property.
For instance, if Company A acquires Company B for $10 million when the fair value of B’s identifiable net assets is $7 million, Company A would record $3 million as goodwill, which must be tested annually for impairment rather than amortized.
Goodwill only appears on financial statements following an acquisition or business combination. Unlike other intangible assets, it has an indefinite useful life and isn’t amortized but instead undergoes annual impairment testing. Significant goodwill impairments can indicate overpayment for acquisitions or deteriorating business conditions.