See Also:
Accounting Income vs Economic Income
Depreciation
Cash Flow Statement
Income Statement
Generally Accepted Accounting PrinciplesGoodwill Accounting definitionGoodwill is an intangible
asset. It represents non-physical assets, such as brand name and reputation, and shows up on the asset side of a company’s
balance sheet.
A company often acquires goodwill by purchasing another company. For example, company A is going to purchase company B. Company B has net tangible assets of $8 million. But company A will pay $10 million to acquire company B. Company A is willing to pay a premium because of company B’s good reputation. The residual, $2 million, is goodwill, and it shows up on company A’s balance sheet as an intangible asset. So, in the case of an acquisition, goodwill can be calculated like this:
Goodwill = Purchase Price - Net Assets According to a recent accounting regulation,
FASB 142, goodwill is no longer amortized. Instead, its value can be adjusted periodically for impairment.
Goodwill Accounts Goodwill accounts show up on the assets side of a company’s balance sheet. The account represents intangible assets, such as a company’s brand name or reputation, that have value but are not physical assets.