What is goodwill? #
Goodwill is an intangible asset that represents the value of a company’s reputation, customer base, and other intangible assets that are not separately identifiable and quantifiable. In other words, it is the value of a business that is not reflected in its tangible assets, such as property, equipment, or inventory. Goodwill is the amount by which the total value of a business exceeds the value of its net assets.
Goodwill is typically created when a company acquires another company, and the purchase price paid for the company exceeds the fair market value of its tangible assets and identifiable intangible assets. The difference between the purchase price and the fair market value of the tangible assets and identifiable intangible assets is recorded as goodwill on the acquirer’s balance sheet.
Goodwill is considered an intangible asset because it cannot be seen or touched, it is not a physical asset, and it does not have a physical existence. It is also a non-amortizable asset, meaning it is not subject to depreciation or amortization, but it is subject to impairment test.
Goodwill is important as it is a significant component of a company’s net assets, and it can have a significant impact on a company’s net worth and its ability to generate income. It also helps in understanding the company’s reputation, customer base and other intangible assets that are not separately identifiable and quantifiable.