Goodwill
Goodwill is when a business is purchased, the difference between the price paid and the fair value of the net assets is goodwill. Goodwill may depend on brand names, business location, service, or other elements; it is a valuable asset that plays an important part in the expected rate of future earnings of a business.
Definitions
According to College Accounting: A Practical Approach by Slater (13th edition),
- Goodwill. When a business is purchased, the difference between the price paid and the fair value of the net assets is goodwill. Goodwill may depend on brand names, business location, service, or other elements; it is a valuable asset that plays an important part in the expected rate of future earnings of a business.
According to the Strategic Management by David and David (15th edition),
- Goodwill. If a firm acquires another firm and pays more than the book value (market value), then the additional amount paid is called a premium, and becomes goodwill, which is a line item on the assets portion of a balance sheet.
Related concepts
- Accounting (alternatively known as accountancy) is management of financial data, information, and knowledge about financial transactions of legal entities. Accountancy tends to include bookkeeping and, depending on a particilar enterprise, may also include quatitative analysis of financial data in the bookkeeping system and/or business intelligence.
