Markets · 6 pages · 12 min

How goodwill is an accounting leftover

Goodwill is the leftover purchase price after identifiable assets and liabilities are recorded at fair value.

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From the opening

When one firm buys another, it allocates the price to the identifiable assets and liabilities it acquired, each at fair value on the purchase date. Goodwill is the leftover, the part of the price that cannot be tied to a specific identifiable item such as inventory, equipment, or a recognized customer contract. The opening covers price minus identifiable net assets, only acquisitions create it, and it is tested for impairment.

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Inside

Price minus identifiable net assets
Only acquisitions create it
It is tested for impairment
A write-down is not cash
Where the idea stops applying
A distinction worth keeping

Sources

Purchase price allocation residual
Goodwill impairment testing

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How goodwill is an accounting leftover

From the opening

Inside

Sources

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