Goodwill is calculated when a business is acquired and reflects the intangible value of the company.
Parameters:
(1) purchase price
(2) value of assets
(3) liabilities
goodwill = excess purchase price =
= (purchase price) - ((value of assets) - (liabilities))
Goodwill may include:
(1) intellectual or proprietary property
(2) expertise
(3) brand recognition
(4) customer relations
(5) reputation
(6) business margins
Goodwill has an indefinite life.Impairment refers to the decline in the value of goodwill over time. Goodwill needs to be reviewed and reported annually with documentation of an impairment.
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