What is the concept of goodwill in accounting?


by tavares , in category: Taxation and Accounting , a year ago

What is the concept of goodwill in accounting?

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1 answer

by augustine , 10 months ago


Goodwill in accounting is an intangible asset that represents the value of a business's reputation, customer relationships, brand recognition, and other non-physical assets. It is generated when a company acquires another business at a price higher than its fair market value. Goodwill is recorded on the balance sheet as an asset, but it cannot be easily measured or separated from the overall value of the business. It is mainly evaluated when a company is bought or sold, as the difference between the purchase price and the fair market value of the net assets acquired. Goodwill is subject to an annual impairment test, as it may decrease in value due to factors like negative market conditions, changes in regulations, or declining business performance. If the goodwill is impaired, the company should recognize a loss by reducing the carrying value of the asset on the balance sheet.