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Goodwill's Modern Meaning

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Jann Vic Sales
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11 views

Goodwill's Modern Meaning

Uploaded by

Jann Vic Sales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Goodwill’s Modern meaning

Goodwill is a special type of intangible asset that represents that portion of the entire

business value that cannot be attributed to other income producing business assets, tangible or

intangible. For example, a privately held software company may have net assets (consisting

primarily of miscellaneous equipment and/or property, and assuming no debt) valued at $1

million, but the company's overall value (including customers and intellectual capital) is valued

at $10 million. Anybody buying that company would book $10 million in total assets acquired,

comprising $1 million physical assets and $9 million in other intangible assets. And any

consideration paid in excess of $10 million shall be considered as goodwill. In a private

company, goodwill has no predetermined value prior to the acquisition; its magnitude depends

on the two other variables by definition. A publicly traded company, by contrast, is subject to a

constant process of market valuation, so goodwill will always be apparent.

While a business can invest to increase its reputation, by advertising or assuring that its products

are of high quality, such expenses cannot be capitalized and added to goodwill, which is

technically an intangible asset. Goodwill and intangible assets are usually listed as separate items

on a company's balance sheet.

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