Goodwill
Goodwill is an intangible asset, it is recoginzed when a business acquires another business.
It represents the excess of cost paid by the purchasing business to the purchased business over fair value of the purchased business identifiable assets.
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Goodwill is an intangible asset, it is recoginzed when a business acquires another business.
It represents the excess of cost paid by the purchasing business to the purchased business over fair value of the purchased business identifiable assets.
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Goodwill is recorded as an intangible asset on the acquiring companies balance sheet under the long term assets.
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For instance,
Assume company A acquires company B for Rs 100cr. The fair value of company B's net assets (Assets – Liabilities) equals Rs 80Cr at the time of purchase.
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Assume company A acquires company B for Rs 100cr. The fair value of company B's net assets (Assets – Liabilities) equals Rs 80Cr at the time of purchase.
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The difference between the cost of Rs 100cr paid by the company A and Rs 80cr fair value of the assets of company B is Goodwill, which amounts to Rs 20cr.
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Goodwill is not the same as other intangible assets.
Goodwill is a premium paid over fair value and cannot be bought or sold independently.
Other intangible assets include the likes of licenses and can be bought or sold independently.
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Goodwill is a premium paid over fair value and cannot be bought or sold independently.
Other intangible assets include the likes of licenses and can be bought or sold independently.
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Some chor companies can use this term for taking money away from the company. So one should always research well if any company acquiring a new company and paying huge premium.
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