Goodwill

Brief Definition

Goodwill is an intangible asset that arises when a company acquires another company for more than the fair value of its identifiable net assets.

Further Explanation

Goodwill is an intangible asset that arises when a company acquires another company for more than the fair value of its identifiable net assets. It represents the excess purchase price over the fair value of the acquired net assets and is recorded on the balance sheet.

Example:
Company A acquires Company B for $1.5 million. The fair value of Company B’s identifiable net assets is $1 million. The difference of $500,000 ($1.5 million – $1 million) is recorded as goodwill on Company A’s balance sheet.