goodwill

Examples of goodwill in the following topics:

• Goodwill Impairment

  • Goodwill is an intangible asset that is tested yearly for impairment; it is not amortized.
  • Upon purchase, the buyer records $9 million in goodwill and tests it for impairment at the end of the year.
  • Year end calculations reveal the goodwill is valued at $8 million and an impairment loss of $1 million is recorded as a debit to Loss on Goodwill Impairment on the income statement and a credit to Accumulated Impairment Losses on the balance sheet (disclosed as a contra asset account to goodwill).
  • For example, goodwill could be the reputation the firm enjoys with its clients.
  • According IAS 36, reversal of goodwill impairment losses are not allowed.

• Goodwill

  • In short, goodwill equals the acquisition price minus net assets.
  • It used to be that goodwill was amortized.
  • As of 2001, goodwill is no longer amortized.
  • If the the total value of goodwill is not enough to make up the difference, the goodwill balance must be set to zero.
  • A business cannot have a negative goodwill balance.

• Reporting Equity Investments

  • At the time of purchase, goodwill can arise from the difference between the cost of the investment and the book value of the underlying assets.
  • The component that can give rise to goodwill is: the difference between the fair market value of the underlying assets and their book value .
  • Goodwill is no longer amortized under U.S.
  • Goodwill can now only be impaired under these GAAP standards.
  • To test goodwill for impairment, companies are now required to determine the fair value of the reporting units, using the present value of future cash flow, and compare it to their carrying value (book value of assets plus goodwill minus liabilities).

• Valuation of Intangible Assets

  • Intangible assets generally arise from two sources: (1) exclusive privileges granted by governmental authority or by legal contract, such as patents, copyrights, franchises, trademarks and trade names; and (2) superior entrepreneurial capacity or management know-how and customer loyalty , which is called goodwill.
  • Goodwill is an excellent example of how intangible assets are valued.
  • Goodwill!
  • The 50,000 value of Company A's goodwill was derived from a transaction.
  • Strong customer relationships often generate goodwill.

• Characteristics of Intangible Assets

  • Goodwill is technically an intangible asset, but is usually listed separately on a company's balance sheet.
  • Goodwill is only recognized through an acquisition of a company or business combination and is calculated as the difference between the amount of money paid to acquire a company and the fair or book value of the acquired company's net assets.
  • Goodwill is a type of intangible asset that is acquired and recorded due to a business acquisition or combination rather unlike other intangible assets, which may be internally developed by the company.
  • The extra $$300,000 - $225,000 = $75,000$ that Company $Y$ paid above Company $X$'s net assets are recognized by Company $Y$ as Goodwill on their balance sheet.

• Analyzing Intangible Assets

  • Trademarks and goodwill are examples of intangible assets with indefinite useful lives.
  • Goodwill has to be tested for impairment rather than amortized.
  • If impaired, goodwill is reduced and loss is recognized in the Income statement.

• Amortization of Intangible Assets

  • Goodwill is an example of an intangible asset that has an indefinite useful life, and is therefore tested for impairment on an annual basis as opposed to being amortized on a straight line basis.
  • A company cannot purchase goodwill by itself; it must buy an entire business or a part of a business to obtain the accompanying intangible asset.
  • Under current US GAAP, firms are required to compare the fair value of reporting units to the respective reporting unit's book value, which is calculated as assets plus goodwill less liabilities.
  • If the fair value of the reporting unit is less than its carrying value, goodwill has been impaired.
  • An impairment loss is recognized on the income statement and the goodwill account is reduced.

• Indefinite-Life Impairment

  • Some examples of indefinite-life intangibles are goodwill, trademarks, and perpetual franchises.
  • According to IAS 36, reversal of impairment losses for goodwill are not allowed.

• Types of Long-Lived Assets

  • Examples of intangible assets are copyrights, trademarks, patents and computer programs, financial assets-- including such items as accounts receivable, bonds and stocks-- and goodwill.

• Impairment Measurement

  • Trademarks and Goodwill are examples of intangible assets that are tested for impairment on an annual basis.