goodwill

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Goodwill

Excess of purchase price over fair market value of net assets acquired under the purchase method of accounting.

Goodwill

Intangible assets relating to a company's business practices. Goodwill includes assets with value that are exceptionally difficult to quantify. Examples include brand recognition, customer loyalty, and employee happiness. Goodwill helps a company remain competitive in the long term, even if the company does not produce the best product. For example, a customer will be more likely to buy peanut butter from one company and pay more for it, if he/she thinks the company produces better-tasting peanut butter, regardless of whether or not this is the case. When a company buys another company, it will often pay above the target company's book value to account for goodwill.

goodwill

1. The amount above the fair net book value (adjusted for assumed debt) paid for an acquisition. Goodwill appears as an asset on the balance sheet of the acquiring firm and must be reduced in the event the value is impaired.
2. The discounted value of a larger-than-normal return on tangible assets. A business may build goodwill over time as loyalty builds among its customer base.
Case Study The Financial Accounting Standards Board (FASB), the body charged with establishing generally accepted accounting standards, in 2001 changed the method by which companies account for goodwill. Goodwill is posted as an asset to a firm's balance sheet when the firm makes an acquisition for above net asset value. In other words, goodwill is created when a firm pays more than the accounting value of a firm's assets adjusted for its debts. Huge amounts of goodwill were created in the late 1990s and early 2000s when the merger and acquisition business was progressing at full steam. Prior to 2002 companies were required to write down, or deduct, a prescribed amount of goodwill each accounting period. Thus, firms that engaged in major acquisitions at high prices posted large amounts of goodwill that had to be written off over a period of years. Goodwill writeoffs increase expenses and reduce reported earnings to shareholders. Prior to the change in accounting standards, companies were required to amortize goodwill regardless of how much the acquired assets were actually worth. Under the new standard imposed by the FASB in 2001 goodwill does not have to be reduced in value until it is determined the acquisition that created goodwill is no longer worth the purchase price. This change was expected to result in substantially higher reported earnings for companies with large amounts of goodwill on their balance sheets. For example, AOL Time Warner had $127 billion in goodwill on its balance sheet at the time of the change and was expecting to report substantially higher earnings because of the change in standards. On the downside, the firm announced in March 2001 it would incur record charges of $54 billion in goodwill impairment in the first quarter.

goodwill

the difference at a particular time between the STOCK MARKET valuation of a FIRM and the sum of its NET ASSETS recorded in a BALANCE SHEET. If another firm wishes to acquire this firm, goodwill represents the premium which the buyer must be prepared to pay for the firm over and above its asset value, because of the firm's trade contacts, reputation, established BRAND names, management expertise and general ‘know-how’. Where a firm has a poor trading record its market value as a going concern to a potential buyer may be less than the balance sheet value of its assets, in which case goodwill is negative.

Goodwill is an intangible FIXED ASSET and may be shown in a company's balance sheet. However, many companies write off the goodwill premium which they pay to acquire a new subsidiary company immediately against their current year's profits with the result that goodwill does not appear in their balance sheets.

goodwill

the difference at a particular point in time between the market valuation of a FIRM and the sum of its (net) ASSETS recorded in a BALANCE SHEET. If another firm wishes to acquire this firm, goodwill represents the premium that the buyer must be prepared to pay for the firm, over and above its asset value, because of the firm's trade contacts, reputation, BRAND names, management expertise and general ‘know-how’. Where a firm has a poor trading record, its market value as a going concern to a potential buyer may be less than the BALANCE SHEET's value of its assets, in which case goodwill is negative.

goodwill

An intangible asset consisting of the public esteem in which a business is held.When a business is sold, the difference between the value of the hard assets and the value of the income stream is often attributed to goodwill. One may not depreciate goodwill, but it can be amortized over 15 years because of its inclusion in the IRS definition of Section 197 intangibles.

Goodwill

Goodwill is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.
References in periodicals archive ?
If an acquisition resulted in excessive amounts of purchased goodwill but the acquisition proved to be a poor one, might stockholders instigate lawsuits against management if massive goodwill impairment write-downs were taken?
Subsequently, the value of purchased goodwill is reported at historical cost and has the usual distortions created by using the historical cost basis.
Previously, each segment's net assets included attributable purchased goodwill and net debt.
of purchased goodwill, tested for impairment in accordance with International
142 (SFAS 142), "Goodwill and Intangible Assets", which revises the accounting for purchased goodwill and intangible assets.
The revised limited Exposure Draft contains the FASB's tentative decisions reached in December 2000, requiring use of a nonamortization approach to account for purchased goodwill.
Jenkins, discusses the board's tentative decision to require use of a nonamortization approach in order to account for purchased goodwill.
At today's public meeting the Financial Accounting Standards Board (FASB) reached a tentative decision to modify certain provisions of its September 1999 proposed Statement, Business Combinations and Intangible Assets, to require use of a nonamortization approach to account for purchased goodwill.
Restructuring costs directly associated with the Raima acquisition will be included in purchased goodwill and amortized over future periods.
Capital adequacy is reduced from historical levels due to the writeoff of purchased goodwill, but remains consistent with the rating.
The directors consider the estimated useful economic life of the purchased goodwill to be 10 years.
In an economy in which we've recently started to see a significant boost in mergers and acquisitions activity, the Chancellor has, with effect from today, announced a measure to eliminate tax deductions that companies can currently enjoy on purchased goodwill.

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