Goodwill in accounting is an intangible asset that arises when a buyer acquires an existing business.
The goodwill of a company increases its value, as qualities such as the company’s customer base, its brands, products, location, workforce, and reputation demonstrate the company’s proven track record of generating income.
Formula to calculate goodwill.
Example:
Suppose a company’s financial statement was as follows:
| Consideration Paid | $20,000 |
| Fair value of non-controlling interests | $50,000 |
| Fair value of equity previous interests | $70,000 |
| Fair value of net assets recognized | $30,000 |
Calculate the company’s goodwill cost.
Therefore, the company’s goodwill is $110,000.
