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What is goodwill in accounting?
Goodwill in accounting refers to goodwill values that represent intangible assets. Goodwill in accounting is often utilized when companies acquire or merge with other organizations.
Goodwill only comes into play when the purchasing price of a company (a subsidiary) is higher than the total values of its liabilities and intangible assets the parent company receives in the transaction.
Examples of goodwill include:
Brand identity
Reputation
Copyrights
Permits and licenses
Patents
Organizations that assess goodwill can evaluate three different forms, these include:
Business goodwill: Business goodwill consists of all of the intangible assets an organization owns. This includes customer base, market share or position, and brand identity.
Inherent goodwill: This refers to the value of a business that exceeds its fair value. This goodwill is gained internally, mostly from an organization's reputation. This can be a net positive or negative, depending on the organization.
Purchased goodwill: This type of goodwill happens when organizations buy subsidiaries for more than the fair value of their definable net assets. In this scenario, a parent company can use the purchased goodwill as an asset on its balance sheet once it completes the transaction.
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