Saturday, June 4, 2016

What is goodwill?


A: Goodwill is an asset that captures excess of the purchase price over fair market value of an acquired business. Let’s see the following example: Acquirer buys Target for Rs500m in cash. Target has 1 asset: PPE with book value of Rs100, debt of Rs50m, and equity of Rs50m = book value (A-L) of Rs50m.
  • Acquirer records cash decline of $500 to finance acquisition
  • Acquirer’s PP&E increases by $100m
  • Acquirer’s debt increases by $50m
  •  Acquirer records goodwill of $450m

2 comments:

  1. Goodwill is an intangible asset right?

    ReplyDelete
    Replies
    1. Yes.its an intangible assets which increases the purchase prive over fair market value of an acquired business.

      Delete

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