When does goodwill increase?

Obaidul Haque    26 Jun, 2024 10:50:35 PM    1    201

Best Answer: Goodwill can be increased through the acquisition of another company as a subsidiary, by paying more than the fair value of its tangible and intangible assets.

For this accounting interview question, you could further highlight how goodwill is treated in accounting.

Mention that to calculate the goodwill, the acquiring company subtracts the fair value of the target company’s identifiable net assets (tangible assets, identifiable intangible assets, and liabilities) from the purchase price. The resulting excess is recognised as goodwill.

Goodwill is not amortized like other intangible assets but is subject to an annual impairment test to assess its value.

You can also say how goodwill helps measure the company’s value. Investors and stakeholders use goodwill to assess the success of mergers and acquisitions, as it indicates the perceived value of the target company’s intangible assets and potential future growth opportunities.

Obaidul Haque    26 Jun, 2024 10:50:35 PM

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