Definition of Goodwill
Goodwill in the insurance and accounting context refers to an intangible asset that arises when a company acquires another entity at a price higher than the sum of the fair market value of its identifiable net assets.
How Goodwill is Calculated
- Cost of the Acquisition: The total amount paid to acquire the company.
- Fair Market Value of Identifiable Assets: This amount reflects the current value at which the assets could be exchanged between willing parties.
- Goodwill: The residual value after subtracting the identifiable net assets from the cost of acquisition.
Accounting for Goodwill
Figuring out Goodwill involves not just the direct cost incurred during the acquisition but also includes the fair value estimations of the underlying assets and liabilities. [’#financial accounting, standards board, and GAAP’]). Suggestions on how these standards impact Goodwill calculation can be found within the Financial Accounting Standards Board (FASB) guidelines, particularly regarding how it should be tested later.
Relevant Acts and Regulations
Integral guidelines for handling Goodwill in financial statements include reference to the following: - International Financial Reporting Standards (IFRS): Addressing how business combinations are represented and how Goodwill should be accounted and evaluated globally. - Generally Accepted Accounting Principles (GAAP): U.S. standards detail the execution of financial accounting and are crucial for consistent reporting.
