What is goodwill in accounting?
Answered on : 2024-01-24
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Goodwill in accounting refers to the intangible asset recorded when one company acquires another. It encompasses factors such as brand reputation, intellectual property, and customer loyalty[1]. When a company is willing to pay a premium to acquire another business as a going concern, the amount paid in excess of its tangible assets is recognised as goodwill on the acquirer's balance sheet[6][7]. Goodwill cannot be sold independently and is listed as an intangible asset, reflecting the premium paid for the acquired business[10]. Goodwill may undergo impairment if its carrying value exceeds its fair value, leading to an accounting charge[4].
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Understanding Goodwill in ACCA Financial Reporting: Calculations and Methods Explained
The lecture discusses the concept of goodwill in ACCA Financial Reporting, particularly focusing on its calculation during the consolidation of a subsidiary. Goodwill arises when a parent company pays more than the net assets' perceived value to acquire a subsidiary, capturing the unrecognized assets like customer loyalty and brand reputation. The calculation involves determining the fair value of consideration, adding non-controlling interest, and deducting the fair value of subsidiary net assets at acquisition. Two methods, proportionate share and fair value, are demonstrated for calculating goodwill, resulting in potentially different figures.
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