In short
Goodwill is the excess of the consideration paid in a business combination (plus the fair value of any noncontrolling interest and previously held interest) over the fair value of the identifiable net assets acquired.
Key takeaways
- Public companies don't amortize goodwill; they test it for impairment at least annually at the reporting unit level.
- The impairment loss is the reporting unit's carrying amount less its fair value, limited to the goodwill balance.
- Internally generated goodwill is never recognized; private companies may elect to amortize goodwill.
Example
Paying $2,000,000 for a company whose identifiable net assets are worth $1,600,000 creates $400,000 of goodwill.
Where it's tested
FAR: Intangible Assets & Goodwill — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A reporting unit has a carrying value of $12,000,000 including allocated goodwill of $3,000,000, and a fair value of $10,500,000. What goodwill impairment loss is recognized?