What is Goodwill in accounting?

Introduction

You will come across various formulas and calculations while studying accounting. However, goodwill can be a confusing topic for you as it deals with intangible values like customer trust and brand loyalty. 

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What Is Good Will?

Goodwill is an intangible asset that is recorded when one Company acquires another company and is willing to pay a price more than the present market value of the net value of the assets.

Let's discuss an example. 

Suppose Company A buys Company B for $6 million. The fair market value of the assets of Company B, i.e., its infrastructure and inventory, is $4 million.

The Company has a loan of $1 million. So, the net asset value of Company B will be $3 million.

The Company pays $6 million to Company B. The difference is $ 3 million, which is recorded as goodwill.

Company A pays an extra $ 3 million to Company B, not because of physical assets but because of a good reputation in the market and strong relationships with collaborators and customers.

You need to understand the concept of goodwill before working on your assignment. You can seek help from accounting assignment services if you struggle to understand the concept and apply it to real-world scenarios.

Why is Goodwill Essential In Accounting?

Goodwill is essential in accounting for the following reasons.

1. Shows The Actual Value Of The Business

Goodwill is invisible. But it holds an essential value in the business. Many of you think that a company is limited in terms of infrastructure, staff, and machines. But no, in reality, the customer base and brand reputation even play an essential role in reflecting the actual value of the Company.

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2. Helps in Financial Analysis And Decision Making

Investors and financial analysts use goodwill to assess the intangible strength of the Company. If a company has positive goodwill, then its value is higher than that of its assets and liabilities. However, if a company has low goodwill, then its value is lower than its assets and liabilities. So, goodwill directly affects the financial health of a company.

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3. Ensure Compliance With Accounting Standards

GAAP and IFRS provide specific guidelines for recognising, recording and reporting goodwill. Maintaining these standards ensures consistency and is easily comparable between two companies. The GAAP and IFRS even say to follow annual impairment testing. This means that the Company needs to assess the goodwill every year and determine whether it is increasing or decreasing.

Many of you may understand the concept of goodwill, but struggle to write the entire assignment in the proper format. It's best to connect with the accounting assignment help in such cases.

Why Assignment World Turns Out To Be The Best Accounting Assignment Help Service?

Assignment World is the best accounting assignment help service because you will find here expert writers who hold higher degrees in finance and accounting. They will write your assignment after doing deep research and will submit it before the deadline. They even do free revisions based on your feedback. This finance assignment help provides personalised solutions, which means they provide assistance based on your needs.

Final Words

You should understand the goodwill and its role in accounting for completing your assignment. However, it involves mathematical calculations and some complex theories, which may make it challenging to get everything clear in classroom lectures, and it can obstruct you from completing tasks on time. You can seek assistance from the accounting assignment help services in such cases.