How is goodwill created?
When a company purchases a company, the buyer acquires the fair market value of the net identifiable assets. Goodwill is considered the excess over fair market value of the purchased assets.
For example, if a Vesla (electric car company) pays $5 million for a company with fair market value of net identifiable assets of $4 million, then goodwill would be $1 million.
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How to calculate goodwill for an investment under the equity method?
Goodwill is calculated as the difference between the purchase price and the fair-market-value (“FMV”) of the net identifiable assets acquired (i.e. equity or assets – liabilities). Example: Boobaloo acquired a 30% stake in Hooli for $200,000. At the time of purchase, the fair market value of Hooli’s net identifiable assets was $600,000.
What are the different types of intangible assets?
Intangibles are considered long-lived assets that are not physical in nature or lack physical substance but are used throughout the ordinary course of business activities. Intangible assets are either identifiable intangible assets or unidentifiable. The only unidentifiable intangible asset that you will need to know is goodwill. Some examples of both identifiable and unidentifiable intangible […]
What is the journal entry to record an acquisition?
When a company acquires more than 50% of another company, US GAAP requires the acquirer to consolidate the acquired company under the consolidation method. The visual below illustrates the 6-step process that can be used to record a journal entry on the acquisition date: For example, let’s say that Universal acquired 70% of Mustang Education […]