How does goodwill arise and reported on the balance sheet
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How does goodwill arise and come to be reported on the balance sheet? How is the amount calculated? What does goodwill represent? Will we tend to see a higher or lower amount of goodwill in slower economic times? Explain.
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Solution Summary
This solution explains how goodwill arises and is reported on a balance sheet, how its value is calculated and what it represents, and how a slower economy impacts goodwill.
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How does goodwill arise and come to be reported on the balance sheet?
The amount assigned to goodwill arises as a result of a purchase of a basket of assets (such as an entire company). When a purchase price is agreed upon, specific assets are assigned a fair market value usually based on an appraisal or some other fairly objective measure of value. Current assets are much easier to value than fixed assets because they turn over frequently. The difference in the fair market value of assets subtracted from the purchase price will disclose the amount of goodwill.
How is the amount calculated?
Here is a simple example: You buy a company for ...
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