understanding financial jargon
Goodwill is a form of intangible asset which represents the value of a company over and above the value of its assets. The term was originally used to express the quantifiable 'prudent value' assigned to an ongoing business beyond its assets, possibly resulting from such things as customer loyalty.
A more modern definition of goodwill as entered in the company accounts, is where a company is purchased for more than the fair value of the identifiable net assets of the company. The difference between the purchase price and the sum of the fair value of the net assets is the goodwill of the purchased company. The acquiring company must recognise this goodwill as an asset in its balance sheet, by balancing the book value of the purchased company plus the goodwill, against the purchase price.
Goodwill can be negative in situations where the fairly valued net assets at the date of acquisition exceed the cost of acquisition.
What to do if you need more help
If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.
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