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What is goodwill? How is it treated in accounting?

What is goodwill? How is it treated in accounting?

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Answer #1

Goodwill is recorded when a company acquires another company and the acquisition price is greater than the fair value of the identifiable tangible and intangible assets acquired after deducting liabilities associated with tha acquiree company.

Goodwill is reported on the balance sheet as a noncurrent asset.

Journal entry for goodwill

Suppose we have aquired a company at $ 5,00,000 and the liabilities of that company are $ 3,00,000 and the asset are

$ 4,00,000 so now company will make entry as below and recognize excess paid amount as goodwill.

Debit. Credit

Asset a/c. Dr. $ 4,00,000

Goodwill a/c. Dr. $ 1,00,000

To liabilities a/c. $ 3,00,000

To cash a/c. $ 2,00,000

(Being consideration paid and goodwill recognized)

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