What is Goodwill ? How it is Created ?

Goodwill is an intangible asset, it is created when when a business acquire another business. It is the excess ammount paid by the company over the fair market value of identifiable assets and liabilities.

The value of a company’s brand, trade marks, trade secret, patents, proprietary technology, customer base, good customer / employee relations represent goodwill.

How to calculate Goodwill ??

Goodwill = P - ( A+L)

where,

P = Purchase price of the company

A = Fair market value of all identifiable assets

L = Fair market value of all identifiable liabilities

Generally IT companies will have lot of Goodwill.

Example : Quess Corp