Goodwill Balance Sheet

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GOODWILL

What is the definition of Goodwill?

Goodwill is an intangible asset that mostly appears as the biggest intangible asset on the balance sheet. The Goodwill can only be identified with the business as a whole. Therefore, the goodwill cannot be sold individually in the marketplace, while some other intangible assets can be sold.

Goodwill is not easy to measure, because it includes exceptional management, desirable locations, customer relations, and so on. The determination of the Goodwill is therefore most of the time very subjective.

Companies only record the goodwill when there is an exchange transaction the involves the purchase of an entire business.

When the company is purchased by another company, the goodwill
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Goodwill booking in the balance sheet
According to Harold Averkamp (2015), Goodwill is reported on the balance sheet as a noncurrent asset.
Since 2001, U.S. companies are no longer required/allowed to amortize the recorded amount of goodwill.

“In accounting we use the word amortization to mean the systematic allocation of a balance sheet item to expense (or revenue) on the income statement.” Harold Averkamp (2015)
The amortization of an asset means that a company is allowed to split the value of the expenses stated in the income statement over several months instead of a one-time booking.
However, the amount of goodwill is subject to a goodwill impairment test at least once per year.
The companies have to verify at least once a year if the value of their assets is aligned with the fair value of the market.
The test verifies if the value of the assets is bigger than the market value. An adjustment is recorded in order to bring the value of the asset at the fair value in case of inequality.

References
Ausick, P (9 May 2014) 3.2 Billion for beats- is apple crazy? Assesed at 26 April 2015 from :http://247wallst.com/consumer-electronics/2014/05/09/3-2-billion-for-beats-is-apple-crazy/
Business Goodwill. (n.d.). Retrieved 04 27, 2015, from Value Adder: http://www.valuadder.com/glossary/business-goodwill.html
Doorn, van P (October 29, 2014) Don't wory about facebooks 18,1 billion in goodwill from whatsapp.
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