Financial Planner Question: Download Financial Planner PDF
Do you know what is goodwill and how is it accounted for?
Answer:
Goodwill is an intangible asset that is defined as the excess value of the purchase price over the fair market value (book value) of an acquired business. For example, if Walmart is sold for $100 billion with PP&E book value of $50 billion, equity of $30 billion, and debt of $10 billion, then the goodwill paid for Walmart would be $30 billion--the total sales price ($100 billion) minus the book value (Assets-Liabilities) of $70 billion.
The organization acquiring Walmart would show a decrease in cash of $100 billion to finance the acquisition, an increase of $50 billion to PP&E, an increase of debt of $10 billion, and goodwill of $30 billion.
The organization acquiring Walmart would show a decrease in cash of $100 billion to finance the acquisition, an increase of $50 billion to PP&E, an increase of debt of $10 billion, and goodwill of $30 billion.
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