Goodwill
Accounting glossary · Understand, connect, apply
Purchased goodwill is the residual amount recognized in a business combination after applying the relevant rules to the consideration and identifiable net assets acquired.
Example
In a simplified acquisition, consideration of $500,000 exceeds identifiable net assets of $420,000, leaving $80,000 of goodwill.
Remember the difference
Good reputation alone does not create recognized internally generated goodwill. Subsequent accounting differs between frameworks and permitted alternatives.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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