Goodwill: Meaning - SS2 Accounting Lesson Note

Goodwill refers to the intangible value of a business that is not attributable to its assets, liabilities, or earnings, and is recorded as an asset on the balance sheet. It is subject to periodic impairment testing, and impairment charges are recognized on the income statement when the value of Goodwill decreases. It represents the value of the business' reputation, customer loyalty, brand recognition, and other non-physical assets that make it valuable.

Goodwill arises when a business is sold for a price that is higher than the value of its net tangible assets. The excess amount is considered to be the value of the business' Goodwill. Goodwill can also arise in situations such as mergers and acquisitions, where the value of the combined business is greater than the sum of the values of the individual businesses.

Goodwill is recorded as an asset on the balance sheet and is subject to periodic impairment testing. Impairment occurs when the value of Goodwill decreases, such as when the business' reputation or customer loyalty diminishes. Impairment charges are recognized on the income statement and reduce the value of Goodwill on the balance sheet.