Goodwill
Goodwill is the excess paid to acquire a business over the fair value of its identifiable net assets, reflecting unrecorded value such as reputation and customer loyalty; it is subject to annual impairment testing rather than amortisation.
See it move
AquaTech pays €8.5m to acquire a rival whose identifiable net assets are worth €7.0m at fair value — assets of €10.0m less liabilities of €3.0m. The €1.5m difference is goodwill, recognised as an intangible asset on the consolidated balance sheet. It is not amortised; instead it is reviewed annually for impairment, and any write-down cannot later be reversed.
The formula
Variables
- total consideration paid to acquire the business (€)
- fair value of acquired identifiable assets minus fair value of assumed liabilities at the acquisition date (€)
Goodwill is not amortised under IFRS or US GAAP; it is tested for impairment at least annually and written down if its recoverable amount falls below its carrying value.