goodwill confusion

dpw

Struggling to understand goodwill.
The concept makes sense but the double entry is confusing me. Seems like it is imaginary money!?

snowmarauder

yep, you right, its something picked out of fresh air, if you think of it as real money, they have put a price on the future income/revenue of the business for if they sold it in that point in time as a going concern, so the business may not have many assets, say run from home, couple of vehicles, quite a few tools. but, they had a very good client base with customers coming back again and again, then they would sell it as a going concern with the client base and with or without the assets. The goodwill is technically a value of the ongoing/established client base, if you were a window cleaner your client base is technically all you have to sell/your window cleaning round. Hope it helps with the understanding of the concept. x

HadynB

So basically, it's the difference between what the company is worth (balance sheet) and what valuation is placed on the the business.

PGM

It shouldn't be imaginary;

It generally arises when you buy another company, the difference between the book value of the company and what you pay, is goodwill.

Otherwise it can be recognised on brands or customer loyalty etc, but these are much more subjective and much less likely to be in exams.