goodwill

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Good will means 'the intention and hope that good will result' (and is hyphened in attributive position, i.e. before a noun as in a good-will gesture); goodwill is 'the established reputation of a business etc. as enhancing its value'.

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1. Intangible asset representing the difference between the purchase price of an asset and its fair market value. Goodwill is created when a bank pays a premium to acquire the assets of another bank in a take-over transaction. For example, bank ABC pays the shareholders of bank XYZ $100 per share for XYZ's outstanding common stock, which has a book value per share of only $50. Bank ABC reports the difference ($50) as goodwill. Goodwill is also created when a bank pays a premium above estimated market value to acquire loans, credit card accounts, and so on.

Goodwill is a non-tax-deductible asset. It has no independent market or liquidation value, and accepted accounting principles require that it be written off (amortized) over the time period in use. Goodwill and other intangibles do not qualify as Tier 1 bank Capital after December 31, 1992, under Risk-Based capital guidelines.

2. Informally, an expression for good customer relations, employee morale, and a well-respected business name.

A business asset of intangible value created principally by customer and supplier relations. In most states, intangible assets, including goodwill, are not subject to ad valorem taxes .


Example: Diversified Enterprises, Inc. bought Acme Hardware Co.
They paid a total of $200,000, which included $100,000 for the property , $50,000 for inventory , and $50,000 for goodwill.

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Goodwill is a type of intangible business asset. It is defined as the difference between the fair market value of a company's assets (less its liabilities) and the market price or asking price for the overall company. In other words, goodwill is the amount in excess of the company's book value that a purchaser would be willing to pay to acquire it. "For example, a happy combination of advertising, research, management talent, and timing may give a particular company a dominant market position for which another company is willing to pay dearly," Charles T. Horngren and Gary L. Sundem explained in their book Introduction to Financial Accounting. "This ability to command a premium price for the total business is goodwill."

The sale of a business may involve a number of intangible assets. Some of these may be specifically identifiable intangibles—such as trademarks, patents, copyrights, licensing agreements—that can be assigned a value. The remaining intangibles—which may include the business's reputation, brand names, customer lists, unique market position, knowledge of new technology, good location, and special skills or operating methods—are usually lumped into the category of goodwill. Although these factors that contribute to goodwill do not necessarily have an assignable value, they nonetheless add to the overall value of the business by convincing the purchaser that the company will be able to generate abnormally high future earnings.

Although goodwill undoubtedly has value, it is still an intangible asset and as such is not recorded on a company's books. In fact, many companies use a value of one dollar for goodwill in their everyday accounting procedures. "There are many owners who could obtain a premium price for their companies. But such goodwill is never recorded," Horngren and Sundem wrote. "Only the goodwill arising from an actual acquisition with arm's-length bargaining is shown as an asset on the purchaser's records." The acquisition price determines the amount of goodwill that is recorded following the purchase of a company. For example, if a small business with assets of $40,000 is purchased for $50,000, then the purchaser records $10,000 of goodwill.

In general, determining the sales price of a business begins with an assessment of its equity, which includes tangible assets such as real estate, equipment, inventory, and supplies. Then an additional amount is added on for intangible assets (sometimes called a "blue sky" amount), which may include things like patent rights, a trade name, a noncompete clause, and goodwill. Experts note that in small business sales, the combined total of "blue sky" additions should rarely be more than a year's net income, because few purchasers are willing to work longer than that for free. For public companies, the amount of goodwill is often dependent on the vagaries of the stock market. Since the share price determines the purchase price, the value attributed to goodwill may fluctuate wildly during the course of an acquisition.

Standard accounting procedures state that, following an acquisition, the purchaser should amortize goodwill over a period of 15 years using the straight-line method. In other words, one-fifteenth of the original amount attributed to goodwill is deducted each year. Since this writeoff period is longer than that required for most tangible assets, it is usually a good idea to allocate as much of the purchase price as possible to business equipment. The shorter depreciation period would enable the purchaser to accelerate deductions and thus achieve earlier tax savings.

Over the years, there has been some dissatisfaction expressed with the way that goodwill is handled for accounting purposes. First, since goodwill is sometimes a huge component of a company's acquisition price (particularly in the case of large public companies), the amortization of goodwill can have a significant negative effect on the purchaser's net income. Second, the treatment of goodwill under U.S. law differs from many other countries, which sometimes puts American companies at a disadvantage in international mergers and acquisitions.

Further Reading:

"The Goodwill of a Business: Valuing, Buying, and Selling." The Business Owner. March-April 1992.

Horngren, Charles T., and Gary L. Sundem. Introduction to Financial Accounting. Prentice Hall, 1990.

"How Will the IRS Value Your Business—Today and After Your Death?" Business Owner. January-February 1998.

Weatherholt, Nancy D., and David W. Cornell. "Accounting for Goodwill Revisited." Ohio CPA Journal. October-December 1998.

also good will

noun

Kindly, charitable interest in others: altruism, beneficence, benevolence, benignancy, benignity, charitableness, charity, grace, kindheartedness, kindliness, kindness, philanthropy. See attitude/good attitude/bad attitude/neutral attitude, kind/cruel.

In the usage of Kant, a good will is the unconditional, intrinsic good, independently of what it ‘effects or accomplishes’ in the world (Groundwork of the Metaphysic of Morals). It is the determination to act in accordance with the law of autonomy or freedom, that is, in accordance with universal moral law and regardless of selfish advantage. See also categorical/hypothetical imperative.

An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for the target firm's intangible assets.

Investopedia Says:
Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.

Related Links:
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Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work. The Basics Of Mergers And Acquisitions
We go over how to determine whether a measure of this important but hard-to-price intangible asset is justified. Can You Count On Goodwill?
Impairment charge is a term for writing off worthless goodwill, but you need to know what it means and what its potential impact is on EPS. Impairment Charges: The Good, The Bad and The Ugly
Find out how the Tier 1 capital ratio can be used to tell if your bank is going under. Is Your Bank On Its Way Down?
What was the first company with a $1 billion market cap?

n

The intangible assets of a firm established by the excess of the price paid for the ongoing concern over its book value.

For a list of words related to goodwill, see:

• Corporations and Business Practices - goodwill: intangibles belonging to business, esp. its trade reputation

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See words rhyming with "goodwill."

  See crossword solutions for the clue Goodwill.

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

Dansk (Danish)
n. - goodwill, venskabelig indstilling

Nederlands (Dutch)
welwillendheid, ijver, clientèle, goodwill

Français (French)
n. - bienveillance, bonne volonté, (Comm) fonds commercial, actif incorporel, clientèle

Deutsch (German)
n. - Wohlwollen, Bereitwilligkeit, guter Wille, (econ.) Geschäftswert

Ελληνική (Greek)
n. - καλή προαίρεση, φιλικότητα, πελατεία (κν. αέρας)

Italiano (Italian)
benevolenza, buona volontà

Português (Portuguese)
n. - boa vontade (f), boa disposição (f), clientela (f)

Русский (Russian)
добрая воля, готовность сделать что-л., доброжелательность

Español (Spanish)
n. - benevolencia, buena voluntad, buen nombre

Svenska (Swedish)
n. - goodwill, kundkrets (vid affärsöverlåtelse)

中文（简体）(Chinese (Simplified))
善意, 亲切

中文（繁體）(Chinese (Traditional))
n. - 善意, 親切

한국어 (Korean)
n. - 선의, 호의, 친선, 쾌락, 신용, 영업권

日本語 (Japanese)
n. - 好意, 親切, 親善, 喜んですること, 喜んでする気持, 好評, のれん, 友好

العربيه (Arabic)
‏(الاسم) شعور ودي, شهرة المحل‏

עברית (Hebrew)
n. - ‮רצון טוב, מוניטין, נכונות‬

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