How do you record goodwill?

Answer 1

Goodwill is only recorded when there is an exchange transaction that involves the purchase of an entire business. In recording the purchase of a business, a company debits the identifiable acquired assets and credits liabilities at their fair market values, credits cash for the purchase price, and records the difference as the cost of goodwill.

Also note that goodwill is not amortized because it is considered to have an indefinite life. However, it must be written down if a company determines the value of goodwill has been permanently impaired.

Answer 2

Goodwill is recorded in a company's financial statements only when it is acquired in a business combination. It is calculated as the excess of the purchase price over the fair market value of the net assets acquired. Goodwill is reported as an intangible asset on the balance sheet and is subject to impairment testing annually.