Goodwill
Definition: Purchase price excess over net FV acquired
Scope:BroadDifficulty:Moderate
Purchase price excess over net FV acquired
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Record goodwill from acquisition | ||
| Buy company for $500,000; FV of net assets $420,000. | ||
| Net Assets AcquiredAsset+ | $420,000 | |
| GoodwillAsset+ | $80,000 | |
| CashAsset− | $500,000 | |
| Goodwill = purchase price − FV of net assets. | ||
| 2. Record impairment | ||
| Annual test: goodwill impaired by $30,000. | ||
| Impairment LossExpense+ | $30,000 | |
| GoodwillAsset− | $30,000 | |
| Goodwill is not amortized; tested for impairment annually. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Net Assets AcquiredNet Assets AcquiredAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$420,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$420,000.00
GoodwillGoodwillAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$80,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$30,000.00
$50,000.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500,000.00
$500,000.00
Impairment LossImpairment LossExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$30,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$30,000.00
DurationLong-Term
Related Accounting Types
- Financial Accounting(Primary)
- Acquisition Purchase Accounting(Primary)
- Auditing(Secondary)
- Tax Accounting(Secondary)
Related Reports
- Balance Sheet(Primary — Intangible asset)
- Goodwill Impairment Analysis(Primary — Annual impairment test)
- Form 10-K Annual Report(Primary — Intangible note; PPA disclosure)
Related Subjects
Understand First
Used In
- Acquisition Accounting
- Financial AccountingRelated type
- AuditingRelated type
- Tax AccountingRelated type
External Links
- Goodwill (accounting) — Wikipedia