Goodwill Essay, Research Paper

The definition of an intangible asset is an asset that lacks physical substance and usually has a high degree of uncertainty concerning their future benefits, and they are unable to be touched (they are not physical objects). Patens, copyrights franchises, and goodwill are all examples of intangible assets. Goodwill is considered the most intangible asset. The only way to acquire goodwill is when you purchase an entire company for more than the value of its assets. The company cannot be sold off or separated from a company.

Goodwill is calculated by subtracting the total net assets of the company acquired from the purchase price of the company. Goodwill is normally the difference between the purchase price and the fair market value. This amount is then amortized over a period of 40 years. Some people are suggesting that goodwill is to be amortized more rapidly than 40 years or it should be capitalized. This is what is done in most international companies. (see enclosure)

The parent Company theory in accounting for goodwill states that only the controlling percentages of subsidiary accounts are adjusted to reflect market values. When it is the Entity theory, all accounts are adjusted to reflect market values. This includes goodwill for both the controlling and the minority percentages of subsidiary accounts.