Goodwill

Goodwill is an intangible asset on the books of an enterprise/firm, often created as an effect of factors such as trustworthiness, brand image, profitability and value perceived by its customers and stakeholders. 

Goodwill is housed under assets in accounting for the firm but it is realised as money only when the firm is sold off. It is the value paid by the acquirer over and above the fair market value of the firm’s assets when being acquired.

An intangible asset is guided by Accounting Standard-26. Goodwill is amortized and it is provided by International Financial Reporting Standards(IFRS) that goodwill should be recalculated every once a year. Ascertaining the amount of goodwill is very difficult and always has a risk that the acquirer doesn’t end up paying more than the actual value that can be realized. Goodwill can’t be internally generated but can only be valued based on external acquisitions or purchases.