Goodwill

Business, Legal & Accounting Glossary

Definition: Goodwill


Quick Summary of Goodwill


Goodwill on acquisition is the difference between the fair value of the amount paid for an investment in a subsidiary and the fair value of the net assets acquired.



What is the dictionary definition of Goodwill?

Dictionary Definition


n. the benefit of a business having a good reputation under its name and regular patronage. Goodwill is not tangible like equipment, right to lease the premises or inventory of goods. It becomes important when a business is sold, since there can be an allocation in the sales price for the value of the goodwill, which is always a subjective estimate. Included in goodwill upon sale may be the right to do business without competition by the seller in the area and/or for a specified period of time. Sellers like the allocation to goodwill to be high since it is not subject to capital gains tax, while buyers prefer it to be low, because it cannot be depreciated for tax purposes like tangible assets. Goodwill also may be overestimated by a proud seller and believed by an unknowing buyer.

The value of a business to a purchaser over and above its net asset value. It reflects the value of intangible assets like:

  • reputation
  • brand name
  • good customer relations
  • high employee morale

and other factors which improve the company’s business.

Goodwill is normally given a value in a company’s balance sheet, but is amortised over a period of time.


Full Definition of Goodwill


Goodwill is an accounting concept that describes the value of a business entity not directly attributable to its physical assets and liabilities.

For example, a software company may have physical assets of some desktop PCs, servers, office equipment etc valued at $1 million, but the company’s overall value (including brand, customer, intellectual capital) is valued at $10 million. Anybody buying that company would show $10 million total assets comprising $1 million physical assets, and $9 million in goodwill.

Goodwill is often included on a balance sheet as an asset, but its valuation may be suspect if supporting evidence like an independent survey is missing. Goodwill is forced onto the balance sheet when a company is purchased for more than the sum of the value of the assets of the company. The difference between the purchase price and the sum of the assets is by definition the value of the “goodwill” of the company.

For example:

  • A quality provider of goods or services builds up a good reputation (UPS, L.L. Bean).
  • A brand name controlled by the business becomes recognizable by a large part of the population (Tide, Cheerios).

Goodwill also means simply to have the will to do good in a community, or, to simply try to help people who are in need (for example, serving at a soup kitchen or at a homeless shelter).

Other examples:

  • The will to do good.
  • The effort to help out or support others.
  • Willing to help out in an effort to make things better.

Synonyms For Goodwill


benevolence, charity, philanthropy, kindness, generosity

Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

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https://payrollheaven.com/define/goodwill/
Modern Language Association (MLA):
Goodwill. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. July 04, 2020 https://payrollheaven.com/define/goodwill/.
Chicago Manual of Style (CMS):
Goodwill. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/goodwill/ (accessed: July 04, 2020).
American Psychological Association (APA):
Goodwill. PayrollHeaven.com. Retrieved July 04, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/goodwill/

Definition Sources


Definitions for Goodwill are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th April, 2020 | 3 Views.