---
title: "Goodwill"
description: "What goodwill is, how it is calculated in a business combination, why it is tested for impairment instead of amortized under IFRS, and a worked acquisition example."
canonical: https://ledgeriano.com/glossary/goodwill
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Goodwill

> What goodwill is, how it is calculated in a business combination, why it is tested for impairment instead of amortized under IFRS, and a worked acquisition example.

Goodwill is the excess of the price paid in a business combination over the fair value of the identifiable net assets acquired. It represents future benefits that cannot be recognised separately, such as an assembled workforce, market position and expected synergies. Under IFRS 3 and IAS 36 goodwill is not amortized but tested for impairment at least annually.

Goodwill arises only from an acquisition. Reputation built internally is never recorded as an asset, however valuable, because its cost cannot be measured reliably. Under US GAAP public companies also test goodwill for impairment, while private companies may elect to amortize it over up to ten years.

In group accounts goodwill appears on [consolidation](https://ledgeriano.com/glossary/consolidation) when the parent's investment is eliminated against the subsidiary's equity. The [multi-entity accounting guide](https://ledgeriano.com/guides/multi-entity-accounting) explains how groups keep each company's books and combine them.

```
Goodwill = Consideration paid + Non-controlling interest - Fair value of identifiable net assets
```

## Example: buying a competitor

A company pays 900,000 for 100% of a competitor. The fair value of the competitor's identifiable assets is 1,100,000, including a customer list valued at 150,000, and its liabilities are 400,000. Net assets are 700,000, so goodwill is 900,000 - 700,000 = 200,000.

### Is goodwill amortized?

Not under IFRS: it is tested for impairment every year. Some private companies under US GAAP may elect to amortize it.

### What is negative goodwill?

When the price is below the fair value of net assets, the acquirer has made a bargain purchase. After rechecking the valuations, the gain is recognised in profit or loss.

Guide: https://ledgeriano.com/guides/multi-entity-accounting