Question

Can you explain goodwill and intangible assets?

Answer 1

Goodwill :

1. It is an intangible asset which comes under non current assets.

2. The value of goodwill stands for the monetary expression of the reputation of the business entity.

3. The value of goodwill arises at the time of acquisition of business firm.

4. When the net purchase consideration of a business unit is more then the net fair market value of the assets over it's liabilities then only goodwill arises.

5. As per us GAAP and IFRS goodwill never be amortized because goodwill have an indefinite useful life.

6. Due to the presence of goodwill, organization or firm can earn more than normal profit associated with the industry.

7. Exact valuation of goodwill is difficult to place . It is because it's value may fluctuate time to time due to changing circumstances which are internal and external to the business.

Intangible Asset :

1. Intangible assets are those assets which don't have a physical existence and thus can't be seen or physically felt.

2. Goodwill, parents, trade marks, brand recognition  are the examples of intangible assets.

3. Value of intangible assets is based on the benefits and facility available to the business from such assets .

4. There are two major types of intangible assets. It can be classified as definite intangible assets and indefinite intangible assets. Definite intangible assets such as patent, copyright have fixed life span. On the other hand indefinite intangible assets like brand recognition have infinite life time.

5. Generally any self created intangible assets have no book value. In other words self created intangible assets are not recorded in the balance sheet.

6. By cost method, market method, income method valuation of intangible assets can be done.

Note: For a short summary it can be rightly said that

Intangible assets = Goodwill + Intellectual property.