[Solved] Goodwill In Balance Sheet Example
Welcome back to our blog, today we will solve an example of goodwill in the balance sheet, so if you are an accountant then you should read this post till the end.
With its help you can learn to calculate Goodwill in the Balance Sheet with a formula so let's start but let me tell you about the formula.
Goodwill = Purchase price - (Fair market value of identifiable assets - Fair market value of identifiable liabilities)
Goodwill in the balance sheet Example
Let's imagine Company A acquires Company B for 100 million. When Company A performs its due diligence on Company B, it determines the fair market value of all of Company B's identifiable assets (property, equipment, inventory, etc.) is 75 million.
This means that Company A paid 25 million more than the net asset value of Company B.
This 25 million premium paid for Company B is recorded as goodwill on Company A's balance sheet. Here's a simplified version of what the balance sheet might look like:
Company A Balance Sheet
Assets | Amount |
---|---|
Current Assets | |
Cash and cash equivalents | 10 million |
Accounts receivable | 5 million |
Inventory | 2 million |
Non-current Assets | |
Property, plant, and equipment | 40 million |
Intangible Assets | |
Goodwill | 25 million |
Total Assets | 82 million |
Liabilities and Equity
Liabilities and Equity | Amount |
---|---|
Liabilities | |
Accounts payable | 5 million |
Long-term debt | 15 million |
Shareholders' Equity | |
Common stock | 40 million |
Retained earnings | 22 million |
Total Liabilities and Equity | 82 million |
Now let's use the formula :
Goodwill = 100 million - (75 million - 20 million)
Goodwill = 100 million - 55 million
Goodwill = 45 million
Conclusion
Here in this post, we add an example of goodwill in the balance sheet so if you are learning accounting then you should know what goodwill is and how to calculate goodwill in the balance sheet.
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