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

Current Assets
Cash and cash equivalents10 million
Accounts receivable5 million
Inventory2 million
Non-current Assets
Property, plant, and equipment40 million
Intangible Assets
Goodwill25 million
Total Assets82 million

Liabilities and Equity

Liabilities and EquityAmount
Accounts payable5 million
Long-term debt15 million
Shareholders' Equity
Common stock40 million
Retained earnings22 million
Total Liabilities and Equity82 million

Now let's use the formula :

Goodwill = 100 million - (75 million - 20 million)

Goodwill = 100 million - 55 million

Goodwill = 45 million


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.