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Answer» Goodwill as an intangible asset can be defined from two approaches:
Residuum APPROACH
Under this method, goodwill is taken to be the difference between the purchase price and the fair market value of an ACQUIRED companys assets.
Excess profits approach
Under this method, the present value of the projected future excess earnings over NORMAL earnings for similar businesses is RECORDED as goodwill. Due to uncertainty of future earnings, valuing goodwill USING this method is difficult. Goodwill as an intangible asset can be defined from two approaches: Residuum approach
Under this method, goodwill is taken to be the difference between the purchase price and the fair market value of an acquired companys assets.
Excess profits approach
Under this method, the present value of the projected future excess earnings over normal earnings for similar businesses is recorded as goodwill. Due to uncertainty of future earnings, valuing goodwill using this method is difficult.
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