Measuring Goodwill in Accounting

The video tutorial explains the concept of goodwill in accounting, which arises when a company is acquired for more than its identifiable fair market value. It details the calculation of goodwill by identifying the consideration paid and the fair market value of acquired assets, accounting for liabilities, and recognizing potential gains or losses. Additional considerations include employee awards and impairment of goodwill due to market changes. The tutorial provides a comprehensive understanding of how to measure and account for goodwill on the balance sheet.

What is goodwill in accounting?

• A type of liability

• An asset recorded when a company is acquired for more than its fair market value

• A form of equity

• A tax deduction

When calculating goodwill, what must be considered in addition to the purchase price?

• The company's future earnings

• The company's market share

• The fair market value of the acquired assets and any assumed liabilities

• The company's stock price

How should employee awards be treated in the calculation of goodwill if they are mandatory to acquire?

• They should be ignored

• They should be added to the value paid for the company

• They should be treated as a separate transaction

• They should be subtracted from the value paid for the company

What is the impact of impairment on goodwill?

• It allows for a reduction in the recorded value of goodwill

• It has no impact on the recorded value of goodwill

• It increases the recorded value of goodwill

• It converts goodwill into a liability

What happens if the acquired company has non-mandatory employee awards?

• They are converted into company shares

• They must be included in the goodwill calculation

• They are treated as compensation to employees and not included in the goodwill calculation

• They are deducted from the goodwill value