what is goodwill in accounting

Goodwill is an intangible asset recognized in accounting when a firm is purchased as a going concern). It represents the premium that the buyer pays in addition to the net value of the other assets of the firm). Goodwill is recorded as an intangible asset on the acquiring companys balance sheet under the long-term assets account. It is considered an intangible (or non-current) asset because it is not a physical asset like buildings or equipment. Goodwill is a special type of intangible asset that represents that portion of the entire business value that cannot be attributed to other income-producing business assets, tangible or intangible). It can relate to the value of the purchased companys brand reputation, customer service, employee relationships, and intellectual property. While goodwill officially has an indefinite life, impairment tests can be run to determine if its value has changed. The accounting treatment for goodwill remains controversial within both the accounting and financial industries because it is fundamentally a workaround employed by accountants to compensate for the fact that businesses when purchased are valued based on estimates of future cash flows and prices negotiated by the buyer and seller, and not on the fair value of assets and liabilities to be transferred by the seller).