The Daily Technical #03

Good morning. Welcome to the third edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION

What is goodwill and how is it created?

Start by defining goodwill clearly. It's an intangible asset that represents the premium paid over the fair market value of a company's net assets during an acquisition.

To break it down further, you can explain that goodwill is created during acquisitions, emphasize it's the difference between purchase price and fair market value, and mention it's recorded on the acquirer's balance sheet.

If you can smoothly mesh it in with your answer, mention this formula: Goodwill = Purchase Price - Fair Market Value of Net Assets.

Common Mistakes:

1. Confusing goodwill with other intangible assets like patents or trademarks. While all are intangibles, goodwill is specifically related to acquisitions. No acquisition = no goodwill.

2. Thinking goodwill can be negative. Goodwill is always positive. If you’re calculating goodwill and it results in a negative number, double-check your numbers!

TL;DR:

• Goodwill = Purchase Price - Fair Market Value of Net Assets

• It's created in acquisitions and represents the premium paid

• Goodwill is always positive and sits on the acquirer's balance sheet

TODAY’S QUESTION
Do accounts receivable get captured on the income statement?

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THAT’S A WRAP
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