Business Plan Pro tip: “Goodwill” as an accounting concept

GoodwillWhen a company purchases another company for more than the value of its assets – which is quite common – the difference is recorded as an asset named “Goodwill.”  This is not a general term for the value of a brand, for example, but a very specific accounting term.

For example, if one business buys another business for $1 million, then it needs to show the $1 million spent as an asset. If there are only $500 thousand in real assets, the accounting result should be $500,000 in real assets purchased and another $500,000 in “Goodwill.”

Goodwill is normally amortised over 5 to 40 years, depending on variables determined by the accountants.

In Business Plan Pro, you would include this goodwill value as part of your Long-term Assets. You can then record the amortization of goodwill as Depreciation. Remember to explain this asset in the Balance Sheet topic.

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