Goodwill Calculator
Enter the purchase price and the fair values of assets and liabilities to see goodwill, net identifiable assets and the share of the price.
Updated
Goodwill Calculator
Our Goodwill Calculator works out the goodwill a buyer records when it acquires a business. Type the purchase price and the fair values of the assets acquired and the liabilities assumed. It returns goodwill along with the net identifiable assets and the share of the price that goodwill makes up, and it flags a bargain purchase when the result is negative. It suits accounting students, auditors, business owners planning a deal and analysts reading acquisition notes.
Quick answer
Goodwill is purchase price − (fair value of assets − fair value of liabilities): a price of 5,000,000 for assets of 4,200,000 and liabilities of 600,000 gives 5,000,000 − 3,600,000 = 1,400,000.
- Net identifiable assets: fair value of assets minus fair value of liabilities.
- Fair values, not book values: measure both at the acquisition date.
- Negative result: a bargain purchase, recorded as a gain after a recheck.
- After the deal: goodwill is tested for impairment, not depreciated.
What Is Goodwill?
Goodwill is the part of an acquisition price that is not explained by the identifiable assets and liabilities of the business bought. It is an intangible asset on the buyer's balance sheet and stands for things that cannot be separated and sold on their own: an assembled workforce, customer relationships that are not under contract, a reputation, and the savings the buyer expects from combining the two businesses.
Goodwill only arises in a business combination. A company cannot record goodwill it builds up itself, however valuable its brand, because there is no price paid that can measure it reliably.
Goodwill Formula
= purchase price
− net identifiable assets
Net identifiable assets are the assets acquired less the liabilities assumed, both at fair value:
= fair value of assets
− fair value of liabilities
- Purchase price: the consideration transferred, such as cash, shares issued and any contingent payment measured at fair value.
- Fair value of assets: everything identifiable that is acquired, including intangibles such as patents, trademarks and customer contracts.
- Fair value of liabilities: the debts and obligations the buyer takes on.
How to Calculate Goodwill
A company buys a rival for 5,000,000. A valuation puts the fair value of the assets acquired at 4,200,000 and the liabilities assumed at 600,000:
= 3,600,000
5,000,000 − 3,600,000
= 1,400,000
- Find net identifiable assets. 4,200,000 − 600,000 = 3,600,000.
- Subtract them from the price. 5,000,000 − 3,600,000 = 1,400,000.
- Find the share of the price if needed. 1,400,000 ÷ 5,000,000 × 100 = 28%.
Goodwill is 1,400,000, or 28% of the price. The buyer records the 3,600,000 of assets and liabilities line by line and the 1,400,000 as one goodwill asset.
How the Price Splits
Both bars use the same scale. The dashed line marks the net identifiable assets; everything the buyer paid above it is goodwill.
Fair Value vs Book Value
Use the fair values at the acquisition date, not the amounts in the seller's books. Book values are often old costs less depreciation, and many valuable intangibles never appear in the seller's books at all. Suppose the same rival has book assets of 3,500,000:
| Basis | Goodwill |
|---|---|
| Fair value of assets 4,200,000 | 1,400,000 |
| Book value of assets 3,500,000 | 2,100,000 |
Using book values would overstate goodwill by 700,000. Identifiable intangibles, such as a customer list or a patent, are valued and recorded on their own, which lowers goodwill.
Goodwill Examples
A retail store. A chain pays 800,000 for a local store with assets of 600,000 and liabilities of 150,000:
− 150,000)
= 350,000
Goodwill is 350,000, or 43.75% of the price, for the store's location, loyal customers and local name.
A manufacturing merger. A firm pays 1,200,000 for a competitor with assets of 1,050,000 and liabilities of 300,000:
− 300,000)
= 450,000
Goodwill is 450,000, or 37.5% of the price, reflecting a trained workforce and expected cost savings.
A software company with net liabilities. A tech firm pays 250,000 for a software company with assets of 330,000 and liabilities of 450,000:
= −120,000
250,000 − (−120,000)
= 370,000
Goodwill of 370,000 is larger than the price. The buyer pays 250,000 and also takes on 120,000 more in liabilities than it gets in assets, so the whole 370,000 is what it gives up for the business.
Negative Goodwill and Bargain Purchases
When the price is lower than the net identifiable assets, the result is negative. This is a bargain purchase, which can happen in a forced or distressed sale. A buyer pays 900,000 for a business with assets of 1,500,000 and liabilities of 400,000:
= −200,000
Under IFRS 3 and US GAAP, the buyer first rechecks that every asset and liability has been identified and measured correctly. If the gap is still there, it records the 200,000 as a gain in profit or loss on the acquisition date. No negative goodwill asset is recorded.
Goodwill After the Acquisition
| Rule | Treatment |
|---|---|
| IFRS (IAS 36) | Not amortised; tested for impairment every year. |
| US GAAP | Not amortised; tested at least once a year. |
| US private firms | May choose to amortise, usually over up to 10 years. |
An impairment test compares the carrying amount of the unit that holds the goodwill with what it is worth. If the unit is worth less, goodwill is written down and the loss goes to the income statement. A write-down cannot be reversed later. A large goodwill write-off usually means the buyer paid too much.
What the Result Leaves Out
- Partial acquisitions. IFRS 3 adds any non-controlling interest and any stake the buyer already held to the price. This calculator assumes 100% is bought.
- Deferred tax. Fair value changes often create deferred tax liabilities, which belong in the liabilities figure.
- Estimates. Fair values come from valuations, so goodwill is only as reliable as those figures.
- Acquisition costs. Legal and advisory fees are expensed, not added to the price.
The result is for education and planning and is not accounting, tax or investment advice.
Key Terms
- Goodwill
- Price paid above net identifiable assets.
- Purchase price
- The consideration transferred to the seller.
- Fair value
- The price in an orderly sale between market participants.
- Net identifiable assets
- Assets acquired minus liabilities assumed.
- Bargain purchase
- A price below net identifiable assets.
- Impairment
- A write-down when goodwill is worth less than recorded.
How to Use the Goodwill Calculator
- Enter the purchase price. Type the total consideration paid for the business, such as 5,000,000.
- Enter the fair value of assets. Type the acquisition-date fair value of all identifiable assets, including intangibles, such as 4,200,000.
- Enter the fair value of liabilities. Type the fair value of the liabilities assumed, such as 600,000. Type 0 if there are none.
- Read and copy the result. Goodwill appears as you type, with the working, net identifiable assets, its share of the price and a bar splitting the price. Press Copy to copy it, or Clear or Esc to start again.
Example: a price of 800,000 for assets of 600,000 and liabilities of 150,000 gives goodwill of 350,000.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate goodwill?
Subtract the fair value of liabilities from the fair value of assets to get net identifiable assets, then subtract that from the purchase price. What is left is goodwill.
What is the goodwill formula?
Goodwill = purchase price − (fair value of assets − fair value of liabilities), which is the purchase price minus net identifiable assets.
What is the goodwill on a 5,000,000 purchase with assets of 4,200,000 and liabilities of 600,000?
It is 1,400,000, because net identifiable assets are 4,200,000 − 600,000 = 3,600,000 and 5,000,000 − 3,600,000 = 1,400,000. That is 28% of the price.
Can goodwill be negative?
Yes. A negative result is a bargain purchase. The buyer rechecks the fair values and, if the gap remains, records it as a gain on the acquisition date instead of a negative asset.
Should I use book values or fair values?
Use fair values at the acquisition date. Book values usually understate assets and leave out intangibles, which overstates goodwill.
Is goodwill amortised?
Under IFRS and for US public companies, no. Goodwill is tested for impairment at least once a year and written down if it is worth less. US private companies may choose to amortise it.
Can a company record goodwill it creates itself?
No. Internally generated goodwill is not recognised, because it cannot be measured reliably. Goodwill is recorded only when a business is acquired.
Is the Goodwill Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- IFRS Foundation. IFRS 3 Business Combinations.
- IFRS Foundation. IAS 36 Impairment of Assets.
- KPMG. Goodwill impairment: IFRS Accounting Standards vs. US GAAP.
- Corporate Finance Institute. Goodwill.
- Corporate Finance Institute. Negative Goodwill.
- AccountingCoach. What is goodwill in accounting?.
- EAS. How Goodwill is Calculated in a Business Valuation.
- Wikipedia. Goodwill (accounting).
Try our Goodwill Calculator to see how much of an acquisition price is goodwill.