Goodwill accounting is the process of recording the excess amount paid when one company acquires another beyond the fair market value of the acquired company's identifiable net assets.
This excess reflects the value of intangible assets like brand reputation, loyal customer base, proprietary technology, and skilled workforce.
The formula is: Goodwill = Acquisition Price - (Fair Market Value of Identifiable Assets - Fair Market Value of Liabilities).
Under accounting standards like IFRS and US GAAP, goodwill is recorded as an intangible asset on the balance sheet. Companies must conduct annual goodwill impairment tests to check if the acquired company's value has declined.
In Bangladesh, companies follow Bangladesh Financial Reporting Standards (BFRS) when accounting for goodwill in acquisitions.