What goodwill does the deal create?
Enter the price paid for a business and the fair values of the identifiable assets acquired and the liabilities assumed. The calculator shows the goodwill the buyer records, or the bargain purchase gain when the price is below the net assets.
- Goodwill
- $200,000.00
Paying $1,200,000.00 for net identifiable assets of $1,000,000.00 creates goodwill of $200,000.00.
- Net identifiable assets
- $1,000,000.00
- Goodwill share of the price
- 16.67%
Goodwill: $200,000.00. Paying $1,200,000.00 for net identifiable assets of $1,000,000.00 creates goodwill of $200,000.00.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes the goodwill from buying a business: the purchase price minus the fair value of the identifiable assets net of the liabilities assumed, or the bargain purchase gain when the price is lower.
Example with the default inputs (Purchase price $1,200,000.00, Identifiable assets at fair value $1,500,000.00, Liabilities at fair value $500,000.00): Paying $1,200,000.00 for net identifiable assets of $1,000,000.00 creates goodwill of $200,000.00.
Method: Net identifiable assets = identifiable assets − liabilities, at fair value. Goodwill = purchase price − net identifiable assets when that is above $0; when it is below, goodwill is $0 and the bargain purchase gain is net identifiable assets − purchase price.
- The buyer acquires 100% of the business.
- Assets and liabilities are at their fair values on the purchase date, not their book values.
- Arithmetic is exact on the typed decimals; money shows to the cent and the share to 2 decimals, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Purchase price $1,200,000.00, Identifiable assets at fair value $1,500,000.00, Liabilities at fair value $500,000.00 gives Goodwill $200,000.00, Net identifiable assets $1,000,000.00, Goodwill share of the price 16.67%.Source: OpenStax, Principles of Financial Accounting, 11.1 Distinguish between Tangible and Intangible Assets (goodwill is recorded when the purchase price is in excess of the fair value of the identifiable net assets). https://openstax.org/books/principles-financial-accounting/pages/11-1-distinguish-between-tangible-and-intangible-assets
- Purchase price $700,000.00, Identifiable assets at fair value $1,000,000.00, Liabilities at fair value $200,000.00 gives Goodwill $0.00, Net identifiable assets $800,000.00, Bargain purchase gain $100,000.00.Source: IFRS Foundation, IFRS 3 Business Combinations, overview (the acquirer allocates the cost to the identifiable assets and liabilities at fair value and the rest to goodwill; an excess of the assets and liabilities over the consideration paid is a bargain purchase, recognised in profit or loss). https://www.ifrs.org/issued-standards/list-of-standards/ifrs-3-business-combinations/
- Purchase price $3,456,789.12, Identifiable assets at fair value $2,345,678.90, Liabilities at fair value $123,456.78 gives Goodwill $1,234,567.00, Net identifiable assets $2,222,222.12, Goodwill share of the price 35.71%.Source: OpenStax, Principles of Financial Accounting, 11.1 Distinguish between Tangible and Intangible Assets (goodwill is recorded when the purchase price is in excess of the fair value of the identifiable net assets). https://openstax.org/books/principles-financial-accounting/pages/11-1-distinguish-between-tangible-and-intangible-assets
- Purchase price $500,000.00, Identifiable assets at fair value $500,000.00 gives Goodwill $0.00, Net identifiable assets $500,000.00.Source: OpenStax, Principles of Financial Accounting, 11.1 Distinguish between Tangible and Intangible Assets (goodwill is recorded when the purchase price is in excess of the fair value of the identifiable net assets). https://openstax.org/books/principles-financial-accounting/pages/11-1-distinguish-between-tangible-and-intangible-assets: no excess over the fair value of the net assets, so no goodwill
How it works
With the purchase price P, the identifiable assets A and the liabilities L, all at fair value:
- Net identifiable assets N = A − L
- Goodwill = P − N, when P is above N; otherwise $0
- Bargain purchase gain = N − P, when P is below N
- Goodwill share of the price = goodwill ÷ P × 100, when there is goodwill and P is above $0
Rules:
- Each amount is $0 or more and at most $1 quadrillion. Liabilities may be left empty ($0). Net identifiable assets may be negative, when the liabilities are larger than the assets.
- When P equals N, goodwill is $0 and no gain shows. The bargain purchase gain shows only when P is below N; the goodwill share shows only when goodwill is above $0 and P is above $0.
- A result that is not 0 but too small to show as a number gives no answer, with the message "The net identifiable assets are too small to show as a number.", "The goodwill is too small to show as a number.", "The bargain purchase gain is too small to show as a number." or "The goodwill share of the price is too small to show as a number.".
- A goodwill share too large to show as a number (a tiny price) gives no answer: "The goodwill share of the price is too large to show as a number."
- The net identifiable assets are checked first, then the bargain purchase gain, or the goodwill and then its share.
- The arithmetic is exact on the decimals you type. Money shows to the cent and the share to 2 decimals, with halves rounded up (away from 0).
Assumptions
- The buyer acquires 100% of the business.
- The assets and liabilities are measured at their fair values on the purchase date.
Worked examples by hand
A $1,200,000 purchase. Identifiable assets $1,500,000 and liabilities $500,000: N = 1,500,000 − 500,000 = $1,000,000. Goodwill = 1,200,000 − 1,000,000 = $200,000, which is 200,000 ÷ 1,200,000 × 100 = 16.67% of the price.
A bargain purchase. Price $700,000, assets $1,000,000, liabilities $200,000: N = $800,000. The price is lower, so goodwill is $0 and the bargain purchase gain is 800,000 − 700,000 = $100,000.
Amounts with cents. Price $3,456,789.12, assets $2,345,678.90, liabilities $123,456.78: N = $2,222,222.12. Goodwill = 3,456,789.12 − 2,222,222.12 = $1,234,567.00, 35.71% of the price.
Price equal to the assets. Price $500,000, assets $500,000, no liabilities: goodwill = $0, and no gain.
Other questions people ask
What is goodwill?
Goodwill is the part of a business's purchase price that pays for things that cannot be separately identified and valued, such as strong management, a skilled workforce, quality products, a good location and its reputation. The buyer records it as an intangible asset.
How do I calculate goodwill?
Subtract the liabilities assumed from the identifiable assets acquired, both at fair value, to get the net identifiable assets. Then subtract them from the purchase price. Paying $1,200,000 for assets of $1,500,000 and liabilities of $500,000 gives goodwill of 1,200,000 − 1,000,000 = $200,000.
Why use fair value and not book value?
IFRS 3 has the buyer allocate the price to the identifiable assets and liabilities at their fair values on the purchase date. Book values on the seller's balance sheet can be far from what the assets are worth that day.
What if the price is less than the net assets?
Then there is no goodwill. The buyer has made a bargain purchase and records the difference as a gain in profit or loss. Paying $700,000 for net identifiable assets of $800,000 gives a gain of $100,000.
What are identifiable intangible assets?
Intangible assets the buyer can name and value on their own, such as patents, copyrights, franchises, licences, trademarks and sometimes software. Their fair values go into the identifiable assets, so only what is left over becomes goodwill.
Where does goodwill show up?
On the buyer's balance sheet, as an intangible asset. Companies typically record goodwill when they buy another business for more than the fair value of its identifiable net assets; Apple's 2017 balance sheet showed $5,717,000,000 of goodwill from businesses it had bought.