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As stock investors, we often see the term "goodwill" on balance sheets, located in the bottom left corner (assets). Goodwill represents the added value of a company, which can include its reputation and performance, brand strength, customer loyalty, good relationships with suppliers, business networks, growth potential, and other intangible assets. Goodwill generally arises when a company is acquired.
For example, if an accountant has calculated the fair value of a company's net assets at $75,000, but the company is acquired by another company for $100,000, then the goodwill is $25,000. Goodwill is not amortized like patents and trademarks; instead, it is assessed periodically (annually) through an impairment test.
For example, if an accountant has calculated the fair value of a company's net assets at $75,000, but the company is acquired by another company for $100,000, then the goodwill is $25,000. Goodwill is not amortized like patents and trademarks; instead, it is assessed periodically (annually) through an impairment test.