Goodwill Calculator
Enter the purchase price of an acquisition and the fair values of the target's assets and liabilities. The calculator applies the standard purchase price allocation formula (IFRS 3 / ASC 805) to find the goodwill recognised on the balance sheet, express it as a percentage of the deal, and flag a bargain purchase (negative goodwill) when the price falls below fair net assets. Switch to the Impairment tab to test whether existing goodwill is still recoverable.
Formula
Worked example
Buyer Corp acquires 100% of Target Inc for $50 million. Target's identifiable assets have a fair value of $40 million and liabilities of $15 million, giving net identifiable assets of $25 million. Goodwill = $50m - $25m = $25 million (50% of the purchase price). At the next annual test, if the reporting unit fair value falls to $28 million against a carrying amount of $33 million, the impairment loss = min($33m - $28m, $25m goodwill) = $5 million.
What is goodwill in accounting?
Goodwill is an intangible asset that arises when one business acquires another for a price greater than the fair value of the identifiable net assets obtained. It represents the premium the buyer pays for things that cannot be separately itemised on the balance sheet: brand reputation, customer relationships, a skilled workforce, proprietary processes, and the expectation of future synergies. Goodwill is recognised only in a business combination and sits on the consolidated balance sheet as a long-lived intangible asset. Unlike most intangibles, it is not amortised under US GAAP or IFRS, but it must be tested for impairment at least once a year.
How the goodwill formula works
The standard purchase price allocation formula under IFRS 3 and ASC 805 is: Goodwill = Purchase price + NCI value - Fair value of net identifiable assets. "Net identifiable assets" means the fair value of all separately identifiable assets (tangible assets such as property, plant, and equipment; plus identifiable intangibles such as patents, customer lists, and trade names) minus the fair value of all liabilities assumed. The NCI component only applies in partial acquisitions: under IFRS 3, the buyer may choose to measure the non-controlling interest at its proportionate share of net identifiable assets (giving "partial goodwill") or at fair value (giving "full goodwill"). US GAAP effectively requires full goodwill for each acquisition. If the purchase price falls below net identifiable assets the result is negative goodwill, also called a "bargain purchase gain", which is recognised immediately in profit or loss after re-verifying all fair values.
Goodwill impairment testing (ASC 350 / IAS 36)
Under US GAAP, goodwill is tested for impairment at the reporting unit level using a one-step test introduced by ASU 2017-04. If the fair value of the reporting unit is less than its carrying amount (book value of assets minus liabilities, including goodwill), an impairment loss equal to the difference is recognised, capped at the total carrying amount of goodwill for that unit. Private companies under US GAAP may elect to amortise goodwill over a period of up to ten years under ASU 2014-18, which reduces but does not eliminate the requirement for annual impairment tests. Under IFRS (IAS 36), the test compares carrying amount to recoverable amount, defined as the higher of fair value less costs of disposal and value in use (the present value of future cash flows). In both frameworks, impairment losses on goodwill cannot be reversed in later periods.
Goodwill versus other intangible assets
Not all intangible value acquired in a business combination is goodwill. Separately identifiable intangibles, such as patents, trademarks, customer contracts, non-compete agreements, and developed technology, are recognised at fair value and amortised over their useful lives (or tested for impairment if indefinite-lived). Only the residual premium after attributing fair value to every separately identifiable asset and liability is goodwill. This distinction matters because amortising identified intangibles reduces taxable income in many jurisdictions, whereas goodwill is generally not tax-deductible except in certain asset deals. A thorough purchase price allocation (PPA) study, often performed by independent valuers, separates the two categories correctly for financial reporting and tax purposes.
Goodwill accounting treatment by standard
| Topic | US GAAP (ASC 805 / ASC 350) | IFRS (IFRS 3 / IAS 36) |
|---|---|---|
| NCI measurement | Proportionate share of NIA (single method) | Choice: proportionate NIA or full fair value |
| Amortisation | Not permitted (public companies) | Not permitted (but private company relief exists) |
| Impairment test frequency | Annual + triggering events | Annual + triggering events |
| Impairment test approach | One-step: carrying amount vs fair value (ASU 2017-04) | One-step: carrying amount vs recoverable amount |
| Impairment reversal | Not permitted | Not permitted |
| Negative goodwill | Gain recognised in income immediately | Gain recognised in income immediately after reassessment |
| Private company alternative | Amortise over up to 10 years (ASU 2014-18) | No similar private company election under IFRS |
Key differences between US GAAP (ASC 805 / ASC 350) and IFRS (IFRS 3 / IAS 36) for goodwill recognition and subsequent measurement.
Frequently asked questions
What is the goodwill formula?
Goodwill = Purchase price + NCI value - Fair value of net identifiable assets. Net identifiable assets is the fair value of all identifiable assets acquired minus the fair value of all liabilities assumed. The NCI component only applies in partial acquisitions. For a 100% acquisition with no minority interest, goodwill simplifies to: Purchase price - (Fair value of assets - Fair value of liabilities).
What is negative goodwill and how is it treated?
Negative goodwill (a "bargain purchase") occurs when the price paid is less than the fair value of the net identifiable assets acquired. Before recording it, both IFRS 3 and ASC 805 require the acquirer to reassess whether all assets and liabilities have been correctly identified and measured, because a genuine bargain is uncommon. If the excess is confirmed, it is recognised as a gain in profit or loss on the acquisition date, not as a balance sheet liability.
Is goodwill amortised?
Public companies under US GAAP (ASC 350) and companies reporting under IFRS do not amortise goodwill. Instead they test it for impairment annually. However, private companies in the US may elect to amortise goodwill over a period of up to ten years under the Private Company Council alternative (ASU 2014-18). Under previous US GAAP rules (before 2001), goodwill was amortised over up to 40 years.
How does partial acquisition affect the goodwill calculation?
In a partial acquisition, the buyer controls the target without owning 100% of it. The remaining interest is a non-controlling interest (NCI). Under IFRS 3, the acquirer may measure NCI at its proportionate share of the target's identifiable net assets (giving "partial goodwill", which excludes goodwill attributable to the NCI) or at its fair value (giving "full goodwill", which includes goodwill for both the acquirer and the NCI). US GAAP requires measuring NCI at fair value, effectively always recognising full goodwill.
What triggers a goodwill impairment test between annual tests?
Common triggering events include a significant decline in the entity's stock price or market capitalisation, loss of a major customer or contract, deteriorating macroeconomic conditions, regulatory changes affecting the reporting unit, a reporting unit posting or expecting an operating loss, or a significant adverse change in the business climate. When a trigger is identified, management must perform an impairment test before the next annual test date.
What is the difference between book value and fair value in the goodwill formula?
Book value (or carrying amount) is what is recorded on the target's own balance sheet under historical cost accounting. Fair value is the price the asset or liability could be exchanged for between knowledgeable, willing parties in an arm's-length transaction. Goodwill is calculated using fair values, not book values, because the acquirer is paying for what assets and liabilities are actually worth today, not what the target originally paid for them.