Goodwill | Examples | How to Calculate Goodwill? - YouTube

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clicking the bell icon Friends we have a topic with us that is goodwill

now goodwill is a topic you know which has an immense level of importance

because I mean why the Guru that is recorded in the books of account is not

at all the one that you are expecting that as a self-generated would will know

the goodwill that is recorded in the books of accounts is the one that is

recorded of the takeover pays goodwill so the goodwill that has been acquired

with the help of amalgamation in acquisition of amalgamation so let me

get get you down to the nitty gritties of this particular topic so first

question of mine what is goodwill see goodwill is basically an asset you know

but the this kind of asset is what it is intangible in nature right and it cannot

be seen so it generally arises from the as I told you at the very beginning it

arises of the acquisitions of when acquisition of two companies happens

this kind of goodwill arises so it is the amount that the acquiring let's

say a is the acquiring company did they pay to the target company let let's say

there's B company which was a target company for the amount it is basically

the amount that the according company pays to target in excess of the book

value of their assets so if a company pays less than the book value of the

asset of the target company then it is called as the negative goodwill this is

the difference now simply goodwill as the name suggests is it is a good name

of the organization in solving its products or services they do it over the

period of time but because of its service is the value of the firm the

value of the firm basically it exceeds the assets its assets and intangible

goods name in default in in the form of the in the society towards company or

brand or product or service which is called as you know goodwill in

accounting term see under the accounting terminology of US GAAP or IFRS it is

identified as an intangible asset with an indefinite life so it is what we call

as amortized as the other individual assets however

it is periodically checked for improvement now let me give you let me

make you learn have to calculate goodwill in M&A that is mergers and

acquisition see we will learn to calculate the goodwill step by step with

the help of an example now let's assume that you know there is

company a here that has acquired Company B for the total concentration of let's

say dollar 480 million okay now let's now look at step by step

process to calculate goodwill in this particular scenario the step one will

start you know you need to find the book value of assets so you can find the book

value of the assets from the what we call as balance sheet you can find those

details from the balance sheet of the company let's say this

is the income statement there are sales has been recorded at four hundred

expenses 350 and the net is going to be your net income just a hypothetical one

okay now on the other hand you also have your balance sheet so your balance sheet

will will have a couple of things like assets amount liability and amount okay

so let's say on this side we have cash current assets and fixed assets the

amount which is standing is sixty eighty hundred that amounts to two forty and

liability we have current liability long-term liability we have shareholders

equity and we'll write down the amount as forty twenty and 180 which again

amounts to 240 so let's work on the step two part that is in the step two we'll

find the fair value fair value of assets now the fair value of the assets

can be determined with the help of the accounting firm okay because they are

well equipped with equal to value this assets of the form so I will give you a

know how the fair value of Company B will be calculated there will be the

fair market value of all the assets of Company B

here let's say there is other current assets that are standing

standing at hundred million dollars to pull this number down near 100 you have

fixed assets that is standing it let's say 180 dollars and it has FMV but that

is the fair market value of liabilities of the same company is let's say they

have their current liabilities and non current liabilities that is are standing

at let's say 40 and 40 so this is the step two where we calculate the fair

value now let's work with step number three where we calculate the fair value

adjustments now the fair value adjustment is the difference between the

fair value of the asset of Company B and the book value of the asset Company B so

I'll write their fair value of asset of Company B minus the book value of the

asset or Company B okay so how it's gonna work worked out it's as simple as

that is equal to bracket this hundred right the other current assets right

less ad plus 180 fixed other fixed assets minus hundred less bracket forty

that is the current liability you can see above 40 minus 40 that gives you our

final answer as one hundred closely to that we had we don't have missed we

haven't missed you ve have missed one thing you have to deduct 40 minus 20

that gives you a 80 now we need to calculate the step four part

that is you know calculate excess

purchase price so the excess purchase price is basically the net of actual

price consideration and the book value of the target equity this is going to be

our purchase right so the actual price that has been paid is let's say 480

million the net book value the nbv is let's say is is hundred plus 80 just

taking down those numbers plus 60 minus 20 and minus 40 this is the net book

value so the excess part the excess purchase part is the actual purchase

price less the net book value and that's 300 so finally let's calculate goodwill

step number 5 goodwill and it is a difference between the excess purchase

price and the fair value adjustments it's going to be 300 the excess purchase price

minus the fair value that is 80 so that's going to be 220 so that is

actually our goodwill I hope you have understood how things have been worked

out this example must have given you a complete approach of how to calculate

goodwill and what goodwill is all about let's follow these steps put your own

numbers take up your own companies let's say you know or take up some M&A base

come from Google and you know try and workout or on your own cup and

let's see how far this concept is concepts are working for you so that's

it for this particular topic. if you have learned and you know liked the video if

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