In this presentation, we’re going to continue on with our discussion of acquisition accounting, this time focusing in on the concept of goodwill. Get ready, because it’s time to account with advanced financial accounting. First question is, what is goodwill. So it’s an intangible factors that allow a business to earn above average profits. So the way you might want to think about that is the first thing about a business that isn’t being purchased and sold. If you just got one business that started from scratch, they just started doing business, they started earning revenue, then you can look at their financial statements, they got the they got the balance sheet, assets minus liabilities is the book value of the company, and then the income statement, which is their performance. Now, if you were to say, Hey, is this company worth more than their equity than their assets minus the liabilities than their net assets? In other words, if it is, then you’re saying hey, there must be some intangible factor that’s not really on the balance sheet that would explain the reason why the you know the value of them because most likely through Profit generation, after the the perceived ability, the likely ability to earn profit in the future is greater than just what’s on the balance sheet assets minus liabilities. So you would think then that many companies, if a company is doing well, then there’s going to be some kind of intangible factor there. That’s not basically on the balance sheet that basically explains why the company is doing better than then just the value of the company being assets minus liabilities. So in other words, if we were to purchase the company, you would think that you would purchase it for their assets minus the liabilities, that’s what they consist of, that’s breaking them down to their parts.
