Goodwill is an intangible asset that is associated with the purchase of one company by another. It represents the value that can give the acquiring company a competitive advantage. Goodwill is recorded as an intangible asset on the acquiring companys balance sheet under the long-term assets account. Goodwill is considered an intangible (or non-current) asset because it is not a physical asset like buildings or equipment. Under the generally accepted accounting principles (GAAP) and the International Financial Reporting Standards (IFRS), companies are required to evaluate the value of goodwill on their financial statements at least once a year and record any impairments.

Goodwill is calculated as the difference between the purchase price of a company and the fair value of its net assets. It is not amortized or depreciated but is instead periodically tested for goodwill impairment. If the goodwill is thought to be impaired, the value of goodwill must be written off, reducing the company’s earnings.

Some assets that are categorized as goodwill include:

• Business reputation
• Brand name
• Customer relationships
• Intellectual property

Goodwill is a non-current asset and is shown on the balance sheet as a long-term or non-current asset. It cannot be sold or transferred separately from the business as a whole.