goodwill

In accounting, goodwill is an intangible asset recognized when a firm is purchased as a going concern. It reflects the premium the buyer pays over the net value of its other assets. Goodwill is often understood to represent the firm's intrinsic ability to acquire and retain customer business, where that is not attributed more specifically to a brand name, contractual arrangements, or otherwise. It is recognized only through an acquisition; it cannot be self-created. It is classified as an intangible asset on the balance sheet because it cannot be seen or touched.

Under U.S. GAAP and IFRS, goodwill is never amortized for public companies, because it is considered to have an indefinite useful life. On the other hand, private companies in the United States may elect to amortize goodwill over a period of ten years or less under an accounting alternative from the Private Company Council of the FASB. Instead, management is responsible for valuing goodwill every year and determining if an impairment is required. If the fair market value falls below the historical cost (the amount for which goodwill was purchased), an impairment must be recorded to adjust it down to fair market value. However, an increase in fair market value would not be recognized in this way, and may instead be attributed to other assets.