There are many Accounting students and even business owners who find it difficult to understand the process of calculating goodwill in an acquisition scenario. The key point in this process is to evaluate the net assets of the acquiring firm that are separable from the net assets of the acquired firm in terms of fair value. For example, if the purchase price of a business firm is $800,000 and the fair value of the net assets of the purchased business is $650,000, then goodwill will be $150,000 (not considering any other adjustments for acquisition). The calculation process may include other details like liabilities and other forms of considerations. This is significant to note since it explains the reason for the higher valuation of an acquired business compared to its separate components. Which part of the calculation process is the most perplexing?
