How can we calculate Goodwill of a firm?
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Answer Posted / ranveer singh pathania
Basic goodwill formula
Goodwill = Purchase Price – Fair Market Value of Net Assets
Fair Market Value of Net Assets = Net Tangible Assets +
Write-up of Net Assets
Net Tangible Assets = Assets – Target's Existing Goodwill –
Liabilities
As can be seen, a merger destroys the target's "old"
goodwill and creates "new" goodwill to appear in
consolidated books. Net assets write-up is prepared through
a qualified appraisal in a process known as a Purchase
Price Allocation.
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