What is goodwill? How does it affect net income?



What is goodwill? How does it affect net income?..

Answer / Ajay Vikram

Goodwill is an intangible asset that arises from the acquisition of another company when its fair market value exceeds the sum of the fair values of its individual assets and liabilities. It represents the excess amount paid for synergies, brand reputation, customer loyalty, etc., that are not separately identifiable. Goodwill does not generate cash flows on its own and is tested annually for impairment. Its presence does not affect net income directly but can impact it indirectly through changes in its value over time.

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