Question

What is goodwill? What is a bargain purchase?

Short answer

Goodwill is also defined as the intrinsic value that a business has acquired above and beyond the value of its net assets. It could be due to the personality of those conducting it, the nature of its location, its reputation, or any other circumstance. Bargain purchase is when the asset acquired's fair value exceeds the cost.

Step-by-step solution

Goodwill

Goodwill should be calculated as the difference between the fair value of the acquisition cost and the fair value of the acquired net assets. This is a quantitative definition, not a mental definition of goodwill.

One or more unidentified intangible and identifiable intangible assets that are not reliably measured are sometimes defined as goodwill. New distribution channels, synergies from integrating sales staff, and a superior management team are examples of factors of goodwill.

Bargain Purchase

When the fair worth of the assets acquired exceeds the cost, it is referred to as a bargain buy (or negative goodwill). This circumstance might arise as a result of a market flaw. In this situation, the seller would have been better suited selling the assets separately rather than as a package.