|Purpose:||(L.O. 6) This exercise illustrates the steps in estimating the value of goodwill.|
Mr. Judski is contemplating the sale of his business, Classic Vettes. The following data are available.
|Book value of tangible & identifiable intangible assets less liabilities||$135,000|
|Fair market value of tangible & identifiable intangible assets less liabilities||200,000|
|Estimated fair market value of the business as a whole||240,000|
TIP: Companies record goodwill only when an entire business is purchased (that is, what some people call “internally generated” goodwill cannot be recorded). When an entire business is purchased, goodwill is the excess of cost over the fair market value of the net identifiable assets acquired. Net identifiable assets are determined by deducting total liabilities from total identifiable (tangible and intangible) assets.