The McGraw-Hill 36-Hour Course: Finance for Non-Financial Managers 3/E, 3rd Edition

APPENDIX FGOODWILL

This sounds as though it is a dollar value of the reputation and good name of the company. In a way, it is, but many companies with a good reputation and faithful customers have no such item listed in their assets, while others do. Why? It has to do with the requirement that a balance sheet must balance.

After several years of operating the Spouse House Company, Rosie Rouse found that most customers wanted fancy carpet installed. She could make additional profit if she owned a carpet store, and Carl, a local carpet merchant, wanted to sell his store and retire. Carl operated as a sole proprietorship, and a summary of his balance sheet looked like this:

Although the equity, based on the book value of assets is only $75,000, ...