Accounting for valuation of share

Study Notes

Goodwill is an intangible asset that is recognized in the financial statements when one company acquires another
Goodwill is not amortized, but rather tested for impairment annually or when a triggering event occurs
Impairment loss is recognized when the carrying value of goodwill exceeds its recoverable amount
Goodwill is presented as a separate line item on the balance sheet, typically under the heading "Intangible Assets"

There are two methods to calculate goodwill:
1. Purchase Method: Goodwill is calculated as the excess of the purchase price over the net assets acquired
  - Goodwill = Purchase Price - Net Assets Acquired
2. Capitalization Method: Goodwill is calculated by capitalizing the excess earnings of the acquired business
  - Goodwill = Excess Earnings / Capitalization Rate
Excess Earnings: The earnings of the acquired business in excess of a normal rate of return on the net assets employed
Capitalization Rate: The rate of return that a prudent investor would expect to earn on an investment with a similar level of risk
Net Assets Acquired: The fair value of the assets acquired, minus the fair value of the liabilities assumed

Goodwill is an intangible asset recognized in financial statements when one company acquires another
Goodwill is not amortized, but tested for impairment annually or when a triggering event occurs
Impairment loss is recognized when goodwill's carrying value exceeds its recoverable amount
Goodwill appears as a separate line item on the balance sheet under "Intangible Assets"

Goodwill = Excess Earnings / Capitalization Rate
Calculates goodwill by capitalizing excess earnings of acquired business
Excess Earnings: Earnings of acquired business in excess of normal rate of return on net assets employed
Capitalization Rate: Rate of return a prudent investor would expect to earn on investment with similar risk
Net Assets Acquired: Fair value of assets acquired minus fair value of liabilities assumed