Goodwill

Goodwill = Excess of Acquisition Price over Net Book Value.

Net book value = Total Assets, or Liabilities + Shareholder capital

If the acquisition price is A, and Net Book Value = B.

Goodwill = A - B.

Beware: Although Goodwill is usually written off over a relatively long period of time, up to 40 years, it remains a non cash expense against the profit and loss account.

Goodwill balance should also be reviewed from time to time.

If the goodwill value carried in a company's books is too high in relation to current market conditions, then a one off "impairment adjustment" should be debited from the profit and loss account, to bring the goodwill balance in to line with reasonable value.