Goodwill is an intangible asset that arises when one company purchases another for a premium value. In the context of a business acquisition, it is common for the buyer to pay more than the market value of the target business’s identifiable assets and liabilities. The amount paid in excess of the market value is known as goodwill. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.
Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment and, therefore, cannot be directly measured. The goodwill account can be found in the assets portion of a company’s balance sheet.