USA Goodwill in GAAP

[bencooper]

What is the purpose of journilizing the entry "goodwill" when one company purchases another company. In my mind there would be no need for creating a goodwill account because Accounting is meant to account for what your company"s value is on a cost basis. What I mean by that is I don't whimsical say one day my company "A" is worth an extra 1000 dollars in assets b/c the value of its brand/ reputation/ etc so why when one company purchases another company Gaap causes my company "A" to journalize "goodwill" rather than just writing a loss from the buy and letting the reader assume the intangible benefit of buying a new company for let say their reputation or customer list,like a reader would assume my company "A" is worth more than its net book value before Company "A" bought the new company .

So in short why does Gaap desire goodwill and why does Gaap only have goodwill when one company purchases another company? Ty

 

[Fidget]

It's because a business can be valued and more (or less) that what its net assets are actually worth, the difference is goodwill - either positive or negative.

And goodwill only arises at the point of buying/selling a business because is not possible to distinguish any internally generated goodwill from the normal operations of the organisation and therefore it can only be calculated if the business is being bought/sold.

It's not that much different from buying a house. You can have two houses with same spec, yet one attracts a higher selling price than the other because of its location, proximity to amenities etc.