USA Goodwill

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I'm new to a company and we need to book Goodwill. I have not booked Goodwill in the past. Could someone tell me how I calculate it? If this helps, we acquired two small companies, the PP&E is $100,000 and the Goodwill in the purchase agreement shows $600,000, with a security deposit of 10,000. The inventory (fair market value) between both companies is $50,000.

What else is needed to do the calculation and what is the calculation?

Your help is greatly appreciated!
 
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DrStrangeLove

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In broad strokes, at the acquisition date, goodwill is the difference between the purchase price paid and the fair value of the identifiable assets (the sum of the book value of the identifiable assets and the difference between their fair value and their book value). Read ASC 805 (if I recall correctly) to get the details on initial and subsequent recognition. There are some details about non-controlling interests that may apply to your situation, so check the FASB Codification for other applicable standards.

Did your company acquire the two purchased companies by simply buying all their assets and liabilities, or did your company acquire controlling stakes in them and hold them as subsidiaries? The two methods of acquiring the companies lead to different entries. A textbook on advanced financial accounting like Cottrell & Christensen (you can get the latest edition on Amazon) will walk you through the analysis and example journal entries you can adapt to your circumstances.
 

DrStrangeLove

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Correction: goodwill is in ASC 350-20, not in ASC 805. My apologies.
 

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