Financial Terms - Goodwill

What does it means...
An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for the target firm's intangible assets.

What investopedia says...
Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.

Details here.

goodwill = intangible assets
Can you count on goodwill?
New Accounting Rules Could Roil The Markets

wikipedia goodwill definition here.
The acquiring company must recognize goodwill as an asset on its financial statements and present it as a separate line item on the balance sheet, according to the current purchase accounting method.

Instead of deducting the value of goodwill annually over a period of maximal 40 years, companies are now required to value fair value of the reporting units, using present value of future cash flow, and compare it to their carrying value (booked value of assets plus goodwill minus liabilities.) If the fair value is less than carrying value (impaired), the goodwill value needs to be reduced so the fair value is equal to carrying value. The impairment loss is reported as a separate line item on the income statement, and new adjusted value of goodwill is reported in the balance sheet.

carrying value = what is recorded
fair value = market value

If a company management team is constantly writing down goodwill, it is giving off a telltale signal that management has made poor decisions. Investors may want to rethink the investment.

It is worth the effort to examine goodwill. The account is located on the balance sheet, but more often than not it is lumped together with other assets and disclosed in the footnotes at the end of the financial statements. Once identified, it should be handled with care, and the sources of its value scrutinized.

FAS 142 eliminates amortization and institutes an annual impairment test.