CIMA BA3 Syllabus B. RECORDING ACCOUNTING TRANSACTIONS - Goodwill v Other intangibles - Notes ^{30 / 35}

Can goodwill be identified separately from the business?

No, goodwill cannot be identified separately from the business, because goodwill is an intangible asset. 

All established businesses have some goodwill, which is the value placed upon a business in excess of the sum of its individual assets.

It is due to:

• Reputation for quality or service

• Technical expertise

• Possession of favourable contracts

• Good management and staff

Two types of goodwill

1. Purchased goodwill - if a business is purchased from an existing business, the additional amount paid above the value of the assets will be the value of goodwill. This goodwill amount, because it has been purchased can be recognised in the financial statements.

2. Non-purchased goodwill - this results when a business is created as a new start up business, it is earned or created by the new owners over a period of time. Non purchased goodwill is NOT recognised in the financial statements.