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The Components of Purchased Goodwill in Businesses Combinations

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  • Violeta SACUI

    () (Faculty of Economics and Business Administration Timisoara, Romania)

Abstract

Purchased Goodwill appears when a company acquires another company. It can be defined as an intangible asset that arises as a result of the acquisition of one company by another for a premium value. International accounting standards the IASC or the FASB require acquiring firms to record goodwill as an asset when they purchase a target firm and pay more than the fair market value of the identifiable net assets of that firm. In this paper I have tried to identify the rationale of existence the purchased goodwill and the components of it. It is viewed as a component of the purchase price that can be decomposed into certain elements that often can explain the realizing of transaction. Purchased goodwill can be interpreted as a purchase premium which is paid by the acquirer over the value of the net identifiable assets of acquire. This payment will allow the acquiring company entering into the possession of certain valuable resources for it.

Suggested Citation

  • Violeta SACUI, 2016. "The Components of Purchased Goodwill in Businesses Combinations," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 17(1), pages 47-53, March.
  • Handle: RePEc:rom:rmcimn:v:17:y:2016:i:1:p:47-53
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    File URL: http://rmci.ase.ro/no17vol1/04.pdf
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    References listed on IDEAS

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    1. Roychowdhury, Sugata & Watts, Ross L., 2007. "Asymmetric timeliness of earnings, market-to-book and conservatism in financial reporting," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 2-31, September.
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    Keywords

    goodwill; intangible; asset; company; acquisition; price; component.;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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