Calculate goodwill, total purchase price, or fair value of net identifiable assets by entering any two of the three amounts in dollars.
Goodwill (Simplified) Formula
The following simplified formula is used to estimate goodwill in a business acquisition when the total purchase price (consideration) and the fair value of net identifiable assets are known (for example, a 100% acquisition with no noncontrolling interest or previously held equity interest).
GW = PP - FVA
- Where GW is the goodwill amount ($)
- PP is the total purchase price ($)
- FVA is the fair value of net identifiable assets ($)
To calculate goodwill, subtract the fair value of net identifiable assets from the total purchase price. If the result is negative, it indicates a bargain purchase amount (a gain) rather than negative goodwill.
How to Calculate Goodwill?
The following example problems outline how to calculate goodwill.
Example Problem #1:
- First, determine the total purchase price ($). The total purchase price ($) is given as 9000.
- Next, determine the fair value of net identifiable assets ($). The fair value of net identifiable assets ($) is provided as 2000.
- Finally, calculate the goodwill using the equation above:
GW = PP – FVA
The values given above are inserted into the equation below:
GW = 9000 – 2000 = 7000 ($)
Example Problem #2:
The variables needed for this problem are provided below:
total purchase price ($) = 10000
fair value of net identifiable assets ($) = 7000
Entering these values and solving gives:
GW = 10000 – 7000 = 3000.00 ($)
