Goodwill
Definition
An intangible asset recorded when a company acquires another business for more than the fair value of its identifiable net assets.
Explanation
Goodwill = Acquisition Price - Fair Value of Net Identifiable Assets. It represents the premium paid for brand value, customer relationships, workforce quality, and synergies. Goodwill is not amortized but is tested for impairment annually. A goodwill impairment charge indicates the acquired business is worth less than what was paid — essentially an admission that the acquisition overpaid. Large impairment charges (like AOL-Time Warner's $99B write-down) can dramatically reduce reported equity.