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Goodwill is the excess paid in an acquisition beyond the fair value of net assets.
Scenario: You acquire an ice cream shop for $17,000. It has a book value of $10,000 in assets and $2,000 in liabilities. It has a fair value of $12,000 in assets and $3,000 in liabilities. What is the amount of goodwill in this acquisition?
Cross out the book values, they're irrelevant to Goodwill!
Fair Value of Net Assets = Assets - Liabilities
Fair Value of Net Assets = $12,000 - $3,000
Fair Value of Net Assets = $9,000
Note: If you've got multiple asset / liability accounts, just sum them up!
Goodwill = Purchase Price - Fair Value of Net Assets
Goodwill = $17,000 - $9,000
Goodwill = $8,000
