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| Small Business Services: Related Articles |
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Goodwill
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You have an opportunity to buy an existing company;
with it, you will purchase the building, the equipment, and tools. What
about that something extra, that special thing that goes beyond the
tangible assets?
The special thing is actually classified as an asset called goodwill,
which you can gradually amortize until it is gone. The process was to
eliminate goodwill as slowly as possible in order to keep income and
profits high. In the past, companies have had significant leeway in
deciding the dollar value of goodwill and they have had up to 40 years
to write it off.
However, with time comes change. Now businesses must annually appraise
the fair-market value of the goodwill on their books, and if the value
has declined then the business must take the write-off in the current
year. This change will affect the financial statements of all companies
that have a balance of unamortized goodwill.
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