Goodwill is an accounting term used to describe the intangible value that a business possesses beyond its identifiable assets and liabilities. It is typically the additional price that a buyer pays in connection with the acquisition of a company, because the company has something that creates value that cannot be measured directly in numbers.
What does goodwill consist of?
- Kundeloyalitet – a stable customer base that ensures future income.
- Brand and reputation – a strong name that creates trust and higher market value.
- Medarbejdernes viden – know-how, culture and competences that cannot be purchased separately.
- Forretningsforbindelser – partnerships, supplier relationships and networks.
Goodwill i regnskabet
Goodwill only arises when a business is purchased for a higher price than its book value of assets less liabilities. It is booked as an intangible asset in the balance sheet. According to accounting standards (IFRS and Danish rules), goodwill must not be written off systematically, but instead tested annually for impairment (impairment test). If the value is assessed to be lower than the book value, it must be written down, which directly affects the income statement.
Example
If a company has assets worth DKK 10 million and debt for DKK 4 million. DKK, the registered equity is DKK 6 million. If a buyer pays DKK 8 million for the company, a goodwill of DKK 2 million arises. DKK. This amount reflects the expected added value, which cannot be measured in physical assets.
Why is goodwill important?
Goodwill is central because it shows that a company's value lies not only in buildings, machinery and cash, but in its ability to generate revenue through relationships, knowledge and market position. For investors and buyers, goodwill provides an insight into how attractive and robust a company is in the long term.