Is goodwill amortized under US GAAP?

Under ASC 350, goodwill is not amortized for public companies. Instead it is tested for impairment at least annually. Private companies and not-for-profits may elect to amortize goodwill on a straight-line basis over a period not to exceed 10 years under ASC 350-20.

What triggers a goodwill impairment charge?

A triggering event such as a significant revenue decline, loss of a major customer, regulatory change, or sustained market cap below book value prompts an impairment test. If the carrying amount of the reporting unit exceeds its fair value, goodwill is written down by the difference (limited to the carrying amount of goodwill).

Why do acquirers pay a premium that results in large goodwill balances?

Goodwill represents expected synergies, assembled workforce, brand reputation, and strategic value not captured in identifiable assets. Overpaying (hubris, competitive bidding) can also inflate goodwill, which is why large impairment charges often follow ill-timed acquisitions.

Goodwill Calculator

Calculate business goodwill as the excess of purchase price over the fair value of net identifiable assets acquired in a business combination.

By AbraCalc Editorial Team · Reviewed by AbraCalc Methodology Review · Last reviewed: 2026-06-25

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How to use this tool

Enter purchase price (consideration paid), fair value of identifiable assets and fair value of liabilities assumed in the fields above.
Results update instantly as you type — or click Calculate.
Read your goodwill and the full breakdown beneath it.

⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.

Formula

Goodwill = Purchase Price − Fair Value of Net Identifiable Assets

Net Assets = Fair Value of Assets − Fair Value of Liabilities

How it works

Goodwill arises in a business acquisition when the buyer pays more than the fair value of the target's identifiable net assets. It reflects intangible value such as brand reputation, customer relationships, and workforce quality. Under ASC 805 and IFRS 3, goodwill is recorded on the acquirer's balance sheet and tested annually for impairment rather than amortized.

Worked example

Acquisition with $2,500,000 Goodwill

Purchase price paid: $5,000,000
Fair value of identifiable assets: $4,000,000
Fair value of liabilities assumed: $1,500,000
Net identifiable assets = $4,000,000 - $1,500,000 = $2,500,000
Goodwill = $5,000,000 - $2,500,000 = $2,500,000

Goodwill = $2,500,000

Common mistakes to avoid

Failing to step up target identifiable assets to fair value before computing goodwill: purchase price minus historical book value overstates goodwill by ignoring appreciated intangibles like customer lists, patents, and trademarks.
Including contingent liabilities at arbitrary amounts: IFRS 3 and ASC 805 require contingent liabilities assumed in an acquisition to be measured at fair value at the acquisition date, not at a best-case or zero value.
Confusing bargain purchase (negative goodwill) with an accounting error: if fair value of net assets exceeds purchase price, the difference is recognized immediately as a gain in income, not as negative goodwill on the balance sheet.

Key terms

What is goodwill?: Goodwill is an intangible asset representing the premium paid over the fair value of a target company's net identifiable assets in an acquisition.
What is purchase price allocation?: Purchase price allocation (PPA) is the process of assigning the acquisition cost to all identifiable assets and liabilities at fair value, with any residual recorded as goodwill.
Is goodwill amortized?: Under US GAAP (ASC 350), goodwill is not amortized but tested at least annually for impairment. Under IFRS, the same applies (IAS 36).
What is negative goodwill?: Negative goodwill (a bargain purchase) occurs when the purchase price is less than the fair value of net assets. It is recognized immediately as a gain in the income statement.
What intangibles are excluded from goodwill?: Identifiable intangibles such as patents, trademarks, and customer lists are separated from goodwill and recorded at fair value; only the unidentifiable residual premium is goodwill.

Frequently asked questions

Is goodwill amortized under US GAAP?: Under ASC 350, goodwill is not amortized for public companies. Instead it is tested for impairment at least annually. Private companies and not-for-profits may elect to amortize goodwill on a straight-line basis over a period not to exceed 10 years under ASC 350-20.
What triggers a goodwill impairment charge?: A triggering event such as a significant revenue decline, loss of a major customer, regulatory change, or sustained market cap below book value prompts an impairment test. If the carrying amount of the reporting unit exceeds its fair value, goodwill is written down by the difference (limited to the carrying amount of goodwill).
Why do acquirers pay a premium that results in large goodwill balances?: Goodwill represents expected synergies, assembled workforce, brand reputation, and strategic value not captured in identifiable assets. Overpaying (hubris, competitive bidding) can also inflate goodwill, which is why large impairment charges often follow ill-timed acquisitions.