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Valuing Goodwill

Purchased goodwill is normally the balancing figure between the purchase price of an acquired entity and the total fair value of the acquired assets, tangible and intangible, and liabilities. Frequently, however, the goodwill represents over half of the total purchase price - valuing this goodwill, is therefore important.

While UK GAAP and US GAAP do not require any explanation of the goodwill purchased, under IFRS rules which now apply to all UK and European quoted companies, do require an explanation of goodwill. IFRS 3, Business Combinations, requires disclosure of "...a description of each intangible asset that was not recognised separately from goodwill and an explanation of why the intangible asset's fair value could not be measured reliably...".

We can prepare an analysis of the components of goodwill enabling companies to comply with the IFRS 3 disclosure requirements and, critically, giving information of whether the price paid for the acquired entity is justified. Further, our analysis can be used to set benchmarks for future performance to measure delivery of the perceived benefits of the acquisition and to inform realistic assessment of future potential acquisitions. Such analysis will also assist with timely and straightforward completion of the audit process on the purchase price allocation.

Example Cases