Hence, it is tagged to a company or business and cannot be sold or purchased independently, whereas other intangible assets like licenses, patents, etc.

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One of the concepts that can give non-accounting (and even some accounting) business folk a fit is the distinction between goodwill and other intangible assets in a companys financial statements.

After all, goodwill denotes the value of certain non-monetary, non-physical resources of the business, and that sounds like exactly what an intangible asset is.

However, many factors separate goodwill from other intangible assets, and the two terms represent separate line items on a balance sheet.

Goodwill is a miscellaneous category for intangible assets that are harder to parse out individually or measured directly.

Customer loyalty, brand reputation, and other non-quantifiable assets count as goodwill.

A companys record of innovation and research and development and the experience of its management team are often included, too.

Goodwill cannot exist independently of the business, nor can it be sold, purchased, or transferred separately.

As a result, goodwill has a useful life which is indefinite, unlike most of the other intangible assets.

When a company buys another firm, anything it pays above and beyond the net value of the targets identifiable assets becomes goodwill on the balance sheet.

Say a soft drink company was sold for 120 million; it had assets worth 100 million and liabilities of 20 million.

The sum of 40 million that was paid over and above 80 million (the value of the assets minus the liabilities) is the worth of goodwill and is recorded in the books as such.

Look at this example of an assets section of a balance sheet.

Intangible assets are those that are non-physical, but identifiable.

Think of a companys proprietary technology (computer software, etc.), copyrights, patents, licensing agreements, and website domain names.

These arent things that one can touch, exactly, but it is possible to estimate their value to the enterprise.

Intangible assets can be bought and sold independently of the business itself.

Theres also a key distinction in how the two asset classes are amended once theyre on the books.

Because assets tend to lose some of their value over time, companies sometimes have to make periodic write-downs.

Intangible assets are amortized, which means a fixed amount is marked down every year, resulting in a simultaneous charge against earnings.

The amortization amount is adjusted if the assets value is impaired at some point after its acquisition or development.

While goodwill and intangible assets are sometimes used interchangeably, there are significant differences between the two in the accounting world.

Goodwill is a premium paid over the fair value of assets during the purchase of a company.

Intangible Assets From Acquisition