So D student emailed me. His official reason for missing the appointment is he overslept. I am giving him points for honesty there. Ugh. I feel for him, it's just... meet me halfway!

Tom thanks for the WSJ mixed puppies thing--they are so cute! Now i want a morkie! :)

I just found out that Tim Hetherington was killed today in Libya. I'm a little stunned that he made it out of the Korengal Valley but not Misrata.

Gud, I'm so sorry. This month has been a pisser for you, and I hope May treats you much better.

I'm guessing goodwill is taxed differently than capital gains or profits.

Goodwill, in the accounting sense, is an asset, while capital gains and profits are items in the income statement, so they will be taxed differently (taxes, for the most part, are levied on profits.) IIRC, accounting rules concerning goodwill are largely concerned with ensuring it doesn't then distort taxation (e.g. by being amortized as an expense over time).

As tommyrot notes, the item is an accounting necessity, because accounts carry thebook value of assets (non-investment assets at least, and possibly even them), but this differs from the market value. Take tommyrot's example. The $1m is the price of everything the purchased company owns, that can be measured and priced. It's most akin to what you'd get if you broke up the company and sold all its equipment, property, investments etc (and paid off its liabilities, of course).. However, if the company's making decent use of its assets, it's worth more as a going concern. There are intangibles, like the way they've organized those assets, their customer base and so on. Therefore, the buying company is willing to shell out an extra $200k over the book value for all that good stuff.

Now it has an accounting problem. It's got another million in assets that it can put in its books. However, it's paid out $1.2m. That's a $200k hole in the books there. The iron law (such as it is) of double entry accounting is that everything has to balance; therefore, that $200k needs to go in as something. It doesnt make sense to call it a loss, and that'd give the company an unwarranted tax break. So, it's entered as an asset called goodwill.

Why call it goodwill? Recall that it arises because a company has intangible assets, one of the major ones being that its customers are already willing to buy from it. For instance, Kraft bought Cadbury last year. Cadbury was worth a lot more than its book assets, because it's a popular brand - it has a lot of goodwill from its customers. Goodwill towards a company has value, and that value is a key driver of the difference between a company's book value and its market value.

billytea, where were you when I was suffering through the worst intro to accounting class in the known and unknown universe?

Your explanation is perfect for my accounting-challenged brain. Thank you.

So goodwill=Extra Money We Can Pull Because We're So Awesome, Booyah!

I suppose Goodwill looks more professional in the Annual Report.

Timelies all!

{{{Gud, Jilli & Pete, FredPete & Hubs and anyone else having crap happen to them}}}

So goodwill=Extra Money We Can Pull Because We're So Awesome, Booyah!

Not exactly, because of an important point tommyrot mentioned: a company accounts for goodwill when it buys another company. It does not get to put its own goodwill on the books. The market might think that it's just the most awesome thing ever to go with awesomesauce, but it won't make a bit of difference to its accounts. However, if it buys the company that has been declared Teh Awesome, then it has to account for it. Because it had to pay for Teh Awesome, oh yes it had to pay.

I suppose Goodwill looks more professional in the Annual Report.

They save the Booyahs for the explanatory notes.

So the goodwill in the report represents goodwill we acquired from another company that we bought.