How To Calculate Goodwill

How To Calculate Goodwill

Now that’s a great question. Let’s look at the IRS definition.

Defining GoodwillRegs. … 1.197-2(b)(1) defines goodwill as “the value of a trade or business attributable to the expectancy of continued customer patronage,” and that “[t]his expectancy may be due to the name or reputation of a trade or business or any other factor.” In Rev.Apr 30, 2014

So when I read this I ask myself, so how do you calculate goodwill?

How about this definition?

“Goodwill is calculated as the difference between the amount of consideration transferred from acquirer to acquiree and net identifiable assets acquired.”

Therefore GW calculated when an asset or company assets are acquired. But I never acquired another company and I have over 30,000 customers, 8,000 plus 5-star ratings, and millions in income over several years based on my company name and reputation. What’s that worth? The simple answer for me is this.

The Goodwill in my company, which I do not show on my balance sheet is the amount of time and money it would take to reproduce what I have created over the last 10 years. It should also include my 35 years of experience in the same business called asset recovery. And my 4 published books and clear definition on how to start and operate your own Asset recovery business.

Now for you to create an 8000 plus 5-star rating on Amazon and or eBay depending on what you are selling. It took me about 25K to 30K shipments of products to get those ratings. How about the many years buying and finding certain hard to find suppliers? What’s that worth? Or the intrinsic value of future earnings using the Warren Buffets calculation?

It’s really a tough and very good question because I have struggled with this question myself over the years too. How about the Good Will Value I have built up with lenders like Paypal Capital, and or direct lines of credit with big banks and not to mention my financial reputation with vendors and the SBA for that matter?

Notice all the above are questions. Because I have no clear cut answer but I do put forth more importantly what the IRS defines as being the clear definition because they are the ultimate decider on the definition, or are they?

To me, GW is based on whatever someone will pay for that GW. Apple Computers Net Book value of its shares that sell for $127 is about $35. So the goodwill would be about 3.6 X that about. But we are talking about Apple, not my little company that makes nothing and has no definitive brand of its own. I just print cash buying other people’s big brand name assets and reselling them for cash.

Definition of Goodwill

Apple did not report meaningful goodwill for the latest quarter ending September 26, 2020, on its balance sheet.

2019-12-28 340.6 B

So Apple shows GW of 340 Billion on a 2 trillion valuation.

Microsoft’s Good Will is nicely Borken down on this link. It has several categories like Technology based GW, Customer-Related GW, Marketing Related GW, and Contract-based GW. Now, this looks really nice when you see it on this link.

Microsoft Corp. (NASDAQ: MSFT) | Goodwill and Intangible Assets

MSFT Intangible Assets and GW total about 50 Billion. Considering that the company has a current Value of 1 Trillion dollars. But a $212.65 share price and a netbook value of less than $17.

Conclusion

Each company uses its own method for calculating its GW and intangible assets. They employ an army of accountants and lawyers to defend their GW and my view is that companies like Apple and Microsoft take a relatively realistic valuation unless someone out there contests it, and so far I don’t see that happening.
My company has 100,000 shares and a net profit of $325,000 or $3.25 a share. You duplicate my company for $325,000 because it could take years to do it along with the abovementioned customer, reputation, and name. I place at least another $3.25 of goodwill on top of this giving me a valuation of $6.50 a share. Since the company is private I place a conservative valuation of 3X this amount on the low end and 5X on the upside for a total valuation of about $325K X 5 or 1.625 million.

The Goodwill is determined if or when I sell the company and what someone is willing to pay me for it. At that point, GW is established according to IRS ruling of what someone actually pays for the company.

IRS CODE Definition of amortization purchase

“You must generally amortize over 15 years the capitalized costs of “section 197 intangibles” you acquired after August 10, 1993. You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income.

Note: You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Refer to Anti-Churning Rules in Publication 535, Business Expenses.”

Mike Addis Carlsbad, California all rights reserved

Disclaimer
Please read this disclaimer (“Disclaimer”) carefully before using the Maddiscash.com website operated by Mike Addis.
The content displayed on the website is the intellectual property of Mike Addis. You may not
reuse, republish or reprint such content without our written consent.
All information posted is merely for educational and informational purposes. It is not intended
as a substitute for professional advice. Should you decide to act upon any information on this
website, you do so at your own risk.
While the information on this website has been verified to the best of our abilities, we cannot
guarantee that there are no mistakes or errors.
We reserve the right to change this policy at any given time, of which you will be promptly
updated. If you want to make sure that you are up to date with the latest changes, we advise
you to frequently visit this page.

 

 

This question was posed to me on Quora https://www.quora.com/

Now that’s a great question. Let’s look at the IRS definition.

Defining GoodwillRegs. … 1.197-2(b)(1) defines goodwill as “the value of a trade or business attributable to the expectancy of continued customer patronage,” and that “[t]his expectancy may be due to the name or reputation of a trade or business or any other factor.” In Rev.Apr 30, 2014

So when I read this I ask myself, so how do you calculate goodwill?

How about this definition?

“Goodwill is calculated as the difference between the amount of consideration transferred from acquirer to acquiree and net identifiable assets acquired.”

Therefore GW calculated when an asset or company assets are acquired. But I never acquired another company and I have over 30,000 customers, 8,000 plus 5-star ratings, and millions in income over several years based on my company name and reputation. What’s that worth? The simple answer for me is this.

The Goodwill in my company, which I do not show on my balance sheet is the amount of time and money it would take to reproduce what I have created over the last 10 years. It should also include my 35 years of experience in the same business called asset recovery. And my 4 published books and clear definition on how to start and operate your own Asset recovery business.

Now for you to create an 8000 plus 5-star rating on Amazon and or eBay depending on what you are selling. It took me about 25K to 30K shipments of products to get those ratings. How about the many years buying and finding certain hard to find suppliers? What’s that worth? Or the intrinsic value of future earnings using the Warren Buffets calculation?

It’s really a tough and very good question because I have struggled with this question myself over the years too. How about the Good Will Value I have built up with lenders like Paypal Capital, and or direct lines of credit with big banks and not to mention my financial reputation with vendors and the SBA for that matter?

Notice all the above are questions. Because I have no clear cut answer but I do put forth more importantly what the IRS defines as being the clear definition because they are the ultimate decider on the definition, or are they?

To me, GW is based on whatever someone will pay for that GW. Apple Computers Net Book value of its shares that sell for $127 is about $35. So the goodwill would be about 3.6 X that amount. But we are talking about Apple, not my little company that makes nothing and has no definitive brand of its own. I just print cash buying other people’s big brand name assets and reselling them for cash.

Definition of Goodwill

Apple did not report meaningful goodwill for the latest quarter ending September 26, 2020, on its balance sheet.

2019-12-28 340.6 B

So Apple shows GW of 340 Billion on a 2 trillion valuation.

Microsoft’s Good Will is nicely Borken down on this link. It has several categories like Technology based GW, Customer-Related GW, Marketing Related GW, and Contract-based GW. Now, this looks really nice when you see it on this link.

Microsoft Corp. (NASDAQ:MSFT) | Goodwill and Intangible Assets

MSFT Intangible Assets and GW total about 50 Billion. Considering that the company has a current Value of 1 Trillion dollars. But a $212.65 share price and a netbook value of less than $17. Go figure?

Conclusion

Each Public company uses its own method for calculating its GW and intangible assets. They employ an army of accountants and lawyers to defend their GW and my view is that companies like Apple and Microsoft take a relatively realistic valuation unless someone out there contests it, and so far I don’t see that happening.

My company has 100,000 shares and a net profit of $325,000 or $3.25 a share. You can’t duplicate my company for $325,000 because it could take years to do it along with my above-mentioned customer base, reputation, and name. I place at least another $3.25 of goodwill on top of this giving me a valuation of $6.50 a share. Since the company is private I place a conservative valuation of 3X this amount on the low end and 5X on the upside for a total valuation of about $325K X 5 or 1.625 million.

The Goodwill is determined if or when I sell the company and what someone is willing to pay me for it. At that point, GW is established according to IRS ruling of what someone actually pays for the company.

IRS CODE Definition of amortization purchase

“You must generally amortize over 15 years the capitalized costs of “section 197 intangibles” you acquired after August 10, 1993. You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income.

Note: You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Refer to Anti-Churning Rules in Publication 535, Business Expenses.”

Mike Addis Mega Shop – Maddiscash

Disclaimer
Please read this disclaimer (“Disclaimer”) carefully before using the Maddiscash.com website operated by Mike Addis.
The content displayed on the website is the intellectual property of Mike Addis. You may not
reuse, republish or reprint such content without our written consent.
All information posted is merely for educational and informational purposes. It is not intended
as a substitute for professional advice. Should you decide to act upon any information on this
website, you do so at your own risk.
While the information on this website has been verified to the best of our abilities, we cannot
guarantee that there are no mistakes or errors.
We reserve the right to change this policy at any given time, of which you will be promptly
updated. If you want to make sure that you are up to date with the latest changes, we advise
you to frequently visit this page.

Leave a Reply

Your email address will not be published. Required fields are marked *