How it is worked out
The price of an acquisition less the fair value of the assets and liabilities acquired. It is not amortised: it is tested every year, and when the business bought is worth less, an impairment is written. The note gives goodwill by segment.
How to read it
- It shows how much of the assets is payment for acquisitions rather than something that could be sold on its own.
- A large impairment says an acquisition earned less than was paid for it. It is an accounting entry, not a cash payment that year.
Example
A company buys another for $5bn with $3bn of net assets: it books $2bn of goodwill.