Goodwill: concept, features and accounting treatment

The value of a company’s name, brand reputation, loyal customer base, solid customer service, good employee relations, and proprietary technology represent aspects of goodwill. Goodwill arises when businesses are acquired or merged. There are competing approaches among accountants to calculating goodwill. One reason for this is that goodwill involves factoring in estimates of future cash flows and other considerations that are not known at the time of the acquisition. In addition, the question arises: Should goodwill be recognized if the net assets of the acquired entity are negative when the entity is acquired?