Goodwill is the amount by which the value of a business exceeds the fair value of its net assets (its assets less liabilities). Goodwill is an intangible asset of a business, but normally it is not recognised as an asset in the financial statements.
The value of a business is usually more than the net assets of the business because it reflects the trading potential that the business, i.e. its ability to generate profits in the future. All successful businesses have goodwill, which means that buyers will be prepared to pay more to acquire the business than the value of its net assets.
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