Stockholders' equity is fiction, and doesn't always correlate to earnings power.
Goodwill is an asset, but it is simply an amount paid for an intangible asset above the tangible value of what is purchased. It is reduced each year, but typically increases in value each year as it relates to the longevity of an economic premium.
Several concepts that need to be understood:
Assets are based upon historical costs;
Liabilities are real;
Stockholders' equity is fiction, and doesn't always correlate to earnings power.
Goodwill is an asset, but it is simply an amount paid for an intangible asset above the tangible value of what is purchased. It is reduced each year, but typically increases in value each year as it relates to the longevity of an economic premium.
Agreed!
Under IFRS, goodwill is tested for impairment each year. But this may not reflect increased synergy from an acquisition