A company buys 100 percent of another business for 150 million euro. The target's identifiable net assets are worth 100 million at fair value. The remaining 50 million is goodwill.
| Million euro | Amount |
|---|---|
| Consideration paid | 150 |
| Identifiable net assets at fair value | -100 |
| Goodwill | 50 |
Illustrative case, round numbers.
Under IFRS goodwill is not amortized. It stays on the balance sheet until an impairment test says the business is worth less, and then the write-down goes through the income statement. No cash leaves the company that day, and the loss cannot be reversed later.
Behind a headline about a billion written down there is usually this: a price paid years ago, tested against what the business is expected to earn today.