When a business is purchased from a sole trader, the excess of the purchase price over the net assets is

When a business is purchased from a sole trader, the excess of the purchase price over the net assets is called goodwill. Goodwill represents the intangible value of the business, such as its reputation, customer base, and brand recognition, that cannot be directly attributed to its tangible assets. It is calculated as the difference between the purchase price of the business and the fair market value of its net assets, which include tangible assets such as property, plant, and equipment, as well as current assets and liabilities. Goodwill is recorded on the balance sheet as a non-current asset and is subject to periodic impairment testing.