In the purchase of a business, a buyer has paid more than the value of the net assets of the business. The excess payment is referred to as
Answer Details
The excess payment made by a buyer in the purchase of a business is referred to as Goodwill.
Goodwill is an intangible asset that represents the value of a business beyond its tangible assets, such as property, equipment, and inventory. When a business is sold for more than the value of its tangible assets, the excess amount is attributed to the value of the business's reputation, brand name, customer base, and other intangible assets. This excess amount is called Goodwill.
Goodwill is an important concept in business valuations, as it can significantly impact the price a buyer is willing to pay for a business. Goodwill is typically calculated by subtracting the fair market value of a company's net assets from the total purchase price paid by the buyer. The resulting amount represents the value of the intangible assets, or goodwill, that the buyer is willing to pay for.
Therefore, when a buyer pays more than the value of the net assets of a business, the excess payment is referred to as Goodwill.