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Friday, October 22, 2010

Goodwill

If you go out and buy a company (or part of a company) but pay more for it than the fair value of assets (less liabilities), the excess is charged to an account called Goodwill. Goodwill is an intangible asset as differentiated from tangible assets. Tangible assets include property, plant, and equipment. Tangible assets have underlying substance to the costs paid and recorded in the accounting records. Intangible assets do not.

According to FAR 31.205-49, any costs associated with Goodwill on a Government contract is unallowable. This includes amortization, expensing, write-off, or write-down of goodwill (however represented). Some contractors forget to exclude Goodwill from the "facilities capital employed" base when calculating cost of money. FAR 31.205-10(b)(2) requires that Goodwill be excluded from FCCM (facilities capital cost of money) calculations as well.

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