why do we add the DTL in calculating goodwill

Flomm's picture
Rank: Senior Baboon | 190

I've seen the attached example of calculating Goodwill in an M&A transaction. However, I don't completely understand:

(1) why is the DTL added back to arrive at goodwill?
(2) why does the DTL only equal the write-up applied to the intangible assets?

Can somebody help?

Comments (3)

Aug 14, 2019

Good Will = offer value - net identifiable asset - asset (tangible and intangible) write up + deferred tax liability created as a result of those write up

Aug 14, 2019
  1. DTL is created to capture the difference between tax and book accounting that resulted from the write up
  2. DTL is created from writeups for both tangible and intangible assets, using acquisition tax rate x sum(writeups
Aug 15, 2019