Goodwill is the premium paid above the book value. It occurs because most corporate purchases occur above the value the acquired company has on the books. An

Goodwill is the premium paid above the book value. It occurs because most corporate purchases occur above the value the acquired company has on the books. An example: My company has a book (accounting) value if $10 million. I sell it to you for $30 million. $20 million of that becomes an asset on your books of "Goodwill" - a catch-all for the brand value above and beyond my tangible assets. If at some point you don't think you can generate earnings to justify the premium, you write it down. This is what Microsoft did. For a longer explanation: http://en.wikipedia.org/wiki/Goodwill_(accounting) http://en.wikipedia.org/wiki/Goodwill_(accounting)