Goodwill allocation is the assignment of purchase price in a business acquisition to the intangible asset "goodwill"-the value of expected future benefits from reputation, customer relationships, and synergies-after identifiable assets and liabilities are measured at fair value. Under U.S. GAAP,goodwill is not amortized but tested for impairment; for U.S. tax purposes, certain acquired goodwill may be amortized over 15 years. Accurate allocation affects financial reporting, debt covenants, and tax deductions. Advisors encounter goodwill allocation when structuring buy-sell funding and estate valuations for closely held businesses.

Deal teams hire valuation experts to allocate purchase price, documenting goodwill and identifiable intangibles. Advisors align buy-sell funding and key-person coverage with the new capital structure and impairment covenants.