Per Wikipedia, goodwill is an intangible asset when one company pays more than the fair market value of the net assets of another company. We are not concerned as to the reason why a company would pay more than the market value, but that purchases of this variety are frequent and these frequent purchases are confirmed by the agreement among accountants to create a standard for determining various accounting and tax liabilities for this type of acquisition. In the simplest non GAAP terms, goodwill is the difference between the value and the price paid:
Price Paid-Value=Goodwill
We explicitly state that the price must exceed the value, otherwise goodwill will not created. As Apprentice Tyler realized, the formula for goodwill and gross profit are eerily similar.
Revenue-Cost of Goods Sold=Gross Profit
We are aware that when other costs are subtracted from Gross Profit the result is Net Profit, but these deductions will not concern us. In the aggregate, we can state the following:
or
Revenue-Cost of Goods Sold=Gross Profit
We acknowledge that it would be absurd for the employees of Apprentice Tyler Accounting LLC to argue before tax authorities that "good will" and "gross profit" are, in fact, identical. However, the reality is that they are the same and it is only the application of the tax code that creates an artificial and arbitrary distinction between Goodwill and Gross Profit.
We can understand why a Doctor of Theology (Karl Marx) had difficulty comprehending where and how capital is created and expanded. Marx explicitly states that the consumer is not exploited, but the worker who labors under the capitalist. The worker who is paid by the capitalism will inevitably buy goods from another capitalist, so Marx is correct when he writes that the worker is exploited, but not in the manner as he would have the reader believe. The absurdity of thinking that the worker is due the different between cost of goods sold and the price paid is laid bare by the following example.
I’ve saved for several weeks and I venture to my local retailer and pay $200 for my “Victory” shoes. For this example, we will assume the cost of materials is $10 and, after subtracting various costs amounting to $10 for my shoes, the Gross Profit is $180. Per Marx, this $180 was exploited from the workers in a third world country. If one worker creates one pair of “Victory” shoes per hour, his exploitation amounts to $180 an hour. No reasonable person would accept the premise that an hourly worker in the US would be worth $180 an hour, but Marxists are sincere in their believe that this amount is exploited from an inhabitant of a third world country. It is more likely that George has been exploited (“A fool and his money…) by being convinced that “Victory” shoes have an intangible value above the market price for a pair of shoes, such as increased dunking ability.
If I have under estimated additional expenses by tenfold ($10x10=$100) and the cost of material fivefold ($10x5=$50), the result is that our hypothetical worker is due $50 an hour ($200-$50-$100=$50) for each pair of shoes, this $50 is well above the average hourly wage in the United States.
In conclusion, anytime I purchase goods for more than the tangible value, per Marx, I am being exploited and, paradoxically, per Apprentice Tyler, I am creating goodwill.
And remember, by taking your tax return to “Apprentice Tyler Accounting LLC”, you could serve up to fifteen years.