Goodwill is classified under which type of asset?

Goodwill is classified as an intangible asset because it represents the value of a company's brand, customer relationships, and other non-physical elements that contribute to its overall worth. Intangible assets are identifiable non-monetary assets without physical substance and are generally long-term in nature.

Goodwill arises, particularly during business acquisitions, when a company pays a premium over the fair value of tangible assets and identifiable intangible assets. This premium reflects elements such as reputation, loyalty of customers, and other factors that cannot be easily quantified or measured. Unlike fixed assets, which include physical objects like machinery and buildings, or current assets, which are expected to be converted to cash or consumed within a year, goodwill does not have a physical form and does not fit the criteria for these classifications. It also does not qualify as liquid assets, which are resources readily convertible to cash.

Thus, goodwill's nature and characteristics distinctly categorize it under intangible assets.