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Purchased goodwill is when we buy another company and pay more for it than the tangible assets are worth – the reason we pay more is because we are buying the goodwill that the company we are buying has generated.
Non-purchased goodwill is the goodwill we have generated in our own business – the fact that our own business is worth more than the value of the tangible assets. However we cannot show this in our own statements because we do not know what the true worth of this goodwill is.
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