Samvit Logistics buys Pathik Couriers for cash funded by new debt. Compute goodwill, including the deferred tax on the intangible written up, and walk through how the combined balance sheet changes.

Goodwill is Rs 350 crore. Pathik's book equity is Rs 300 crore; customer relationships add Rs 200 crore at fair value but carry a Rs 50 crore deferred tax liability, so identifiable net assets are Rs 450 crore. Rs 800 crore less Rs 450 crore is goodwill. Samvit's assets rise by Rs 1,050 crore, its liabilities by the same amount, including Rs 800 crore of new debt, and its equity does not change.

Buy a running tea stall for Rs 8 lakh. The stove, the stock and the cart are worth Rs 3 lakh; the loyal morning crowd is worth something you can name too. Whatever you paid beyond everything you can list and value is the extra for the spot and the habit. Goodwill is the price paid less the fair value of every identifiable asset and liability, the leftover that cannot be pinned on anything specific. So you value what you can identify first and let goodwill fall out at the end.

Step one: book equity, Rs 500 crore of assets less Rs 200 crore of liabilities, Rs 300 crore. Step two: write up what the books miss. Customer relationships worth Rs 200 crore go on the balance sheet as an intangible. Step three: tax. The tax base of the relationships stays at zero, so when they are amortised in the books there is no matching tax deduction. That gap creates a deferred tax liabilityA provision for tax that will be payable later because an asset’s book value exceeds its tax base. It unwinds as the book value is written down. of 25% of Rs 200 crore, Rs 50 crore, which reduces the net assets acquired.

Pathik's equity disappears: Samvit bought it, so it is replaced by what Samvit paid. On the asset side, add Pathik's Rs 500 crore of assets, Rs 200 crore of customer relationships and Rs 350 crore of goodwill, Rs 1,050 crore in all. On the other side, add Pathik's Rs 200 crore of liabilities, the Rs 50 crore deferred tax liability and Rs 800 crore of new debt, also Rs 1,050 crore. Samvit's equity stays at Rs 800 crore, because a cash deal funded by debt swaps borrowing for a business; no new shares are issued.

If the customer relationships are amortised over ten years, Rs 20 crore a year runs through the income statement, and Rs 5 crore of the deferred tax liability releases each year, so the after-tax hit to profit is Rs 15 crore. Goodwill is not amortised under current Ind AS and IFRS rules; it is tested for impairment each year and written down only if the business is worth less than its carrying value. Confirm the current standard before you quote it, as the treatment has been debated. Leverage also moves: Samvit's debt-funded deal adds Rs 800 crore of borrowing with no new equity, which is the first thing its lenders will look at.