Goodwill

Question 1

A company should recognize goodwill in its balance sheet at which of the following points?

1 cost have been incurred in development of goodwill
2 The co expects a future benefit from the creation of GW.
3. FMV of the co’s asset exceeds BV of the Co’s assets.
4. Goodwill has been created from the purchase of a business

Answer 1

Ans : Goodwill is created in a business acquisition when the amount paid for the business is greater than the fair market value of the net assets.

Question 2

A Purchase 20% of B common stock at 150000. At the time of purchase shareholders equity was 400000 and FV of the identifiable net assets is 600000. Under equity method what amount of GW should Sansa attribute to the acquisition.

Answer 2

PP LESS FV OF net assets avquired.
Pp= 150000
FV Of net assets acquired = 600000×20%= 120000
GW = PP-FV= 150000-120000=30000