Lesson 8

Question 1

Goodwill

Answer 1

Is measured as the excess of the cost of the purchase over the fair value of the identifiable net assets (assets less liabilities) purchased.

Question 2

What are some other names for goodwill?

Answer 2

Plug, gap filler, master valuation account

Question 3

Goodwill generated internally should not be capitalized in the accounts. True or False?

Answer 3

True
Because measuring goodwill is too complex and associating costs is too difficult.

Question 4

Can goodwill be amortize?

Answer 4

No, because it has an indefinite life. It might decrease in value over time, but predicting the actual life is difficult.

Question 5

When should companies adjust the carrying value of goodwill?

Answer 5

When is is impaired.
Goodwill combined with an adequate impairment test should provide the most useful financial information to the investors.

Question 6

Bargain purchase

Answer 6

the purchaser in a business combination pays less than the fair value of the identifiable net assets.
The excess amount is recorded as a gain by the purchaser.