Question

Sol Donuts has 6 stores in Portland, Oregon and Seattle, Washington. It has been in business 10 years. Its local reputation for delicious donuts is well recognized on the west coast. An international snack food company, Soare Inc. has offered to purchase Sol. Sol has $0.8 million of net assets at book value, but those net assets have a fair value of $1.1 million. If Soare offers to buy Sol for $2.0 million, how much will be recorded as goodwill based on the offered acquisition price? ENTER A NUMBER, NO $ NEEDED

Answer 1

Solution:

As per the information given in the question

Consideration offered for the Acquisition by Soare Inc. = $ 2,000,000

Book value of Net Assets of Sol Donuts = $ 800,000

Fair value of Net Assets of Sol Donuts = $ 1,100,000

The formula for calculating the value of goodwill / ( Capital reserve ) in this acquisition is as follows

= Consideration offered for the Acquisition by Soare Inc. – Fair value of Net assets of Sol Donuts

= $ 2,000,000 – $ 1,100,000

= $ 900,000

Thus value of goodwill in this acquisition = $ 900,000

The amount of goodwill to be recorded based on the offered acquisition price = $ 900,000