Homework Answers
Goodwill is created whenever the company is acquired above its book value. Such transactions generally incur when the company to be acquired shows greater investment opportunity in the long run.
Goodwill is the difference between the price offered and book value of acquired company.
1.
|
Market value of asset |
$ 16 million |
|
Less: Net asset i.e. Assets – liabilities = (13+18)-25 =6 |
($ 6 million) |
|
Goodwill |
$ 10 million |
2.
(Amount in $ million)
|
Date |
Particulars |
Debit |
Credit |
|
Acquisition |
Assets … Dr (13+18) |
31 |
|
|
date |
Goodwill |
10 |
|
|
Liabilities |
25 |
||
|
Cash |
16 |
||
|
( To record the purchase of Northshore) |
3.
The goodwill is to be shown as intangible assets under Assets Side of the balance sheet. Amortisation need not be charged due to the fact that the useful life of goodwill cannot be fairly ascertained. Therefore, it has to be shown at the value of $10 million under Intangible Assets head.
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December 31, 2020
Assume that fair value of the Conchita Division is $1,736,000
instead of $1,850,000. Determine the impairment loss, if any, to be
recorded on December 31, 2020.
Prepare the journal entry to record the impairment loss, if any,
and indicate where the loss would be reported in the income
statement.
This loss will be reported in...
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