Goodwill represents the excess cost of an acquisition over the
A) sum of the fair values assigned to intangible assets less liabilities assumed.
B) sum of the fair values assigned to tangible and identifiable intangible assets acquired less liabilities assumed.
C) sum of the fair values assigned to intangibles acquired less liabilities assumed.
D) book value of an acquired company.

Question

Quizplus · Accepted Answer

Goodwill represents the excess cost of an acquisition over the sum of the fair values assigned to tangible and identifiable intangible assets acquired less liabilities assumed. This means that the total cost of the acquisition (including any premium paid) is compared to the fair value of the net assets acquired (assets minus liabilities). Any excess is considered goodwill. Choice A is incorrect because intangible assets are only part of the equation. Choice C is incorrect because it does not include tangible assets. Choice D is incorrect because it only refers to the book value, which does not take into account any premium paid for the acquisition.

Goodwill Represents the Excess Cost of an Acquisition Over the