In a business combination, goodwill is defined as the excess of cost over the
A) fair value of assets acquired.
B) fair value of assets acquired less the liabilities assumed.
C) book value of assets acquired less the liabilities assumed.
D) net book value of assets acquired.

Question

Quizplus · Accepted Answer

In a business combination, the cost of the acquisition is compared to the fair value of the assets acquired less the liabilities assumed. Any excess amount is recorded as goodwill on the acquirer's balance sheet. This is because goodwill represents the value of the acquired company's intangible assets, such as brand recognition, customer loyalty, and intellectual property, that cannot be separately identified and measured. Therefore, the option B, fair value of assets acquired less the liabilities assumed, is the correct choice.

In a Business Combination, Goodwill Is Defined as the Excess