Goodwill arises when a parent company must pay more to acquire a subsidiary company than the fair value of the subsidiary's net assets.

Question

Quizplus · Accepted Answer

Goodwill arises when the purchase price of a subsidiary company exceeds the fair value of its net assets, which means the parent company paid more than the subsidiary's tangible and intangible assets are worth. This results in the parent company recording goodwill on its balance sheet as an intangible asset.

Goodwill Arises When a Parent Company Must Pay More to Acquire