SOS Ltd acquired all the assets and liabilities of Police Ltd for a total cost of acquisition (control date fair value of the consideration paid) of $1 000 000.The fair value of these assets at acquisition date was $900 000 and the fair value of the liabilities was $100 000.Police Ltd controls Roxanne Ltd.
SOS Ltd will record goodwill of $200 000 in its consolidated financial statements.

Question

Quizplus · Accepted Answer

Goodwill is calculated as the excess of the cost of acquisition over the net assets at fair value. In this case, the net assets at fair value are $800,000 ($900,000 assets - $100,000 liabilities), and the cost of acquisition is $1,000,000. Therefore, goodwill would be $200,000 ($1,000,000 - $800,000), not $200,000 as stated. The statement incorrectly calculates the net assets at fair value, leading to a misunderstanding of the goodwill calculation.

SOS Ltd Acquired All the Assets and Liabilities of Police