When is goodwill recognised?
A) When an asset is sold above its book value
B) As part of an arms'-length purchase of one entity by another
C) By the company that is being purchased in an arms'-length purchase
D) When the market price of a company's stock rises

Question

Quizplus · Accepted Answer

Goodwill is recognized as part of an arms'-length purchase of one entity by another, where the purchase price exceeds the fair value of the identifiable net assets acquired. It represents the excess of the purchase price over the fair value of the net assets acquired. This excess is attributed to non-quantifiable attributes of the acquired entity such as brand value, customer loyalty, and strategic positioning in the market.

When Is Goodwill Recognised