X buys Y for $1 million.The fair value of the following items is: property,plant and equipment $800 000;accounts receivable $160 000;loan from the bank $60 000;and provision for employee entitlements $80 000.The value of goodwill is:
A) $40 000.
B) $10 000.
C) $180 000.
D) $820 000.

Question

Quizplus · Accepted Answer

The total fair value of the assets and liabilities is $800,000 + $160,000 - $60,000 + $80,000 = $980,000. Therefore, the difference between the purchase price of $1 million and the fair value of the assets and liabilities is $1,000,000 - $980,000 = $20,000. This $20,000 is the value of goodwill. Therefore, the answer is C.

X Buys Y for $1 Million