Asked by Katia Ferreira on Jul 11, 2024
Verified
In recording the acquisition cost of an entire business
A) goodwill is recorded as the excess of cost over the fair value of identifiable net assets.
B) assets are recorded at the seller's book values.
C) goodwill if it exists is never recorded.
D) goodwill is recorded as the excess of cost over the book value of identifiable net assets.
Acquisition Cost
The total cost incurred to acquire an asset, including the purchase price and any associated costs such as installation and transportation.
Goodwill
Goodwill is an intangible asset that arises when a company acquires another for a price higher than the fair value of its net identifiable assets, representing factors like brand reputation or customer relationships.
Identifiable Net Assets
The portion of a company's net assets that can be attributed to specific assets and liabilities, excluding goodwill.
- Familiarize oneself with the procedures for accounting treatment and the portrayal of intangible assets in financial statements.
- Gain knowledge on the acquisition, valuation, and disposal processes of intangible assets and property, plant, and equipment (PP&E).
Verified Answer
SB
SIMAR BHANGUJul 18, 2024
Final Answer :
A
Explanation :
Goodwill is recorded as the excess of cost over the fair value of identifiable net assets. This is in accordance with generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Assets are not recorded at the seller's book values, and if goodwill exists, it should be recorded. Recording goodwill based on the book value of identifiable net assets would not reflect its true value.
Learning Objectives
- Familiarize oneself with the procedures for accounting treatment and the portrayal of intangible assets in financial statements.
- Gain knowledge on the acquisition, valuation, and disposal processes of intangible assets and property, plant, and equipment (PP&E).