Answer to Question #163551 in Accounting for Willy

Question

High Company purchased for cash at P50 per share all 150,000 ordinary shares outstanding of another entity. The statement of financial position of the acquiree on the date of acquisition showed net assets with a carrying amount of P6,000,000.

The fair value of property, plant and equipment on same date was P800,000 in excess of carrying amount.

What amount should be recorded as goodwill on the date of purchase?

a. 1,500,000

b. 800,000

c. 700,000

d. 0

Answer 1

To calculate goodwill, the fair value of the assets and liabilities of the acquired business is added to the fair value of business' assets and liabilities. In our case we only have P800,000 as goodwill.