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.

Question

Quizplus · Accepted Answer

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.

In Recording the Acquisition Cost of an Entire Business