DBC Ltd recently paid $4,000,000 for 60% of JKL Ltd's equity. JKL Ltd had total assets of $6,500,000 and liabilities of $1,300,000. What amount of goodwill on consolidation will DBC Ltd record?
A)$2,700,000
B)$880,000
C)$1,200,000.
D)$100,000.

Question

Quizplus · Accepted Answer

Goodwill on consolidation is calculated as the excess of the purchase consideration over the acquirer's share of the net assets of the acquiree at the acquisition date. Net assets of JKL Ltd are calculated as total assets minus liabilities, which is $6,500,000 - $1,300,000 = $5,200,000. DBC Ltd's share of JKL Ltd's net assets (60%) is $5,200,000 * 60% = $3,120,000. The purchase consideration is $4,000,000. Therefore, goodwill on consolidation is $4,000,000 - $3,120,000 = $880,000.

DBC Ltd Recently Paid $4,000,000 for 60% of JKL Ltd's