XYZ Limited paid $2 million for 100 per cent of the voting shares of ABC Limited and determined the assets to be worth $3 million and the liabilities $800 000.What was the goodwill on consolidation at the date of acquisition?
A) $100 000
B) $200 000
C) $300 000
D) None of the answers provided

Question

Quizplus · Accepted Answer

Goodwill is calculated as the purchase price minus the fair value of net assets acquired. The net assets are $3 million (assets) - $800,000 (liabilities) = $2.2 million. Goodwill is $2 million (purchase price) - $2.2 million (net assets) = -$200,000, indicating a bargain purchase, but since the options do not account for a negative value, the closest positive value is $200,000.

XYZ Limited Paid $2 Million for 100 Per Cent of the Voting