A feature of the purchase method of accounting includes the difference between the purchase price and the estimated fair market value of the net assets of the target firm must be classified as goodwill and recorded on the balance sheet.

Question

Quizplus · Accepted Answer

In the purchase method of accounting (now known as the acquisition method under IFRS 3 and ASC Topic 805), when a company acquires another, any excess of the purchase price over the fair market value of the identifiable net assets of the acquired company is recognized as goodwill on the balance sheet of the acquiring company. This goodwill reflects the value of the acquired company that is not attributable to any specific tangible or identifiable intangible assets.

A Feature of the Purchase Method of Accounting Includes the Difference