CBD Ltd recently paid $4,000,000 for 60% of LKJ Ltd's equity.LKJ Ltd had total assets of $6,500,000 and liabilities of $1,300,000.What amount of goodwill on consolidation will CBD Ltd record?

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 LKJ Ltd are calculated as total assets minus liabilities, which is $6,500,000 - $1,300,000 = $5,200,000. CBD Ltd's share of LKJ Ltd's net assets is 60% of $5,200,000, which equals $3,120,000. The purchase consideration is $4,000,000. Therefore, goodwill on consolidation is $4,000,000 - $3,120,000 = $880,000.

CBD Ltd Recently Paid $4,000,000 for 60% of LKJ Ltd's