Rod Ltd acquired 100% of Stewart Ltd on 1 October 20X0 by paying $80 million cash and incurring $5 million legal fees.At that date the fair value of Stewart Ltd's equity was $70 million.
The difference on acquisition is $10 million goodwill.

Question

Quizplus · Accepted Answer

The statement is true. Goodwill is calculated as the difference between the consideration paid and the fair value of the net assets acquired. In this case, the consideration paid ($80 million cash and $5 million legal fees) was $85 million, and the fair value of the equity acquired was $70 million, resulting in $10 million of goodwill.

Rod Ltd Acquired 100% of Stewart Ltd on 1 October