Thad Ltd. acquired 100% of the common shares of Zoe Co. for $560,000. At the time of acquisition, Zoe had the following: $$\begin{array} { | l | r | r | }
\hline & \text { Book Value } & \text { Fair Value } \
\hline \text { Identifiable assets } & \$ 1,484,000 & \$ 1,518,000 \
\hline & & \
\hline \begin{array} { l }
\text { Identifiable } \
\text { liabilities }
\end{array} & 980,000 & 980,000 \
\hline
\end{array}$$ In this acquisition, how much goodwill has been created?

Question

Thad Ltd. acquired 100% of the common shares of Zoe Co. for $560,000. At the time of acquisition, Zoe had the following: $$\begin{array} { | l | r | r | } 
\hline & \text { Book Value } & \text { Fair Value } \
\hline \text { Identifiable assets } & \$ 1,484,000 & \$ 1,518,000 \
\hline & & \
\hline \begin{array} { l } 
\text { Identifiable } \
\text { liabilities }
\end{array} & 980,000 & 980,000 \
\hline
\end{array}$$ In this acquisition, how much goodwill has been created?

Quizplus · Accepted Answer

The goodwill is the excess of the purchase price over the fair value of the identifiable net assets. In this case, the purchase price is $560,000, the fair value of the identifiable net assets is $1,518,000 - $980,000 = $538,000, and the goodwill is $560,000 - $538,000 = $22,000.

Thad Ltd Acquired 100% of the Common Shares of Zoe Co