DLT, a German firm, acquired a foreign corporation for a purchase price of $500 million. The book value of the net assets was stated at $350 million, but the fair market value of the net assets is $420 million. Assume the useful life of the goodwill to be 10 years. If the goodwill is systematically amortized over its useful life, what would be the amount per year?

Question

Quizplus · Accepted Answer

The goodwill is calculated as the difference between the purchase price ($500 million) and the fair market value of the net assets ($420 million), which equals $80 million. The yearly amortization expense is calculated by dividing the amount of goodwill by its useful life which is $80 million divided by 10 years, which equals $8 million per year.

DLT, a German Firm, Acquired a Foreign Corporation for a Purchase