On 1 July 20X6 Possum acquired a 100% interest in Echidna. At that time Echidna had goodwill of $5000 recorded in its statement of financial position as a result of a previous business combination. The total goodwill arising on Possum's acquisition of Echidna was $12 000. The goodwill recognised on consolidation in the business combination valuation entry as a result of Possum's acquisition of Echidna is:
A) nil
B) $5 000
C) $7 000
D) $12 000

Question

Quizplus · Accepted Answer

When a business combination occurs, the acquirer needs to allocate the purchase price to the assets acquired and liabilities assumed based on their fair values, with any excess recognised as goodwill. In this case, the total goodwill arising on Possum's acquisition of Echidna was $12,000, and Echidna had $5,000 of goodwill recorded in its statement of financial position. Therefore, the goodwill recognised on consolidation would be the difference between these two amounts, which is $7,000 [($12,000 - $5,000) = $7,000]. Therefore, the correct answer is option C.

On 1 July 20X6 Possum Acquired a 100% Interest in Echidna