/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 12-12Q What is goodwill? What is a barg... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 12: 12-12Q (page 637)

What is goodwill? What is a bargain purchase?

Short Answer

Expert verified

Goodwill is also defined as the intrinsic value that a business has acquired above and beyond the value of its net assets. It could be due to the personality of those conducting it, the nature of its location, its reputation, or any other circumstance. Bargain purchase is when the asset acquired's fair value exceeds the cost.

Step by step solution

01

Goodwill

Goodwill should be calculated as the difference between the fair value of the acquisition cost and the fair value of the acquired net assets. This is a quantitative definition, not a mental definition of goodwill.

One or more unidentified intangible and identifiable intangible assets that are not reliably measured are sometimes defined as goodwill. New distribution channels, synergies from integrating sales staff, and a superior management team are examples of factors of goodwill.

02

Bargain Purchase

When the fair worth of the assets acquired exceeds the cost, it is referred to as a bargain buy (or negative goodwill). This circumstance might arise as a result of a market flaw. In this situation, the seller would have been better suited selling the assets separately rather than as a package.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: (Accounting for Research and Development Costs) Cuevas Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31, 2017), the new product has not been manufactured for resale. However, a prototype unit was built and is in operation.

Throughout 2017, the new division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, approximately \(900,000 in equipment (with an estimated useful life of 10 years) was purchased for use in developing and manufacturing the new product. Approximately \)315,000 of this equipment was built specifically for the design development of the new product. The remaining $585,000 of equipment was used to manufacture the pre-production prototype and will be used to manufacture the new product once it is in commercial production.

Instructions

  1. How are 鈥渞esearch鈥� and 鈥渄evelopment鈥� defined in the authoritative literature (GAAP)?
  2. Briefly indicate the practical and conceptual reasons for the conclusion reached by the Financial Accounting Standards Board on accounting and reporting practices for research and development costs.
  3. In accordance with GAAP, how should the various costs of Cuevas described above be recorded on the financial statements for the year ended December 31, 2017?

Question: Where can authoritative IFRS guidance related to intangible assets be found?

Question: Treasure Land Corporation incurred the following costs in 2017.

Cost of laboratory research aimed at the discovery of new knowledge

\(120,000

Cost of testing in search for product alternatives

100,000

Cost of engineering activity required to advance the design of a product to the manufacturing stage

210,000

Prototype testing subsequent to meeting economic viability

75,000

\)505,000

Prepare the necessary 2017 journal entry(ies) for Treasure Land.

King Company is contemplating the purchase of a smaller company, which is a distributor of King鈥檚 products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company鈥檚 financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a 鈥渄rag鈥� on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue.

Instructions

Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)

  1. Identify the accounting literature that addresses goodwill and other intangible assets.
  2. Define goodwill.
  3. Is goodwill subject to amortization? Explain.
  4. When goodwill is recognized by a subsidiary, should it be tested for impairment at the consolidated level or the subsidiary level? Discuss.

Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2017. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare Gershwin鈥檚 April 1 journal entry and December 31 adjusting entry.
See all solutions

Recommended explanations on Business Studies Textbooks

Business Development

Read Explanation

Business Operations

Read Explanation

Accounting

Read Explanation

Organizational Behavior

Read Explanation

Strategy

Read Explanation

Sales in Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.