Discussion
The DOC Corporation with a book value of $20 million and a market value of $30 million has merged with the CIC Corporation with a book value of $6 million and a market value of $8 million at a price of $9 million. If the transaction is a purchase will there be any goodwill, and if so, what is the amount of goodwill?
Answer: C
Correct answer: Yes goodwill; 1
Goodwill is the excess of the price over the fair value of the assets acquired: 9 - 8 = $1 million. It represents what was paid for things the balance sheet does not carry - brand, customer relationships, assembled workforce - and it appears as an asset which must thereafter be tested for impairment rather than amortised.
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