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Question 8, April 2003 Exam

D

DevonMatthews

Member
Why is the answer 3.9 million, since goodwill is defined as the difference between the purchase price and BOOK value of the company, the question states the book value of the premesis was 0.6 mil, so should this be used instead of the "Fair" value making the answer D?
 
DevonMatthews said:
Why is the answer 3.9 million, since goodwill is defined as the difference between the purchase price and BOOK value of the company, the question states the book value of the premesis was 0.6 mil, so should this be used instead of the "Fair" value making the answer D?
Click to expand...

My understanding is that the goodwill is the part of the value of the company which is above the net asset value of the company. I wouldn't use the book value if it under values the assets of the company.
 
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