Question

c. This part of the exercise is independent of parts (a) and (b). Assume that the purchase price is $4,560,000 and that fair value of the net identifiable tangible assets is $2,220,000. You also conclude that the purchase included a Customer List that you value at $768,000 and a Patent valued at $2,280,000. How much Goodwill will you record in this acquisition

Answer 1

Answer:

Gain on Bargain Purchase must be recognized instead of Goodwill.The Gain on Bargain Purchase is $708,000.

Explanation:

Goodwill is the excess of the Purchase consideration over the Net Identifiable assets (tangible and intangible) acquired during a business combination transaction.

However, is the Net Identifiable assets are greater than the Purchase Price, a gain on Bargain Purchase will be recognized by the acquirer.

In our case, Net Identifiable assets are greater than the Purchase Price and a Gain on Bargain Purchase must be recognized instead of Goodwill.

Calculation of Gain on Bargain Purchase :

Purchase Consideration               $4,560,000

Less Net Identifiable assets

Tangible Assets                           ($2,220,000)

Customers List                                ($768,000)

Patent                                           ($2,280,000)

Gain on Bargain Purchase              $708,000