Northern purchased the entire business of Southern including all its assets and liabilities for $600,000. Below is information related to the two companies: Northern Southern Fair value of assets $ 1,050,000 $ 800,000 Fair value of liabilities 575,000 300,000 Reported assets 800,000 650,000 Reported liabilities 500,000 250,000 Net Income for the year 60,000 50,000 How much goodwill did Northern pay for acquiring Southern

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Business

Jaycee Trevino

1 May, 21:32

Northern purchased the entire business of Southern including all its assets and liabilities for $600,000. Below is information related to the two companies: Northern Southern Fair value of assets $ 1,050,000 $ 800,000 Fair value of liabilities 575,000 300,000 Reported assets 800,000 650,000 Reported liabilities 500,000 250,000 Net Income for the year 60,000 50,000 How much goodwill did Northern pay for acquiring Southern

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Sierra Wolf · Answer 1

Answer:$1,00,000

Explanation:

Fair value of net asset = Fair value of assets - Fair value of liabilities

=800000-300000

=500000

Fair value of net asset of Southern is 500000

Calculation of good will

Good will = Consideration value - Fair value of net asset

= 600000-500000

=100000

Good will paid by Northern to Southern for acquisition of business is $1,00,000.

Goodwill is an intangible asset which is recognized only when the business is acquired by another party. If there has been no acquisition then the balance sheet would not contain a goodwill.