Northern purchased the entire business of Southern including all its assets and liabilities for $682,500. Below is information related to the two companies: Northern Southern Fair value of assets $ 1,048,000 $ 797,000 Fair value of liabilities 580,000 320,000 Reported assets 811,000 647,000 Reported liabilities 496,000 257,000 Net Income for the year 56,000 51,000 How much goodwill did Northern pay for acquiring Southern

Good will is the excess of the purchase consideration over the fair value of the net identifiable assets of an acquired business as a result of the intangible assets acquired along.

Purchase consideration is the amount paid in exchange an assets which can be in the foe of cash, shares or the fair value of other agreed means of exchange.

Fair value is the amount that an asset or a liability can be exchanged for at an arms length transaction

Workings

Northern Southern

fair value of asset 1,048,000 797,000

Fair value of liabilities 580,000 320,000

Reported Assets 811,000 647,000

Reported liabilities 496,000 257,000

Net Income 56,000 51,000

Fair value of net asset

1,048,000-580,000 468,000 477,000

797,000 - 320,000

Purchase consideration = 682,500

Good will = Purchase consideration - fair value of the net asset acquired

682,500 - 477,000 = 205,500