if contingent consideration, acqusition related costs and contingent liabilities included in goodwill calculation? Step 5. Determining goodwill or a gainon bargain purchase.At the acquisition date, the acquirer should recognize goodwill arising in a business combination. Goodwill ismeasured as the excess of (a) over (b) below:(a) the fair value of purchase considerations/cost of business combination transferred by the acquirer;(b) the net amount of identifiable assets acquired and the liabilities assumed at the acquisition-date.The excess of the cost of business combination over the fair value of net assets acquired represents goodwill.After initial recognition, goodwill is not subject to amortization. The standard-setting bodies consider that theuseful life of acquired goodwill and the pattern in which it diminishes are not possible to predict, and thus theamount of goodwill amortized in any given period is an arbitrary estimate. Amortizing goodwill over anarbitrary period fails to provide useful information. Therefore, goodwill should not be amortized; rather itshould be subject to an annual impairment test.In rare occasions, the acquirer will make a gain from a bargain purchase which should be recognized asincome in the statement of profit or loss and other comprehensive income on the acquisition date.

Goodwill is an intangible asset that is associated with the purchase of one company by another.…

Answered: Step 5. Determining goodwill or a gain…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter12: Auditing Long-lived Assets And Merger And Acquisition Activity

Section: Chapter Questions

Problem 33CYBK

See similar textbooks

Related questions

Question

if contingent consideration, acqusition related costs and contingent liabilities included in goodwill calculation?

Step 5. Determining goodwill or a gain
on bargain purchase.
At the acquisition date, the acquirer should recognize goodwill arising in a business combination. Goodwill is
measured as the excess of (a) over (b) below:
(a) the fair value of purchase considerations/cost of business combination transferred by the acquirer;
(b) the net amount of identifiable assets acquired and the liabilities assumed at the acquisition-date.
The excess of the cost of business combination over the fair value of net assets acquired represents goodwill.
After initial recognition, goodwill is not subject to amortization. The standard-setting bodies consider that the
useful life of acquired goodwill and the pattern in which it diminishes are not possible to predict, and thus the
amount of goodwill amortized in any given period is an arbitrary estimate. Amortizing goodwill over an
arbitrary period fails to provide useful information. Therefore, goodwill should not be amortized; rather it
should be subject to an annual impairment test.
In rare occasions, the acquirer will make a gain from a bargain purchase which should be recognized as
income in the statement of profit or loss and other comprehensive income on the acquisition date.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

AI-Generated Solution

AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.