4. Which of the following is true about the valuation of identifiable assets and

Question

4. Which of the following is true about the valuation of identifiable assets and liabilities? Current assets are recorded at gross value and valuation allowances are deducted. If the acquiree is a lessor for an operating lease, the annual lease payment is $10,000 and the fair annual rental is $12,000, the acquirer should record a "favorable operating lease terms" intangible asset. The pre-existing goodwill in the acquiree's books can be recognized by the acquirer only if the purchase price of the company is greater than the fair value of identifiable net assets. Contingent assets and liabilities can be recognized by the acquirer. a. b. c. d.

Explanation / Answer

Hey,

The identifiable asset is an asset which can give benefits to the company in future years. Most important is that identifiable assets can be both Tangible assets and intangible assets.

The answer to your question is Option C. Goodwill can be recorded during the acquisition of companies. When the purchase price of the company we paid is more than the fair value of identifiable net assets received, the excess which we paid is towards Goodwill.

Note: While calculating net assets we shall not include pre-existing goodwill.

Hope this explanation helps you in understanding the concept.

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