A goodwill is created when . A. Purchase price exceeds the net identifiable assets. B. Acquirer’s P/E is lower than target’s. C. Acquirer’s pro forma EPS is lower. D. Purchase price exceeds PPE.

Example 1The following information is given as at 31 March 20X1P Ltd. S Ltd.Non-current Assets:PPE 2,000 500Investment in Subsidiary 1,000Net Current Assets 2,000 5005,000 1,000Issued Capital 500 1,000Reserves and Surplus 4,5005,000 1,000P Ltd. acquired 100% of shares of S Ltd. on 31 March 20X1 for` 1,000.Since P Ltd. has acquired S Ltd., we will have to determine goodwill / capitalreserve. Let us understand why goodwill / capital reserve arises in case ofconsolidation, and what would be the interpretation of the same.© The Institute of Chartered Accountants of IndiaADVANCED ACCOUNTING10.22In the given case, P Ltd. acquired all the shares of S Ltd. by paying` 1,000. Thispayment (i.e., purchase consideration) would be made by P Ltd. to theshareholder(s) of S Ltd. (hence the transfer of this amount would not appear in thebooks of S Ltd.).By paying` 1,000, P Ltd. has acquired ‘control’ over S Ltd. This acqu isition is quitedifferent from the concept of amalgamation done in accordance with AS 14, thoughthe concept of goodwill / capital reserve is similar. Under AS 14, the targetcompany would generally liquidate, and all assets and liabilities would betransferred from the Selling Company to the Purchasing Company. In case ofconsolidation, P Ltd. is acquiring ‘control’ i.e., by way of acquiring equity shares in SLtd.. Thus, S Ltd. continues to exist, and the assets and liabilities of S Ltd. are nottransferred to P Ltd., but instead continue to remain with S Ltd. only. However, sincein substance, acquisition has taken place (albeit through transfer of control), thepurchase consideration of` 1,000 will be compared with the net worth ofS Ltd., which is` 1,000. Since amount paid (i.e., purchase consideration) equals thenet worth, no goodwill / capital reserve is recognized. In case the amount paid (i.e.,purchase consideration) would be higher / lower than the net worth of S Ltd., suchdifference would be recognized in Goodwill / Capital Reserve respectively.

According to AASB 3, how is goodwill acquired in a business combination recognised? a. As an asset, initially measured at cost. b. As a contingent liability, initially measured at fair value c. As an asset, initially measured at fair value d. As an equity account, initially measured at cost

Goodwill is equal to the excess of the cost of an acquired company over the sum of the:Group of answer choicesmarket value of its net assetsmarket value of its assetsbook value of its assetsbook value of its net assets

In recording the acquisition cost of an entire business,Group of answer choicesgoodwill is recorded as the excess of cost over the fair value of identifiable net assetsassets are recorded at the seller's book values.goodwill, if it exists, is never recorded.goodwill is recorded as the excess of cost over the book value of identifiable net assets.

In which type of account does Goodwill effect