A company purchases another business for ₹200 crores. The identifiable net assets (assets minus liabilities) of the acquired business are valued at ₹140 crores. What is the goodwill arising from this transaction?
Answer
₹60 crores
The correct answer is ₹60 crores — Conclude that the goodwill arising from the transaction is ₹60 crores.
Step-by-step solution
- Identify the consideration paid by the acquiring company, which is ₹200 crores.
- Determine the net identifiable assets of the acquired business by subtracting liabilities from assets, giving ₹140 crores.
- Calculate goodwill as the difference between consideration and net identifiable assets: ₹200 crores – ₹140 crores = ₹60 crores.
- Conclude that the goodwill arising from the transaction is ₹60 crores.
Common mistake: Adding liabilities to assets instead of subtracting to get net assets
Concept tested: Goodwill calculation in a business combination
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