Question

Tasty Snacks, Inc., dominates the snack-food industry with its Salty Chip brand. Assume that Tasty Snacks purchased Valley Chips Company for $6.0 million cash. The market value of Valley Chips' assets is $9 million, and Valley Chips has liabilities with a market value of $4.0 million. Read the requirements. Requirement 1. Compute the cost of the goodwill purchased by Tasty Snacks. (Enter amounts in millions to the nearest tenth of a million as provided in the problem statement, X.X.) Less: 0 Cost of goodwill X A Requirements 1. Compute the cost of the goodwill purchased by Tasty Snacks. 2. Explain how Tasty Snacks will account for goodwill in future years. Print Done Choose from any list or enter any number in the input fields and then click Check Answer.

Answer 1

Goodwill is the amount we have extra paid for business acquisition.

So we have acquired $9 million assets & $4 million liabilities at market value. So we have acquired net $5 million assets.

But for acquiring $5 million Worth of net assets we have paid $6 million. So the excess $1 million we have paid will be considered as goodwill.

Particulars	Amount	Amount
Cash paid		$6 million
Assets acquired	$9 million
Less - liabilities acquired	($4 million)
Net assets acquired		($5 million)
Purchased goodwill		$4 million

Goodwill is a intangible asset. It can either be written off today itself or it can be amortized over a period considering it's life.

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