Question

1. Company Y is purchased by Company X, at an acquisition cost that is $100,000 greater than the fair value of the identifiable net assets acquired. One of the assets acquired is a building, originally valued at $37,000 at the date of the purchase. Six months after the acquisition, it is discovered that the building was really only worth $25,000 at the date of acquisition. What entry is made to reflect this new information?

a.   A debit of $12,000 to Loss on Impairment

b.   A debit of $100,000 to Goodwill

c.   A credit of $12,000 to Gain from Bargain Purchase

d.   A debit of $12,000 to Goodwill

Answer 1

Goodwill is recognised only at the time of acquisition when the amount paid for taking over the company is more than the value of assets acquired.

In the present case, $100000 is goodwill at time of acquisition as amount exceeds the fair value of asset.

Decline in value of building after 6 months is impairment loss

Answer is option a

A debit of 12000$ to loss on impairment