CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Company A acquires 100% of Company B for €900 million in cash. B's identifiable assets have a fair value of €1,000 million and its liabilities have a fair value of €300 million. Under IFRS, the amount of goodwill recognized by A is closest to:
Goodwill is the purchase price minus the fair value of identifiable net assets. Net assets are €1,000 million less €300 million, or €700 million. Subtracting this from €900 million gives goodwill of about €200 million.
- A€200 millionCorrect
- B€600 million
- C€900 million
Explanation
Fair value of identifiable net assets = 1,000 - 300 = 700. Goodwill = consideration 900 - 700 = €200 million. Distractor €600 million wrongly adds liabilities twice or misuses them; €900 million ignores net assets acquired.
Did you get it right without looking?
One question tells you little. A timed set on Analysis of Long-Term Assets shows your real accuracy, how long you take and where you lose marks.
More Analysis of Long-Term Assets questions
- Compared with an otherwise identical company that developed its brands internally, a company that acquired its brands in a business combinat…
- In the statement of cash flows under IFRS, the cash received from selling a long-term asset is most likely reported as:
- Compared with a company that expenses an outlay, a company that capitalizes an otherwise identical outlay will most likely report, in the ye…
- A company buys equipment for 500,000 with a 5-year life, no salvage value, and straight-line depreciation. It also incurs 50,000 of interest…
- A building has a major component, the roof, with a useful life much shorter than the rest of the structure. Under IFRS, the most appropriate…
- An IFRS reporter carries a cash-generating unit with goodwill of 40, other net assets of 160, giving a carrying amount of 200. The recoverab…