When calculating goodwill, the answer says that fair value of net assets=share capital+retained earnings. How is that possible? I thought net identifiable assets was the fair value of PPE, current assets and liabilities? thanks!
there is no good will because the purchase price is less than the Fair value of the identifiable assets (at the time of acquisition which is on July), so there is a Gain.
Hi Margarinet, thank you for the response. I do understand the no goodwill part, however it is more the calculation of the goodwill/bargain that causes a problem. In order to calculate goodwill we substract the fair value of net assets. CFAI is using share capital+retained earnings to represent fair value of net assets. Isn’t that wrong? Nowhere in the books does it say that the fair value of net assets=share capital+retained earnings but rather than we take the fair value of PPE, current assets and liabilities.
I got you, remember Fair Value of Net Identifiable assets = FV Assets- FV Liabilities, which is the same with the amount of shareholder’s equity (share capital + Retained Earning), remember Assets= Liabilities + Equity, so is the same way to calculate Assest-Liabilities or just calculate the Shareholders Equity. Hope it helps!
Thanks Margarinet!
Hey - I still have the same doubt, shouldn’t goodwill be excluded while calculating FV of identifiable net assets?