Hi all,
I’m stumped on something and hoping someone can assist. Why do we calculate goodwill in the aqusition and equity methods as excess purchase price over book values (FMV-BKs), while in business combinations we use purchase price over FM of assets and not the excess of FMV over book values?
Thanks
in equity method we still calculate goodwill as excess of purchase price on Fair value of assets… the excess of the fair value of assets over its book value (that is if there is an excess)… is then depreciated over time…
PURCHASE PRICE (investment in associate)
^
goodwill
v
FAIR VALUE OF ASSETS (net) — would be given if it does differ from bookvalue
^
Additional Asset (your share) that will be depreciated over time (will be expensed in calculation of equity income)
v
BOOK VALUE