If the FMV of the TANGIBLE assets is less than the purchase price, the excess purchase price is: a) attributed to goodwill, which is depreciated over the estimated remaining life. b) attributed to separately identifiable tangible and intangible assets, which the tangible assets are depreciated over their estimated remaining life. c) proportionately allocated across all tangible assets, which is depreciated over their estimated remaining life. I picked C because the question specifically says tangible assets. The answer, however was B. The rationale: The excess purchase price will be allocated to separately identifiable tangible and intangible assets. The tangible assets are depreciated accordingly. Any excess remaining value is attributed to goodwill which may also be created but is not amortized under either U.S. or international standards. It seems that B would be the answer had the question been vague about tangible/intangible assets? It was specific, though, and that why I selected C. What did I miss?
The question is playing around with the forumla. goodwill = purchase price - fair market value of identifiable net asset (not just tangible asset) So, excess purchase price may include: - excess of fair value over book value of tangible asset - excess of fair value over book value of intangible asset - excess of fair value over book value of other identifiable asset, etc. The question assumes that excess purchase price is price over fair value of identifiable net asset.
Thanks for the reply jogging. The question specifies tangible assets. I get answer B (which is what you wrote more clearly), but only if the question read something like: 'fair market value of assets is less than purchase price" There another thread questioning Schweser’s answers that make me think this is an error. I might be nitpicking here, though.