Purchase consideration

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sachin (Querist)
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07 March 2015 does GOODWILL is taken while calculating purchase consideration? pls answer and when it is taken and when it is not taken while calculating P.C. thanks ..

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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08 March 2015 Goodwill in accounting is an intangible asset that arises when one company acquires another, but pays more than the fair market value of the net assets (total assets - total liabilities). The goodwill amounts to the excess of the "purchase consideration" (the money paid to purchase the asset or business) over the total value of the assets and liabilities. It is classified as an intangible asset on the balance sheet, since it can neither be seen nor touched. However, according to International Financial Reporting Standards (IFRS), goodwill is never amortized. Instead, management is responsible to value goodwill every year and to determine if an impairment is required. If the fair market value goes below historical cost (what goodwill was purchased for), an impairment must be recorded to bring it down to its fair market value. However, an increase in the fair market value would not be accounted for in the financial statements.

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