BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Goodwill
|
|
|
Net worth
|
|
|
Capital Reserve (Gain On Bargain Purchase)
|
|
|
Revenue Reserve
|
Detailed explanation-1: -Goodwill represents a certain value (and potential competitive advantage) that may be obtained by one company when it purchases another. It is that amount of the purchase price over and above the amount of the fair market value of the target company’s assets minus its liabilities.
Detailed explanation-2: -The amount by which the value of the assets exceed the liabilities is the net worth (equity) of the business. The net worth reflects the amount of ownership of the business by the owners. Likewise, the following formula helps explain the interaction of the elements of the statement.
Detailed explanation-3: -Goodwill, brand recognition and intellectual property, such as patents, trademarks and copyrights, are all intangible assets. Intangible assets which have been acquired by a third party are recorded on the balance sheet at their purchase price.
Detailed explanation-4: -If the market value of goodwill is found to be lower than the book value, then goodwill needs to be reduced to its market value. If goodwill is impaired, it is reduced with a credit, and an impairment loss is debited. Goodwill is never increased beyond its original cost.