When a business is purchased, any amount paid in excess of the total of assets, minus the liabilities taken, is called :
Goodwill
When one business acquires another, the price paid (purchase consideration) is compared with the net assets taken over, that is, the total value of assets acquired minus the liabilities assumed.
Any excess of purchase consideration over these net assets is the price paid for the business's reputation, customer base, location advantage and earning capacity above the normal rate. This excess is recorded as goodwill, an intangible asset. If the consideration is lower than net assets, the difference is capital reserve.
Share premium is the excess of the issue price of shares over their face value. Capital employed is the total long-term funds invested in a business, and working capital is current assets minus current liabilities; neither measures an excess payment on acquisition.
Hence, Goodwill.
Similar Questions
When a business is purchased, any amount paid in excess of the total of assets, minus the liabilities taken, is called :
Important Questions from Goodwill
Which one of the following statements is not correct?
When a business is purchased, any amount paid in excess of the total of assets, minus the liabilities taken, is called :
