Question

A company has the following expenditures during the year.Advertising $100,000Employee training 80,000Customer outreach and consultation 50,000The company believes that these efforts have increased the fair value of the entire company by $325,000. How much goodwill can the company recognize at the end of the year associated with these expenditures?
a. $ 0.b. $80,000.c. $230,000.d. $325,000.

Answer 1

Answer:

a. $ 0

Explanation:

Goodwill is recorded when a company acquires another company and the purchase price is greater than the fair value of equity value (EV);  

EV = the identifiable tangible and intangible assets acquired -  the liabilities

Goodwill = purchase price – EV

In this scenario, all information is about operating expenses; we don’t have any information related to an acquisition, then we can’t assume any value for goodwill.  

Answer 2

Answer:$0

Explanation:

Goodwill is the reputation a firm has gained in the period of existence which are not specified in the books of account in monetary terms.

A goodwill can be external or internal, an external goodwill is calculated as the excess of the price at which a firm is purchased over it's indentifiable value of existing assets. If the net value of asset is $100 and the purchaser is willing to pay $150 for the firm the goodwill is $50.

An internal goodwill cannot be recognized in the books because it's priced is subjective and cannot be determined realiably.

The above scenario is an example of an internally generated goodwill is cost price cannnot be measured nor determined realiably invariably the fair value is invalid for these reasons the value of goodwill in the book will be $0.