This presentation we’re going to continue on with our discussion of acquisition accounting, and this time focusing in on a bargain purchase, get ready to account with advanced financial accounting. First off, we can basically think of the bargain purchase as the opposite of goodwill. So in a prior presentation, we talked about the concept of goodwill within an acquisition, which would be resulting if the fair market value of the amount that was given like basically the purchasing price was greater than the fair market value of the net assets. So in other words, we take we look at the books of the company that’s being acquired, we’ve revalue their assets and liabilities to be on a fair market value, then assets minus liabilities, the equity section, the net assets now at a fair market value, we take a look at that. And if there’s a consideration that’s given that is greater than that amount, that then would result in goodwill. Now goodwill is quite common, because it’s unlikely even if you even if you re assess all the assets and liabilities to their fair value. Then you would typically think that the price would either be that that would be given the the amount that would be exchanged, the fair market value of the consideration would be the same as the assets minus the liabilities at fair market value, or more, because there’s some type of goodwill, that’s going to be that’s going to be in the organization. Now, you might be thinking, Well, what what if it was the opposite? What if you took the fair market value of the net assets, and the amount that was given the exchange amount was less than the fair market value? Now that could happen, but just note that that’s a lot more unusual.
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Acquisition Accounting Goodwill
In this presentation, we’re going to continue on with our discussion of acquisition accounting, this time focusing in on the concept of goodwill. Get ready, because it’s time to account with advanced financial accounting. First question is, what is goodwill. So it’s an intangible factors that allow a business to earn above average profits. So the way you might want to think about that is the first thing about a business that isn’t being purchased and sold. If you just got one business that started from scratch, they just started doing business, they started earning revenue, then you can look at their financial statements, they got the they got the balance sheet, assets minus liabilities is the book value of the company, and then the income statement, which is their performance. Now, if you were to say, Hey, is this company worth more than their equity than their assets minus the liabilities than their net assets? In other words, if it is, then you’re saying hey, there must be some intangible factor that’s not really on the balance sheet that would explain the reason why the you know the value of them because most likely through Profit generation, after the the perceived ability, the likely ability to earn profit in the future is greater than just what’s on the balance sheet assets minus liabilities. So you would think then that many companies, if a company is doing well, then there’s going to be some kind of intangible factor there. That’s not basically on the balance sheet that basically explains why the company is doing better than then just the value of the company being assets minus liabilities. So in other words, if we were to purchase the company, you would think that you would purchase it for their assets minus the liabilities, that’s what they consist of, that’s breaking them down to their parts.