Question

Kosher Pickle Company acquires all the outstanding stock of Midwest Produce for $19 million. The fair value of Midwest's assets is $14.3 million. The fair value of Midwest's liabilities is $2.5 million. Calculate the amount paid for goodwill.

Answer 1

Goodwill amount arises when an organization is purchased by another organization.

Goodwill can be calculated by :

Goodwill amount = consideration paid - the fair value of the total identifiable assets.

Here the paid consideration is = $ 19 million

The fair value of the total identifiable assets = assets of Midwest - liabilities of Midwest.

The fair value of the assets of Midwest is given as = $ 14.3 million

The fair value of the liabilities of Midwest is given as = $ 2.5 million

∴ The fair value of the total identifiable assets = Midwest's assets - Midwest's liabilities

= 14.3 - 2.5

= $ 11.8 million

Therefore the goodwill amount = 19 - 11. 8

= $ 7.2 million