Final answer:
The statement is true; buyers prefer the residual portion of the selling price to be allocated to goodwill, which is advantageous due to lower depreciation expenses and only annual impairment tests.
Step-by-step explanation:
The statement that a buyer would prefer that the residual portion of the selling price be allocated to goodwill—a capital asset—is true. When a business is sold, any residual amount of the purchase price that is not allocated to tangible assets or identifiable intangible assets is often allocated to goodwill. Goodwill represents the value of a company’s brand, customer relationships, employee relations, and any patents or proprietary technology. Allocating a higher amount to goodwill is advantageous for the buyer because it is a non-depreciable asset, unlike physical assets that depreciate over time, leading to higher depreciation expenses. Therefore, a higher allocation to goodwill would result in lower annual depreciation charges, and consequently, higher net income for the buying firm. Additionally, goodwill only gets tested for impairment annually or when there is an indication that it may be impaired, not depreciated systematically every year. This is why the buyer would prefer goodwill to represent a larger part of the purchase price.