Main Answer:
A. Goodwill may only be recognized. The correct answer is (b) in a business acquisition.
Therefore, the correct answer is b. in a business acquisition.
Step-by-step explanation:
In accounting, goodwill is an intangible asset that represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business acquisition. Option (b) correctly states that goodwill may only be recognized in a business acquisition. This is because goodwill arises when a company acquires another business and is willing to pay more than the fair value of the acquired company's net assets. The excess amount paid is attributed to goodwill, reflecting the value of intangible factors such as brand reputation, customer relationships, and intellectual property.
Unlike options (a), (c), and (d), which mention scenarios related to undervalued intangibles, fair value, and impaired assets, these situations do not necessarily lead to the recognition of goodwill. Goodwill specifically arises from the purchase price exceeding the fair value of net assets in a business combination.
In conclusion, recognizing goodwill is contingent on the occurrence of a business acquisition where the purchasing company pays more than the fair value of the acquired company's net assets. This accounting treatment aligns with the fundamental principle of accurately reflecting the value of acquired intangible assets on the acquiring company's balance sheet.
Therefore, the correct answer is b. in a business acquisition.