Question

A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller. Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of view?

Answer 1

The "Goodwill Asset" will be least preferred

Explanation:This is because

All the other assets i.e buildings, equipments, inventory are tangible in nature and can be easily valued in the market and fair value of these assets can be identified in the market.

These assets can be measured on the basis of their physical presence, location of building, present condition of equipment, or per demand of the inventory or obsoleteness etc.

Whereas "Goodwill" is intangible in nature, it is many times "Self generated". Assets by an entity are based on the relationship with the suppliers, creditors, debtors or with their clients or on any other basis. Therefore the valuation of goodwill why the purchaser cannot be done easily and the valuation can prove to be incorrect.

Hence, the purchaser preffers Goodwill the least for the purpose of valuation of assets and it is considered "balancing figure" during this transaction between purchaser and seller.