To determine the amount of goodwill, we need to follow a systematic approach. Goodwill is calculated as the excess of the purchase consideration over the fair value of the identifiable net assets acquired in a business combination. Here’s how we can break this down step-by-step:
Step 1: Identify the Purchase Consideration
The purchase consideration is the total amount paid to acquire the business. In this case, it is given as:
-
Purchase Consideration = ₦400,000
Step 2: Calculate the Fair Value of Identifiable Net Assets
Next, we need to calculate the fair value of the identifiable net assets. This includes the assets and liabilities that are being acquired.
Assets:
- Plant and Machinery: ₦190,000
- Motor Vehicle: ₦170,000
- Stock: ₦60,000
Total Assets:
[
\text{Total Assets} = \text{Plant and Machinery} + \text{Motor Vehicle} + \text{Stock}
]
[
\text{Total Assets} = ₦190,000 + ₦170,000 + ₦60,000 = ₦420,000
]
Liabilities:
- Current Liabilities: ₦50,000
Net Assets Calculation:
To find the net assets, we subtract the current liabilities from the total assets:
[
\text{Net Assets} = \text{Total Assets} - \text{Current Liabilities}
]
[
\text{Net Assets} = ₦420,000 - ₦50,000 = ₦370,000
]
Step 3: Calculate Goodwill
Goodwill is calculated as the difference between the purchase consideration and the fair value of the identifiable net assets:
[
\text{Goodwill} = \text{Purchase Consideration} - \text{Net Assets}
]
[
\text{Goodwill} = ₦400,000 - ₦370,000 = ₦30,000
]
Conclusion
Thus, the amount of goodwill is
₦30,000.
Explanation of Options:
- Option A: ₦110,000 - This option is incorrect because it does not reflect the correct calculation of net assets and goodwill.
- Option B: ₦80,000 - This option is also incorrect as it miscalculates the difference between the purchase consideration and the net assets.
- Option C: ₦90,000 - This option is incorrect for the same reasons as above; it does not align with the calculated values.
- Option D: ₦30,000 - This is the correct answer, as it accurately reflects the calculation of goodwill based on the provided figures.
Revision Summary:
- Goodwill is calculated as the excess of purchase consideration over the fair value of identifiable net assets.
- Total assets include all acquired assets, while liabilities must be deducted to find net assets.
- The formula for goodwill is: Goodwill = Purchase Consideration - Net Assets.
- In this case, the goodwill calculated is ₦30,000, making Option D the correct choice.