This exercise illustrates the steps in estimating the value of goodwill. Mr. Judski is contemplating the sale of his business, Classic Vettes. The following data are available.
|
Book value of tangible & identifiable intangible assets less liabilities |
$135,000 |
|
Fair market value of tangible & identifiable intangible assets less liabilities |
200,000 |
|
Estimated fair market value of the business as a whole |
240,000 |
Instructions
- Compute the estimated value of goodwill.
- Assume Tom Benyon Enterprises purchases the business for $240,000 cash. Explain how Tom Benyon Enterprises should account for the goodwill at the purchase date and in the future as well as the reasons why.