M&A, accretion & purchase accounting / ORIGINAL SCENARIO

Purchase accounting residual

Consideration for all equity is 250; fair value of identifiable assets 330 and assumed liabilities 140. Find acquired net assets and goodwill.

Amounts $m. No NCI, prior holding, deferred taxes or other adjustments. Consideration is equity purchase price.

Try it before the answer →

Worked answer

net Assets: 330 − 140 = 190
goodwill: 250 − (330 − 140) = 60

Goodwill is the residual over fair value of identifiable net assets.

Technical follow-ups

How could recognition of a new identifiable intangible and related deferred tax liability affect goodwill?

Does a larger goodwill balance automatically mean the buyer overpaid? What evidence would establish that?

Follow-up answer guide

A newly recognized intangible increases identifiable assets, tending to reduce goodwill; a related DTL increases liabilities, partially offsetting that reduction. Net change depends on fair value and tax basis.

A fresh retry

The buyer pays 310 for all equity. Identifiable assets have fair value of 400, with assumed liabilities of 160. Calculate identifiable net assets and goodwill.

Amounts $m. No NCI, prior holding, deferred taxes or other adjustments. Consideration is equity purchase price.

Inspect replacement inputs

price: 310
assets: 400
liabilities: 160

Check the retry bridge

net Assets: 400 − 160 = 240
goodwill: 310 − (400 − 160) = 70

Original fictional example. Not a report of a specific firm’s interview. Explanations need qualified human review.