A Company Is About to Buy Another Company,but This Would

question 25

Multiple Choice

A company is about to buy another company,but this would result in "negative goodwill".For example,Company A pays £2m for Company S which has net assets of £3m.However,the fair value of the net assets of S is actually only £2.1m Which of the following is the correct treatment of this situation?

• A) Revalue the assets of S to reflect the "fair value" of them prior to purchase
• B) Show negative goodwill £1m on the consolidated Statement of Financial Position
• C) Show the loss on purchase £1m on the Income Statement of A
• D) Write off the loss of £1m in company A prior to purchase

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Definitions:

Homeostasis

The process by which organisms maintain a stable internal environment despite changes in external conditions.

Senescence

The gradual deterioration of functional characteristics in organisms that leads to aging and increased mortality.

SSRIs

Selective Serotonin Reuptake Inhibitors, a class of drugs commonly used to treat depression by increasing levels of serotonin in the brain.

Serotonin Reuptake

A process by which neurotransmitters are reabsorbed by the neuron after being released into the synapse, relevant in the treatment of depression.