Suppose that competition among acquiring firms to make a corporate acquisition results in a valuation error, such that the acquiring firm overpays for the acquired firm. The acquiring firm will allocate the excess purchase price to goodwill, along with amounts attributable to unidentifiable intangible benefits. Because U.S. GAAP and IFRS do not require firms to amortize goodwill, the excess purchase price will not affect net income. Do you agree? Why or why not?
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