Alloy Ltd has acquired a Blink manufacturing division from LGIA Ltd. The accountant, Mr Lee, has shown the board of directors of Alloy Ltd the financial information regarding the acquisition. Mr Lee calculated a residual amount of $45 000 to be reported as goodwill in the accounts. The directors are not sure whether they want to record goodwill on Alloy Ltd's statement of financial position. Some directors are not sure what goodwill is or why the company has bought it. Other directors even query whether goodwill is an asset, with some being concerned with future effects on the statement of profit or loss and other comprehensive income. 

Required 

Advise Mr Lee about the nature of goodwill and how to account for it.

Answer rating: 100% (QA)

Answer Goodwill of 45000 represents the amount paid in excess of the net worth FMV of Assets Lia... View the full answer