Suppose Company P buys 100% of the common stock of Company S for more than the book

Question:

Suppose Company P buys 100% of the common stock of Company S for more than the book value of S. After 1 year, the consolidated entity prepares financial statements. Two expense items appear on the consolidated income statement that are not on the individual statements of P and S:

1. Depreciation on equipment in excess of that in the individual statements

2. Write-off of goodwill

Explain why these two accounts exist. That is, what was there about the acquisition that generated the need for these two accounts?

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