Goodwill Calculation (Inventories and Long lived assets )

[Ankit Sharma]

How to calulate Goodwill in the below Situation :
As we know that Goodwill is the excess of purchase price over the Fair value of the Identifiable asset( net of liablities) in business combination.
Now If we look into the calculation of Inventory as below
Original cost = $ 210
selling price = $ 225
selling cost = $ 22
NRV = $ 203
Replacement cost = $ 197
Normal profit margin = $ 12
Ans: Inventory value under IFRS= 203 , US GAAP = 197
So my question is while calulating goodwill which value we have to considered either ( 203 or 197) as the standard followed
OR
NRV of 203
OR
Selling price = 225
so basically my question comes to What is the Fair value or Fair market value.
Thanks

 

[Tartaglia]

I don’t think the concept of goodwill is applied to inventory valuation (at least I have not seen it in this context so far). And it does not appear as if the question is asking for that.

 

[Ankit Sharma]

Goodwill= Asset-liablities of the target firm; where Assets has to be on the Fair market value instead of Book cost , But inventories we will value at cost or NRV / Market which ever is lower,
In this scenario consider the Cost is less than NRV / Market so in balance sheet Inventory is recorded at cost , Now as Total asset will inclued Inventory for calculating Goodwill Should it has to be considered at COST which is given in balance sheet or Fair value Which is NRV.
Because In Goodwill valuation in one question I have seen Plant & Equipment value at cost= 100 but the market value was= 180 so while calculating the total asset it has considered Plant & Equipment as 180

 

[Tartaglia]

Again, I could be wrong here, but I don’t think you will have to adjust the value of inventory to compute goodwill. PPE yes, but not goodwill (at least I have not seen it so far). So unless you find a question that asks for that…

 

[Ankit Sharma]

Thanks!!