Which balance sheet item would show the asset representing the premium paid on acquiring another company?

Which balance sheet item would show the asset representing the premium paid on acquiring another company?

• A. Intangible assets
• B. Goodwill
• C. Deferred tax assets
• D. Accounts payable

Answer: (B)

When a company buys another company, if the purchase price exceeds the fair value of the identifiable net assets acquired, the excess is recorded as goodwill on the acquirer's balance sheet. Goodwill captures the premium for synergies, brand strength, customer relationships, and the assembled workforce. It is an indefinite-lived intangible asset and is tested for impairment rather than amortized. Intangible assets, by contrast, are specific identifiable intangibles like patents or trademarks; the premium isn’t allocated to those individually. Deferred tax assets arise from tax timing differences and loss carryforwards, not from acquisition premium. Accounts payable is a liability, not an asset.

When a company buys another company, if the purchase price exceeds the fair value of the identifiable net assets acquired, the excess is recorded as goodwill on the acquirer's balance sheet. Goodwill captures the premium for synergies, brand strength, customer relationships, and the assembled workforce. It is an indefinite-lived intangible asset and is tested for impairment rather than amortized. Intangible assets, by contrast, are specific identifiable intangibles like patents or trademarks; the premium isn’t allocated to those individually. Deferred tax assets arise from tax timing differences and loss carryforwards, not from acquisition premium. Accounts payable is a liability, not an asset.