Respuesta :
Final Answer:
Goodwill and other intangibles are often created in a Leveraged Buyout (LBO) to account for the premium paid over the fair market value of the acquired company's identifiable net assets.
The Correct option is c) To represent the premium paid over the fair market value of assets.
Explanation:
In an LBO, the acquiring company often pays a premium to gain control of the target company, and this premium is recorded as goodwill on the acquiring company's balance sheet.
Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed. It reflects the intangible value of factors such as the target company's brand, customer relationships, and workforce that are not separately identifiable.
Therefore, the correct answer is c) To represent the premium paid over the fair market value of assets.
Final answer:
Goodwill and other intangibles in an LBO are created to represent the premium paid over the fair market value of assets of an acquired company. They are an accounting requirement under GAAP rather than a means to inflate company value or solely for tax deductions.
Explanation:
Goodwill and other intangibles are created in an LBO (Leveraged Buyout) to represent the premium paid over the fair market value of assets. When a company is acquired in an LBO, the purchase price often exceeds the sum of the fair market values of all identifiable tangible and monetary assets. This excess amount is recorded on the balance sheet as goodwill. Goodwill is considered an intangible asset because it is not a physical asset or a financial asset. It arises because of elements such as a company's brand, customer base, employee relations, patents, or proprietary technology.
Goodwill and intangibles are not created to inflate the value of the acquired company, as their creation is a requirement under Generally Accepted Accounting Principles (GAAP) to comply with accounting regulations. While these intangibles have an impact on financial statements, they are not created solely for tax purposes, although amortization of certain intangibles can provide tax deductions over time.
