If the parent pays more for the investment in the subsidiary than the value of the subsidiary’s net assets, the difference represents the amount paid for the unrecorded goodwill in the subsidiary.
Example
- A: the investment in B is $6,000
- B: the share capital is $5,000.
The calculation shows that A paid $1,000 more than their value for the assets of B. The difference is goodwill, defined as the difference between the cost of an entity and the fair values of that entity’s net assets.
Related posts:
