Accounting Investment Methods
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Questions and Answers

How is goodwill calculated in a business acquisition?

  • Goodwill is calculated as the average of the purchase consideration and net assets acquired.
  • Goodwill is calculated as the fair value of net assets acquired.
  • Goodwill is calculated as the excess of the purchase consideration over the fair value of net assets acquired. (correct)
  • Goodwill is calculated as the total purchase consideration.

How are impairments of asset investments accounted for?

  • Impairments, which represent a permanent decline in fair value, are recognized as a write-down. (correct)
  • Impairments are recognized as an increase in fair value.
  • Impairments are recognized as temporary declines.
  • Impairments are not recognized as a decline in fair value.

What are upstream and downstream sales?

  • Upstream sales are from parent to subsidiary, while downstream sales are from subsidiary to parent.
  • Upstream sales are from subsidiary to parent, while downstream sales are from parent to subsidiary. (correct)
  • Upstream and downstream sales refer to sales within the same company.
  • Upstream and downstream sales refer to sales between unrelated companies.

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