alleryStart learning →When does goodwill arise as an intangible asset?
AWhen a patent is registered with the government
BWhen a trademark is licensed to another firm
CWhen a copyright is renewed for a longer term
DWhen a buyer pays above an acquired firm's asset value
Answer & Solution
Correct answer: D. When a buyer pays above an acquired firm's asset value
1. Intangible assets are long-term assets with no physical existence, such as patents, copyrights, trademarks and goodwill.
2. Goodwill arises when a company pays more for an acquired firm than the value of that firm's tangible assets.
3. Patents and copyrights shield a firm from direct competition, so their benefit is protective rather than a purchase premium.
4. Trademarks are registered names that can be sold or licensed to others, which is a separate intangible from goodwill.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.4 The Balance Sheet_
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