What is the term for the excess of market value over book value in purchase accounting?

• A. Goodwill
• B. Intangible asset
• C. Deferred tax
• D. Amortization

Answer: (A)

Goodwill. In purchase accounting, you allocate the purchase price to the fair value of the identifiable assets and liabilities of the acquired company. Any amount paid that exceeds the fair value of those net identifiable assets becomes goodwill, representing value from synergies, brand, customer relationships, and other unidentifiable benefits. Goodwill is an intangible asset, but it isn’t amortized like other finite-lived intangibles; it’s tested for impairment because its value can decline if the acquired business underperforms. The other options don’t fit because an identifiable intangible asset covers specific rights, deferred tax relates to timing differences for taxes, and amortization is the process of expensing finite-lived assets rather than the residual premium from the acquisition.