USA Condolidated financial question

[JackFuller]

I'm struggling to wrap my head around this and would appreciate any help.

Company A and Company B decide to start a new business together - Company C.

Company A contributes equipment worth $6,000 and receives 6,000 shares of stock. Company A also contributes business relationships, specially trained personnel, etc. valued at $300,000

Company B contributes cash of $104,000 and receives 4,000 shares of stock.

The entries are recorded on Company C's books as follows:

DR Cash $104,000
DR Equipment 6,000
DR Goodwill 300,000
CR Common stock 10,000
CR APIC 400,000

An independent valuation of the business was done and the appraiser believes the value of the business to be about $600,000. Thus, there is no impairment of goodwill. My question, though, is this - should Goodwill be recorded on the initial investment?

Upon consolidation, should the Goodwill be eliminated? If so, how? Any input and direction to where I can find this addressed in the Codification is appreciated as I'm stumped on this.

 

[bklynboy]

My understanding is that goodwill is only created upon the purchase of a company and not in the formation of a new company. I would not even consider the business relationships etc an intangible asset and would not account for it in the start-up. What I have seen is that when one partner brings expertise to the table he typically gets more shares than what the cash paying investors are receiving and appears to be the case here (Company A gets 60% of the new venture with much less cash contributed).

Also, goodwill when created is on the acquirers balance sheet as they are the one paying for the business and would not reside on Company C in any event.

 

[jfuertes]

I dont know to much about usgaap, but in the ifrs frame, you can´t account specially trained personnel as an asset, because is a internal generated goodwill. Goodwill is only recognized in your financial statement when you apply ifrs 3, and the fair value of your pays is greater than the fair value of the assets that are you receiving.