Elson Corporation, a retail fuel oil distributor, has increased its annual sales volume to a level three times greater than the annual sales of a it purchased in 2015 in order to begin operations.
The board of directors recently received an offer to negotiate the sale of Elson to a large competitor. As a result, the majority of the board wants to increase the stated value of on the to reflect the larger sales volume developed through intensive promotion and the current market price of fuel oil. A few of the board members, however, would prefer to eliminate altogether from the in order to prevent “possible misinterpretations.” Goodwill was recorded properly in 2015.
Required:
1. Explain the meaning of the term .
2. Explain why the book and fair values of the of Elson may differ.
3. Discuss the propriety of (a) increasing the stated value of prior to the negotiations and (b) eliminating completely from the prior to negotiations.
