May I know why we have to add goodwill to net assets?
As we know, assets = liabilities + equity.
Therefore, if we take the “equity” figure as “net assets”, this already includes the fact that assets – liabilities = equity, wherein the “assets” include the intangible asset of goodwill.
Why are we double counting goodwill by adding it again?
The assets figure is taken from the books of the subsidiary and the sub’s books do not show the goodwill as it is a consolidation adjustment. To therefore get the total value of S’s assets we need to add in the goodwill.
Thanks
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