Explanation

Accounting goodwill is created when the purchase price of an acquisition exceeds the fair value of the acquired net identifiable assets. This represents the premium paid for intangible assets that cannot be separately identified, such as brand reputation, customer relationships, and synergies.

Key Points:

1. Goodwill Definition: Goodwill is an intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets.
2. Net Identifiable Assets: These are assets that can be separately identified and measured (tangible assets, identifiable intangible assets) minus liabilities assumed.
3. Why Option B is Correct: When the purchase price > fair value of net identifiable assets, the excess is recorded as goodwill on the balance sheet.
4. Why Option A is Incorrect: A 'bargain purchase' occurs when the purchase price is LESS than the fair value of net identifiable assets, resulting in a gain on acquisition, not goodwill.
5. Why Option C is Incorrect: When the purchase price is attributed solely to separately identifiable assets and liabilities, there is no excess to be recorded as goodwill.

Accounting Treatment:

• Goodwill = Purchase Price - Fair Value of Net Identifiable Assets
• Goodwill is not amortized but tested annually for impairment
• Represents future economic benefits from assets that cannot be individually identified and separately recognized

This concept is fundamental in business combinations and financial statement analysis.