In 2005 Procter & Gamble (P&G) bought the Gillette Company for $53.4 billion. The purchase added $10.0

Question:

In 2005 Procter & Gamble (P&G) bought the Gillette Company for $53.4 billion. The purchase added $10.0 billion of tangible assets and $21.2 billion of liabilities to P&G’s balance sheet. In addition, P&G identified $29.7 billion of specific intangible assets acquired. These intangible assets had lives ranging from 5 years to more than 40 years. However, assume that all had useful lives of 10 years.

1. How much goodwill did P&G record as a result of the acquisition of Gillette? How much of this goodwill was still on P&G’s balance sheet in 2011, assuming P&G did not identify any impairment of the goodwill?

2. Suppose P&G had not identified the $29.7 billion of specific intangible assets but instead had recorded an extra $29.7 billion worth of goodwill. How would this affect P&G’s income in 2006?

3. Why might a manager want this $29.7 billion to be recorded as goodwill rather than as part of the value of identifiable intangible assets?

Goodwill
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