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Asset Acquisition and Goodwill Calculations

1. National acquired Regional's inventory at book value. The combined inventory on the balance sheet would be $65,000 + $25,000 = $90,000. 2. Baker acquired Werner's equipment at book value. The combined equipment on the balance sheet would be $210,000 + $70,000 = $280,000. 3. Platek acquired Smith's assets and liabilities for $600,000. Goodwill would be included on the balance sheet for $475,000.

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83 views3 pages

Asset Acquisition and Goodwill Calculations

1. National acquired Regional's inventory at book value. The combined inventory on the balance sheet would be $65,000 + $25,000 = $90,000. 2. Baker acquired Werner's equipment at book value. The combined equipment on the balance sheet would be $210,000 + $70,000 = $280,000. 3. Platek acquired Smith's assets and liabilities for $600,000. Goodwill would be included on the balance sheet for $475,000.

Uploaded by

Lisel Salibio
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Problem 1

1. National acquired assets and liabilities of Regional for Regional’s book value at the
balance sheet date. At that date, National’s inventory had a book value and market
value of P65,000 and P80,000, respectively while Regional’s inventory had a book and
market value of P25,000 and P25,000, respectively. What amount of inventory would
appear on the balance sheet?

Problem 2

2. Baker Enterprises acquired assets and liabilities assets and liabilities of Werner
Company for Werner’s book value at the balance sheet date. At that date, Baker’s
equipment had a net book value and market value of P210,000 and P300,000,
respectively while Werner’s equipment had a net book and market value of P70,000 and
P70,000, respectively. What amount of equipment (net) would appear on the balance
sheet?

Problem 3

Platek Enterprises acquired assets and liabilities of Smith Company for P600,000. At
that date, Smith Company had the following book values and market values:

Book Value Market Value

Cash and Receivables P25,000 P25,000

Inventory 125,000 180,000

Plant Assets (net) 300,000 475,000

Current Liabilities (60,000) (60,000)

Long-term Debt (120,000) (120,000)

Common Stock (15,000)

Retained Earnings (255,000)

3. What amount is included in the balance sheet with regard to goodwill?


Problem 4

4. Cozzi Company is being purchased and has the following balance sheet as of the
purchase date:

Current assets . . . . . P2 Liabilities . . . . . . . P


....... 00, ..... 90,00
00 0
0

Fixed 1 Equity . . . . . . . . . . 290,


assets . . . . . . . . . . . 80, ...... 000
... 00
0

The price paid for Cozzi's net assets is P500,000. The fixed assets have a fair value
of P220,000, and the liabilities have a fair value of P110,000. The amount of
goodwill to be recorded in the purchase is:

Problem 5

1. P Company purchased the net assets of S Company for P225,000. On the


date of P's purchase, S Company had no investments in marketable securities
and P30,000 (book and fair value) of liabilities. The fair values of S Company's
assets, when acquired were:

Current P120
assets . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . ,000

Non-current
assets . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 180,
000

How should the P45,000 difference between the fair value of the net assets
acquired (P270,000) and the consideration paid (P225,000) be accounted for by
P Company (indicate if goodwill or gain)?

Common questions

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Without adjustments in liabilities' fair value, the net assets' fair value would decrease by P20,000 (from P310,000 to P290,000). This would lead to an increase in recorded goodwill by P20,000 to P210,000 .

If Baker Enterprises paid the market value instead of book value for Werner's equipment, the balance sheet would reflect an increase in equipment value to P370,000, matching the market values (P300,000 from Baker's equipment plus P70,000 from Werner's equipment), and potentially increasing goodwill or reducing any gain recognized .

Upon acquisition, Baker Enterprises should record an equipment value of P280,000 on the balance sheet, which is the total of P210,000 from Baker’s book value and P70,000 from Werner’s book value .

P Company should recognize the P45,000 difference as a gain from bargain purchase (negative goodwill), since the fair value of net assets (P270,000) exceeds the consideration paid (P225,000).

In scenarios where book and market values are identical, such as in National's acquisition of Regional, goodwill is not generated; consequently, there is no intangible asset boost in the balance sheet, leading to a more conservative asset valuation rooted in historical cost .

The amount of inventory that would appear on the balance sheet would be the sum of both National and Regional's book values. Thus, National would report P90,000 (P65,000 for National and P25,000 for Regional) on the balance sheet .

Differentiating between book and market values is crucial as it affects the calculation of goodwill. The variance highlights the true acquisition benefit or overpayment, directly influencing the goodwill or gain recognition in financial statements .

Goodwill is the difference between the purchase price of P600,000 and the fair value of Smith's net assets, which totals P150,000 (P25,000 cash + P180,000 inventory + P475,000 plant assets = P680,000 – P180,000 liabilities = P500,000 net assets). Therefore, the goodwill recorded is P100,000 .

Goodwill is calculated by subtracting the fair value of net assets from the purchase price. The fair value of Cozzi's net assets is P220,000 (P220,000 fixed assets + P200,000 current liabilities – P110,000 liabilities). Therefore, goodwill is P500,000 - P310,000 = P190,000 .

There would be no goodwill because Regional was acquired at book value. The assets' market value didn’t contribute to a gap between the purchase price and book value of net assets, hence no goodwill arises .

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