Question

Company A purchases Company B. This is a 100% equity purchase which means that Company A acquires all of the Company B assets and assumes the liabilities of Company B.

Calculate the value of goodwill recognized in the acquisition. Round to the nearest whole dollar and do not include the dollar sign ($).

Assume

• the current market value of tangible physical assets is $1,210,000 (determined by Company A as at the acquisition date)
• the current market value of the only identifiable intangible asset (a customer list) is $60,000 (determined by Company A as at the acquisition date)
• Operating (non-Financial) liabilities have an appraised value of $300,000 before and after the acquisition.
• Financial Liabilities were appraised by company B to be valued at $600,000 immediately Before the acquisition.
• Financial Liabilities were appraised by Company A to be valued at $680,000 immediately After the acquisition.
• There are no other assets or liabilities to consider than those presented above
• Company A paid $850,000 cash for Company B.

Answer 1

Calculation of Goodwill by A on purchasing 100% Equity in Company B:-

Goodwill = Consideration paid by a company in Excess of its Net assets aquired.

Calculation of Net assets aquired-

Assets:

Tangible physical assets = 1,210,000

Intangible asset = 60,000

Liabilities:

Operating (non-Financial) liabilities = (300,000)

Financial Liabilities =(680,000)

Net Assets= 290,000

Note- Fair value of liabilities to be recognised in Aquirers books ie 680,000 is to be considered and not 600,000 which is value before aquisition.

Thus Goodwill= Consideration paid- Net Assets

Goodwill=850,000-290,000

Goodwill=560,000