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ABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit: The actual earnings of SXYZ, Inc. for the past 5 years are shown below: Year Earnings 2015 2,400,000 2016 2,600,000 2017 2,700,000 2018 2,500,000 2019 3,600,000 Total 13,800,000   Earnings in 2019 included an expropriation gain of ₱800,000. The fair value of XYZ net assets as of the end of 2019 is ₱20,000,000. The industry average rate of return is 12%. Probable duration of “excess earnings” is 5 years. How much is the estimated goodwill under the multiples of average excess earnings method? How much is the estimated goodwill under the capitalization of average excess earnings method? Use a capitalization rate of 25%.

ABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit: The actual earnings of SXYZ, Inc. for the past 5 years are shown below: Year Earnings 2015 2,400,000 2016 2,600,000 2017 2,700,000 2018 2,500,000 2019 3,600,000 Total 13,800,000   Earnings in 2019 included an expropriation gain of ₱800,000. The fair value of XYZ net assets as of the end of 2019 is ₱20,000,000. The industry average rate of return is 12%. Probable duration of “excess earnings” is 5 years. How much is the estimated goodwill under the multiples of average excess earnings method? How much is the estimated goodwill under the capitalization of average excess earnings method? Use a capitalization rate of 25%.

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter12: Intangibles
Section: Chapter Questions
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ABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit:

The actual earnings of SXYZ, Inc. for the past 5 years are shown below:

Year

Earnings

2015

2,400,000

2016

2,600,000

2017

2,700,000

2018

2,500,000

2019

3,600,000

Total

13,800,000

 

  • Earnings in 2019 included an expropriation gain of ₱800,000.
  • The fair value of XYZ net assets as of the end of 2019 is ₱20,000,000.
  • The industry average rate of return is 12%.
  • Probable duration of “excess earnings” is 5 years.
  1. How much is the estimated goodwill under the multiples of average excess earnings method?
  2. How much is the estimated goodwill under the capitalization of average excess earnings method? Use a capitalization rate of 25%.
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