Pororo Inc. is considering acquiring Orange Company and uses the following data for analysis:Average annual sales for the past 5 yearsP2,000,000 Average annual operating expenses for the past 5 years1,200,000Average annual cost of goods sold for the past 5 years7,200,000 Annual increase in depreciation and amortization750,000Expected annual increase in wages not to be recovered by increase in revenue400,000 The book value of Orange’s net identifiable net assets is P8,500,000. The appropriate rate of return is20%. Revaluations were summarized as follows:Revaluation of inventory to fair valueP500,000Increase in allowance for bad debts50,000Revaluation of property, plant and equipment to fair value250,000 Revaluation of bonds payable due to decline in interest350,000Fair value of patent1,250,000 Determine the following as a result of your audit:46.How much should Pororo recognize as goodwill upon acquisition assuming the excess annualearnings as capitalized at 10%?47.How much should Pororo recognize as goodwill upon acquisition assuming the excess annualearnings are expected to occur at the end of each period for 5 years (discount rate at 10%)?48.How much should Pororo recognize as goodwill upon acquisition assuming the average annualearnings are capitalized at 20%?49.How much is the total value of the company acquired?50.An auditor most likely would review or recompute amortization of intangible assets and determinewhether the amortization period is reasonable in support of management’s financial statementassertion ofa. Completenessb. Existencec. Valuationd. Accuracy

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Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter12: Liabilities: Off-balance-sheet Financing, Retirement Benefits, And Income Taxes

Section: Chapter Questions

Problem 35P

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Pororo Inc. is considering acquiring Orange Company and uses the following data for analysis:

Average annual sales for the past 5 years	P2,000,000
Average annual operating expenses for the past 5 years	1,200,000
Average annual cost of goods sold for the past 5 years	7,200,000
Annual increase in depreciation and amortization	750,000
Expected annual increase in wages not to be recovered by increase in revenue	400,000

The book value of Orange’s net identifiable net assets is P8,500,000. The appropriate rate of return is
20%. Revaluations were summarized as follows:

Revaluation of inventory to fair value	P500,000
Increase in allowance for bad debts	50,000
Revaluation of property, plant and equipment to fair value	250,000
Revaluation of bonds payable due to decline in interest	350,000
Fair value of patent	1,250,000

Determine the following as a result of your audit:
46.How much should Pororo recognize as goodwill upon acquisition assuming the excess annual
earnings as capitalized at 10%?
47.How much should Pororo recognize as goodwill upon acquisition assuming the excess annual
earnings are expected to occur at the end of each period for 5 years (discount rate at 10%)?
48.How much should Pororo recognize as goodwill upon acquisition assuming the average annual
earnings are capitalized at 20%?
49.How much is the total value of the company acquired?
50.An auditor most likely would review or recompute amortization of intangible assets and determine
whether the amortization period is reasonable in support of management’s financial statement
assertion of
a. Completeness
b. Existence
c. Valuation
d. Accuracy

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