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PROBLEM 7 Amalawyer Company engaged your services to compute the goodwill and purchase price for the acquisition of Amalayer Company. The following data are available for the Amalaver Company: P 6,000,000 Current Liabilities 2,500,000 Noncurrent liabilities 13,000,000 Ordinary shares P 3,500,000 Current Assets Investments 2,500,000 PPE 7,000,000 Share premium 1,500,000 Accumulated profits 7,000,000 P 21,500,000 Total Liab and SHE P 21,500,000 Total Assets You found out that the investments have a fair value of P2,000,000 and the current assets and property, plant and equipment are understated by P800,000 and P1,850,000. All other assets and equities are properly stated. An examination of the company's income for the last 4 years revealed that the total earnings amounted to P9,000,000. The said earnings include gain on sale during the last year of P100,000 and P150,000 annual bonus of the President during the said 4 years. The normal rate of return is 10%. Compute for the following based on the succeeding independent assumptions a. Goodwill; and b. Purchase price. 1. Purchase of goodwill for 4 years. 2. Capitalization of average excess earnings using 10%. 3. Capitalization of average earnings using 8%. 4. Discounted average excess earnings for 4 periods using 12% rate.

PROBLEM 7 Amalawyer Company engaged your services to compute the goodwill and purchase price for the acquisition of Amalayer Company. The following data are available for the Amalaver Company: P 6,000,000 Current Liabilities 2,500,000 Noncurrent liabilities 13,000,000 Ordinary shares P 3,500,000 Current Assets Investments 2,500,000 PPE 7,000,000 Share premium 1,500,000 Accumulated profits 7,000,000 P 21,500,000 Total Liab and SHE P 21,500,000 Total Assets You found out that the investments have a fair value of P2,000,000 and the current assets and property, plant and equipment are understated by P800,000 and P1,850,000. All other assets and equities are properly stated. An examination of the company's income for the last 4 years revealed that the total earnings amounted to P9,000,000. The said earnings include gain on sale during the last year of P100,000 and P150,000 annual bonus of the President during the said 4 years. The normal rate of return is 10%. Compute for the following based on the succeeding independent assumptions a. Goodwill; and b. Purchase price. 1. Purchase of goodwill for 4 years. 2. Capitalization of average excess earnings using 10%. 3. Capitalization of average earnings using 8%. 4. Discounted average excess earnings for 4 periods using 12% rate.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 30E
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4. Discounted average excess earnings for 4 periods using 12% rate

 

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PROBLEM 7 Amalawver Company engaged your services to compute the goodwill and purchase price for the acquisition of Amalayer Company. The following data are available for the Amalayer Company: P 6,000,000 Current Liabilities 2,500,000 Noncurrent liabilities 13,000,000 Ordinary shares Current Assets P 3,500,000 Investments 2,500,000 PPE 7,000,000 Share premium 1,500,000 Accumulated profits 7,000,000 Total Assets P 21,500,000 Total Liab and SHE P 21,500,000 You found out that the investments have a fair value of P2,000,000 and the current assets and property, plant and equipment are understated by P800,000 and P1,850,000. All other assets and equities are properly stated. An examination of the company's income for the last 4 years revealed that the total earnings amounted to P9,000,000. The said earnings include gain on sale during the last year of P100,000 and P150,000 annual bonus of the President during the said 4 years. The normal rate of return is 10%. Compute for the following based on the succeeding independent assumptions a. Goodwill; and b. Purchase price. 1. Purchase of goodwill for 4 years. 2. Capitalization of average excess earnings using 10%. 3. Capitalization of average earnings using 8%. 4. Discounted average excess earnings for 4 periods using 12% rate.
Transcribed Image Text:PROBLEM 7 Amalawver Company engaged your services to compute the goodwill and purchase price for the acquisition of Amalayer Company. The following data are available for the Amalayer Company: P 6,000,000 Current Liabilities 2,500,000 Noncurrent liabilities 13,000,000 Ordinary shares Current Assets P 3,500,000 Investments 2,500,000 PPE 7,000,000 Share premium 1,500,000 Accumulated profits 7,000,000 Total Assets P 21,500,000 Total Liab and SHE P 21,500,000 You found out that the investments have a fair value of P2,000,000 and the current assets and property, plant and equipment are understated by P800,000 and P1,850,000. All other assets and equities are properly stated. An examination of the company's income for the last 4 years revealed that the total earnings amounted to P9,000,000. The said earnings include gain on sale during the last year of P100,000 and P150,000 annual bonus of the President during the said 4 years. The normal rate of return is 10%. Compute for the following based on the succeeding independent assumptions a. Goodwill; and b. Purchase price. 1. Purchase of goodwill for 4 years. 2. Capitalization of average excess earnings using 10%. 3. Capitalization of average earnings using 8%. 4. Discounted average excess earnings for 4 periods using 12% rate.
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