An entity is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of the entity at current year end was P10,000,000. 1. What is the purchase price if goodwill is measured by capitalizing excess earnings at 25%? 2. What is the purchase price if goodwill is measured by capitalizing average annual earnings at 25%?

An entity is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of the entity at current year end was P10,000,000. 1. What is the purchase price if goodwill is measured by capitalizing excess earnings at 25%? 2. What is the purchase price if goodwill is measured by capitalizing average annual earnings at 25%?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 10PA: Buchanan Imports purchased McLaren Corporation for $5,000,000 cash when McLaren had net assets worth...

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INTANGIBLE ASSETS 8. An entity is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of the entity at current year-end was P10,000,000. What is the amount of goodwill if: Excess earnings are purchased for 5 years? Excess earnings are capitalized at 25%? Annual average earnings are capitalized at 25%? Excess earnings are discounted at 12% for 5 years? (The PV of an ordinary annuity of 1 for 5 years at 12% is 3.60) 9. On January 1, 2021, an entity reported patent cost of P1,920,000 and related accumulated amortization of P240,000. The patent was purchased on January 1, 2019 at which date the remaining legal life was 16 years. On January 1, 2021, the useful life of the patent was determined to be only 8 years from the date of acquisition. On January 1, 2021, the entity paid P800,000, of which three-fourths was…