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%?
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 |
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
20%. Revaluations were summarized as follows:
| Revaluation of inventory to fair value | P500,000 |
| Increase in allowance for |
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
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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