Eastern Management Ltd acquired all the assets and liabilities of King Ltd on 30 June 2017. The carrying amount and estimated fair value of assets and liabilities of King Ltd to be taken over are as follows:   Carrying amount Fair value Accounts Receivable $760,000 $720,000 Inventory $1,300,000 $1,440,000 Property, plants and equipment $1,680,000 $1,560,000 Accounts payables $680,000 $680,000 Provision for employees benefits $170,000 $220,000 In addition to these assets and liabilities, due diligence identified the existence of brand names that were valued by an expert at $500,000. The due diligence process also uncovered contingent liabilities that were reliably measured at $150,000. The price paid was $4.8 million and costs of $100,000 were incurred in the purchase. Required: Calculate the amount of goodwill that would be recorded in the books of Eastern Management Ltd following the acquisition of King Ltd. Show all workings. How would your answer differ in part (1) if Eastern Management Ltd had paid $3 million for King Ltd?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Eastern Management Ltd acquired all the assets and liabilities of King Ltd on 30 June 2017. The carrying amount and estimated fair value of assets and liabilities of King Ltd to be taken over are as follows:

 

Carrying amount

Fair value

Accounts Receivable

$760,000

$720,000

Inventory

$1,300,000

$1,440,000

Property, plants and equipment

$1,680,000

$1,560,000

Accounts payables

$680,000

$680,000

Provision for employees benefits

$170,000

$220,000

In addition to these assets and liabilities, due diligence identified the existence of brand names that were valued by an expert at $500,000. The due diligence process also uncovered contingent liabilities that were reliably measured at $150,000.

The price paid was $4.8 million and costs of $100,000 were incurred in the purchase.

Required:

  1. Calculate the amount of goodwill that would be recorded in the books of Eastern Management Ltd following the acquisition of King Ltd. Show all workings.
  2. How would your answer differ in part (1) if Eastern Management Ltd had paid $3 million for King Ltd?
 

 

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