On December 31, 2015, Hanzo Company is planning to purchase Buff Incorporated. Hanzo is not sure how much it needs to pay for the acquiring Buff Incorporated. The management of Hanzo wants to determine the value of the firm to decide the price it will pay to acquire the firm. Buff's statement of financial position showed net assets of P32,000,000. Buff's assets and liabilities had fair value different from the carrying amount as follows: Carrying amount 50,000,000 Fair value 57,500,000 Property, plant and equipment, net Other assets 5,000,000 3,000,000 Long-term debt 30,000,000 30,000,000 What is the minimum price will Hanzo pay to acquire Buff Incorporated?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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100%
Cash overdraft
200,000)
1,900,000
Accounts receivable, net
700,000
Property, plant and equipment, net
Accounts payable and accrued expenses
Share capital
640,000
Inventory
700,000
2,500,000
500,000
200,000
Prepaid expenses
Land
Share premium
Retained earnings
2,000,000
1,660,000
On the date of valuation, it is assessed that the long-term assets of the company
were purchased 5 years ago and never been revalued ever since. Therefore, it was
determined that the current fair values of these long-term assets are 20% higher
than their current book value.
Required: Determine the value of the firm using cost approach.
Transcribed Image Text:Cash overdraft 200,000) 1,900,000 Accounts receivable, net 700,000 Property, plant and equipment, net Accounts payable and accrued expenses Share capital 640,000 Inventory 700,000 2,500,000 500,000 200,000 Prepaid expenses Land Share premium Retained earnings 2,000,000 1,660,000 On the date of valuation, it is assessed that the long-term assets of the company were purchased 5 years ago and never been revalued ever since. Therefore, it was determined that the current fair values of these long-term assets are 20% higher than their current book value. Required: Determine the value of the firm using cost approach.
Case 2
On December 31, 2015, Hanzo Company is planning to purchase Buff Incorporated.
Hanzo is not sure how much it needs to pay for the acquiring Buff Incorporated. The
management of Hanzo wants to determine the value of the firm to decide the price it
will pay to acquire the firm. Buff's statement of financial position showed net assets
of P32,000,000. Buff's assets and liabilities had fair value different from the carrying
amount as follows:
Carrying amount
50,000,000
Fair value
57,500,000
Property, plant and equipment, net
Other assets
5,000,000
3,000,000
Long-term debt
30,000,000
30,000,000
What is the minimum price will Hanzo pay to acquire Buff Incorporated?
Transcribed Image Text:Case 2 On December 31, 2015, Hanzo Company is planning to purchase Buff Incorporated. Hanzo is not sure how much it needs to pay for the acquiring Buff Incorporated. The management of Hanzo wants to determine the value of the firm to decide the price it will pay to acquire the firm. Buff's statement of financial position showed net assets of P32,000,000. Buff's assets and liabilities had fair value different from the carrying amount as follows: Carrying amount 50,000,000 Fair value 57,500,000 Property, plant and equipment, net Other assets 5,000,000 3,000,000 Long-term debt 30,000,000 30,000,000 What is the minimum price will Hanzo pay to acquire Buff Incorporated?
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