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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
“Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for you. To get remaining sub-part solved please re-post the complete question and mention the sub-parts to be solved.”
Remaining sub-part
4. Discounted average excess earnings for 4 periods using 12% rate
Please show complete solution and explanation for me to understand carefully. I am slow learner. Thank You
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education