PROBLEM 7 Amalawyer Company engaged your services to compute the goodwill and purchase price for the acquisition of Amalaver 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 Share premium Current Assets P 3,500,000 Investments 2,500,000 PPE 7,000,000 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.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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