Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter 2, Problem 2.10.1P
To determine

Introduction: Acquisition is a corporate term used to represent purchase of another company and gaining the ownership of the company.

To prepare: Value Analysis as well as Determination and distribution of excess schedule.

Expert Solution & Answer
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Answer to Problem 2.10.1P

  Value Analysis                                       100%            80%            20%                                                               Purchase         Purchase       NCITotal Price paid                                    500000          400000       100000(-) Total fair value of Net Assets         (380000)_        (304000)_   (76000)_Goodwill                                               120000            96000        24000

Determination and distribution of excess schedule

  Inventory                   10000Land                          40000Building                    120000Copyright                  50000Goodwill                 120000_Total                        340000__

Explanation of Solution

Acquisition is a corporate term to define buying all of another company and gain the ownership of the company.

Identify the acquirer: for acquisition it is very important for acquiree’s to know the acquirer.

Following things should be kept in mind voting rights, large minority interest, governing body of combined entity and terms of exchange.

Determine the acquisition date of the company.

Measures the fair value of acquiree: the fair value of the aquiree as an entity is assumed to be paid by the acquirer. The price includes the contingent consideration, the costs of acquisition are not included in the price of the company acquired and expended.

Record acquiree’s assets and liabilities that are assumed: the fair value of all identifiable assets and liabilities of the acquire are determined and recorded.

Goodwill results when the price paid exceeds the fair value of net assets. Gain results when the price paid is less than the fair value of net assets.

Contingent consideration: contingent consideration is consideration given on the happening or non-happening of event. It is generally added in purchase consideration and increase goodwill.

Calculation:

  Value Analysis                                       100%            80%            20%                                                               Purchase         Purchase       NCITotal Price paid                                    500000          400000       100000(-) Total fair value of Net Assets         (380000)_        (304000)_   (76000)_Goodwill                                               120000            96000        24000

Determination and distribution of excess schedule

  Inventory                   10000Land                          40000Building                    120000Copyright                  50000Goodwill                 120000_Total                        340000__

  Accounts receivables               20000Inventory                                 60000Copyrights                               50000Building                                270000Land                                        80000Equipments                             40000Total Assets                    (A) 520000__Total Liabilities                       Current liability                       40000Bond payable                         100000Total Liabilities          (B)      140000__Total Net Assets       (A-B)  =380000__                             

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