Pawan Corporation acquires all of Sesa Company at an acquisition cost of $80,000,000 in cash. Sesa's reported assets and liabilities are as follows:
Book Value Dr (Cr) |
Fair Value Dr (Cr) |
|
Current assets |
$ 5,000,000 |
$ 7,000,000 |
Land, buildings, and equipment (net) |
60,000,000 |
40,000,000 |
Liabilities |
(40,000,000) |
(39,000,000) |
Pawan determines that Sesa has the following identifiable
intangible assets, not reported on its balance sheet:
Fair Value |
|
Favorable leaseholds |
$ 4,000,000 |
In-process research & development |
3,000,000 |
Advertising contracts |
5,000,000 |
Pawan also discovers that Sesa has not properly recorded the
expected liability from a settled lawsuit, currently estimated at
$6,000,000.
Pawan records goodwill of:
A. |
$54,000,000 |
|
B. |
$60,000,000 |
|
C. |
$69,000,000 |
|
D. |
$66,000,000 |
Identifiable Net assets of Sesa | |||
Current assets | $7,000,000 | ||
Land, buildings, and equipment | $40,000,000 | ||
Liabilities | -$39,000,000 | ||
Intangible assets - favourable leaseholds | $4,000,000 | ||
Intangible assets - R&D | $3,000,000 | ||
Intangible assets - Advertising contracts | $5,000,000 | ||
Law suit liability | -$6,000,000 | ||
Identifiable net assets | $14,000,000 | ||
Cost of acquisition | $80,000,000 | ||
Goodwill | $66,000,000 | ||
Hence option D is correct | |||
Note: | At the time of business acquisition, intangible assets and unrecorded liabilities of the aquiree is taken into consideration. | ||
Hence, intangible assets and unrecorded liability have been accounted. |
Pawan Corporation acquires all of Sesa Company at an acquisition cost of $80,000,000 in cash. Sesa's...
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