Question

Company A purchases Company B. This is a 100% equity purchase which means that Company A acquires all of the Company B assets and assumes the liabilities of Company B. Calculate the Price that Company A paid for Company B in the acquisition. Round to the nearest whole dollar and do not include the dollar sign ($). Assume • the current market value of tangible physical assets is $864,000 (determined by Company A as at the acquisition date) the current market value of the only identifiable intangible asset (a customer list) is $200,000 (determined by Company A as at the acquisition date) Operating (non-Financial liabilities have an appraised value of $162,000 before and after the acquisition. Financial Liabilities were appraised by company B to be valued at $600,000 immediately Before the acquisition. . Financial Liabilities were appraised by Company A to be valued at $670,000 immediately After the acquisition. . There are no other assets or liabilities to consider than those presented above . Company A recognized Goodwill equal to $623,000 for acquiring Company B.

Answer 1

Solution;

Calculation of purchase consideration:

Value of Assets Acquired:

• Market Value of Tangible Fixed Assets = $ 864000
• Market Value identifiable Intangible Assets = $ 200000
• Value of operating (Non- Financial Liabilities) = $ 162000
• Value of Goodwill = $ 623000

Total = $ 1849000

Value of Liabilities Acquired:

• Financial liailities Appraised by Co. B (Transferor) = $ 600000
• Price that A shoul Pay to B = (1849000-600000) = $ 1249000
• Note: purchase considerartion is something that is determined before acquisition of the company , so financial liabilities determined by Co . B should be considered for calculation the price to be paid.