Question

P6-47A Part 1 (alt3) Thomas Inc.'s balance sheet reports the asset Cost in Excess of Net Assets of Purchased Businesses. Assume that Thomas acquired another company, which carried these figures: (Click the icon to view the figures.) Required 1. What is the term used in Canadian financial reporting for the asset Cost in Excess of Net Assets of Purchased Businesses? 2. Record Thomas Inc.'s purchase of the other company for $5.4 million cash 3. Assume that Thomas determined that the asset Cost in Excess of Net Assets of Purchased Businesses increased in value by $850,000. How would this transaction be recorded? Then, suppose Cost in Excess of Net Assets of Purchased Businesses decreased in value by $850,000. How would this transaction be recorded? Discuss the basis for your decision in each case. Requirement 1. What is the term used in Canadian financial reporting for the asset Cost in Excess of Net Assets of Purchased Businesses? The term used in Canadian financial reporting for Cost in Excess of Net Assets of Purchased Businesses is orrec Click to select your answer(s) and then click Check Answer B AL Ô BIKE... ere to search League of L. 9 Course Ho.. g Do Homew... L League of L.

Answer 1

1. What is the term used in Canadian financial reporting for the asset cost in Excess of Net Assets of Purchased Business A. Asset cost in excess of Net assets purchased will be termed as Goodwill. The difference between the fair value of the net assets and the acquisition cost is known as goodwill and when the acquisition cost is higher than the fair value of the net assets, and as negative goodwill when the cost is less. 2. Record Thomas Inc's purchase of the other company for $ 5.4 million cash. A. Fair Value of Assets A/C Dr $4.1 million Goodwill A/C Dr $1.3 million To Cash A/C (Being Cash paid in consideration to business purchase) $ 5.4 million 3. Assume that Thomas determined that the asset cost in Excess of Net Assets of Purchased Business increased in value by $ 850,000. How would this transaction be recorded? Then, suppose Cost in Excess of Net Assets of Purchased Business decreased in value by $850,000. How would this transaction be recorded? Discuss the basis for your decision in each case. A. Goodwill is a residual amount in case of the purchase of business, where it is the difference between the consideration paid in total and the fair value of assets. In case there is an increase in the value by $ 850,000 the same will be reflected in the value of the assets. The entry will be as follows: Goodwill A/C Dr $850,000 Fair Value of Assets A/C Cr $ 850,000 (Being reduction in the value of assets) In case there is a decrease in the value by $ 850,000, the entry will be as follows: Fair Value of Assets A/C Dr $850,000 Goodwill A/C $ 850,000 (Being increase in the value of assets)