Question

Peregrine Company acquires all of the voting stock of Falcon Corporation for $65,000, in a merger. Falcon’s balance sheet reports the following asset and liability balances:

Current assets

$15,000,000

Plant & equipment

60,000,000

Current liabilities

10,000,000

Long-term debt

40,000,000

Assume the book values of Falcon’s assets and liabilities equal their fair values. How much goodwill does Peregrine report at the date of acquisition?

$35,000,000

$40,000.000

$30,000

$0

Answer 1

(It seems that the amount in question is wrongly typed as 65,000 instead of 65,000,000)

The correct answer is $40,000.000.

Step-by-step explanation:

The answer is calculated from guidlines provided in IFRS 10.

As per accounting standards the price paid above fair value of net asset is taken as goodwill. Goodwill is accounted as asset in balance sheet.

As fair value is not given we will assume that book values are equal to fair value. The detail calculations are given below.

Consideration paid $ 65,000,000

FV of net asset ($ 25,000,000)

Goodwill $ 40,000,000