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 value of goodwill recognized 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 $1,234,567 (determined by Company A as at the acquisition date) the current market value of the only identifiable intangible asset (a customer list) is $125,000 (determined by Company A as at the acquisition date) Operating (non-Financial) liabilities have an appraised value of $160,000 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 $495,000 immediately After the acquisition. There are no other assets or liabilities to consider than those presented above Company A paid $812,000 cash for Company B.

Answer 1

Company A and Company B

Calculation of Goodwill on Acquisition:

= $212,433

Step-by-step explanation:

a) Current market value of:

Tangible physical assets = $1,234,567

Intangible asset = $125,000

Total assets' value = $1,359,567

less Liabilities:

Operating = $160,000

Financial = 600,000 ($760,000)

Net value of assets = $599,567

Purchase Price (Company B) $812,000

Goodwill $212,433

b) Company A acquired Goodwill when it bought over Company B. This is an intangible asset which is calculated by subtracting the net value of assets (the difference between the fair market value of the assets and liabilities) from the purchase price of the acquired subsidiary.