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Goodwill calculation
08-26-2009, 01:07 AM
Post: #1
Goodwill calculation
Dear students or any one who can assist me in calculating the goodwill on this question.
The balancesheet of Universe and its subsidiaries,Sun ltd & Moon ltd,at 30 June 2009.
Universe Sun Moon
Assets
Non-current assets
Property,plant & equipment(note3) 45000 25000 20000
Financial Assets(note 1&2) 20000 - -
_____ _____ _____
65000 25000 20000
Current Assets
Inventories(note 3&4) 18000 12000 11000
Trade &other receivables(note3&4) 15000 10000 9000
_____ _____ _____
33000 22000 20000
_____ _____ ______
Total Assets 98000 47000 40000
Equity & Liabilities
Capital & reserves
Issued ordinary share capital(N$1 shares 25000 15000 10000
10% N$1 preference shares - 10000 -
Share premium 10000 - 4000
Retained earnings 24000 8000 9300
_____ _____ ______
59000 33000 23300
Non-current Liabilities
Interest bearing borrowings(note3) 20000 - 4000
Deferred Tax(note 3) 2000 1000 1500
_____ _____ ____
22000 1000 5500 Current Liabilities
Trade payables(note4) 10000 7500 6000
Tax payable 2000 1500 1000
Bank overdraft 5000 4000 3000
Provisions(note3) - - 1200
_____ ____ ____
17000 13000 11200

Please note the second part to follow

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** Threads of duplicate nature merged by Admin. Kindly use single thread to post related posts. The other thread has now been closed **</b></font id="blue">


Notes to the balance sheets
1. On 1 July 1996,the date of incorporation of Sun ltd,Universe ltd subscribed for all the ordinary shares of Sun ltd at par.Then on 1 July2001,when its balance of accumulated profits was 3mil,Sun ltd issued 10mil N$1 preference shares at par.Universe subscribed for 50% of these shares.
2. On 30June2009,Universe ltd purchased 8mill N$1 shares in Moon ltd.The terms of the purchase consideration were as follows
> On 30June2009,Universe ltd issued 3 N$1 ordinary shares for every 4 shares purchased in Moon Ltd.The market value of universe ltd's ordinary shares at 30June2009 was N$4 per share.
> On the 30June2011,Universe ltd will pay the former shareholders of Moon ltd N$1 in cash for every share in Moon ltd they have purchased.This payment is contigent on the cumulative profits after tax of Moon ltd for the 2 years ending 30June2011 being at least N$3 mil.At the date of carrying out the fair value exercise(see note3 below),the directors of Universe ltd considered it probable that this cash payment would be made.
> No entries in respect of the purchase of shares in Moon have been made in the balance sheet of Universe.

3.Following the acquisition of Moon,the directors of Universe carried out a fair value exercise as required by IFRS 3 -Business Combinations.The following matters are relevant and all potential fair value adjustments are material
> Property,plant &equipment comprise land & buildings & plant & machinery.At 30June2009,the land &buildings had a carryying value on 12mil and a market value of 18mil.The plant and machinery had a carrying value of 8mil.All the plant & machinery was purchased on 30June2006 and was being depreciated on a straight-line basis over 8yrs.No reliable estimate was available of the current market value of the plant &machinery,but at 30june2009,the plant would have cost 22mil to replace with new plant.
>Inventory at 30jun2009 comprised
a)finished goods which could be sold for 14.5mil.A reasonable profit allowance for the selling effort of the group would be 3mil.
b)finished goods that had been damaged and could only be sold for N$100000,representing a significant loss on sale.

> Trade receivables include an amount of N$400000 that the directors of Universe ltd consider doubtful.
> The interest bearing borrowing of moon is repayable at par on 30jun2012.Interest at 10% is payable annually in arrears and the payment due on 30June2009 has already been made.The relevant discount rate is 7%.
> The other provisions of moon ltd comprise
a)N$400000 iro the closure of various retail outlets to which the directors of moon ltd became committed prior to entering into acquisition negotiations with the directors of univers ltd.
b)N$800000 iro the estimated cost of integrating moon ltd into the universe ltd group.No detailed integration plans had been formulated by 30JUNE2009.

> The additional deferred tax that needs to be provided on the adjustments that are necessary as a result of the fair value exercise is a liability of 3mil.

4. Universe ltd supplies a component to sun at cost plus a mark up of 20%.At 30June2009,the inventories of sun included 1.5mil iro this component.AT 30June2009,the receivables of Universe showed an amount receivable from Sun of 1.2mil,while the trade payables of Sun showed an amount payable to Universe of N$600000.On 29Jun2009,Universe sent a consignment of components to Sun at an invoiced price of N$600000.The consignment was received and recorded by Sun on 2Jul 2009.

Questions
1. Compute the goodwill amount that will be shown in the consolidated balance sheet of Universe at 30 Jun2009.
2. Prepare the consolidated balance sheet of Universe and its subsidiaries as at 30 Jun2009.

Note that this question follow the goodwill calculation topic that i post first.

Many thanks
Flora
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08-26-2009, 04:14 PM
Post: #2
 
Goodwill as a term was originally used to reflect the fact that an ongoing business had some "intrinsic value" beyond its assets, such as the reputation the firm enjoyed with its clients. Likewise, a buyer may agree to "overpay" because he sees potential synergy with his own business. The accounting sense of goodwill followed as a plausible explanation of why a firm sells for more than the value of its net assets.
The carrying value of an asset with associated goodwill may subsequently be adjusted by management, either by amortization or by means of occasional adjustments of the estimated value of the associated assets (primarily based upon their ability to generate cashflow and profits). The exact treatment and other details, particularly amortization, will depend on the accounting standards applied.

There is a distinction between two types of goodwill depending upon the type of business enterprise institutional goodwill and professional practice goodwill. Furthermore, goodwill in a professional practice entity may be attributed to the practice itself and to the professional practitioner.

It should also be noted that while goodwill is technically an intangible asset, goodwill and intangible assets are usually listed as separate items on a company's balance sheet


Calculations

Goodwill = Purchase Price Fair Market Value of Net Assets
Fair Market Value of Net Assets = Net Tangible Assets + Write-up of Net Assets
Net Tangible Assets = Assets Target's Existing Goodwill Liabilities
As can be seen, a merger destroys the target's "old" goodwill and creates "new" goodwill to appear in consolidated books. Net assets write-up is prepared through a qualified appraisal in a process known as a Purchase Price Allocation.
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08-26-2009, 04:28 PM
Post: #3
 
Dear Flora,
Your topic has not been properly formatted.

Kindly provide seperate data for each company so that it would be easy for the respondent to understand the question, alternatively send it through email.

I have sent my email address to you ,send the said question on my email address.


Best Regards,
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