d Ul Buwetugeed in Facebook\'s consolidated financial state result of the WhatsA

ID: 2524157 • Letter: D

Question

d Ul Buwetugeed in Facebook's consolidated financial state result of the WhatsApp acquisition? 36. Computation of goodwill Assume that an investor purchases 100% of an investee company for $22 million. The fair values of identifiable net assets are as follows: the Tangible net assets: Intangible assets: Research and development assets: Receivables, inventories, PPE, payables, and accruals Patents, customer lists, trade name, software, etc. Research projects in process at the investee company $ 8 million 6 million $19 milion In addition to the purchase price, the investor also incurs acquisition-related costs amounting to $2 mil- lion for professional fees and the internal allocation of overhead relating to the purchase. a. How much of the purchase price is assigned to Goodwill? b. How do we account for Goodwill subsequent to the acquisition? c. Given the accounting treatment for Goodw ill subsequent to the acquisition, why might companies be motivated to increase the amount assigned to goodwill?

Explanation / Answer

Purchase price = $ 22 million

Fair value of acquired net assets = $8m+$5m+$6m =$ 19 million

Therefore, Purchase price assigned to goodwill is: -

$22 million - $ 19 million = $3 million

2. Journal Entry for purchase: -

Date

Particulars

Debit

Credit

Date of purchase

Acquired Assets

$19 m

Goodwill

$3 m

Purchase Price

$22 m

Acquisition related cost of $ 2 million will be charged to profit & loss account of the period of acquisition and will not be directly attributable to business acquisition as per revised IFRS 3.

Goodwill of $3m will be reflected in Balance Sheet on Asset side under Intangible Non-Current Assets.

3. Company’s goodwill includes going concern value, excess business profits and expected future economic benefits. Goodwill is Business value less fair market value of total assets; goodwill is higher when business value is higher. It shows the proven track record of generating income by company. This shows company’s value is higher than the combined assets. Therefore, Companies are motivated to increase the amount assigned to goodwill as it increases its value like strong customer base, brand image, reputation.