Thinking and Exploration/M \\ 7 Foreign A and Chinese company C planed to establ

Question

Thinking and Exploration/M 7 Foreign A and Chinese company C planed to establish a joint venture B. A woul invest US$3.5 million, while C US $1.5 million. The products of B would be exported totally with a foreign brand. To express its sincerity, C decided to give company D to B as a gift, which C had operated over ten years. Though similar to what B would produce, D's products were mainly sold on the domestic market. In addition, D's financial statements showed that the total assets was RMB¥100 million, among which accounts receivable were 40 millión, and the rate of recovery estimated was 50%; the total liability was RMBY-130 million. Besides, the manager of D claimed that the true value of D was higher than its book value because of its brand, distribution network, govermance model, technique and so on. If you were in charge of company A, would you accept such a gift? 2 ) ip,Translation · mth nITmAt

Explanation / Answer

On Evaluation D's Financial Statements it can be understood that the liabilities of company are in excess of its assets by RMB Yen 30 million.

Hence it can be said that the company D will be burden on company A.

But it may be noted that the total assets of Company D is not inclusive of Value of Brand.

Hence, the company should compute the value of Brand/Goodwill and if such value exceed RMB Yen 30 million then the company may accept such gift. Otherwise it should not accept such gift.

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