Determine the amount of goodwill using the residual approach

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Problem - Keen Company purchased an entity for P6,000,000 cash at the beginning of the current year. The carrying amount and fair value of the assets of the acquired entity on the date of acquisition are as follows:

 

Carrying amount

Fair value

Cash

50,000

50,000

Accounts receivable

500,000

500,000

Inventory

1,000,000

1,500,000

Patent

0

250,000

Property, plant and equipment

2,000,000

3,000,000

In addition, the acquired entity had accounts payable only totaling P2,000,000 at the time of acquisition. The acquired entity has no other separately identi?able intangible assets.

Required -

1. Determine the amount of goodwill using the residual approach.

2. Prepare journal entry to record the purchase of the entity.

Reference no: EM132884892

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