Reference no: EM132482996

The statement of financial position of Delacosta Corporation as at December 31, 2020, is as follows:

Delacosta Corporation

Statement of Financial Position

December 31, 2020

AssetsGoodwill (Note 1)                              $ 70,000

Buildings (Note 2)                                      1,640,000

Inventory                                                   312,100

Investments-trading (Note 3)                          100,000

Land                                                            950,000

Accounts receivable                                      170,000

Investments in shares (FV-OCI) (Note 4                 )87,000

Cash                                                                   175,900

Assets allocated to trustee for plant expansion Cash     120,000

Treasury notes, at cost and fair value                    138,000

                                                                    $3,763,000

EquitiesNotes payable (Note 4)$                             600,000

Common shares, unlimited authorized, 500,000 issued 730,000

Retained earnings                                                958,000

Accounts payable                                              420,000

Appreciation capital (Note 2)                                570,000

Income tax payable                                                75,000

Reserve for depreciation of building                           410,000

                                                                       $3,763,000

Note 1: Goodwill in the amount of $70,000 was recognized because the company believed that the carrying amount of assets was not an accurate representation of the company's fair value. The gain of $70,000 was credited to Retained Earnings.

Note 2: Buildings are stated at cost, except for one building that was recorded at its appraised value as management determined the building to be worth more than originally paid at acquisition. The excess of the appraisal value over cost was $570,000. Depreciation has been recorded based on cost.

Note 3: Investments-trading are FV-NI (fair value through net income) investments and have a fair value of $75,000. Investments in shares (FV-OCI) have a fair value of $200,000. Both investments are currently recorded at cost.

Note 4: Notes payable are long-term except for the current principal instalment due of $100,000.

Instructions

Question a. Prepare corrected classified statement of financial position in good form. The notes above are for information only. Assume that you have decided not to use the revaluation model for property, plant, and equipment.

Question b. From the perspective of a user of Delacosta's statement of financial position, discuss the importance of proper accounting for goodwill.