How much is the goodwill from the business combination

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Reference no: EM132700582

On January 2, 2017, LWWY, Inc. is contemplating to acquire all the issued and outstanding shares of WMYB, Inc. in a business combination accounted for as a purchase. The recorded assets and liabilities of WMYB, Inc. on said date follows:

CashP 800,000

Inventory2,400,000

Property and equipment, net of accumulated depreciation of P3,200,000

4,000,000

Identifiable intangible assets800,000

Liabilities(1,800,000)

On January 1, 2019, it was determined that the inventory of WMYB, Inc. had a fair value of P1,900,000, the property and equipment had a sound value of P4,600,000, and its identifiable intangibles had a fair value of P1,000,000.

The industry's average rate of return is at 9%, while WMYB, Inc.'s normal return is at 12%.

Note: Round off present value factors up to three decimal places (e.g. X.XXX). Round off amounts to the nearest peso.

Based on the information above, answer the following:

Question 1: Assuming that the company contemplates the acquisition price at P8,000,000, how much is the goodwill from the business combination?

Question 2: How much is the resulting goodwill if goodwill is computed using the "purchase of excess earnings" method over a 10-year period?

Question 3: How much is the resulting goodwill if the excess earnings will be capitalized at 12%?

Question 4: How much is the resulting goodwill if the average earnings will be capitalized at 10%?

Question 5: How much is the resulting goodwill and the assumed acquisition price if the present value method is in place and that the prevailing rate of interest is at 10% over the 10-year period excess earnings is expected to be generated?

Reference no: EM132700582

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