Reference no: EM133174451

Questions -

Q1. Meryll Company is negotiating to acquire the net assets LeMans Company. Under the plan, Meryll is willing to pay for goodwill computed by capitalizing at 25% LeMans' average earnings in excess of the 10% normal return based on appraised value of net assets. This is the same level of income experienced by companies similar to LeMans line of business. LeMans' income for the past three years averaged P3,000,000. LeMans' assets and liabilities are

Book Value

Assets excluding goodwill - P30,000,000

Liabilities - 10,500,000

Appraised Value

Assets excluding goodwill - P39,000,000

Liabilities - 10,500,000

What is the amount of goodwill?

a. P600,000

b. P420,000

c. P150,000

d. P105,000

Q2. Sarah Company acquired another entity on January 1. As part of the acquisition P5,000,000 in goodwill was recognized. This goodwill was assigned to one of acquiree's cash generating units. During the year, the cash generating unit reported revenue of P8,000,000. Publicly traded companies with operations similar to those of the cash generating unit had price to revenue ratio averaging 1.60. The book value of the assets and liabilities of the cash generating units are as folIows:

Identifiable assets - 15,000,000

Goodwill - 5,000,000

Liabilities - 4,000,000

Sarah Company shall recognize goodwill Impairment loss at

a. P5,000,000

b. P3,200,000

c. P1,800,000

d. P0

Q3. Ana Company Is acquiring Rowen Corporation on January 1, 2020. The cumulative earnings of Rowen from 2015 to 2019 amounted to P7.2 million On January 1, 2020, the assets and liabilities of Rowen at appraised values are P10.35 million and P6.65 million, respectively. The normal return in Bowen's industry is 20%. Goodwill Is computed by capitalizing at 25% average earnings in excess of normal return based on appraised value of net assets.

What is the amount paid by Ana in the acquisition of Rowen Corporation?

a. P6.8 million

b. P6.5 million

c. P5.8 million

d. P2.8 million