Reference no: EM133141503
Question - Your investigation of Samsung Corp.'s various non-current asset transactions for 2021 revealed the following information:
Samsung Corp.'s reported a Trademark at P520,000 at the end of 2021 after an amortization for the year at P130,000. The company spent P120,000 legal fees in successfully defending a trademark at the beginning of 2018. The legal fees was capitalized in 2018 and was amortized over the remaining life of the trademark at the beginning of 2018 which was 8 years. By the end of the year the company estimates that the expected net cashflows from the Trademark's continued use is at P151,426 The prevailing market rate of interest at the end of the year is 10%.
A franchise agreement was entered with Sharp Corp. at the beginning of 2020. The initial franchise fee was at P5M. The amount was paid P1M down-payment with a 4M note payable in five equal installments starting December 31, 2020. The franchise agreement, which was for an indefinite term, also calls for a continuing franchise fee set at 5% of the company's annual revenue in excess of P4M. The company's actual revenue in 2020 and 2021 were at P4.5M and P5.2M, respectively. Net cash flows from the franchise continued use has been estimated at P420,000 annually. The prevailing market rate of interest at the end of 2019, 2020 and 2021 were at 12%, 11% and 10%, respectively.
At the beginning of 2021, the company acquired the business operations of its competitor San Yang Inc. in a business combination accounted for as purchase of net assets. San Yang Inc. net assets comprise of the following:
|
Book Value
|
Fair Value
|
|
Current Assets
|
500,000
|
500,000
|
|
Land
|
1,200,000
|
1,500,000
|
|
Buildings, remaining life 10 yrs
|
1,500,000
|
2,000,000
|
|
Equipment, remaining life 5 yrs
|
900,000
|
1,200,000
|
|
Brand, remaining life 5 yrs.
|
500,000
|
600,000
|
|
Franchise, indefinite term
|
600,000
|
800,000
|
|
Liabilities
|
1,800,000
|
1,800,000
|
The accumulated profits of San Yang from 2015 - 2019 was at P4,890,000. This included a loss on sale of an equipment in 2016 at P400,000 and in 2019 at P220,000. Annual president's bonus averaged to P125,000. The industry's average rate of return was estimated at 20%.
Required -
1. What is the goodwill arising from the acquisition of San Yan Inc. assuming that the company preferred the capitalization of the acquired company's projected earnings at 20%?
2. What is the correct carrying value of the trademark as of December 31, 2021?