Shortly after you were retained to audit the financial statements
Shortly after you were retained to audit the financial statements of Case Corporation, you learned from a preliminary discussion with management that the corporation had recently acquired a competing business, the Mall Company. In your study of the terms of the acquisition, you find that the total purchase price was paid in cash and that the transaction was authorized by the board of directors and fully described in the minutes of the directors’ meetings.
The only aspect of the acquisition of the Mall Company that raises any doubts in your mind is the allocation of the total purchase price among the several kinds of assets acquired. The allocation, which had been specifically approved by the board of directors of Case Corporation, placed very high values on the tangible assets acquired and allowed nothing for goodwill.
You are inclined to believe that the allocation of the lump-sum price to the several types of assets was somewhat unreasonable because the total price for the business was as much as or more than the current replacement cost of the tangible assets acquired. However, as an auditor, you do not claim to be an expert in property values. Would you question the propriety of the directors’ allocation of the lump-sum purchase price? Explain fully.

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