A. Calculate the selling price being asked by each business and the purchase price offered by Sharp
Question:
A. Calculate the selling price being asked by each business and the purchase price offered by Sharp Photographics. Should each business sell out to Sharp Photographics?
B. The sale between Sharp Photographics and Framers & Son went ahead at the negotiated price; and the eventual sale price of Developers & Co. was $121 300. How much goodwill (if any) should be recognised by Sharp Photographics? Calculate the total valuations for all assets acquired from both businesses. Explain.
The summarised statements of financial position for two business entities are presented below:
Framers & Son | Developers & Co. | |||||||
ASSETS Cash at bank Accounts receivable Inventory Property and plant (net) Intangibles | $ 10000 12000 15000 40000 25000 | $ 13000 19000 17000 60000 — | ||||||
TOTAL ASSETS | 102000 | 109000 | ||||||
LIABILITIES Current liabilities Non-current liabilities | 11000 20000 | 16000 25000 | ||||||
TOTAL LIABILITIES | 31000 | 41000 | ||||||
NET ASSETS | $ 71000 | $ 68000 | ||||||
EQUITY A. Teake, Capital S. Teake, Capital D. Pitcher, Capital | $ 40000 31000 — | — — 68000 | ||||||
TOTAL EQUITY | $ 71000 | $ 68000 | ||||||
Sharp Photographics is considering the possibility of acquiring the businesses of Framers & Son and Developers & Co., and is interested in establishing an appropriate purchase price for making offers to the two entities. An assessment of the fair values of the entities’ assets is as follows:
Fair values | ||||||||
Framers & Son | Developers & Co. | |||||||
Receivables Inventory Property and plant (net) Intangibles | $12000 20000 60000 40000 | $18000 25000 70000 15000 | ||||||
The owners of Framers & Son are prepared to sell their firm at a price of 160% of the carrying amount of the entity’s net assets, and the owner of Developers & Co. is prepared to sell at 180% of the carrying amount of the net assets of his business.
The owners of Sharp Photographics examined the earnings records and financial positions of the two entities over a number of years, and offered to pay the price required by Framers & Son, but offered to pay only 120% of the fair value of Developers & Co.’s net assets.
GoodwillGoodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
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Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett