$4-2$

Assigning an Acquisition Differential

Analysis

Ball Corporation's owners recently offered to sell $100$ percent of their ownership to Timber Corporation for $$450,000.$ Timber's

business manager was told that Ball's book value was $$300,000,$ and she estimates the fair value of its net assets at approximately

$$600,000.$ Ball has relatively old equipment and manufacturing facilities and uses a LIFO basis for inventory valuation of some

items and a FIFO basis for others.

Required

If Timber accepts the offer and acquires a controlling interest in Ball, what difficulties are likely to be encountered in assigning the

differential?