PROBLEM 1: Entity X's contemplating on acquiring Entity B. Relevant information follows:

a. Entity Y's average annual earnings in the past 5 years were P1,000,000

b. Entity Y's net assets as at the current year-end have a fair value of P8,000,000

c. The industry average rate of return on equity is 12%.

d. The probable duration of Entity Y's "excess earnings" is 5 years. Goodwill is equal to the average excess earnings capitalized at 25%.

Question/s

1. How much is the goodwill?
2. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured by capitalizing the average earnings at 12%. How much is the goodwill?
3. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured at the undiscounted amount of total excess earnings to be earned from the combination. How much is the goodwill?

PROBLEM 2:Entity X is contemplating on acquiring Entity Y. Relevant information follows:

a. Entity Y's average annual earnings in the past 5 years were P1,000,000

b. Entity Y's net assets as at the current year-end have a fair value of P8,000,000

c. The industry average rate of return on equity is 12%.

d. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured at the undiscounted amount of total excess earnings to be earned from the combination.

QUESTION/S

1. How much is the goodwill?
2. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured by capitalizing the average earnings at 12%. How much is the goodwill?
3. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured at the undiscounted amount of total excess earnings to be earned from the combination. How much is the goodwill?

PROBLEM 3:Entity X is contemplating on acquiring Entity Y. Relevant information follows:

a. Entity Y's average annual earnings in the past 5 years were P1,000,000

b. Entity Y's net assets as at the current year-end have a fair value of P8,000,000

c. The industry average rate of return on equity is 12%.

d. The probable duration of Entity B's "excess earnings" is 5 years Goodwill is measured by discounting the average excess earnings at 9%.

QUESTION/S

1. How much is the goodwill?
2. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured by capitalizing the average earnings at 12%. How much is the goodwill?
3. The probable duration of Entity Y's "excess earnings" is 5 years Goodwill is measured at the undiscounted amount of total excess earnings to be earned from the combination. How much is the goodwill?