Question

Company A purchases Company B. This is a 100% equity purchase which means that Company A acquires all of the Company B assets and assumes the liabilities of Company B.

Calculate the Price that Company A paid for Company B in the acquisition. Round to the nearest whole dollar and do not include the dollar sign ($).

Assume

• the current market value of tangible physical assets is $1,492,000 (determined by Company A as at the acquisition date)
• the current market value of the only identifiable intangible asset (a customer list) is $85,000 (determined by Company A as at the acquisition date)
• Operating (non-Financial) liabilities have an appraised value of $160,000 before and after the acquisition.
• Financial Liabilities were appraised by company B to be valued at $600,000 immediately Beforethe acquisition.
• Financial Liabilities were appraised by Company A to be valued at $495,000 immediately After the acquisition.
• There are no other assets or liabilities to consider than those presented above
• Company A recognized Goodwill equal to $246,800 for acquiring Company B.

Answer 1

Current Market Value of Tangible Physical Assets = 1,492,000

Current Market Value of Identifiable Intangible Assets = 85,000

Goodwill = 246,800

Operating Liabilities = 160,000

Financial Liabilities appraised by company B before acquisition = 600,000

Financial Liabilities appraised by company A after acquisition = 495,000

Total assets = market value of tangible + intangible assets

= 1,492,000 + 85,000

= 1,577,000

Total Liabilities = Operating Liabilities + Financial Liabilities

= 160,000 + 600,000 ( Financial liabilities appraised by company B before acquisition is considered)

= 760,000

Fair Market Value of Company B = Total Assets - Total Liabilities

= 1,577,000 - 760,000

= 817,000

Cost of Acquisition = Fair Market Value + Goodwill = 817,000 + 246,800 = 1,063,800