Question

On January 1, 2015, Losi Company acquired a 30% interest in an associate for P5,000,000. The equity of the associate at the date of acquisition consisted of share capital pf P10,000,000 and retained earnings of P5,000,000. All the identifiable assets and liabilities of the associate were recorded at fair value. The associate reported the following:

2015 2016
Profit before tax 3,000,000 4,000,000
Income tax expense 900,000 1,200,000
Dividend paid 2,500,000 2,000,000
What is the goodwill arising from the acquisition? {

Select one:

a. 2,000,000

b. 0

c. 1,000,000

d. 500,000

Answer 1

Working Notes:
	Formula =
	Goodwill = Purchase Value - Net Assets or Shareholder's Equity
	Shareholder's Equity = Share Capital + Retained Earnings
	Shareholder's Equity = P10,000,000 + P5,000,000
	Shareholder's Equity = P15,000,000
	Share in Shareholder's Equity = P 15,000,000 X 30% = P4,500,000
Solution:
	CALCULATION OF THE GOODWILL ON BUSINESS PURCHASE
	Goodwill                                     =	Value of Business Purchase	"-"	Net Assets
	Goodwill                                     =	50,00,000	"-"	45,00,000
	Goodwill                                     =	5,00,000
Answer =	Option D = 500,000