Question
In: Accounting
There is an assignment of fair values related to a $3,765,000 acquisition. The fair value of...
There is an assignment of fair values related to a $3,765,000 acquisition. The fair value of the net identifiable tangible assets is $1,850,000. The purchase included a Customer List with a fair value at $337,000.
A) Assume that the purchase and sale agreement requires the payment of an additional $850,000 if the subsidiary achieves a certain level of earnings. The fair value of that contingent earnings clause in the agreement is estimated to be $216,500. How does this additional information affect computation of goodwill?
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Expert Solution
| Amount in $ | |||||
| The fair value of Net identified tangible assets | 1850000 | ||||
| The fair value of Net identified intangible assets | |||||
| Customer lists | 337000 | ||||
| Other identified intangible assets | 1578000 | 1915000 | |||
| Total Fair value of related to acquistion | 3765000 | ||||
| Add : | Value of contingent consideration = additional goodwill | 216500 | 216500 | ||
| Total Investment | 3981500 | ||||
| Now assuming that net identifed intangible assets consists of only | |||||
| goodwill and any value of contingent consideration will increase | |||||
| the value of goodwill. | |||||
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