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In late July 2017, KARA Ltd., a private company, paid $1.90 million to acquire all of...

In late July 2017, KARA Ltd., a private company, paid $1.90 million to acquire all of the net assets of DYC Corp., which then became a division of KARA. Flint reported the following statement of financial position at the time of acquisition:

Current assets $415,000 Current liabilities $300,000
Non-current assets 1,335,000 Long-term liabilities 265,000
Shareholders’ equity 1,185,000
$1,750,000 $1,750,000


It was determined at the date of the purchase that the fair value of the identifiable net assets of DYC was $1.50 million. Over the next six months of operations, the new division had operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2017, the fair value of the DYC Division is $1,840,000, and the division reports the following statement of financial position information:

Current assets $464,000
Non-current assets (including goodwill recognized in purchase) 2,500,000
Current liabilities (703,000 )
Long-term liabilities (527,000 )
Net assets $1,734,000



Assume that KARA Ltd. prepares financial statements in accordance with ASPE.

Calculate the amount of goodwill, if any, that should be recognized in late July 2017.

GOODWILL $ _________

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Expert Solution

Definition of goodwill: Understanding goodwill impairment is impossible without understanding goodwill. Goodwill is something that occurs when one business purchases another business for more than the fair market value of that business.
For example, assume Company A has a fair market value of $1 million. Company B decides to pay $2 million to buy company A. In doing so, Company B pays $1 million more than the fair market value of Company A, and therefore, $1 million in goodwill is created (purchase price of $2 million minus fair market value of $1 million).
As per Above Problem Sollution is:Calculation of Goodwill:
Particulars Amount($)
Current assets 4,15,000
Non-current assets (including goodwill recognized in purchase) 13,35,000
Current liabilities -3,00,000
Long-term liabilities -2,65,000
Net assets 11,85,000
Fair Value of Assets Acquired 19,00,000
Good Will Recognised in Late July'2017 7,15,000

ekkarill92 answered 1 year ago
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