On December 31, 2009, Add-On Company acquired 100 percent of the common shares of Venus Corporation...

On December 31, 2009, Add-On Company acquired 100 percent of the common shares of Venus Corporation for $ 300,000. Information about the Venus balance just before the acquisition is given here:

Cash and Accounts Receivable...............$ 35,000
Inventory .................................................$75,000
Land ........................................................$100,000,
Buildings and Equipment (net) ................$220,000
Total Assets .........................................$ 430,000
Accounts Payable ....................................$ 65,000
Bonds Payable ................................... $150,000
Common Stock .........................................$100,000
Retained earnings ...................................$115,000
Total Liabilities and Stockholders'Equity$ 430,000

At the date of the business combination, the net assets and liabilities of Venus approximated fair value, except for the inventory, which had a fair value of $ 60,000, land that had a fair value of $ 125,000 and buildings and equipment (net). ) Of 250,000 dollars.

(1) How much inventory will be included in the consolidated balance sheet immediately after the acquisition?

(2) What amount of goodwill will be included in the consolidated balance sheet immediately after the acquisition?

(3) What amount will be included as an investment in Venus Corporation in the consolidated balance sheet immediately after the acquisition?

Solutions

Expert Solution

Immediately after consolidation, inventory will be included in the balance sheet at its fair value on date of acquisition, i.e. USD 60,000
Goodwill calculation is as follows:

Particulars	Amount
Fair value of net assets
Book value (common stock plus retained earnings) (100,000+115,000)	215,000
Fair value adjustments Inventory (60,000-75,000)	(-15,000)
Land (125,000-100,000)	25,000
Building and equipment (250,000-220,000)	30,000
Non Controlling interest as fair value	Nil
Total (A)	255,000
Fair value of purchase consideration (B)	300,000
Goodwill (B-A)	45,000

Goodwill will be recorded at USD 45,000

Considering that Venus limited will be fully consolidated by Add-On Company, the investment in Venus Limited will be eliminated against the fair value of net assets and goodwill on acquisition recorded by Add-On. Therefore, there will be no investment in Venus Limited recorded in the consolidated financial statements of Add-On. In the standalone books, Add on has the option to record the investment at cost or fair value.

ekkarill92 answered 10 months ago

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