 # calculate goodwill?

Someone posted this before…I don’t see how goodwill is 19k… I thought I knew how to calculate goodwill. 2) Rusbus1 Co. acquires 30% of the outstanding shares of CPK Co. At the acquisition date, book value and fair values of CPK Co’s recorded assets and liabilities are as follows: Book Value of Current Assets = \$10,000 Book Value of Plant & Equipment = 190,000 Book Value of Land = 120,000 Book Value of Liabilities = \$100,000 Book Value of Net assets = \$220,000 Fair Value of Current Assets = \$10,000 Fair Value of Plant & Equipment = 220,000 Fair Value of Land = 140,000 Fair Value of Liabilities = \$100,000 Fair Value of Net assets = \$270,000 Rusbus Co. offers \$100,000 for a 30% interest in CPK Co. Part of the excess purchase price is attributable to the \$50,000 difference between book value and fair value of the identifiable assets and so the remaining amount is attributable to goodwill. Calculate goodwill. A) 19,000 B) 28,000 C) 34,000

you know you can’t depreciate land, right?

sorry. that has nothing to do with your question. but thought it might trip up some people. you pay 34,000 over book value (100,000 - .3 * 220,000) 15,000 of that goes to PPE and Land the rest, 19,000 goes to GW BV FV Diff Plant & Equipment = 190,000 *.3=\$57,000 - \$66,000 = \$9,000 Land = 120,000 *.3=\$36,000 -\$42,000 = \$6,000 Net assets = \$220,000 *.3=\$66,000 -\$81,000 = \$15,000

It will be Purchase price - % of fair value of net assets 100,000 - 0.30 x 270,000 = 19k

don’t want to hijack your thread but excess depreciation in this would be calculated on only PP&E to come up with Investment in Sub after a year.

In the book it is done like this. You paid \$100k. BV = 0.30 * \$220k = \$66k. You overpaid \$34k. But, some of that excess is due to rise in PP&E FV, which is \$220k -\$190k = \$30k. So, you only overpaid (goodwill) = \$34k - 0.3(\$30k) = \$25k. What gives?

It looks like we r using full good will method so full value of 30% acquired = Full value of the target based on what we r paying=100,000/.30= 333,333 net fair value of target =270,000 Difference \$63,333 our .30 *63,333= \$19,000 it will be a different number if we used partial goodwill

Audrey, I think that partial GW is consideration price - %ownership of NA at FMV, which is the 19.

Using full goodwill, goodwill = \$333,333 - \$270,000 = \$63,333. Using partial goodwill, goodwill = \$100,000 -0.30 \$270,00 = \$19,000. Yet, using the method which takes into account PP&E, goodwill = \$25,000. How would we know to use what?

ok. many thanks

Dreary, The 19K does use the fair value of PPE. The fair value of net assets is 270K (this includes the adjusted fixed asset numbers). It looks like you are forgetting to write up the land value. In a purchase price allocation, everything goes to FV. Agree that it is confusing that they don’t ask for either the partial or full, but I am assuming that they won’t both be answer choices. In the above question, does it say GAAP vs IFRS?

If you take only the PP&E FV into consideration, as you should, the answer is \$25k, not \$19k. The \$19k answer is correct if they ask for partial goodwill.

GAAP uses the full goodwill method IFRS uses either Full or Partial Goodwill - It will be mentioned on the test wich to use if this were the case. The method that takes PPE into account is used for the Equity method and is not used in the acquisition method.

But, why would you only take into account the P&E? PP&E includes land (Property, plant and equipment). The answer is definitely not 25. I have done purchase price allocations in “real life”. everything goes to FV. This includes land, inventory…EVERYTHING. I had to go through the process of getting real estate appraisers to value the land and buildings.

Where does it say only PP&E? All identifiable assets should be at FV.

That’s right, it’s all identifiable assets. Dreary, i think you’re missing land as a part of the FV of identifiable assets. Full goodwill = (100,000 / 0.30) - 270,000 = 63,333 Partial Goodwill = 100,000 - 0.30 * 270,000 = 19,000

Is it an LOS to calculate the goodwill?

o424, yes you’re right…it should be all identifiable assets, which includes land. Thank. In that case, let us try it again: Using full goodwill, goodwill = \$333,333 - \$270,000 = \$63,333. Using partial goodwill, goodwill = \$100,000 -0.30 \$270,00 = \$19,000. Using goodwill for equity method: You paid \$100k. BV = 0.30 * \$220k = \$66k. You overpaid \$34k. But, some of that excess is due to rise in PP&E FV, which is \$220k -\$190k = \$30k, plus land (\$20,000) = \$50,000. So, you only overpaid (goodwill) = \$34k - 0.3(\$50k) = \$19k. So, unless they ask for full goodwill, you should (or it seems that anyway) have the same answer, whether you use the equity method goodwill or partial goodwill.

its not consolidation so there is no partial or full gw. its equity method. 30% is equity method

there is GW in the equity method as well.