Guys I’m just not following the book and this is the third time I’ve tackled this chapter in the last 3 weeks. I don’t understand the logical steps to their answer.
Question 27 Based on Byron’s forecast, if NinMount deems it has acquired control of Boswell, NinMount’s consolidated 2009 depreciation and amortization expense (in£ millions) will be closest to: A 102. B 148. C. 204. Answers 27 C is correct. The projected depreciation and amortization expense will include NinMount’s reported depreciation and amortization (£102), Boswell’s reported depreciation and amortization (£92), and amortization of Boswell’s licenses (£10 million). The licenses have a fair value of £60 million. £320 purchase price indicates a fair value of £640 for the net assets of Boswell. The net book (fair) value of the recorded assets is £580. The previously unrecorded licenses have a fair value of £60 million. The licenses have a remaining life of six years; the amortization adjustment for 2008 will be £10 million. Therefore, Projected depreciation and amortization = £102 + £92 + £10 = £204 million.
The answer pretty much explains it… what particular bit are you not understanding?
Remember that Ninmount paid £320m for 50% of the net assets of Boswell (valued at £290m). The £30m excess was for intangibles which would mean that the total value of intangibles is £60m (remember Ninmount only owns 50% of this).
Using straight line amortization, the amortization of this asset is £10m (which is not included on the balance sheet as the asset is unrecognised).
£102m (from Ninmount BS) + £92m (from Boswell BS) + £10m (above) = £204m (This is depreciation and amortization expense assuming Ninmount has control over Boswell i.e. consolidation)