#58 ABC purchased 100% of the shares of XYZ for $4,000,000

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Question

#58 ABC purchased 100% of the shares of XYZ for $4,000,000

a) It is known that the fair value of XYZ total assets is $4,800,000. What is the fair value of XYZ's net assets? What is the value of DEF's goodwill?

b) Using push-down accounting, restate XYZ's financial statements to reflect the purchase price.

Answer

a)Fair value of Net assets= Fair value of total assets- Total liabilities

=4800000-1000000= 3800000

Steps to find goodwill on aquisition:

1.Get the book value of assets=4500000

2.Get the fair value of assets=4800000

3.Difference between fair value and book value(Fair value adjustments)=4800000-450000=300000

4.Calculate excess purchase price= Actual consideration paid- net book value of assets

Actual consideration paid=4000000

Net book value of assets= Book value of assets minus liabilities=4500000-1000000=3500000

Excess purchase price=4000000-3500000=500000

5.Calculate goodwill= Excess purchase price- Fair value adjustments

=500000-300000=200000