On January 1, 20x1, Entity A acquires all the assets and liabilities of Entity B for P2,000,000. Entity B's identifiable assets and liabilities have fair values of P4,000,000 and P2,200,000, respectively. Additional information: Prior to the business combination, Entity B is a franchisee of Entity A. The franchise agreement has a remaining term of 5 years, which either party can terminate without any penalty. The franchise agreement has a fair value of P300,000, of which P100,000 is the "at-market" value. The "off-market" value is favorable to Entity A, but unfavorable to Entity B. Entity A's related 'contract liability' account has a carrying amount of P230,000, while Entity B's related 'franchise' account has a carrying amount of P150,000. Requirement: Compute for the goodwill.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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On January 1, 20x1, Entity A acquires all the assets and liabilities of Entity B for P2,000,000. Entity B's identifiable assets and liabilities have fair values of P4,000,000 and P2,200,000, respectively.

Additional information:

  • Prior to the business combination, Entity B is a franchisee of Entity A. The franchise agreement has a remaining term of 5 years, which either party can terminate without any penalty.
  • The franchise agreement has a fair value of P300,000, of which P100,000 is the "at-market" value. The "off-market" value is favorable to Entity A, but unfavorable to Entity B.
  • Entity A's related 'contract liability' account has a carrying amount of P230,000, while Entity B's related 'franchise' account has a carrying amount of P150,000.

Requirement: Compute for the goodwill.

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