Valuation of goodwill

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glegeer

Business Finance

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please see the the attached photo and calculate the goodwill on the requirement of ifrs 3

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Scenario or Tasks You are the financial accountant at Aysha LLC, a company which has been expanding rapidly and is now an extremely diversified company for its size. It currently own three companies with manufacturing facilities and two companies in retail sales. In addition Aysha LLC has plans to acquire Badar LLC, which is primarily in retail sales. Aysha LLC had decided to issue 100,000 equity shares to the shareholders of Badar LLC. Market value of shares of Aysha LLC is OMR 90 each Badar LLC has Property, Plant and equipment at book value OMR 2,000,000, which has a fair value OMR 5,000,000. The company is operating lease assets for which it has to pay lease rental of OMR 800,000 p.a from next five years as compared to current market rental of OMR 900,000 p.a. Discount rate 10% PV of 5 years annuity at 10% is 3.7908 The book value of inventories of Badar LLC is OMR 1,600,000, and the net realizable value for such inventories are OMR 1,900,000. On the balance sheet of Badar LLC the Debtors amount shows an amount of OMR 2,040,000, and it has been assessed that OMR 1,600,000 will be collectible amount from the debtors balance. However, Badar LLC guaranteed that collection will not be less than OMR 1,800,000 Bader LLC has several intangible assets that are used primarily in marketing or promotion of its products. These intangible assets are not currently recognized in Badar LLC's financial statement. The unrecognized value of its brand name has a worth of OMR 60,000. Aysha LLC valued the customer list of Badar LLC as OMR 40,000. Also Bader LLC has a pending order which would earn a profit of OMR 400,000. Aysha LLC has valued that a competitor would have spent at least OMR 60,000 for obtaining this contract Badar LLC's sundry creditors and other liabilities to be taken over by Aysha LLC for OMR 1,000,000. Aysha Ltd will offer employment to the Managing Director of Badar LLC, appreciating his sincerity and effort to integrate the functioning of Aysha LLC and Badar LLC, by offering a contingent consideration of OMR 40,000. Aysha LLC is particularly concerned about goodwill computation at the acquisition date and any ongoing earning impact that the new standards may have. The company has asked for advice on the impact of IFR3 (Revised) 'Business Consolidation' and IAS27 (Revised) 'Consolidation and Separate Financial Statements'.
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Explanation & Answer

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Professor
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Valuation of goodwill
Goodwill=Price paid for the acquired Company-Fair value of net identifiable assets
Net identifiable assets=Fair value of identifiable Assets-Liabilities
Price paid for the acquired company/Consideration=100,000*90=OMR 9,000,000
OMR

OMR

Fair value of identifiable assets:
Plant and equipment

5,000,000

Debtors

2,040,000

Inventory

1,900,000

Brand name

60,000

Customer list

40,000

Pending order profit

400,000

Totals

9,440,000

Liabilities:
Lease rent

800,000

Creditors

1,000,000

Contingent consideration for managers

40,000

Total liabilities

(1,840,000)

Net identifiable assets

7,600,000

Goodwill=9,000,000-7,600,000= OMR1,400,000

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Student

2

Impacts of IFRS 3 on Business ‘consolidation’
IFRS 3 Business Combinations describes the accounting when an acquirer gets control of
a business (e.g. a securing or merger). Such business combinations are represented utilizing the
'acquisition technique', which for the most part re...


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