Patni Computers Limited, a leading company in IT sector in India, is engaged in consulting, software development and business process outsourcing. It has grown organically and also through acquisition route. It acquired business and assets of LOI, a European telecommunications consulting services company on 2nd July 2007. The company believes that through this acquisition it will strengthen its presence in communication and media practice through consultancy services on IT initiatives. The purchase price of ₹ 349,099 (including direct expenses of ₹ 34,419) was paid in cash. 

The company allocated the purchase price to the acquired assets as per management’s estimates and independent valuation of fair values as follows: 

The company made another acquisition on 23rd July 2007. Patni USA acquired 100% equity in Tatatec Development Corporation. Tatatec is a leading consulting company in the life sciences industry providing integrated business, information technology and regulatory compliance products and services. The acquisition is expected to enhance Patni’s market specific services and provide additional capability to support the growing and diverse requirements of the life sciences market. The purchase price of ₹ 638,342 (including direct acquisition related expenses of ₹ 17,331), was paid in cash. The company allocated the purchase price net of cash acquired of ₹ 115,770 to the acquired assets and assumed liabilities as follows:

Questions for Discussion

1. Can a company capitalize self­-generated goodwill? 

2. What does ‘goodwill’ represent on acquisition? 

3. A large part of the purchase consideration in the above cases has been allocated towards ‘goodwill’. How do you ensure that these allocations are objectively done? 

4. What will be the impact of these transactions in the financial statements of Patni Computers Limited?

Transcribed Image Text:

Intangible assets Customer contracts and non-contractual customer relationships Intellectual property rights Total Goodwill Total purchase price (in Thousands) 55,625 32,075 87,700 261,399 349,099 4