Accounting for business combination

Question One: Amber Co. is considering the purchase of Bravo Co. Amber has collected the following data about Bravo Bravo Co. Book Estimated Market values OMR Values OMR Total identifiable assets 585,000 750.000 Total liabilities PLASMO 32010010 320.000 Owners equity 265000 Cumulative total net cash earnings for the past five years of OMR850,000 includes extraordinary cash gains of OMR67,000 and nonrecurring cash losses of OMR48,000. Amber Co. expects a retum on its investment of 15%. Assume that Amber prefers to use cash eamings rather than accrual-based earnings to estimate its offering price and that it estimates the total valuation of Bravo to be equal to the present value of cash-based earnings (rather than excess earnings) discounted over five years. (Goodwill is then computed as the amount implied by the excess of the total valuation over the identifiable net assets valuation.) Required: 1. Compute (a) an offering price based on the information above that Amber might be willing to pay and (b) the amount of goodwill included in that price. (3 marks) 2. Compute the amount of goodwill actually recorded, assuming the negotiations result in a final purchase price of OMR625,000 cash. (1 mark) Total: 4 marks