Business Combination - AFAR2

Discussion Problem no. 1 - (Estimating Goodwill - Direct Valuation) Entity Y is contemplating on acquiring Entity X. Relevant information follows; - Entity X's average annual earnings in the past 5 years were P1,500,000 - Entity X's net assets as at the current year-end have a fair value of P9,000,000 - The industry average rate of return n equity is 12% - The Probable duration on entity B's "Excess earnings" is 5 years. Required: 1. Goodwill is equal to the average excess earnings capitalized at 25%. How much is the goodwill? 2. Goodwill is measured by capitalizing the average earnings at 12%. How much is the goodwill? 3. Goodwill is measured at the undiscounted amount of total excess earnings expected to be earned from the combination. How much is goodwill? 4. Goodwill is measure by discounting the average excess earnings at 9%. How much is the goodwill? Discussion Problem no. 1 - (Estimating Goodwill - Direct Valuation) Entity Y is contemplating on acquiring Entity X. Relevant information follows; - Entity X's average annual earnings in the past 5 years were P1,500,000 - Entity X's net assets as at the current year-end have a fair value of P9,000,000 - The industry average rate of return n equity is 12% - The Probable duration on entity B's "Excess earnings" is 5 years. Required: 1. Goodwill is equal to the average excess earnings capitalized at 25%. How much is the goodwill? 2. Goodwill is measured by capitalizing the average earnings at 12%. How much is the goodwill? 3. Goodwill is measured at the undiscounted amount of total excess earnings expected to be earned from the combination. How much is goodwill? 4. Goodwill is measure by discounting the average excess earnings at 9%. How much is the goodwill