Question:

The Statement of Financial Position of Luster Corporation on June 30, 2013 is presented below:Current assetsP32,500 Land

220,000

Building

110,000

Equipment

87,500

Total Assets

P450,000

Liabilities

87,500

Capital stock, P5 par

150,000

Additional paid in capital

137,500

Retained earnings

75,000

Total equities

P450,000

All the assets and liabilities of Luster assumed to approximate their fair values except for land and building. It is estimated that the land have a fair value of P350,000 and the fair value of the building increased by P80,000.

Kernel Corporation acquired 80% of Luster's capital stock for P500,000.

Assuming the consideration paid includes control premium of P142,000, how much is The goodwill/(gain on acquisition) on the consolidated financial statement?

Answer: Purchase Price (500k-142k/0.80) 447,500 FV of NA: BV of NA (450k-87,500) (362,500) Land (350k-220k) (130,000) Building (80,000) Goodwill (125,000)

Can someone explain this answer in accordance with the standards of accounting (eg. why do we have deduct the control premium)? Thank you!