Your investigation of Samsung Corp s various non current asset transactions for 2021 revealed the following information Samsung Corp s reported a Trademark at P520,000 at the end of 2021 after an amortization for the year at P130,000 The company spent P120,000 legal fees in successfully defending a trademark at the beginning of 2018 The legal fees was capitalized in 2018 and was amortized over the remaining life of the trademark at the beginning of 2018 which was 8 years By the end of the year the company estimates that the expected net cashflows from the Trademarks continued use is at P151,426 The prevailing market rate of interest at the end of the year is 10 A franchise agreement was entered with Sharp Corp at the beginning of 2020 The initial franchise fee was at P5M The amount was paid P1M down payment with a 4M note payable in five equal installments starting December 31, 2020 The franchise agreement, which was for an indefinite term, also calls for a continuing franchise fee set at 5 of the companys annual revenue in excess of P4M The companys actual revenue in 2020 and 2021 were at P4 5M and P5 2M, respectively Net cash flows from the franchise continued use has been estimated at P420,000 annually The prevailing market rate of interest at the end of 2019, 2020 and 2021 were at 12 , 11 and 10 , respectively At the beginning of 2021, the company acquired the business operations of its competitor San Yang Inc in a business combination accounted for as purchase of net assets San Yang Inc net assets comprise of the following Book Value Fair Value Current Assets 500,000 500,000 Land 1,200,000 1,500,000 Buildings, remaining life 10 yrs 1,500,000 2,000,000 Equipment, remaining life 5 yrs 900,000 1,200,000 Brand, remaining life 5 yrs 500,000 600,000 Franchise, indefinite term 600,000 800,000 Liabilities 1,800,000 1,800,000 The accumulated profits of San Yang from 2015 2019 was at P4,890,000 This included a loss on sale of an equipment in 2016 at P400,000 and in 2019 at P220,000 Annual presidents bonus averaged to P125,000 The industrys average rate of return was estimated at 20 What is the goodwill arising from the acquisition of San Yan Inc assuming that the company preferred the capitalization of the acquired companys projected earnings at 20

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Posted on Sep 10, 2024

Your investigation of Samsung Corp.s various non-current asset transactions for 2021 revealed the following information: Samsung Corp.s reported a Trademark at P520,000 at the end

Your investigation of Samsung Corp.s various non-current asset transactions for 2021 revealed the following information:

Samsung Corp.s reported a Trademark at P520,000 at the end of 2021 after an amortization for the year at P130,000. The company spent P120,000 legal fees in successfully defending a trademark at the beginning of 2018. The legal fees was capitalized in 2018 and was amortized over the remaining life of the trademark at the beginning of 2018 which was 8 years. By the end of the year the company estimates that the expected net cashflows from the Trademarks continued use is at P151,426 The prevailing market rate of interest at the end of the year is 10%.

A franchise agreement was entered with Sharp Corp. at the beginning of 2020. The initial franchise fee was at P5M. The amount was paid P1M down-payment with a 4M note payable in five equal installments starting December 31, 2020. The franchise agreement, which was for an indefinite term, also calls for a continuing franchise fee set at 5% of the companys annual revenue in excess of P4M. The companys actual revenue in 2020 and 2021 were at P4.5M and P5.2M, respectively. Net cash flows from the franchise continued use has been estimated at P420,000 annually. The prevailing market rate of interest at the end of 2019, 2020 and 2021 were at 12%, 11% and 10%, respectively.

At the beginning of 2021, the company acquired the business operations of its competitor San Yang Inc. in a business combination accounted for as purchase of net assets. San Yang Inc. net assets comprise of the following:

	Book Value	Fair Value
Current Assets	500,000	500,000
Land	1,200,000	1,500,000
Buildings, remaining life 10 yrs	1,500,000	2,000,000
Equipment, remaining life 5 yrs	900,000	1,200,000
Brand, remaining life 5 yrs.	500,000	600,000
Franchise, indefinite term	600,000	800,000
Liabilities	1,800,000	1,800,000

The accumulated profits of San Yang from 2015 2019 was at P4,890,000. This included a loss on sale of an equipment in 2016 at P400,000 and in 2019 at P220,000. Annual presidents bonus averaged to P125,000. The industrys average rate of return was estimated at 20%.

What is the goodwill arising from the acquisition of San Yan Inc. assuming that the company preferred the capitalization of the acquired companys projected earnings at 20%?