ex 94 calculation of goodwill great corporation is interested in purchasing big worl 4315340

Ex. 94Calculation of goodwill

Great Corporation is interested in purchasing Big World Company Ltd.The total of Big World’s net income amounts over the last five years is $745,000.During one of those years, Big World reported a gain on discontinued operations of $93,000.The fair value of Big World’s net identifiable assets is $684,000.A normal rate of return is 14%, and Great Corporation wants to capitalize excess earnings at 19%.

Instructions

Calculate the estimated value of goodwill.

Ex. 95 Calculation of goodwill

Saje Corporation’s pre-tax accounting income of $726,000 for the year 2017 included the following items:

Amortization of identifiable intangibles

$140,000

Depreciation of building

119,000

Loss from discontinued operations

46,000

Unusual, non-recurring gains

157,000

Profit-sharing payments to employees

69,300

Lush Industries Ltd. would like to purchase Saje Corporation. In trying to measure Saje’s normalized earnings for 2017, Lush determines that the building’s fair value is triple the book value and that its remaining economic life is double the life that Saje is using. Lush would continue the profit-sharing payments to employees, with the payments being based on income from continuing operations before amortization and depreciation.

Instructions

Calculate the 2017 normalized earnings amount of Saje Corporation that Lush would use to calculate goodwill.

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