Semester I, Academic Session 2022/2023 | Accounting for Managers, MAA8013
Hasnin Naajihah Binti Nazemi (3221294)
PROBLEM 9.8
Annual net income
Book value of net assets (total assets minus all liablities)
Fair value of net identifiable assets
Goodwill equal to the above average earnings
Normal returns on the fair value of net asstes
$
$
$
540,000.00
2,800,000.00
3,000,000.00
3 years
15%
Fair market value of net identifiable assets
Normal rate of return on net assets
Normal earnings, computed as 15% of net identifiable assets
$
3,000,000.00
15%
450,000.00
Average actual net income
- Normal earnings, computed as 15% of net identifiable assets
Earnings in excess of normal
540,000.00
(450,000.00)
90,000.00
Goodwill, computed as earnings in excess of normal for 3 years
$90,000.00 x 3 years
270,000.00
Fair market value of net identifiable assets
+ Goodwill
Price should the investor offer
$
$
3,000,000.00
270,000.00
3,270,000.00