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Calculate the selling price being asked by each business

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Selling price end goodwill

The summarised statement of financial position for two business entities are presented below:


 Farmers & Son  Devlopers & Co.
ASSETS

 Cash at bank $10,000 $13,000
 Accounts receivable  12000 19000
 Inventory 15000 17000
 Property and Plant(net)  40000 60000
 Intangibles 25000 __
  TOTAL ASSETS 102000 109000



LIABILITIES

 Current liabilities 11000 16000
 Non-current liabilities  20000 25000
  TOTAL LIABILITIES  31000 41000
NET ASSETS 71000 68000
EQUITY

 A. Teaks, Capital  40000 _
 S. Make, Capital  31000 _
 D Pitcher, Capital __ 68000
Total EQUITY 71000 68000

Sharp Photographics is considering the possibility of acquiring the businesses of Framers &Son and Developers & Co.. and is interested in establishing an appropriate purchase price for rmlAing offers to the two entities. An assessment of the fair values of the entities assets is as follous,

 


Fair values

Framers &See

Developers & Co.

Receivables

512 000

$10000

Inventory

20 000

25 000

Property and plant (net)

60 000

70 000

Intangibles

00 000

15 000

The owners of Framers & Son are prepared to sell their firm at a price of 160% of the carrying amount of the entity's net assets, and the owner of Developers & Co. is prepared to sell at Ififirk of the carrying amount of the net assets of his business.

The owners of Sharp Photographics examined the earnings records and financial positions of the two entities over a number of years. and offered to pay the price required by Framers & Son, but offered to pay only 120% of the fair value of Developers & Co.'s net assets.

Required

A. Calculate the selling price being asked by each business and the purchase price offered by Photographics. Should each business sell out to Sharp Photographics?

B. The sale between Sharp Photographics and Framers & Son went ahead at the negotiated price: and the eventual sale price of Developers & Co. was $121 300. How much goodwill (if any) should be recognised by Sharp Photographics? Calculate the total valuations for all asset( acquired from both businesses. Explain.

Reference no: EM13946248

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