Comprehensive Problem on Goodwill

On April 1, 2026, VINCENT CORP. is contemplating to acquire all the issued and outstanding
ordinary shares of JACK INC. in a business combination accounted for as a purchase. The
recorded assets and liabilities of Jack Inc. on April 1, 2026, follows:

Cash P 800,000
Inventory 2,400,000
Property and equipment, net of accumulated depreciation
of P3,200,000 3,500,000
Intangible assets, including P500,000 goodwill 1,300,000
Liabilities (1,800,000)

On April 1, 2026, it was determined. that the inventory of Jack Inc. approximated its fair value,
the property and equipment, having an average remaining useful life of six years, had a sound
value of P4,100,000. Jack’s identifiable intangibles have indefinite useful lives and a fair value of
P1,000,000.

Records show that the company earned an accumulated net income of P4,650,000 from 2021 to
2025. The said accumulated profits included a gain on sale of fixed assets in 2024 and 2025
totaling to P1,000,000 and president’s annual bonus averaging to P150,000. Upon combination,
the president shall step down and not receive any further bonuses.

The industry’s normal rate of return is at 9%.

1. Assuming that the company contemplates the acquisition price at P8,000,000, how much
is the goodwill resulting from the business combination?

2. How much is the resulting goodwill and the assumed acquisition price if goodwill is
computed using the “purchase of excess earnings” method over a 10-year period?

3. How much is the resulting goodwill and the assumed acquisition price if the excess earnings
will be capitalized at 12%?

4. How much is the resulting goodwill and the assumed acquisition price if the average
earnings will be capitalized at 10%?

5. How much is the resulting goodwill and the assumed acquisition price if the present value
method is in place and that the prevailing rate of interest is at 10% over the 10-year period
excess earnings is expected to be generated?