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Target Statement of Financial Positon as at March 31
Freehold property $460,000
Plant & equipment $1,310,000
Inventory $330,000
Receivables $290,000
Cash $20,000
Total Assets $2,410,000Ordinary shares $160,000
Reserves $ 964,000
Current Liabilities $ 518,000
Medium-term bank loans $768,000The freehold property has not been revalued for several for years and is believed to have a market value of $800,000.
The statement financial position value of plant and equipment is thought to reflect its replacement cost fairly, but its value if sold is not likely to exceed $800,000. Approximately $55,000 of inventory is obsolete and could only be sold as scrap for $5000.Estimate the value of Target Co using the net asset method of valuation.
Target is being purchased as a going concern, so realisable values are irrelevant.
Net assets per account ($1,892,000-768,000) 1,124,000
Adjustment to freehold property($800,000-460,000) 340,000
Adjustment to inventory ($55,000-5000) 50,000Valuation 1,414,000
Sir can u pls explain how this answer was come up. I don’t understand. Thank u.
The total assets are on the statement as 2,410,000.
The total liabilities are 518,000 + 768,000 = 1,286,000Therefore the net assets per the statement are 2,410,000 – 1,268,000 = 1,142,000
The property is worth 340,000 more than in the statement – so add 340,000 to the total.
The inventory is with 50,000 less than on the statement – so subtract 50,000 from the total.So the final figure is 1,142,000 + 340,000 – 50,000 = 1,414,000
The statement financial position value of plant and equipment is thought to reflect its replacement cost fairly, but its value if sold is not likely to exceed $800,000.
pls why this statement is not relevant in the calculation. thanks as alwaysI don’t understand what you are asking.
In my explanation of the answer I did include this statement!!
However, I am not sure if dansindo copied the question and answer correctly, because according to him the answer said ‘realisable values are irrelevant’. This is not true!!
It would be more helpful if he had stated where he found the question and then I could check 🙂
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