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At the date of acquisition, the fair values of Latree Co’s assets were equal to their carrying amounts. However, Latree Co operates a mine which requires to be decommissioned in five years’ time. No provision has been made for these decommissioning costs by Latree Co. The present value (discounted at 8%) of the decommissioning is estimated at $4m and will be paid five years from the date of acquisition (the end of the mine’s life).
PPE 31,500Could you tell me how to solve this in the calculation of goodwill?
We need to include a provision in the calculation of Latree’s fair valued net assets as at the date of acquisition
We know the present value of the missing provision – it’s $4 million
So include (as a deduction) that $4 million when calculating those fair valued net assets
The effect is to increase the figure for goodwill
OK?
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