Corporate accounting Assignment Example | Topics and Well Written Essays - 500 words

Corporate accounting - Assignment Example Goodwill on acquisition, on the other hand, is the price the purchasing company parts with for the target company exceedingly above the target’s market book value usually accounting for the value of the target’s goodwill. The acquisition premium can be measured through a measurement known as Book Value Premiums where the effective offer price as a percentage premium should be divided by the target firm’s share market price minus one (Mukherjee& Mohammed, 2006, p.14). The share price of the target firm is recorded two days before the acquisition announcement to remove the effects of any rumors or information leaks in the market that may affect adversely the market share price of the target firm. Goodwill on acquisition can be calculated at cost minus any accumulated impairment losses such as losses arising from brand name usage following an initial recognition of assets. Goodwill on acquisition involves calculation of all the acquired firm’s assets to market value and add together the values of all acquired assets as the second step. Thirdly, subtract the identifiable assets from the purchase price. Fourthly, record the journal entry to recognize the acquisition and test the goodwill acc ount for impairment. Lastly, record the journal entry to recognize any goodwill impairment. The similarities between acquisition premium and goodwill on acquisition are that companies pay premiums when making acquisitions in the form of discounts or excess payment. Secondly, both acquisition strategies put pressure on the buying corporation to generate the outcomes its inherited stockholders will anticipate. Lastly, acquisition premiums arising from synergies may fall within the goodwill bucket. The difference between acquisition premium and goodwill on acquisition is that goodwill on acquisition should be reviewed on a yearly basis for