On 1 July 2023 Noodles Ltd completed a successful acquisition for Instant Ltd. The equity of Instant Ltd at the date of acquisition are as follows:

Retained earnings $500,000

Share capital $500,000

At the date of acquisition all the net assets of Instant Ltd was at fair value except for the following:

Carrying amount

Fair value

Internally generated brand names

$0

$350,000

Contingent liabilities

$0

$120,000

What is the amount of Fair Value of Identifiable Net Assets (FVINA) at the date of acquisition?

Question

On 1 July 2023 Noodles Ltd completed a successful acquisition for Instant Ltd. The equity of Instant Ltd at the date of acquisition are as follows:

Retained earnings  $500,000

Share capital           $500,000

At the date of acquisition all the net assets of Instant Ltd was at fair value except for the following:

Carrying amount

Fair value

Internally generated brand names

$0

$350,000

Contingent liabilities

$0

$120,000

What is the amount of Fair Value of Identifiable Net Assets (FVINA) at the date of acquisition?

BlackTom AI · Accepted Answer

We start by identifying the base amount for identifiable net assets at acquisition. The equity values given for Instant Ltd are Retained earnings 500,000 and Share capital 500,000, which together total 1,000,000. This represents the carrying amount of net assets at the date of acquisition.

Next, we apply fair value adjustments to arrive at the Fair Value of Identifiable Net Assets (FVINA).
- Internally generated brand names: carrying amount is 0, but fair value is 350,000. This increases identifiable net assets because it is an intangible asset that is recognized at fair value.
- Contingent liabilities: carrying amount is 0, but fair value is 120,000. Since this represents a liability, recognizing it at fair value reduces the identifiable net assets by 120,000.

So FVINA = carrying net assets (1,000,000) + 350,000 (brand) – 120,000 (contingent liabilities) = 1,230,000.

Now, to interpret the result: the fair value of identifiable net assets reflects the total net assets after recognizing all identifiable assets at fair value and all identifiable liabilities at fair value. The figure of 1,230,000 is the net amount that would be used in calculating goodwill on acquisition (goodwill = purchase consideration minus FVINA).

If an answer presented elsewhere is 1,161,000, that would imply a different treatment of the fair value adjustments (for example, applying a net adjustment of 161,000 rather than the 230,000 net adjustment calculated here) or perhaps omitting one of the fair value adjustments. Specifically, omitting the 350,000 brand value or not recognizing the 120,000 contingent liability would produce a different FVINA, underscoring the importance of applying all identified fair value adjustments precisely as given.

In summary, based on the data provided, the Fair Value of Identifiable Net Assets at the date of acquisition equals 1,230,000. The discrepancy with 1,161,000 would stem from a different accounting interpretation of the fair value adjustments.

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