Northridge Corporation, CEO Valuation Of Acquired Firm - 275 Words

Northridge Corporation, CEO: Valuation Of Acquired Firm (Essay Sample) Content: NORTHRIDGE CORPORATIONTO: CEO, NORTHRIDGE CORPORATIONFROM: CPA STUDENTDATE:RE: VALUATION OF ACQUIRED FIRMThe purpose of this memorandum is to provide details whether the purchase price of Reseda could exceed the book value of its assets. This is in response to an inquiry made from your office.Reseda, the target company may add a premium to the net original cost of its company assets to be paid by the Northridge Corporation during the acquisition. This premium is commonly referred to as goodwill. On acquisition of a new firm, the company may consider certain valuation methods usually employed in accounting valuation for acquisitions. Liquidation value method entails ascertaining the amount of money that can be collected when all the assets and liabilities of a target company are sold and settled respectively. Book value method could also be employed. This involves evaluating the amount that shareholders of the target company can receive upon sale of company assets, lia bilities and preferred stock. Comparison method is another method used. It involves combing through acquisition transaction listings that have occurred in the last one or two years. Similar Accounting information should be acquired from companies in the same industry. This information will be used to estimate the worth of the target company.Goodwill is the measure of business capability to make profit emanating from its good name, reputation, and loyalty customer base (Chambers 14). In the accounting books, goodwill is recognized as an intangible asset. On acquisition, the parent company is supposed to identify transactions that need to be adjusted in the Consolidated Financial Statements. This involves adjusting inter corporate stock holdings and other assets like Account Receivables. For instance, a sale of 50,000 is recorded from the subsidiary t...