Problem 1 On January 2, 2018, the Numbak Berhad purchased 40% of the outstanding common stock of the Besi Demak Berhad for RM2,000,000. Besi Demak's net assets had a book value of RM3,900,000 as of January 2, 2018. Besi Demak's buildings were undervalued by RM350,000, their land was overvalued by RM75,000, and their inventory was undervalued by RM145,000. Required: Determine the amount of goodwill resulting from the purchase of the Besi Demak stock.

Stake Purchased = 40%

Purchase Consideration = RM 2,000,000

Book Value of Net Assets = RM 3,900,000

Building Undervaluation = RM 350,000

Land Overvaluation = RM 75,000

Inventory Undervaluation = RM 145,000

Market Value of Company's Asset = Book Value of Company's Asset + Building Under Valuation + Inventory Under Valuation - Land Over Valuation

Market Value of Company's Asset = 3,900,000 + 350,000 + 145,000 - 75,000

Market Value of Company's Asset = RM 4,320,000

Market value of Stock purchased = Market Value of Company * Stake Purchased

Market value of Stock purchased = 4,320,000 * 40%

Market value of Stock purchased = RM 1,728,000

Amount of Goodwill Purchased = Purchase Consideration - Market Value of Stake Purchased

Amount of Goodwill Purchased = 2,000,000 - 1,728,000

Amount of Goodwill Purchased = RM 272,000

Amount of Goodwill Purchased is RM 272,000.