# How are intangibles considered in the merger model?

FinanceFinance ManagementBanking & Finance

Considered the following balance sheet

AssetsEquity & liabilities


Fixed assets900000Equity share capital685000
Investments90000Reserves300000
Receivables29500010% Debentures425000
Bank125000

1410000
1410000

Company 2 is paid $150000 for assets for company 1 Assume fair market value of fixed asset =$ 1000000

## Solution

The solution is as follows −

• Considered fixed assets (given)
Fixed assets (fair value) = $1000000 • Next step is to calculate net worth of assets and liabilities, these are calculated by adding fixed assets, investments, receivables and bank and subtracting from 10% debentures. Net worth of assets and liabilities =$77500 + $90000 +$ 295000 + 125000 − $425000 =$587500 − $425000 =>$ 162500
• Now in this case, the second company paid an amount of $150000 for the first company. So intangibles from the second company are subtracted to the amount paid by the first company to the second company. Intangibles =$162500 − $150000 Intangibles =$ 12500
• Intangibles of the second company are calculated from the second step (calculating net worth of assets and liabilities (that is $1625002). • Now finial intangibles are calculated by subtracting net worth of assets and liabilities of the second company from the amount paid by second company to first company (that is$150000). Intangibles = $12500 Therefore,$ 12500 is reflected in company 2 balance sheet in intangibles.