lOMoARcPSD|18674900
Chapter 2- Business Combinations (Part 2)
Accountancy (University of the Philippines System)
Studocu is not sponsored or endorsed by any college or university
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
lOMoARcPSD|18674900
Page |1
Chapter 2
Business Combinations (Part 2)
PROBLEM 1: TRUE OR FALSE
1. FALSE – The transaction is a business combination effected
through exchanges of equity interests.
2. TRUE
3. FALSE - ₱100, the total increase in share capital and share
premium
4. FALSE – (₱100 consideration transferred, equal to total
increase in share capital and share premium, minus ₱80 fair
value of net assets) = ₱20 goodwill
5. TRUE
6. FALSE
7. TRUE – The 20% interest is most likely to have been classified
as Investment in associate. Accordingly, the remeasurement
gain of ₱10 (₱40 fair value - ₱30 carrying amount) is
recognized in profit or loss.
8. TRUE – (100 CT + 60 NCI + 40 PHEI) – 180 = 20 goodwill
9. FALSE
10. TRUE
PROBLEM 2: TRUE OR FALSE
1. FALSE – maximum of 12 months from acquisition date
2. TRUE
3. FALSE [100 – (170 – 70 provisional amt. + 60 fair value – 80)] = 20
4. TRUE
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. TRUE (100 + 20 fair value of contingent consideration) – (170 – 80) = 30
10. TRUE – Goodwill is not affected by fair value changes that are
not measurement period adjustments.
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
lOMoARcPSD|18674900
Page |2
PROBLEM 3: FOR CLASSROOM DISCUSSION
1. Solution:
Step 1
Consideration transferred (squeeze)
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired (given)
Goodwill (start)
4,200,000
4,200,000
(4,000,000)
200,000
Step 2
₱4.2M consideration transferred ÷ ₱100 fair value per share =
42,000 shares issued
2. Solution:
Consideration transferred
Non-controlling interest in the acquiree (690K x 40%*)
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill
300,000
276,000
138,000
714,000
(690,000)
24,000
*100% - (20% + 40%) = 40%
3. Solution:
Consideration transferred
Non-controlling interest in the acquiree (1.8M x 100%)
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
1,800,000
1,800,000
(1,800,000)
-
lOMoARcPSD|18674900
Page |3
4. Solution:
Provisional
Consideration transferred
NCI
Previously held equity interest
Total
Fair value of net identifiable assets
Goodwill
(a) (1.980M
Adjusted
2,000,000
2,000,000
(1,980,000)
20,000
2,000,000
2,000,000
(1,900,000)(a)
100,000
– 220K provisional amount + 140K fair value)
The new information obtained on July 1, 20x2 is not a
measurement period adjustment because it does not relate to facts
and circumstances that have existed as at the acquisition date.
This is accounted for as a post-combination event under PFRS 9.
Apr. 1,
20x2
Apr. 1,
20x2
(b)
Goodwill
Machine
Accumulated depreciation (b)
Retained earnings
80,000
80,000
278
278
Depreciation based on:
➢ provisional amount: (220K ÷ 6) x 2/12 = 6,111
➢ fair value: (140K ÷ 4) x 2/12 = 5,833
➢ Decrease in accumulated depreciation: (6,111 – 5,833) = 278
5. Solution:
Consideration transferred (800K – 30K – 50K)
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
720,000
720,000
(600,000)
120,000
lOMoARcPSD|18674900
Page |4
 The reimbursement for the appraisal fees is an acquisitionrelated cost. This is expensed.
 The trade secret does not qualify as ‘consideration transferred’
because it is retained in the combined entity after the business
combination.
6. Solution:
Consideration transferred (2M – 200K ‘off-market’ value)
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
(4M + 100K intangible asset on reacquired rt. – 150K franchise - 2.2M)
Goodwill
1,800,000
1,800,000
(1,750,000)
50,000
Journal entries
Jan.
1,
20x1
Identifiable assets acquired (4M + 100K – 150K)
Goodwill
Liabilities assumed
Cash (2M – 200K)
3,950,000
50,000
2,200,000
1,800,000
to record the business combination
Jan.
1,
20x1
Contract liability
Cash
Settlement gain
230,000
to record the effective settlement of preexisting relationship as a separate transaction from
business combination transaction
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
200,000
30,000
lOMoARcPSD|18674900
Page |5
7. Solutions:
Requirement (a):
Consideration transferred
(10,000 sh. x ₱200) + 280K contingent consideration
2,280,000
2,280,000
(1,900,000)
380,000
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill
Requirement (b):
Dec.
31,
20x1
Jan. 14,
20x2
No entry
Share premium – contingent consideration
Share capital (2,000 x ₱20 par)
Share premium (squeeze)
280,000
40,000
240,000
to record the issuance of 2,000 additional
shares
Requirement (c):
Dec.
31,
20x1
Share premium – contingent consideration
Share premium
280,000
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
280,000
lOMoARcPSD|18674900
Page |6
PROBLEM 4: EXERCISES
1. Solutions:
Requirement (a):
ABC Co.
800,000
Share capital (₱20 par)
Increase
176,000
Combined entity
976,000
176,000 ÷ 20 par = 8,800 shares
Requirement (b):
Consideration transferred (a)
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired (b)
Goodwill
(a)
Share capital
Share premium
Totals
ABC Co.
800,000
300,000
1,100,000
Combined
entity
976,000
1,092,000
2,068,000
Combined
ABC Co.
entity
Identifiable assets
2,200,000
3,600,000
Liabilities
700,000
1,300,000
Fair value of net identifiable assets acquired
968,000
968,000
(800,000)
168,000
Increase
968,000
Increase
(b)
1,400,000
600,000
800,000
Requirement (c):
Retained earnings = 400,000
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
lOMoARcPSD|18674900
Page |7
2.
Solutions:
Requirement (a):
Consideration transferred (80,000 sh. x ₱8)
Non-controlling interest in the acquiree (665,000 x 10%*)
Previously held equity interest in the acquiree**
Total
Fair value of net identifiable assets acquired
Goodwill
640,000
66,500
80,000
786,500
(665,000)
121,500
* (10,000 + 80,000) ÷ 100,000 = 90% controlling interest;
(100% - 90%) = 10% NCI
** (10,000 sh. x ₱8) = 80,000
Requirement (b):
7/1/20x2
Investment in subsidiary (80,000 x 8)
640,000
Cash
to record the newly acquired shares
640,000
FVPL financial assets [(8 – 5) x 10,000] 30,000
Unrealized gain – P/L
to remeasure the previously held equity interest
30,000
Investment in subsidiary
80,000
FVPL financial assets
to reclassify the previously held equity interest
80,000
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
lOMoARcPSD|18674900
Page |8
3. Solution:
Requirement (a):
Provisional
Consideration transferred
NCI
Previously held equity interest
Total
Fair value of net identifiable assets
Goodwill
(a) (2.6M
1,800,000
1,800,000
(1,700,000)
100,000
Adjusted
1,800,000
1,800,000
(1,600,000)(a)
200,000
– 300K provisional amount + 200K fair value - .9M)
Requirement (b):
Aug.
31,
20x2
Goodwill
Trademark
100,000
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
100,000
lOMoARcPSD|18674900
Page |9
4. Solution:
Requirement (a):
Settlement loss (360K – 170K ‘at-market’ = 190 ‘off-market’)
Carrying amount of related asset or liability recognized
Adjusted settlement loss
Jan. 1,
20x1
Settlement loss
Cash
190,000
190,000
190,000
190,000
Requirement (b):
Consideration transferred (2.2M – 190K ‘off-market’ value)
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired (3.6M – 1.8M)
Goodwill
2,010,000
2,010,000
(1,800,000)
210,000
The ₱170,000 “at-market” value is subsumed in goodwill and not
recognized as intangible asset because there is no reacquired right.
5. Solution:
Requirement (a):
Consideration transferred
(10,000 sh. x ₱200) + ₱280K contingent consideration
Non-controlling interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
2,280,000
2,280,000
(1,920,000)
360,000
lOMoARcPSD|18674900
P a g e | 10
Requirement (b):
Dec.
31,
20x1
Jan.
14,
20x2
(a)
Unrealized loss – P/L (a)
Liability for contingent consideration
120,000
Liability for contingent consideration
Cash
400,000
120,000
400,000
Carrying amount of contingent consideration - 12/31/20x1 280,000
Fair value – 12/31/20x1
400,000
Increase in fair value of liability (loss)
(120,000)
Requirement (c):
Dec.
31,
20x1
Liability for contingent consideration
Gain on extinguishment of liability – P/L
280,000
PROBLEM 5: MULTIPLE CHOICE - THEORY
1. B
2. C
3. A
4. B
5. D
6. D
7. A
8. B
9. D
10. D
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
280,000
lOMoARcPSD|18674900
P a g e | 11
PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
1. D
Solution:
Consideration transferred (squeeze)
NCI in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill (start)
2,000,000
2,000,000
(2,000,000)
-
(2,000,000 ÷ 20,000 shares) = 100 per share
2. C
Solution:
➢ 2M consideration transferred – 400K increase in share
premium = 1.6M increase in share capital;
➢ 1.6M ÷ 20,000 shares = 80
3. B
Solution:
Outstanding shares of Finger (₱40,000 ÷ ₱4 par)
Ratio
No. of shares issued by Point (10,000 sh. x 2)
Consideration transferred (squeeze)
NCI in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net identifiable assets acquired
Goodwill (start)
10,000
2:1
20,000
800,000
800,000
(800,000)
-
(800,000 consideration transferred ÷ 20,000 sh. issued by Point) = 40
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)
lOMoARcPSD|18674900
P a g e | 12
4. C
Solutions:
Consideration transferred (50,000 sh. x ₱7)
Non-controlling interest in the acquiree (665,000 x 40%*)
Previously held equity interest in the acquiree**
Total
Fair value of net identifiable assets acquired
Goodwill
350,000
266,000
70,000
686,000
(665,000)
21,000
* (10,000 + 50,000) ÷ 100,000 = 60% controlling interest; (100% - 60%) = 40%
NCI
** (10,000 sh. x ₱7) = 70,000
5. C
Solution:
Provisional
Consideration transferred
NCI
Previously held equity interest
Total
Fair value of net identifiable assets
Goodwill (Negative goodwill)
(a)
Adjusted
800,000
800,000
(900,000)
(100,000)
800,000
800,000
(720,000)(a)
80,000
(1.2M – 200K provisional amt. + 20K fair value - .3M)
Feb. 1,
20x2
Feb. 1,
20x2
Goodwill
Retained earnings*
Intangible asset
Accumulated amortization
Retained earnings
80,000
100,000
180,000
7,500
7,500
*This represents the reversal of the negative goodwill recognized in
profit or loss in 20x1.
**Amortization recognized in 20x1: (200,000 ÷ 10) x 6/12 = 10,000;
Correct amortization in 20x1: (20,000 ÷ 4) x 6/12 = 2,500;
Excess amortization expense in 20x1 = (10,000 – 2,500) = 7,500
Downloaded by Abegail Dadia (abegaildadia4@gmail.com)