I – Wholly and Partially-owned Subsidiary:
Determination of Goodwill/Bargain Purchase Gain and Working Paper Eliminating Entries
Assume the following independent cases:
Case
1
2
3
4
5
6
Fair Value of Subsidiary /
Consideration Transferred plus
Contingent Performance
Obligation
P300,000 cash + P15,000*
P237,500 cash
P239,400 cash **
P322,525 cash ***
P205,200 cash ****
P205,000 cash *****
% of
Stock
Owned
100
80
60
75
60
80
P5 par
Common
Stock /
Ordinary Share
P90,000
Paid-in capital
in excess of par
or Share
Premium
P80,000
Retained
earnings/
Accumulated
Profit & Loss
P20,000
FV of NCI Not Given
FV of NCI with Control Premium
FV of Subsidiary Given
Step Acquisition:
Fair value of Non-controlling Interest of the
acquiree/subsidiary
Fair value of any previously held equity
interest in the acquiree/subsidiary
Bargain Purchase Gain / Gain on Acquisition
*In connection with the acquisition, PP paid P10,000 in indirect combination costs and agreed to pay
P50,000 to the former owners of SS contingent on meeting certain revenue goals during 20x4. PP
estimated the present value of its probability adjusted expected payment for the contingency at
P15,000.
**SS Company has 40% of its share publicly traded on an exchange. PP Company purchases the 60% nonpublicly traded shares in one transaction, paying P239,400. Based on the trading price of the shares of
SS Company at the date of gaining control a value of P152,000 assigned to the 40% non-controlling
interest (or fair value of non-controlling interest), indicating that Smart Company has paid a control
premium of P11,400.
***PP Company acquires 75% (13,500 ordinary shares) of SS Company for P229,500 (P17 per share). In the
period around the acquisition date, SS Company’s shares are trading at about P13.60 per share. PP
Company pays a premium over market because of the synergies it believes it will get. It its therefore
reasonable to conclude that the fair value of SS’s as a whole may not be P332,500. In fact, an
independent valuation shows that the value of SS Company is P322,525 (fair value of SS Company).
****PP Company acquires 15 percent of SS Company’s common stock for P47,500 cash and carries the
investment using the cost model. A few months later, PP purchases another 60 percent of SS Company’s
stock for P205,200. At that date, SS Company reports identifiable assets with a book value of P370,500
and a fair value of P484,500, and it has liabilities with a book value and fair value of P180,500. The fair
value of the 25% non-controlling interest in SS Company is P85,500.
*****PP Company acquires 75 percent of SS Company’s common stock for P205,000 cash. At that date, the
non-controlling interest in SS has a book value of P47,500 and a fair value of P74,200. Also on that date,
SS reports identifiable assets with a book value of P362,000 and a fair value of P462,000, and it has
liabilities with a book value and fair value of P172,000.
Additional information:
All other assets and liabilities of SS Company had book value approximated their fair market value
except the following:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and equipment . . . . . . . . . . . . . . . . . . . .
•
•
•
Book value
P 30,000
50,000
Fair value
P 20,000
76,000
It has developed a customer list appraised at P5,000, although it is not recorded in its
financial records.
Favorable lease agreements, valued at P3,000
Signed customer contracts for product development, valued at P2,000
It has research and development activity in process with an appraised fair value of P5,000.
However, the project has not yet reached technological feasibility and the assets used in
the activity have no alternative future use.
Required:
1. Under each of the above assumptions, prepare the entry to record the investment in
subsidiary in books of the Porter Company (the parent) on the date of acquisition.
2. Under each of the above assumptions, prepare schedule for determination (of goodwill
and gain) and allocated excess , using
a. Partial Goodwill (Proportionate Basis) Approach
b. Full-Goodwill (Fair Value Basis) Approach
3. Under each of the above assumptions, prepare working paper eliminating entry to eliminate
the investment in SS Company in preparation of a consolidated balance sheet at date of
acquisition, using:
a. Partial Goodwill (Proportionate Basis) Approach
b. Full-Goodwill (Fair Value Basis) Approach
•
Problem I (Correction: Research and development should be P5,000 not P50,000)
1. Case 1: Date of Acquisition Investment in SS Company
315,000
Cash
300,000
Estimated Liability on Contingent Consideration
15,000
Acquisition Expense (or Retained earnings)
Cash
10,000
Case 2: Date of Acquisition Investment in SS Company
Cash
237,500
Case 3: Date of Acquisition Investment in SS Company
Cash
239,400
Case 4: Date of Acquisition Investment in SS Company
Cash
229,500
Case 5: Date of Acquisition Investment in SS Company
Cash
Case 6: Date of Acquisition Investment in SS Company
Cash
205,200
205,000
10,000
237,500
239,400
229,500
205,200
205,000
2. Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Case 1: Date of Acquisition Fair value of Subsidiary:
Consideration transferred:
Cash
P300,000
Contingent performance obligation
Fair value of Subsidiary
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100%
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
Increase in Customer list (P5,000 x 100%)
Increase in Favorable lease agreement (P3,000 x 100%)
Increase in Customer contract (P2,000 x 100%)
Increase in Purchased IPRD (P5,000 x 100%)
Goodwill
Case 2: Date of Acquisition a. Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 80%
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 80%
Increase in Customer list (P5,000 x 80%)
Increase in Favorable lease agreement (P3,000 x 80%)
Increase in Customer contract (P2,000 x 80%)
Increase in Purchased IPRD (P5,000 x 80%)
Goodwill – partial
b. Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash (P237,500 / 80%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100%
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
Increase in Customer list (P5,000 x 100%)
Increase in Favorable lease agreement (P3,000 x 100%)
Increase in Customer contract (P2,000 x 100%)
Increase in Purchased IPRD (P5,000 x 100%)
Goodwill – full
Case 3: Date of Acquisition a. Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred - cash
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 60%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 60%
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 60%
__15,000
P315,000
_190,000
P125,000
(P10,000)
26,000
5,000
3,000
2,000
5,000
__31,000
P 94,000
P 237,500 (80%)
_152,000 (80%)
P 85,500 (80%)
(P 8,000)
20,800
4,000
2,400
1,600
_4,000
24,800 (80%)
P 60,700 (80%)
P 296,875 (100%)
_190,000 (100%)
P 106,875 (100%)
(P10,000)
26,000
5,000
3,000
2,000
_5,000
__31,000 (100%)
P 75,875 (100%)
P 239,400 (60%)
_114,000 (60%)
P 125,400 (60%)
(P 6,000)
15,600
Increase in Customer list (P5,000 x 60%)
Increase in Favorable lease agreement (P3,000 x 60%)
Increase in Customer contract (P2,000 x 60%)
Increase in Purchased IPRD (P5,000 x 60%)
Goodwill – partial
3,000
1,800
1,200
__3,000
__18,600 (60%)
P 106,800 (60%)
b. Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
P 239,400 ( 60%)
Fair value of NCI (given)**
_152,000 ( 40%)
Fair value of Subsidiary
P 391,400 (100%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
_190,000 (100%)
Allocated excess
P 201,400 (100%)
Decrease in Inventory (P20,000 – P30,000) x 100%
(P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
26,000
Increase in Customer list (P5,000 x 100%)
5,000
Increase in Favorable lease agreement (P3,000 x 100%)
3,000
Increase in Customer contract (P2,000 x 100%)
2,000
Increase in Purchased IPRD (P5,000 x 100%)
_5,000
__31,000 (100%)
Goodwill – full
P 170,400 100%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
40%
P 88,400
Therefore, the given amount of P152,000 is higher compared to P88,400. In the event that the
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)
should be used to determine the FV of Subsidiary.
Case 4: Date of Acquisition a. Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary
Consideration transferred – cash
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 75%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 75%
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 75%
Increase in Customer list (P5,000 x 75%)
Increase in Favorable lease agreement (P3,000 x 75%)
Increase in Customer contract (P2,000 x 75%)
Increase in Purchased IPRD (P5,000 x 75%)
Goodwill – partial
b. Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary – given
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
P 229,500 (75%)
_142,500 (75%)
P 87,000 (75%)
(P 7,500)
19,500
3,750
2,250
1,500
__3,750
__23,250 (75%)
P 63,750 (75%)
P 322,525 (100%)
_190,000 (100%)
P 132,525 (100%)
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100%
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
Increase in Customer list (P5,000 x 100%)
Increase in Favorable lease agreement (P3,000 x 100%)
Increase in Customer contract (P2,000 x 100%)
Increase in Purchased IPRD (P5,000 x 100%)
Goodwill – full
Case 5: Date of Acquisition – Step-Acquisition
a. Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15%
Fair value of Subsidiary
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P370,500
P484,500
Liabilities
180,500
180,500
Increase in Net Assets
(P190,000 - P304,000) x 75%
Goodwill – partial
b. Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15%
Fair value of NCI (given)*
Fair value of Subsidiary
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P370,500 P484,500
Liabilities
180,500
180,500
Increase in Net Assets
(P190,000 - P304,000) x 100%
Goodwill – full
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
(P10,000)
26,000
5,000
3,000
2,000
_ 5,000
__31,000 (100%)
P 101,525 100%)
P 205,200 (60%)
___51,300 (15%)
P 256,500 (75%)
_142,500 (75%)
P 114,000 (75%)
P114,000
P
-0P 85,500
___85,500 (75%)
P 28,500 (75%)
P 205,200 ( 60%)
51,300 ( 15%)
__85,500 ( 25%)
P 342,000 (100%)
_190,000 (100%)
P 152,000 (100%)
P114,000
P
-0**P114,000
_114,000 (100%)
P 38,000 (100%)
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000**
Fair value of stockholders’ equity of subsidiary………………………………………………….P 304,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
P 76,000
Therefore, the given amount of P85,500 is higher compared to P76,000. In the event that the
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
should be used to determine the FV of Subsidiary.
Case 6: Date of Acquisition – Bargain Purchase Gain
a. Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P362,000 P462,000
Liabilities
172,000 172,000
Increase in Net Assets
(P190,000 - P290,000) x 75%
Bargain purchase gain – partial
P 205,000 (75%)
_142,500 (75%)
P 62,500 (75%)
P100,000
P - 0P 75,000
b. Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Fair value of NCI (given)*
Fair value of Subsidiary
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P362,000 P462,000
P100,000
Liabilities
172,000 172,000
P - 0Increase in Net Assets
(P190,000 – P290,000 x 100% **P100,000
Bargain purchase gain – full
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
___75,000 (75%)
(P 12,500) (75%)
P 205,000 ( 75%)
__74,200 ( 25%)
P 279,200 (100%)
_190,000 (100%)
P 89,200 (100%)
_100,000 (100%)
(P 10,800)(100%)
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 100,000**
Fair value of stockholders’ equity of subsidiary………………………………………………….P 290,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
P 72,500
Therefore, the given amount of P74,200 is higher compared to P72,500. In the event that the
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000) should
be used to determine the FV of Subsidiary.
3. Working Paper Eliminating Entries
Case 1: Date of Acquisition -
Common
stock
–
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained
earnings
–
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
in
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SS 90,000
–
SS 80,000
SS 20,000
SS
190,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease
3,000
agreements….……………………………………………………….
Customer
2,000
contract……………………………………………………………
Capitalized
5,000
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,000
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,000
125,000
Eliminate investment against allocated excess
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Fair value of Subsidiary:
Consideration transferred:
Cash
P300,000
Contingent performance obligation
__15,000
Fair value of Subsidiary
P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
_190,000
Allocated excess
P125,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100%
(P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
26,000
Increase in Customer list (P5,000 x 100%)
5,000
Increase in Favorable lease agreement (P3,000 x 100%)
3,000
Increase in Customer contract (P2,000 x 100%)
2,000
Increase in Purchased IPRD (P5,000 x 100%)
5,000
__31,000
Goodwill
P 94,000
Case 2: Date of Acquisition –
a. Proportionate Basis (Partial-goodwill Approach)
Common
stock
–
SS 90,000
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
20%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,000
152,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease
agreements….……………………………………………………….
Customer
contract……………………………………………………………
Capitalized
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,000
5,000
3,000
2,000
5,000
60,700
NCI/NCINAS (NCI
20%..............................
in
Net
Assets):
P31,000
x
6,200
10,000
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,500
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
20%
FV-NCI Partial GW (or P38,000 + P6,200)...………………………………………………………..P 44,200
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
P 237,500 (80%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 80%
_152,000 (80%)
Allocated excess
P 85,500 (80%)
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 80%
(P 8,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 80%
20,800
Increase in Customer list (P5,000 x 80%)
4,000
Increase in Favorable lease agreement (P3,000 x 80%)
2,400
Increase in Customer contract (P2,000 x 80%)
1,600
Increase in Purchased IPRD (P5,000 x 80%)
_4,000
24,800 (80%)
Goodwill – partial
P 60,700 (80%)
b. Fair Value Basis (Full-goodwill Approach)
Common
stock
–
SS 90,000
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
20%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,000
152,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease
agreements….……………………………………………………….
Customer
contract……………………………………………………………
Capitalized
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,000
5,000
3,000
2,000
5,000
75,875
NCI:
(P31,000
x
P60,700)…………………………...
20%)
+
(P75,875
–
21,375
10,000
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,500
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
20%
FV-NCI Partial GW (or P38,000 + P6,200)...………………………………………………………..P 44,200
Add: NCI on Full-GW (P75,875 – P60,700)………………………………………………………… 15,175
FV-NCI - Full GW………………………………………………………………………………………..P 59,375
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash (P237,500 / 80%)
P 296,875 (100%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
_190,000 (100%)
Allocated excess
P 106,875 (100%)
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100%
(P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
26,000
Increase in Customer list (P5,000 x 100%)
5,000
Increase in Favorable lease agreement (P3,000 x 100%)
3,000
Increase in Customer contract (P2,000 x 100%)
2,000
Increase in Purchased IPRD (P5,000 x 100%)
_5,000
__31,000 (100%)
Goodwill – full
P 75,875 (100%)
Case 3: Date of Acquisition a. Proportionate Basis (Partial-goodwill Approach)
Common
stock
–
SS 90,000
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
40%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,000
114,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease
agreements….……………………………………………………….
Customer
contract……………………………………………………………
26,000
5,000
3,000
2,000
Capitalized
5,000
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,800
NCI/NCINAS (NCI in Net Assets):
P31,000 x
12,400
40%..............................
10,000
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,400
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
40%
FV-NCI Partial GW (or P76,000 + P12,400)...………………………………………………………P 88,400
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
P 239,400 (60%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 60%
_114,000 (60%)
Allocated excess
P 125,400 (60%)
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 60%
(P 6,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 60%
15,600
Increase in Customer list (P5,000 x 60%)
3,000
Increase in Favorable lease agreement (P3,000 x 60%)
1,800
Increase in Customer contract (P2,000 x 60%)
1,200
Increase in Purchased IPRD (P5,000 x 60%)
__3,000
__18,600 (60%)
Goodwill – partial
P 106,800 (60%)
b. Fair Value Basis (Full-goodwill Approach)
Common
stock
–
SS 90,000
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
40%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,000
114,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,000
Lease
3,000
agreements….……………………………………………………….
Customer
2,000
contract……………………………………………………………
Capitalized
5,000
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,400
NCI:
(P31,000
x
40%)
+
(P170,400
–
76,000
P106,800)………….……………...
10,000
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,400
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
40%
FV-NCI Partial GW (or P38,000 + P6,200)...………………………………………………………..P 88,400
Add: NCI on Full-GW (P170,400 – P106,800)…………………………………………………….. 63,600
FV-NCI - Full GW………………………………………………………………………………………..P 152,000
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
P 239,400 ( 60%)
Fair value of NCI (given)**
_152,000 ( 40%)
Fair value of Subsidiary
P 391,400 (100%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
_190,000 (100%)
Allocated excess
P 201,400 (100%)
Decrease in Inventory (P20,000 – P30,000) x 100%
(P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
26,000
Increase in Customer list (P5,000 x 100%)
5,000
Increase in Favorable lease agreement (P3,000 x 100%)
3,000
Increase in Customer contract (P2,000 x 100%)
2,000
Increase in Purchased IPRD (P5,000 x 100%)
_5,000
__31,000 (100%)
Goodwill – full
P 170,400 100%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
40%
P 88,400
Therefore, the given amount of P152,000 is higher compared to P88,400. In the event that the
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)
should be used to determine the FV of Subsidiary.
Case 4: Date of Acquisition a. Proportionate Basis (Partial-goodwill Approach)
Common
stock
–
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
Co . ……………………. . . . . . . . . . . .
SS 90,000
–
SS 80,000
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
25%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,500
142,500
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease
agreements….……………………………………………………….
Customer
contract……………………………………………………………
Capitalized
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets):
P31,000 x
25%..............................
26,000
5,000
3,000
2,000
5,000
63,750
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminate investment against allocated excess
7,750
10,000
87,000
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
FV-NCI Partial GW (or P47,500 + P7,750)...………………………………………………………..P 55,250
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary
Consideration transferred – cash
P 229,500 (75%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 75%
_142,500 (75%)
Allocated excess
P 87,000 (75%)
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 75%
(P 7,500)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 75%
19,500
Increase in Customer list (P5,000 x 75%)
3,750
Increase in Favorable lease agreement (P3,000 x 75%)
2,250
Increase in Customer contract (P2,000 x 75%)
1,500
Increase in Purchased IPRD (P5,000 x 75%)
__3,750
__23,250 (75%)
Goodwill – partial
P 63,750 (75%)
b. Fair Value Basis (Full-goodwill Approach)
Common
stock
–
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
Co . ……………………. . . . . . . . . . . .
SS 90,000
–
SS 80,000
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
25%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,500
142,500
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease
agreements….……………………………………………………….
Customer
contract……………………………………………………………
Capitalized
R&D ....................................…………………………………….
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NCI:
(P31,000
x
25%)
+
(P101,525
–
P63,750)………….……………...
26,000
5,000
3,000
2,000
5,000
101,525
Inventory……………………………………………………………………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminate investment against allocated excess
45,525
10,000
87,000
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)………..
31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
FV-NCI Partial GW…………………………...………………………………………………………..P 55,250
Add: NCI on Full-GW (P101,525 – P63,750)………………………………………………………. 37,775
FV-NCI - Full GW (P47,500 + P45,525)……………………………………………………………….P 93,025
Schedule of Determination and Allocated Excess: (Correction: Research and development
should be P5,000 not P50,000)
Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary - given
P 322,525 (100%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
_190,000 (100%)
Allocated excess
P 132,525 (100%)
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100%
(P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100%
26,000
Increase in Customer list (P5,000 x 100%)
5,000
Increase in Favorable lease agreement (P3,000 x 100%)
3,000
Increase in Customer contract (P2,000 x 100%)
2,000
Increase in Purchased IPRD (P5,000 x 100%)
_5,000
__31,000 (100%)
Goodwill – full
P 101,525 100%)
Case 5: Date of Acquisition – Step-Acquisition
a.
Proportionate Basis (Partial-goodwill Approach)
Common
stock
–
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
SS 90,000
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
25%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,500
142,500
Eliminate investment against book value stockholders’ equity of SS Co.
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,500
NCI/NCINAS (NCI in Net Assets):
(P304,000-P190,000) x
28,500
25%.........
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,000
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 304,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
FV-NCI Partial GW (P47,500 + P28,500)….....……………………………………………………..P 76,000
Schedule of Determination and Allocated Excess:
Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15%
Fair value of Subsidiary
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P370,500
P484,500
Liabilities
180,500
180,500
Increase in Net Assets
(P190,000 - P304,000) x 75%
Goodwill – partial
b.
P 205,200 (60%)
___51,300 (15%)
P 256,500 (75%)
_142,500 (75%)
P 114,000 (75%)
P114,000
P
-0P 85,500
___85,500 (75%)
P 28,500 (75%)
Fair Value Basis (Full-goodwill Approach)
Common
stock
–
SS 90,000
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
25%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminate investment against book value stockholders’ equity of SS Co.
47,500
142,500
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
NCI
[(P304,000-P190,000)
x
25%]
+
(P38,000
–
38,000
P28,500)……………..
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,000
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 304,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
FV-NCI Partial GW………………………….. ...………………………………………………………P 76,000
Add: NCI on Full-GW (P38,000 – P28,500)………………………………………………………...
9,500
85,500
FV-NCI - Full GW (P47,500 + P38,000) - the
NCI given per problem is the same………P
Schedule of Determination and Allocated Excess:
Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15%
Fair value of NCI (given)*
Fair value of Subsidiary
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P370,500 P484,500
Liabilities
180,500
180,500
Increase in Net Assets
(P190,000 - P304,000) x 100%
Goodwill – full
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
P 205,200 ( 60%)
51,300 ( 15%)
__85,500 ( 25%)
P 342,000 (100%)
_190,000 (100%)
P 152,000 (100%)
P114,000
P
-0**P114,000
_114,000 (100%)
P 38,000 (100%)
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000**
Fair value of stockholders’ equity of subsidiary………………………………………………….P 304,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
P 76,000
Therefore, the given amount of P85,500 is higher compared to P76,000. In the event that the
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
should be used to determine the FV of Subsidiary.
Case 6: Date of Acquisition - – Bargain Purchase Gain
a.
Proportionate Basis (Partial-goodwill Approach) refer to Page 169 for reference
Common
stock
–
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000
25%)………………….
SS 90,000
SS 80,000
SS 20,000
x
47,500
Investment
in
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SS
142,500
Eliminate investment against book value stockholders’ equity of SS Co.
Identifiable
assets 100,000
(itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings (bargain purchase gain –closed
to RE since
12,500
only BS or real accounts are being
examined)…………………
NCI
(P290,000-P190,000)
x
25,000
25%...........................................................
Investment
in
SS
62,500
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminate investment against allocated excess
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 100,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 290,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
FV-NCI-Partial Gain (P47,500 + P25,000).....………………………………………………………P 72,500
Schedule of Determination and Allocated Excess:
Proportionate Basis (Partial-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P362,000 P462,000
Liabilities
172,000 172,000
Increase in Net Assets
(P190,000 - P290,000) x 75%
Bargain purchase gain – partial
P 205,000 (75%)
_142,500 (75%)
P 62,500 (75%)
P100,000
P - 0P 75,000
___75,000 (75%)
(P 12,500) (75%)
b. Fair Value Basis (Full-goodwill Approach) – refer to Page 169 for reference
Common
stock
–
SS 90,000
Co ............................ . . . . . . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
–
SS 80,000
Co . ……………………. . . . . . . . . . . .
Retained
earnings
–
SS 20,000
Co …………………... . . . . . . . . . . . . . . . . . . . .
NCI/NCINAS (NCI in Net Assets) – (190,000 x
25%)………………….
Investment
in
SS
Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,500
142,500
Eliminate investment against book value stockholders’ equity of SS Co.
Identifiable
assets 100,000
(itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings (bargain purchase gain –closed
to RE since
10,800
only BS or real accounts are
examined)…………………
NCI
(P74,200,
given
P47,500)..........................................................
Investment in SS Co . . . . . . . . . . . .
being
–
Eliminate investment against allocated excess
26,700
62,500
NCI:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 100,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 290,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
FV-NCI Partial Gain……………………….......………………………………………………………P 72,500
Add: NCI on Full-Gain)- P12,500 – P10,800………………………………………………………..
1,700
FV-NCI-Full, Gain (P47,500 + P62,500) – given …………………………………………………...P 74,200
Schedule of Determination and Allocated Excess:
Fair Value Basis (Full-goodwill Approach)
Fair value of Subsidiary:
Consideration transferred – cash
Fair value of NCI (given)*
Fair value of Subsidiary
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
BV
FV
Identifiable Assets
P362,000 P462,000
P100,000
Liabilities
172,000 172,000
P - 0Increase in Net Assets
(P190,000 – P290,000 x 100% **P100,000
Bargain purchase gain – full
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
P 205,000 ( 75%)
__74,200 ( 25%)
P 279,200 (100%)
_190,000 (100%)
P 89,200 (100%)
_100,000 (100%)
(P 10,800)(100%)
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 100,000**
Fair value of stockholders’ equity of subsidiary………………………………………………….P 290,000
Multiplied by: Non-controlling Interest percentage...............................................................
25%
P 72,500
Therefore, the given amount of P74,200 is higher compared to P72,500. In the event that the
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000) should
be used to determine the FV of Subsidiary.