Problem 1
Blue Co. Merged into Soda Corp. on June 30, 2020. In exchange for the net assets at fair market
value of Blue Co. amounting to P2,785,800, Soda issued 68,000 ordinary shares at P36 par value,
with a market price of P41 per share. Relevant data on ordinary shareholders’ equity immediately
before the combination show:
Soda
Blue
Share Capital
8,790,000
2,030,000
Share Premium
3,834,000
782,000
Retained Earnings (Deficit)
(1,516,000)
495,000
Out of pocket costs of the combination were as follows:
Legal fees for the contract of business combination
Audit fee for SEC registration stock issue
Printing costs of stock certificates
Broker’s fee
Accountant’s fee for pre-acquisition audit
Other direct cost of acquisition
General and allocated expenses
Listing fees in issuing new shares
174,700
198,400
144,900
135,000
161,000
90,400
115,300
172,000
Included as part of the acquisition agreement is the additional cash consideration of P163,000 in the
event Soda Co.’s share price will reach P32 per share by year-end.
At acquisition date, the share price is P27.50 and increased by P4.80 by December 31, 2020.
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At acquisition date, there was only a low probability of reaching the target share price, so the fair
value of additional consideration was determined at P74,000.
1. What is the amount of expense to be recognized in the statement of comprehensive income for
the year ended December 31, 2020?
174,700
135,000
161,000
90,400
115,300
172,000
848,400
Shares (68,000 @ P41)
Contingent Cons.
Total Consideration Paid
FVNAA
Goodwill
2,788,000
74,000
2,862,000
2,785,800
76,200
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Legal fees
Broker’s fee
Accountant’s fee
Other direct cost
Gen. & alloc. Exp.
Listing fees
Indirect/Direct Costs
Audit fee
Printing costs
Stock Issuance Costs
198,400
144,900
343,300
(68,000*(41-36))
Share Premium
340,000
Stock Issuance Cost
3,300
Cash
343,300
To record stock-related issuance costs
CC Payable
74,000
Loss on Cont. Cons.
89,000
Cash
163,000
To record the settlement of cont. Cons. on
December 31, 2020.
Problem 2
Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10
and bonds payable with face amount of P500,000. The bonds are classified as financial liability at
amortized cost.
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At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other
hand, the bonds payable classified as financial liability at amortized cost, are trading at 110.
Entity A P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000
acquisition related costs and P30,000 indirect costs of business combination.
Before the date of acquisition, Entity A and Entity B reported the following data:
Entity A
Entity B
Current assets
1,000,000
500,000
Non-current assets
2,000,000
1,000,000
Current liabilities
200,000
400,000
Non-current liabilities
300,000
500,000
Ordinary shares
500,000
200,000
Share Premium
1,200,000
300,000
Retained Earnings
800,000
100,000
At the time acquisition, the Current assets of Entity A have a fair value of P1,200,000, while the Noncurrent assets of Entity B have fair value of P1,300,000. On the same date, the Current liabilities of
Entity B have a fair value of P600,000 while the Non-current liabilities of Entity A have a fair value of
P500,000.
1. How much is the GW or BPG?
2. What total amount should be expensed as incurred at the time of business combination?
Entity B
Current assets
500,000
Acquisition related costs
40,000
Non-current assets
1,300,000
Indirect costs
30,000
Current liabilities
(600,000)
Indirect/Direct Costs
70,000
Non-current liabilities
(500,000)
FVNAA
700,000
200,000
550,000
750,000
700,000
50,000
Bonds payable
Bond Issue Cost
Bonds payable, net
550,000
20,000
530,000
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Shares (10,000@ 20)
Bonds payable (500,000 @ 1.10)
Total Consideration Transferred
FVNAA
Goodwill
Current Assets
Land
Building
Equipment
Total Assets
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Problem 3
The Statement of Financial Position of Lumina Corporation on June 30, 2020 is presented below:
Liabilities
Ordinary shares, P5 par
Share Premium
Retained Earnings
Total Liabilities and Equity
195,000
1,320,000
660,000
525,000
2,700,000
525,000
900,000
825,000
450,000
2,700,000
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All the assets and liabilities of Lumina assumed to approximate their fair values except for land and
building. It is estimated that the land have a fair value of P2,100,000 and the fir value of the building
increased by P480,000. Enigma Corporation acquired 80% of Lumina’s outstanding shares for
P3,000,000. The consideration paid includes control premium of P852,000.
1. How much is the GW or BPG on the consolidated FS?
2. Assuming the consideration paid excludes control premium of P138,000 and the fair value of noncontrolling interest is P736,500, how much is the GW/BPG on the consolidated FS?
Current Assets
Land
Building
Equipment
Liabilities
FVNAA
195,000
2,100,000
1,140,000
525,000
(525,000)
3,435,000
FVCGU
NCI
Total Consideration Transferred
FVNAA
Partial Goodwill
3,000,000
687,000
3,687,000
3,435,000
252,000
a) PS of FVNAA
(3,435,000 x 20%)
b) Implied FV
(3,000,000 - 852,000
80%
FVCGU
Control Premium
NCI
Total Consideration Transferred
FVNAA
Partial Goodwill
3,000,000
138,000
736,500
3,874,500
3,435,000
439,500
a) PS of FVNAA
(3,435,000 x 20%)
b) Expressed FV
3,784,500
3,435,000
439,500
(339,500)
100,000
Subsidiary
20%
736,500
687,000
49,500
37,345
12,155
x 20%)
537,000
687,000
736,500
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FVCGU
FVNAA
Goodwill
Impairment
Parent
80%
3,138,000
2,748,000
390,000
302,155
87,845
687,000
89%
11%
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Problem 4
On January 2, 2020, the Statement of Financial Position of Arden Company and Wonder Company
immediately before the combination are:
Arden Co.
Wonder Co.
Cash
2,700,000
90,000
Inventories
1,800,000
180,000
Property and Equipment (net)
4,500,000
630,000
Total Assets
9,000,000
900,000
Current Liabilities
Ordinary Shares, P100 par
Share Premium
Retained Earnings
Total Liabilities and Equity
540,000
900,000
2,700,000
4,860,000
9,000,0000
90,000
90,000
180,000
540,000
900,000
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The fair value of Wonder Company’s equipment is P918,000. Arden Company acquired 80% of the
outstanding shares of Wonder Company for P820,800 and non-controlling interest is measured at
the proportionate share of Wonder Company’s identifiable net assets.
1. How much is the consolidated stockholder’s equity of the date of acquisition?
2. Assuming Arden Company acquired 90% of the outstanding shares of Wonder Company for
P1,458,000 and non-controlling interest is measured at fair value, how much is the total
consolidated assets on the date of acquisition?
Cash
Inventories
Property and Equipment (net)
Current Liabilities
FVNAA
90,000
180,000
918,000
(90,000)
1,098,000
FVCGU
NCI (PS of FVNAA)
Total Consideration Transferred
FVNAA
Partial Bargain Purchase Gain
820,800
219,600
1,040,400
1,098,000
57,600
Consolidated O/S
Consolidated SP
Consolidated RE
Conso. SHE - Parent
NCI
Consolidated SHE
900,000
2,700,000
4,917,600
8,517,600
219,600
8,737,200
FVCGU
NCI (Expressed FV)
Total Consideration Transferred
FVNAA
Total Goodwill
1,458,000
162,000
1,620,000
1,098,000
522,000
BV Assets - Parent
FV Assets - Subsidiary
Goodwill
Consideration Paid
Consolidated Assets
9,000,000
1,188,000
522,000
(1,458,000)
9,252,000
1,620,000
1,098,000
522,000
Subsidiary
10%
162,000
109,800
52,200
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FVCGU
FVNAA
Goodwill
Parent
90%
1,458,000
988,200
469,800
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Problem 5
On January 1, 2020, Vector acquired 90% of the equity share capital of Fern in a share exchange in
which Vector issued two new shares for every three shares it acquired in Fern. Additionally on
December 31, 2020, Vector will pay the shareholders of Fern P13.2 per share acquired. Vector’s cost
of capital is 10% per annum. At the date of acquisition, shares in Vector and Fern had a stock market
value of P48.75 and P18.75 each, respectively. Income statements for the year ended September 30,
2020.
Vector
Fern
Revenue
4,845,000
2,850,000
Cost of Sales
(3,840,000)
(1,950,000)
Gross Profit
1,005,000
900,000
Distribution Costs
(102,000)
(130,500)
Administrative expenses
(285,000)
(180,000)
Investment Income
37,500
---Finance Costs
(31,500)
---Profit before tax
624,000
589,500
Income tax expense
(210,000)
(120,000)
Profit for the year
414,000
469,500
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Equity as at October 1, 2019
Equity shares of P7.50 each
Retained Earnings
1,800,000
4,050,000
562,500
2,625,000
At the date of acquisition, the fair values of Fern’s assets were equal to their carrying amounts with
the exception of Land, which had a fair value of P135,000 above its carrying amount. Also, Fern had
a contingent liability which Vector estimated to have a fair value of P337,500. This has not changed
as at September 30, 2020. Fern has not incorporated these fair value changes into its financial
statements. Vector’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For the purpose, Fern;s share price at that date can be deemed to be representative of
the fair value of the share held by non-controlling interest.
1. How much is the GW or BPG?
October 2019
December 2019
3 months income
BVNAA Subsidiary 10/1/2019
(562,500 + 2,625,000)
Net Income Oct-Dec 2019 (469,500 x 3/12)
BVNAA Subsidiary 1/1/2020
Increase in FV of Land
Contingent Liability
FVNAA
September 2020
Acquisition Date
Year-end
3,187,500
117,375
3,304,875
135,000
(337,500)
3,102,375
2,193,750
810,000
3,003,750
310,237.5
3,313,987.5
3,102,375
211,612.5
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Shares issued by Parent
(562,500/7.50 x 90%) x 2/3 x 48.75
Contingent Consideration PV10%, 1
(67,500 x 13.2)
FVCGU
NCI (Expressed FV: 3,102,375 x 10%)
Total Consideration Transferred
FVNAA
Partial Goodwill
January 2020
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Problem 6 - Step Acquisition
Clark Company’s stockholders’ equity as of December 31, 2019 is P7,308,000. On January 1, 2020
Clark acquires 30% of Rome Company’s ordinary shares for P540,000 cash and by issuing its own
shares with a fair value of P1,350,000. Clark acquired significant influence over Rome as a result of
stock acquisition. After four months, Clark purchases another 60% of Rome ordinary shares for a
cash payment of P3,942,000. On this date, Rome reports identifiable assets with carrying value of
P6,480,000 and fair value of P11,520,000 and it has liabilities with a book value of P3,240,000.
At the acquisition date, net loss reported by Rome for the four-month ended amounted to P900,000.
the fair value of the 10% non-controlling interest is P1,296,000. Non-controlling interest is valued
using the proportionate basis. Clark also paid the following: P90,000 for legal fees, P72,000 for
finder’s fee, P77,400 for accountant’s fee, P64,800 for audit fee for SEC registration of stock issued
and P19,800 for printing stock certificates.
1. Immediately after the business combination, how much is the consolidated total equity?
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Legal fees
Finder’s fee
Accountant’s fee
Indirect/Direct Costs
90,000
72,000
77,400
259,400
January 1, 2020
May 1, 2020
Clark’s Acquisition over Rome
30%
60%
90%
Audit fee
Printing costs
Stock Issuance Costs
Inv. In Associate
Cash
O/S
64,800
19,800
84,600
1,890,000
Net Loss (900,000*30%)
Inv. In Associate
BV of Inv. In Associate
(1,890,000 - 270,000)
FV of Inv. In Associate
(3,942,000/60% * 30%)
Gain on Remeasurement
540,000
1,350,000
270,000
270,000
1,620,000
351,000
Inv. In Associate
Gain on Remeasurement
1,971,000
351,000
FV of Assets
FV of Liabilities
FV of Net Assets Acquired
NCI %
Non-controlling Interest
11,520,000
3,240,000
8,280,000
10%
828,000
FV of Consideration Given Up
FV of Existing Interest
Non-controlling Interest
3,942,000
1,971,000
828,00
6,741,000
8,280,000
1,539,000
Gain on Remeasurement
30%
Partial BPG
Indirect/Direct Costs
Stock Issuance Cost
SHE Parent 5/31/2020
10%
Non-controlling Interest
100%
Consolidated SHE
60%
7,308,000
1,350,000
(270,000)
351,000
1,539,000
(239,400)
(84,600)
9,954,000
828,000
10,782,000
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FV of Net Assets Acquired
Partial Bargain Purchase Gain
SHE Parent 12/31/2019
Shares issued 1/1/2020
Net Loss in Associate
351,000
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