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PRACTICAL ACCOUNTING PROBLEMS
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BUS]NEgS COMBINATION
DATE OF ACQUISTTTON
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ACOUTSITTON OF NET ASSET5 AND ACOUTSTTTON OJ SOCKS
PROBLEM 1.
in manufacturirrg cars. On January !, ZOL3, the board of directors
of the said company has declded'to acquire'the net assets of NOVA Corporation and RISE Corporation,
quality
iuppti.o of materlafu they use in production. The merger is expected to result in producing higher
cars with lower total cost'
STAR Corporation is a company involved
the books of
The deal was closed on February 29, 2013 and the following information was gathered from
the entiLies:
NOVA
RISE
P1,375,00C
P390,000
P260,000
3,125,000
2,550;000
P2,940,000
1.700,000
P1.960,000
P210.000
780,200
10e.gqq
zgorooo
940,000
P140,000
1,186,800
STAR
Current assets
Noncurrent assets
Total assets
P325
748,500
Common stock, P100
Additional
Retained earninqs
176,500
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1.250,00q
P4.500,000
Totalequities
113,200
520,000
P1,960,00q
common
Star will lssue 22,500 of its common stock in,exchange for the net assets of Nova and 11,200 of its
addition,
.the
stock in exchange for..the net asseti of Rise; the fair value of Star's shares is P150. In
:,
be
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following adjustrients shhuld
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Current assets cf floria and Rise have a fair rralue of P450,000 and P230,000 respectively'
Noncurrent assets have a fair value of P2,150,000 and P1,975,000 for Nova and Rise, respectively'
Compute for the following balances of Star Company-on the date ol acquisition:
Stockholders'equlty
A. 'P6,118,500
B.
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P7,980,000
c. p:;+gs,soo
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D. P9,615,000
. Assets
A.'
P10,290,000
c.
P9,240,000
P10,500,000
P9,840,000
B.
D.
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PROBLEM
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Denim Co. merged into Kraft Corp. on-July 1, 20t3. In exchange. for fhe net assets at fair market value of Denim
per
Co, amounting lo P696,450 , |qaft issued.68,00fl crurmon shardi at P9 par value with a market price of P12
t,
share.
Out of pocket costs of the combination were as follows:
fees for the contract of
{gqitleelgrjEg.Egrelion
combination
Q[ :!99k issue-
Printinq costs of stock certiFicates
nccguntant's feg for
Other direct cost of
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pre
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General and allocated
Denim will pay an additionalcash conslderation of P455,000 in the event that Kraft's net'income will be equal or
greater tlran P950,000 for the period ended December 31, 2013, At aquisition date, there is a high probability of
ieaching the brget het income and the fair value of the additional ctrnslderation was determined to be P195,000.
Actual net income for the period ended December 31, 2013 amounted
to P1,250,000. The additional cash
consideration was paid.
What is the amount of goodwill to be recognizal in the statement of financial position as of December 31,
2013?
A. P295,450
B. P308,500
c,
P314,550
D. P326,550
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What is the amoun[,bf e*pense to be recognized.in the statement of comprehensive income for the year
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ended December 31,
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A, P257,200
B. P517,200,
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c,. P307,400
D. P412,500
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PROBLEM 3.
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On October,
2OL3, Winner Corporation acquired all the assets and assumed all the liabilities of Getter
Company by issuing 20,000 shares wlth a fair value of P67.5 per share and an obligation to pay a
contingent consideration with a fair value of P750,000.
followinq acquisltion related costs:
In addition.. Winner oaid
,rid the following
Other direct cost glgsqgiglig!
F
Yrnqeb
The Statement of Flnanclal Position as of Septer.rber 30, 2013'ot Winner and Getter, together with the fair
.
market value of the assets and liabilities are presented below:
''
Winner
Value
Fair Value
Boolt
Get ter
Book Value Fair Value
P640,000
P640,000
360,000
475,000
25,000
2,000,000
800,000
700,000
335,000
390,000
P35,.0!q ____P15.0!9
70,000
54,0!q
78,000
87,000
13,500
5,000
1,550,000
900.000
Cash
Accounts receivable
Inventories
Prepaid expenses
Land
Building
Equipment
Gcodwill
Total assets
glqQ0q
723,000
*llr&000
585,000
361,500
300,000
P2,s00,000
360.000
P5,000,000
P5,750.000
312,500
937,500
2,000,000
1,000,000
750,000
312,500
980,000
Accounts payable
Notes oavable
Qpi!aLq!q4, s! per
Adgitrslel pqrd ln capital
RetaineC earninos
Total equities
2,900.000
P
200,000
700,000
8s0.000
400,000
350,000
P2,500,000
P2,860,000
200,000
765.000
Compute for the balances that will be shown on the October 7, 2013 statement of financial position of the
surviving company:
Retained earnings
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' B. P54o,ooo
' .. , Q,. P526,000
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P475,000'
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assets i t.ri
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, A. P7,015,000 '
, ,, B. P6,980r000 " n\
' C. ')7,118,000
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Total
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P,i,491,000.
PROBLEM 4,
The Statement of Financial Position of Luster Corporation on June 30, 2013 is presented belowt
Current assets
P32,s00
Land
4&ool
Building
Equipnqet
TotalAssdts
Liabilitles
5 par
paid
Additional
in caoital
Retaiqq{ qarnings
Total esuities
lqpitfgtock,
Alt the assets and liabitities
It
110,000
87,500
P450,000
87.s00
150,000
137,500
75,000
P450.000
of Luster assumed to approximate their fair values except for land and building.
is estimated that the land have a fair value of P350,000 and the fair value of the building increased by
P80,000.
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Kernel Corporation acqulred 80o/o of Luster's capital stock for
P500;000. I
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Assuming the consideration paid includes control premium of pt+Z,OOb, how much is the goodwill/(gain
onacqui5ition)ontheconso|idatdfinancialstatement1.
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A. P6o,ooo
B. P48,000
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D.
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P42,000
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P50,000
of P23,000 and the fair value of the non
goodwill/(gain
on acquisition) on the consolidated
controlling interest is PL22,750, how much is the
Assurning the conslderation pald excludes control premium
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financial statement?
A.
B.
P78,250
P73,250
c. P69,500
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D. P74,750
Assuming the consideration paid includes control premium oF P37,000, how much is the goodwill/{gain
on acquisition) on the consolidated financial statement?
A.
B.
P43,250
P73,250
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PROBLEM 5.
Better Company has galned control over the operations of Calm Corporation by acquiring B5o/o of its
outstanding capital stOck for P2,580,000. This amoutnt includes a control premium of P30,000. Acquisition
expenses, direct and indirect, amounted to P83,000 and 42,000 respectively
Booii value
Calm
Book Value Fair Value
p3,541,500
Cash'l
Accountii receivable
300.000
Inventorids
ss0.000
rEll)r
Land
Buildinq
Equlpment
Goodwill
Total assets
Accounts pavable
![qtssp_eyable
Capital stock, 50 par
Additional paid in capital
Retained earninos
P128.000
325,C00
360,000
125,000
148,500
2,350,000
1,56o,ooo
300,000
9ze'q9!
558.000
L85q!9
300.000
P9,25!,.0!q
6/5.000
1.,1qq,000
PtgE9PW
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253.000
730,000
800,000
3,400,000
1.575.000
g9-0,qq9
1,70_0.Qq0
477,040
P8.750.000 __Ba!g_0,q!9_
The following was ascertained on the date of acquisition for Calm
.
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Corporation:
,
The value of receivables and equioment has decreased by P25,000 and P14,000 respectively.
The fair value of inventories is now P436,000 whereas the value of land and building has increased by
P471,000 and P107,000 respectively.
r There was an
P738,000
unrecorded'accounts payable amounting
to P27,000 and the fair vatue
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notes
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Compute for the,following balances
the date of business combination:
to be presented in the consolidated statement of financial position
Total assets
A, P9,875,000
B, P10,093,000
c.
D.
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P10,112,000
P9,215,000
Total shareholder's equity
A.
B.
c.
D,
P7,000,000
P7,500,000
P8,200,000
P8,000,000
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PROBLEM 6.
On January 2, ZOI3, the Statement of Financial Position of Pepper and Steak Company prior to the
combination are:
Co.
450,000
300,000
750,000
Pepper
P
Cash
Inventories
Property and equipment (net)
Pjtoa.O.[a
P 9o,0oo
150,000
45o,ooo
Total Assets
Current Liabilities
Common Stock, P100 par
Additional Paid in'Capital
Retained Earnings
Total Liabilities and Stockholder's
810,000
Equity
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The fair value of Steakipompany's equiprnent
Steak Co'
P 15,000
30,000
105.000
PJ50000
P
15,000
15,000
3o,ooo
90.000
PJSg*AAA
ls" FJ.53,Q.00,
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1.'Assuming Pepper,Conipany acquired:70o/o of the outstanding'common stock of Steak Company for
P105,000 and Non-cohtrolling. interest. is measured at fair value of P61,000, how much is the
goddwill (Oafn o.1 ,acquisitionf. ,.
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P(17,0001
P17,000
P23,100
D.
P(23,100)
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Assuming Pepper Company acquired B0o/o of the outstanding common stock of Steak Company for
P136,800 and Non-controlling inierest is measured at Non-controlling interest's proportionate share
of Steak Company's ldentifiable net assets, how much is the consolidated stockholder's equity on
the date of acquisltion?
A. P1,410,000
B. P1,419,600
c,
D.
?
PL,446,600
P1,456,200
Assumlng Pepper Company acquired 90o/o of the outstbnding common stock of Steak Company for
P243,000
and Non-controlling interest is measured at fair value, how much is the total
acquisition? r,
consolidated assets on the date of
A.P1,542,000
B, P1,785,000
c. Pt,737,000
D.
P1,494,000
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PROBLEM 7.
Acquirer Company acquires 25o/o of Acqulred Company's comrfion stock for P190,00O cash and carries
the investment using the cost method. After three fnonths, Parent purchases another 600/o of
Subsidiary's cornmon stock for P540,000. On this date, acquired company reports identifiable net assets
with carrying value of P720,000 and fair value of P920,000. The liabilities of the acquired company has
a
book value and
a fair value of P280,000. The fair value of the
15o/o non-controlling interest is
P125,000.
How much is the goodwill or (gain on acquisition)
.A P(17,000)
B, P250,000
C; P(30.000)
D. P263,00d
PROBLEM 8.
Condensed statements of financial position of Care Corp; and Charm Corp. as
as
foflows:
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Care
Current assets
Noncurrent assets
Total assets
Liabilities
Common stocks, P20 par
Additional Paid-in capital
P
P225,000
P 122,500
P
P
16.2s0
137,500
750
Retained
s00
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Charm
16,250
106,250
P
43,750
181,250
of Decernber 31, 2012 are
8,750
75,000
6,250
32,500
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On January 1, 2013, Care Corp. lssued 8,750 stocks with a market value of PZ5/share for the assets
and liabilities df Charm Corp. The book value reflects the fair value of the assets and liabilities,
except that the .noncurrent assets of Charm has a temporary appraisal of P157,500 and the
noncurrent ass€t-i; of Care are overstate(.. by P7,500. Contingent consideration, which is
p8,500 and other
determinable, ts eqLal to p3,750. Care also
Wj-io, th,e stock isiuance costs worth
acquisition costs arhb{nting to P4,750,
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On March 1, 2013 thd"tontingent consideration hijs a determihable amount of P5,000. On :urlC
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2013, the provisional fair value of the noncurrent assets of Charm increased by
P2,250.
How much is the combined total assets at the end of 2013?
ts,
P435,500
P443,000
c.
P442,000
?
P4442s0
A,
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