BUSINESS COMBINATION

ACQUISITION OF NET ASSETS

1. On January 1, 2012, Marks Company purchased the net assets of Spencer Company by paying P 850,000 cash and
issuing shares of stocks at P 3,110,000 fair market value. Book value and fair value data on the Statement of Financial
Position on January 1, 2012 are as follows:

Marks Company Spencer Company

Book Value Fair Value Book Value Fair Value
Cash P 4,600,000 P 4,600,000 P 300,000 P 300,000
Accounts Receivable 1,000,000 1,000,000 980,000 980,000
Inventory 1,500,000 1,300,000 710,000 600,000
Building & Equipment, net 1,800,000 1,460,000 1,520,000 1,064,000
Goodwill - - 90,000 80,000
TOTAL ASSETS 8,900,000 8,360,000 3,600,000 3,024,000
========== ========== =========== =========
Liabilities P 1,000,000 P 1,000,000 P 570,000 P 570,000
Capital Stock 1,600,000 600,000
Additional paid in capital 900,000 960,000
Retained Earnings 5,400,000 1,470,000_
TOTAL LIAB & SHE 8,900,000 3,600,000
========== ==========
Marks incurred and paid legal and brokerage fees of P 25,000 for business combination; stocks issuance cost of P
23,000 and Pn 12,000 indirect acquisition costs. It is determinable that contingency fee of P 11,800 would be paid
within the year.
I. Total assets after the business combination
a. P 11,991,200 c. P 12,531,200
b. P 13,381,200 d. P 12,351,200

II. Stockholders’ equity after the business combination

a. P 7,900,000 c. P 10,937,600
b. P 11,010,000 d. P 10,949,400

2. A condensed Statement of Financial Position at August 31, 2012 and related current fair value data for Apple
Company are presented below;

Apple Company
Statement of Financial Position
August 31, 2012
Carrying Amount Fair Value
Assets:
Current assets P 368,000 P 404,000
Plant assets 592,000 690,000
Patent, net 58,500__ 48,000
Total Assets 1,019,000

Liabilities & SHE:

Current liabilities P 107,500 P 107,000
 Long term debt 280,000 297,500
Capital stock, P 20 par 210,000
Retained earnings 421,500__
Total Liabilities and SHE 1,019,000

On September 1, 2012, Eve Corporation issued 10,700 shares of its P 24 par value common stocks (current fair value
P 33 per share) and P 145,000 cash for the net assets of Apple Company. Of the P 47,500 out of pocket costs paid by
Eve on September 1, 2012, P 26,500 were indirect costs and the remainder were legal fees and finder’s fees related
to the business combination.

I. How much is the net increase in the stockholders equity in the books of the surviving company as a result of the
business combination?

a. P 592,000 c. P 518,500

b. P 545,000 d. P 496,200

3. The following are the Statement of Financial Position of Top and Shop Corporation as of December 31, 2011:

Top Shop
Cash P 150,000 P 10,000
Receivable 35,000 7,500
Inventories 40,000 12,500
Land 37,500 50,000
Building, net 110,000 50,000
Equipment, net 75,000_ 120,000_
Total Assets P 447,500 P 250,000
========== ==========
Accounts payable P 92,500 P 30,000
Ordinary shares, P 10 par 250,000 100,000
Share premium 25,000 70,000
Retained Earnings 80,000_ 50,000_
Total Liabilities & SHE P 447,500 P 250,000
========== ===========
Top decided to acquire the net assets of Shop on January 1, 2012. Top will issue 9,500 ordinary shares with market
value of P 17 per share and cash purchase price of P 14,000, Shop will be dissolved. The book values reflect fair values
except for building of Top, which has a net realizable of P 21,000 and P 64,000 respectively. Top also paid for the cost
of registering and issuing securities amounting to P 7,500, direct costs of combination amounting to P 11,000 and
indirect costs amounting to P 5,000.

I. How much is the total assets after the combination?

a. P 720,000 c. P 722,000
b. P 706,000 d. P 682,500

II. How much is the total shareholders’ equity after the combination?
a. P 516,000 c. P 560,000
b. P 509,000 d. P 493,000