ACCOUNTING REVIEW 4 BUSINESS COMBINATION

Problem A. P issued shares worth P2,550,000 for all shares of S. P incurred the following
costs:
Professional fees P27,000
Cost of SEC registration 12,000
Cost of printing and issuance of stocks 3,000
Book value Fair Value
Current assists 1,000,000 1,100,000
Plant assets 1,500,000 2,200,000
Liabilities 300,000 300,000
Ordinary shares 2,000,000
Retained earnings 200,000

1. Compute APIC
2. Compute expense

Problem B. Princess paid the following relation to business combination:

Finder’s fee P50,000

Legal and accounting fee 50,000
Cost of stockholder’s meetings 20,000
SEC registration of business combination 15,0000
General and administrative costs 15,000
Cost of listing of shares 10,000
Cost of printing stock certificate 10,000
Accounting fee related to stock issues 20,000
SEC registration 20,000
Underwriting costs 20,000

3. Compute the expenses

4. Compute the amount chargeable to APIC

Problem C. The Statement of Financial Position of Angela on June 30, 2017 shows total
assets at P450,000 and liabilities at P87,500.

All the assets and the liabilities of Angela assumed to approximate their fair values
except for land and building. It is estimated that the fair values of the land and
building be increased by P130,000 and P80,000 respectively. Papa Jerwin acquired 80% of
Angela’s capital stock for P500,000.

5. Assuming the consideration paid includes control premium of P142,000, how much is the
goodwill/(gain of bargain purchase) on the consolidated financial statement?

6. Assuming the consideration paid excludes control premium of P23,000 and the fair value
of the non-controlling interest is P122,750, how much is the goodwill/(gain of bargain
purchase) on the consolidated financial statement?

7. Assuming the consideration paid includes control premium of P37,000, how much is the
goodwill/(gain of bargain purchase) on the consolidated financial statement?

Problem D. K acquired 80% of L for P500,000. Land is undervalued by P130,000 and building
by P80,000. Book value of L’s net assets is P362,500. A control premium of P23,000 was
paid. The FV of the NCI is at P122,750.
8. Compute the goodwill.

Problem E. Acquirer Corporation acquires 25% of Acquired Company’s common stock for
P190,000 cash and carries the investment using the cost method. After three months,
Parent purchases another 60% of Subsidiary’s common 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 15% non-controlling interest is P125,000.
9. How much is the goodwill or (gain on acquisition)

Problem F. X has 40% of its shares traded through PSE. Y purchased the 60% non-traded
share of X for P6,300,000. The Fair value of the 40% is at P4,000,000. The Fair value of
identifiable net asset and its carrying value are P7,000,000 and P5,000,000,
respectively.
10. Compute the goodwill.

Problem G. P purchased a 10% of S for P40,000 held as an FVTOCI. Additional shares were
purchased by P for P315,000. This brings P’s interest to 80%. The BV of S’ net assets is
at P340,000. An asset is undervalued by P50,000.
11. What is the goodwill?
12. What is the value of the NCI?

Second Semester A.Y. 2018 – 2019 K.T. TEGIO