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ACQUISITION OF NET ASSETS AND ACQUISITION OF STOCKS
PROBLEM 1.
STAR Corporation is a company involved in manufacturing cars. On January 1, 2013,
the board of directors of the said company has decided to acquire the net assets of
NOVA Corporation and RISE Corporation, suppliers of materials they use in
production. The merger is expected to result in producing higher quality cars with
lower total cost.
The deal was closed on February 29, 2013 and the following information was
gathered from the books of the entities:
Current Assets
Noncurrent Assets
Total Assets

STAR
P1,375,000
3,125,000
P4,500,000

NOVA
P390,000
2,550,000
P2,940,000

RISE
P260,000
1,700,000
P1,960,000

Liabilities
Common stock, P100 par
Additional Paid-in capital
Retained earnings
Total equity & liability

P325,000
2,748,500
176,500
1,250,000
P4,500,000

P210,000
1,780,200
169,800
780,000
P2,940,000

P140,000
1,186,800
113,200
520,000
P1,960,000

Star will issue 22,500 of its common stock in exchange for the net assets of Nova
and 11,200 of its common stock in exchange for the net assets of Rise. The fair
value of Stars shares is P150. In addition, the following adjustments should be
made:

Current assets of Nova and Rise have a fair value 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 of acquisition:
Stockholders equity
A. P6,118,500
B. P7,980,000
C. P3,496,500
D. P9,615,000
Assets
A. P10,290,000
B. P9,240,000
C. P10,500,000
D. P9,840,000
PROBLEM 2.
Denim Co. merged into Kraft Corp. on July 1, 2013. In exchange for the net assets at
fair market value of Denim Co. amounting to P696,450, Kraft issued 68,000 common
shares at P9 par value with a market price of P12 per share.
Out of pocket costs of the combination were as follows:
Legal fees for the contract of business
combination
Audit fee for SEC registration of stock issue
Printing costs of stock certificates
Brokers fee
Accountants fee for pre-acquisition audit
Other direct cost of acquisition
General and allocated expenses
Listing fees in issuing new shares
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P35,600
90,000
14,500
23,600
80,000
75,000
43,000
36,000

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Denim will pay an additional cash consideration of P455,000 in the event that
Krafts net income will be equal or greater than P950,000 for the period ended
December 31, 2013. At acquisition date, there is a high probability of reaching the
target net income and the fair value of the additional consideration 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 recognized in the statement of financial
position as of December 31, 2013?
A. P295,450
B. P308,500
C. P314,550
D. P326,550
What is the amount of expense to be recognized in the statement of comprehensive
income for the year ended December 31, 2013?
A. P257,200
B. P517,200
C. P307,400
D. P412,500
PROBLEM 3.
On October 1, 2013, Winner Corporation acquired all the assets and assumed all the
liabilities of Getter Company by issuing 20,000 shares with a fair value of P67.5 per
share and an obligation to pay a contingent consideration with a fair value of
P750,000.
In addition, Winner paid the following acquisition related costs:
Legal fees
Audit fee for SEC registration of stock
issue
Costs of stock certificates
Brokers fee
Other direct cost of acquisition
General and allocated expenses

P 105,600
320,400
35,000
49,000
50,000
14,000

The Statement of Financial Position as of September 30, 2013 of Winner and Getter,
together with the fair market value of the assets and liabilities are presented below:
Winner
Book value
Fair value
Cash
Accounts Receivable
Inventories
Prepaid expenses
Land
Building
Equipment
Goodwill
Total Assets

P640,000
360,000
475,000
25,000
2,000,000
800,000
700,000
5,000,000

P640,000
335,000
390,000
2,900,000
900,000
585,000
5,750,000

Accounts Payable
Notes payable
Capital stock, P50 par
Additional paid in
capital
Retained earnings

312,500
937,500
2,000,000
1,000,000

312,500
980,000

750,000

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Getter
Book
Fair value
value
P45,000
P45,000
70,000
54,000
87,000
78,000
13,500
5,000
900,000 1,550,000
723,000
768,000
361,500
360,000
300,000
2,500,000 2,860,000
200,000
700,000
850,000
400,000
350,000

200,000
765,000

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Total Liability & Equity

5,000,000

2,500,000

Compute for the balances that will be shown on the October 1, 2013 statement of
financial position of the surviving company:
Retained earnings
A. P480,000
B. P540,000
C. P526,000
D. P475,000
Total Assets
A. P7,015,000
B. P6,980,000
C. P7,118,000
D. P7,491,000
PROBLEM 4.
The Statement of Financial Position of Luster Corporation on June 30, 2013 is
presented below:
Current assets
P32,500
Land
220,000
Building
110,000
Equipment
87,500
Total Assets
P450,000
Liabilities
Capital stock, P5 par
Additional paid in capital
Retained earnings
Total equities

87,500
150,000
137,500
75,000
P450,000

All the assets and liabilities of Luster assumed to approximate their fair values
except for land and building. It is estimated that the land have a fair value of
P350,000 and the fair value of the building increased by P80,000.
Kernel Corporation acquired 80% of Lusters capital stock for P500,000.
Assuming the consideration paid includes control premium of P142,000, how much
is the goodwill/(gain on acquisition) on the consolidated financial statement?
A. P60,000
B. P48,000
C. P42,000
D. P50,000
Assuming the consideration paid excludes control premium of P23,000, and the fair
value of the noncontrolling interest is P122,750, how much is the goodwill/(gain on
acquisition) on the consolidated financial statement?
A. P78,250
B. P73,250
C. P69,500
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. P43,250
B. P73,250
C. P56,750
D. P68,350

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PROBLEM 5.
Better Company has gained control over the operations of Calm Corporation by
acquiring 85% of its outstanding capital stock for P2,580,000. This amount includes
a control premium of P30,000. Acquisition expenses, direct and indirect, amounted
to P83,000 and P42,000 respectively.
Better
Calm
Book Value
Book Value
Fair Value
Cash
P3,541,500
P128,000
Accounts receivable
300,000
325,000
Inventories
550,000
360,000
Prepaid expenses
148,500
125,000
Land
2,350,000
879,000
Building
1,560,000
558,000
Equipment
300,000
185,000
Goodwill
0
300,000
Total Assets
P8,750,000
P2,860,000
Accounts Payable
Notes payable
Capital stock, 50 par
Additional paid in capital
Retained earnings
Total equities

675,000
1,400,000
3,400,000
1,575,000
1,700,000
P8,750,000

253,000
730,000
800,000
600,000
477,000
P2,860,000

The following was ascertained on the date of acquisition for Calm Corporation:

The value of receivables and equipment 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.
There was an unrecorded accounts payable amounting to P27,000 and the fair
value of notes is P738,000.

Compute for the following balances to be presented in the consolidated statement

of financial position at the date of business combination:
Total Assets
A. P9,875,000
B. P10,093,000
C. P10,112,000
D. P9,215,000
Total Shareholders Equity
A. P7,000,000
B. P7,500,000
C. P8,200,000
D. P8,000,000
PROBLEM 6.
On January 2, 2013, the Statement of Financial Position of Pepper and Steak
Company prior to the combination are:
Pepper Co.
Steak Co.
Cash
P450,000
P 15,000
Inventories
300,000
30,000
PPE, net
750,000
105,000
Total Assets
P1,500,000
P150,000
Current Liabilities
Common stock, P100 par
Additional Paid in capital
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P 90,000
150,000
450,000

P 15,000
15,000
30,000

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Retained earnings
Total Liabilities and Stockholders equity

810,000
P1,500,000

90,000
P150,000

The fair value of Steak Companys equipment is P153,000.

Assume the following independent cases:
1. Assuming Pepper Company acquired 70% of the outstanding common stock of
Steak Company for P105,000 and Non-controlling interest is measured at fair
value of P61,000, how much is the goodwill (gain on acquisition)?
A. P(17,000)
B. P17,000
C. P23,100
D. P(23,100)
2. Assuming Pepper Company acquired 80% of the outstanding common stock of
Steak Company for P136,800 and non-controlling interest is measured at noncontrolling interests proportionate share of Steak Companys identifiable net
assets, how much is the consolidated stockholders equity on the date of
acquisition?
A. P1,410,000
B. P1,419,600
C. P1,446,600
D. P1,456,200
3. Assuming Pepper Company acquired 90% of the outstanding common stock of
Steak Company for P243,000 and Non-controlling interest is measured at fair
value, how much is the total consolidated assets on the date of acquisition?
A. P1,542,000
B. P1,785,000
C. P1,737,000
D. P1,494,000
PROBLEM 7.
Acquirer Company acquires 25% of Acquired Companys common stock for
P190,000 cash and carries the investment using the cost method. After three
months, Parent purchases another 60% of Subsidiarys 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.
How much is the goodwill or (gain on acquisition)?
A. P(17,000)
B. P250,000
C. P(30,000)
D. P263,000
PROBLEM 8.
Condensed statements of financial position of Care Corp. and Charm Corp. as of
December 31, 2012 are as follows:
Current Assets
Noncurrent assets
Total assets
Liabilities
Common stocks, P20 par
Additional paid in capital
Retained earnings

Care
P 43,750
181,250
P225,000

Charm
P 16,250
106,250
P122,500

P 16,250
137,500
8,750
62,500

P8,750
75,000
6,250
32,500

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On January 1, 2013, Care Corp. issued 8,750 stocks with a market value of
P25/share for the assets and liabilities of 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 assets of Care are
overstated by P7,500. Contingent consideration, which is determinable, is equal to
P3,750. Care also paid for the stock issuance costs worth P8,500 and other
acquisition costs amounting to P4,750.
On March 1, 2013, the contingent consideration has a determinable amount of
P5,000. On June 1, 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?
A.
B.
C.
D.

P435,500
P443,000
P442,000
P444,250
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