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Chapter 14

Problem I
1. Consideration transferred : FMV of shares issued by Robin (80,000 sh × P28) = P2,240,000

2. Consideration trasnferred P2,240,000
Less: Fair value of Hope’s net assets (P2,720,000+P200,000–P1,200,000) 1,720,000
Goodwill P 520,000

Problem II
1.. Accounts Receivable 180,000
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
Goodwill 10,000
Acquisition Expense 20,000
Current Liabilities 70,000
Long-term Debt 160,000
Cash 580,000
Consideration trasnsferred : Cash P560,000
Less : Fair value of West’s net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
– P70,000 - P160,000) 550,000
Goodwill P 10,000

2. Acquisition related-expenses 20,000
Accounts Receivable 180,000
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
Current Liabilities 70,000
Long-term Debt 160,000
Cash 520,000
Gain on Acquisition 50,000

Consideration trasnsferred : Cash P500,000
Less : Fair value of West’s net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
– P70,000 - P160,000) 550,000
Bargain Purchase Gain (P 50,000)

Problem III
Accounts Receivable (net of P33,000 allowance) 198,000
Inventory 330,000
Land 550,000
Buildings and Equipment 1,144,000
Goodwill 848,000

Current Liabilities 275,000
Bonds Payable 450,000
Premium on Bonds Payable (P495,000 - P450,000) 45,000
Preferred Stock (15,000 x P100) 1,500,000
Common Stock (30,000 x P10) 300,000
PIC - par (P25 - P10) x 30,000 450,000
Cash 50,000

Consideration transferred: (P1,500,000 + P750,000
+ P50,000) P2,300,000
Less: Fair value of net assets (198,000 + 330,000 +
550,000 + 1,144,000 – 275,000 – 495,000) = 1,452,000
Goodwill P 848,000

Problem IV
Current Assets 960,000
Plant and Equipment 1,440,000
Goodwill 336,000
Liabilities 216,000
Cash 2,160,000
Estimated Liability for Contingent Consideration 360,000

Problem V
The amount of the contingency is P500,000 (10,000 shares at P50 per share)
1. Goodwill 500,000
Paid-in-Capital for Contingent Consideration - Issuable 500,000

2. Paid-in-Capital for Contingent Consideration – Issuable 500,000
Common Stock (P10 par) 100,000
Paid-In-Capital in Excess of Par 400,000
Platz Company does not adjust the original amount recorded as equity.

Problem VI
1. January 1, 20x4
Accounts Receivable (net) 65,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Accounts Payable 83,000
Note Payable 180,000
Cash 720,000
Estimated Liability for Contingent Consideration 135,000

Consideration transferred (P720,000 + P135,000) P855,000
Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill P 54,000

2. January 2, 20x6
Estimated Liability for Contingent Consideration 135,000

000 Long-term Debt 491.000 Goodwill 200.000 Goodwill 230.000 + P5.000 Gain on Contingent Consideration 135.000 + P20.000 Goodwill 30.000 – P870.000 Consideration transferred (2.000 Gain on Contingent Consideration 200.000 Inventory 320.570.000 Long-term Assets (P1.000 3.000 Goodwill * 395.000) 2.440.000 Allowance for Uncollectible Accounts 20.392.000 Estimated Liability for Contingent Consideration 200.000 Note Payable 600.000)…….000 Land 1.000  P5) 720.000 Accounts Payable 270..000) 2. Estimated Liability for Contingent Consideration 200. 20x6 Estimated Liability for Contingent Consideration 135.600.P2.000 – P870. alternatively: Accounts Receivable 240.000 Buildings 1..000 Cash 2.000 Fair value of net assets acquired (P3.000 Buildings 1.000 2.600.000 Land 1.000 Note Payable 600.. Cash 135.600.000 + 200.508.392.800.000 Consideration transferred P2.000)……………….000 Liabilities 119.000) + (P98.000 Inventory 320.570.000 Common Stock (144.440.000 Problem VII 1.000 Goodwill……………………………………………………………….600.000 Accounts Payable 270.000 Estimated Liability for Contingent Consideration 200.000 . 2.890.000 Problem VIII Current Assets 362.000 Cash 2. January 2.000 Or.013.508. Accounts Receivable (net) 220.P 230.000 Fair value of net assets acquired (P3.000 Goodwill P 30.

20 periods @ 6%: 11.000 P30.000 is technically considered a bargain. Goodwill would be P50.000P15) = P2.000 5.3118 x P600.098 Total Present value 531.000 40.000 2.013.000 Discount on bonds payable P68. Anything below P450.000 * (144.000 40.000 P20.000 – (P119.000 Less: Fair Value of Net Assets 90.000 0 Case B 20. regardless of the purchase price. 5.000 Consideration transferred above which goodwill would result P450. 20 periods @ 6%: 0.000 Goodwill P 20. 4.000 Goodwill P 10.000 at a purchase price of P500.000 + P2.000. PIC .000 Case B Consideration transferred P110.000 Gain (P 5.000 20.178 Par value 600.000 = P400.P5)) 1.000 or (P450.000 Total shares issued (P700.000 = 344.000)] = P395.000 0 Case C 0 20.000 = P187.000) Assets Liabilities Retained Goodwill Current Assets Long-Lived Assets Earnings (Gain) Case A P10. A gain would be shown if the purchase price was below P450. Problem XI Present value of maturity value.000 + P50.000 / P5) 144.000 P130.000 80.000 Less: Fair Value of Net Assets 120.000 Case C Consideration transferred P15.000 + P491.822 .000 P15) – [P362. Equipment would not be written down.000 x P15 .000 / P5) + P20.440.000 Problem IX Case A Consideration transferred P130.000) = 50. 3.000 Problem X 1.000 Write up of Inventory and Equipment: (P20.000 + P30.000).000 – P100.000 Less: Fair Value of Net Assets 20.46992 x 30.par (144.080 Present value of interest annuity.000 Fair value of stock issued (144. unless it was reviewed and determined to be overvalued originally. Fair Value of Identifiable Net Assets Book values P500.160.000 30.

350 Excess of fair value of net assets over cost (P 81.000 Trademarks 225.000 (To record merger with OTG at fair value) PIC .000 + P600.000 .000 Entry by NT to record combination with OTG: Cash 29.900 Equipment 39.478 Less: Total fair value of assets received P968.000 Accounts payable (34.000 Goodwill P27.000 Equipment 105.000 Gain on Acquisition of Stalton (ordinary) 81.000 Capitalized R&D 200. the fair value of the acquisition is allocated to each identifiable asset and liability acquired with any remaining excess attributed to goodwill.000 Equipment 105.000 Notes Payable 45.Cash 114.822 Current Liabilities 95.000 + P68.300 and P260.000 Receivables 63.000 Accounts Receivable 135.000 Accounts Payable 34.000) 900.par 690.450 Bond Discount (P40.300 Bonds Payable (P300.par 25.822) 108.178 plus liabilities assumed of P95.000 Goodwill 27.872 Computation of Excess of Net Assets Received Over Cost Consideration transferred (P531.000 Inventory 310.000 Receivables 63.000 Common Stock (NewTune par value) 60.000 Record Music Catalog 180.000) Notes payable (45.000) P886.000 Trademarks 225.872) Problem XII In accounting for the combination of NT and OTG.000 In-process R&D 200.000 Record music catalog 180.000 Buildings 54.000 Cash 25.000 Fair value of net assets acquired: Cash P29. Consideration transferred (shares issued) P750.000 Land 315.000 PIC .000) 723.

000.000 Receivables and inventory 180.000 + P100.000 Accounts payable P 144.000 Record music catalog 1.800.000 x P15) 750.000 x P5) 250.090.000 Contingent performance obligation 62.000 Cash 9.500 The goodwill is computed as: Consideration transferred: 50.000 PIC .000 .000 Contingent consideration: P130.000] Retained Earnings 600.000 IPRD 100.000 + P600.000 Equipment 425.000 Capitalized R&D 200. P1 par P1.000 PPE 600.000 Goodwill 27.500 Total P1. (Stock issue costs incurred) Post-Combination Balance Sheet: Assets Liabilities and Owners’ Equity Cash P 64.500 Acquisition related-expenses 15.000 Receivables 213.500 Liabilities 180.000) 985.000 Notes payable 415.000 Total stockholders’ Equity P 5.000 Goodwill 77.000 Problem XIII Stockholders’ Equity: Common Stock.000 Paid-In Capital in excess of par (50.000 Other Contributed Capital 4.961538 62.000 + P200.000 Total P 2.790.000 Retained earnings 860.P180.062.000 Problem XIV Entry to record the acquisition on Pacifica’s records: Cash 85.000 shares x P20 P1.000 Trademarks 200.000 [P2.000 Cash 15.000 Common Stock (50.par 9.000 payment x 50% probability x 0.000 + P180.000 Total P 2.000 Trademarks 625.par 695.000 + (100.100.000 .574.020.500 Less: Fair value of net assets acquired (P85.000 Common stock 460.000 x P13) – P10.000 Paid-in capital .574.000 Goodwill P 77.

000 Notes payable 180.000 Land 240.000 Equipment 25. Common shares: 30.000 Estimated Liability for contingent Consideration 15.000 Less: Fair value of identifiable assets acquired and liabilities assumed: Cash P 24.000 Contingent consideration (cash contingency): P120. 1/1 (950. 12/31 *(1. a.000 Retained earnings.000 Goodwill 33.000 Goodwill P33.000 Acquisition related-expenses 10.000 Cash 10.000) Retained earnings.000 Current liabilities 10.000 Problem XVI 1.000) Net income (310.000 Net income (310.000 IPRD 30.000 Inventory 70.000) Expenses (P875.000 Estimated liability for contingent consideration 15.000 Inventories 72.000 Buildings 115.000 Consideration transferred (fair value) 315.170. The computation of goodwill is as follows: Consideration transferred.000 shares x P25 P 750.000 Customer list 22. P1.000 .000) 890.000 = P1.000) * or.000 – P15.Note: The following amounts will appear in the income statement and statement of retained earnings after business combination: PP Inc.000 Total P 966.000) Dividends paid 90.170.000 Receivables 80.000 Long-term liabilities 50.000 Receivables – net 48.000 + P15.000 Cash 300.200.185. Revenues (1.000 Buildings – net 360.000 Problem XV Acquisition Method—Entry to record acquisition of Sampras Consideration transferred P 300.000 Equipment – net 300.000 Fair value of net identifiable assets 282.000 x 30% probability 36.

20x4 . c.000 Other liabilities 168.000) Other liabilities ( 168. The balance sheet of Pure Corporation immediately after the acquisition is as follows: Pure Corporation Balance Sheet December 31.000 Paid-in capital in excess of par [(P25 – P10) x 30.000 Buildings – net 360.000) 864.000 Equipment – net 300.000 shares] 450.000 In-process research and development 60.600 Cash 27. Paid-in capital in excess of par 32.000 b.000 Accounts payable 62.600 Acquisition related costs – indirect costs.000 Goodwill 102. Acquisition-related expenses 78.000 Land 240.000 Receivables – net 48. Acquisition-related expenses 27.000 Notes payable 180.000 Acquisition of Saul Company.000 Accounts payable ( 72.000 Acquisition related costs – direct costs.000 Positive Excess – Goodwill P 102. In-process research and development 60. The journal entries by Peter Corporation to record the acquisition is as follows: Cash 24.000 Cash 78.000 Inventories 72.000 Estimated Liability for Contingent Consideration 36.400 Cash 32.400 Acquisition related costs – costs to issue and register stocks.000 Common stock (P10 par x 30.000 shares) 300.

P10 par P 1. the entry to adjust the liability would be: Goodwill 24.000 (P102.000 1 P240.000 Adjustment to goodwill due to measurement date. a.000 Buildings – net 840.600 Retained earnings2 158.400 – P32.000 Other liabilities 408.000). Therefore.020.000 . Buildings 24. b.000 Adjustment to goodwill due to measurement date.000 Liabilities and Stockholders’ Equity Liabilities Accounts payable P 288.000 Total Liabilities and Stockholders’ Equity P2.400 Total Stockholders’ Equity P1. a. The goodwill to be reported then on the acquisition should be P126.000 Notes payable 180.748.000 Receivables – net 144.000 Stockholders’ Equity Common stock. eight months) from the acquisition date. in-process R&D is measured and recorded at fair value as an asset on the acquisition date.000 + P24. Assets Cash P 162.000 Land 348. 2.P78.000 In-process research and development 60.000 + P446.e.000 Inventories 360. the goodwill to be reported then on the acquisition should be P78. The adjustment is still within the measurement period.000 Estimated liability for contingent consideration 24. 3.000 Goodwill 102.000 Goodwill 24.748.000 Estimated liability for contingent consideration 36. .000 – P24.000).000 Total Liabilities P 912. The adjustments affect goodwill since the measurement period is still within one year (i. Assets that have been provisionally recorded as of the acquisition date are retrospectively adjusted in value during the measurement period for new information that clarifies the acquisition-date value.000 – P27.000 Total Assets P2.400 2 P264.000 (P102.. b. This requirement does not extend to R&D in contexts other than business combinations.600 It should be noted that under PFRS 3.000 Equipment – net 732.000 Paid-in capital in excess of par1 657.836.

1. c.000 Loss on estimated contingent consideration 42. c.000 Settlement of contingent consideration.3. a. Common shares: 30.1. 20x5.385 b. The journal entries by Pure Corporation to record the acquisition is as follows: Cash 24. since the change of estimate should be done only once (last August 31.000 Contingent consideration (cash contingency): P120. 20x5). Peter Corporation will make the following entry: Estimated liability for contingent consideration 78.000 .385 Less: Fair value of identifiable assets acquired and liabilities assumed (refer to 1a above) 864.04]*) 40.3.3.000 x 35% probability x (1/[1 + .000 Notes payable 180. 20x5). c. The goodwill remains at P126.000 Cash 120.000 Gain on estimated contingent consideration 12.3. 20x7.000 Adjustment after measurement date.000 and 20x6 is P260.000. c.1. On January 1.000 Adjustment after measurement date. 4.000 Goodwill P 106.3.3. c. c.3. the entry would be: Loss on estimated liability contingent 30.2.385 Total P 970. the entry to adjust the liability would be: Estimated liability for contingent consideration 12.2.2. c. the probability value of the contingent consideration amounted to P48. In this case. or  the date when the acquirer receives needed information about facts and circumstances (or learns that the information is unobtainable) to consummate the acquisition.3. P126. c.000.000. since the change of estimate should be done only once (last August 31.000 Land 240. On December 15. The amount of goodwill on acquisition will be recomputed as follows: Consideration transferred. c. On November 1.000 shares x P25 P 750. Saul’s average income in 20x5 is P270.000 Receivables – net 48.000 consideration Estimated liability for contingent consideration 30.000 Inventories 72. The goodwill remains at P126.000.3. which means that the target is met. the measurement period ends at the earlier of:  one year from the acquisition date. 20x5.000.

000 Equipment – net 300. c. The journal entries by Pure Corporation to record the acquisition is as follows: Cash 24.385 Common stock (P10 par x 30.000)/2 – P30. Buildings – net 360. 20x5 to record such occurrence would be: Estimated liability for contingent consideration 40. a.000 Goodwill 106.000 Contingent consideration (stock contingency) 18.1.386 Accounts payable 62. c.000] x 2 102.000 Total P 984. 5.000 Estimated Liability for Contingent Consideration 40.000 shares) 300. the position taken by PFRS 3 is that the conditions that prevent the target from being met occurred in a subsequent period and that Peter had the information to measure the liability at the acquisition date based on circumstances that existed at that time.000 .000 Other liabilities 168.000 Notes payable 180. The entry by Peter Corporation on January 1.000 Buildings – net 360.000 Equipment – net 300. Since the contingent event does not happen. The amount of goodwill on acquisition will be recomputed as follows: Consideration transferred.000 Inventories 72.000 c.000 x 30% probability 36.000 Loss on estimated contingent consideration 66.000 Less: Fair value of identifiable assets acquired and liabilities assumed (refer to 1a above) 864.385 Adjustment after measurement date. Goodwill remains at P106.000 In-process research and development 60.000 + P84.000 shares] 450.2. Common shares: 30.000 Contingent consideration (cash contingency): P120. d.000 Paid-in capital in excess of par [(P25 – P10) x 30.000 Cash [(P78.000 Notes payable 180. Thus the adjustment will flow through income statement in the subsequent period. The entry for Pure Corporation on December 31.000 shares x P25 P 750.000 Positive Excess – Goodwill P 120.000 Settlement of contingent consideration.385 Gain on estimated contingent consideration 40. 20x7 for the payment of the contingent consideration would be: Estimated liability for contingent consideration 36.000 Receivables – net 48.385.000 Land 240.000 b.

Common shares: 30. 7. In-process research and development 60. the entry record the occurrence of such event to reassign the P750.000 Contingent consideration (stock contingency): [(P750.500 shares) 75. 6.000 original consideration to 36.000 Other liabilities 168. 20x7.000 Paid-in capital for Contingent Consideration 18.000 original shares issued + 6.000 Settlement of contingent consideration. Thus.000 additional shares due to contingency) would be: Paid-in capital in excess of par 60. P150.000 (the contingent event occurs).000 Positive Excess – Goodwill P 158.200 shares) 12.000 Common stock (P10 par x 6.04]*) 92. 20x7. the entry record the occurrence of such event to reassign the P750. the contingent event happens since the fair value per share fall below P25.000 Notes payable 180.000 Goodwill 120.000 shares) 60.000 Accounts payable 72.000 Settlement of contingent consideration.P 20 Added number of shares to issue………………………………. 7. On January 1.000 Divide by fair value per share on January 1.200 additional shares: Paid-in capital for Contingent Consideration 18. c.500 shares (30. 20x7………….000 Receivables – net 48.000 shares x P25 P 750. The amount of goodwill on acquisition will be recomputed as follows: Consideration transferred. The journal entries by Pure Corporation to record the acquisition is as follows: Cash 24.000 Common stock (P10 par x 7. the average income amounted to P132.000 shares (30.000 – P510.000 Paid-in capital in excess of par 6.500* additional shares due to contingency) would be: Paid-in capital in excess of par 75.500 8.000) x 40% probability x (1/[1 + .308 Less: Fair value of identifiable assets acquired and liabilities assumed (refer to 1a above) 864.000 shares) 300. * Deficiency: (P25 – P20) x 25.308 * present value of P1 @ 4% for one period.000 shares issued to acquire.000 Estimated Liability for Contingent Consideration 36.000 .308 Total P1.022.000 Notes payable 180. Thus. On January 1.000 original consideration to 37.000 Common stock (P10 par x 30.000 Additional paid-in capital [(P25 – P10) x 30.000 shares] 450.000 original shares issued + 7. Pure Corporation will make the following entry for the issuance of 1..000 Settlement of contingent consideration.000 Common stock (P10 par x 1.000 Acquisition of Saul Company.

440.000 Paid-in capital in excess of par[(P25 – P10) x 30.380. The computation of bargain purchase gain is as follows: Consideration transferred.000 original shares issued + 7.000 On December 31.308 Common stock (P10 par x 25.000 Contingent consideration (P12.440.000 Land 240.540.000 Equipment – net 300.308 Accounts payable 62.P150. Cash P 1. 20x5……P 20 Added number of shares to issue……………………………… 7.000 Notes payable 180.000 Buildings – net 360.500 shares (30. * Deficiency: (P25 – P20) x 30.400 to vendors) 26.000 Goodwill 158.000 Other liabilities 168..000 shares issued to acquire.000 shares) 300.000 Accounts receivable 900. wherein Peter’s stock price had fallen to P20. The journal entries by Ponder Corporation to record the acquisition is as follows: Merchandise inventory 1.000 Patent 240.500* additional shares due to contingency) would be: Paid-in capital for Contingent Consideration 92.000 Copyrights 240.600) 2.000 Paid-in capital in excess of par 17.000 Costs of liquidation 12. P10 par 75.000 Equipment 1. 20x5 to record such occurrence such event to reassign the P750.518.000 Common shares: 120.400 Total P3.000 guarantee + P14..000 Paid-in capital for Contingent Consideration 92.308 Common stock.000 shares] 450. 20x5.000 In-process research and development 60.380.000 Divide by fair value per share on December 31.000 Accounts payable ( 300. Inventories 72.000 Negative Excess – Bargain Purchase Gain P ( 21.440.308 Settlement of contingent consideration. The entry for Peter Corporation on December 31.. the contingent event occurs.500 Problem XVII 1.000 shares x P12 1. thus requiring Peter to issue additional shares of stock to the former owners of Saul Corporation.000 .800.000 Accounts receivable 900.000 Equipment 1.000) Loan payable ( 120.000) 3.400 Less: Fair value of identifiable assets acquired and liabilities assumed: Merchandise inventory P1.000 original consideration to 37.000 Patent 240.

700 Bargain Purchase Gain 29.000 Loan payable 120.000 Common stock (P10 par x 120.000 Additional paid-in capital 88. Consideration transferred: Shares: 2/3 x 60.700 Homer Ltd Accounts Receivable 34.000 Buildings 40.700 (Acquisition of net assets of Tan Ltd and shares issued) Payable to Tan Ltd 132.000 289.500 Liquidation expenses 2.000) 132.000 Cash Accounts payable 45.700 Inventory 39.000 shares) 1.000 Gain on sale of Patent 240.600 Problem XVIII 1.000 shares] 240.400 Bargain purchase gain 21.000 Cash 132.000 Freehold land 130.000 Less: Fair value of assets and liabilities acquired: Accounts receivable P34.000 Freehold Land 130.812.000 Paid-in capital in excess of par [(P12 – P10) x 120.000 Payable to Tan Ltd 132.200.200 Cash 1.000 Cash held (12.000 Plant and Equipment 46.000 x P3. P1 par x 40.000 Common stock.000 Cash 1.20 128.000 shares 40.000 Debentures and premium 52.700 Inventory 39.000 Plant and equipment 46.000 (Being payment of cash consideration) Paid-in capital in excess of par 1.000 Estimated liability for contingent consideration 26.000 260.100 Mortgage and interest 44.000 Buildings 40. Accounts payable 300.000 Gain on acquisition 29.200 (Being costs of issuing shares) .400 144.

000 – P54.000 Inventory 134.000 Receivable from Homer Ltd 260.000 Plant and Equipment 46.200 Cash 600.200 Allowance for Uncollectible Accounts 10.000 Less: Fair value of net assets acquired (P784.000 Accounts Payable 54.000 Problem XIX Cash 20.200 .000 Consideration transferred P600.000 Interest Payable 4.000 144.000 Bonds Payable 200.000 Mortgage and Interest 44.200*) 472.600 Shareholders’ Distribution 68.000 Freehold Land 100.000 Liquidation Expenses 2.P67.000 Deferred Income Tax Liability 67.000 .000 Accounts Receivable 112.000 Goodwill* 127.400 Premium on Debentures 2.000 128.700 Additional paid in capital 26.000 Buildings 30.800 Goodwill P127.000 Liquidation Expenses 2.000 Shareholders’ Distribution P P Shares in Homer Ltd 128.000 – P10.0000 128.600 Retained earnings 32.000 Discount on Bonds Payable 20.000 Common stock 60. Tan LTD General Ledger Liquidation P P Accounts Receivable 34.000 Debentures and Premium 52.500 Accounts Payable 45.100 144.800 Inventory 27.800 Liquidator’s Cash P P Opening Balance 12.000 Goodwill 2.500 Accounts Payable 1.000 Land 55.000 Liquidation 68.800 318.2.000 318.000 Plant Assets 463.400 Receivable from Homer Ltd 132.000 – P180.

.B32 (a)] Customer and subscriber lists are frequently licensed and thus meet the separability criterion.000 Total expenses…………………………………………………. 1 for further discussion.000 = P158. accounting.000 + P100.000 + P71. it needs to be remembered that all intangible assets must meet the identifiability criterion. licensed.000 Decrease bonds payable to fair value ( 20.000 + P25. a – at fair value 5. P 40. valuation and other professional or consulting fees. Acquisition-related costs are costs the acquirer incurs to effect a business combination..000 Acquisition-related costs.000) Increase in net assets P168. which may be associated with such assets as patent and software development. c – (P50. one part of which is separability. b – refer to No.000 Stock registration fees……………………………………………. rented or exchanged. [PFRS 3 (2008). and plant assets to fair value P52. i.. 13. and costs of registering and issuing debt and equity securities.. advisory. 2.000) The acquirer should recognize. It may seem that the terms “research” and “development”. [PFRS 3(2008). [PFRS 3 (2008). c 4. separately from goodwill.000 3. land. the acquirer is required to recognize acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received.000 x 40%) P 67. such as brand names. legal.. Audit fees related to stock issuance………………………………P10. are not applicable to all internally intangibles..000 Legal fees……………………………………………………….000 Establish deferred income tax liability (P168.. Under PFRS 3 (2008).. including the costs of maintaining an internal acquisitions department. 4.e.B33].. transferred. with one exception.. either individually together with a related contract…[PFRS 3(2008).. even though the acquirer cannot sell or otherwise transfer the lease contract.000 P 19. c Finder’s fees…………………………………………………….. the identifiable assets acquired in a business combination.000 Stock listing fees…………………………………………………. An intangible is separable if it capable of being separated or divided from the entity and sold. However. the costs to issue debt or equity securities are recognized in accordance with PAS 32 (for equity) and PAS 39 (for debt). * Increase in net assets Increase inventory.. general administrative costs. Those costs include finder’s fee.000) P148.200 Multiple Choice Problems 1. 5. P53. .B31] A patent that have no useful life is not considered an asset.000 + P8.B33] The amount by which the lease terms are favorable compared with the terms of current market transactions for the same or similar items is an intangible assets that meets the contractual-legal criterion for recognition separately from goodwill.

a PFRS 3 (2008 requires that.909091 = P45. P80.000 9. and …” 11.. the identifiable assets acquired and liabilities assumed should be designated as necessary to apply other PFRSs subsequently. 3 par.000 – P1. adjustments arising within the measurement period (a maximum of 12 months from the acquisition date) should be related back to the acquisition date.. per PFRS3 par 32. the acquirer shall account for the combination using those provisional values. at the acquisition date... .. The acquirer shall recognize any adjustments to those provisional values as a result of completing the initial accounting: (a) within twelve months of the acquisition date.. .000 x 1/1. liabilities.. 39..210. b The consideration transferred should be compared with the fair value of the net assets acquired. 12. 40 and 58..05) or P50. b Consideration transferred (fair value)……………………... as they exist at the acquisition date [PFRS 3 (2008).6. 20x5 = P25 million. 8.000  A net identifiable asset means net assets excluding goodwill (unidentifiable asset).. When provisional fair values have been identified at the first reporting date after the acquisition. even if it arises within the measurement period. the patent was not recorded separately as identifiable intangible asset on the date of acquisition.  An acquisition-related costs are considered outright expenses. The contingent consideration should be measured at its fair value at the acquisition date.000 x ½ = P50.15] Since.454 10.. b PFRS No. any subsequent change in this cash liability comes under PAS 39 Financial instruments: recognition and measurement and should be recognized in profit or loss.. and then no amount of patent should be subsequently recognized.. 62 states that: “If the initial accounting for business combination can be determined only provisionally by the end of the period in which the combination is affected because either the fair values to be assigned to the acquiree’s identifiable assets.600. 32..000 75. d – [P1. See PFRS 3 pars. 45 and 50..000 Less: Present value/ Fair Value of liabilities………… 23.000 Goodwill…………………………………………………… P 5.000] = P390. or contingent liabilities or the cost of the combination can be determined only provisionally. unless they can be classified as errors under PAS8 Accounting policies. 7. See PFRS 3 pars. a – (P100. per PFRS3 par. c Fair value of Subsidiary Consideration transferred………………………………………………………P 200 million Add: Fair value of contingent consideration……………………………… 10 million Fair value of subsidiary………………………………………………………… P 210 million Less: Fair value of identifiable assets and liabilities of Homer.000 Less: Fair value of net identifiable assets acquired: Fair value of assets……………………………………… P 98.… 116 million Goodwill…………………………………………………………………………… P 94 million Note: The consideration transferred should be compared with the fair value of the net assets acquired. The final amount of goodwill is P160 million consideration transferred less P135 million fair values on May 31. The acquirer makes those classifications or designations on the basis of contractual terms. changes in accounting estimates and errors.000 x 0. Subsequent adjustments are recognized in profit or loss.

500 Less: Market value of net assets acquired: Plant P 30.000 + P270. costs of liquidation paid by the acquiree should be for the liquidation account of the acquiree and will eventually be transferred to shareholders’ equity account.000 Goodwill P 2. parent only 15. Any direct costs of acquisition should be capitalizable under the cost model reiterated in PFRS No.000 = P464.000 + P270.50) + P500.000 Accounts payable (15.000 + (16.90) P 190.000 + [(P42 – P5) x12.000 14.000 = P520.000 17.000 Plant 125. . b – [P480. 3 in measuring the cost of the combination. incidental costs) P 60.000 Less: Market value of net assets acquired: Cash P 50.000 Land: P280.13.000 shares) – (P70. 3 will be amended under Phase II (pending implementation possibly until early 2008).000 + P210.000 Accounts payable ( 20. b Inventory: PP230.000 Furniture and fittings 20. b Cost of Investment [P20.000 + P90.000 + P90.000 + P240.000 16.000 + P210.000)] = P20. 3 Phase I. Costs of issuing shares will be debited to share premium or APIC account.000 Inventory 28.000 + P240. 3 in measuring the cost of the combination. d APIC: P20. Any costs of liquidation paid or supplied by the acquirer should be capitalized as cost of acquisition which is consistent with the cost model under PFRS No.000.000 shares x P2.000 Retained earnings: P160.000) 58. wherein all direct costs will be outright expense.000 – P420. Any costs of liquidation paid or supplied by the acquirer should be capitalized as cost of acquisition which is consistent with the cost model under PFRS No.000 Plant 20.000 + P210.500 When it liquidates.000) Current tax liability ( 8.000 Accounts receivable 5.000 = P440.000 shares x P1. a Cost of Investment (100.000 – (P70.000) 175. b – [(P47 x 12. This model in PFRS No.000 + P240.000) Liabilities ( 2.000 Goodwill P 15.000) = P104.000 Accounts receivable 5.000 18.000 – P420.

.. Assets other than intangible assets must be recognized if it is probable that the future economic benefits will flow to the acquirer and its fair value can be measured reliably...................[(24. fair value – P100.......000 – P100........000.P50. 26...000.....000 – P50... Any balance should be recognized immediately in profit or loss.......................000) / 10 years P 10.....000 Additional paid-in capital (new shares) ..........400] = P33... at book value (P200.000 Less: Fair value of net assets acquired (P60. c A bargain purchase is a business combination in which the net fair value of the identifiable assets acquired and liabilities assumed exceeds the aggregate of the consideration transferred.000 × P1) .000 Par value of shares issued (51... The acquirer should recognize any additional assets or liabilities that are identified in that review... at book value (P100..000 Total depreciation expense P 28. book value) / 10 years 3. before determining that gain has arisen..000 Building....000 Equipment.... 90......000 22. book value) / 5 years 5.000..... the acquirer has to: 1....000 + P225..... c .... Reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed....600 23... a – at fair value 21... a .000 + P75.. undervaluation (P130. Intangible assets are recognized when its fair value can be measured reliably...[(24.000 shares x P30) – (P270...... c AA records new shares at fair value Value of shares issued (51..............000 At the date of acquisition.. ... b Consideration transferred (fair value) P 400. 19.. gain 24............ P153...........000 shares x P30) – P686..000..... the parent makes no change to retained earnings.000..000 Equipment......000 – P168...only the subsidiary’s post-acquisition income is included in consolidated totals.... The fair values of liabilities undertaken are best measured by the present values of future cash outflows. 51....... It should be noted that bargain purchase gain would arise only in exceptional circumstances......... undervaluation (P75.000 Consolidated additional paid-in capital ....000) 385..000 + P175......000 + P726.. d .. 2.000 Additional paid-in capital (existing shares) .......000 + P200.000 25.....000 × P3) ....000 – P100. P102..000)] = P108.... 20................000 Goodwill P 15................. fair value ... Therefore................. c Depreciation expense: Building.. P192.000) / 5 years 10...

000 shares) 29. c The consideration transferred should be compared with the fair value of the net assets acquired.80 x 15. c Net Assets [P100.000 Book value of assets of SS Corp.000 x P3.000 Net book value P162.000 Less: Book value of Comb (P50.20 128. (198. per PFRS3 par. d P215.000 / 15.000 = P130.500 Liquidation expenses 2. c P1.000 Or: since. d PFRS 3 (2008) par.400 144. therefore the APIC should be P162.000 260.000) 33.000 + P40.000 289. 32.000 Less: Investment in SS Corp.000 + P80.000/30 years = P6.000 + P162. The gain of P8 million results from a bargain purchase and should be recognized in profit or loss.000 Plant and equipment 46.000 .000 Cash Accounts payable 45.000 – (P405.000 Less: Accumulated depreciation (P180. 30.P265. 18 requires an identifiable assets and liabilities assumed are measured at their acquisition-date fair values. c Consideration transferred: Shares: 2/3 x 60.000 Less: Shares issued at par (15.000 + P85.700 31. per PFRS3 par.000 represents the amount of consideration transferred. b – no valuation to be recorded at the book value of acquirer Cost P180.000 + P20.000 (No.000) 140.27. b P23.000 .000 . 405. there is no excess. 32.000 APIC P162.700 Inventory 39. P 646.000 Cash held (12.000 = Total Assets of TT Corp. the P312.100 Mortgage and interest 44. 34.P30.000 28.000 34.000 Buildings 40.000 Loss on sale of business by the acquiree (Comb) P( 30. c Selling price P 110.000) 132.000) Book value of assets of TT Corp.000 = P198.000) 35.700 Bargain Purchase Gain 29.000 Debentures and premium 52.000 [P312. 54)] P312.000 shares = P20.000 Freehold land 130. P 844.80 – P15 = P10.000 Less: Fair value of assets and liabilities acquired: Accounts receivable P34.000/year x 3 yrs 18.109.000 + P15.000 + P50.000 shares x P10 par) 150.

. d Goodwill..000 Goodwill…………………………………………………….000 – P60. 14.000 Goodwill……………………………………… 14..P140.……………………… 300.000 .3....000 Less: Adjustment on contingent consideration (P184.. P284. the entry to record the revision of goodwill should be: Estimated liability for contingent consideration…. Total book value P1... meeting an earnings target. and that occur within the measurement period (which may be a maximum of one year from the acquisition date) are recognized as adjustments against the original accounting for the acquisition (and so may impact goodwill) – see Section 11.109...000 Less: Fair value of net identifiable assets acquired: Current assets………………………………………… P100.000) 58.000) 37.[PFRS 3 (2008) par. P 284.051. 42.000 is one classical example of contingencies is where the future income of the acquirer is regarded as uncertain. 40.000) 14. d Consideration transferred: Shares: (100. 39 and 40 for further discussion.500 = (P61. c Deficiency: (P16 – P10) x 100.000 shares issued to acquire………P 600.000 Contingent consideration………………………………..500 = The amount reported by TT Corporation 39. c P701...000 The P184.000 Land …………………………………………………… 50. a – refer to No..000 Payment in excess of book value (P198.000 shares x P6.500 + P95. d P257.000 Buildings ……………………….000 Changes that are the result of the acquirer obtaining additional information about facts and circumstances that existed at the acquisition date...000 41. P 270.g..000 Equipment……………………………………………… 150.000 + P37.000 Total assets reported P1.. 58] Incidentally... ( 80.000 = P460.000 Total……………………………………………………...000 Liabilities……………………………………………….000 Goodwill.20)……………………… P620... reaching a specified chare or reaching a milestone on research . a P407.P 10 Added number of shares to issue…………………………………..000 Divided by: Fair value of share…………………………………….000) + (P28. P804... 8/1/20x4…………………………………………………….500 = The amount reported by TT Corporation 38.000 36. (b) – (P520..000 +P200.000 + P280. 184.000 – P170.000) 520..000) Changes resulting from events after (post-combination changes) the acquisition date (e. 1/1/20x4……………………………………………………. the agreement contains a clause that requires the acquirer to provide additional consideration to the acquiree if the income of the acquirer is not equal to or exceeds a specified amount over some specified period... 60.000 43.

000 53. contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. d 52. and development project) are not measurement period adjustments.000 50...000 Paid-in capital of share issued at the time of exchange P 250.000 Divided by: Par value of common stock…………………………………………. of shares issued* __12. P1 par…………………………….000 + P550.000)……………………….000 Par value of additional shares issued P 50.500 49. c Par value of shares outstanding before issuance P 200. Such changes are therefore accounted for separately from the business combination.… 30..190.000 Paid-in capital in the combined balance sheet . c Common stock – combined…………………………………………………………P 160. d Paid-in capital books of Zyxel (P100. contingent consideration classified as an asset or liability… The problem on hand falls within No....000 + P65...00) 800.000 Paid-in capital after issuance (P250.P 2 Number of Zyxel shares to acquire Globe Tattoo………………………….000 44.. The acquirer accounts for changes in the fair value of contingent consideration that are not measurement period adjustments as follows: 1.000 Divided by: No. Incidentally.000 51.000 Fair value of identifiable net assets acquired P194.000 + P980..870. c 46. 60. b 48. so no adjustment would be required to goodwill but accounted for within the equity section. 1..P 60. the entry would be: Paid-in capital in excess of par………………………….000 Consolidated SHE/Net Assets P2..000 shares x P35 1.000) P 550.. c 47. and 2.… 100.500 shares P250.P 165.680.000) P1.000 Common – Acquirer Zyxel………………………………….000 + P350.000 Less: Goodwill 56.000 Common stock. a Consideration transferred: Shares – 12.000 Par value of shares outstanding after issuance 250..000 Issued shares: 34. 60..000 Divided by: Fair value per share of stock P 20 Shares issued 12.. ……………………. b 45. a – Blue Town: Stockholders’ equity before issuance of shares (P700.000 Common stock issued……………………………………………………………….500 Par value of common stock P 4 *Paid-in capital before issuance (P200.

…………………………………………………….000 ..226..000 4..000…………... a II ____ _____JJ _ ____Total____ Average annual earnings P 46.000 – P50.000 Fair value per share when stock was issued…………………………………. 30.000 It should be noted that. a Consideration transferred (30.000 + P220...... 227.000 Acquiree – Globe Tattoo (not acquired)……………………………… __ 0 P105.000 Goodwill……………………………………………………………………………….000 + P25.000)]= P190.000 = P65.000 ..000 + P88.000 + P180.000 Fair value of the net identifiable assets held by Globe Tattoo at the date of acquisition. 57.P250. of shares issued (No..000) 6..000/P100 par 8.000 Divided by: No.000 2.000 .000 .000 – (P200.000 3...000 = P210..000 – P75.P120..200 = P16.000 + P363. 49)………………. 6 Fair value per share when stock was issued……………………………. Par value of common stock of Zyxel……………………………………… P 2 Add: Share premium/APIC per share from the additional issuance of shares (P245. P90.000 + P650....P350.000 Net identifiable assets in the combined balance sheet: (P90.000 Preferred stock (same with Net Assets): 864. 497....000 Paid-in capital from the shares issued to acquire Globe Tattoo………….000 55.000 .080 P 69. P 13.000 + P245.. Gain of P45..000)…………………………………………………………………….000 shares x P8)………………………………… P 240.000 Less: Net Assets (for P/S) 864.000 .000 56. P 8 Or..000 5.. there was no bargain purchase gain and acquisition-related costs which may affect retained earnings on the acquisition date. [(12..000)…………………………………………………….(P25.000)/30.P60. P 270. P100.000 7.000 = P600.000 – P110.... P 240..000 shares x P30) – P343. (P160.120 P 115..000 + P400.000) = P1.. P475.000 Goodwill (for Common Stock) P 288. P280.640 shares Quiz ...000 + P72.200 Divided by: Capitalized at _ 10% Total stock to be issued P1.. [P500.000)….000 – P65.000 Less: Fair value of net identifiable assets acquired (No... (P863...800 9.000 + P33.152.. P227.000 + P475.000 + P94. P180..000 + P70.000 8. P 8 54. P105. 31)……………………………………. c Retained earnings: Acquirer – Zyxel (at book value)………………………………………. b Net identifiable assets of Zyxel before acquisition: (P65.… 405..XIV 1.

760.755. c . fair value) – P40.000 Direct costs 10.250 Percentage 26% 50% 24% (c) Theories 1.000 1. 20x4 P1.880.770.000 Retained earnings – Atwood.000 110. b 82.000 + P250. False 43.000 P750. a 63.800. P46.800. True 23.000 = (P90. True 21.000 + P54.000]= P2.000 19.000 + P10. [P1.750 P150. [P180 + P40 – P20 – P15} =P185 18.000 – P60. [P600 + (P360 + P40)] = P1.000 28.000 P468.810.500 90.000 P56.000 + P580.000 / capitalized at 20% 20% _ 20%__ 20%__ Goodwill P93.000 P1.000] = P2.000] = P1.000. P7.10.750 P900.000 Total stock to be issued P468. True 61.000) = P2.000 . P154. 50%.000 P431. parent only on the date of combination 26.000 – P12. True 24. d 123.000 P11.000 – (P240.000.250 P75. (P1. d 122. b 4.000 + P650.000 = (P100.000 23.000) + P240.000 – P10.000 = [P40.000 + P8.000 + P400. P98. [(50.000 22.250 1.000 + P26. stock issuance costs = P1.000.000 14.000 = (P60.000 – P1.750 P150. c 121 a 2. [(P870.500 45.000 Add: Goodwill: Annual earnings P41. [P1.000). True 44.050.000 24.000 P375.000 + P54.000 + P600.000 + P580.000 27. fair value) 30. 26%.000 25.280.250 P 60.800.000 Add: Net income – 20-x4 Revenues P2.000 shares x P 35) + P5. b 101.000 + P650.000 Less: Normal earnings 6% x Assets 22.000)] = P455. a 104. appraised value P375.250 P300.000] = P1.760. [P1. only the stockholders’ equity of acquirer 32.P240. d 84.080 + (P280 + P10) = P1.000 + P250. d 124.000 – P15. [P480 + P100] = P580 15.000 + P400.000 21.000 P33.000 Retained earnings – Atwood.000} = P1. (P2.755.000)] 31. [P660.085.750 P30.080 + 40 shares x (P10 .500. 24% CC_____ DD_______ EE Total______ Assets.000. DD.000] = P1. True 42. [P400 + (40 shares x P10)] = P800 11. [P1. January 1.000 Excess earnings P18.370 12. a 102.880.000 P431.170.000 20. [P330 + (40 shares x P1)] = P370 16.230.000 431.260 + (P440 + P60) = P1. December 31. 20x4 P1. P2.000 22. d 103.060. CC. cash paid 29.800. False 22.000 – (P26.760 13.450. False 62.120. c 83. EE. [P1.280. c 81. b 3. [P1.000 – P35.250 P1. P1. False 41.P1)] – P15. c 64.000 Less: Expenses 2.800.750 P900.425 17.

c 7. 13. c 68. True 49. c 8. c 105. The scorched earth defense results when a target generally sells large amounts of assets without regard to the specific desirability to the potential acquirer. Greenmail is the payment of a price above market value to acquire stock back from a potential acquirer. There is no exchange of stock in an asset for asset acquisition so there cannot be a change in ownership structure of either entity. Golden parachutes are generally given only to top executives of the acquiree. False 54. As a result. b 20. d 98. b 18. b 99. True 30. True 29. The sale of the crown jewels results when a target sells assets that would be particularly valuable to the potential acquirer. b 70. True 53. a 89. A 116. a 108. d 120. False 48. A vertical combination occurs when a supplier is acquired. A combination that results in one of the original entities in existence after the combination is a statutory merger. c 107. c 73. True 45. 26. True 58. c 69. not the acquiree stockholders. The combination results in the stockholders of one entity controlling the other entity. c 109. False 25. d 15. c 93. B 114. a 14. 5. b 66. b 19. the acquirer book value will not change due to an acquisition. c 75. True 36. d 106. a 74. a 71. d 67. A 117. 7. False 37. 28. False 46. True 31. d 9. c 100. True 39. b 10. Any change in the number of shares of acquirer stock given returns the purchase price to the agreed level. True 28. True 38. b 65. b 111. c 91. False 33. False 40. a 95. c 13. False 59. True 56. False 51. A horizontal combination occurs when management attempts to dominate an industry. a 86. False 60. c 78. False 57. b 76. Payment may be in another asset or the issuance of debt. . d 126. a Note for the following numbers: 2. The consideration to be given by the acquirer is sometimes not completely known because the consideration is based partially on acquiree future earnings or the market value of acquirer debt or stock. d 96. c 94. False 27. The stock of the acquiree company must be purchased by the acquirer. c 125. d 88. C 113. False 35. The amount of cash will always equal the net assets recorded by the acquirer. 39. but the value transferred to the acquiree stockholders does not have to be in stock. True 32. 15. c 17. 17. b 6. A vertical combination exists when an entity purchases another entity that could have a buyer-seller relationship with the acquirer. c 11. The investment account is unchanged. d 110. b 90. d 127. 5. True 47. a 87. 34. 20. a 77. 21. The Retained Earnings of the entity acquiring control is carried forward to the newly formed corporation. The acquiree corporation becomes an acquirer stockholder. d 119. d 16. Control over the net assets of an entity can be accomplished by purchasing the net assets or by purchasing the acquiree voting common stock that represents ownership of the assets. True 52. 37. a 97. 23. b 72. A conglomerate combination is one where an unrelated or tangentially related business is acquired. The combination described here is a horizontal combination. True 26. c 80. a 79. D 115. a 112. A 92. d 85. The adjustment is to stock and additional paid-in capital. c 118. c 12. False 34. 31. True 55. True 50.

The acquiree stockholders must continue to have an indirect ownership interest in the acquiree net assets. 42.40. A net operating loss carryforward cannot be acquired. Preferred stock or a nonvoting class of stock qualifies as an indirect ownership as well as voting common stock. . They are only available to the acquirer if the combination qualifies as a nontaxable exchange.