BUSINESS COMBINATION

1. On December 2015, Killua Ltd. acquired all the assets and liabilities of Gon Ltd. with Killua Ltd. issuing
100,000 shares to acquire these net assets. The fair value of Gon Ltd.’s assets and liabilities at this date
were:

Cash P50, 000

Furniture and Fittings 20, 000
Accounts Receivable 5, 000
Plant 125, 000
Accounts Payable 15, 000
Current Tax Liability 8, 000
Provision for annual leave 2, 000
The financial year for Killua Ltd. is January- December.
The fair value of each Killua Ltd. share at acquisition date is 1.90. At acquisition date, the acquirer could
only determine a provisional fair value for the plant. On March 1, 2016, Killua Ltd. received the final value
from the independent appraisal, the fair value at acquisition date being P131, 000. Assuming the plant
had a further five year life from the acquisition date.
The amount of goodwill arising from the business combination at December 1, 2015 ?
a. P15, 000 c. P5, 000
b. 9, 000 d. 0

ANSWER: B

Consideration transferred (100, 000 x 1.90) P190,

000
Less: Fair Value of net identifiable assets acquired
Cash P50, 000
Furniture & Fittings 20, 000
Accounts Receivable 5, 000
Plant 131, 000
Accounts Payable (15, 000)
Current tax liability (8, 000)
Liabilities (2, 000) 181,
000
Goodwill P9,
000

2. The E. Vendivel Company acquired the net assets of the Vivar Company on January 1, 2015 and
made the following entry to record the purchase:
Current Assets……………………………………… 100, 000
Equipment…………………………………………… 150, 000
Land…………………………………………………….. 50, 000
Buildings………………………………………………. 300, 000
Goodwill………………………………………………. 100, 000
Liabilities…………………………………. 80, 000
Common Stock, P1 par……………. 100, 000
Paid-in capital in excess of par… 520, 000

Assuming that the additional shares on January 1, 2017 would be issued on that date to compensate for
any fall in the value of E. Vendivel common stock below P16 per share, the settlement would be to cure
the deficiency by issuing added shares based on their fair values on January 1, 2017. The fair price of the
shares on January 1, 2017 was P10.

What is the additional number of shares issued on January 1, 2017 to compensate for any fall in the value
of the stock?
a. P160, 000 c. 60, 000
b. 100, 0000 d. 10, 000