Problem 1

On January 1, 2020, Sora Company acquired the net assets of Roxas

Company. The Statements of Financial Position of Sora and Roxas
immediately before the acquisition are as follows:

Book value Cash P2,140,000

Fair value
Fair value P45,000 54,000 78,000 5,000 900,000 1,550,000 723,000
768,000 361,500 360,000 300,000 ? 200,000 200,000 700,000 765,000

850,000 400,000 350,000

Accounts receivable Inventories Prepaid expenses Land

Building, net Equipment, net Goodwill Accounts payable Notes

payable Share capital, P50 par Share premium Retained earnings

70,000 87,000 13,500

Sora Company

Roxas Company

P2,140,000 360,000 335,000 475,000 390,000 25,000 - 500,000

900,000 800,000 900,000 700,000 585,000 - - 312,500 312,500 937,500
980,000

2,000,000 1,000,000 750,000

Book value P45,000

Case A: Sora paid P2,000,000 cash which excludes a contingent

consideration to pay P500,000 if Roxas will be able to report net income
of at least P2,500,000 for the year 2020. It was estimated that there is
only a 40% probability that Roxas will be able to generate at least
P2,500,000. The fair value of the contingent consideration on date of
acquisition was P150,000. Sora paid the following acquisition-related
costs:
Legal fees Broker’s fee Other direct cost of acquisition

P105,600 49,000 50,000