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ACQUISITION OF STOCK
In a stock acquisition, a controlling interest (typically, more than 50%) of another
company’s voting common stock is acquired.
The acquiring company is termed as the parent and the acquired company is termed as
a subsidiary.
Both the parent and the subsidiary remain separate legal entities and maintain their own
financial records and financial statements.
Illustrative Problem:
On June 30, 2020, A Company (parent) acquired all the 20, 000 issued and outstanding
shares of B Company (subsidiary) P100 par value common stock for P4, 000, 000. In
addition, A Company paid professional fees amounting to P200, 000 to accomplish the
business combination.
Books of Parent (A Company)
Journal Entries:
(1.) Investment in Subsidiary - B Company P4, 000, 000
Cash P4, 000, 000
To record the acquisition of stock from B Company.
*The above entries do not record the individual underlying assets and liabilities over
which control is achieved. The acquisition is recorded in an investment account that
represents the controlling interest in the net assets. After the stock acquisition, B
Company will not be dissolved. A Company is now the parent and B Company is the
subsidiary.
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Textbook: Advanced Accounting Volume 2 By: Pedro P. Guerrero and Jose F. Peralta 2017 Edition
Accounting for Business Combination
Module No. 2- Week 2
(b.) The net assets of the acquisition-date amounts of the identifiable assets
acquired and liabilities assumed measured in accordance with this IFRS.
(c.)
Consideration Transferred xxxx
Non-controlling interest xxxx
Previously held interest in the acquire xxxx
Total xxxx
Less: Fair value of net identifiable asset acquired xxxx
Goodwill ( Gain from bargain purchase) xxxxx
Disclosure Requirements
IFRS 3 requires that an acquirer shall disclose information that enables users of its
financial statements to evaluate the nature and financial effect of a business
combination that occurs either:
(a.) during the current reporting period, or
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Textbook: Advanced Accounting Volume 2 By: Pedro P. Guerrero and Jose F. Peralta 2017 Edition
Accounting for Business Combination
Module No. 2- Week 2
(b.) after the end of the reporting period but before the financial statements are
authorized for issue.
ASSIGNMENT:
Uploaded in LMS / Blackboard Ultra
The students could consult the teacher via LMS or email
PROBLEM 1-
On June 1, 2017, the statement of financial position of VIRTUAL Company at book
value and fair market values were as follows:
Book Value Fair Value
Current assets P240, 000 P280, 000
Land 20, 000 100, 000
Building and Equipment (net) 400, 000 270, 000
Patents 10, 000 30, 000
Total Assets P670, 000 P680, 000
Liabilities P250, 000 P250, 000
Common stock 100, 000 -
Retained 320, 000 430, 000
Total Liabilities and Equities P670, 000 P680, 000
On June 1, 2017, ONLINE Company., purchased all of VIRTUAL Company’s common
stock for P600, 000.
Required:
Prepare journal entry on the books of Pepsi Inc., to record the stock acquisition.
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Textbook: Advanced Accounting Volume 2 By: Pedro P. Guerrero and Jose F. Peralta 2017 Edition