Let’s Check

1. Two methods of arranging business combinations:

a. Merger and consolidation
b. Merger and acquisition of stock
c. Acquisition and uniting of interests
d. Consolidation and acquisition of stock
2. A business combination must be accounted for as:
a. An acquisition
b. A pooling
c. A merger
d. A consolidation
3. The cost of registering equity securities in a business combination should be recorded
as:
a. An income of the period
b. An expense of the period
c. Deduction from additional paid in capital
d. Part of the cost of the stock acquired
4. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
b. has influence over a majority of the subsidiary's assets.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's outstanding
bonds and debentures.
5. Shares issued as consideration in an acquisition are recorded at:
a. Their fair value as at the date when the acquirer obtains control over the
net assets and operations on the acquiree
b. At cost
c. At cost or fair value whichever is lower
d. At cost or fair value whichever is higher

Let’s Analyze
1. Nessa Company issued common stock with a par value of ₱450,000 and a market value
of ₱700,000 to acquire the net assets Patrick Corporation in a business combination.
Nessa reported assets of ₱2 million and liabilities of ₱542,000 immediately before the
business combination. Patrick Corporation’s assets and liabilities had book values of
₱460,000 and 187,000, respectively. The fair values of Patrick’s assets and liabilities
were ₱600,000 and ₱188,000, respectively.

What amount should be reported as total assets of the combined entity

immediately following the business combination?

Answer: ₱2,888,000
 Analysis
Consideration Given ₱700,000
Market Value of Patrick
Corp.
Assets 600,000

Liabilitie
s 188,000 412,000
Goodwill 288,000

Nessa's Assets (@Book 2,000,00

Value) 0
Patrick's Assets (@Fair
Value) 600,000 2,600,000
₱2,888,00
Total Combined Assets 0

2. On August 1, 2016, JPJ Company acquired the net assets of PGTG Company for a price
of ₱32 million. At the acquisition date, the carrying value and fair value of PGTG’s net
assets amounted ₱20 million and ₱27 million, respectively.

What amount should JPJ Company present as goodwill in its statement of financial
position at December 31, 2017?

Answer: ₱5 million

Analysis

₱32,000,00
Consideration Given 0
Fair Value of PGTG's Net Assets 27,000,000
Goodwill ₱5,000,000