24.

d
Entry to record the acquisition on PP’s records:
Cash 85,000
Receivables and inventory 180,000
PPE 600,000
Trademarks 200,000
IPRD 100,000
Goodwill 77,500
Liabilities 180,000
Common Stock (50,000 xP5) 250,000
Paid-In Capital in excess of par (50,000 xP15) 750,000
Contingent performance obligation 62,500

The goodwill is computed as:

Consideration transferred: 50,000 shares x P20 P1,000,000
Contingent consideration:
P130,000 payment x 50% probability x 0.961538 62,500
Total P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000) 985,000
Goodwill P 77,500

Acquisition related-expenses 15,000

Cash 15,000
PIC - par 9,000
Cash 9,000

Income statement and statement of retained earnings after business combination:

PP Inc.
Revenues (1,200,000)
Expenses (P875,000 + P15,000) 890,000
Net income (310,000)
Retained earnings, 1/1 (950,000)
Dividends paid 90,000
Retained earnings, 12/31 *(1,170,000)
* or, P1,185,000 – P15,000 = P1,170,000

25. c – refer to No. 24 (P400,000 + P750,000 – P9,000 = P1,141,000)

26. d – refer to No. 24

27. b – refer to No. 24

28. b – refer to No. 24

29. d – refer to No. 24 [P77,500 + (P75,000 – P62,500)] = P90,000

30. b – refer to No. 29. It should be noted that goodwill can only be revised once or on instalment fashion (as long as
existing on the date of acquisition), since it is way past the one-year period even though the facts and events
exists on the date of acquisition have no more bearing on the adjustment to goodwill and then it is considered
as subsequent event. So, goodwill remains at P90,000, but the liability will be adjusted to P80,000 by
increasing the liability account by P5,000, the entry would be
Loss on contingent consideration…………………………………. 5,000
Contingent performance obligation………………………. 5,000
31. a
10,000,000 x P5 x 0.20 P 10,000,000
15,000,000 x P5 x 0.10 ___7,500,000
P 17,500,000
17,500,000/(1.12)4 P 11,121,566

32. a – at fair value

33. a

34. a – (P100,000 x ½ = P50,000 x 1/1.05) or P50,000 x 0.909091 = P45,454

35. 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...............… 116 million
Goodwill…………………………………………………………………………… P 94 million

36. b

37. b

38. Correct Answer – P76,500,000

P76,500,000 = P100,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000 + P4,000,000 +
P1,000,000 - P30,000,000).
39. Correct Answer – P13,500,000
P(13,500,000) = P10,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000 + P4,000,000 +
P1,000,000 - P30,000,000).
40. c
Goodwill 2,000,000
Patents 2,000,000
41. a
Gain on acquisition 2,000,000
Liabilities 2,000,000