1.

Which of the following situations best describes a business combination to be accounted for
as a statutory merger?
a. One company transfers assets to another company it has created
b. Two companies combine to form a new third company, and the original two
companies are dissolved.
c. Only one of the combining companies survives and the other loses its separate
identity.
d. Both companies in a combination continue to operate as separate, but related, legal
entities.

2. When does the measurement period end for a business combination in which there was
incomplete information on the date of acquisition?
a. On the final date when all contingencies are resolved
b. Thirty days from the date of acquisition
c. At the end of the reporting period in the year of acquisition
d. When the acquirer receives the information or one year from the acquisition date,
whichever occurs earlier.

3. Company B has properly treated as expense P200,000 of research and development costs
that resulted in a patent. When Company A acquired Company B in a transaction accounted
for by the purchase method, it was determined that the patent had a value of P500,000.
Whichof the following statements is true?
a. The cost of the patent on the books of Company A should be the same as on the
books of Company B.
b. The cost of the patent on the books of Company A should be represented by the
legal costs involved in the patent process.
c. On the books of Company A, the patent should have a value of P200,000 because
that was the cost to produce it.
d. The cost of the patent on the books of Company A should be P500,000.

4. Control is the
I – Power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.
II – Power to participate in the financial and operating policy decisions of the investee.
a. I only c. Both I and II
b. II only d. Neither I nor I
5. A “group” for consolidation purposes is
a. A parent and all of its subsidiaries
b. An entity that has one or more subsidiaries
c. An entity, including an unincorporated entity such as partnership that is
controlled by another entity.

d. An entity that obtains control over entities or businesses

RIVERS, INC. decided to acquire the net assets of CREEKS ENTERPRISES on January 1, 2014 in
exchange for 50,000 of its own shares with a par value of P4.00 and a market value of P4.50 per
share. RIVERS's stockholders' equity at this date showed Share Capital of P400,000 Share
Premium of P500,000 and Retained Earnings of P300,000. Additional costs incurred were:
consultancy fees, P50,000 and cost of registration of stocks, P27,000. The balance sheet of
CREEKS just before combination follows:
CREEKS just before combination follows:
Book Value Fair Value
Current assets P152,500 P142,500
Plant assets 230,000 201,000
Goodwill __25,000
P 407,500
Liabilities P 95,000
Share capital 200,000
Share premium 65,000
Retained earnings __47,500
P 407,500

6. How much will be the share premium shown in the shareholders' equity post
combination?
P 500,000
7. How much will be the retained earnings presented in the shareholders' equity post
combination?
271,500
8. How much will be the total shareholders' equity post combination?
1,371,500

The Vanvan Company will issue shares of P10 par value common stock for all the assets and
liabilities of Nono Company. Vanvan Company’s common stock has a current market value of P40
per share. The Nono Company’s Statement of Financial Position prior to the acquisition is shown
below.
Nono Company
Statement of Financial Position
January 1, 2016
Assets Liabilities & Equity
 Current assets P 320,000 Liabilities P 400,000
Property, Plant Equity:
and
Equipment (net) 880,000 Common stock, P
P4 par 80,000
Additional paid-in
Capital 320,000
Retained 400,000 800,000
earnings
Total Assets P1,200,000 Total Liabilities & P1,200,000
Equity
The fair market value of the current assets is P400,000 while that of the property, plant and
equipment is P1,600,000. All the liabilities are correctly stated. Vanvan Company issued sufficient
shares of stock so that the fair market value of the stock issued is equal to the fair market value of
Nono Company’s net assets.
9. To have an income from acquisition of P100,000, the number of shares to be issued by
Vanvan
Company should be: (37,500)
10. To have a goodwill of P200,000, the number of shares to be issued by Vanvan Company is:
( 45,00)

On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair value of
₱60 per share and par value of ₱40 per share. The financial statements of ABC Co. and XYZ, Inc.
immediately before the acquisition are shown below:
  ABC Co. XYZ, Inc.
Cash 40,000 20,000
Accounts receivable 120,000 48,000
Inventory 160,000 92,000
Equipment 800,000 200,000
Accumulated depreciation (80,000) (40,000)
Total assets 1,040,000 320,000
Accounts payable 80,000 24,000
Bonds payable 120,000 -
Share capital 480,000 200,000
Share premium 160,000 -
Retained earnings 200,000 96,000
Total liabilities and equity 1,040,000 320,000
On January 1, 20x1, the fair value of the assets and liabilities of XYZ, Inc. were determined by appraisal,
as follows:
Carrying Fair Fair value
XYZ, Inc.
amounts values increment
Cash 20,000 20,000 -
Accounts receivable 48,000 48,000 -
Inventory 92,000 124,000 32,000
Equipment 200,000 240,000 40,000
Accumulated depreciation (40,000) (48,000) (8,000)
Accounts payable (24,000) (24,000) -
Net assets 296,000 360,000 64,000
The equipment has a remaining useful life as of 4 years from January 1, 20x1.
Case #1: NCI measured at proportionate share of parent
ABC Co. elects to measure non-controlling interest as its proportionate share in XYZ’s net identifiable
assets.
11. How much is the consolidated total assets as of January 1, 20x1? 1,436,000
12. How much is the consolidated total equity as of January 1, 20x1? 1,212,000
Case #2: NCI measured at fair value
13. How much is the consolidated total assets as of January 1, 20x1? 1,439,000
14. How much is the consolidated total equity as of January 1, 20x1? 1,215,000

On January 1, 20x1, VERITY FIRMNESS Co. acquired all of the identifiable assets and assumed all of the
liabilities of FIRMNESS, Inc. by paying cash of ₱4,000,000. On this date, FIRMNESS’s identifiable assets
and liabilities have fair values of ₱6,400,000 and ₱3,600,000, respectively.
VERITY agrees to pay an additional amount equal to 10% of the 20x1 year-end profit that exceeds
₱1,600,000. FIRMNESS historically has reported profits of ₱1,200,000 to ₱1,600,000 each year.

After assessing the expected level of profits for the year based on forecasts and plans, as well as industry
trends, VERITY estimated that the fair value of the contingent consideration is ₱40,000.

How much is the goodwill (gain on bargain purchase)?

1,240,000