piece of land in question has a carrying amount of P80,000 and a fair value of P220,000.

* Richard Ltd. is to issue 90,000 shares, these having a fair value of P14 per share, to be distributed via
Liway Ltd. to the soon to-be-married-daughter of Mr. and Mrs. Melad, who is currently a shareholder in
Liway Ltd.

The takeover proceeded as per the agreement with Richard Ltd. incurring incidental acquisition costs of
P25,000, while there were P 18,000 share issue costs.

The amount of goodwill or (bargain purchase gain):

a. P45.682

b. 70,682

c. 118,682

d. P(109,818)

Answer: A

Solution

Consideration transferred:

Shares: (90.000 x P14 per share) P1,260,000

Cash: Payable Now 20,000

Deferred (P20,000 x 0.909091) 18,182

Patent 60,000

Cash (to Metrobank) 480,000

Liquidation costs 5,500

Wedding costs 150,000

Land 220,000 P2,213,682

Less: Fair value of net identifiable assets acquired.

Accounts receivable P20,000

Inventory 125,000

Land 840,000

Buildings 550,000
Farm equipment 364,000

Irrigation equipment 225,000

Vehicles ( P172,000 - P480,000) 124,000

Accounts payable (80,000) 2,168,000

Goodwill P45,682

12. The Boy George, Company acquired the net assets of the Girl Conrad Company on January 1, 2015,
and made the following entry to record the purchase:

Current Assets100,000

Equipment 150,000

Land 50,000

Buildings 300,000

Goodwill 100,000

Liabilities 80,000

Common stock,P1 par 100.000

Paid in capital in excess at par 520,000

Assuming that additional shares on January 1, 2017 would be issued on that date to compensate for any
fall in the value at Boy George common stock below P16 per share. The settlement would be to cure the
deficiency by issuing added shares based on their fair value on January 1,2017. The fair price of the
shares on January 1, 2017 was P10.

What is the additional number of shares issued on January 1, 2017 to compensate for any fall in the
value at the stock?

a. 160,000

b. 100,000

c. 60,000

d. 10,000

Answer: C
Solution

Deficiency: (P16 - P10) x100,000 shares issued to acquire P600,000

Divided by: fair value of share P 10

Additional number of shares to issued 60,000

Another example at contingencies is where the acquirer issues to the acquiree and the acquiree is
concerned that the issue of these shares may make the market price at the acquirer ’s shares decline
over time.

Therefore the acquirer may offer additional cash or shares if the market price falls below specified
amount over a specific period of time.

13. Fay acquires assets and liabilities of May Company on January 1,2016. To obtain these shares, Fay
pays P400,000 and issues 10,000 shares of P20 par value common stock on this date. Fay's stock had a
fair value of P36 per share on that date. Fay also pays P15,000 to a local investment firm for arranging
the transaction. An additional P10,000 was paid by Fay in stock issuance costs.

The book values for both Fay and May as of January 1,2016 follow. The fair value of each of Fay and May
accoubts is also included. In addition, May holds a fully amortized trademark that still retains P40,000
value. The figures below are in thousands. Any related questions also in thousands.

May Company

Fay, Inc. Book Value Fair Value

Cash P900 P80 P80

Receivables 480 180 160

Inventory 660 260 300

Land 300 120 130

Buildings(net) 1,200 220 280

Equipment(net) 360 100 75

Accounts Payable 480 60 60

Long-term liabilities 1,140 340 300

Common Stock 1,200 80

Retained earnings 1,080 480

Assuming the combination is accounted for as an acqusition, immediately after the acquisition, in the
balance sheet of Fay:

What amount will be reported for goodwill?

a. P55 c. P70

b. 65 d. 135

Answer: A.

Consideration Transferred:

Cash P400

Shares (10,000x36) 360

Total P760

Less: Fair value of net iden. assets acquired

Cash P80

Receivables 160

Inventory 300

Land 130

Buildings(net) 280

Equipment(net) 75

Trademark 40

Accounts Payable (60)

Long-term liabilities (300) 705

Goodwill P 55