If depreciation has been calculated monthly for 2016, further adjustments would be required.

23. Jane Ltd., a supplier of snooker equipment, agreed to be acquire the business of a rival firm, Mercy
Ltd. taking over all assets and liabilities as at 1 June 2016.

The price agreed upon was P40, 000, payable P20, 000 cash and the balance by the issue to the selling
company of P16, 000 fully paid shared in Jane Ltd. these shares having a fair value of P2.5 per share.

The trial balances of the two companies as at 1 June 2016 were as follows (in thousand peso):

Jane Ltd. Mercy Ltd.

Dr. Cr. Dr. Cr.

Share capital P100

P90

Retained earnings 12 P24

Accounts payable 2
20

Cash P30 -

Plant (net) 50 30

Inventory 14 26

Accounts receivable 8 20

Government bonds 12 -

Goodwill - 10

P114 P114 P110 P110

All the identifiable net assets of Mercy Ltd. were recorded by Mercy Ltd. at fair value except for the
inventory which was considered to be worth P28, 000. The plant had an expected remaining life of five
years.

The business combination was completed and Mercy Ltd. went into liquidation. Cost of liquidation
amounted to P1, 000. Jane Ltd. incurred incidental costs of P500. Cost of issuing shares in Jane Ltd. were
P400.
The amount of goodwill:

a. P0

b. P2, 000

c. P2, 900

d. P3, 900

Ans. :B

Solution:

Consideration transferred:

Cash P20, 000

Shares:16, 000 shares x P2.50 40, 000 P60, 000

Less: fair value of net identifiable assets acquired:

Plant 30, 000

Inventory 28, 000

Accounts receivable 5, 000

Plant 20, 000

Accounts payable (20, 000) 58, 000

Goodwill P2, 000

It should be noted that acquisition-related costs is not the same with liquidation-related costs even
though the consequence of acquisition is liquidation of the acquiree. Any costs of liquidation or of
similar item paid or supplied by the acquirer should be part of the consideration transferred for reason
that it was intended to complete the process of liquidation. The reason for such inclusion is that the
consideration received from the acquirer may be used to pay for liabilities not assumed by the acquirer
and for liquidation expenses which is tantamount for unrecorded liabilities from liquidation point of
view. These items should not be confused with acquisition-related costs as noted earlier which are
considered outright expenses. Further, any liquidation costs or similar item which was not of the same
situation as mentioned above should be treated as expenses.
When it liquidates, costs of liquidation paid by the acquiree should be for the account of the acquire and
will be eventually transferred to stockholders’ equity account. This payment made should considered
expenses by the acquiree in the process of liquidation not unlike payment supplied and made by the
acquirer which is intended for any unrecorded expenses.

Faith Company is acquiring the net assets of Love Company for an agreed upon price of P1000,000
on April 1,2014. The value was tentatively assigned as follows:

Current Assets P 100,000

Land 70,000

Equipment - 5 year life 300,000

Building -20 year life 500,000

Current Liabilities (200,000)

Goodwill 230,000

Values were subject to change during the measurement period. Depreciation is taken to the
nearest month. The measurement period expired on April 1, 2015 at which time the fair value of the
equipment and building as of acquisition date were revised to 280,000 and 600,000, respectively.

24.How much total depreciation expense will be recorded for 2015.

a. 85,000

b. 86,000

c. 83,500

d. 86,500

Ans. B

Equipment 280,000/5 56,000

Building 600,000/20 30,000

86,000