Accounts receivable…………………………..

7,500

Fix and Furniture……………………………… 30,000

Plant and Equipment………………………… 187,500

Accounts payable…………………………….. ( 22,500)

Current tax liability…………………………… ( 12,000)

Liabilities………………………………………. ( 3,000) 262,500

Goodwill………………………………………………

P37,500

34. Homer Ltd. is seeking to expand its share of the widgets market and has negotiated to take over the
operations of Tan Ltd. on January 1, 20x4. The balance sheets of the two companies as at December 31,
20x4 were as follows:

Homer Tan

Cash P 23,000 P 12,000

Receivables 25,000 34,700

Inventory 35,500 27,600

Freehold Land 150,000 100,000

Buildings (net) 60,000 30,000

Plant and equipment (net) 65,000 46,000

Goodwill 25,000 2,000

P383,500 P252,300

Accounts payable P 56,000 P 43,500

Mortgage loan 50,000 40,000

Debentures 100,000 50,000

Common stock, 100,000 shares 100, 000

Common stock, 60,000 shares 60,000

Additional paid-in capital 28,500 26,800

Retained earnings 49,000 32,000

P 383,500 P 252,300

Homer Ltd. is to acquire all the assets, except cash of Tan Ltd. The assets of Tan are all recorded at fair
value except:

Fair Value

Inventory P 39,000

Freehold land 130,000

Buildings 40,000

ln exchange, Homer Ltd. is to provide sufficient extra cash to allow Tan Ltd. to repay all of its outstanding
debts and its liquidation costs of P2,400, plus two fully paid shares in Homer Ltd. for every three shares
held in Tan Ltd. The fair value of a share in Hastings Ltd. is P320. An investigation by the liquidator of Tan
Ltd. reveals that on December 31, 20x3, the followmg outstanding debts were outstanding but had not
been recorded:

Accounts payable P1,600

Mortgage interest 4,000

The debentures issued by Tan Ltd. are to be redeemed at a 5% premium. Costs of issuing the shares
were P1,200.

The excess of fair value of net assets over cost or gain on acquisition that will be recognized immediately
in the income statement is:

a. Nil or Zero

b. P17,700

c. P29,700

d. P34,300

ANSWER: C
Consideration transferred:

Shares: 2/3 x 60,000 x P3.20. 128,000

Cash

Accounts payable. 45,100

Mortgage and interest 44,000

Debentures and premium 52,500

Liquidation expenses 2,400

144,000

Cash held (12,000) 132,000

260,000

Less: Fair value of assets and liabilities acquired:

Accounts receivable P34,700

Inventory 39,000

Freehold land 130,000

Buildings 40,000

Plant and equipment 46,000 289,700

Bargain Purchase Gain P 29,700