Cost of Cormorant's investment: $ 800,000

Less: book value acquired:

Total equity $ 2,000,000

Less: Preferred equity $ 500,000

Net common equity $ 1,500,000

x percent acquired 40%

= Plumage book value $ 600,000 $ 600,000

Goodwill $ 200,000

29. On February 5, Pryor Corporation paid $1,600,000 for all the issued and outstanding common stock
of Shaw, Inc., in a transaction properly accounted for as an acquisition. The book values and fair values
of Shaw's assets and liabilities on February 5 were as follows:

Book Value Fair Value

Cash $ 160,000 $160,000

Receivables (net) 180,000 180,000

Inventory 315,000 300,000

Plant and equipment (net) 820,000 920,000

Liabilities (350,000) (350,000)

Net assets $1,125,000 $1,210,000

What is the amount of goodwill resulting from the business combination?

a) $-0-.

b) $475,000.

c) $85,000.

d) $390,000.

Answer: d
FV of consideration transferred $ 1,600,000

Less: FV of Net Assets $ 1,210,000

Goodwill $ 390,000

On January 1, 20x5, the fair values of Crème’s net assets were as follows:

Current Asset P100,000

Equipment 150,000

Land 50,000

Buildings 300,000

Liabilities 80,000

30. On January 1, 20x5, Brulee Company purchased the net assets of the Crème Company by issuing
100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. It was further agreed
that Brulee would pay an additional amount on January 1, 20x7, if the average income during the 2-year
period of 20x5-20x6 exceeded P80,000 per year. The expected value of this consideration was calculated
as P184,000; the measurement period is one year. What amount will be recorded as goodwill on January
1, 20x5?

a. Zero c. P180,000

b. P100,000 d. P284,000

Ans: d

Consideration transferred

Shares: (100,000 shares x P6.20) P620,000

Contingent consideration 184,000

Total P804,000

Less: Current Assets (at fair values) P100,000

Equipment 150,000

Land 50,000

Buildings 300,000
 Liabilities ( 80,000) 520,000

Goodwill P284,000

31.On July 1, 20x5 The Straw Company acquired 100% of the Berry Company for a consideration
transferred of P160 Million. At the acquisition date the carrying amount of Berry’s net assets was P100
Million. At the acquisition date a provisional fair value of P120 Million was attributed to the net assets.
An additional valuation received on May 31, 20x6 increased this provisional fair to P135 Million and on
July 30, 20x6 this fair value was finalized at P140 Million. What amount should Straw present for
goodwill in its statement of financial position on December 31, 20x6, according to PFRS 3 Business
Combinations?

a. P20 million c. P50 million

b. P25 million d. P60 million

Ans: b

Consideration transferred P160 million

Fair Value on May 31, 20x6 135 million

Goodwill P 25 million

32.Hazel Corp. was merged into Sebastian Corp. in a combination properly accounted for as acquisition
of interest. Their condensed sheets before the combination show:

Sebastian Hazel

Current assets…………………………………………….. P1,144,000 P 813,800

Plant and equipment, net………………………………... 2,327,000 520,000

Patents…………………………………………………….. - 130,000

Total assets………………………………………………..

P3,471,000

P1,463,800
Liabilities…………………………………………………...

P1,352,000

P 85,800

Capital stock, par P100………………………………….. 1,300,000 650,000

Additional paid-in capital……………………………….. 195,000 195,000

Retained earnings……………………………………...... 624,000 533,000

Total Liabilities and Equity……………………………….

P3,471,000

P1,463,800

Per independent appraiser’s report, Hazel’s assets have fair market values of P826, 800 for current
assets, P624, 000 for plant and equipment and P169, 000 for patents. Hazel’s liabilities are properly
valued. Sebastian purchases Hazel’s net assets for P1, 534,000. How should the difference between the
book value of Hazel’s net assets and the consideration paid by Sebastian be considered?

a. Goodwill: P 0 ; Increase in Assets: P156,000

b. Goodwill: P 0 ; Increase in Assets: P312,000

c. Goodwill: P169,000 ; Increase in Assets: P156,000

d. Goodwill: P169,000 ; Increase in Assets: P 78,000

ANSWER: (a)

Consideration transferred………………... P1,534,000

Less: Market value of net assets acquired, excluding GW:

Current assets……………………... P826,800

Plant and equipment………………. 624,000

Patents……………………………… 169,000

Liabilities……………………………. (85,800) 1,534,000

Goodwill……………………………………

P -0-

(a)

Book

Value Fair

Value Increase

(Decrease)

Current Assets………………. P813,800 P826,800 P 13,000

Plant and Equipment……….. 520,000 624,000 104,000

Patents………………………..130,000 169,000 39,000

Increase in assets……………

P156,000

(a)

33.On December 2015, Agulan Co. acquired all the assets and liabilities of Toquero Co. with Agulan Co.
issuing 150,000 shares to acquire these net assets. The fair value of Toquero Co.’s assets and liabilities at
this date were:

Cash…………………………………………………………… P75,000

Accounts receivable…………………………………………. 7,500

Fix and Furnitures……………………………………………. 30,000

Plant and Equipment………………………………………… 187,500

Accounts payable…………………………………………….. 22,500

Current tax liability……………………………………………. 12,000

Provision for annual leave…………………………………… 3,000

The financial year for Agulan Co. is January – December.

The fair value of each Agulan Co. share at acquisition date is P2. At acquisition date, the acquirer could
only determine a provisional fair value for the plant and equipment. On March 1, 2016, Agulan Co.
received the final value from the independent appraisal, the fair value at acquisition date being
P196,500. Assuming the plant and equipment had a further five-year life from the acquisition date.

The amount of goodwill arising from the business combination at December 1, 2015:

a. P 0

b. P18,750

c. P37,500

d. P30,500

ANSWER: (c)

Consideration transferred (150,000 shares x P2) P300,000

Less: Fair value of net identifiable assets acquired:

Cash……………………………………………. P 75,000