ADVANCED ACCOUNTING 2 – Chapter 1

James B. Cantorne
Problem 4: Exercises
1. Compute for the goodwill or negative goodwill.
Consideration transferred* P1,200,000
FV of net assets** (1,260,000)
Goodwill (negative goodwill) (P60,000)
*The consideration is the FV of the bonds issued, the bond issue cost of P30,000 is expensed
except if the bonds issued is measured at amortized cost
**FV of net assets = P1,700,000 Total Assets @ FV – P50,000 Goodwill @ FV – P390,000
Liabilities @ FV
2. Compute for the goodwill.
Consideration transferred P1,200,000
NCI (1,300,000 x 20%) 260,000
FV of net assets ((1,700,000 – 400,000) (1,300,000)
Goodwill (negative goodwill) P160,000
3. Compute for the goodwill.
Consideration transferred P1,200,000
NCI @FV 300,000
FV of net assets ((1,700,000 – 400,000) (1,300,000)
Goodwill (negative goodwill) P200,000
4. Compute for goodwill or negative goodwill
Consideration transferred (10,000 x P100) P1,000,000
FV of net assets ((1,800,000 – 900,000) (900,000)
Goodwill (negative goodwill) P100,000
When computing the consideration by share issuance, the FV is used instead of the par value.
The share issuance cost is deducted from the share premium. The professional fees and admin
costs are expenses when incurred. Closure of operating segments is a restructuring provision and
is treated as post-combination expenses.
5. Compute for the goodwill.
Consideration transferred P1,500,000
NCI @FV 800,000
FV of net assets* (2,250,000)
Goodwill (negative goodwill) P50,000
*Net assets = P5,000,000 + P80,000 – P2,800,000 – P30,000 = P2,250,000
The customer list is an intangible asset which is identifiable because of its separability. The
standard provides that it is not necessary that the two conditions, separability criterion and
contractual-legal criterion, are met; it is sufficient that either of the two exists.
When acquiree is a lessee under an operating lease, the fair value of differential is recognized as
asset when favorable and liability when unfavorable.
6. Compute for the goodwill.
Consideration transferred P1,600,000
FV of net assets* (1,590,000)
Goodwill (negative goodwill) P10,000
*Net assets = 3,500,000 + (3,800,000 – 3,500,000) x 30% + 100,000 x 30% - 1,900,000 –
100,000 – (2,000,000 – 1,900,000) x 30% = 1,590,000
The FV of a contingent liability even though it did not satisfy the criteria provided by PAS 37
will be recognized under PFRS 3, in which, the latter prevails over the former.
There will be tax savings over the changes in the assets because the new carrying amount is
lower than the old carrying amount and to the recognized contingent liability. While, there will
be tax expense over the changes in the liability because the new carrying amount is lower than
the old carrying amount.
Problem 5: MCQ – Theory
1. C. Obtaining of control
2. C. Acquirer
3. B. Acquisition method
4. C. Closing date
5. D. Entity C, a new entity, is formed and Entity C transfers cash to Entity A and Entity B
6. B. It includes those that are retained in the combined entity
7. D. Expensed, except for costs of issuing equity and debt instruments.
8. D. Either a or b, as a accounting policy choice
9. A. Acquisition-date FV
10. D. Goodwill
11. C. FV less cost to sell
12. D. A and B
13. B. Recognized even if improbable for as long as there is present obligation and FV can be
measured reliably
14. D. Restructuring provision
15. C.
Problem 6. MCQ – Problem solving
1. A. 360,955
Consideration transferred* P1,720,955
NCI @FV (1,700,000 x 20%) 340,000
 FV of net assets (3,400,000 – 1,700,000) (1,700,000)
Goodwill (negative goodwill) P360,955
*FV of consideration:

−200,000 ÷ ( 1+12 % )5−200,000

PV = =720,955
12%
P1,000,000 + P720,955 = P1,720,955
The technical know-how is not a consideration transferred to the former owners of Sunny Co but
an asset transferred to the same company. It is a post combination transaction.
2. C. 50,000
Consideration transferred P1,200,000
NCI @FV ((1,200,000/80%) x 20%) 300,000
FV of net assets (3,300,000 – 150,000 – 1,700,000) (1,450,000)
Goodwill (negative goodwill) P50,000

3. C. (200,000)
Consideration transferred (2,000 x 500) P1,000,000
FV of net assets (2,800,000 – 1,600,000) (1,200,000)
Goodwill (negative goodwill) (P200,000)
The share issuance cost is deducted from share premium. The P40,000 is an acquisition related
cost and is expensed when incurred. Restructuring provision is generally ignored or not
recognized unless the acquirer has a present obligation. Contingent liability may be recognized
even though improbable for as long as it is a present obligation as a result of past events.
4. A. 120,000
Consideration transferred P2,600,000
FV of net assets (5,900,000 + 90,000 – 3,500,000 – 10,000) (2,480,000)
Goodwill (negative goodwill) P120,000
5. B. (41,000)
Consideration transferred P2,400,000
FV of net assets* (2,441,000)
Goodwill (negative goodwill) (P41,000)
*Net assets:
Deferred tax asset = (400,000 – 280,000) x 30% + (480,000 – 350,000) x 30% + (480,000 –
400,000) x 30% = P99,000
Deferred tax liability = (2,200,000 – 2,000,000) x 30% + 60,000 x 30% = P78,000
Net assets = 2,840,000 + 99,000 + 60,000 – 480,000 – 78,000 = 2,441,000
Problem 7: MCQs – PFRS for SMEs
1. C. PFRS for SMEs require the use of purchase method in accounting for business
combination
2. B. 400,000
P1,000,000 + (800,000 x 25%) – 800,000 = P400,000
3. D. 500,000
FV of assets given P1,000,000
Transaction costs 100,000
Acquiree’s interest (75% x 800,000) (600,000)
Goodwill (negative goodwill) P500,000

4. A. Measurement of consideration transferred

5. C.