Problem 1

Blue Co. Merged into Soda Corp. on June 30, 2020. In exchange for the net assets at fair market
value of Blue Co. amounting to P2,785,800, Soda issued 68,000 ordinary shares at P36 par value,
with a market price of P41 per share. Relevant data on ordinary shareholders’ equity immediately
before the combination show:
Soda Blue
Share Capital 8,790,000 2,030,000
Share Premium 3,834,000 782,000
Retained Earnings (Deficit) (1,516,000) 495,000

Out of pocket costs of the combination were as follows:

Legal fees for the contract of business combination 174,700
Audit fee for SEC registration stock issue 198,400
Printing costs of stock certificates 144,900
Broker’s fee 135,000
Accountant’s fee for pre-acquisition audit 161,000
Other direct cost of acquisition 90,400
General and allocated expenses 115,300
Listing fees in issuing new shares 172,000

Included as part of the acquisition agreement is the additional cash consideration of P163,000 in the
event Soda Co.’s share price will reach P32 per share by year-end.

At acquisition date, the share price is P27.50 and increased by P4.80 by December 31, 2020.

At acquisition date, there was only a low probability of reaching the target share price, so the fair
value of additional consideration was determined at P74,000.
1. What is the amount of expense to be recognized in the statement of comprehensive income for
the year ended December 31, 2020?
Co are rce y
Legal fees 174,700 Audit fee 198,400
se ia s
Broker’s fee 135,000 Printing costs 144,900
sh u tud
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Accountant’s fee 161,000 Stock Issuance Costs 343,300
Other direct cost 90,400
(68,000*(41-36))
Gen. & alloc. Exp. 115,300 Share Premium 340,000
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Listing fees 172,000 Stock Issuance Cost 3,300

Indirect/Direct Costs 848,400 Cash 343,300
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To record stock-related issuance costs

Shares (68,000 @ P41) 2,788,000
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Contingent Cons. 74,000 CC Payable 74,000

Total Consideration Paid 2,862,000 Loss on Cont. Cons. 89,000
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FVNAA 2,785,800 Cash 163,000

Goodwill 76,200 To record the settlement of cont. Cons. on
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December 31, 2020.

Problem 2
Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10
and bonds payable with face amount of P500,000. The bonds are classified as financial liability at
amortized cost.

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At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other
hand, the bonds payable classified as financial liability at amortized cost, are trading at 110.

Entity A P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000
acquisition related costs and P30,000 indirect costs of business combination.

Before the date of acquisition, Entity A and Entity B reported the following data:
Entity A Entity B
Current assets 1,000,000 500,000
Non-current assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Non-current liabilities 300,000 500,000
Ordinary shares 500,000 200,000
Share Premium 1,200,000 300,000
Retained Earnings 800,000 100,000

At the time acquisition, the Current assets of Entity A have a fair value of P1,200,000, while the Non-
current assets of Entity B have fair value of P1,300,000. On the same date, the Current liabilities of
Entity B have a fair value of P600,000 while the Non-current liabilities of Entity A have a fair value of
P500,000.
1. How much is the GW or BPG?
2. What total amount should be expensed as incurred at the time of business combination?
Entity B
Current assets 500,000 Acquisition related costs 40,000
Non-current assets 1,300,000 Indirect costs 30,000
Current liabilities (600,000) Indirect/Direct Costs 70,000
Non-current liabilities (500,000)
FVNAA 700,000

Shares (10,000@ 20) 200,000 Bonds payable 550,000

Co are rce y
Bonds payable (500,000 @ 1.10) 550,000 Bond Issue Cost 20,000
se ia s
Total Consideration Transferred 750,000 Bonds payable, net 530,000
sh u tud
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FVNAA 700,000
Goodwill 50,000
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Problem 3
The Statement of Financial Position of Lumina Corporation on June 30, 2020 is presented below:
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Current Assets 195,000

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Land 1,320,000
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Building 660,000
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Equipment 525,000
Total Assets 2,700,000

Liabilities 525,000
Ordinary shares, P5 par 900,000
Share Premium 825,000
Retained Earnings 450,000
Total Liabilities and Equity 2,700,000

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All the assets and liabilities of Lumina assumed to approximate their fair values except for land and
building. It is estimated that the land have a fair value of P2,100,000 and the fir value of the building
increased by P480,000. Enigma Corporation acquired 80% of Lumina’s outstanding shares for
P3,000,000. The consideration paid includes control premium of P852,000.
1. How much is the GW or BPG on the consolidated FS?
2. Assuming the consideration paid excludes control premium of P138,000 and the fair value of non-
controlling interest is P736,500, how much is the GW/BPG on the consolidated FS?

Current Assets 195,000

Land 2,100,000
Building 1,140,000
Equipment 525,000
Liabilities (525,000)
FVNAA 3,435,000

FVCGU 3,000,000 a) PS of FVNAA

NCI 687,000 (3,435,000 x 20%) 687,000
Total Consideration Transferred 3,687,000 b) Implied FV
FVNAA 3,435,000 (3,000,000 - 852,000 x 20%) 537,000
Partial Goodwill 252,000 80%

FVCGU 3,000,000 a) PS of FVNAA

Control Premium 138,000 (3,435,000 x 20%) 687,000
NCI 736,500 b) Expressed FV 736,500
Total Consideration Transferred 3,874,500
FVNAA 3,435,000
Partial Goodwill 439,500

Parent Subsidiary
80% 20%
Co are rce y

FVCGU 3,784,500 3,138,000 736,500

se ia s
sh u tud

FVNAA 3,435,000 2,748,000 687,000

ur d v wa
Goodwill 439,500 390,000 89% 49,500 11%
Impairment (339,500) 302,155 37,345
100,000 87,845 12,155
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Problem 4
On January 2, 2020, the Statement of Financial Position of Arden Company and Wonder Company
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immediately before the combination are:

Arden Co. Wonder Co.
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Cash 2,700,000 90,000

Inventories 1,800,000 180,000
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Property and Equipment (net) 4,500,000 630,000

Total Assets 9,000,000 900,000

Current Liabilities 540,000 90,000

Ordinary Shares, P100 par 900,000 90,000
Share Premium 2,700,000 180,000
Retained Earnings 4,860,000 540,000
Total Liabilities and Equity 9,000,0000 900,000

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The fair value of Wonder Company’s equipment is P918,000. Arden Company acquired 80% of the
outstanding shares of Wonder Company for P820,800 and non-controlling interest is measured at
the proportionate share of Wonder Company’s identifiable net assets.
1. How much is the consolidated stockholder’s equity of the date of acquisition?
2. Assuming Arden Company acquired 90% of the outstanding shares of Wonder Company for
P1,458,000 and non-controlling interest is measured at fair value, how much is the total
consolidated assets on the date of acquisition?

Cash 90,000
Inventories 180,000
Property and Equipment (net) 918,000
Current Liabilities (90,000)
FVNAA 1,098,000

FVCGU 820,800 Consolidated O/S 900,000

NCI (PS of FVNAA) 219,600 Consolidated SP 2,700,000
Total Consideration Transferred 1,040,400 Consolidated RE 4,917,600
FVNAA 1,098,000 Conso. SHE - Parent 8,517,600
Partial Bargain Purchase Gain 57,600 NCI 219,600
Consolidated SHE 8,737,200

FVCGU 1,458,000 BV Assets - Parent 9,000,000

NCI (Expressed FV) 162,000 FV Assets - Subsidiary 1,188,000
Total Consideration Transferred 1,620,000 Goodwill 522,000
FVNAA 1,098,000 Consideration Paid (1,458,000)
Total Goodwill 522,000 Consolidated Assets 9,252,000

Parent Subsidiary
90% 10%
FVCGU 1,620,000 1,458,000 162,000
Co are rce y
se ia s
FVNAA 1,098,000 988,200 109,800
sh u tud

Goodwill 522,000 469,800 52,200

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Problem 5
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On January 1, 2020, Vector acquired 90% of the equity share capital of Fern in a share exchange in
which Vector issued two new shares for every three shares it acquired in Fern. Additionally on
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December 31, 2020, Vector will pay the shareholders of Fern P13.2 per share acquired. Vector’s cost
of capital is 10% per annum. At the date of acquisition, shares in Vector and Fern had a stock market
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value of P48.75 and P18.75 each, respectively. Income statements for the year ended September 30,
2020.
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Vector Fern
Revenue 4,845,000 2,850,000
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Cost of Sales (3,840,000) (1,950,000)

Gross Profit 1,005,000 900,000
Distribution Costs (102,000) (130,500)
Administrative expenses (285,000) (180,000)
Investment Income 37,500 ----
Finance Costs (31,500) ----
Profit before tax 624,000 589,500
Income tax expense (210,000) (120,000)
Profit for the year 414,000 469,500
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Equity as at October 1, 2019
Equity shares of P7.50 each 1,800,000 562,500
Retained Earnings 4,050,000 2,625,000

At the date of acquisition, the fair values of Fern’s assets were equal to their carrying amounts with
the exception of Land, which had a fair value of P135,000 above its carrying amount. Also, Fern had
a contingent liability which Vector estimated to have a fair value of P337,500. This has not changed
as at September 30, 2020. Fern has not incorporated these fair value changes into its financial
statements. Vector’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For the purpose, Fern;s share price at that date can be deemed to be representative of
the fair value of the share held by non-controlling interest.
1. How much is the GW or BPG?

October 2019 December 2019 January 2020 September 2020

3 months income Acquisition Date Year-end

BVNAA Subsidiary 10/1/2019 3,187,500

(562,500 + 2,625,000)
Net Income Oct-Dec 2019 (469,500 x 3/12) 117,375
BVNAA Subsidiary 1/1/2020 3,304,875
Increase in FV of Land 135,000
Contingent Liability (337,500)
FVNAA 3,102,375

Shares issued by Parent

(562,500/7.50 x 90%) x 2/3 x 48.75 2,193,750
Contingent Consideration PV10%, 1
(67,500 x 13.2) 810,000
Co are rce y
FVCGU 3,003,750
se ia s
sh u tud

NCI (Expressed FV: 3,102,375 x 10%) 310,237.5

ur d v wa
Total Consideration Transferred 3,313,987.5
FVNAA 3,102,375
Partial Goodwill 211,612.5
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Problem 6 - Step Acquisition

Clark Company’s stockholders’ equity as of December 31, 2019 is P7,308,000. On January 1, 2020
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Clark acquires 30% of Rome Company’s ordinary shares for P540,000 cash and by issuing its own
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shares with a fair value of P1,350,000. Clark acquired significant influence over Rome as a result of
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stock acquisition. After four months, Clark purchases another 60% of Rome ordinary shares for a
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cash payment of P3,942,000. On this date, Rome reports identifiable assets with carrying value of
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P6,480,000 and fair value of P11,520,000 and it has liabilities with a book value of P3,240,000.

At the acquisition date, net loss reported by Rome for the four-month ended amounted to P900,000.
the fair value of the 10% non-controlling interest is P1,296,000. Non-controlling interest is valued
using the proportionate basis. Clark also paid the following: P90,000 for legal fees, P72,000 for
finder’s fee, P77,400 for accountant’s fee, P64,800 for audit fee for SEC registration of stock issued
and P19,800 for printing stock certificates.
1. Immediately after the business combination, how much is the consolidated total equity?
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 Legal fees 90,000 Audit fee 64,800
Finder’s fee 72,000 Printing costs 19,800
Accountant’s fee 77,400 Stock Issuance Costs 84,600
Indirect/Direct Costs 259,400
Inv. In Associate 1,890,000
January 1, 2020 30% Cash 540,000
May 1, 2020 60% O/S 1,350,000
Clark’s Acquisition over Rome 90%
Net Loss (900,000*30%) 270,000
BV of Inv. In Associate Inv. In Associate 270,000
(1,890,000 - 270,000) 1,620,000
FV of Inv. In Associate
(3,942,000/60% * 30%) 1,971,000 Inv. In Associate 351,000
Gain on Remeasurement 351,000 Gain on Remeasurement 351,000

FV of Assets 11,520,000 SHE Parent 12/31/2019 7,308,000

FV of Liabilities 3,240,000 Shares issued 1/1/2020 1,350,000
FV of Net Assets Acquired 8,280,000 Net Loss in Associate (270,000)
NCI % 10% Gain on Remeasurement 351,000
Non-controlling Interest 828,000 Partial BPG 1,539,000
Indirect/Direct Costs (239,400)
FV of Consideration Given Up 3,942,000 60% Stock Issuance Cost (84,600)
FV of Existing Interest 1,971,000 30% SHE Parent 5/31/2020 9,954,000
Non-controlling Interest 828,00 10% Non-controlling Interest 828,000
6,741,000 100% Consolidated SHE 10,782,000
FV of Net Assets Acquired 8,280,000
Partial Bargain Purchase Gain 1,539,000
Co are rce y
se ia s
sh u tud
ur d v wa
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