Page|

Chapter3
Busi
nessCombinati
ons(
Par
t3)

PROBLEM 1:FORCLASSROOM DI
SCUSSI
ON

1. Solut
ion:
Aver
ageannualearni
ngs 1,
000,
000
Normalearni
ngs(8M x12%) (
960,
000)
Excessear
nings  
40,
000
Di
vi
deby
:Capi
tal
i
zat
ionr
ate 25%
Goodwi
ll 160,
  000

2. Sol
uti
on:
Av
erageear
nings
1,
000,
000
Di
vi
deby
:Capi
tal
i
zat
ionr
ate 12%
Est
imat
edpur
chasepr
ice
8,
333,
333
Fai
rval
ueofEnt
it
yB’
snetasset
s
(
8,000,
000)
Goodwi
ll
333,
333

3. Solut
ion:
Aver
ageannualearni
ngs 1,
000,
000
Normalearni
ngs(8M x12%) (
960,
000)
Excessear
nings  
40,
000
Mul
ti
plyby
:Pr
obabl
edur
ati
on 5
Goodwi
ll 200,
  000

4. Solut
ion:
Aver
ageannualearni
ngs 1,
000,
000
Normalearni
ngs(8M x12%) (
960,
000)
Excessear
nings  
40,
000
Mul
ti
plyby
:PVofor
d.annui
tyof1@ 9%,
n=5 3.
88965
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2

Goodwi
ll 155,
  586

5. Sol
uti
on:

Legalf
orm:Ent
it
yAi
ssuesshar
est
oEnt
it
yB.

Ent
it
yA’
scur
rent
lyi
ssuedshar
es 2,
000 25%
Shar
esi
ssuedt
oEnt
it
yB(
2x3,
000) 6,
000 75%
Tot
alshar
esaf
tert
hecombi
nat
ion 8,
000

Subst
ance:Rever
se–Ent
it
yBi
ssuesshar
est
oEnt
it
yA

Ent
it
yB’
scur
rent
lyi
ssuedshar
es 3,
000 75%
Shar
esi
ssuedt
oEnt
it
yA(
3,000÷75%)x25% 1,
000 25%
Tot
alshar
esaf
tert
hecombi
nat
ion 4,
000

Considerati
ontr
ansferr
ed(1,000sh.x₱300) 300,000
Non-control
li
nginter
estintheacqui
ree -
Previ
ouslyheldequit
yinter
estintheacqui
ree -
Total 300,000
Fairval
ueofEntityA’snetasset
s (
260,000)
Goodwi l
l 40,000

PROBLEM 2:MULTI
PLECHOI
CE-THEORY
1. B
2. A
3. B
4. D
5. D
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3

PROBLEM 3:MULTI
PLECHOI
CE-COMPUTATI
ONAL

1. A
Sol
uti
on:
Gamer Play
er
  Co. Co. Tot
al
Aver
ageannualear
nings 40,
000 39,
000
Normalear
nings
(
500Kx5%)
;(380Kx5%) 25,
000 19,
000
Excessearni
ngs 15,
000 20,
000
Divi
deby:Capit
ali
zat
ionr
ate 20% 20%

Goodwi
ll 75,
000 100,
000 175,
000

2. D
Sol
uti
on:
Gamer Play
er
  Co. Co. Tot
al
1,
055,
00
Tot
alcontri
but
ion(squeeze) 575,
000 480,
000 0
Fai
rvalueofnetasset
s 500,
000 380,
000
Goodwill 75,
000 100,
000 175,
000

Gamer Play
er
  Co. Co. Tot
al
Totalcontri
buti
on 575,
000 480,
000 1,
055,
000
Distr
ibutionrat
io
(575/1,055);(
480/1,
055) 54.
50% 45.
50%
Totalsharestobeissued 100,
000 100,
000
Distr
ibutionofshares 54,
500 45,
500 100,
000

3. A
Explanation:Si
ncet henew enti
ty,AppCor porat
ion,willissueequit
y
i
nterestst obot hGamerandPl ayer,theacqui r
erismostl i
kel
ythe
enti
tyt hatr eceives the mostvot ing rights aft
ert he business
combi nation(i
.e.
,GamerCo.–54, 500shar esor54.50%i nterest
).
Howev er,ifthenewl ycreatedent it
ywi lt
l ransfercashand
otherconsi der
ationsandassumel i
abil
i
tiest oacquirebot hGamer
andPl ayer,t
heacquirerwouldbet henewlycr eat
edent i
ty.

4. B
Sol
uti
on:
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4

Av
erageannual
ear
nings(
650K+40Kexpr
opr
iat
ionl
oss)÷
5y
rs. 138,
000
Nor
mal
ear
nings(
590Kx12%) (
70,
800)
Excessear
nings  
67,
200
Mul
ti
plyby
:PVofor
dinar
yannui
tyof1@10%,
n=5 3.
79079
Goodwi
ll 254,
  741

Est
imat
edpur
chasepr
ice(
squeeze) 844,
741
Less:Fai
rval
ueofDay
’snetasset
s
(
590,
000)
Goodwi
l
l
254,
741

5. C
Sol
uti
on:

Legalf
orm:Sundayi
ssuesshar
est
oMonday

Sunday’scurr
entl
yissuedshar es 12,
000 10%
SharesissuedtoXYZ( 12sh.x9,000) 108,
000 90%
Totalsharesaft
erthecombi nati
on 120,
000

Subst
ance:Rev
erse–Mondayi
ssuesshar
est
oSunday
Shar
es %
Monday ’
scurrentl
yissuedshares 9,
000 90%
SharesissuedtoSunday[ (
9,000÷90%)x10%] 1,000 10%
Totalsharesaft
erthecombi nat
ion 10,
000

Considerati
ontr
ansferr
ed(1,000sh.x₱200) 200,000
Non-control
li
ngint
eresti
nt heacqui
ree -
Previ
ouslyheldequi
tyinter
estintheacqui
ree -
Total 200,000
Fairval
ueofSunday ’
snetassets (
130,000)
Goodwi l
l 70,000