BRONCANO,

ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

ACCOUNTI
NGFORBUSI
NESSCOMBI
NATI
ON

BUSI
NESSCOMBI
NATI
ON-DATEOFACQUI
SITI
ON

I
ntr
oduct
ion
Asdef i
nedbyPFRS3,abusi nesscombi nati
oni satransacti
onorev enti
nwhi chanacquirer
obtainscont r
olofoneormor ebusi
nesses.Inabusi nesscombi nat
ion,oneoft heparti
escanalway s
beident i
fi
edast heacqui
rer,bei
ngtheentit
yt hatobtai
nscontroloftheot herbusi
ness( t
heacquir
ee).
Thecor eprincipleofPFRS3set soutthatanacqui r
erofabusi nessrecognizestheassetacqui
redand
l
iabil
iti
esassumedatt heiracquisi
ti
on-
datef ai
rvaluesanddisclosesinformat i
onthatenabl
euserst o
evaluatethenat ureandfi
nancialef
fect
soft heacquisit
ion.

THESCOPEOFPFRS3(
Usey
ourt
ext
bookasar
efer
ence–CH1andCH2)

Wi
thi
ntheScope Out
sidet
heScope

a.Combinati
onsinvol
vi
ngmut ual
ent
it
ies a. Wher e busi
nesscombi nati
on r esult
si nt he
b.Combi nati
ons achi
eved bycont
ractal
one (
dual format i
onofal ltypesofj ointarrangement s
l
ist
ingst
apling) (j
oi ntv enturesandj oi
ntoper at
ions)andt he
scopeexcept iononl yappl i
est ot hefinancial
stat ement soft hejointvent ur
eort hej oi
nt
oper ati
onitselfandnott heaccount i
ngf orthe
i
nt er estinaj ointar r
angementi nt hefinancial
stat ement s of a par ty t o t he j oi
nt
arrangement .

b. Wheret he busi
ness combinat
ion i
nvolv
es
ent
it
iesorbusi
nessundercommoncont r
ol.

c. Wheretheacqui
sit
ionofanassetoragr oup
ofasset
sdoesnotconst
it
utei
nbusiness.

I
DENTI
FYI
NGABUSI
NESSCOMBI
NATI
ON

AsdefinedbyPFRS3abusi nessisani ntegrat

edsetofact i
vi
tiesandasset sthatiscapableof
bei
ngconduct edandmanagedf orthepur poseofpr ovidi
ngar etur
ni ntheform ofdi vidends,l
ower
costorot hereconomicbenefit
sdi r
ectl
ytoinv estor
sorot herowners,member sorpar t
ici
pants.
Anentityshal
lassesswhet herthegr oupofassetsacquiredconsti
tuteabusi ness.Applyi
ngthe
guidanceofPFRS3abusi nessconsistsofi nputsandprocessesappliedtothoseinput sthathavethe
abi
lit
ytocr eateoutput
s.Ithavetobenot edt hatoutputisnotnecessaryforanintegratedsett oqual
i
fy
asbusinessbutt hemer eabil
it
ytopr oduceout putsoutoftheexist
ingprocessesandi nput s.
Theseelementsaredefinedasf oll
ows:

1.I
nput
s-aneconomicr
esour
ce(e.
g.non-
currentassets,
int
ell
ect
ual
proper
ty)t
hatmer
elyneed
t
ohavetheabi
l
ityt
ocont
ri
butet
othecreat
ionofout put
s.

2.Pr
ocess-asy st
em,st
andar
d,protocol
,conv
enti
onorrul
ethatwhenappliedtoaninputor
i
nput
s,creat
esoutput
s(e.
g.st
rategicmanagement
,oper
ati
onalprocesses,r
esour
ce
management).

3.Out
put
s-i
tist
her
esul
tofi
nput
sandpr
ocessest
hatar
eappl
i
edt
othosei
nput
s.

Def
ensi
veTechni
ques.Enumer
ate.(
9)

1.PoisonPil
l
2.Greenmail
3.WhiteKnightorWhit
eSquir
e
4.Pac-ManDef ense
5.“Sell
i
ngtheCr ownJewel
s”or“
Scor
chedEar
th”

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BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

6.SharkRepel l
ant
7.LeveragedBuy outs
8.TheMudsl ingingDefense
9.TheDef ensiveAcquisi
ti
onTact
ic

A.St
ructureofBusi nessCombi nati
on( 4)
1.Hor i
zont alIntegration-t histypeofcombi nati
oni sonet hatinvolv
escompani eswi t
hinthe
samei ndust r
yt hathav epr eviouslybeencompet it
ors.
2.Ver t
ical I
ntegration-i ttakespl acebetweent wocompani esinvolvedinthesamei ndustry
butatdi ff
erentlevel s.I
tnor mal l
yinvolvesacombi nati
onofacompanyandi t
ssuppliersor
customer s.
3.Congl omer ateCombi nation-involvescompani esinunrelatedindustri
eshav i
ngli
ttl
e,ifany
product ionormar ketsi mi l
ari
tiesforthepur poseofent eringintoanewmar ketsor
i
ndust ries.
4.Ci rcularCombi nation-ent ai
lssomedi v
ersifi
cation,butdoesnothav edrast
icchangei n
operat i
onasacongl omer ate.

B.MethodtoAccompl i
sht heCombi nati
on( 3)
1.Acqui si
ti
onofNetAsset s(assetsl
essl iabil
i
ties)
2.Acqui si
ti
onofCommonSt ocks(StockAcqui sition)
3.AssetAcqui siti
on
a.X+Y=XSt atutoryMer ger
b.X+Y=ZSt atutoryConsolidati
on
C.Accounti
ngMet hodUsed
I
. Therequiredmet hodofAccount ingist heAcqui siti
onMet hod.I
tisappli
edont he
acquisi
ti
ondat ewhi chisthedatet hattheacqui rerobtai
nscont r
olovertheacqui
ree.I
t
approachesabusi nesscombi nationf r
om t heper spect
iveoftheacquir
er,theent
it
ythat
obtai
nscont roloftheotherentit
iesint hebusi nesscombi nat
ion.

D.Fi
veStepProcessinAcquisit
ionMet hod
1.Identi
fytheAcquir
er
2.DeterminetheAcquisit
iondate
3.Calculat
etheFairValueofthepur chaseconsi
derati
ontr
ansfer
red
4.Recognizeandmeasur etheidentifi
ableasset
sandliabi
l
iti
esofabusiness,
and
5.Recognizeandmeasur eeithergoodwi l
loragainfr
om abargai
npurchase,i
fei
therexi
stsi
n
t
hetransact
ion

E.Contr
ol.Aninvestorcont rol
sani nvesteeifandonl yiftheinv
estorhasallthefoll
owing:
1.Powerov erthei nvest
ee-arisesf rom r
ights,whichmaybest rai
ght
for
war dorcompl ex.
2.Exposure, orrights,tovari
abler etur
ns-r etur
nsmusthav ethepotent
ialtovaryasar esult
ofthei
nv estee’sperformanceandcanbeposi ti
v e,negat
ive,orbot
h.
3.Theabi l
i
tyt ousei t
spowerov ertheinvesteetoaf f
ecttheamountofthei nvestor
’sr
et ur
ns.

F.Acqui
sit
ionDat
e.I
tist
hedat
eonwhi
cht
heacqui
rerobt
ainscont
rol
oft
heacqui
ree,
cit
edon
PFRS3.

G.I
dent
if
iabl
ewhen:
(1)i
tispr
obabl
ethatf
utur
eeconomi
cbenef
itwi
l
lfl
owt
oorf
rom t
heent
it
y.

(
2)t
hei
tem hasacostorv
aluet
hatcanber
eli
abl
ymeasur
ed.

H.Fai
rValue.I
tist
hepricet
hatwoul
dberecei
vedtosel
lanassetorpai
dtotransf
eral
iabi
li
tyi
n
anorderl
ytr
ansact
ionbet
weenmarketpar
ti
cipant
satt
hemeasur ementdat
e,asdef
inedbythe
PFRS13.

I
. Non-
control
li
ngInter
est.Iti
sal socal
l
edasthe“ minori
tyi
nter
est”andaccordingtoPFRS3iti
s
the“
equit
yinasubsidiaryandnotat t
ri
but
able,di
rectl
yorindi
rect
ly,t
oapar ent”andi
tis
measuredeit
heratit
sacqui sit
iondat
efai
rvalueorattheproporti
onateshareoftheval
ueof
neti
denti
fi
ableassetsacquired.

Except
ionstoRecognit
ionPr
inci
ple
Conti
ngentLiabi
l
iti
es

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BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

I
nabusi nesscombinati
onwher et heacquiredentityhascont ingentli
abil
it
iesther ecogni
ti
on
pri
nci
pleofPAS37doesnotappl y.I
nstead,theacquirershallrecogni
zecont i
ngentliabi
l
iti
esassumed
asoftheacquisit
iondat
eifitarisesfrom pastev entsandi thasaf airval
uet hatcanbemeasur ed
rel
i
ably
,regardl
essofwhetheriti
spr obableornott hatanout f
lowofresourcesembody i
ngeconomi c
benef
it
swi l
lberequi
redt
oset t
letheobligati
on.

J.For
mul
atoComput
eGoodwi
l
l/Gai
nfr
om Bar
gai
nPur
chase

Considerati
onTr ansfer
red xxx
Non-controll
i
ngi nt
erestintheAcquir
ee xxx
Previ
ouslyhel dequit
yinteresti
ntheacqui
ree xxx
Total xxx
Less:Fairvalueofidenti
fiabl
enetasset
sacquir
ed (xxx)
Goodwi l
l
/ gai
nf r
om bargainpurchase xxx

K.Conti
ngentConsider
ati
on.I
trequi
resthatal
lcont
ract
ualaswellasnon-
cont
ract
uall
iabi
l
iti
es
forwhi
chismor eli
kel
ythannotthatanassetorl
iabi
l
iti
esexi
sts,bemeasur
edatfai
rval
ueon
acqui
sit
iondat
e.

Theacquir
erisrequi
redt omeasur etheassetsacqui r
edandl i
abil
i
tiesassumedi nabusi ness
combinat
ionatit
sacquisi
ti
on-datefai
rv alues,however,suchinfor
mati
onisnotal waysavai
labl
eatt hat
dateand theenti
tymeasuresi dent
if
iablei t
emsatpr ovisi
onalamounts.Ther ef
ore,PFRS 3 all
owsa
measurementperi
odwhichisaper i
odaf tertheacquisi
ti
ondat eduri
ngwhicht heacquir
ermayadj ustthe
prov
isi
onalamountsr
ecogni
zedf orabusinesscombi nat
ion.

L. Howt oI dent
if
yMeasurementPer iodAdj
ustments?
a. Any cor r
ecti
on ofer ror
s afterthe measurementper
iod wi
l
lbe deemed as a pr
ior
perid
adjustmentinaccordancewithPAS8.
b. Anychangei nesti
mat eari
singfrom t
henew infor
mati
onshouldber
ecogni
zedi
nthecurrent
period.

M.Busi
nessCombi nati
onAchievedinStages.
Anacqui r
eraccountsforit
si nv
estmentintheequit
yinterestsofanacquireei
naccor
dance
wit
hnat ureoftheinvestmentsbyappl yi
ngtherel
evantst andar
dsandt hi
sisdonepri
orto
cont
rolbeingobtai
nedbytheacquirer
.Iti
salsoknownas“ stepacqui
sit
ions”
.

N.Acquisi
ti
onCosts.
Are costs ofissuing debtorequi t
yi nst
ruments.These cost s are excluded f
rom t
he
measurementoft heconsiderat
ionaidforthereasonthati
tisnotapar tofthef ai
rval
ueoft
he
acquir
eebeingmeasur edandar enotconsi der
edasasset s.Thesecost sar eaccount
edas
expenseinper
iodi nwhi
cht heyareincur
redorperiodwhenservicesarereceived.

COSTS TREATMENT
a. Di r
ectandI ndirect
Ex.Legal fees,fi
ndersandbr okeragef ee, adv
isor
y, Expenses
account ingv aluati
on( valuer s)andot her
professi onal orconsul ti
ngf eest oef f
ectt he
combi nat i
on
Gener al and admi nistrative cost s such as
manager ial(i
ncludingt hecost sofmai ntaini
ngan
i
nternalacqui sit
ions depar tment( management
salaries,depr eciati
on,r ent,andcost si ncurr
edto
duplicat ef acil
iti
es),over headt hatareal locatedt
o
themer gerbutwoul dhav eexi stedini tsabsence
and ot hercost s ofwhi ch cannotbe di rect
ly
attr
ibut edt othepar t
icularacqui sit
ion.

b. Shar eI
ssuanceCost
Ex.Transacti
oncostssuchasst ampduti
eson Debi
tto“
Shar
ePr emium”or“Addi
ti
onal
pai
d-i
n
new shar es, professi
onal adv
iser
’s fees, capi
tal
”account
under
wr i
ti
ng costsand broker
agefeesmaybe
i
ncurr
ed

c. BondIssueCost
Ex.Pr
ofessi
onaladv
iser
’sf
ees,under
wri
ti
ngcost
s Bondi
ssuecost
s
andbroker
agefeesmaybeincurr
ed

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BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

O.Measur
ementofConsi
der
ati
on
Consi
der
ati
on Measur
edat
1. Cash/
Monet
ary
Fai
rVal
ue

2. Non-
Monet
ary
Fai
rVal
ue

3. I
ssuanceofSt
ocks
Fai
rVal
ue

4. AssumeLi
abi
l
iti
es
PVofexpect
edf
utur
ecashf
lows

5. Cont
ingentConsi
der
ati
on
Anadd-ont
ot hebasepricethatisbasedon
event
soccur
ri
ngorcondi t
ionsbeingmetsome
t
imeaf
terthepurchasetakesplace

6. Shar
e-BasedPay
ment
Mar
ketbasedmeasur
einaccor
dancewi
thPFRS2

P.Lev
elsofOwner shi
p
a.PassiveInvestment
b.Strat
egic(Activ
e)Inv
est
ment1.I
nfl
uent
ial
2.Cont
rol
li
ng

Q.PAS27i
sent
it
ledSepar
ateFi
nanci
alSt
atement
s

R.PFRS10i
sent
it
ledGui
danceonCont
rol
s

S.Consoli
dati
on.Istheprocessofcombi ni
ngtheasset
s,l
i
abil
i
ties,earni
ngsandcashflowsofa
parentanditssubsidi
ari
esasi ftheywereoneeconomicent i
ty.Si
nceaneconomi candnot
l
egalperspecti
veisadopted,t
ransact
ionsbetweencompani
eswi thi
nthiseconomi
centit
yand
thei
rresul
tantbal
ancesmustbeel i
minated.

T.TwoMet
hodsofConsol
i
dat
ion.Di
ff
erent
iat
e.Wr
it
ethecor
respondi
ngf
ormul
a.
a. b.
P/
L P/
L

Pur
chasePr
ice xxx I
mpai
rmentLoss (
-) Pur
chasePr
ice xxx I
mpai
rmentLoss (
-)

Tr
ansact
ionCost xxx Di
vi
dendI
ncome +_
Tr
ansact
ionCost xxx Di
vi
dendI
ncome +
I
nvest
mentI
ncomexxx P/
L xxx
I
mpai
rmentLoss (
xxx) P/
L xxx
Di
vi
dend xxx
CVofI
nvest
ment xxx I
mpai
rmentLoss (
xxx)

CVofI
nvest
ment xxx

U.Theor
yinConsoli
dati
on
1.Entit
y(EconomicUni
t)Theor
y
2.ParentTheory
3.Propri
etar
yTheory

V.RmEARst
andsf
or?Rm —Rel
i
abl
e(r
eli
abi
l
ity
)measurementE—El
imi
nat
eA—Amor
ti
ze
R—Recogni
ze

W.Push-downAccounti
ng.Pushdownaccount ingtypi
call
yr esul
tsinhighernetasset sforthe
acquir
edcompanyont heacquisi
ti
ondatebecausetheassetsandl i
abi
li
tiesare“stepped-
up”to
fai
rvalueandgoodwil
lisrecogni
zed.Thi
sinturnusuall
yresult
sinlowerneti ncomei nperi
ods
subsequenttotheacquisit
ionduetohigheramor t
izat
ion,higherdepreciat
ion,andpot ent
ial
i
mpai r
mentcharges.

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BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

X.ReverseAcqui
sit
ion.I
toccur
swhenanent er
priseobtai
nsownershipoftheshar
esofanother
enter
pri
sebut,aspartofthetransact
ion,i
ssuesenoughv oti
ngsharesasconsider
ationt
hat
contr
olofthecombinedent
erpr
isepassestothesharehol
dersoftheacqui
redent
erpr
ise.

Y.Def
ine.
a.Invest mentEnt i
ties.Anent i
tythatobt ai
nsf undsf r
om oneormor einv estorsf ort he
purposeofpr ov idingt hoseinvestor
( s)wi t
hi nvest mentmanagementser vi
ces;commi t
st o
itsinv est
or(s)t hati tsbusinesspur posei st oi nv estf undssolelyforreturnsf rom capit al
appr eciat
ion,inv estmenti ncome,orbot h;andmeasur esandev al
uatestheper formanceof
subst anti
all
yal lofi tsinvestmentsonaf airvaluebasi s.
b.Variabl eInt
erestEnt it
ies.Asecondt ypeofcont rol l
edent erpri
seisast r
uctur edentity,al
so
knownasv ari
abl ei nterestenti
tyoraspeci alpur poseent i
ty.PFRS10pr ovidesgui danceon
when ast r
uct ured ent ity(SE)shoul d beconsol i
dated.An SE i ssetup t her eporti
ng
enter pri
se(or“ sponsor ”
)toperform av eryspeci ficandnar r
owf uncti
on.

Z.Usef
ulComput
ati
onal
For
mul
as
NON-CONTROLLI NGINTEREST
AtFai
rValue
1)Giv
enintheproblem
2)Notgi
ven,thenesti
matetheFai
rVal
ue

I
. Consi
der
ati
onpai
dincl
udespr
emi
um I
I. Consi
der
ati
onpai
dincl
udespr
emi
um
a.Pr
opor
ti
onatebasi
s a.Pr
opor
ti
onatebasi
s

BVofst
ockhol
der
s’equi
tysub xx BVofst
ockhol
der
s’equi
tysub xx

Adj
ust
mentt
oref
lectFV xx Adj
ust
mentt
oref
lectFV xx

FVofst
ockhol
der
s’equi
tysub xx FVofst
ockhol
der
s’equi
tysub xx

Mul
ti
pli
edby
:NCI xx Mul
ti
pli
edby
:NCI xx

Noncont
rol
l
ingi
nter
est(
par
ti
al)xx Noncont
rol
l
ingi
nter
est(
par
ti
al)xx

b.FVbasi
s b.FVbasi
s

NCIpar
ti
al. xx NCIpar
ti
al. xx

NCIongoodwi
l
l xx NCIongoodwi
l
l xx

Noncont
rol
l
ingi
nter
est(
ful
l
) xx Noncont
rol
l
ingi
nter
est(
ful
l
) xx

I
. Pr
oporti
onateShar
einIdenti
fi
abl
e CONSOLI
DATEDTOTALASSETS
NetAssetsoft
heSubsi
diary
Tot
alAsset
sofPar
ent@BV xxx

I
denti
fi
abl
eNetAsset
softheSubsi
di y=FVof Tot
ar alAsset
sofSubsi
diar
y@FV xxx
NetAsset
sxNoncont
rol
l
ingI
nter
est Goodwi
ll xxx

Di
rectCost(
ifpai
d) (
xxx)

I
ndi
rectCost(
ifpai
d) (
xxx)

Costofi
ssueorr
egi
ster(
ifpai
d) (
xxx)

Tot
alAsset
s xxx

CONSOLI
DATEDTOTALLI
ABI
LITI
ES CONSOLI
DATEDRETAI
NEDEARNI
NGS

Tot
alLi
abi
l
iti
esofPar
ent@BV xxx

Tot
alLi
abi
l
iti
esofSubsi
diar
y@FV xxx Ret
ainedEar
nings–Par
ent
,beg. xxx

CCP xxx CIi

nNetI
ncome xxx

Pur
chasePr
ice xxx Di
vi
dendsDecl
ared (
xxx)

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BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

Di
rectCost(
ifpai
d) xxx Tot
alRet
ainedEar
nings xxx

I
ndi
rectCost(
ifpai
d) xxx

Costofi
ssueorr
egi
ster(
ifpai
d) xxx

Tot
alLi
abi
l
iti
es xxx

CONSOLI
DATEDSHAREHOLDER’
SEQUI
TY NOTES:

SHEofPar
ent@BV xxx

Non-
cont
rol
l
ingI
nter
est xxx

Gai
nonBPO xxx Consi
der
ati
onTr
ansf
err
ed xxx

Gai
nonPHI xxx Less:
FVofI
dent
if
iabl
easset
sacqui
red

Gai
nonCCP xxx andl
i
abi
l
iti
esassumed (
xxx)

Pur
chasePr
ice(
Stocks@FV) xxx Goodwi
l
l xxx

Di
rectCost(
ifpai
d) (
xxx)

I
ndi
rectCost(
ifpai
d) (
xxx)

Costofi
ssueorr
egi
ster(
ifpai
d) (
xxx)

Tot
alSHE xxx

PROBLEM-
SOLVI
NG

I–St
atutor
yMergerver
susStockAcquisi
ti
on.Val
uat
ionofasset
sandl
i
abi
l
iti
esacqui
red,
stockacqui
sit
ion,
goodwi
l
l,st
ockpri
ceconti
ngency

Bel
ow i
st hecondensedbal ancesheetofSons,Inc.
,alongwi thest
imat
esoffai
rval
ues.Pop,I nc.is
planni
ngtoacquireSonsbyissuing100,000shar
esofitsP1parv aluecommonstock(
marketv
alueP8/share)i
n
exchangeforal
lt heoutst
andingcommonst ockofSons.Popal soguarant
eesthev
alueofi
tsshar
esi ssued.
Theexpectedpresentval
ueoft hi
sstockpri
ceconti
ngencyisP200,000.

Pr
e-Combi
nat
ionCondensedBal
anceSheet

Bookv al
ue Fai
rvalue
Currentasset s P 380,000 P 350,000
Pl
antasset s ___740,
000 810,000
Totalassets P1,120,
000
Li
abiliti
es P 500,000 450,
000
Commonst ock 50,
000
Additionalpaid-i
ncapi
tal 170,
000
Ret
ai nedear nings ___400,
000
Totalliabi
l
iti
esandequi t
y P1,120,
000

Requi
red:

1.St
atut
oryMer
ger:PreparePops’
(acquir
er/acquir
ing)ent
ry(
ies)t
orecordtheacqui
sit
ion.
2.St
ockAcqui
sit
ion:
Pr ePops’
epar (par
ent/acquir
er/acqui
ri
ng)ent
rytorecordt
heacquisit
ion.

1. St atut
oryMer ger
BooksofAcqui rer/Acqui
ri
ng
Acqusiti
onofAsset sandLiabili
ti
es:
Cur r
entAssets 350,
000
PlantAssets 810,
000
Goodwi ll 290,
000
Li
abili
ti
es 450,
000
Commonst ockP!par( 100,000shares) 100,
000
Addit
ionalpaid-i
ncaptal/sharepremium (
P8–P1,
par
)x100,
000 700,
000
APIC–St ockCont i
ngentConsi derat
ion 200,
000

Consi
der
ati
ontr
ansfer
red:
Commonstock(100,
000shar
esxP8) 800,
000

Page|
6
BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

Expexcted/Probabi
li
tyPVofSt ockPr
iceCont
ingency 200,000
Considerat
iontransf
erred 1,000,000
Less:FMVofasset sandliabi
li
ti
esacqui
red:
CurrentAssets 350,
000
Plantassets 810,
000
Liabi
li
ti
es (
450,
000) 710,
000
Posit
iveexcess:Goodwill 290,
000

2. StockAcqui sit
ion
BooksofAcquirer/Acquiri
ng( ParentCompany )
Acqui
sit
ionofSt ocks(common) :
I
nvestmentinsubsidiary-Pop 1,
000,
000
Commonst ockP1par( 100,000shares) 100,
000
Sharepremium/ additi
onal pai
d-incapi
tal
(P8–P1,
par
)x100,
000 700,
000
APIC–St ockCont ingentConsi der
ati
on 200,
000

FairValueofSubsi di ary
Consider ationTr ansf erred:
CommonSt ock( 100, 000shar esxP8) 800,000
Expect ed/Pr obabi li
tyPVofSt ockPriceConti
ngency 200,000
FVofSubsi diary 1,000,000
Less:BookVal ueofSHEofSubsi di
ary-Sons
Commonst ock 50,000
Addi tional paid-incapi tal/
Sharepremi um 170,000
Ret ainedear nings/Accumul atedProfit
/Loss 400,000 620,
000
All
ocat edexcess 380,
000
Add( Deduct )
: Ov er/under val
uati
onofAsset sandLi abi
l
iti
es
Decr easei nCur rentAsset s(
P350, 000–P380, 000) (
30,
000)
Increasei nPl antAsset s(P810,000–P740, 000) 70,
000
Decr easei nLi abil
ities(P450,000–P500, 000) 50,
000 90,
000
Positi
v eexcess: Goodwi ll 290,000

I
I-AssetsandLiabi
li
ti
esAcqui
red,Goodwi
l
landBar
gai
nPur
chaseGai
n,Cont
ingentConsi
der
ati
on,Changesi
n
Cont
ingentConsi
der
ati
on

Her
ear
ethepr
e-acqui
sit
ionbal
ancesheet
sofPopCompanyandSi
cleCompanyonDecember31,
20x5:

PopCo. Si
cleCo.
Bookvalue Bookval
ue Mar
ketval
ue
Currentasset s P 5,000,
000 P 2,
000,
000 P1,500,
000
Inv
est ment s 1,000,
000 500,
000 500,
000
Land 10,000,
000 5,
000,
000 6,
000,
000
Buil
dings( net) 40,000,
000 25,
000,
000 16,
000,
000
Equipment( net) 25,000,
000 10,
000,
000 2,
000,
000
Totalasset s P81, 000,
000 P42,
500,
000
Currentliabil
it
ies P 4,000,
000 P 1,
500,
000 1,
500,
000
Long-terml i
abi l
i
ties 20,000,
000 10,
000,
000 12,
000,
000
Commonst ock, P10par 5,000,
000 1,
000,
000
Additionalpaid-incapi
tal 40,000,
000 20,
000,
000
Retainedear nings 12,000,
000 10,
000,
000
Totalliabil
i
ties&equi t
y P81, 000,
000 P42,
500,
000

I
nadditi
ontotheabove,Sicl
eCo.hasi denti
fi
abl
eintangibl
eswi t
hafai
rvalueofP5,000,
000,not
r
ecogni
zedoni t
sbooksbutappropriat
elycapit
ali
zedbyPop.
OnJanuary1,20x6,
Popi ssues400,000sharesofit
sst ock,wit
haparval
ueofP10/ shar
eandamar ket
v
alueofP100/shar
e,t
oacquireSicleCompany ’
sassetsandl i
abil
it
ies.SECr
egi
strati
onfeesareP1,100,
000,
pai
d
i
ncash.

Requi
red:
1. Determinet hef ollowing:
(a)Totalasset s;
(b)Totalliabil
it
ies;
(c)Additionalpai d-i
ncapital(
sharepremium);
(d)Retainedear nings(accumulatedprof
itorl
oss)
;and
(e)Stockhol ders’/Sharehol
ders’equi
ty;

2. AssumePopi ssued90,000sharesofstockatamar ketvalueofP100pershar ewithcont

ingentcash
consider
ati
onamountedt oP500,000t hatispresentobl i
gat i
onandr el
i
ablymeasureabl
e,expected
presentval
ueofear
noutagreementofP200,000andpr obabi
litypresentval
ueofstockpri
ceconti
ngency
agreementofP300,
000.Thefol
lowingout-
of-
pocketcostsinr el
ationtoacquisi
ti
onareasfol
l
ows:

Page|
7
BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

Legal f
eesf ort hecont r
actofbusi nesscombinati
on P 80,
000
Broker’
sf ee 40,
000
Account ant’sf eef orpre-acquisit
ionaudit 100,
000
Otherdirectcostofacqui si
tion 70,
000
Int
ernalsecr etarial,general andallocatedexpenses 60,
000
Document aryst ampt axont henewshar es 20,
000
SECr egistrat i
onf eeofi ssuedshar es 90,
000
Print
ingcost sofshar ecer t
ifi
cates. 50,
000
Stockexchangel isti
ngf ee 30,
000
Determinet hef ollowing:
(a)Totalasset s;
(b)Totalliabil
it
ies;
(c)Additionalpai d-i
ncapital(
sharepremium);
(d)Retainedear nings(accumulatedprof
itorl
oss)
;and
(e)Stockhol ders’/Sharehol
ders’equi
ty;
3. Nowassumet hatPopi
ssues100,
000sharesforallofSicl
e’
sshares,asinrequi
rement( 1)above,and
Popagr eestopaycasht oSal
t’
sprevi
ousowner sifthecombinedearni
ngsofPopandSi cl
eexceeda
cer
tai
nt hresholdovert
henexttwoyears.Theexpect edpresentv
alueoftheear ni
ngscont i
ngencyis
P8,
000,000.Det er
minet
heamountofgoodwil
l(bargai
npurchasegai
norgainonacqui si
ti
on).
4. Assumet hesamefactsasinrequi
rement(3).Beforethecont
ingencyperi
odisov er,
theest
imat
edval
ue
oftheearni
ngsconti
ngencydecli
nestoP7, 000.Pr
800, epar
ePop’sent r
ytoref
lectthechangei
nval
ueof
theearni
ngscont
ingency,
if
(a)theval
uedecl
ineoccurswi
thinthemeasurementper i
od,or
(b)theval
uedecl
ineisduetoeventsoccur
ringsubsequenttoacquisi
ti
on.

PROBLEM I I
1.
(a)P133,400, 000:
Pop( P81, 000,000–P1,100,000) P79, 900,000
Si
cle: P1,500,000+P500, 000+P6,000,
000+P16, 000,
000+P2,
000,
000
+P5, 000,000+P22, 500,000(goodwi
ll
) 53,500,000
TotalAsset s 133,400,000
(b)P37,500,000
Pop( 4M+20M) 24,000,000
Sicle:1.5M +12M 13,500,000
Tot alLiabili
ti
es 37,500,000
(c)P74,900,000
Pop: 40M +( 100-10)x400,000–1,100,000 74,900,000
Si
cle: 0
APIC 74,
900,000
(d)P12,000,000
Pop: 12,000,000
Si
cle: 0
RetainedEar nings 12,000,000
(e)P95,900,000
Pop:
Stockhol der’sEqui
ty:
Commonst ock(5M +4M) 9,
000,000
API C(c) 74,900,000
RE( d) 12,000,000
95,900,000

Cur r
entSal es 1,
500,
000
Investment 500,
000
Land 6,
000,
000
Buildings 16,
000,
000
Equi pment 2,
000,
000
Ident i
fi
ableintangibl
es 5,
000,
000
Goodwi l
l 22,
500,
000
Cur r
entLiabili
ti
es 1,
500,
000
Long-term Liabil
it
ies 12,
000,
000
Commonst ock 4,
000,
000
Addi t
ionalpaid-i
ncapit
al 36,
000,
000

Considerat
iont
ransf
err
ed:
Shares(400,
000xP100) 40,
000,
000

Page|
8
BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

Less:MVofAsset sandLi abi

l
iti
esAcqui
red:
Currentasset s 1,500,000
Investment s 500,000
Land 6,000,000
Buildings 16,000,000
Equi pment 2,000,000
Ident i
fi
ablei
ntangibl
es 5,000,000
CurrentLiabil
it
ies (
1,500,000)
Long- ter
ml i
abil
it
ies (
12,000,000) (
17,500,000)
Posit
iveexcess: Goodwi l
l 22,500,000

Coststoissueandregi
sterst
ocks
ShareIssueCost
s/APIC 1,
100,
000
Cash 1,
100,
000

2.
(a)P111, 460, 000:
Pop( P81, 000, 000–P540, 000,out-
of-
pocket
) P80, 460,000
Sicle: P1,500, 000+P500, 000+P6, 000,
000+P16,000,
000
+P2, 000, 000+P5, 000,
000 31,000, 000
Total Asset s P111, 460, 000
(b)P37,700, 000
Pop( P4,000, 000+P20, 000,
000+P200, 000) P24, 200, 000
Sicle: P1,500, 000+P12, 000,000 13,500, 000
Total Liabi l
iti
es 37,700, 000
(c)P48,240, 000
Pop: P40, 000,000+( P100–P10)x90, 000shar
es
+P300, 000–P20, 000–P90, 000–P50,000 P48, 240,000
Sicle: 0
APIC 48,240,000
(d)P19,620, 000
Pop: (P12, 000,000–P80, 000–P40, 000–P100,000–P70,000
-P60, 000–P30, 000+P8, 000,
000 P19, 620,000
Sicle: ________ 0
Ret ainedear nings P19, 620, 000
(e)P73, 760, 000
Pop:
St ockhol der s’Equi
ty:
Commonst ock[P5,000,000+(90,
000sharesxP10)
] P5, 900,000
APIC( c): 48,240,000
RE( d) 19,620, 000
P73,760, 000

Consider ationtr
ansf er
red:
Shar es( 90,000xP100) 9,
000,
000
Prob.PVofCashCont i
ngentConsi der
ati
on 200,
000
Prob.PVofSt ockPr iceContingency 300,
000
Consi der ati
ontransferred 9,
500,
000
Less:MVofAsset sandLi abi
l
iti
esAcquired:
Currentasset s 1,500,000
Investment s 500,000
Land 6,000,000
Buildings 16,000,000
Equi pment 2,000,000
Ident i
fi
abl eint
angibles 5,000,000
CurrentLi abi
li
ti
es (
1,500,000)
Long- term Liabil
it
ies (
12,000,000) (
17,500,
000)
Negativeexcess: Gainonacqui sit
ion (
8,000,
000)

3. P500, 000
Consi derationt r
ansferr
ed:
Shar es(100, 000xP100) 10,
000,
000
Estimat edliabil
ityf
orCont i
gentCons. 8,
000,
000
Consi derati
ont ransf
erred 18,
000,
000
Less: MVofAsset sandLi abi
li
ti
esAcquir
ed:
Currentasset s 1,500,000
Investment s 500,000
Land 6,000,000
Buildings 16,000,000
Equi pment 2,000,000
Ident i
fi
ableintangibl
es 5,000,000
CurrentLi abili
ti
es (
1,500,000)

Page|
9
BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

Long-
term Li
abi
li
ti
es (
12,
000,
000) (
17,
500,
000)
Negat
iveexcess:
Gainonacqui
si
ti
on (
500,
000)

4. Inr
elat
iontoNo.3:P8M-7.8M=P200,
000.
(a)Withi
nMeasur ementPeriod
Esti
matedli
abil
i
tyforConti
ngentCons. 200,
000
Goodwil
l 200,
000

(b)Duetosubsequentevents:
Est
imatedl
i
abil
it
yforContingentCons. 200,
000
Gainonacquisi
ti
on/RE 200,
000

I
II–Val
uat
ionofAsset
sacqui
redandLiabi
l
iti
esassumed, MeasurementofConsi
der
ati
onTr
ansf
err
ed,
Changei
n
v
alueofAsset
sacquir
ed,
Pre-
acquisi
ti
onContingency
,In-
processR&D

SandyCor
por
ati
on’
sbal
ancesheetatJanuar
y2,
20x5i
sasf
oll
ows:

Sandy -Dr(
Cr )
Cashandr eceivables…………………………………………………………. . P200, 000,000
Inventori
es………………………………………………………………………… 600,000,000
Property,plantandequi pment,net
…………………………………………. 7,500,000,000
Currentli
abi l
it
ies…………………………………………………………………. . (400,000,000)
Long-term debt …………………………………………………………………… (
7,200,000,000)
Capitalstock………………………………………………………………………. (
7,200,000)
Retainedear nings………………………………………………………………. . ( 25, 000,000)
Accumul atedot hercompr ehensi
veincome……………………………… (
5,000,000)

Ananaly
sisofSandy’
sassetsandl i
abi
li
ti
esr eveal
sthatbookval
uesofsomer eport
edi
temsdonotr
efl
ectt
hei
r
marketval
uesatthedateofacquisi
ti
on:
● I nvent
oriesareover
valuedbyP200, 000,
000
● Pr operty
, pl
antandequipmentisov er
val
uedbyP2,000,
000,000
● Long- ter
m debtisunderv al
uedbyP100,000,
000
I
naddi
ti
on,
thef
oll
owingi t
emsar enotcur rent
lyrepor
tedonSandy ’sbalancesheet:
● Cust omercont r
acts,valuedatP25,000,000
● Ski lledworkforce,valuedatP45,000,000
● I n-processresearchanddev elopment,valuedatP300,000,000
● Pot enti
alcontr
actswi thprospect
ivecustomers,valuedatP15,000,000
● Sandy has notr ecorded expected futur
e warrantyliabil
i
ties wit
h a pr
esentv
alue of
P10,000,
000

OnJanuar y2,
20x5,Vel
ascoissuesnewst ockwithamar ketval
ueofP700,000,
000t oacquir
etheassets
andliabil
it
iesofSandy.St
ockregi
str
ati
onf eesareP100,000,
000,paidincash.Consult
ing,accounti
ng,andlegal
feesconnect edwiththemergerareP150,000,000,pai
di ncash.I naddit
ion,Vel
ascoent er
sintoanear ni
ngs
conti
ngencyagr eement,wher
ebyVelascowi llpaythef or
mershar ehol
dersofSandyanaddi ti
onalamounti f
Sandy ’
sper f
ormancemeet scert
ainmi ni
mum l evel
s. Thepresentv al
ueoft hecontingencyisestimatedat
P50,000,000.

Requi
red:
1.Determinetheamountofgoodwi l
l
.
2. Assumet hatduri
ngMar ch,20x5,
newinformat
ioncomesinregardi
ngthev al
ueofSandy’spr
oper
ty,
pl
antandequi pmentatthedateofacquisi
ti
on.Iti
sdet
erminedthatthepropert
ywasactuall
ywort
h
P1,500,
000lessthanpreviousl
yesti
mated.Maketheentr
ytorecordthisnewinfor
mation.

Page|
10
BRONCANO,
ZYRENEJADEG. ASSI
GNMENTNO.1 ACT1311:
00-
2:30(
MTh)

Problem I I
I
1.
Cashandr eceivables 200,
000,
000
I
nv entories 400,
000,
000
PPE 5,
500,
000,
000
CustomerCont racts 25,
000,
000
I
n- pr
ocessR&D 300,
000,
000
Goodwi ll 2,
035,
000,
000
CurrentLi abil
it
ies 400,
000,
000
Long-term debt 7,
300,
000,
000
War r
ant yLiabili
ty 10,
000,
000
Est.Liabili
tyforCont i
ngentCons. 50,
000,
000
Commonst ock 700,
000,
000

Consider ationt ransferred:

Shar es 700,
000,
000
Est ,
Liabi li
tyf orCont ingentCons. 50,
000,
000
Consi der ationt ransferred 750,
000,
000
Less:MVofAsset sandLi abi
l
iti
esAcqui
red:
Cashandr eceiv ables 200,000,000
Inventor i
es 400,000,000
PPE 5,500,000,000
Cust omerCont racts 25,000,000
In-processR&D 300,000,000
Cur r
entl iabi l
i
t y (400,000,000)
Long- term debt (
7,300,000,000)
War rant yliabili
ty (10,000,000) (
1,285,000,000)
Positi
veexcess: Goodwi ll 2,035,000,000

Acqui
sit
ionexpenses
Acquisit
ion-
rel
atedexpenses/
Ret
ainedear
nings 150,
000,
000
Cash 150,
000,
000

Cost
st oissueandregi
sterst
ocks
Sharepremium/APIC 100,
000,
000
Cash 100,
000,
000

2.
Goodwil
l 1,
500,
000,
000
Proper
ty,
plantandequi
pment 1,
500,
000,
000

Page|
11