STEP-ACQUISITION

Pares Company acquires 15% of Serap Company’s ordinary shares for P500,000 cash and carries the investment as FVPL. A few
months later, Pares purchases another 60% of Serap Company’s shares for P2,160,000. At that date, Serap Company reports
identifiable assets with a book value of P3,900,000 and a fair value of P5,100,000, and it has liabilities with a book value and fair
value of P1,900,000. The fair value of the 25% non-controlling interest om Serap Company is P900,000.

1. Goodwill arising on consolidation is to be valued at the proportionate share basis or partial goodwill method

Consideration transferred 2,160,00 (60%)

Fair value of previously-held interest
(2,160,000/60% x 15%) 540,000 (15%)
NCI (5.1M – 1.9M) x 25% 800,000 (25%)
Total 3,500,000 (100%)
Less: Fair value of net assets acquired (5.1M – 1.9M) 3,200,000
Goodwill 300,000

2. Goodwill arising on consolidation is to be valued at fair value or full goodwill method

Consideration transferred 2,160,000 (60%)

Fair value of previously-held interest
(2,160,000/60% x 15%) 540,000 (15%)
NCI 900,000 (25%)
Total 3,600,000 (100%)
Less: Fair value of net assets acquired (5.1M – 1.9M) 3,200,000
Goodwill 400,000

3. Remeasurement gain or loss to be reported in profit or loss

Fair value of previously-held interest 540,000

Less: Cost/carrying amount of investment 500,000
Remeasurement gain – P/L 40,000

4. Remeasurement gain or loss to be reported in profit or loss, assuming that the previously-held investment is measured at
FVOCI

Zero, because the resulting gain (which is computed above) will be recognized directly to retained earnings, if the
investment is measured initially at FVOCI.

STEP-ACQUISITION: FROM ASSOCIATE TO SUBSIDIARY

Enola Holmes Company's shareholders' equity as of December 31, 2021 is P2,030,000.

On January 1, 2022, Enola acquires 25% of Sherlock Holmes' ordinary shares for P150,000 and by issuing its own shares with a fair
value of P200,000.Enola acquired significant influence over Sherlock as a result of the stock acquisition. After three months, Enola
purchases another 55% of Sherlock's ordinary shares for a cash payment of P1,100,000. On this date, Sherlock reports identifiable
assets with carrying amount of P1,800,000 and fair value of P3,200,000, and it has liabilities with a book value and a fair value of
P900,000. At the acquisition date, net income reported by Sherlock for the three-month ended amounted to P500,000. The fair value of
the 20% non-controlling interest is P360,000. Non-controlling interest is valued using the proportionate share basis. Enola also paid
the following:

Broker's fee 25,000

Pre-acquisition audit fee 20,000
Legal fees 21,500
Audit fee for SEC registration of share issuance 18,000
Printing of share certificates 5,500

Immediately after the business combination, what is the consolidated total shareholders' equity to be reported in consolidated balance
sheet?

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 SOLUTION:

Initial cost of investment in associate 350,000

Add/Less: Share in net income (loss) - P500,000 x 25% 125,000
Less: Share in cash dividends -
Carrying amount of investment in associate 475,000

Fair value of previously-held interest

(P1,100,000 / 55% x 25%) 500,000
Carrying amount of investment in associate - 475,000
Gain on remeasurement 25,000

Fair value of 25% investment 500,000 25%

Consideration transferred for 55% additional interest 1,100,000 55%
Non-controlling interest
(P3,200,000 - P900,000) x 20% 460,000 20%
Total 2,060,000 100%
Fair value of net assets acquired - 2,300,000
Gain on bargain purchase - 240,000

SHE, December 31, 2021 2,030,000

Issuance of own shares 200,000
Share in net income 125,000
Gain on remeasurement 25,000
Gain on bargain purchase 240,000
Non-controlling interest 460,000
Acquisition-related costs - 90,000
Consolidated total SHE 2,990,000

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