18.

On June 30, 2013 White Corporation issued 100,000 shares of its P20 par value
common stock for the net assets of Black Company. The market value of White's
common stock on June 30 was P36 per share. White paid a fee of P100,000 to the
broker who arranged this acquisition.
Costs of SEC registration and issuance of the equity securites amounted to, P50,000.
Contingent consideration determined to be paid after acquisition amounts to P 120,000.
What amount should White capitalize as the cost of acquiring Black's net assets.
a. P3,700,000 c. P3,720,000
b. P3,65 0,000 d. P3,750,000 Guerrero 2013 Issuance of Shares of
Capital
Share Issuance Cost
19. When Pedro Company acquired Sam Company's net assets by issuing its own capital
stock, it had the following expenditures:

Broker's fee P50,000

Pre-acquisition audit fee 40,000
Legal fees for merger agreement 47,000
Audit fee for SEC registration of stock issue 46,000
Printing of stock certificates 11,000

Under IFRS-3 (2008), the expenditures that should be debited to Additional Paidin Capital
(APIC) account is:
a. P57,000 c. P-0-
b. P137,000 d. P46,000 Guerrero 2013

Shares Issued
20. Sicat Co. will issue share of P10-par common stock for the net assets of Max
Co. Sicat's common stock has a current market value of P40 per share. Max balance sheet
accounts follow:

Current assets P320,000 Common stock, par P4 (80,000)

Property and 880,000 Additional paid-in- (320,000)
Equipment capital
Liabilities (400,000) Retained earnings (400,000)

Max current assets and property and equipment, respectively, are appraised at P400,000
and P1,600,000; its liabilities are fairly valued. Accordingly, Sicat Co. issued shares of its
common stock with total market value equal to that of Max net assets. To recognize
goodwill of P200,000, how many shares were issued?
a. 40,000 c. 50,000
b. 45,000 d. 55,000 Dayag 2013

21. Ruben, Inc. is to acquire James Corp. by absorbing all the assets and assuming all the
liabilities for the latter in exchange for shares of the former's stock. Below are the
 balance sheets of the two companies, with the corresponding appraised value
increment for James.
Ruben James
Assets, per books P4,000,000 P2,500,000
Assets, appraisal increase P300,000
Liabilities PI,500,000 P800,000
Common stock (No par; PI00 par) 2,000,000 1,000,000
Additional paid-in capital 700,000 300,000
Retained earnings (deficit) (200,000) 400,000
Total equities P4,000,000 P2,500,000
The parties agree to use the appraised values, against which the fair market value of the
shares will be matched. Ruben, Inc.'s common stock is currently selling at P100 per share.
The number of shares to be issued by Ruben, Inc. is:
a. 10,000 c. 17,000
b. 13,000 d 20,000 Dayag 2013

22. Red Corporation will ispue common shares with a par value P10 for the net assets of
Blue Company Red's common stock has a current market value of P40 per share.
Blue's statement of financial position on the date of acquisition follow:

Current assets P320,000 Common stock, P5 par P80,000

Property and equipment 880,000 Additional paid in capital 320,000
Liabilities 400,000 Retained earnings 400,000

Blue's current assets are appraised at P400,000 and the property and equipment was also
appraised at P1,600,000. Its liabilities are fairly valued. Accordingly, Red Corporation
issued shares of its common stock with a total market value equal to that of Blue's net
assets including goodwill.
To recognize goodwill of P200,000, how many shares were to be issued by Red'.
a. 45,000 c. 50,000
b. 40,000 d. 55,000 Guerrero 2013

Income from Acquisition

23. On May 31,2013, Dear Company has assets and liabilities with the following fair values:

Current assets P180,000

Non-current assets 220,000
Liabilities 40,000

On June 1,2013, Love Corporation purchases the net assets of Dear Company for
P310,000 cash. In the books of Love corporation, the acquisition resulted in: Guerrero
2013
a. Negative goodwill of P50,000.
b. Income from acquisition of P50,000.
c. Reduction from current assets of P50,000.
d. Deduction from non current assets of P50,000.
Purchase Consideration & Net Assets
24. Diwalwal, a private limited company, has acquired Coal, a private limited company, on
January 1,2011. The fair value of the purchase consideration was 10 million ordinary
shares of P1 of Diwalwal, and the fair value of the net assets acquired was P7 million. At
the time of the acquisition, the value of the ordinary shares of Diwalwal and the net assets
of Coal were only provisionally determined. The value of the shares of Diwalwal (P11
million) and the net assets of Coal (P7.5 million) on January 1, 2011, were finally
determined on November 30, 2011.
However, the directors of Diwalwal have seen the value of the company decline since
January 1,2011, and as of February 1,2012, wish to change the value of the purchase
consideration to P9 million. What value should be placed on the purchase consideration
and assets of Coal as at the date of acquisition?
a. Purchase consideration P10 million, net asset value P7 million.
b. Purchase consideration P11 million, net asset value P7.5 million.
c. Purchase consideration P9 million, net asset value P7.5 million.
d. Purchase consideration P11 million, net asset value P7 million. Dayag 2013

Stock Exchange Ratio

25. Companies X, Y, and Z, parties to a consolidation, have the following data:
X Co. Y Co. Z Co.
Net assets P400,000 P600,000 PI,000,000
Average annual earnings 60,000 60,000 80,000
The parties collectively agreed that the new corporation, AA Co. will issue a single class of
stock based on the earnings ratio. What is the stock distribution ratio to companies X, Y,
and Z, respectively?
a. 20:30:50 c. 30:40:30
b. 30:30:40 d. 40:40:20 Dayag 2013

42. On 1 December 2011, Casio Ltd. acquired all the assets and liabilities of Aurora
Ltd. with Casio Ltd. issuing 100,000 shares to acquire these net assets. The fair value of
Aurora Ltd.'s assets and liabilities at this date were:

Cash P50,000
Furniture and fittings 20,000
Accounts receivable 5,000
Plant 125,000
Accounts payable 15,000
Current tax liability 8,000
Provision for annual leave 2,000

The financial year for Casio Ltd. is January - December.

The fair value of each Casio Ltd. share at acquisition date is P1.90. At acquisition date,
the acquirer could only determine a provisional fair value for the plant. On 1 March 2012,
 Casio Ltd. received the final value from the independent appraisal, the fair value at
acquisition date being P131,000. Assuming the plant had a further five-year life from the
acquisition date.
The amount of goodwill arising from the business combination at December 1,2011:
a. 15,000 c. 5,000
b. 13,000 d. 0 Dayag 2013

43. The VV Company had these accounts at the time it was acquired by Bush Co.:

Cash P36,000
Accounts receivable 457,000
Inventories 120,000
Plant, property, and equipment 696,400
Accounts payable 350,800

Bush Co. paid P1,400,000 for net assets of VV Company. It was determined that fair
market values of inventories and plant, property, and equipment were P133,000 and
P900,000, respectively.
An assumed contingent liability arising from past events with a fair value amounting to
P10,000 and such amount is considered a reliable measurement.
In the books of Bush Co., this transaction resulted in:
a. Goodwill recorded at P441,400
b. Goodwill recorded at P224,800
c. Goodwill recorded at P234,800
d. Current assets increased by P234,800 Dayag 2013

SOLUTIONS

18 Fair value of shares issued (100,000 x P36) P3,600,000

Contingent consideration 120,000
Total acquisition cost P3,720,000

19. Audit fee for SEC registration of stock issue P46,000

Printing of stock certificates '11,000
Total debit to APIC P57,000

20. (b)
Fair value of net identifiable assets acquired:
Current assets P 400,000
Property and equipment 1,600,000
Liabilities ( 400,000)
FMV of net assets P1 ,600,000
 Add: Goodwill 200,000
Consideration transferred P1 ,800,000
Divided by: Current market value per share ^P 40
Number of shares issued 45,000

21
(d)
Assets at appraised value (P2,500,000 + P300,000) P2,800,000
Less: Liabilities 800,000
Net assets at appraised values Z':. P2,000,000
Divided by: Current selling price per share ............................. P 100
Number of shares issued 20,000

22. Fair value of net identifiable assets acquired:

Current assets P 400,000
Property and equipment 1,600,000
Liabilities ( 400,000)
Net assets acquired P1,600,000
Add: Goodwill 200,000
Acquisition cost P1,800,000
Divided by market value per share P 40
Number of shares to be issued 45,000

23. Price paid P310,000

Less: Fair value of net identifiable assets
Current assets P180,000
Non-current assets 220,000
Liabilities ( 40,000) 360,000
Income from acquisition P (50,000)
24. (b)

25.(b) Fraction
X P 60,000 6/20 = 30%
Y 60,000 6/20 = 30%
Z 80,000 8/20 = 40%
P200,000 100%

.
42. Consideration transferred (100,000 shares xP P 190,000
 1.90) Less: Fair value of net identifiable assets
acquired:
Cash P 50,000
Furniture and fittings 20,000
Accounts receivable 5,000
Plant 125,000
Accounts payable (15,000)
Current tax liability (8,000)
Liabilities (2,000) 175,000
Goodwill P15,000

One of the problems that may arise in measuring the assets and liabilities of the acquiree
is that the initial accounting for the business combination may be incomplete by the end
of the reporting period. For example, the acquisition date may be August 18 and the end
of the reporting period may be August 31. In this situation, in accordance with par. 45, the
acquirer must report provisional amounts in its financial statements. The provisional
amounts will be best estimates and will need to be adjusted to fair values when those
amounts can be determined after the end of the reporting period. The measurement
period in which the adjustments can be made cannot exceed one year after the
acquisition date.
The carrying amount of the plant must be calculated as if its fair value at the acquisition
date had been recognized from that date, with an adjustment to goodwill.
If the plant had a 5-year life from acquisition date, Casio Ltd would have charged
depreciation for 1 month in 2011. Extra depreciation of PJ00, being 1/5 x1/12 x P6 000 is
required in 2012.

The adjusting entry at March 1, 2012 is:

(Adjustment for provisional accounting)
Plant 6,000
Goodwill 6,000
(Adjustment to depreciation due to provisional accounting)
Retained Earnings (1/1/12).. 100
Accumulated Depreciation 100
If depreciation has been calculated monthly for 2012, further adjustments would be
required.

43. (C)

Consideration transferred (fair value) P1,400,000

Less: Fair value of net identifiable assets acquired:
Cash P 36,000
Accounts receivable 457,000 Inventories :. 133,000
Property, plant and equipment 900,000
Accounts payable (350,800)
Provision for liability ( 10,000)
1,165,200
Goodwill P 234,800
PFRS 3 (2008) par. 23 requires thai the acquirer should recognize a contingent
liability assumed in a business combination as of the date of acquisition if: • it is a
present obligation that arises from past events; and
• its fair value can be measured reliably.
Therefore, contrary to PAS 37, the acquirer recognizes a contingent liability assumed in a
business combination at the acquisition date even if it not probable that an outflow of
resources embodying economic benefits will be required to settle the obligation.