Accounting for Business Combinations

Assessment 1 Part 2
1. The National Co. acquired 80% of the Coral Co. for a consideration transferred of P100,000,000. The
consideration was estimated to include a control premium of P24,000,000. Coral’s net assets were
P85,000,000 at the acquisition date. Are the following statements TRUE or FALSE, according to IFRS
3, Business Combination?
S1- Goodwill should be measured at P32,000,000 if the non-controlling interest is measured at its
share of Coral’s net assets.
S2- Goodwill should be measured at P34,000,000 if the non-controlling interest is measured at fair
value.
Answer: true, true
2. Company P acquired the assets (net of liabilities) of Company S in exchange for cash. The acquisition
price exceeds the fair value of the net assets acquired. How should Company P determine the
amounts to be reported for the plant and equipment, and for long-term debt of the acquired
Company S?
(PPE, Long-term debt)
Answer: Fair value, Fair value

3. On July 1, 2009, the Megna Co. acquired 100% of the Inhabit Co. for a consideration transferred of
P160,000,000.
At the acquisition date, a provisional fair value of P120,000,000 was attributed to the net assets. An
additional valuation received on May 31, 2010 increased this provisional fair value to P135,000,000
and on July 30, 2010, this fair value was finalized at P140,000,000.
What amount should Megna present for goodwill in its statement of financial position at December
31, 2010, according to IFRS 3, Business Combination?
Answer: 25,000,000

4. The contingent consideration of the acquired entity shall be recognized at fair value. The existence
of contingent consideration is often reflected in a lower purchase price. Recognition of such
contingent consideration shall
Answer: Increase the value attributed to goodwill, thus increasing the risk of impairment of goodwill

5. On July 1, 2010, Center Co. acquired Asia Corp. that resulted to goodwill in the amount of
P4,800,000. By December 31, 2010, the end of its 2010 reporting period, Center Co. had provisional
fair values for the following items:
·Trademarks effective in certain foreign territories of P400,000. These had an average remaining
useful life of 10 years at the acquisition date. The acquisition date fair value was finalized at
P500,000 on March 31, 2011.
· Trading rights in other foreign territories of P600,000. These had an average remaining useful life
of 5 years at the acquisition date. The acquisition date fair value was finalized at P300,000 on
September 30, 2011.
By what amount the 2010 net income, be increased or decreased by the provisional fair values of
trademarks and trading rights?
Answer: Decreased by P5,000