Quiz Business Combi

Quiz 1
Problem 1
Entity A acquired the net assets of Entity B by issuing 10,000 of its ordinary shares with par value of P10
and bonds payable with face value of P500,000. The bonds are classified as financial liability at fair value
through profit or loss.
At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand,
the bonds payable are trading at 105.
Entity A paid P10,000 stock issuance costs and P20,000 bond issue costs. Entity A also paid P40,000
acquisition related costs and P30,000 indirect costs of business combination.
Before the date of acquisition, Entity A and Entity B reported the following data:
Entity A Entity B
Current assets P1,000,000 P 500,000
Noncurrent assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Noncurrent liabilities 300,000 500,000
Ordinary shares 500,000 200,000
Share premium 1,200,000 300,000
Retained earnings 800,000 100,000
At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent
assets of Entity B have fair value of P1,300,000. On the same date, the current liabilities of Entity B have
fair value of P600,000 while the noncurrent liabilities of Entity A have fair value of P500,000.
1. What is the goodwill or (gain on bargain purchase) arising from business combination?
Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

a. Cash 0
b. Issued share(@FMV) 200,000
c. Bonds(@FMV) 550,000
d. Contingent consideration(@FMV) 0
2. Non-controlling interest (NCI) 0

3. FMV of previously held equity share if achieved in stage 0
LESS: *FMV of Identifiable Net Assets of Acquiree (Exc: Existing Goodwill) (700,000)
GOODWILL 50,000
Entity B
FMV Current asset 500,000
FMV N-current asset 1,300,000
FMV Current liabilities (600,000)
FMV N-current liabities (500,000)
*FMV of Identifiable Net Asset 700,000
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2. What is the amount that shall be expensed as incurred at the time of business combination?
Solution: ARC 40,000
Indirect costs 30,000
BIC 20,000
Expense 90,000
*Bond issue costs @ FVTOCI and Amortized cost is charged directly to bonds(FMV)
* Bond issue costs @ FVPL is expense immediately
Problem 2
Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enables the former
to obtain control of the latter at an acquisition price of P1,000,000. Entity A paid P100,000 acquisition
related costs and P50,000 indirect costs of business combination.
At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An asset of Entity B is
overvalued by P60,000 while one of its liability is undervalued by P40,000.
1. What is the initial measurement of noncontrolling interest in net assets in the

consolidated statement of financial position?
Presumed fair value of noncontrolling interest (P1,000,000/80% x 20%) P 250,000

Proportionate share of fair value of net assets of acquiree (P1,500,000x20%) P 300,000
Note: The proportionate share is higher that’s why it is the initial measurement.
2. What is the goodwill or (gain on bargain purchase) arising from business combination?
Fair value of consideration transferred P 1,000,000

Add: Proportionate share of fair value of net assets of acquiree (NCI measurement) 300,000
Less: Fair value of the net assets of acquiree (P1,600,000-P60,000-P40,000) (1,500,000)
Gain on bargain purchase (Always partial for controlling interest only) (P 200,000)
Problem 3
The Statement of Financial Position of CHASE Corporation on ending February 5, 2020 is presented as
follows:
Current Asset P195,000

Land 1,320,000
Building 660,000
Equipment 525,000
Total Asset 2,700,000
Liabilities 525,000
Ordinary Shares,P5 par 900,000
Share Premium 825,000
Retained Earnings 450,000
Total Liabilities and Equity 2,700,000
All the assets and liabilities of CHASE assumed to approximate in their fair values except for land and
building. It is estimated that the land have a fair value of P2,100,000 and the fair value of the building
decreased to P480,000. SARAH Corporation acquired 80% of CHASE’s outstanding shares for
P3,000,000. The non-controlling interest is measured at fair value.
1. Assuming the consideration paid includes control premium of P852,000, how much is the
goodwill/(gain on acquisition) on the consolidated financial statement?

a. Cash 3,000,000
b. Issued share(@FMV) -
c. Bonds(@FMV) -
d. Contingent consideration(@FMV) -
2. Non-controlling interest (NCI) 555,000

3. FMV of previously held equity share if achieved in stage -
LESS: *FMV of Identifiable Net Assets of Acquiree (Exc: Existing Goodwill) (2,775,000)
GOODWILL 780,000
Related Purchased Interest 3,000,000 – 852,000

Divide by: 80%
Balance 2,685,000 (100%)
x NCI % 20%
Implied FMV of NCI 537,000
Chase Co.
Current Asset P195,000
Land 2,100,000
Building 480,000
Equipment 525,000
Total Asset @ FMV 3,300,000
Liabilities 525,000
Net Identifiable Asset @ FMV 2,775,000
NCI % 20%
NCI @ Proportionate Share 555,000
2. Assuming the consideration paid excludes control premium of P138,000 and the fair value of the
non-controlling interest is P736,500, how much is the goodwill/(gain on acquisition) on the
consolidated financial statement?

a. Cash 3,000,000 + 138,000
c. Bonds(@FMV) -
2. Non-controlling interest (NCI) 736,500

GOODWILL 1,099,500
Problem 4
Entity Subsidiary has 40% of its share publicly traded on an exchange. Entity parent purchases the 60%
non-publicly traded shares in one transaction, paying P6,300,000. Based on the trading price of the
shares of Entity Subsidiary at the date of gaining control a value of P4,000,000 assigned to the 40% non-
controlling interest (or fair value of non-controlling interest) indicating that Entity Subsidiary has paid a
control premium of P300,000. The fair value of Entity Subsidiary's identifiable net assets is P7,000,000
and a carrying value of P5,000,000. Goodwill arising on consolidation is to be valued on the full (fair
value) basis or “Full/Gross-up” Goodwill:
a. Cash 6,300,000
c. Bonds(@FMV) -
2. Non-controlling interest (FMV- 4M vs. PS- 2.8M) 4,000,000

GOODWILL 3,300,000
Problem 5
Parlor Company acquires 75% of Saloon Company's common stock for P225,000 cash. At that date, the
non-controlling interest in Saloon has a book value of P52,500 and a fair value of P72,000. Also on that
date, Saloon reports identifiable assets with a book value of P400,000 and a fair value of P510,000 and it
has liabilities with a book value and a fair value of P190,000. Gain on bargain purchase arising on
consolidation if fair value of net identifiable assets is to be valued on the full (fair value) basis?

a. Cash 225,000
c. Bonds(@FMV) -
2. Non-controlling interest (FMV- 72K vs. PS- 80K) 80,000

Gain on Acquisition (15,000)
Problem 6
On September 1, 2016, Company P acquires 75% (750,000 ordinary shares) of Company S for
P7,500,000 (P10 per share). In the period around the acquisition date, Company S's shares are trading at
about P8 per share. Company P pays a premium over market because of the synergies it believes it will
get. It is therefore reasonable to conclude that the fair value of the company S's as a whole may not be
P10,000,000. In fact, an independent valuation shows that the value of Company S is P9,700,000 (fair
value of Company S). Amount of goodwill?
a. Cash 7,500,000
c. Bonds(@FMV) -
2. Non-controlling interest (FMV- 2M vs. PS- 2.425M) 2,425,000

GOODWILL 225,000
Problem 7
Pares Company acquires 15% of Sarap Company's common stock for P500,000 cash and carries the
investment using the cost method. A few months later, Pares purchases another 60% of Sarap
Company's stock for P2,160,000. At that date, Sarap 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 retained NCI 25% non-controlling interest in Sarap Company is
P900,000. What is the goodwill arising on business combination?

a. Cash 2,160,000
c. Bonds(@FMV) -
2. Non-controlling interest (FMV- 900K vs. PS- 800K) 900,000

3. FMV of previously held equity share if achieved in stage 540,000
GOODWILL 400,000
Problem 8
The Moon Company acquired a 70% interest in the Swan Company for P1, 420, 000 when the fair value
of Swan’s identifiable assets and liabilities was P1, 200, 000. Moon acquired a 65% interest in the Homer
Company for P300, 000 when the fair value of Homer’s identifiable assets and liabilities was P640, 000.
Moon measures non-controlling interests at the relevant share of the identifiable net assets at the
acquisition date. Neither Swan nor Homer had any contingent liabilities at the acquisition date and the
above fair values were the same as the carrying amounts in their financial statements. Annual impairment
reviews have not resulted in any impairment losses being recognized.
Under PFRS 3 Business combinations, what figures in respect of goodwill and of gain on bargain
purchases should be included in Moon’s consolidated statement of financial position?
a. Cash 1,420,000
c. Bonds(@FMV) -
2. Non-controlling interest 360,000

GOODWILL 580,000
AGGREGATE AMOUNT OF: 1. Consideration given:

a. Cash 300,000
c. Bonds(@FMV) -
2. Non-controlling interest 224,000

Gain on Acquisition (116,000)
Problem 9
On January 1, 2016, the fair values of Pink Conrad’s net assets were as follows:
Current Assets P 100,000
Equipment 150,000
Land 50,000
Buildings 300,000
Liabilities 80,000
On January 1, 2016, Blue George Company purchased the net assets of the Pink Conrad Company by
issuing 100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. It was further
agreed that Blue George would pay an additional amount on January 1, 2018, if the average income
during the 2-years period of 2016-2017 exceeded P80,000 per year. The expected value of this
consideration was calculated as P184,000; the measurement period is one year.
What amount will be recorded as goodwill on January 1, 2016?

a. Cash -
b. Issued share(@FMV) 620,000
c. Bonds(@FMV) -
d. Contingent consideration(@FMV) 184,000
2. Non-controlling interest -
GOODWILL 284,000
Problem 10
A Co. acquired all the assets and liabilities of B Co. for P 1,600,000. Information on B’s
identifiable assets and liabilities at the acquisition date is as follows:
Carrying Amounts Fair Values
Assets 3,800,000 3,500,000
Liabilities 2,000,000 1,900,000
 At the acquisition date, B Co. has breached a contract with a customer. The customer is
seeking damages amounting to P250,000. However, B Co. is currently disputing customer’s
claim and B Co.’s legal counsel believes they will win the case. Accordingly, B Co. did not
recognize a provision. The fair value of settling the claim is P100,000.
 Fair value adjustments to the assets acquired and liabilities assumed have deferred tax
consequences, but do not affect the tax bases of the assets and liabilities. The tax rate is
30%.
Compute the goodwill/gain on acquisition.

a. Cash 1,600,000
c. Bonds(@FMV) -
2. Non-controlling interest -
GOODWILL 10,000
Tax Base CA for F.R Difference TTD/DTD

Assets 3,800,000 3,500,000 300,000 DTD
Liabilities 2,000,000 1,900,000 100,000 TTD
Contingent Liab - 100,000 100,000 DTD
If TB>FI = DTD
If TB of Assets > CA of Assets = DTD
If TB of Liab > CA of Liab = TTD
Assets (3,500,000 + 120,000) 3,620,000

Liabilities ( 1,900,000 + 100,000 + 30,000) (2,030,000)
FMV NIA 1,590,000
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Quiz 1

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest (NCI) 0

1. What is the initial measurement of noncontrolling interest in net assets in the

Presumed fair value of noncontrolling interest (P1,000,000/80% x 20%) P 250,000

Fair value of consideration transferred P 1,000,000

Current Asset P195,000

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest (NCI) 555,000

Related Purchased Interest 3,000,000 – 852,000

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest (NCI) 736,500

2. Non-controlling interest (FMV- 4M vs. PS- 2.8M) 4,000,000

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest (FMV- 72K vs. PS- 80K) 80,000

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest (FMV- 2M vs. PS- 2.425M) 2,425,000

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest (FMV- 900K vs. PS- 800K) 900,000

Solution: AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest 360,000

AGGREGATE AMOUNT OF: 1. Consideration given:

2. Non-controlling interest 224,000

AGGREGATE AMOUNT OF: 1. Consideration given:

Compute the goodwill/gain on acquisition.

AGGREGATE AMOUNT OF: 1. Consideration given:

Tax Base CA for F.R Difference TTD/DTD

Assets (3,500,000 + 120,000) 3,620,000

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