BUSINESS COMBINATION – STOCK ACQUISITION

Problem 1
On July 26, 2022, Kim BookJu Holdings Corp (KBHC) acquired 80% of the outstanding voting shares of WLF
Corp, gaining control over the acquiree in the process. On this day immediately before the business
combination, the separate books of KBHC and WLF Corp had the following data:

KBHC WLF
Cash 10,000,000 500,000
Receivables 3,000,000 600,000
Inventory 4,000,000 450,000
PPE, net 14,000,000 1,200,000
Intangible assets, net 2,500,000 250,000
Good will 1,000,000 100,000
Short-term liabilities 5,000,000 700,000
Long-term liabilities 12,000,000 700,000
Ordinary shares (P10 par) 6,000,000 1,000,000
Share premium 5,500,000 200,000
Retained Earnings 6,000,000 500,000

On the date of acquisition, the receivables of KBHC and WLF are both overstated by P500,000 and
P100,000 respectively. The fair value of the PPE of KBHC is higher than its book value by P1,000,000, while
the book value of the PPE of WLF is higher than its fair value by P200,000.

1. Assuming that KBHC paid P1,300,000 cash to acquire the shares, that fair value of the non- controlling
interest is P400,000, and that the full goodwill method was opted for, how much is the consolidated
assets on the date of acquisition?

2. Assuming that KBHC paid P1,025,000 cash to acquire the shares, inclusive of P125,000 control
premium, and that the full goodwill method was opted for, how much should the measurement of
non-controlling interest be at the date of acquisition?

3. Assuming KBHC paid P1,350,000 to acquire the shares, that fair value of the non-controlling interest
is P425,000, and that the partial goodwill method was opted for, how much is the goodwill arising
from business combination at the date of acquisition?

4. Assuming KBHC paid P950,000 to acquire the shares, inclusive of P50,000 control premium, how
much is the consolidated shareholders equity on the date of acquisition?
Problem 2
On January 1, 2022, Calamansi Calamondin Calamares Inc. (CCCI) had a 20% interest in Food Hub
Corporation carried at P300,000. On July 31, 2022, CCCI acquired an additional 55% interest in Food Hub
Corporation for P800,000 cash which was the fair value of the voting shares at that time. Foodhub
Corporation had the following information on December 31, 2021:

FH
Book value Fair value
Current assets 560,000 680,000
Non-current assets 2,010,000 1,950,000
Liabilities 1,330,000 1,330,000
Ordinary shares 640,000
Retained earnings 600,000

FoodHub earned P300,000 for the 7 months prior to business combination and declared and paid
dividends amounting to P80,000 to its shareholders on April 30, 2022.

1. Assuming that CCCI did not have significant influence over FH prior to business combination, how
much is the goodwill attributable to non-controlling interest on the date of acquisition?

2. Assuming that CCCI did not have significant influence over FH prior to business combination, the
entries in the books of the parent on the date of acquisition will most likely include a:
Cash for P_______________.
Investment in subsidiary for P_____________.
Investment in equity securities held at FVPL for P____________.

3. Assuming that CCCI had significant influence over FH prior to business combination, the following
accounts would have a balance of:
A. Goodwill arising from business combination is ______________-
B. Total net amount that will affect the separate P/L of CCCI is ____________-
C. Non-controlling interest on date of acquisition amounts to _____________
D. Investment in subsidiary to be presented in the consolidated FS amounts to ___________

4. Assuming that CCCI had significant influence over FH prior to business combination, how much is the
goodwill/gain on bargain purchase resulting from the business combination on July 31, 2022?

1. A stock acquisition is when an entity known as the parent acquires of the

ownership interest in the voting rights of another entity known as the subsidiary to obtain control
over the latter.
A. All
B. Majority
C. Either A or B
D. Neither A nor B

2. In a stock acquisition, the resulting gain on bargain purchase will be reflected in the

A. Separate FS of the parent only

B. Separate FS of the subsidiary only
C. Consolidated FS only
D. Both a and C
3. The goodwill in the separate FS of the parent will
A. Be derecognized for consolidation purposes
B. Still be reflected in the consolidated FS at its book value
C. Still be reflected in the consolidated FS at its fair value
D. Be amortized over 10 years

4. The non-controlling interest shall be presented in the consolidated statement of financial

position as part of equity
A. At the fair value of the shares
B. At its proportionate share in the recognized net assets of the acquiree
C. Either A or B
D. Neither A nor B

5. Under IFRS 3, when a business combination occurs through stock acquisition, the parent acquires
over the subsidiary company.
A. Sole control
B. Joint control
C. Significant influence
D. Compassion

6. In the event of a step-acquisition, the previously held shares that will form part of the
investment in subsidiary account will be
A. Its book value on the date of acquisition
B. Its fair value on the date of acquisition
C. Zero
D. Equal to the arising goodwill or gain on bargain purchase

7. The purpose of the working paper entries is to be able to

A. Adjust the values in the separate books of the parents only
B. Adjust the values in the separate books of the subsidiary only
C. Present the correct amounts in the consolidated FS without changing the amounts in the
separate FS of the parent and subsidiary
D. Present the correct amounts in the consolidated FS by changing the amounts in the separate
FS of the parent and subsidiary