Business Combinations – Net Asset Acquisition

1. Company A paid finder’s fees of P40,000, accountant’s fee (Advisory) of P10,000, legal fees (Advisory)
of P15,000, salaries of Company A’s employees assigned to the implementation of the merger of
P16,000, cost of closing duplicate facilities of P12,000, cost of shareholder’s meeting to vote on the
merger of P14,000, cost of printing stock certificates of P7,000, audit and accountant’s fee related to the
stock issuance of P3,000, SEC registration fee of P5,000.

Based on this information, how much should be expensed?

Finder’s fees 40,000

Accountant’s fee 10,000
Legal fees 15,000
Salaries expense 16,000
Closing duplicate facilities expense 12,000
Administrative expense 14,000
Expense 107,000

How much should be treated as stock issue costs?

Stock certificate 7,000

Stock issuance cost 3,000
SEC registration fee 5,000
Stock Issue Cost 15,000

2. ABC Co. is acquiring XYZ Inc. XYZ has the following intangible asset:

● Patent on a product that is deemed to have no useful life P10,000

● Customer list with an observable fair value of P50,000

● Identifiable R&D of P100,000

● Goodwill amounting to P60,000

How much will ABC record the acquired intangible assets from the purchase of XYZ Inc?

Customer list 50,000

R&D 100,000
Acquired Intangible Assets 150,000
3. Company A purchased Company B in 2017. At the time an existing patent was not recorded as a
separately identified intangible asset. At the end of the fiscal year 2018, This patent is valued at P15,000,
and a goodwill has a book value of P100,000.

How should the asset be reported?

Goodwill 100,000

4. Company A paid P110,000 for the net assets of Company B. At the time of Acquisition, the following
information was available related to Company B’s Balance sheet.

Book Value Fair Value

Current Assets P50,000 P50,000

Building P80,000 P100,000
Equipment P40,000 P50,000
Liabilities P30,000 P40,000

What is the amount recorded for its assets?

Current assets 50,000

Building 100,000
Equipment 50,000
Total 200,000

What is the amount of gain or loss on disposal that Company B should recognize?

What is the goodwill/gain on bargain purchase?

Consideration transferred:

Cash 110,000
Assumed Liabilities 40,000
Less: FV Net asset of acquired company (200,000)
Gain on bargain purchase 50,000

5. A Corp. concluded that the fair value of B Corp. was P80,000 and paid that amount to acquire all of its
net assets. B Corp reported assets with a book value of P60,000 and fair value of P98,000 and liabilities
with a book value and fair value of P23,000 on the date of the combination. A Corp also paid P3,000 to a
search firm for finder’s fee

What is the amount of goodwill that would be recorded?

Considerations transferred:
Cash 80,000
Assumed liabilities 23,000
Less: FV Net assets of acquired company (98,000)
Goodwill 5,000
6. On June 1, 2016, A Corp paid P800,000 cash for the assets and liabilities of B Corp. The carrying values
for B Corp’s assets and liabilities on June 1, 2016 are as follows:

Cash…………………………………………………………….. P150,000
Account receivable……………………………………….P 180,000
Capitalized Software Costs……………………………P320,000
Goodwill……………………………………………………….P100,000
Liabilities………………………………………………………(P130,000)

On June 1, 2016, B Corp’s Accounts Receivable had a fair value of P140,000/ Additionally, B’s in process
and development costs was estimated to have a fair value of P200,000. All other items were stated at
their fair values. On A Corps’ June 1 Balance sheet.

How much is reported for goodwill?

Considerations transferred:
Cash 800,000
Assumed liabilities 130,000
Less: FV Net assets of acquired company (810,000)
Goodwill 120,000

7. On April 1, 2016. ZZ Corp paid cash of 620,000 for all of the net assets of AA Company appropriately
accounted for as a merger. The recorded assets and liabilities of AA Corporation on April 5, 2016 follow:

Cash P60,000
Inventory P180,000
PPE ( net of accum dep) P320,000
Goodwill P100,000
Liabilities (P120,000)
April 1, 2016. AA’s inventory had a fair value of P150,000, and the PPE (net) had a fair value of P380,000.
The amount of goodwill recorded in the books of ZZ as a result of the business combination should
be?

Considerations transferred:
Cash 620,000
Assumed liabilities 120,000
Less: FV Net assets of acquired company (590,000)
Goodwill 150,000

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

Cash……………….P36,000
AR………………….P457,000
Inventories…….P 120,000
PPE………………..P 696,400
AP…………………P 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 event with a fair value amounting to P10,000 and such
amount is considered as a reliable measurement.

In the Books of Bush Co.. This transactions resulted in

9. KK Inc. was merged into LL Inc. in a combination properly accounted for as acquisition of interests.
Their condensed balance sheets before combinations show

LL KK
Current Assets P2,288,000 P1,627,600
Plant and equipment, net P 4,654,000 P 1,040,000
Patents P 260,000
Total Assets P6,942,000 P2,927,600

Liabilities P2,704,000 P 171,600

Capital Stock, par 100 P2,600,000 P 1,300,000
Additional Paid in capital P390,000 P 390,000
Retained Earning P 1,248,000 P 1,066,000

Per independent appraiser’s report. KK’s assets have fair market values of P1,653,600 for current assets,
P 1,248,000 for plant and equipment and P338,000 for patents. KK’s liabilities are properly valued. LL
purchases KK’s net assets for P3,068,000.
How should the difference between the book value of KK’s net assets and the consideration paid by LL
be considered.

Book Value of KKs net assets (2,927,600 – 171,600) 2,756,000

Total Considerations (3,239,600 – 171,600) 3,068,000 312,000

What are the amounts that will be shown in the Financial statement after the Merger

Show Current Assets, Plant and equipment, patents, total assets, liabilities, capital stock, additional
paid in capital and retained earnings.

10. On December 1, 2015, Casio Ltd. Acquired all the assets and liabilities of Aurora Lt. with Casio 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 fitting P20,000
Accounts Receivable P5,000
Plant P125,000
Accounts Payable P15,000
Current Tax liability P8,000
Provision for annual leave P2,000

The fair value of each Casio Ltd. Share at acquisition date is 1.90. At acquisition date, the acquirer could
only determine a provisional fair value for the plant. On March 1, 2016. Casio Ltd. Received the final
value from the independent appraisal, the fair value at acquisition date being 131, 000. Assuming the
plant had a further 5-year life from the acquisition date.

Amount of goodwill?

At Acquisition date
Cash 50,000
Furniture and fitting 20,000
Accounts receivable 5,000
Plant 125,000
Good will 15,000
Accounts payable 15,000
Current tax liability 8,000
Provision for annual leave 2,000
Ordinary share 190,000
On March 1, 2016
Plant 6,000
Goodwill 6,000
Total Goodwill 9,000
11. A Corp, a private limited company has acquired C Corp, a private limited company on January 1,
2015. The fair values of the purchase consideration was 10 million ordinary shares of P1 of A Corp, and
the fair value of the net asset acquired was P7 million. At the time of acquisition, the value of the
ordinary shares of A Corp and the net assets were only provisionally determined. The value of the shares
of A Corp (11 million) and the net assets of B Corp (7.5 million). On January 1, 2015, were finally
determined on November 30, 2015. However, the directors of A Corp have seen the value of the
company decline since January 1, 2015 and as of February 1, 2016 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.

January 1, 2015
Considerations transferred:
Ordinary shares (10M x 1) 10,000,000
Less: FV Net assets of acquired company (7,000,000)
Goodwill 3,000,000

November 30, 2015

Assets 5,000,000
Goodwill 5,000,000
Ordinary Shares 1,000,000

12. Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10
and bonds payable with Face amount of P500,000. The bonds are classified as financial liability at
amortized cost.

At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand,
the bonds payable, classified as financial liability at amortized cost, are trading at P110

Entity A paid P10,000 share issuances 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 1,000,000 500,000
Non-Current Assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Non-Current 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 non
current assets of Entity B have fair values of P1,300,000. On the same date, the current liabilities of
Entity B have fair value of P600,000 while the non-current liabilities of Entity A have fair value of
P500,000

What is the goodwill/gain on bargain purchase?

CA 500,000 Shares 200,000

NCA 1,300,000 Bonds 550,000
CL (600,000) Total Consid Transferred 750,000
NCL (500,000)
FVNAA 700,000 Total Consi Trans 750,000
FVNAA (700,000)
Goodwill 50,000

What total amount should be expensed as incurred at the time of the business acquisition?

Acqui Cost 40,000 Bonds Payable (500,000 x 1.10) 550,000

Indirect 30,000 Bond Issue Cost (20,000)
ARC 70,000 Bonds Payable (net) 530,000

What is Entity A’s amount of total assets after the business combination?

Acquirer BV 3,000,000
Acquiree FV 300,000
Goodwill 50,000
Payment (70,000)
Total Assets 3,680,000

What is Entity A’s amount of total liabilities after the business combination?

Liabilities BV 500,000
FV 1,100,000
Bond 530,000
Total Liabilities 2,130,000
13. Condensed statements of financial position of Shey Corp. and Apple Corp, as of December 31, 2020
are as follows:

Shey Apple
Current Assets P43,750 P16,250
Non-Current Assets P181,250 P106,250
Total Assets P225,000 P122,500

Liabilities P16,250 P8,750

Ordinary shares, P20 par P137,500 P75,000
Additional Paid in Capital P 8,750 P 6,250
Retained Earnings P 62,500 P 32,500

On January 1, 2021, Shey Corp issued 8,750 stock with a market value of P25/share for the assets and
liabilities of Apple Corp. The book value reflects the fair value of the asset and liabilities except that the
non-current assets of Apple has a temporary appraisal of P157,500 and the non-current assets of Apple
has a temporary appraisal of P157,500 and the non-current assets of Shey are overstated by P7,500.
Contingent consideration, which is determinable, is equal to P3,750. Shey also paid for the stock
issuance worth P8,500 and other acquisition costs amounting to P4,750.

On March 1, 2021 the contingent consideration has a determinable amount of P5,000. On June 1, 2021,
the provisional fair value of the noncurrent assets of Apple increased by P2,250.

How much is the total assets to be reported by Shey at the end of the year?