UNIVERSITY OF THE EAST – Caloocan

College of Business Administration

Department of Accountancy, Business Law and Taxation
Accounting for Business Combinations (BSA 3203)
Module 2 – Problem Exercises 1

Name: _________________________________________________Yr. and Section: ____________________

Instructions: In the following questions, provide the best answer that corresponds to the question.
Provide solutions in good form.

Part I – Problems

Problem 1
K Company acquired all the assets and assumed all the liabilities of T Company for P12,000,000. The
acquisition qualifies as a business combination. The carrying values and fair values of T Company’s
assets and liabilities on acquisition date are shown below:
Carrying Value Fair Value
Accounts Receivable 100,000 82,000
Inventory 650,000 500,000
Property, Plant and Equipment 9,000,000 11,000,000
Goodwill 10,000 2,000
Accounts Payable (60,000) (84,000)
Total 9,700,000 11,500,000

T Company paid P50,000 for legal and accounting fees related to the acquisition.

Requirement:
Compute for the goodwill (negative goodwill) arising from the business combination.

Problem 2
C Company acquired 80% interest in the voting rights of H Company for P800,000. The carrying
amounts and fair values of H Company’s assets and liabilities on acquisition date are shown below:

Carrying Value Fair Value

Cash 74,000 74,000
Inventory 480,000 500,000
Equipment 2,000,000 500,000
Goodwill 50,000 4,000
Accounts Payable (58,000) (58,000)
Total 2,546,000 1,020,000

C Company incurred acquisition – related costs of P50,000.

Requirements: Compute for the goodwill ((negative goodwill) arising from the business combination
under the following assumptions:
1. Non-controlling interests (NCI) is measured at fair value. An independent consultant
determined that the NCI’s fair value at acquisition date is P202,000.
2. NCI is measured at fair value. No consultant was engaged to value the NCI. However, C’s
management strongly believes that the NCI’s fair value correlates with the consideration
transferred on the business combination.
3. NCI is measured at its proportionate share in the acquiree’s net assets.

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Problem 3
N Company acquired D Company in a business combination. N Company incurred the following
transaction costs on the acquisition:
• Finder’s fees P 10,000
• Professional fees of consultants 50,000
• General administrative costs 30,000
• Registration costs of the debt and equity securities issued 60,000

Requirement:
How much of the acquisition – related costs listed above will be expensed outright?

Problem 4
H Company acquired S Company in a business combination. The following has been determined:
• Included in S Company’s recorded assets are the following:
a. Publishing title with carrying amount of P100,000. However, the fair value on acquisition
date is only P2,000.
b. Internally generated computer software with carrying amount of P1,000,000. The
acquisition – date fair value of the software cannot be determined reliably because the
software is deemed obsolete.
• S Company has ongoing research and development projects. Research and development costs
of P80,000 were charged to expense.
• S Company has an unrecorded patent with fair value of P50,000. However, H Company does
not intend to use this patent.

Requirement:
How much of the items listed above will be included in the net identifiable assets acquired on the
business combination?

Problem 5
W Company acquired 100% interest in T Company for P1,000,000. The acquisition-date fair value of T
Company’s identifiable assets is P800,000. W Company estimates that it will incur employee
termination and other liquidation costs of P120,000 following the business combination.

Requirement:
How much is the goodwill arising from the business combination?

Problem 6
H Company acquired 100% interest in F Company for P1,000,000. The acquisition – date fair value of
F Company’s net identifiable net assets is P800,000. On acquisition date, F Company has an
unrecognized contingent liability related to a pending lawsuit. No provision was recognized because F
Company’s legal counsel believed that they will win the lawsuit. The contingent liability has a fair
value of P100,000 on the acquisition date.

Requirement:
How much is the goodwill arising from the business combination?

Problem 7
On January 1, 2021, S Company acquired 75% controlling interest in P Company for P1,000,000. On
this date, the fair value of P Company’s net identifiable assets is P800,000. S Company incurred
transaction costs of P100,000 on the acquisition.

Requirements: Compute the goodwill under each of the following scenarios:

1. S Company uses the full PFRS. S Company opts to measure NCI at its proportionate share in
the acquiree’s net identifiable asset.
2. S Company uses the PFRS for SME’s.

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Problem 8
DEF Company acquired 95% of GHI Company on June 30, 2021 for consideration made up of as
follows:
• Cash of P250,000.
• 10,000 equity shares (with a fair value of P2 on acquisition date)

At acquisition date, the following information is relevant to GHI Company:

• Net assets totaled P205,000
• The fair value of the non-controlling interest had been established at P11,500.

Requirements:
Calculate the amount of goodwill arising on the acquisition of GHI Company:
a. Valuing the NCI at its proportionate share in the acquiree’s net assets.
b. Valuing the NCI at fair value.

Problem 9
P Company paid P300,000 for the outstanding ordinary shares of S Company. At that time, S
Company had the following condensed statement of financial position:
Current Assets P 40,000
Plant and Equipment, net 380,000
Liabilities 200,000
Shareholder’s Equity 220,000

The fair value of the plant and equipment was P60,000 more than its recorded carrying amount. The
fair values and carrying amounts were equal for all the assets and liabilities.

Requirement:
What amount of goodwill, related to S Company’s acquisition, should P Company report in its
consolidated statement of financial position?

Problem 10
On January 1, 2021, P Corporation acquired 75% of S Company’s 200,000 outstanding ordinary shares
for P2,850,000. The remaining shares traded at P18.50 per share on the acquisition date. On January
1, the book value of S Company’s net assets was P3,000,000. Book value equaled to fair value for all of
S Company’s assets and liabilities, except land, which had a fair value of P200,000 greater than book
value, and equipment, which had a fair value of P150,000 greater than book value. Non -controlling
interest is measured at fair value. On January 1, 2021, S Company had a noncompeting agreement
with a fair value of P300,000.

Requirement:
What amount of goodwill, related to S Company’s acquisition, should P Company report in its
consolidated statement of financial position?

“That in all things, GOD maybe glorified”

“Hear; for I will speak of excellent things; and the opening of my lips shall be right things” Proverbs 8:16

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