1. On January 1, 20x1, DIMINUTIVE Co.

acquired all
of the assets and assumed all of the liabilities of
SMALL, Inc. As of this date, the carrying amounts
and fair values of the assets and liabilities of SMALL
acquired by DIMINUTIVE are shown below:

Carrying amounts Fair values

Assets
Cash in bank ₱20,000.00 ₱20,000.00
Receivables ₱400,000.00 ₱240,000.00
Allowance for probable losses on
(₱60,000.00)
receivables
Inventory ₱1,040,000.00 ₱700,000.00
Building – net ₱2,000,000.00 ₱2,200,000.00
Goodwill ₱200,000.00 ₱40,000.00
Total assets ₱3,600,000.00 ₱3,200,000.00

Liabilities
Payables ₱800,000.00 ₱800,000.00

On the negotiation for the business combination,

DIMINUTIVE Co. incurred transaction costs
amounting to ₱200,000 for legal, accounting, and
consultancy fees.

Case #1: If DIMINUTIVE Co. paid ₱3,000,000 cash

as consideration for the assets and liabilities of
SMALL, Inc., how much is the goodwill (gain on
bargain purchase) on the business combination?

Consideration Transferred ₱3,000,000.00

Non-Controlling Interest in the acquiree ₱0.00
Previously held equity interest in the acquiree ₱0.00
Total ₱3,000,000.00
Fair Value of the net identifiable assets acquired (₱2,360,000.00)
Goodwill ₱640,000.00
Case #2: If DIMINUTIVE Co. paid ₱2,000,000 cash
as consideration for the assets and liabilities of
SMALL, Inc., how much is the goodwill (gain on
bargain purchase) on the business combination?

Consideration Transferred ₱2,000,000.00

Non-Controlling Interest in the acquiree ₱0.00
Previously held equity interest in the acquiree ₱0.00
Total ₱2,000,000.00
Fair Value of the net identifiable assets acquired (₱2,360,000.00)
Gain on Bargain Purchase (₱360,000.00)

Fact pattern

2. On January 1, 20x1, KNAVE acquired 80% of the

equity interests of RASCAL, Inc. in exchange for
cash. Because the former owners of RASCAL needed
to dispose of their investments in RASCAL by a
specified date, they did not have sufficient time to
market RASCAL to multiple potential buyers.

As January 1, 20x1, RASCAL’s identifiable assets

and liabilities have fair values of ₱2,400,000 and
₱800,000, respectively.

Case #1:

KNAVE Co. elects the option to measure non-

controlling interest at fair value. An independent
consultant was engaged who determined that the
fair value of the 20% non-controlling interest in
RASCAL, Inc. is ₱310,000.

If KNAVE Co. paid ₱2,000,000 cash as consideration

for the 80% interest in RASCAL, Inc., how much is
the goodwill (gain on bargain purchase) on the
business combination?

Consideration Transferred ₱2,000,000.00

Non-Controlling Interest in the acquiree ₱310,000.00
Previously held equity interest in the acquiree ₱0.00
Total ₱2,310,000.00
Fair Value of the net identifiable assets acquired (₱1,600,000.00)
Goodwill ₱710,000.00

Case #2:

KNAVE Co. elects the option to measure non-

controlling interest at fair value. An independent
consultant was engaged who determined that the
fair value of the 20% non-controlling interest in
RASCAL, Inc. is ₱310,000.

If KNAVE Co. paid ₱1,200,000 cash as consideration

for the 80% interest in RASCAL, Inc., how much is
the goodwill (gain on bargain purchase) on the
business combination?

Consideration Transferred ₱1,200,000.00

Non-Controlling Interest in the acquiree ₱310,000.00
Previously held equity interest in the acquiree ₱0.00
Total ₱1,510,000.00
Fair Value of the net identifiable assets acquired (₱1,600,000.00)
Gain on Bargain Purchase (₱90,000.00)

Case #3:

KNAVE Co. elects the option to measure non-

controlling interest at fair value. A value of
₱250,000 is assigned to the 20% non-controlling
interest in RASCAL, Inc. [(₱2M ÷ 80%) x 20% =
500,000].

If KNAVE Co. paid ₱2,000,000 cash as consideration

for the 80% interest in RASCAL, Inc., how much is
the goodwill (gain on bargain purchase) on the
business combination?

Consideration Transferred ₱2,000,000.00

Non-Controlling Interest in the acquiree ₱500,000.00
Previously held equity interest in the acquiree ₱0.00
Total ₱2,500,000.00
Fair Value of the net identifiable assets acquired (₱1,600,000.00)
Goodwill ₱900,000.00
Case #4:

KNAVE Co. elects the option to measure the non-

controlling interest at the non-controlling interest’s
proportionate share of RASCAL, Inc.’s net
identifiable assets

If KNAVE Co. paid ₱2,000,000 cash as consideration

for the 80% interest in RASCAL, Inc. and, how much
is the goodwill (gain on bargain purchase) on the
business combination?

Consideration Transferred ₱2,000,000.00

Non-Controlling Interest in the acquiree ₱320,000.00
Previously held equity interest in the acquiree ₱0.00
Total ₱2,320,000.00
Fair Value of the net identifiable assets acquired (₱1,600,000.00)
Goodwill ₱720,000.00
 Fact pattern
1. On January 1, 20x1, SMUTTY acquired all of the identifiable assets and assumed all of the
liabilities of OBSCENE, Inc. On this date, the identifiable assets acquired and liabilities assumed have
fair values of ₱3,200,000 and ₱1,800,000, respectively.

SMUTTY incurred the following acquisition-related costs: legal fees, ₱20,000, due diligence costs,
₱200,000, and general administrative costs of maintaining an internal acquisitions department,
₱40,000.

Case #1: As consideration for the business combination, SMUTTY Co. transferred 8,000 of its own
equity instruments with par value per share of ₱200 and fair value per share of ₱250 to OBSCENE’s
former owners. Costs of registering the shares amounted to ₱80,000. How much is the goodwill
(gain on bargain purchase) on the business combination?

Case 1
Consideration Transferred
Non-Controlling Interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair Value of the net identifiable assets acquired
Goodwill

Case #2: As consideration for the business combination, SMUTTY Co. issued bonds with face
amount and fair value of ₱2,000,000. Transaction costs incurred in issuing the bonds amounted to
₱100,000. How much is the goodwill (gain on bargain purchase) on the business combination?

Case 2

Consideration Transferred
Non-Controlling Interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair Value of the net identifiable assets acquired
Goodwill

1. On January 1, 20x1, ENTREAT Co. acquired all of the identifiable assets and assumed all of the
liabilities of BEG, Inc. by paying cash of ₱2,000,000. On this date, the identifiable assets acquired and
liabilities assumed have fair values of ₱3,200,000 and ₱1,800,000, respectively.

ENTREAT Co. has estimated restructuring provisions of ₱400,000 representing costs of exiting the
activity of BEG, costs of terminating employees of BEG, and costs of relocating the terminated
employees.
Requirement: Compute for the goodwill (gain on bargain purchase).

Number 2
Consideration Transferred
Non-Controlling Interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair Value of the net identifiable assets acquired
Goodwill

Fact pattern

1. On January 1, 20x1, HISTRIONAL Co. acquired all of the identifiable assets and assumed all of the
liabilities of THEATRICAL, Inc. by paying cash of ₱2,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of ₱3,200,000 and ₱1,800,000, respectively.

Case #1:

As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to
THEATRICAL, Inc. under operating leases. HISTRIONAL has determined that the terms of the
operating lease on the building compared with market terms are favorable. The fair value of the
differential is estimated at ₱40,000.

Requirement: Compute for the goodwill (gain on bargain purchase).

Case #2:

As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to
THEATRICAL, Inc. under operating leases. HISTRIONAL has determined that the terms of the
operating lease on the patent compared with market terms are unfavorable. The fair value of the
differential is estimated at ₱40,000.

Requirement: Compute for the goodwill (gain on bargain purchase).

Case #3:

As of January 1, 20x1, HISTRIONAL is renting a building and a patent from THEATRICAL, Inc. under
operating leases. HISTRIONAL has determined that the terms of the operating lease on the building
compared with market terms are favorable. The fair value of the differential is estimated at
₱40,000.

Requirement: Compute for the goodwill (gain on bargain purchase).

Case 1
Consideration Transferred
Non-Controlling Interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair Value of the net identifiable assets acquired
Goodwill

Case 2
Consideration Transferred
Non-Controlling Interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair Value of the net identifiable assets acquired
Goodwill

Case 3
Consideration Transferred
Non-Controlling Interest in the acquiree
Previously held equity interest in the acquiree
Total
Fair Value of the net identifiable assets acquired
Goodwill
 ₱2,000,000.00
₱0.00
₱0.00
₱2,000,000.00
(₱1,400,000.00)
₱600,000.00

₱2,000,000.00
₱0.00
₱0.00
₱2,000,000.00
(₱1,400,000.00)
₱600,000.00
 ₱2,000,000.00
₱0.00
₱0.00
₱2,000,000.00
(₱1,400,000.00)
₱600,000.00
 ₱2,000,000.00
₱0.00
₱0.00
₱2,000,000.00
(₱1,440,000.00)
₱560,000.00

₱2,000,000.00
₱0.00
₱0.00
₱2,000,000.00
(₱1,360,000.00)
₱640,000.00

₱2,000,000.00
₱0.00
₱0.00
₱2,000,000.00
(₱1,400,000.00)
₱600,000.00