Classroom Exercises

Problem 1

Entity A acquired all the assets and assumed all the liabilities of Entity B for P1,800,000.
Information on Entity B's assets and liabilities as at the acquisition date is shown below

Assets. Carrying Amount. Fair Values

Receivables-net. 200,000. 100,000

Inventory. 600,000. 450,000

Building -net. 1,200,000. 1,800,000

Goodwill. 100,000. 20,000

Total Assets. 2,100,000 2,370,000

Liabilities

Payables 900,000 700,000

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

Problem 2: Use the following information for the next two items:

Entity A acquired 75% of the outstanding voting shares of Entity B for P2,000,000. On
acquisition date, Entity B's identifiable assets and liabilities have fair values of P4,000,000 and
P1,600,000, respectively.

Requirement A.

How much is the goodwill if Entity A opts to measure the non-controlling interest at the NCI's
proportionate share in Entity B's net identifiable assets?

Requirement B.

Entity A opts to measure the non-controlling interest at fair value. An independent valuer
assessed the NCI's fair value to be 540,000. How much is the goodwill?

Problem 3:

Entity A acquired all the assets and liabilities of Entity B by issuing 18,000 shares with par
value of P10 per share and fair value of 100 per share. On acquisition date, Entity B's identifiable
assets and liabilities have fair values of P3,800,000 and 1,900,000, respectively.

Entity A incurred stock issuance costs of P36,000 and finder's fees related to the business
combination of P60,000. Moreover, Entity A expects to incur liquidation terminating Entity B's
activities. costs of P280,000

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

Problem 4.

Entity A acquired all the assets and assumed all the liabilities of Entity B for P2,800,000. On
acquisition date, Entity B's identifiable assets and liabilities have fair values of P4,000,000 and
1,600,000, respectively.

Additional information:

Entity B has an unrecorded patent with fair value of P100,000.

Entity development (R&D) projects B has research and with fair value of P160,000. Entity B
charged the R&D costs as expenses when they were incurred.

Entity A is renting out a property to Entity B under an operating lease. The terms of the lease
compared with market terms are favorable. The fair value of the differential is P40,000.

Requirement: Compute for the goodwill.

Problem 5.

Entity A acquired 75% of the outstanding voting shares of Entity B for P1,800,000. On
acquisition date, Entity B's identifiable assets and liabilities have fair values of P4,000,000 and
P1,600,000, respectively.

Additional information:

Entity A replaces Entity B as a guarantor on a loan of a third party. As at the acquisition date,
the third party has defaulted on the loan. However, because negotiations for debt restructuring
are ongoing with the lender and Entity B strongly believes that the lender will agree on the
proposed terms, no provision was recognized. The fair value of the guarantee is 200,000

Entity A chose to measure the non-controlling interest at the NCI's proportionate share in the
acquiree's net identifiable assets.

Requirement: Compute for the goodwill.

Problem 6.

Entity A acquired all the assets and assumed all the liabilities of Entity B for P4,000,000.
Information on Entity B's identifiable assets and liabilities as at the acquisition date is shown
below:

Carrying amounts. Fair values

Assets. 5,800,000. 6,100,00

Liabilities. 2,100,000. 2,300,000

All fair value adjustments to the identifiable assets acquired and liabilities assumed have
deferred tax consequences, but do not affect their tax bases. The income tax rate is 30%.

Requirement: Compute for the goodwill.

Problem 7

On October 26, 20x1, Entity A acquired 100% interest in Entity B for P2,800,000. On this date,
Entity B's identifiable assets and liabilities have fair values of P4,000,000 and P1,600,000,
respectively. Included in Entity B's liabilities are cash dividends of P280,000 declared on October
1, 20x1, to shareholders of record on November 1, 20x1, and payable on December 1, 20x1.

Requirement: Compute for the goodwill.