ACCOUNTING FOR BUSINESS COMBINATION

In November 2004, the Accounting Standard Council (ASC) has approved the adoption
of International Financial Reporting Standard (IFRS) #3, Business Combination, issued
by the International Accounting Standard Board (IASB), as a Philippine Financial
Reporting Standard. IFRS # 3 was originally published in 2004 as the outcome of the
IASB's first phase of its business combination project, which set out that all business
combinations should be recognized using the purchase method of accounting. The
second phase of the project was undertaken with the US standard setter, the Financial
Accounting Standard Board (FASB), and addressed the application of the purchase
method of accounting. The second edition of IFRS #3 was published in January 2008
replaces the term "purchase method" with "acquisition method". The revised version of
IFRS #3 should be applied for business combination that have an acquisition date on or
after the beginning of the first annual reporting period beginning on or after July 1, 2009.
However, an entity is permitted to adopt the standard in an actual reporting period that
begins on or after June 30, 2007.

In June 2008, the Financial Reporting Standards Council (FRSC) has approved the
adoption of revised lFRS 3, Business Combination, and IAS 27, Consolidated and
Separate Financial Statements, issued by the International Accounting Standards Board
(IASB). The revised standards supersede the existing PFRS 3 and PAS 27, effective July
I, 2009. (Note: IAS 27, Consolidated and Separate Financial Statements was superseded
by IFRS 10 in 2011.)

Identifying a Business Combination

A business combination as a transaction or other event in which an acquirer obtains

control of one or more businesses. Stated differently, a business combination occurs
where several entities are brought together to form a single reporting entity. A business
on the other hand, is an integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return in the form of dividends,
lower costs, or other economic benefits directly to investors or other owners, members,
or participants.

A business combination may be structured in a few different ways, and therefore the facts
of each transaction should be assessed carefully. Application guidance accompanying
IFRS #3 provides a list of examples of business combination, including:
• One or more businesses become subsidiaries of an acquirer;
• One entity transfers its net to another entity;
• All entities that are partly to the business combination transfer their net assets to a newly
formed entity; or
• A group of former owners of one of the combining entities obtains control of the combined
entity.

In a straightforward business combination, one entity will acquire another, resulting m a

parent-subsidiary relationship. However, if a business combination involves the purchase
of net assets, including goodwill of another entity, rather than the purchase of the equity
of the other entity, this does not result in a parent subsidiary relationship.

Consideration Transferred in a Business Combination

An acquirer might obtain control of an acquiree in a variety of ways, such as:

1. By transferring cash, cash equivalents or other assets, including net assets that
constitute a business;
2. By incurring liabilities;
3. By issuing equity interests;
4. By providing more than one type of consideration; or
5. Without transferring consideration, including by contract alone.

The consideration transferred in a business combination is the total of the fair value of the
consideration given by the acquirer at the acquisition date. Any costs incurred by the
acquirer to achieve the business combination, such as legal and professional fees, should
not form part of the consideration transferred; instead, should be recognized in profit or
loss, in the period in which they are incurred. The exception to this general requirement
is that where cost have been incurred in issuing debt or equity securities should be
deducted from the carrying amount of the equity or liability.

Acquisition Method of Accounting

IFRS 3 requires that the acquisition method (Purchase method in the 2004 version of
IFRS 3) be applied to all business combination. This method shall be applied, whereby:
• It is possible to identify the acquirer;
• The acquisition date is determined;
• The identifiable assets acquired, the liabilities assumed and the non - controlling interest
are recognized and measured; and
• The resulting goodwill or gain from a bargain purchase is recognized and measured.

Identifying the Acquirer

The result of nearly all business combination is that one entity, the acquirer, obtains
control of one or more other businesses, the acquiree.
IFRS 3 provides that the acquirer is usually the entity that transfer cash or other assets
or by incurring liabilities. However, in a business combination effected by exchanging
equity interests, the acquirer is usually the entity that issues its equity interests, except in
some cases like in business combinations, commonly called· reverse acquisition, the
issuing entity is the acquiree.

In case identification of the acquirer is not clear, the following facts and circumstances
may also be considered in identifying the acquirer in a business combination:

• The combining entity whose owners as a group receive the largest portion of the voting
rights in the combined entity is likely to be the acquirer;
• Where there is a large minority interest in the combined entity and no other owner has
a significant voting interest, the holder of the large minority interest is likely to be the
acquirer;
• Where one of the entities has the ability to elect or remove the majority of the members
of the governing body of the combined entity, that party is likely to be the acquirer;
• The combining entity whose management dominates the management of the
combined entity; or
• Where a premium has been paid over the fair value of one or more of the combining
entities prior to the combination, the acquirer is likely to be the entity that has paid the
premium.

Determining the Acquisition Date

The acquirer should identify the acquisition date. The acquisition date is the date on which
the acquirer obtains control of the acquiree. It is normally the date on which the acquirer
legally transfers the consideration for the business. However, it is possible for control to
pass to the acquirer before or after this date. Where several dates are keys to the
business combination, it is the date on which control passes that determine the date on
which the acquisition occurs.

Acquired Assets and Liabilities

IFRS 3 establishes that identifiable assets acquired and liabilities assumed, and the non-
controlling interests in the acquiree, are recognized separately from goodwill.

All assets acquired and liabilities assumed in a business combination are measured at
acquisition date fair value. In addition, the acquirer may also recognize some assets and
liabilities that the acquiree had not previously recognized in its financial statements. The
identifiable net assets acquired should be classified or designated according to their
nature at the date of acquisition to ensure that other international standards can be
applied subsequent to acquisition; except Lease Contracts in accordance with IAS 17,
and Insurance Contracts in accordance with IFRS 4. These contracts shall be classified
on the basis of the contractual term and other factors at the inception of the contract.

If the initial accounting for a business combination can be determined only provisionally
by the end of the first reporting period, the business combination is accounted for using
provisional amounts. Adjustments to provisional amounts and the recognition of newly
identified assets and liabilities must be made within the measurement period where they
reflect new information obtained about facts and circumstances that were in existence at
the acquisition date. The measurement period cannot exceed one year from the
acquisition date and no adjustments are permitted after one year except to correct an
error in accordance with IAS 8, Accounting Policies, changes in Accounting Estimates
and Errors.

The acquirer shall also recognize and measure a liability (or asset if any) related to the
acquiree’s employee benefit in accordance with IAS 19, Employee Benefit.

The acquirer shall measure an acquired non-current asset (or disposal group) that
classified as held for sale at the acquisition date in accordance with IFRS 5, Non-current
Assets Held for Sale and Discontinued Operations.

The acquirer shall recognize as of the acquisition date a contingent liability assumed in a
business combination if it is a present obligation that arises from past events and its fair
value can be measured reliably, even if it is not probable. This is in contrast with IAS 37,
Provisions, Contingent Liabilities and Contingent Assets.

The acquirer shall recognize an indemnification asset at the same basis as the
indemnified item, subject to the need for valuation allowance for uncollectible amounts.

The acquirer shall measure the value of a reacquired right recognized as an intangible
asset on the basis of the remaining contractual term of the related contract, regardless of
whether market participants would consider potential contractual renewals when
measuring its fair value.

The acquirer shall measure a liability or an equity instrument related to-share-based

payment transactions of the acquiree in accordance with IFRS 2, Share-based Payment.

Furthermore, the acquirer shall recognize and measure a deferred tax asset or liability
arising from the assets acquired and liabilities assumed in a business combination in
accordance with IAS 12, Income Taxes. It should be noted that when identified net assets
and liabilities are revalued at fair value temporary differences may arise. The recognition
of deferred tax asset will increase the fair value of the identifiable net assets; conversely,
deferred tax liability will reduce the fair value of those net assets; thereby the computation
of goodwill is affected.
Non-Controlling Interests

In addition to the identifiable net assets acquired, the acquirer shall recognize any non-
controlling interests in the acquire either:

• At fair value (Full goodwill method), or

• At the non-controlling interest's proportionate share of the acquiree's identifiable net
assets (Partial goodwill method)

This choice is available for each business combination, so an entity may use fair value
approach for one business combination and the proportionate share of the acquiree’s
identifiable net assets for another. For the purpose of measuring non-controlling interest
at fair value, it may be possible to determine the acquisition-date fair value on the basis
of active market prices for the equity shares not held by the acquirer. In case of non-
publicly traded shares, the acquirer should measure the fair value of the non-controlling
interest using other valuation techniques.

Recognition and Measurement of Goodwill

The standard requires goodwill resulting from a business combination to be recognized

as an asset of the acquiring entity. It is measured as the excess of the consideration
transferred plus the amount of any no-controlling interest in the acquiree over the
identifiable net assets recognized. As mentioned earlier, the acquirer shall recognize any
non-controlling interest in the acquiree either:
• At fair value, or
• At the non-controlling interest’s proportionate share of the acquiree's identifiable net
assets.

The former (the fair value of the non-controlling interests) measures results in the
recognition of the non-controlling interest’s share of goodwill; while the latter
(proportionate share of the acquiree’s identifiable net assets) results in goodwill being
recognized at the acquisition date as an asset and is initially measured at its cost, being
the excess of the cost of the acquisition over the acquirer's interest in the net fair value of
the identifiable assets, liabilities, and contingent liabilities.

As stated earlier, this choice is available separately for each acquisition. After the initial
recognition, goodwill should not be amortized but tested for impairment periodically.
Although recognized as an asset, goodwill should not be revalued.

If the resulting difference is negative, that is an excess of the identifiable net assets
acquired in a business combination over the consideration transferred and the
non-controlling interests in the acquire, there is a bargain purchase or negative goodwill.
Since this amount will not normally arise and therefore may have arisen as a result of an
error in the measurement of the acquiree's net assets, the standard requires to reassess
the recognition of the identifiable net assets acquired. If it still remains after the
reassessment has been completed, it should be recognized as gain in profit or loss in the
period in which the business combination took place.

Contingent Consideration

Contingent consideration must be measured at fair value at the time of the business
combination and is taken into account in the determination of goodwill. If the amount of
contingent consideration changes as a result of a post-acquisition event (such as meeting
an earning target), accounting for the change in consideration depends on whether the
additional consideration is classified as an equity instrument or an asset or liability.

According to amended requirements under Annual Improvements to IFRS 2010-2012

Cycle contingent consideration that is classified as an asset or liability is measured at fair
value at each reporting date and changes in fair value are recognized in profit or loss both
for contingent consideration that is within the scope of IFRS 9 and IAS 39 or otherwise. If
the contingent consideration is classified as an equity instrument, the original amount is
not remeasured.

Business Combination Achieved in Stages

Prior to control being obtained, an acquirer accounts for its investment in the equity
interests of an acquire in accordance with the nature of the investment by applying the
relevant standard (e.g., Investment in Associates and Joint Venture, Joint Arrangements,
Financial Instruments: Recognition and Measurement, Financial Instruments. As part of
accounting for business combination, the acquirer remeasures any previously held
interest at fair value and takes this amount into account in the determination of goodwill.
Any resulting gain or loss is recognized in the profit or loss or other comprehensive
income as appropriate.
The accounting treatment of an entity's pre-combination interest in an acquire is
consistent with the view that the obtaining of control is a significant economic event that
triggers a remeasurement. Consistent with this view, all assets and liabilities of the
acquiree are fully remeasured, generally, at fair value. Accordingly, the determination of
goodwill occurs only at the acquisition date. (This is different to the
accounting for step acquisition under IFRS 3, Business Combination, 2004.)
Business Combination Achieved Without the Transfer of Consideration

In some cases, an acquirer obtains control of an acquiree without transferring

consideration. The acquisition method of accounting for a business combination applies
to those combinations. Such circumstances include the following:

• The acquiree repurchases a sufficient number of its own shares from other investors
giving the acquirer to obtain control.
• Minority veto rights lapse that previously kept the acquirer from controlling an acquiree
in which the acquirer held majority voting rights.
• The acquirer and acquire agree to combine their business by contract alone. The
acquirer transferred no consideration in exchange for control of an acquiree and holds no
equity interest in the acquiree, either on the acquisition date or previously.

A business combination achieved by contract alone may include bringing together two
businesses in a stapling arrangement or forming a dual listed corporation. In this case,
the equity interests in the acquiree held by parties other than the acquirer are a non-
controlling interest in the acquirer's post- combination financial statements even if the
result is that all of the equity interests in the acquiree are attributed to the non-controlling
interest.

To determine the amount of goodwill in a business combination in which no consideration

is transferred, the acquirer shall use the acquisition-date fair value of the acquirer's
interest in the acquiree in place of the acquisition-date fair value of the consideration
transferred.

Reverse Acquisition

A reverse acquisition occurs when an entity that issues securities (the legal acquirer) is
identified as the acquiree for accounting purposes. The entity whose equity interests are
acquired (the legal acquiree) must be the acquirer for accounting purposes for the
transaction to be considered as a reverse acquisition.

The accounting acquiree must meet the definition of a business for the transaction to be
accounted for as a reverse acquisition, and all of the recognition and measurement
Principles in this IFRS apply, including the requirement to recognize goodwill.

The entity that issues the equity shares in exchange for the net assets of the other entity
normally can be designated as acquirer. However, in business combination referred to as
reverse acquisition, the acquirer could be the entity whose equity interests are acquired
and the issuing entity is the acquiree. This can be the case where a private entity decides
to have itself "acquired" by a small public entity in order to obtain a stock exchange listing.
The entity issuing the shares will be regarded as the parent, and the private entity is
regarded as the subsidiary. The legal subsidiary will be deemed to be the acquirer if it has
the power to govern the financial and operating policies of the legal parent.

Accordingly, the acquisition-date fair value of the consideration transferred by the

accounting acquirer for its interest in the accounting acquiree is based on the number of
equity interest the legal subsidiary would have had to issue to give the owners of the legal
parent the same percentage equity interest in the combined entity that results from the
reverse acquisition. The fair value of the number of equity interests calculated in that way
can be used as the fair value of consideration transferred in exchange for the acquiree.

ACCOUNTING FOR SMALL AND MEDIUM-SIZED ENTITIES (SMEs)

According to IFRS/PFRS for SMEs, business combinations are defined as the bringing
together of separate entities or businesses into one reporting entity. A business is an
integrated set of activities and assets conducted and managed for the purpose of
providing a return to investor or other economic benefits to participants. It applies to
accounting for business combinations and goodwill both at the time of the business
combination and subsequently. It does not apply to 1.) combinations of businesses under
common control; 2.) the formations of a joint venture; or 3.) acquisition of assets that do
not constitute a business.

Business combination per IFRS/PFRS for SMEs are accounted for using the purchase
method the one described in lFRS 3, Business Combination, 2004 and not JFRS 3 in
2008, which involves the following steps:
• Identifying the acquirer;
• Measuring the cost of the business combination as the aggregate of the fair value of
assets given, liabilities assumed and equity issued including transaction costs;
• Recognizing the assets acquired and liabilities assumed at fair value; and
• Recognizing any difference between the cost of the business combination and the
acquirer's interest in the fair value of the assets and liabilities assumed, as goodwill. If the
difference is negative (negative goodwill or gain from a bargain purchase), the resulting
gain is recognized in profit or loss.

When a business combination agreement provides for an adjustment to the cost of the
combination contingent on future events, the acquirer shall include the estimated amount
of that adjustment in the cost of the combination at the acquisition date if it is probable
and can be measured reliably. However, if the potential adjustment is not recognized at
the acquisition date but subsequently become probable and can be measured reliably,
the additional consideration shall be treated as an adjustment to the cost of the
combination.
Provisions for acquired contingent liabilities are recognized as part of the business
combination if their fair value can be measured reliably.

Goodwill is measured at cost less accumulated amortization and impairment losses.

Reversal of goodwill impairment is not permitted. If a reliable estimate of the useful life of
goodwill cannot be made, it is presumed to be 10 years.

Any non-controlling interest in the acquiree is measured at the non-controlling interest's

proportionate share of the recognized amounts of the acquiree's identifiable net assets.

Problem 1
On August 31, 2020, Wood Corp. issued 100,000 shares of its P20 par value common
stock for the net assets of Pine, Inc., in a business combination accounted for by the
acquisition method. The market value of Wood’s common stock on August 31 was P36
per share. Wood Corp pay a fee of P160,000 to the consultant who arranged this
acquisition. Cost of registering and issuing the equity securities amounted to P80,000. No
goodwill was involved in the purchase. What amount should Wood capitalize as the cost
of acquiring Pine’s net assets?

Problem 2
The Gem Corp. acquired 100% of the Koala Co. for a consideration transferred of
P112,000,000. At the acquisition date, the carrying amount of Koala's net assets was
P100,000,000 and their fair value was P120,000,000. How should the difference between
the consideration transferred and the net assets acquired be presented in Gem's financial
statements, according to IFRS 3, Business Combination?

Problem 3
100% of the equity share capital of the Roman Co. was acquired by the Sweet Co. on
July 30, 2016. Sweet Co. issued 500,000 new P1 ordinary shares which had a fair value
of P8 each at the acquisition date. In addition, the acquisition resulted in Sweet incurring
fees payable to external advisers of P200,000 and share issue costs of P180,000. In
accordance with IFRS 3, Business Combination, goodwill at the acquisition date is
measured by subtracting the identifiable assets acquired and the liabilities assumed
from?
Problem 4
On April 7, 2020, Dart Co. paid P620,000 for all the issued and outstanding common stock
of Wall Corp. in a transaction properly accounted as a purchase. The recorded assets
and liabilities of Wall Corp. on April 1, 2020 are:

Cash 60,000
Inventory 180,000
Property and equipment
(net of accumulated depreciation of P220,000) 320,000
Goodwill 100,000
Liabilities (120,000)
Net assets 540,000

On April 1, 2020, Wall's inventory had a fair value of P150,000 and the property and
equipment (net) had a fair value of P380,000. What is the amount of goodwill resulting
from the business combination?

Problem 5

The Lamp Co. acquired a 70% interest in the Ohau Co. for P1,960,000 when the fair value
of Ohau's identifiable assets and liabilities was P700,000 and elected to measure the non-
controlling interest at its share of the identifiable net assets. Annual impairment reviews
of goodwill have not resulted in any impairment losses being recognized. Ohau's current
statement of financial position shows share capital of P100,000, a revaluation reserve of
P300,000 and retained earnings of P1,400,000. Under IFRS 3, Business combination,
what figure in respect of goodwill should now be carried in Lamp’s consolidated statement
of financial position?

Problem 6

The Chief Executive Officer (CEO) of Buy-It Company is contemplating selling the
business to new interests. The cumulative earnings for the past 5 years amounted to
P800,000. The annual earnings, based on an average rate of return on investment for
this industry, would have been P145,000. If excess earnings are to be capitalized at 8%,
what would be the implied goodwill in this transaction?

Problem 7

In a business combination accounted as purchase, Major Corp. issued non-voting non-

convertible preferred stock with a fair value of P8,000,000 in exchange for all the
outstanding common stock of Minor Co. On the acquisition date, Minor had tangible net
assets with a carrying amount of P4,000,000 and a fair value of 5,000,000. In addition,
Major issued preferred stock valued at P800,000 to an individual as a finder's fee in
arranging the transaction. As a result of this transaction, Major should record an increase
in net assets of?

Problem 8

On January 1, 2020, Dragons Corp. acquired the net assets of Blue Marlins Corp. in a
business combination. At that date, the property, plant and equipment of Blue Marlins had
a book value of P21,000,000 and a fair value of P22,500,000. These assets were
originally acquired at a cost of P30,000,000, but would presently cost P12,000,000. Using
the acquisition method, what amount should the combined entity report its property, plant,
and equipment account?

Problem 9

The Moon Co. acquired a 70% interest in the Swain Co. for P1,420,000 when the fair
value of Swain's identifiable assets and liabilities was P1,200,000. Also, Moon acquired
a 65% interest in the Hadji Co. for P300,000 when the fair value of Hadji's identifiable
assets and liabilities was P640,000. Moon measures non-controlling interests at the
relevant share of the identifiable net assets at the acquisition date.

Neither Swain nor Hadji had any contingent liabilities at the acquisition date and the above
fair values were the same as carrying amounts in their financial statements. Annual
impairment reviews have not resulted in any impairment losses being recognized. Under
IFRS 3, Business Combination, what figures in respect of goodwill and of gains on bargain
purchase should be included in Moon's consolidated statement of financial position?

Problem 10

On July 1, 2020, Brigg Co. agreed to purchase the assets and liabilities of Co. for
P4,000,000 cash, plus l 0,000,000 shares in Brigg Co. At this date, the value of each
share in Brigg was at P1.20. Cost directly attributable to business combination totaled
P50,000. The statement of financial position of Scott as at the date of purchase is
presented below:

Assets:
Trade receivables 2,500,000
Inventory 5,200,000
Land and building (net) 8,000,000
Total 15,700,000

Liabilities:
Bank overdraft 500,000
Creditors 3,000,000
Equity:
Capital and retained earnings 12,200,000
Total 15,700,000

In the negotiation process, Brigg has determined the following fair values for Scott's
assets and liabilities (assume that no deferred tax assets or liabilities arose from the
business combination).

Trade receivables 2,400,000

Inventory 5,000,000
Land and building (net) 10,000,000
Bank overdraft (500,000)
Creditors (3,000,000)
Total 13,900,000

At what amount would the goodwill purchased by Brigg Co. be measured?

Problem 11

On July 1, 2020, the balance sheet of Com Co. and Pol Co. are as follows:
Com Co. Pol Co.
Assets P4,000,000 P2,500,000
Liabilities 1,500,000 800,000
Capital stock, no par 2,000,000
Capital stock, P100 par 1,000,000
Additional paid in capital 700,000 300,000
Retained earnings (200,000) 400,000

Com Co. on this date, agreed to acquire all the assets, and assume all the liabilities of
Pol Co. in exchange for shares of stock that it will issue. The stock of Com Co. is selling
in the market at P50 per share. The assets of Pol Co. are to be appraised, and Com Co.
is to issue shares of its stock with a market value equal to that of the net assets transferred
by Pol Co. The value of the assets of Pol Co. per appraisal, increased by P300,000.

1. On the assumption that the acquisition method is applied, the total liabilities and
stockholders' equity of Com Co. reflecting the combination is?
2. The capital stock reflecting the combination under acquisition method is?
Problem 12

On July 1, 2020, the Magna Co. acquired 100% of the Natural Co. for a consideration
transferred of P160,000,000. At the acquisition date, the carrying amount of Natural's net
assets was P100,000,000.

At the acquisition date, a provisional fair value of P120,000,000 was attributed to the net
assets. An additional valuation received on May 31, 2021 increased this provisional fair
value to P135,000,000 and on July 30, 2021, this fair value was finalized at P140,000,000.
What amount should Magna present for goodwill in its statement of financial position at
December 31, 2021, according to IFRS 3, Business Combination?

Problem 13

On July 1, 2020, Centre Co. acquired Asia Corp. that resulted to goodwill in the amount
of P4,800,000. By December 31, 2020, the end of its 2020 reporting period, Centre Co.
had provisional fair values for the following items:
• Trademarks effective in certain foreign territories of P400,000. These had an average
remaining useful life of 10 years at the acquisition date. The acquisition date fair value
was finalized at P500,000 on March 31, 2021.
• Trading rights in other foreign territories of P600,000. These had an average remaining
useful life of 5 years at the acquisition date. The acquisition date fair value was finalized
at P300,000 on September 30, 2021.

By what amount the 2020 net income, be increased or decreased by the provisional fair
values of trademarks and trading rights?

Problem 14

On January 1, 2020, Entity A acquires 30,000 out of 100,000 outstanding ordinary shares
of Entity B for P90,000. For the six months ended June 30, 2020, entity B reported net
income of P40,000.

On July 1, 2020, Entity A acquires additional 60,000 ordinary shares of Entity B at a price
of P240,000. Entity A paid P20,000 acquisition related costs and P10,000 indirect costs
of business combination. The acquisition price of per share of the additional shares clearly
reflects the fair value of the existing interest of Entity A on Entity B. It is the policy of Entity
A to initially measure the noncontrolling interest in net assets of the acquiree at fair value.
The fair value of the noncontrolling interest in net assets of the acquire is appraised at
P50,000.

At the acquisition date, the net assets of Entity B are reported at P400,000. An asset of
Entity B is overvalued by P50,000 while one of its liabilities is overvalued by P30,000.
1. What is the gain on remeasurement of existing Investment in Entity B as a result of
step acquisition?
2. What is the goodwill or (gain on bargain purchase) as a result of business combination?

Problem 15

On January 1, 2020, America Co. acquired 60% interest in Bulgaria Co. for P80,000,000.
America already held a 10% interest which had been acquired for P12,000,000 but which
was fair valued at P15,000,000 at January 1, 2020. The fair value of the non-controlling
interest at January 1, 2020 was P47,000,000 and the fair value of the identifiable net
assets of Bulgaria was P130,000,000. At how much should a gain relating to the
revaluation of the original equity interest be recorded?

Problem 16

On July 1, 2020, Igloo Co. acquired all of the ordinary shares in Super Co. At that date,
the shareholders' equity of Super was as follows:

Issued capital (10,000,000 shares) 10,000,000

Retained profits 8,000,000
Total 18,000,000

Igloo Co. used its control to have Super Co. revalue its assets to fair value in its financial
statements, resulting in a revaluation increment of P2,000,000. This revaluation led to the
recognition of a deferred tax liability of P600,000. The amount of goodwill included in the
consolidated statement of financial position was P1,000,000. Acquisition-related costs
totaled P200,000. What was the consideration paid by Igloo for the shares in Super Co.?