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Chapter 14

Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 P100) 3,900

Consideration transferred:
Cash 18,000,00
0
Common stock 4,000,000
Consideration transferred 22,000,00
0
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,00
0)
Long-term liabilities (47,000,00 15,880,00
0) 0
Positive excess: Goodwill 6,120,000

Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100

Costs to Issue and Register Stocks


APIC 500
Cash 500
2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 P100) 3,900
Gain on acquisition 3,880

Consideration transferred:
Cash 18,000,00
0
Common stock 4,000,000
Consideration transferred 22,000,00
0
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Noncompetition agreement 10,000,000
Current liabilities ( 400,00
0)
Long-term liabilities (47,000,00 25,880,00
0) 0
Negative excess: Gain on Acquisition ( 3,880,00
0)

Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100

Costs to Issue and Register Stocks


APIC/Share Issue Costs 500
Cash 500
3.
Post-Combination Balance Sheet: (requirement 1)
Assets Liabilities and Stockholders Equity

Cash P 5,490,000
Current liabilities P 900,000

Receivables 2,190,000
Long-term liabilities 117,000,000

Inventories 27,000,000

Plant and equipment 139,500,000

Trademarks 9,000,000
Common stock 2,100,000

Brand names 5,000,000


Paid-in capital par 58,400,000

Secret formulas 7,000,000 Retained earnings*


23,900,000

Goodwill __6,120,,000
Treasury stock ( 1,000,000)

Total P201,300,000
Total P 201,300,000

*25,000,000 1,100,000, merger expenses = 23,900,000.

Post-Combination Balance Sheet: (requirement 2)


Assets Liabilities and Stockholders Equity

Cash P 5,490,000
Current liabilities P 900,000

Receivables 2,190,000
Long-term liabilities 117,000,000

Inventories 27,000,000

Plant and equipment 139,500,000

Trademarks 9,000,000
Common stock 2,100,000

Brand names 5,000,000


Paid-in capital par 58,400,000

Secret formulas 7,000,000 Retained earnings*


27,780,000
Noncompetition agreement _10,000,,000
Treasury stock __( 1,000,000)

Total P205,180,000
Total P 205,180,000

*25,000,000 1,100,000 + 3,880,000 = 27,780,000

Problem II
1. (in millions)
Cash and receivables 200
Inventories 400
Property, plant & 5,500
equipment
Customer contracts 25
In-process R&D 300
Goodwill 2,035
Current liabilities 400
Long-term debt 7,300
Warranty liability 10
Estimated liability for Contigent 50
Cons.
Capital stock 700

Note: Read the topic Items included in Goodwill in Chapter 14 about Skilled
(assembled) workforce (they are not identifiable at the date of acquisition)
and Potential Contracts (they are not qualified as assets at the acquisition
date).

Consideration transferred:
Shares 700,000,000
Estimated liability for Contigent Cons. _50,000,000
Consideration transferred 750,000,000
Less: MV of Assets and Liabilities Acquired:
Cash and receivables 200,000,000
Inventories 400,000,000
Property, plant & equipment 5,500,000,00
0
Customer contracts 25,000,000
In-process R&D 300,000,000
Current liabilities ( 400,000,00
0)
Long-term debt (7,300,000,00
0)
Warranty liability ( 10,000,00 (1,285,000,00
0) 0)
Positive excess: Goodwill 2,035,000,00
0

Acquisition expenses
Acquisition/merger expenses 150
Cash 150
Costs to Issue and Register Stocks
Share Issue Costs 100
Cash 100

2. (in millions)
Goodwill 1,500
Property, plant & equipment 1,500

Problem III
1.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 22,500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Common stock 4,000,000
Additional paid-in capital 36,000,000
Cash 1,100,000

Consideration transferred:
Shares (400,000 x P100) 40,000,000
Less: MV of Assets and Liabilities Acquired:
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill 22,500,000

Costs to Issue and Register Stocks


Share Issue Costs/APIC 1,100
Cash 1,100
2.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Common stock 1,000,000
Additional paid-in capital 9,000,000
Gain on acquisition 7,500,000
Consideration transferred:
Shares (100,000 x P100) 10,000,000
Less: MV of Assets and Liabilities Acquired:
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Negative excess: Gain on acquisition ( 7,500,000)

Costs to Issue and Register Stocks


Share Issue Costs/APIC 800
Cash 800

3.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,00
0
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,00
0
Estimated liability for Contigent 8,000,000
Cons.
Common stock 1,000,000
Additional paid-in capital 9,000,000

Consideration transferred:
Shares (100,000 x P100) 10,000,000
Estimated liability for Contigent Cons. _8,000,000
Consideration transferred 18,000,000
Less: MV of Assets and Liabilities Acquired:
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill 500,000

Costs to Issue and Register Stocks


Share Issue Costs/APIC 800
Cash 800
4.
(a)
Estimated liability for
Contigent 3,000,000
Cons.
Goodwill 500,000
Gain on acquisition 2,500,000

(b)
Estimated liability for
Contigent 3,000,000
Cons.
Gain on reduction in
liability 3,000,000

Problem IV
1. January 1, 20x4
Accounts Receivable (net) 65,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Accounts Payable 83,000
Note Payable 180,00
0
Cash 720,00
0
Estimated Liability for Contingent Consideration 135,00
0

Consideration transferred (P720,000 + P135,000) P855,000


Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill P 54,000

2. January 2, 20x6
Estimated Liability for Contingent Consideration 135,000
Cash 135,000

3. January 2, 20x6
Estimated Liability for Contingent Consideration 135,000
Gain on Contingent Consideration 135,000

Problem V

Current Assets 362,000


Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000) 2,013,000
Goodwill * 395,000
Liabilities 119,000
Long-term Debt 491,000
Common Stock (144,000 P5) 720,000
PIC - par (144,000 x P15 - P5)) 1,440,000

* (144,000 P15) [P362,000 + P2,013,000 (P119,000 + P491,000)] = P395,000


Total shares issued (P700,000 / P5) + P20,000 / P5) 144,000
Fair value of stock issued (144,000P15) = P2,160,000

Problem VI

Case A
Consideration transferred P130,000
Less: Fair Value of Net Assets 120,000
Goodwill P 10,000

Case B
Consideration transferred P110,000
Less: Fair Value of Net Assets 90,000
Goodwill P 20,000

Case C
Consideration transferred P15,000
Less: Fair Value of Net Assets 20,000
Gain (P 5,000)

Assets Liabilities Retained


Goodwill Current Assets Long-Lived Assets Earnings
(Gain)
Case A P10,000 P20,000 P130,000 P30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 5,000

Problem VII
Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 =
P187,080
Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 =
344,098
Total Present value P531,178
Par value 600,000
Discount on bonds payable P 68,822

Cash 114,000
Accounts Receivable 135,000
Inventory 310,000
Land 315,000
Buildings 54,900
Equipment 39,450
Bond Discount (P40,000 + P68,822) 108,822
Current Liabilities 95,300
Bonds Payable (P300,000 + P600,000) 900,000
Gain on Acquisition of Stalton (ordinary) 81,872

Computation of Excess of Net Assets Received Over Cost


Consideration transferred (P531,178 plus liabilities assumed of P95,300
andP260,000) P886,478
Less: Total fair value of assets received _968,350
Excess of fair value of net assets over cost (P 81,872)
Problem VIII
Acquisition MethodEntry to record acquisition of Sampras
Consideration transferred P300,000
Estimated Liability for contingent Consideration 15,000
Consideration transferred (fair value) 315,000
Fair value of net identifiable assets 282,000
Goodwill P33,000

Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
IPRD 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
Estimated liability for contingent consideration 15,000
Cash 300,000

Acquisition related-expenses 10,000


Cash 10,000

Problem IX
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P
750,000
Notes payable 180,000
Contingent consideration (cash
contingency): 36,00
P120,000 x 30% probability 0
Total P 966,000
Less: Fair value of identifiable assets acquired
and
liabilities assumed:
Cash P 24,000
Receivables net 48,000
Inventories 72,000
Land 240,000
Buildings net 360,000
Equipment net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess Goodwill P
102,000

b. The journal entries by Peter Corporation to record the acquisition is as follows:

Cash 24,000
Receivables net 48,000
Inventories 72,000
Land 240,000
Buildings net 360,000
Equipment net 300,000
In-process research and development 60,000
Goodwill 102,000
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent 36,000
Consideration
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 P10) x 30,000 shares] 450,000
Acquisition of Saul Company.

Acquisition-related expenses 78,000


Cash 78,000
Acquisition related costs direct costs.

Paid-in capital in excess of par 32,400


Cash 32,400
Acquisition related costs costs to issue and
register stocks.

Acquisition-related expenses 27,600


Cash 27,600
Acquisition related costs indirect costs.

c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:

Pure Corporation
Balance Sheet
December 31, 20x4

Assets
Cash P 162,000
Receivables net 144,000
Inventories 360,000
Land 348,000
Buildings net 840,000
Equipment net 732,000
In-process research and development 60,000
Goodwill 102,00
0
Total Assets P2,748,000

Liabilities and Stockholders Equity


Liabilities
Accounts payable P 288,000
Other liabilities 408,000
Notes payable 180,000
Estimated liability for contingent 36,000
consideration
Total Liabilities P 912,000
Stockholders Equity
Common stock, P10 par P
1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2 158,400
Total Stockholders Equity P1,836,000
Total Liabilities and Stockholders Equity P2,748,000
1
P240,000 + P446,400 P32,400
2
P264,000 - P78,000 P27,600

It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the
acquisition date. This requirement does not extend to R&D in contexts other than business combinations.

2.
a. Assets that have been provisionally recorded as of the acquisition date are
retrospectively adjusted in value during the measurement period for new information
that clarifies the acquisition-date value. The adjustments affect goodwill since the
measurement period is still within one year (i.e., eight months) from the acquisition
date. Therefore, the goodwill to be reported then on the acquisition should be P78,000
(P102,000 P24,000).

b.
Buildings 24,000
Goodwill 24,000
Adjustment to goodwill due to measurement date.

3.
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 +
P24,000).

b. The adjustment is still within the measurement period, the entry to adjust the liability
would be:
Goodwill 24,000
Estimated liability for contingent 24,000
consideration
Adjustment to goodwill due to measurement date.

c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only
once (last August 31, 20x5).

c.2. On November 1, 20x5, the probability value of the contingent consideration amounted
to P48,000, the entry to adjust the liability would be:

Estimated liability for contingent consideration 12,000


Gain on estimated contingent consideration 12,000
Adjustment after measurement date.

In this case, the measurement period ends at the earlier of:


one year from the acquisition date, or
the date when the acquirer receives needed information about facts and
circumstances (or learns that the information is unobtainable) to consummate
the acquisition.
c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be
done only once (last August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:
Loss on estimated liability contingent 30,000
consideration
Estimated liability for contingent 30,000
consideration
Adjustment after measurement date.

c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Sauls average income in 20x5 is P270,000 and 20x6 is
P260,000, which means that the target is met, Peter Corporation will
make the following entry:
Estimated liability for contingent consideration 78,000
Loss on estimated contingent consideration 42,000
Cash 120,000
Settlement of contingent consideration.
4.
a.The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Receivables net 48,000
Inventories 72,000
Land 240,000
Buildings net 360,000
Equipment net 300,000
In-process research and development 60,000
Goodwill 106,386
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent 40,385
Consideration
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 P10) x 30,000 shares] 450,000
c.
c.1. Goodwill remains at P106,385.
c.2. Theentry for Pure Corporation on December 31, 20x5 to record such occurrence
would be:
Estimated liability for contingent consideration 40,385
Gain on estimated contingent consideration 40,385
Adjustment after measurement date.

Since the contingent event does not happen, the position taken by PFRS 3 is that
the conditions that prevent the target from being met occurred in a subsequent
period and that Peter had the information to measure the liability at the acquisition
date based on circumstances that existed at that time. Thus the adjustment will
flow through income statement in the subsequent period.

d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent
consideration would be:
Estimated liability for contingent consideration 36,000
Loss on estimated contingent consideration 66,000
Cash [(P78,000 + P84,000)/2 P30,000] x 2 102,000
Settlement of contingent consideration.

5.
a. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P
750,000
Notes payable 180,000
Contingent consideration (cash
contingency): 36,000
P120,000 x 30% probability
Contingent consideration (stock 18,000
contingency)
Total P 984,000
Less: Fair value of identifiable assets acquired
and 864,000
liabilities assumed (refer to 1a above)
Positive Excess Goodwill P 120,000

b. The journal entries by Pure Corporation to record the acquisition is as follows:


Cash 24,000
Receivables net 48,000
Inventories 72,000
Land 240,000
Buildings net 360,000
Equipment net 300,000
In-process research and development 60,000
Goodwill 120,000
Accounts payable 72,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent 36,000
Consideration
Paid-in capital for Contingent Consideration 18,0
00
Common stock (P10 par x 30,000 shares) 300,000
Additional paid-in capital [(P25 P10) x 30,000 450,000
shares]
Acquisition of Saul Company.

c. PureCorporation will make the following entry for the issuance of 1,200 additional shares:
Paid-in capital for Contingent Consideration 18,000
Common stock (P10 par x 1,200 shares) 12,000
Paid-in capital in excess of par 6,000
Settlement of contingent consideration.

6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event
occurs). Thus, the entry record the occurrence of such event to reassign the P750,000
original consideration to 36,000 shares (30,000 original shares issued + 6,000 additional
shares due to contingency) would be:
Paid-in capital in excess of par 60,000
Common stock (P10 par x 6,000 shares) 60,000
Settlement of contingent consideration.

7. On January 1, 20x7, the contingent event happens since the fair value per share fall
below P25. Thus, the entry record the occurrence of such event to reassign the P750,000
original consideration to 37,500 shares (30,000 original shares issued + 7,500*
additional shares due to contingency) would be:
Paid-in capital in excess of par 75,000
Common stock (P10 par x 7,500 shares) 75,000
Settlement of contingent consideration.
* Deficiency: (P25 P20) x 25,000 shares issued to acquire...P150,000
Divide by fair value per share on January 1, 20x7.P 20
Added number of shares to issue. 7,500
8. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (stock contingency):
[(P750,000 P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Positive Excess Goodwill P 158,308
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Receivables net 48,000
Inventories 72,000
Land 240,000
Buildings net 360,000
Equipment net 300,000
In-process research and development 60,000
Goodwill 158,308
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Paid-in capital for Contingent Consideration 92,308
Common stock (P10 par x 25,000 shares) 300,000
Paid-in capital in excess of par[(P25 P10) x 30,000 450,000
shares]
On December 31, 20x5, the contingent event occurs, wherein Peters stock price had
fallen to P20, thus requiring Peter to issue additional shares of stock to the former owners
of Saul Corporation. The entry for Peter Corporation on December 31, 20x5 to record such
occurrence such event to reassign the P750,000 original consideration to 37,500 shares
(30,000 original shares issued + 7,500* additional shares due to contingency) would be:

Paid-in capital for Contingent Consideration 92,308


Common stock, P10 par 75,000
Paid-in capital in excess of par 17,308
Settlement of contingent consideration.
* Deficiency: (P25 P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5P 20
Added number of shares to issue 7,500

Problem X
1.
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Accounts payable 45,100
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700

Homer Ltd
Accounts Receivable 34,700
Inventory 39,000
Freehold Land 130,000
Buildings 40,000
Plant and Equipment 46,000
Payable to Tan Ltd 132,000
Common stock, P1 par x 40,000 shares 40,000
Additional paid-in capital 88,000
Gain on acquisition 29,700
(Acquisition of net assets of
Tan Ltd and shares issued)

Payable to Tan Ltd 132,000


Cash 132,000
(Being payment of cash consideration)

Paid-in capital in excess of par 1,200


Cash 1,200
(Being costs of issuing shares)
2.
Tan LTD
General Ledger
Liquidation
P P
Accounts Receivable 34,700 Additional paid in capital 26,800
Inventory 27,600 Retained earnings 32,000
Freehold Land 100,000 Receivable from Homer Ltd 260,000
Buildings 30,000
Plant and Equipment 46,000
Goodwill 2,000
Interest Payable 4,000
Liquidation Expenses 2,400
Premium on Debentures 2,500
Accounts Payable 1,600
Shareholders Distribution 68,000
318,800 318,800

Liquidators Cash
P P
Opening Balance 12,000 Liquidation Expenses 2,400
Receivable from Homer Ltd 132,000 Mortgage and Interest 44,000
Debentures and Premium 52,500
Accounts Payable 45,100
144,000 144,000

Shareholders Distribution
P P
Shares in Homer Ltd 128,000 Common stock 60,000
Liquidation 68,0000
128,000 128,000

Problem XI
Cash 20,000
Accounts Receivable 112,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Allowance for Uncollectible Accounts 10,000
Accounts Payable 54,000
Bonds Payable 200,000
Deferred Income Tax Liability 67,200
Cash 600,000

Consideration transferred P600,000


Less: Fair value of net assets acquired
(P784,000 P10,000 P54,000 P180,000 - P67,200*) 472,800
Goodwill P127,200
* Increase in net assets
Increase inventory, land, and plantassets to fair value
P52,000 + P25,000 + P71,000) P148,000
Decrease bonds payable to fair value(20,000)
Increase in net assets P168,000
Establish deferred income tax liability(P168,000 x 40%)P67,200

Multiple Choice Problems


1. c
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to
effect a business combination. Those costs include finders fee; advisory, legal,
accounting, valuation and other professional or consulting fees; general
administrative costs, including the costs of maintaining an internal acquisitions
department; and costs of registering and issuing debt and equity securities. Under
PFRS 3 (2008), the acquirer is required to recognize acquisition-related costs as
expenses in the periods in which the costs are incurred and the services are
received, with one exception, i.e. the costs to issue debt or equity securities
are recognized in accordance with PAS 32 (for equity) and PAS 39 (for debt).

2. P2,240,000, No answer available


Consideration transferred : FMV of shares issued by Robin (80,000 sh P28) =
P2,240,000

3. P520,000, no answer available


Considerationtrasnferred P2,240,000
Less: Fair value of Hopes net assets (P2,720,000+P200,000P1,200,000) 1,720,000
Goodwill P 520,000

4. c
Acquisition related-expenses 20,000
Accounts Receivable 180,000
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
CurrentLiabilities 70,000
Long-termDebt 160,000
Cash 520,000
Gain on Acquisition 50,000
Considerationtrasnsferred : Cash P500,000
Less : Fair value of Wests net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
P70,000 - P160,000) 550,000
BargainPurchase Gain (P50,000)

5.d
Accounts Receivable (net of P33,000 allowance) 198,000
Inventory 330,000
Land 550,000
Buildings and Equipment 1,144,00
0
Goodwill 848,000
Current Liabilities 275,000
Bonds Payable 450,000
Premium on Bonds Payable (P495,000 - P450,000) 45,000
Preferred Stock (15,000 x P100) 1,500,000
Common Stock (30,000 x P10) 300,000
PIC - par (P25 - P10) x 30,000 450,000
Cash 50,000

Consideration transferred: (P1,500,000 + P750,000 + P50,000) P2,300,000


Less: Fair value of net assets (198,000 + 330,000 + 550,000 +
1,144,000 275,000 495,000) = 1,452,000
Goodwill P 848,000

6.d
Current Assets 960,000
Plant and Equipment 1,440,000
Goodwill 336,000
Liabilities 216,000
Cash 2,160,00
0
Estimated Liability for Contingent Consideration 360,000

7.c
Cash 1,400
Receivables 650
Investments 1,000
Maintenance supplies 400
Flight equipment 12,000
International routes 500
Leases 800
Goodwill 450
Current liabilities 3,200
Long-term debt 6,000
Cash 8,000

8. c
The amount of the contingency is P500,000 (10,000 shares at P50 per share)
Goodwill 500,000
Paid-in-Capital for Contingent Consideration - 500,000
Issuable

9. c
Paid-in-Capital for Contingent Consideration Issuable 500,000
Common Stock (P10 par) 100,000
Paid-In-Capital in Excess of Par 400,000
Platz Company does not adjust the original amount recorded as equity .

10.c
Accounts Receivable (net) 220,000
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 230,000
Accounts Payable 270,000
Note Payable 600,000
Cash 2,600,000
Estimated Liability for Contingent Consideration 200,000

Consideration transferred (2,600,000 + 200,000)..P2,800,000


Fair value of net assets acquired(P3,440,000 P870,000). 2,570,000
Goodwill...P230,000

Or, alternatively:
Accounts Receivable 240,000
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 30,000
Allowance for Uncollectible Accounts 20,000
Accounts Payable 270,000
Note Payable 600,000
Cash 2,600,000

Consideration transferred P2,600,000


Fair value of net assets acquired
(P3,440,000 P870,000) 2,570,000
Goodwill P 30,000

Goodwill 200,000

Estimated Liability for Contingent Consideration


200,000

1/1/20x6:
Estimated Liability for Contingent Consideration 200,000
Gain on Contingent Consideration 200,000

11. c
In accounting for the combination of NT and OTG, the fair value of the acquisition is
allocated to each identifiable asset and liability acquired with any remaining excess
attributed to goodwill.

Consideration transferred (shares issued) P750,000

Fair value of net assets acquired:

Cash P29,000

Receivables 63,000

Trademarks 225,000

Record music catalog 180,000

In-process R&D 200,000

Equipment 105,000

Accounts payable (34,000)

Notes payable (45,000) 723,000

Goodwill P27,000

Entry by NT to record combination with OTG:

Cash 29,000

Receivables 63,000

Trademarks 225,000

Record Music Catalog 180,000

Capitalized R&D 200,000

Equipment 105,000

Goodwill 27,000

Accounts Payable 34,000

Notes Payable 45,000

Common Stock (NewTune par value) 60,000

PIC - par 690,000

(To record merger with OTG at fair value)

PIC - par 25,000


Cash 25,000

(Stock issue costs incurred)

Post-Combination Balance Sheet:

Assets Liabilities and Owners Equity

Cash P 64,000 Accounts payable P 144,000

Receivables 213,000 Notes payable ___415,000

Trademarks 625,000 Total liabilities P 559,000

Record music catalog 1,020,000

Capitalized R&D 200,000 Common stock 460,000

Equipment 425,000 Paid-in capital - par 695,000

Goodwill 27,000 Retained earnings 860,000

Total P2,574,000
Total P2,574,000

12. P559,000, no answer available refer to No. 11


13. d refer to No. 11
14.c refer to No. 11
15.c refer to No. 11

16. d
Correction: completion goals by December 31, 20x5 not 20x4.
Entry to record the acquisition on Pacificas records:
Cash 85,000
Receivables and inventory 180,000
PPE 600,000
Trademarks 200,000
IPRD 100,000
Goodwill 77,500
Liabilities 180,000
Common Stock (50,000 xP5) 250,000
Paid-In Capital in excess of par (50,000 xP15) 750,000
Contingent performance obligation 62,500

The goodwill is computed as:


Consideration transferred: 50,000 shares x P20 P1,000,000
Contingent consideration:
P130,000 payment x 50% probability x 0.961538 62,500
Total P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000) 985,000
Goodwill P 77,500

Acquisition related-expenses 15,000


Cash 15,000

PIC - par 9,000


Cash 9,000

Note: The following amounts will appear in the income statement and statement of
retained earnings after business combination:
PP Inc.
Revenues (1,200,000)
Expenses (P875,000 + P15,000) 890,000
Net income (310,000)
Retained earnings, 1/1 (950,000)
Net income (310,000)
Dividends paid 90,000
Retained earnings, 12/31 *(1,170,000)
* or, P1,185,000 P15,000 = P1,170,000

17. c refer to No. 16 (P400,000 + P750,000 P9,000 = P1,141,000)


18. d refer to No. 16
19. b refer to No. 16
20. b refer to No. 16
21. d refer to No. 16 [P77,500 + (P75,000 P62,500)] = P90,000
22.b refer to No. 16. It should be noted that goodwill can only be revised once, so, the
goodwill remains at P90,000, but the liability will be adjusted to P80,000, the entry would
be
Loss on contingent consideration. 5,000
Contingent performance obligation. 5,000

23. a
10,000,000 x P5 x 0.20 P 10,000,000
15,000,000 x P5 x 0.10 ___7,500,000
P 17,500,000
17,500,000/(1.12)4 P 11,121,566

24. a at fair value


25. a
26.a (P100,000 x = P50,000 x 1/1.05) or P50,000 x 0.909091 = P45,454
27. c
Fair value of Subsidiary
Consideration transferredP 200 million
Add: Fair value of contingent consideration 10 million
Fair value of subsidiary P 210 million
Less: Fair value of identifiable assets and liabilities of Homer............... 116 million
Goodwill P 94 million
Note: The consideration transferred should be compared with the fair value of the
net assets acquired, per PFRS3 par. 32. The contingent consideration should be
measured at its fair value at the acquisition date; any subsequent change in this
cash liability comes under PAS 39 Financial instruments: recognition and
measurement and should be recognized in profit or loss, even if it arises within the
measurement period. See PFRS3 pars. 39, 40 and 58.
28. b
29. b
30. d
P77,500,000 = P100,000,000 (P1,500,000 + P35,000,000 + P2,000,000 +
P10,000,000 + P4,000,000 - P30,000,000).
31. b
P(12,500,000) = P10,000,000 (P1,500,000 + P35,000,000 + P2,000,000 +
P10,000,000 + P4,000,000 - P30,000,000).
32. c
The correcting entry, within the measurement period, is:
Goodwill 2,000,000
Patents 2,000,000

33. a
The correcting entry, within the measurement period, is:
Gain on acquisition 2,000,000
Liabilities 2,000,000

34. c
Goodwill 400,000
Estimated lawsuit liability 400,000

35.b
Loss on lawsuit 400,000
Estimated lawsuit liability 400,000

36.b
Assets 570,000,000
Liabilities 100,000,0
00
Capital stock 400,000,0
00
Cash 50,000,00
0
PIC-stock contingency 20,000,00
0

37. b - P350,000,000 (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares

38. c
The contingency was originally recorded in equity at the amount of P20,000,000.
However, changes in the value of stock price contingencies do not affect the acquisition
price or income. Any changes in value are adjustments in equity.

PIC- stock contingency 20,000,000


PIC-other 30,000,000
Common stock 50,000,000

39. b
40. c
41. c
42. b [(P47 x 12,000 shares) (P70,000 + P210,000 + P240,000 + P270,000 + P90,000
P420,000)
= P104,000
43. d
APIC: P20,000 + [(P42 P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
44. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
45. b [P480,000 (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 P420,000)] =
P20,000
46. c AA records new shares at fair value

Value of shares issued (51,000 P3)............................................... P153,000

Par value of shares issued (51,000 P1)......................................... 51,000

Additional paid-in capital (new shares) ............................................ P102,000

Additional paid-in capital (existing shares) ...................................... 90,000

Consolidated additional paid-in capital............................................. P192,000

At the date of acquisition, the parent makes no change to retained earnings.

47. a at fair value

48. c
Depreciation expense:
Building, at book value (P200,000 P100,000) / 10 years P 10,000
Building, undervaluation (P130,000, fair value
P100,000, book value) / 10 years3,000
Equipment, at book value (P100,000 P50,000) / 5 years 10,000
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years 5,000
Total depreciation expense= P 28,000

49. c - [(24,000 shares x P30) P686,400] = P33,600


50. d - [(24,000 shares x P30) (P270,000 + P726,000 P168,000)] = P108,000, gain
51. c
A bargain purchase is a business combination in which the net fair value of the
identifiable assets acquired and liabilities assumed exceeds the aggregate of the
consideration transferred.

It should be noted that bargain purchase gain would arise only in exceptional
circumstances. Therefore, before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and
all of the liabilities assumed. The acquirer should recognize any additional
assets or liabilities that are identified in that review.
2. Any balance should be recognized immediately in profit or loss.

52. b no valuation to be recorded in the books of the acquirer


Cost P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs 18,000
Net book value P162,000

53. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)]
P312,000
Less: Shares issued at par (15,000 shares x P10 par)
150,000
APIC P162,000

Or: since, there is no excess, the P312,000 represents the amount of consideration
transferred, therefore the APIC should be P162,000 [P312,000 / 15,000 shares =
P20,80 P15 = P10.80 x 15,000 shares)

54. c
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The gain of P8 million results from a bargain purchase and
should be recognized in profit or loss, per PFRS3 par. 34.

55. c
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Accounts payable 45,100
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000289,700
Bargain Purchase Gain 29,700

56. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are
measured at their acquisition-date fair values.
57.c
Selling price P 110,000
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000) 140,000
Loss on sale of business by the acquiree (Comb) P( 30,000)

58 d P215,000 = P130,000 + P85,000


.
59 b P23,000 = P198,000 (P405,000 - P265,000 + P15,000 + P20,000)
.
60. c P1,109,000 = Total Assets of TT Corp. P 844,000
Less: Investment in SS Corp. (198,000)
Book value of assets of TT Corp. P 646,000
Book value of assets of SS Corp. 405,000
Total book value P1,051,000
Payment in excess of book value
(P198,000 - P140,000) 58,000
Total assets reported P1,109,000
61 c P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
.
+P200,000)

62 d P257,500 = The amount reported by TT Corporation


.

63 a P407,500 = The amount reported by TT Corporation


.

64. c
Par value of shares outstanding before issuance P200,000
Par value of shares outstanding after issuance 250,000
Par value of additional shares issued P 50,000
Divided by: No. of shares issued* __12,500
Par value of common stock P 4

*Paid-in capital before issuance (P200,000 + P350,000) P 550,000


Paid-in capital after issuance (P250,000 + P550,00)800,000
Paid-in capital of share issued at the time of exchangeP250,000
Divided by: Fair value per share of stockP 20
Shares issued 12,500

65. a
Consideration transferred: Shares 12,500 shares P250,000
Less: Goodwill 56,000
Fair value of identifiable net assets acquiredP194,000

66. a
Blue Town:
Stockholders equity before issuance of shares (P700,000 + P980,000)
P1,680,000
Issued shares: 34,000 shares x P35
1,190,000
Consolidated SHE/Net Assets P2,870,000
67. d

68. c
Common stock combinedP 160,000
Common Acquirer Zyxel.. . 100,000
Common stock issued...P 60,000
Divided by: Par value of common stock.P 2
Number of Zyxel shares to acquire Globe Tattoo..... 30,000
69. d
Paid-in capital books of Zyxel (P100,000 + P65,000)........P 165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000). 405,000
Paid-in capital from the shares issued to acquire Globe Tattoo... P 240,000
Divided by: No. of shares issued (No. 31)..... 30,000
Fair value per share when stock was issued.... P 8

Or,
Par value of common stock of Zyxel P 2
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 P65,000)/30,000............ 6
Fair value per share when stock was issued....... P 8

70.b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 P50,000
- P250,000). P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 P75,000 - P350,000)..........
497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition.... P227,000

71. a
Consideration transferred (30,000 shares x P8) P240,000
Less: Fair value of net identifiable assets acquired (No. 49).... 227,000
Goodwill.. P 13,000
72. c
Retained earnings:
Acquirer Zyxel (at book value).... P105,000
Acquiree Globe Tattoo (not acquired) __ 0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related
costs which may affect retained earnings on the acquisition date.

73. a
II ____ _____JJ _ ____Total____
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at _10%
Total stock to be issued P1,152,000
Less: Net Assets (for P/S) 864,000
Goodwill (for Common Stock) P 288,000
Preferred stock (same with Net Assets):
864,000/P100 par 8,640 shares

Theories
1. True 21 False 41 True 61 c 81. b 101 c 121 a
. . . .
2. False 22 True 42 False 62 b 82. a 102 d 122 b
. . . . .
3. True 23 False 43 a 63 c 83. d 103 d 123 b
. . . . .
4. True 24 True 44 c 64 d 84. a 104 d 124 c
. . . . .
5. False 25 True 45 b 65 d 85. c 105 c 125 b
, , , . .
6. True 26 False 46 b 66 a 86. d 106 d 126 c
. . . . .
7. False 27 True 47 d 67 a 87. c 107 d 127 c
. . . . .
8. True 28 False 48 c 68 d 88. a 108 d
. . . .
9. True 29 True 49 c 69 a 89. c 109 b
. . . .
10 True 30 True 50 b 70 b 90, d 110 c
. , , , ,
11 True 31 False 51 a 71 c 91. b 111 c
. . . . .
12 True 32 True 52 b 72 A 92. a 112 c
. . . . .
13 False 33 True 53 c 73 c 93. C 113 a
. . . . .
14 False 34 False 54 a 74 c 94. B 114 d
. . . . .
15 False 35 True 55 c 75 a 95. D 115 d
. . . . .
16 True 36 True 56 b 76 d 96. A 116 c
. . . . .
17 False 37 False 57 a 77 a 97. A 117 b
. . . . .
18 True 38 True 58 c 78 d 98. c 118 b
. . . . .
19 True 39 False 59 a 79 b 99. d 119 b
. . . . .
20 False 40 False 60 c 80 c 100 d 120 a
. , , , , .
Note for the following numbers:
2. A horizontal combination occurs when management attempts to dominate
an industry.
5. A vertical combination exists when an entity purchases another entity that
could have a buyer-seller relationship with the acquirer. The combination
described here is a horizontal combination.
7. A conglomerate combination is one where an unrelated or tangentially
related business is acquired. A vertical combination occurs when a supplier
is acquired.
13. Greenmail is the payment of a price above market value to acquire stock back from a
potential acquirer.
15. The sale of the crown jewels results when a target sells assets that would be
particularly valuable to the potential acquirer. The scorched earth defense results
when a target generally sells large amounts of assets without regard to the specific
desirability to the potential acquirer.
17. Golden parachutes are generally given only to top executives of the acquiree.
20. Control over the net assets of an entity can be accomplished by purchasing the net
assets or by purchasing the acquiree voting common stock that represents
ownership of the assets.
21. The amount of cash will always equal the net assets recorded by the acquirer. As a
result, the acquirer book value will not change due to an acquisition.
23. There is no exchange of stock in an asset for asset acquisition so there cannot be a
change in ownership structure of either entity.
26. The acquiree corporation becomes an acquirer stockholder, not the
acquiree stockholders.
28. A combination that results in one of the original entities in existence after
the combination is a statutory merger.
31. The combination results in the stockholders of one entity controlling the
other entity. The Retained Earnings of the entity acquiring control is
carried forward to the newly formed corporation.
34. The stock of the acquiree company must be purchased by the acquirer, but
the value transferred to the acquiree stockholders does not have to be in
stock. Payment may be in another asset or the issuance of debt.
37. The consideration to be given by the acquirer is sometimes not completely
known because the consideration is based partially on acquiree future
earnings or the market value of acquirer debt or stock.
39. Any change in the number of shares of acquirer stock given returns the
purchase price to the agreed level. The adjustment is to stock and
additional paid-in capital. The investment account is unchanged.
40. The acquiree stockholders must continue to have an indirect ownership
interest in the acquiree net assets. Preferred stock or a nonvoting class of
stock qualifies as an indirect ownership as well as voting common stock.
42. A net operating loss carryforward cannot be acquired. They are only
available to the acquirer if the combination qualifies as a nontaxable
exchange.