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882 views26 pagesBcom - Ch. 13
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/ 26
‘Business Combinations 3
Mustration 13-1
On January 1,2017, Entity X purchases two separate sets of assets and activities from
~ 3rd parties, as follows:
0
@
Amanufacturing plant of A Company. The set of assets ired and liabili
assumed are as follows: 7 assets acquired and liability
F PMillion
Plant premise 100
Machinery 50
Equipment 20
Mortgage loan secured on the plant premise ( 90)
Entity X will continue to employ the existing employees of the manufacturing plant
paying them the same salaries as before. The plant is a cash-generating unit which
generates outputs that are sold to outside customers. Entity X pays a cash
consideration of P100 million to the vendor.
* Aset of assets and liability of B Company, as follows:
Factory premise 6
Machinery 20
Equipment 20
Loan secured on the factory premise (50)
The vendor will retrench the existing employees of the factory and pay their
termination benefits. The set of assets is not capable of generating independent
cash flows. However, Entity X believes it can use this set of assets to obtain
‘economies of scale with its existing facilities. It paysa consideration of P55 million
to the vendor. >=
5
: etry
—— usinst Combinations
pees coe 2
‘Asatte endfor financial year December 31,2016 the summarized ao
Cf financial position of Entity X isas follows: : ao
(@) ‘Thesetofassets and ability ofthe manufacturing plant sall onstinae are
Plant pret a sail the three elements of inputs, processes and outputs are evident. I
os aS ce ‘generating unit of the vendor and it was acquired as business
Machinery 400
= iyIERS3 and account
Sov Thereore, Ey Xsall apply RS 3 and. uccount
on ae : fort Se he manufacturing plant as a business combination wit
a 0
Current asets 230 Tec being measured at P20 million (P100 million less the net assets of PS
600 million).
= it identified asa
on nd liabilities in the second acquisition cannot be identifi
Siegen oes a Thesetof Setiscnone ofthe thee cements of mputs, processes and outputs are
Tong em Joans aa ‘evident. Entity X will oly use them together with its existing facilites to achieve
‘Total liabilities 300 ‘economies of scale. Therefore, it shall be accounted for as an asset sequistios a
‘Share capital ‘100 the cost paid for this set of assets exceeds the net carrying amount,
Retained earings 200 allocated the cost as follows: ;
Equity atuibutable to owners 300 PMillion
aa Factory premises (60+.6% 5) 63
So Machinery (20+.2x5) 24
Equipment 20 +25) 21
Required: ‘Mortgage loan ~ 50)
Explain how E Cost of purchase 38
(©) Explain how Entity Xshll account forthe puchases of the two setsofases and 3
Poa lement of Financial Position —
(©) Prepare the statement of financial position of Entity X as of January 1, 2017 Ce a Net SletArat)
immediately after the acquisition of the two sets of assets and activities. PMillion
Current assets (250 +155) 95
Plant and factory premises (200 + 100+ 63) 363
) 171
o1
20
‘Total Assets 740
Curent liabilities 100
Long-term loans (200+90 +50) 340
Share capital ico
Retained earings 200
‘Total Liabilities and Equity aan
EEE __ l —<—<—_s———___—
Jo
Chapter 13
dee Seuiting company snot required to establish values immediately onthe accuisis
ves immediately on the acquis
cate. A measurement period of up to one years allowed for mectneneg Temporary
Branca Satements prepared priorotheendof te measitenen
inancial tateruents Would explain the use of tempormty vale
Roving inten es ae sl en es
Proc peiodstatemens are revised reflect ihe fil alussandan rated reese
Some guidance on the measurement of fairvalucas provided inthe IFRS, are explained
low:
Cash and Cash Eqi
juivalents, Short-term Monet
Consideration
Assets and Deferred
(eshand cash equivalents and short-term monetary assets
< \dsho ‘given and short-term!
fo fare measured at thei le valve, which is normally equal to their face
nominal v1 ‘orexample, cash and cash equivalents given are rect
Value of the amount transferred. SS
Deferred consideration i
and not at the nominal v
current borrowing cost.
iessured und revorded atthe present value ofthe consideration
lue of the payable. The rate of discounting is the acquirer's
Mlustration 13-2
P Company acquires S Company on January 1, 2017. Included in the purchase
consideration is an amount of PS million payable on January 1,2019.P Company's
borrowing cost on acquisition date is 8% per annum.
The fair value of the deferred con:
combination is computed below:
le = P5,000,000/ (1 + 0.08) = P4,286,694
‘The journal entry to be recorded on the date of acquisition is given below:
4,286,694
4,286,694
Se ee
, this liability amount should be increased to P5,000,000 and the
aan eect ear ecrereesst crt
“At the end of the Ist year:
Finance cost (8% x 4,286,694) 342,936
“Atend of the 2nd year:
+ 342,936) 370,370
86,692 i) an
Finance ci
Defer
Upon paymen
5,000,000
Deferred abiiy 5,000,000
uments Transferreid
loted equity
is issued are measured at their fair value. For quoted equi
published price atthe date or exchange (whichis the acquisition
equity instrument provides the best evidence of the instrument's fair
used.
ial assets given shall be measured by eferenes fo their market prices,
«timated realizable values, independent vabuations or othe somatonseant
‘For example, a landed property transferre nerownersofa
red company as part of the purchase consideration sured:
market value at the acquisition date. the air value dirs
atthe acquisition date, th acquirer remeasures the gS
recognizes the resulting gain orloanin profitorloss RS
ingamountas
vant to fair value and roperty into S Lid. The carnying amount of the property inthe
dae is P20 milion. The fair market valu of he
they invested in S Lid; and
(iy) PLidshall bear the future losses and future restructuring costs of S|
PLidaballbe ne ig costs of S Ltd estimated
‘The cost of combination is computed as follows:
Cash consideration P1Omilion
Liabilitiesassumed Smillion
‘Property transferred at carrying amount 20million
Cost of combination 35 million
‘The property transferred is measured atthe camying amountnot at their fair valueat the
acquisition date because it remains within the combined entity after the business
combination. The future losses and restructuring costs are not included in the cost of the
business combination, but shall be accounted for as losses and expenses in the post
‘combination period when they are incurred.
not permitted to recognize a separate valuation allowance as of the
mn date forassets acquired ina business combination that are measured at their
date fair values because the effects of uncertainty about future cash flows
in the fair value measured. For example, because IFRS 3 requires the
iver to measurc acquired receivables, including loans, at heir acquisition date fair
aces the goquirer does notrecogmize a separate valuation allowance forthe contractual
Tah flows that are deemed to be uncollectible a that date. [FRS 3 (2008)]
“The principle of “no valuation allowance” also applies to propery plant and equipment
7s Fa, (ollowing.a business combination, such assetsare stated ata single fair value
‘mount, and not at gross "deemed cost” and accumulated depreciation,
Unrecognized Assets and Liabilities
“The acquirer may recognize some assets and liabilities thatthe acquires had not previously
recognized in its financial statements.
APPLYING THEACQUISITION METHOD
er, control of another company may be achieved either by the
or by acquisition of stock.
ACQUISITION OFNETASSETS
ay to be acquired by Acquirer, Inc. has the following
Position on June 30, 2017: >=
4 = rarer 13
Fair valucs forall accounts have been measured as of June 30,2017 as follows:
Cash
200,000
Marketable securities 330000
Inventory $50,000
Land 360,000
Building
Equipment
Unrecognized receivables 3,265,000
648,900
2.620.000
yFnet asset are as follows:
ir value, Thisis always the
spany is less than the sum of the fair
ret assets acquired (assets less liabilities assumed, P2,620,000 inthe
illustration),
Ifthe total consideration given for a company exceeds the fair value of its net
identifiable assets (P2,620,000), the excess price paid is recorded as go:
+ Ifthe total consideration given for a company is less than the fair value of its net
identifiable assets (P2,620,000), the excess of net assets over the price paid is
Tecorded as gain on acquisition (bargain purchase) in the period of the purchase.
+ Allacquisition-related costs are expensed in the period in which the costs are
incurred, with one exception. The costs to issue equity securities are recognized
asareduetion from the value assigned to additional pai ital account.
Before recording the acquisition, the acquirer should calculate the difference between
the price paid and the fair value of the net assets acquired,
Case I: Price paid exceeds the fair value of net identifiable assets acquired.
Acquirer, Inc., issues 80,000 shares ofits P10 par value common stock with amarket
value of P40 cach for J & J Company's netassets. Acquirer, Inc. pays professional fees
0f P50,000 to accomplish the acquisition and stock issuance costs of P30,000.
usness Combinations
“Analysis:
ea eee
‘Price paid (consideration given), €0,000shares x P40 market value 3,200,000
Fatrvaluc of net identifiable asses acquired from J (220,000)
dil B_0,000
professional fee (expense) P 50,000
Stock issue cst (eduction fiom atonal psidin saaeo
Boies recorded by the Acquirer, Ine areas follows:
(1) Torecord the netassets acquired including the new goodwill:
Cash 200,000
Morketabe secwrtes 330,000
350.000
350,000
900,000
700,000
225,000
380,000
125.000
500,000
Premium on bonds payable 20,000
Common stock (P10 par 80,000 shares sued) $00,000
Adiional pt in capt (P30 x 800,000 shares) 2,400,000
30,000
30,000
80,000 a
7 Chapter 13
rice paid is less than fair value of net identifiable assets acquired:
sues 20,000 shares ofits P15 parvelue common stock witha market
ach J Company's net assets. Acquirer, Inc. pays professional
},000 to accomplish the acquisition and stock issuance eosts of P130,000.
20 market value
‘&J Company.
Entries recorded by Acquirer, Inc. to record the acq
(1) Torecord the acquisition of net assets:
Cash
Marketable securities
Twentory
Land
Building
Equipment
Receivables ~ trade
Current thabilities
Bonds payable
Premium on bonds payable
‘Common stock (20,000 shares x PIS par)
Additions sapital (20,000 shares x P3)
@) Torecord acquisition-related costs:
Acquisition expense
50,000
100,000
30,000
180,000
ing should be noted from the entries ofthe acquirer.
“The stock issuance costs excced the atonal paid in capital recorded at acquisition
swith the excess being debited to "Stock Issuance Costs". This account should be
{reated as acontra account from retained earnings under the equity section ofthe
‘statement of financial position.
‘The gain must be reported asa separate line item inthe statement of comprehensive
income ofthe acquirer inthe period of the acquisition.
Recording Contingent Consideration in Acquisition of Net Assets
shares with a market value of P3,200, ition to the stock issued, the acquirer
agreed to pay an additional P200,000 fthe average income for the
2-year period of 2016 and 2017 exceeds PI ‘The expected value is
‘The revised analysis of the difference between the price paid and the fair value of the net
‘assets acquired and the entries to record the acquisition are presented below and on the
next page.
3,200,000
100,000 P3,300,000
(2,620,000)
P_ 680,000
P $0,000
30,000 ~—
1s Chapter 13
Entries to record the acquisition of net assets and the acquisition-related costs are as,
follows:
(2) Torecord the net assets acquired at fair value including the new goodwill:
Cash 20,000
Markerable securities 330,000
Inventory 330,000
Land 360,000
Building 900,000
Equipment 700,000
Recetvables ~ trade 235000
80,000
125,000
500,000
20,000
100,000
800,000
2,400,000
2) Torecord acquisition-related costs:
Acquisition expense 50,000
Additional paid in capital 30,000
Cash 80,000
Recording Changes in Contingent Consideration
(Changes tat are the result of the acquirer obtaining additional information about facts
and circumstances that existed at the acquisition date, and that occur within the
‘measurement period (Which may be a maximum of one year from the acquisition date)
are recognized as, ents against the original accounting for the acquisition (ands
may affect goodwill).
‘Changes resulting from events after the acquisition date (e.g. meeting an eamings targe!)
are not measurement period adjustments, Accounting for such change depends 02
‘whether the additional consideration is an equity i entor cash or other assets paid
or owed. If it is equity, the original amount remeasured, If the additional
consideration is cash or other assets paid or owed, the changed amount is recognized
profitorloss.
pusiness Combiners 19
_féuring the measurement period, the contingent consideration was revalued based on
Juditional information, the estimated liability and the goodwill (or gain on acquisition)
fold be adjusted. For example, if within the measurement period, the estimate was
revised to P160,000, the P60,000 increased would be adjusted as follows:
Goodell 0,000
‘Contingent consideration payable 60,000
later period. For example, ifthe estimate was revised to P200,000
period, the P40,000 increase would be recorded as follows:
‘Contingent consideration payable 40,000
is recorded at the acquisition date. The only entry.
shares are issued. -
Assuming the contingent event occurs, the following entry would be made after December
2019, to issue the additional 20,000 shares.
20,000
00,000
Recording Changes in Value During Measurement Period
During the measurement period, values assigned to accounts recorded asa part ofthe
‘acquisition may be adjusted to bette reflect the value ofthe accounts as of the acquisition
date. Changes in value caused by events that occur after the acquisition date are nota
Par of this adjustments. They would be adjusted to income in the period they occur. [S=—_
Chapter 13
is provisional. The 2017,
© income accounts forthe acquired I
June 30. The values assigned o building
adjustments to income for 2017 and projected for 2018 areas follows:
neial
900.000
‘straight-line with P660,000 residual value,
000/20 years = P12,000 per year
Recorded in2017 (6 months) 6000
Projected in 2018 2,000
become available in early 2018. The new
Revised Value 95000
Depreciation method
20-year straight-line with P590,000 residual value
360,000 /20 years = P18,000 per yea, P1,500 per month
Adjusted amount 7 (6 months) 9100
‘Amount to be recorded in 2018
oc
‘The recorded values are adjusted during 2018 as follows:
Building (P950,000 ~ P900,000) 50,000
Goodwill $0,000
Goodwill would absorb the impact of the. adjustme jad there been again on the
riginal acquisition date, the gain would be adjusted at the end of the measurement
Period. Since the gain was recorded in the prior periods, the entry to adjust the gain
‘would be made to retained earnings,
‘The depreciation forthe period must also be adjusted retroactively. The entry made a
2018 would be as follows: : z
Retained earnings
Accumulated deprecation — Buildings
3,000
3,000
‘business Combinations 21
BOOKS OFTHE ACQUIRE,
Using the example of the acquisition of J & J Company for P3,200,000 in Case 1, the
cexcoss of the price received by the aequiree (P3,200,000) over the sum of
675,000 (2,300,000 assets ~ P625,000 liabilities) is
this case, the gain is P1,525,000. The entries recorded
went in Acquirer Ine 3,200,000
abilities 125,000
Bonds payable 500,000
Cash 200,000
Marketable securites 300,000
b ‘500,000
1 130,000
730,000
400,000
1,525,000
n on sale of business
‘Torccord the distribution of Acquirer, Inc. shares reccived by its sharcholders
and the liquidation of I & J Company.
Q
3,200,000
les all the assets and
‘Statement of Comprehensive Income. The Statement of C
the acquirer for the accounting period in which business con
the operating results of the acquiree after the date of acqi
= __ =>
Chapter 13
ACQUISITION OF STOCK
the acquiring company deals only ngshareholders of
lustrae, assume that on December
red and outstanding shares of S Comy
000 cash. In addi
Inastock acquisit
the acquired company not the compan
(D)_Torecord the acquisition of stock from $ Company:
Investment in subsidiary § Company 2,000,000
Cash 2,000,000
@)_Torecord the acquisition-related costs:
Acquisition expense 100,000
Cash
The above entries do not record t
which controls achieved, Inst
that represents the controlling i
acquisition of stock no goodwill o}
‘acquirer. These are to be recognized only in the cons
the acquisition, S Company will not be dissolved.
parent/subsidiary relationship. P Company is now the p
the subsidiary.
[in further actions taken, the Investment in Subsidiary account would appears
tong: term investment on P Company's Separate Statement of Financial Position,
However, such presentation is permitted onlyifeonsolidation were notrequived (ce,
when control does not exist).
saigumiing consolidated statements are required (i, when control does exist), the
Statement of Financial Position of the two companies ist be combined intoa siagle
Consolidated Statement of Fi i
prepared on the date of acquisition and on a date subsequent (0 acquisition, The
‘Accounting process in the preparation of consolidation statements wall be disousced in
‘the chapters that follow.
23
usiness Combinations
Recognizing and Measuring Goodwill or a Gain from a Bargain Pureliase
f cribes that "the acquirer shall recognize goodwill as of the acquisitiondate
were rbdas the excess of (over (Below:
(@ theaggregate
@ theconsi fe °
generally requires acquisition-date fair value;
Gi the amount of any ni
isIFRS, which
the acquiree measured i
(on fair value or proportionate
nordinary shares of PI each, On
change : Both PP
ie. the shares are quoted on the stock exchange at P4 per share.
SSI Incsore that he market valueis representative of the fir valve OFS Ine
asa whole,
Required: |
‘Compute the goodwill on combination and the non-controlling interest in accordance
with:
Re sh on conulinginerest meas firvalucand ()
‘non-controlling interest measured at its proportionate sbare of net assets. yr
Chapter 13
pasiess Combinations 25
Solution 13-5 ——
Recording Contingent Consideration in Acquisition of Stock
(2) Original ERS :
Paps Ltd acquites a 75% interest in the equity capital of Anak
lable assets and liabilities of Anak Ltd are valued at P200
«dare esimated at P40 million per year. On
es, the fair Value ofthe ordinary shares of
Goodsill on combination
Non-controlling interest at acquisition date: 25% x P00 m
2018 contingent on the
le profit of P40 million in the first year, and
le on January 1.2019 contingent on the achievement
of the maintainable profitof P40 million inthe second year.
been averaging about P40 million per year in the
ha this evel of profits would be matntaned inthe
date, Papa Ltd's borrowing costis 10% per year.
‘The computation of the cost of combination on January 1,2017 and the goodwill on
combination areas follows:
‘Cost of combination:
7 Pn
100
100
100
— som Cost ofcombination 300,
. . ‘The acquisition cost shall be recorded as follows:
‘measured based on its proportionate share
ir value, be the same as the tary 300m We
sume that the non- mt consideration payable 200m
ue. ,
The goodwill on combination is calculated as follows:
Test for Goodwill Em
al recognition, the acquirer shall measure goodwill acquired ina business pasate of ,
ri Fair value of sideration transferred 300,
‘Sombination a cost less any accurnulated impairment losses in accordance with PAS Non contolingintrestarfairvalue(2S%x400) 100
36. lmpainmentof Assets. This standard prohibits amortization of poodurl but trees 400
{et soodwill must be tested for impairment annually, or more frequently ifevents oF Fair value of identifiable net assets (200)
‘changes in circumstances indicate a possible rent. Goodwill on combination 200
Ae = 26
Atthe end of year I. the investor recognizes the accretic
Althgend Wwestor recognizes the accretion of the:
20m
90m
Hom
dIm
110m
120m
Whenacont
specified k
greed at P50 million and his isbased onc ion of aP5 million
itofS Ltd witha price-earnings ratio of 10 times. The terms of paymeat
eae vith a price-earnings ratio of 10 times. The terms of pay
@ P30 million upfront when control is passed to P Ltd;
@ PA million atthe end of the frst year, ifthe profit ofS Ltd is at leastPS milion for
after the acquisition;
@ mn at the end of the second year ifthe profit of § Ltd is at least PS
event thatthe profit evel is below the P5 million level, the amount payables
reduced accordingly by the shortfall multiplied by a factor of 5 ee
27
panes Combining
yurnal entry to record the
sume that the guaranteed pro} jieved foreach of the next
AS eats show the journal ene toreeord the subsequeat payments made after
Year | and Year: =
(©) Suppose only Pa mi
the contingent consi
adjustments tothe e
‘Solution 13-7
(@) Thecost of combination should be P50 million and this consists of:
achieved in Year |, recalculate the feir value of
the end of Year 1. Show the measurement period
bination and the revised goodwill on combination.
30m
sgent consideration — Year 1 = Jom
gent consideration — Year 2 10m
‘of consideration transferred 50m
recon the acquisition of stock is:
subsidiary at cost 50m
” 30m
ent consideration payable 20m
I for consolidation purposes = P50m—P30m =P20m,
‘The comtingént consideration payable is Classified as. financial Viability and carried
at the amortized cost effective interest method (in accordance with IAS 39).
payments areas follows:
Year 1: Contingent consideration payable 3m
Finance cost (20m x 1036) 2m
Cash (10m x 1.1) Nm
To record finance cast and cash paid
‘Atthe end of Year I, the contingent consideration payable is carried at
the amortized costamount of Pim.
‘Thereis no change to the cost of combination measured initially. Hence,
goodwill on combination remains at P20 million,
Year2; Contingent consideration payable 11.0 m
Finance cost (Im x 109%) Lim
Cash (11 mx LD) 2 is
To record finance cost, cash paid and derevognize =
the contingent consideration I — LE
‘acquisition date. Thus,
as follows:
(0 = P40 m—P30 m=
yn, under the amortized
Year 2: 5.50 m
055m
6.05. m
Note thatin Year 2, ifthereisamy further chan,
z age to the amount payable
based on the level of earnings achicved, itis outside the measurement
Period, Thus, any such change shall be recognized as gain or loss in
loss.
passe Combinations =
pire Coteau ee ee ep a2*
pISCLOSURE REQUIREMENTS
IFRS 3 requires that an acquirer shall disclose information that enables users ofits
ffnancial statements to evaluate the nature and financial effect ofa business combination
datoceurseither:
ure on Paragraphs IFRS 3.59 - IFRS 3.63
‘ombination
Reference
B64 (atoe) 2016, the Company acquired a controlling 80% interest
hares of Ex Lid, Ex Ltd operates in the agriculture industry,
-oconutoil cultivation asits core business and rearing broilers
sesare conducted main
isexpected to bea
1g the pl
Groupe: synergies for the
‘combined operations, which would lead to cost reductions and other
ceonomicsof scale
B64(D) fair value of the total consideration transferred
‘and tis consists ofthe following components:
Pim
n 6
shares ofthe Company > 15
gent consideration = acs)
=
B64 (04 n ordi res issued an part of the
men) ion paid f (P15 million) was determined on the
‘losing inarkel price of the Company's ordinary shares ori
the acquisition date. 30
Bos)
B64)
B64 ()
IFRS 3.63
B64 (mm)
Bes) i
Pm
z
al B64 (a)
©
8
Ss
0
1s
20
Bos)
isnotexpected tot
“The fair value ofthe non-controlling interest represents its share of the
fair valuc of EX Ltd at the: nn date, estimated using the Price-
Eamings ratio method. The
estimated at P25 million by an estimated profitofP4 million
swith a price-carnings ratio of 6.25 times.
‘The goodwill on combination isnot deductible for tex purposes.
EX Ltd owns substantial non-contractual customer eationships with
its overseas buyers. However, the fair value of this intangible asset
cannot be measured reliably because of the absence of comparable
tions and the fact that a separate valuation would require
is which are not observable in the market.
a? clon smooppin esos veenpese inet
snue and profit included in the Group's
lidated statement of profit orlossand other comprehensive incorne
year ended December 31,2017 are as follows:
10-month actual results
from March 1 to December 31,2017
Revenue
Profit fier tax.
eat, January
of the Group for the year ended December
asfollows:
Pro formaresults of Group
Revenue wi
Profit afer tax 3 . .
asiness Combinations
35
Chae
uM —
131: p ‘an Company on Janu
mn stock, At the time, tet
ler RS 3, what total amount should fe
net assets acquired be recorded by Man Inc. assuming
consideration of ?5,000 is determined?
a. P249,000
6. P271,000
& P244,000
a P245,000
13-2: Thenet assets of Acquired Company have a book value of P150,000 and fair
a. P100,000
b. P150,000
«P1200
4 P 70,000
13:3:
100,000 0 the broker who arranged this ac
and issuance of the equity securities amounted to P50,000.
igent consideration determined to be paid to Black Company after
tion amounts to P120,000.
‘What amount should White capitalize as the cost of acquiring Black’snet assets
@ P3,620,000
6. P3.650,000
13-4:
Jue common stock, Subsequ:
ies merged into CI Corporation,
c iy for P30 per share on January 1,2017. The amount of good
on bination was P6,120,000. CJ incurred
ree ean oles fos asetted with he combination and P 30,000
300,000 of legal and brokers fees associated with
of stock issuance costs.
flue of Rex’s netassets and the amount of the increase in CT's
‘the combination, respectively? ~
‘What isthe fai
stockholders’ equity asa result oft
a. 23,880,000 and P 30,000,000
b. P24,180,000 and P30,000,000
(P24,180,000 and P29,970,000
‘23,880,000 and P29,970,000
‘ompany 120,000 shares of P10 par common stock with a fair
tic of PD, 50,000 for the net assets of Spot Company. In addition, Poo!
wired the following acquisition-related cost:
e
a.
immed
dissolved, Spot's assets and equities were as follows (in thousands):
‘Book Value
Current assets 2,000
Plant assets 1,500
Liabilicies 300
Common stock 2,000
200
Retained earnings
-ome from acquisition) and APIC to be
Whats the amount of goodwi
recognized by Pool Company?
a. P(450,000) and P1,335,000
6. P(410,000) and P1,200,000
. P(425,000) and PI,183,000
4. P(450,000) and P1,313,000 Chapter 13
3 Corporation paid '100,000 eash fr the net assets of Oro Company,
156: Plats Comet oft flowin:
Book Value Fair Value
‘Curren *P20,000 1F28,000
od 0,000 110,000
Property and equipment im oen
Liabilities assumed
‘The property and equipment acquired inthis business combination shouldbe
recordedat:
a. PLH0,000
4, P100,000
cP 91,666
d P 90,000
1: Abel and Cain Corporations were combined on Apri
a auton and Cain Corporation was dissolved and idated. For the year
2017, the companies had the following net income records:
‘Abel Corporation Ganuary
Abel Corporation, the surviving corporation, will report income for 2013 of:
1,320,000
& PI400,000
1,720,000
@.- PI,800,000
13-8: OnApril27,2017, Peter, Inc. paid P800,000 for the assets of Ana Compasy.
Therecorded asses and liabilities of Ana Company on April27, 2017 follow:
sh ee
160,000
Inventory 480,000
Property and equipment (net of accumulated
__ depreciation of P640,000) 900,000
‘abilities, 360,000
Business Combinations
37
“orporation’s
P187,000, respectively.
were P600,000 and Fi 88.000,
Id be reported as total assets of the combined entity
the business combination?
13-10: When White Company acquired Black Company's net assets by issuing its
‘had the following aequisition-related costs:
Theacqy lated costs should be debited to the following accounts:
ROSE
Additional
By iid in capital
143,000
P21,000
143,000
P11,000 ee
eri cr ee
1B January 1, 2017, ipany pays P270,000 cash and also issues aA jon purchased the net assets of Bistro Corporation for P160,000.
iosaerMepeconnanaoctwitamarvaneof?S3000 11 Aue Cuneo erm ven
poet ans of Sine Cosh inmarketable securities. The liabilities of the corporation amounted to P20,000.
issuing the 18,000 shares,
jon. Summazy balances immediately before the cor ‘The market values of itsassets were:
7 : ‘Current P 80,000
— None 120000
Polo Company Sure Company Sure Con
Book Yatne Book Value Fair Yatue, “otal 720,000,
350 “5 —_____ ——
120 ” 100 “The noncurrent assets and goodwill (income from acquisition) acquired should
ey a » | berecorded at:
180
(Income from acquisition)
Be Noneurrent assets Goodwi
a a. P120,000 ‘P(20,000)
*% —-P100,000 Paes
© Pr40000 =P 00,000
a PIs0,000 PO
13-14: On April 1,2017, the Rolex Company paid P600,000 for th
Seiko Company ina transaction properly accounted for as acq
2 1,090,000 date, the assets and liabilities of Seiko Company were as fol
& Pr,080,000 =
© 1,260,000 5s
4 Pi.060,000 Mean etry
13-12:
‘What should be the amount recorded as goodwill
result ofthe business combination?
aP oo
bP 37,500
c PLH2,500
4. P112,000
@. A debit of P200,000 t0 Inventories,
& Acredit of P400,000 10 Plant Assets (net).
& A debit of P350,000 to Goodwill.
. A debit of P50,000 to Goodwill. —
40
: o
Chapter ty | usiness Combinations
pea 3-17, Continued
ae .
January 1,2017, Acquisition, Ine. issues 10,000 shares of its P10 par value
Goeth a ark valu of P30 per share forthe net asses of Tiger Company.
‘What is the total stockholders’ equity of Acquisition, Inc. after the acquisition?
a. 850,000
&. 350,000
P450,000
& d.P500,000
é i i siti recorded by Acquisition
5 Using the data in Q13-17, the acquisition should be: is
‘ rae enh the following entry assuming stock issuance costs amounting to
'P405,000 was incurred:
a
13-16: The net assets of BB Company have a book value of P300,000 and
‘market value of P420,000. Among the undervalued assets are the pl
4 a Currentases zao00
‘equipment which have a book value of P200,000 and a fair val 150,000
‘AA Company issues stock with a par value of P250,000 and a iueat Baron 100,000
600,000 for the net assets of BB Company. Shortly afier the ¢ BB ‘Additional pald-in copital =
merges with AA Company. At what amount should BB's plant and equipment ‘Retained earnings eae
berecorded on AA Company’s books. 4 - co
a x
a. 250,000 ron oee
b P200,000 io
< P225,000 s 150,000
d. P300,000 ‘100,000
405,000
13-17: Presented below is a condensed balance sheet for the Tiger Company as of
December 31, 2017: 225,000
. 400,000
150,000
125,000
Current assets 100,000
50,000
200,000
125,000 a ‘eaio00
5,000
125,000
100,000
405,000 Ne = —____—_—_—
: Chantry ou
_ as susinrs Combratons
:
2 ev ceev eConpany’'scom ae S Financi {ion for Pablo and Siso Corporations at
ee ca v" common stock 13-21: Condensed Statement of Financial Position for! -
iano ny cone comneccg 8 Get tae)
Seep Ef eae
ee one
aE NNCompany
eatin
Lables and Eau
‘Tohave an income from acquisition of P100,000 the number of shares to be
issued by VV Company should be:
Contract for contingent consideration to be paid to Siso Corporation is P75,000.
@ 37,500 This is determined on the date of acquisition
4 37,000
42,500
4 42,000
”
‘What isthe total asset of Pablo Corporation afier acquisit
15-20: Using the data in Q13-19, to have a goodwill of P200,000, the number of
shares tobe issued by VV Company is:
13-22: Using the data in 13-21, what is the total stockholders’ equity of Pabl
«#0000 ‘orporation after acquisition? 2
44,500
: a. 1,210,000
36,000 4. P1,250,000
4 45,000 © PI,130,000
4. P1,285,000
a ‘Items 13-23 t0 13-25 are based on
13:23:
a
b
©
a.
Cherie iy
<=
the following data:
reflecting uniform accounting procedures, a5 yy
sed as basis of the combination are prepared gy
5.250.000,
3.950.000,
1,700,000
(490,000)
550,000,
‘A.Company shares have a market value of P22 per share. Market valuesare
not available for shares of B Company and C Company.
On September 1, 2017 A Company acquires all of the assets and assumes the
liabilities of B Company and C Com .000 shares ofits stock
,000 shares Company. A Company
pays P10,000 for registering and i jes and P20,000 for other
Acquisition costs of combination.
What is the goodwill to be recorded by A Co: ",
{What sth goo recorded by A Company on September 1, 2017;
438,000
P12,920,000
12,730,000
PI3,248,000
the total stockholders’ equity in the combined statement of financial
Position afler combination on September 1, 2017?
a.
b
©
a4
6,308,000
P7,148,000
6,728,000
P1,300,000
45
usiness Combinations
ing the net assets of Sam Company for an agreed:
“Ei DONT, The valve was tentatively assigned as
Go "200,000
ee eee :
“Values were subject change during the measurement period. Depreciation
erect the nearest month. The measurement period expired on July 1 “ct
A Shich time the fair values ofthe equipment and building as ofthe acq
Gate were revised to P180,000 and P550,000, respectively.
1. Howmuch total depreciation expense should be recorded for 2018.
a. P63,500
b P65,000
ce. P61,500
da P65,500
2. Howmuch goodwill is presented in the 2018 statement of financial position?
a. P230,000
6. P170,000
& P180,000
P200,000
13-27: On August 1, 2016, Gerry Company acquired the net assets of Rodil Company
fora price of P32M. At the: ‘ion date the carrying value of Rodil’s net
asset was P20M. At the acq} date, a provisional fair value of the net
‘on June 30, 2017 increased.
1ould Gerry Company present as goodwill in its statement of
‘at December 31,2017? : Big Corporation purchases the net assets of Small Corporation for P500,000 cash,
Prior to the combination, Small Corporation has the following Statement of Financial
et
susiness Comblnations
1G Company aca
BOG Companys
the combination. At
the net assets of CAT Corporation on January 3,2017, for
5,000 of professional fees were incurred in consummating,
of acquisition CAT Corporation reported the following
book value and current market data:
Position. = Book Value Fair Value
Ta ‘ash and Receivables P 50,000 Eo)
Statement Cash and 100,000 150,000
200,000 300,000
. 200,000
Ase. es and Equity 330,000 700,000
50,000 30,000 P 30,000
120,000, tote
100.009, °220,000 200,000 een
Rettinedeamings 250,000 450,009 ee
280,000 350,000
Toul Asses 500,000 500,009
Faic market values agre
and equipment, which
*¢ with book values except for inventories and property, plant
To:
‘have fair market values of P140,000 and. P300,000 respectively.
}consummate the transaction, Big Corporation incurs P5,000 acquisition-related costs.
Required:
1. on the acquisition on Big Corporation's books. Provide support for yout
Record the sale on the books of Small Corporati tal
Hear te ook poration and the subsequent tot
2.
Required: Givethe journal entry or entries by DOG Company to record the acquisition
of thenet assets of CAT Corporation.
Corporation shares were selling at P90:
‘for Visaya Corporation at the time of acquisition were as follows:
Carrying value
P 50,000
ry
Buildings and Equipment 400,000
Less: Accumulated Depreciation (450,000)
Total Assets
