No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

BUSINESS COMBINATION DATE OF ACQUSITION

Problem 1: Paul Corp. pays P3,000,000 cash as consideration for the assets acquired and liabilities
assumed of Marie Corp. Papa also pays professional fees of P25,000 and indirect cost of P5,000.
Paul Marie
Book
Book value Value Fair Value
Cash 4,500,000 400,000 400,000
Accounts Receivable 400,000 300,000 270,000
Allowance for doubtful
account (40,000) (20,000)
Inventories 500,000 600,000 550,000
Land 2,500,000 1,000,000 600,000
Building 2,000,000 2,500,000 2,400,000
Accumulated Depreciation (400,000) (500,000)
Goodwill 100,000 80,000
Total 9,460,000 4,380,000
Accounts Payable 1,500,000 1,000,000 1,000,000
Bonds payable (P1M face
value) 1,000,000 1,200,000
Ordinary share - P100 par 5,000,000 1,000,000
Share premium 1,000,000 900,000
Retained earnings 1,960,000 480,000
Total Liabilities and SHE 9,460,000 4,380,000
Paul’s consultants find these items not included on Marie’s statement of financial position:
Trademarks 100,000
Customers lists 5,000
Potential contracts with new customers 120,000
Contractual obligation - long term warranties 25,000
Favorable Operating lease - acquiree is a
lessor 40,000
Favorable Operating lease – acquiree is a
lessee 50,000
Customer relationships – contractual 5,000
Papa estimated restructuring provision of P750,000 representing cost of exiting the activity of
Marie Corp., cost of involuntary termination of employee and cost of relocating employee of
acquiree.
Requirements:
1. What is the amount of goodwill?
2. What is the amount of total assets after combination
3. What is the total amount of shareholders equity?

Problem 2: Shaq Corp. pays P250,000 cash and issues 25,000 shares of its P100 par value
ordinary share with a market value of P110 per share for the assets and liabilities of Kobe Inc.
Shaq Corp. also pays stock issuance costs of P50,000 for registering and issuing securities; legal
fees P10,000, and general and administrative costs of maintaining internal acquisition
departments P25,000.
The statement of financial position of Kobe prior to business combination is presented on the next
page:
Book value Fair Value
Cash 2,500,000 2,500,000
Accounts receivable 100,000 80,000
Allowance for doubtful accounts (20,000)
Inventory 250,000 240,000
Equipment 1,000,000 750,000
Accumulated depreciation (200,000)
Total Assets 3,630,000 3,570,000

Accounts Payable 1,000,000 1,000,000

Ordinary share - P100 par 2,000,000
Share premium 500,000
Retained earnings 130,000
Total Liabilities and Shareholders' Equity 3,630,000

1|P a g e RFERRER/RLACO/AT ANG /PDEJESUS

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

The following information are not included in the information above:

 On January 1, 20x1, Kobe is negotiating with prospective new customer amounting to
P500,000.
 A value of P250,000 to the existence of assembled workforce which permits Shaq to continue
to operate after acquiring Kobe.
 A research and development intangible assets that Shaq Corp may intend not to use. The fair
value of this asset is P150,000.
 A non-current assets that is classified as held for sale with fair value of P250,000 and cost to
sell of P10,000.
 An acquiree’s employee benefit arrangements with projected benefit obligation of P500,000
and plan assets of P400,000.

Required: What is the amount of goodwill from business combination?

MEASUREMENT PERIOD
Problem 3: On July 1, 20x1, Peter Corp. acquired all the assets and liabilities of Sara Corp by
issuing 100,000 share, P20 par value with a provisional market price of P25. On the same date,
the identifiable assets of Sara Corp has a book value of P3,500,000 with a provisional fair value
of P4,000,000, while the liabilities assumed have a book value of P1,800,000 which is equal to
its provisional fair value.

Peter Corp. hires an independent appraiser to value the identifiable assets and liabilities of Sara
Corp. On Aug 31, 20x1, a new information was obtained and the appraiser reported that the
accounts inventories has a fair value of P200,000 which is lower by P25,000 from its previous
provisional fair value. Also, it was determined that the fair value of Peter’s shares on July 1, 20x1
is P28.

The shares of Peter Corp. on October 1, 20x1 is traded in the market at price of P30 because of
economic growth

Required: Compute the goodwill on July 1 and August 31, 20x1.

Problem 4: On July 1, 20x1, Peter Corp. acquired all the assets and liabilities of Sara Corp by
paying cash of P3,000,000. On the same date, the identifiable assets of Sara Corp has a book
value of P3,500,000 with a provisional fair value of P4,000,000, while the liabilities assumed have
a book value of P1,800,000 which is equal to its provisional fair value.

On October 31, 20x2, the consultants of Peter Corp. discovered an error on the recorded
identifiable assets acquired from Sara Corp. on July 1, 20x1, date of business combination. An
equipment of with fair value of P50,000, remaining useful life of 5 years was not taken up from
the valuation listing of identifiable assets acquired.

Required: Determine the amount of goodwill on December 31, 20x1 and 20x2.

Problem 5: On January 1, 20x1, Peter Corp. acquired 60% of the outstanding ordinary shares of
Simon Corp. by paying P3,200,000, including control premium of P200,000. The statement of
financial position of Peter Corp. and Simon Corp. prior to business combination are shown below:
Peter Simon
Book Fair
Book value Value Values
Cash 5,000,000 500,000 500,000
Accounts Receivable 500,000 250,000 240,000
Inventories 650,000 500,000 520,000
Land 3,000,000 1,200,000 1,500,000
Building 1,200,000 1,000,000 950,000
Total 10,350,000 3,450,000 3,710,000
Accounts Payable 1,500,000 600,000 600,000
Ordinary share - P100 par 5,000,000 1,500,000
Share premium 1,000,000 600,000
Retained earnings 2,850,000 750,000
Total Liabilities and SHE 10,350,000 3,450,000

2|P a g e RFERRER/RLACO/AT ANG /PDEJESUS

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Required: Determine the amount of goodwill in the consolidation working paper

A. Assuming Papa Corp elects to use the Fair Value option to measure the non-controlling
interest and its fair value of non-controlling is P1,270,000.
B. Assuming Papa Corp elects to use the non-controlling interest at proportionate share in Mama
Corp. net identifiable assets.
C. Assuming Papa Corp. elect to use the fair value option to measure the non-controlling interest

Problem 6: On January 1, 20x1, Paul Corp. acquired 80% of the outstanding ordinary shares of
Sam Corp by paying P3,500,000 cash. Paul Corp. also paid direct costs and indirect costs
amounting to P20,000 and NCI fair value is P750,000. The statement of financial position of Paul
and Sam Corp. prior to combination is presented below:
Paul Sam
Book
Book value Value Fair value
Cash 7,000,000 1,000,000 1,000,000
Accounts Receivable 500,000 300,000 260,000
Allowance for doubtful account (40,000) (60,000)
Inventories 600,000 750,000 730,000
Land 3,000,000 1,200,000 1,500,000
Building 4,000,000 1,000,000 850,000
Accumulated Depreciation (500,000) (200,000)
Goodwill 100,000
Total 14,560,000 4,090,000 4,340,000
Accounts Payable 3,860,000 940,000 940,000
Ordinary share - P100 par 5,000,000 2,000,000
Share premium 1,000,000 360,000
Retained earnings 4,700,000 790,000
Total Liabilities and SHE 14,560,000 4,090,000

Required:
1. What is the amount of goodwill in the consolidated working paper?
2. What is the amount of total consolidated assets?
3. What is the total amount of consolidated shareholders equity?

3|P a g e RFERRER/RLACO/AT ANG /PDEJESUS