PAMANTASAN NG LUNGSOD NG VALENZUELA

REVIEW PRACTICAL ACCOUNTING II

INTEGRATED QUIZ ON BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENT
DATE OF ACQUISITION

NAME:___________________________________________ SECTION:________

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 REVIEW PRACTICAL ACCOUNTING II
INTEGRATED QUIZ ON BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENT
DATE OF ACQUISITION

NAME:___________________________________________ SECTION:________

PROBLEM A. Candy Co. purchased the net assets of Crush Co. for P 160,000. On the date of
purchase, Crush had no long term investments in marketable securities. The liabilities of the
corporation amounted to P20,000. The market values of its asset were:

Current Asset---------------P 80,000 Non-current assets----------P120,000

1. THE NON-CURRENT ASSETS ACQUIRED SHOULD BE RECORDED AT

2. GOODWILL ( INCOME) FROM ACQUISITION SHOULD BE

PROBLEM B. YOBABE CO. had these accounts at the time it was acquired by TING2 INC.

Cash-----------------------------P36,000 Accounts receivable------------------------P457,000

Inventories-------------------120,000 Plant,Property,and Equipment-----------696,000
Accounts Payable----------350,800.

TING2 paid P1,400,000 for net assets of YOBABE CO. It was determined that the fair market value of
inventories and plant,property,equipment were P133,000 and P900,000 respectively.

An assume contingent liability with a fair value amounting to P10,000 and such amount is considered a
reliable measurement. Also a P25,000 future losses or reorganization/restructuring costs are expected
to be incurred as a result of the business combination.

3. In the books of TING2 CO., this transaction resulted in (indicate the amount of goodwill/Gain from
Business Combination)

4. How much was the Fair Value of Net Assets of YOBABE CO in determining the result of Business
Combination?

PROBLEM C. The following are the balance sheets of P CO. and S CO. as of December 31, 2019
 P CO. S CO.
Cash P 250,000 P 50,000
Receivable 175,000 37,500
Inventories 200,000 62,500
Land 187,500 250,000
Building (net) 800,000 250,000
Equipment (net) 625,000 600,000
Total Assets P 2,237,500 P 1,250,000

Accounts Payable P 462,500 P 150,000

Ordinary Shares 1,250,000 500,000
Share Premium 125,000 350,000
Retained Earnings 400,000 250,000
Total Liabilities and Equity P 2,237,500 P 1,250,000

P CO. decided to acquire 17,000 outstanding shares of S CO. on January 1, 2020. P CO will issue 25,500
ordinary shares with a market value of P 30 per share in exchange for the 17,000 outstanding share of S.
P CO and S CO both have a par value of P 25 per share. The book values reflect fair values except for
building of P CO, which has a net realizable value of P 1,050,000 and inventories and land of S CO which
have a net realizable value of P 87,500 and P 325,000 respectively. P CO also paid for costs of registering
and issuing securities amounting to P 30,000 and direct costs of combination amounting to P 62,500.

5. How much is the consolidated shareholder’s equity after the combination?

6. HOW MUCH IS THE TOTAL CONSOLIDATED CASH AFTER COMBINATION?

7. HOW MUCH IS THE TOTAL CONSOLIDATED INVENTORIES AFTER COMBINATION?

8. HOW MUCH IS THE TOTAL CONSOLIDATED EQUIPMENT AFTER COMBINATION?

10. HOW MUCH IS THE TOTAL CONSOLIDATED ASSETS AFTER COMBINATION?

PROBLEM D.

USING THE INFORMATION ABOVE( PROBLEM C) BUT ASSUME THAT ASIDE FROM 25,500 SHARES TO
BE ISSUED, P CO AGREED TO PAY ADDITONAL CONSIDERATION WITH A FAIR VALUE OF P135,000 AS
CONTINGENT CONSIDERATION.

11. WHAT WOULD BE THE RESULT OF BUSINESS COMBINATION? (INDICATE IF GOODWILL OR GAIN?

12. HOW MUCH IS THE TOTAL CONSOLIDATED LIABILITIES AFTER THE COMBINATION?

13. HOW MUCH IS THE NON CONTROLLING INTEREST TO BE RECOGNIZED IN THE BOOKS OF P CO?

14. HOW MUCH IS THE CONSOLIDATED RETAINED EARNINGS AFTER BUSINESS COMBINATION?
PROBLEM E
The following are the condensed statement of financial position of AXEL and VICKY on January 1, 2019:
 AXELl VICKY
Total Assets P4,100,000 P 1,223,000

Liabilities 1,110,000 320,000

Common Stocks 1,240,000 518,000
Additional Paid-in Capital 500,000 40,000
Retained Earnings 1,250,000 345,000

Cido Corp. acquired the net assets of both AXELl and VICKY by issuing 81,250 shares to AXELI and
22,550 shares to VICKY. The par value of these shares is P35/share and market value as of January 1,
2019 is P40/share. Cido also paid for the following expenses:
AXELl VICKY
Indirect costs P37,500 P 40,500
Finder’s fee 26,500 14,000
Acctg. And legal fees for SEC registration 137,500 145,000
Printing costs of stock certificates 50,000 37,500

If Cido’s retained earnings has a balance of P4,300,000 on January 1, 2019,

CALCULATE THE FOLLOWING

15. GOODWILL

16. ADJUSTED RETAINED EARNINGS TO BE PRESENTED IN THE STATEMENT OF FINANCIAL

POSITION OF CIDO?

17. TOTAL INCREASE IN ASSETS OF CIDO AFTER COMBINATION

PROBLEM F

Parent Company acquires 25% of Subsidiary Company's common- stock for P380.000 cash and
carries the investment using the cost method. After three months, Parent purchases another 55%
of Subsidiary's common stock for P1,100,000. On this date, Subsidiary reports identifiable assets
with carrying value of PI,800,000 and fair value of P2,300,000 and it has liabilities with a book value
and a fair value of P700.000. The fair value of the 20% non-controlling interest is P360,000.

18. Goodwill valued on the fair value basis:.

19 NCI to be recognized using PROPORTIONATE/PARTIAL GOODWILL

20. HOW MUCH IS THE INVESTMENT IN SUBSIDIARY ACCOUNT IN THE BOOKS OF PERENT?

PROBLEM G
 On July 1, 2019 the M Company acquired 100% of the N Company’s outstanding stock for a
consideration transferred of P160M. . A contingent payment of P165,000 will be paid on October
15, 2019 if N Company generates cash flows from operations of P270,000 or more in the next year.
M Company estimates that there is a 20% probability that N Company will generate at least
P270,000 next year and uses an interest rate of 5% to incorporate the time value of money. The fair
value of P165,000 at 5% using a probability weighted approach is P31,420. At the acquisition date
the carrying amount of N's net asset was P100M. At the acquisition date a provisional fair value of
P120M was attributed to the net assets. An additional valuation received on May 31, 2020
increased this provisional fair value to P135M and on July 30; 2020 this fair value was finalized at
P140M.

21. What amount should M present for goodwill in its statement of financial position at
December 31, 2019?

22. What amount should M present for goodwill in its statement of financial position at July 31,
2020?

23. What will M Company record as investment in subsidiary on July 1, 2019?

PROBLEM H

Pula Co. issued 120,000 shares of its P25 par common stock for the net assets of Azul Corp. in a business
combination completed on March 1, 2020. Azul Corp.’s net assets worth P3,800,000 at FMV. Out-of-
pocket cost of the combination were as follows:

Legal Fees P 26,000

Contingent consideration (highly probable and measurable) 18,000
Printing costs of stock certificates 8,500
Finder’s fees 27,000
Professional Fees paid to CPA 21,000
Fees paid to company lawyers 23,450
Fees paid to company accountants 38,900

Goodwill from this business combination is P418,000.

24. How much is the FMV per share of Pula Co. at March 1, 2020?

25. How much is the total cost of investment ?

26. How much of the total out-of-pocket cost would be charged to Expense?

27. How much would be the NET amount of increase in the SHAREHOLDERS’ EQUITY OF PULA after
combination?
PROBLEM I

On August 15, 2019, PANDA Company acquired 80% of SONNY Company for P3,200,000. On this date
the assets of SONNY Company have carrying value of P3,000,000 and fair value of P5,000,000 while its
liabilities have book value of P1,000,000 and fair value of P1,500,000.

28. If NCI measured at Fair Value, what is the amount of Goodwill?

29. If NCI measured at Proportionate FV of Net Assets, what is the amount of Goodwill?

30. Assume that the fair value of the NCI is P900,000, what is the amount of the goodwill(bargain Price)?

31. Using item 30, what is the amount NCI?

PROBLEM J

On August 15, 2019, PANDE Company acquired 75% of SONNY Company for P3,000,000 with control
premium of P450,00. On this date the assets of SON Company have carrying value of P3,000,000 and fair
value of P5,000,000 while its liabilities have book value of P1,000,000 and fair value of P1,500,000.

32 .If NCI measured at Fair Value, what is the amount of NCI?

33. If NCI measured at Proportionate FV of Net Assets, what is the amount of Goodwill?

34. Assume that the fair value of the NCI is P850,000, what is the amount of the goodwill(bargain Price)?

35. Using item 34, what is the amount NCI in the consolidated FS?