Business Combinations

Statutory Consolidation
Statutory Merger
Acquisition of Control
1. Acquisition of Assets

2. Stock Acquisition
Acquisition Method of Accounting
1. Identify the acquirer.
2. Determine the acquisition date
3. Determine the Consideration Given (price paid) by the acquirer)
4. Recognize and measure the identifiable assets acquired, the
liabilities assumed and any non-controlling interest (formerly called
minority interest) in the acquiree. Any resulting goodwill or gain
from a bargain purchase should be recognized.
Applying the Acquisition Method
J&J Company
Statement of Financial Position
June 30, 2018

Cash P 200,000 Current liabilities P 125,000

Marketable Sec. 300,000 Bonds payable 500,000
Inventory 500,000
Land 150,000 Common Stock (P1 par) 50,000
Building (net) 750,000 Additional paid in capital 700,000
Equipment (net) 400,000 Retained Earnings 925,000

Total Assets P2,300,000 Total liab. and equity P2,300,000

Applying the acquisition method:
Fair values for all accounts have been measured as of June 30, 2013 as follows:

Cash P200,000 Current Liabilities P125,000

Marketable Securities 330,000 Bonds Payable 500,000
Inventory 550,000 Premium on B/P 20,000
Land 360,000 P645,000
Building 900,000
Equipment 700,000
Unrecognized Receivables 225,000
P3,265,000

Fair value of net identifiable assets: P2,620,000

Applying the Acquisition Method
Case 1: Price paid exceeds the fair value of net identifiable assets acquired.
◦ Acquirer, Inc. issues 80,000 shares of its P10 par value common stock with a market value of P40 each
for J&J Company’s net assets. Acquirer, Inc. pays professional fees of P50,000 to accomplish the
acquisition and stock acquisition costs of P30,000.

Note: Acquisition related costs (Broker’s Fees, Accounting, Legal and other professional fees, general
administrative costs): expensed outright.

Deduction in APIC
Stock Issuance Costs

If APIC is reduced to Zero, remaining is treated as

contra account from retained earnings
Applying the Acquisition Method
Case 2: Price paid is less than fair value of net identifiable assets acquired:
Acquired, Inc. issues 20,000 shares of its P115 par value common stock with a
market value of P120 each for J&J Company’s net assets. Acquirer, Inc. pays
professional fees of P50,000 to accomplish the acquisition and stock issuance
costs of P130,000.