A business combination occurs when one company acquires another or when two or more companies merge into o

The company that obtains control over the other is referred to as the parent or acquirer.
The other company that is controlled is the subsidiary or acquiree. Business combinations are carried out either thr
1. Asset acquisition - purchases the net assets
a Merger A Co. + B. Co. = A Co. or B. Co.
b Consolidation A Co. + B. Co. = C Co.
2. Stock acquisition - obtains control
more companies merge into one.

tions are carried out either through:

 Steps
1 Identify the acquirer.
2 Determining the acquistion date.
3 Recognizing and measuring goodwill. This requires recognizing and measuring the following;
a Consideration transferred
b Non-controlling interest in the acquiree
c Previously held equity interest in the acquiree
d Identifiable assets acquired and liabilities assumed on the business combination
 Accounting for Business Combination under Acquistion Method
Non-SME/ Those using Full PFRSs
Consideration transferred
Price Paid xx
Contingent Consideration xx xx
Non-controlling interest in the acquiree xx
Previously held equity interest in the acquiree xx
Total xx
Less: Fair value of net identifiable assets acquired xx
Goodwill/(Gain from acquistion or Gain from bargain purchase xx

SMEs
Consideration transferred
Price Paid xx
Direct Acquistion Costs xx
Contingent Consideration xx xx
Non-controlling interest in the acquiree xx
Previously held equity interest in the acquiree xx
Total xx
Less: Fair value of net identifiable assets acquired xx
Goodwill/(Gain from acquistion or Gain from bargain purchase xx

** Goodwill is amortized in SMEs up to maximum of 10 years

Additional costs:
Direct costs or Transaction costs - examples are legal fees, accountant's fees, attorney's fees
expense - Non-SME
added on Consideration transferred - SME
Indirect costs - expense both in Non-SME and SME

Stock issuance costs - Cost of registering securities, documentary stamps, SEC registration fees
deducted from APIC (Additional paid in capital) /Share pre
n Method

Fair value
Fair value
add to lahat

i-bawas

add to lahat

i-bawas

paid in capital) /Share premium

 Gilbert:
ABC Co - acquirer NON-SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accounti

If ABC, Co. paid P1,500,000 cash as consideration for the assets and liabilties of XYZ, Inc., how much is the goodwill (gain on ba
s

How much is the Inventory on the books of Acquiree after combination? -0-
How much is the balance of Goodwill on December 31, 2020? 320,000
 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

costs amounting to P100,000 for legal accounting; and consultancy fees.

XYZ, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? 320,000

Consideration transferred
Price Paid 1,500,000
Contingent Consideration - 1,500,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 1,500,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase 320,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Goodwill 320,000
Payables 400,000
Cash 1,500,000

Professional fees expense 100,000

Cash 100,000
 Books of Acquiree - XYZ, Inc.
Cash 1,500,000
Allowance for doubtful accounts 30,000
Payables 400,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000
Gain on disposal of business 200,000

Share capital 1,300,000

Gain on disposal of business 200,000
Cash 1,500,000

ooks of Acquiree after combination? -0-

ll on December 31, 2020? 320,000
 Gilbert:
ABC Co - acquirer NON-SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accounti

In addition to the stock issued, the acquirer agreed to pay an additional P200,000 on January 1,2021, if the average income
The expected value is estimated at P100,000 based on 50% probability of achieving the target average income.

If ABC, Co. paid P1,500,000 cash as consideration for the assets and liabilties of XYZ, Inc., how much is the goodwill (gain on ba
Measurement period --> normally 1 year.
If during measurement period, contingent consideration was revalued to P160,000

If after measurement period, contingent consideration was revalued to P200,000

 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

costs amounting to P100,000 for legal accounting; and consultancy fees.

00 on January 1,2021, if the average income for the 2-year period of 2019 and 2020 exceeds P160,000.
ving the target average income.

XYZ, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? 320,000

Consideration transferred
Price Paid 1,500,000
Contingent Consideration 100,000 1,600,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 1,600,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase 420,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Goodwill 420,000
Payables 400,000
Contingent consideration payable 100,000
Cash 1,500,000
Professional fees expense 100,000
Cash 100,000

Books of Acquiree - XYZ, Inc.

Cash 1,500,000
Allowance for doubtful accounts 30,000
Payables 400,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000
Gain on disposal of business 200,000

Share capital 1,300,000

Gain on disposal of business 200,000
Cash 1,500,000

Goodwill 60,000
Contingent consideration payable 60,000

Loss on contingent consideration payable 40,000

Contingent consideration payable 40,000
 Gilbert:
ABC Co - acquirer NON-SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accounti

If ABC, Co. paid P900,000 casH as consideration for the assets and liabilties of XYZ, Inc., how much is the goodwill (gain on bar
s

How much is the Inventory on the books of Acquiree after combination? -0-
How much is the balance of Goodwill on December 31, 2020? 320,000
 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

costs amounting to P100,000 for legal accounting; and consultancy fees.

Z, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? -0-

Consideration transferred
Price Paid 900,000
Contingent Consideration - 900,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 900,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase - 280,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Payables 400,000
Cash 900,000
Gain on bargain purchase 280,000

Professional fees expense 100,000

Cash 100,000
 Books of Acquiree - XYZ, Inc.
Cash 900,000
Allowance for doubtful accounts 30,000
Payables 400,000
Loss on disposal of business 400,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000

Share capital 1,300,000

Cash 900,000
Loss on disposal of business 400,000

ooks of Acquiree after combination? -0-

ll on December 31, 2020? 320,000
 Gilbert:
ABC Co - acquirer NON-SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accounti

If ABC, Co. issued 100,000, P10 par value shares for the assets and liabilties of XYZ, Inc. The fair value of shares are P15 per s
s

How much is the Inventory on the books of Acquiree after combination? -0-
How much is the balance of Goodwill on December 31, 2020? 370,000
 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

costs amounting to P100,000 for legal accounting; and consultancy fees and P 50,000 for registering securities.

XYZ, Inc. The fair value of shares are P15 per share and cash of P50,000, how much is the goodwill (gain on bargain purchase) on the bus

Consideration transferred
Price Paid (100,000 x P15) 1,550,000
Contingent Consideration - 1,550,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 1,550,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase 370,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Goodwill 370,000
Cash 50,000
Payables 400,000
Share Capital (100,000 x P10 par) 1,000,000
Share premium / APIC (100,000 x P5) 500,000

Professional fees expense 100,000

 Cash 100,000

Share premium 50,000

Cash 50,000

Books of Acquiree - XYZ, Inc.

Cash 1,550,000
Allowance for doubtful accounts 30,000
Payables 400,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000
Gain on disposal of business 250,000

Share capital 1,300,000

Gain on disposal of business 250,000
Cash 1,550,000

ooks of Acquiree after combination? -0-

ll on December 31, 2020? 370,000
ain purchase) on the business combination? 370,000
 Gilbert:
ABC Co - acquirer NON-SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accounti

If ABC, Co. issued 100,000, P10 par value shares for the assets and liabilties of XYZ, Inc. The fair value of shares are P11 per s
s
 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

costs amounting to P100,000 for legal accounting; and consultancy fees and P 125,000 for registering securities.

XYZ, Inc. The fair value of shares are P11 per share, how much is the goodwill (gain on bargain purchase) on the business combination? 3

Consideration transferred
Price Paid (100,000 x P11) 1,100,000
Contingent Consideration - 1,100,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 1,100,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase - 80,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Payables 400,000
Share Capital (100,000 x P10 par) 1,000,000
Share premium / APIC (100,000 x P1) 100,000
Gain on bargain purchase 80,000

Professional fees expense 100,000

Cash 100,000
Share premium 100,000
Stock issuance cost 25,000
Cash 50,000

Books of Acquiree - XYZ, Inc.

Cash 1,100,000
Allowance for doubtful accounts 30,000
Payables 400,000
Loss on disposal 200,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000

Share capital 1,300,000

Cash 1,100,000
Loss on disposal 200,000
business combination? 320,000
 Gilbert:
ABC Co - acquirer NON-SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accounti

There is an additional agreement to issue 20,000 additional shares if the average income during the 2-year period of 2019 and

If ABC, Co. issued 100,000, P10 par value shares for the assets and liabilties of XYZ, Inc. The fair value of shares are P15 per s
s

How much is the Inventory on the books of Acquiree after combination? -0-
How much is the balance of Goodwill on December 31, 2020? 320,000

If conditions met - contingent consideration

 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

costs amounting to P100,000 for legal accounting; and consultancy fees and P50,000 for registering securities.

income during the 2-year period of 2019 and 2020 exceeded P160,000 per year.

XYZ, Inc. The fair value of shares are P15 per share, how much is the goodwill (gain on bargain purchase) on the business combination? 3

Consideration transferred
Price Paid (100,000 x P15) 1,500,000
Contingent Consideration - 1,500,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 1,500,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase 320,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Goodwill 320,000
Payables 400,000
Share Capital (100,000 x P10 par) 1,000,000
Share premium / APIC (100,000 x P5) 500,000
 Professional fees expense 100,000
Cash 100,000

Share premium 50,000

Cash 50,000

Books of Acquiree - XYZ, Inc.

Cash 1,500,000
Allowance for doubtful accounts 30,000
Payables 400,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000
Gain on disposal of business 200,000

Share capital 1,300,000

Gain on disposal of business 200,000
Cash 1,500,000

ooks of Acquiree after combination? -0-

ll on December 31, 2020? 320,000

Share Premium (20,000 x P10) 200,000

Share Capital (20,000 x 10) 200,000
business combination? 320,000
 Gilbert:
ABC Co - acquirer SME
XYZ, Inc - acquiree
January 1, 2020 - acquisition date

On January 1, 2020, ABC Co., acquired all of the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired by ABC are shown below.

Assets Carrying amounts Fair value

Petty cash fund 10,000 10,000
Receivables 200,000 120,000
Allowance for doubtful accounts - 30,000
Inventory 520,000 350,000
Building - net 1,000,000 1,100,000
Total assets 1,700,000 1,580,000

Liabilities
Payables 400,000 400,000

On the negotiation for the business combination, ABC Co. incurred transactions costs amounting to P100,000 for legal accou

If ABC, Co. paid P1,500,000 cas as consideration for the assets and liabilties of XYZ, Inc., how much is the goodwill (gain on bar
s

How much is the Inventory on the books of Acquiree after combination? -0-
How much is the balance of Goodwill on December 31, 2020? 378,000
**Goodwill is amortized to a maximum of 10yrs.
420,000-(420,000/10)
 bilities of XYZ, Inc.
of XYZ acquired by ABC are shown below.

s costs amounting to P100,000 for legal accounting; and consultancy fees.

Z, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? 420,000

Consideration transferred
Price Paid 1,500,000
Direct transaction costs 100,000
Contingent Consideration - 1,600,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 1,600,000
Less: Fair value of net identifiable assets acquired 1,180,000
Goodwill/(Gain from acquistion or Gain from bargain purchase 420,000

Books of Acquirer - ABC Co.

Petty Cash Fund 10,000
Accounts receivable 120,000
Inventory 350,000
Building - net 1,100,000
Goodwill 420,000
Payables 400,000
Cash 1,600,000

Books of Acquiree - XYZ, Inc.

 Cash 1,600,000
Allowance for doubtful accounts 30,000
Payables 400,000
Petty cash fund 10,000
Receivables 200,000
Inventory 520,000
Building - net 1,000,000
Gain on disposal of business 300,000

Share capital 1,400,000

Gain on disposal of business 200,000
Cash 1,600,000

ooks of Acquiree after combination? -0-

ll on December 31, 2020? 378,000
um of 10yrs.