CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING German/Valix/K. dela Cruz/Marasigan

IFRS 3: Business Combination – Stock Acquisition

Part I: Theory of Accounts

1. A stock acquisition is when an entity known as the parent acquires ____________ of the ownership
interest in the voting rights of another entity known as the subsidiary to obtain control over the latter.
A. All
B. Majority
C. Either A or B
D. Neither A nor B

2. In a stock acquisition, the resulting gain on bargain purchase will be reflected in the ____________
A. Separate FS of the parent only
B. Separate FS of the subsidiary only
C. Consolidated FS only
D. Both a and C

3. The goodwill in the separate FS of the parent will ____________

A. Be derecognized for consolidation purposes
B. Still be reflected in the consolidated FS at its book value
C. Still be reflected in the consolidated FS at its fair value
D. Be amortized over 10 years

4. The non-controlling interest shall be presented in the consolidated statement of financial position as
part of equity ____________
A. At the fair value of the shares
B. At its proportionate share in the recognized net assets of the acquiree
C. Either A or B
D. Neither A nor B

5. Under IFRS 3, when a business combination occurs through stock acquisition, the parent acquires
____________ over the subsidiary company.
A. Sole control
B. Joint control
C. Significant influence
D. Compassion

6. In the event of a step-acquisition, the previously held shares that will form part of the investment in
subsidiary account will be ____________
A. Its book value on the date of acquisition
B. Its fair value on the date of acquisition
C. Zero
D. Equal to the arising goodwill or gain on bargain purchase

7. The purpose of the working paper entries is to be able to ____________

A. Adjust the values in the separate books of the parents only
B. Adjust the values in the separate books of the subsidiary only
C. Present the correct amounts in the consolidated FS without changing the amounts in the separate
FS of the parent and subsidiary
D. Present the correct amounts in the consolidated FS by changing the amounts in the separate FS
of the parent and subsidiary

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Part II: Problem Solving

Problem 1. On July 26, 2023, Hidilyn Diaz Holdings Corp (HDHC) acquired 75% of the outstanding
voting shares of WWL Corp, gaining control over the acquiree in the process. On this day immediately
before the business combination, the separate books of HDHC and WWL Corp had the following data:

HDHC WWL
Cash 10,000,000 500,000
Receivables 3,000,000 600,000
Inventory 4,000,000 450,000
PPE, net 14,000,000 1,200,000
Intangible assets, net 2,500,000 250,000
Good will 1,000,000 100,000
Short-term liabilities 5,000,000 700,000
Long-term liabilities 12,000,000 700,000
Ordinary shares (P10 par) 6,000,000 1,000,000
Share premium 5,500,000 200,000
Retained Earnings 6,000,000 500,000

On the date of acquisition, the receivables of HDHC and WWL are both overstated by P500,000 and
P100,000 respectively. The fair value of the PPE of HDHC is higher than its book value by P1,000,000,
while the book value of the PPE of WWL is higher than its fair value by P200,0000.

1. Assuming that HDHC paid P1,300,000 cash to acquire the shares, that fair value of the non-
controlling interest is P400,000, and that the full goodwill method was opted for, how much is
the consolidated assets on the date of acquisition?
A. 34,900,000
B. 35,300,000
C. 36,300,000
D. 36,800,000

2. Assuming that HDHC paid P1,025,000 cash to acquire the shares, inclusive of P125,000 control
premium, and that the full goodwill method was opted for, how much should the measurement
of non-controlling interest be at the date of acquisition?
A. 300,000
B. 325,000
C. 341,667
D. 0

3. Assuming HDHC paid P1,350,000 to acquire the shares, that fair value of the non-controlling
interest is P425,000, and that the partial goodwill method was opted for, how much is the
goodwill arising from business combination at the date of acquisition?
A. 375,000
B. 475,000
C. 500,000
D. 0

4. Assuming HDHC paid P950,000 to acquire the shares, inclusive of P50,000 control premium,
how much is the consolidated shareholders equity on the date of acquisition?
A. 17,500,000
B. 17,525,000
C. 17,825,000
D. 17,850,000

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Problem 2. On January 1, 2023, Ernest John Obiena Inc. (EJOI) had a 20% interest in MPV Corporation
carried at P300,000. On July 31, 2023, EJOI acquired an additional 50% interest in MPV Corporation for
P800,000 cash which was the fair value of the voting shares at that time. MPV Corporation had the
following information on December 31, 2022:

MPV
Book value
Current assets 560,000
Non-current assets 2,010,000
Liabilities 1,330,000
Ordinary shares 640,000
Retained earnings 600,000

MPV earned P300,000 for the 7 months prior to business combination and declared and paid dividends
amounting to P80,000 to its shareholders on April 30, 2023. As of July 31, 2023, the fair value of the
assets of EJOI is P2,630,000, and that of its liabilities is P1,330,000.

1. Assuming that EJOI did not have significant influence over MPV prior to business combination,
how much is the goodwill attributable to non-controlling interest on the date of acquisition?
A. 410,000
B. 300,000
C. 90,000
D. 0

2. Assuming that EJOI did not have significant influence over MPV prior to business combination,
the entries in the books of the parent on the date of acquisition will most likely include a
A. Credit cash for P800,000
B. Credit to investment in subsidiary for P1,120,000
C. Debit to investment in equity securities held at FVPL for P320,000
D. No entry

3. Assuming that EJOI had significant influence over MPV prior to business combination, which of
the following is correct considering the given information?
A. Goodwill arising from business combination is P210,000
B. Total net amount that will affect the separate P/L of EJOI is P60,000
C. Non-controlling interest on date of acquisition amounts to P480,000
D. Investment in subsidiary to be presented in the consolidated FS amounts to P1,120,000

4. Assuming that EJOI had significant influence over MPV prior to business combination, how
much is the goodwill/gain on bargain purchase resulting from the business combination on July
31, 2023?
A. 410,000
B. 300,000
C. 90,000
D. 0

-END-

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