BUSINESS COMBINATION
Part 2 exercises
SHARE-FOR-SHARE EXCHANGES
1. Frown Co. issued shares in exchange for all the outstanding shares of Long Co.
Frown's shares have par value of P20 per share and fair value per value of P100. On
acquisition date,Long's net identifiable assets have fair value of P4,000,000.Frown
recognized goodwill of P200,000 from the business combination. How many shares
did Frown issue on the business combination?
Step 1 Amount
Consideration Transferred ? 4,200,000
FV of NA (4,000,000)
Goodwill 200,000
Step2
₱4.2M consideration transferred ÷ ₱100 fair value per share = 42,00 share
issued
BUSINESS COMBINATION ACHIEVED IN STAGES
2. Angry Co. acquired 20% interest in Misery Co. many year ago. On
January 1, 20x1, Angry acquired additional 40%interest in Misery for
P300,000. On this date, Misery's net identifiable assets have a fair value of
P690,000, and Angry’s previous investment in Misery has a carrying
amount oP128,000 and fair value of P138,000. Angry opted to measure
the NCI at 'proportionate share'. How much is the goodwill?
Consideration transferred 300,000
NCI (690K*20%) 276,000
PHEI 138,000
FV of NA (690,000)
Goodwill 24,000
BUSINESS COMBINATION
WITHOUT TRANSFER OF
CONSIDERATION
3.Nag Co. acquired 100% voting rights in Sag Co. by contract alone.
No consideration was transferred on the arrangement.Sag's net
identifiable assets have fair value of P1,800,000. Nag measured the
NCI at 'proportionate share'. How much is the goodwill?
MEASUREMENT PERIOD
4.On November 2, 20x1, ABC Co. acquired all the identifiable assets and
liabilities of XYZ, Inc. for P2,000,000.
Information on acquisition date:
XYZ's net identifiable assets were valued at P1,980,000. This amount included
a provisional amount of P220,000 assigned to a specialized machine for which
the fair value is not readily determinable. ABC tentatively depreciated the
machine over 6years using the straight line method in 20x1.
Information after the acquisition date:
On April 1, 20x2, an independent consultant determined that the machine's fair
value on acquisition date was P140,000 and the remaining useful life as of that
date was 4 years,On July 1, 20x2, the stock market crashed. Various held for
trading securities acquired from XYZ, Inc. with acquisition date fair value of
P500,000 now have a fair value of only P20,000.
Provisional Adjusted
Consideration transferred 2,000,000 2,000,000
FV of net assets (1,980,000) (1,900,000)
Goodwill 20,000 100,000
DETERMINING WHAT IS PART OF
THE BUSINESS COMBINATION
5. Sky Co. acquired 100% interest in Star, Inc.'s net identifiable assets with fair
value of P600,000 for P800,000. The valuation of the consideration transferred
includes the following ;
a.P30,000 reimbursement for appraisal fees incurred by Star in valuing a
patent.
b. P50,000 fair value of a trade secret that Sky will grant Star after the business
combination. The trade secret has a carrying amount of P40,000 in Sky's books
CONTINGENT CONSIDERATION
6.On January 1, 20x1, Entity A acquires 100% interest in Entity B in exchange for Entity A's
10,000 shares with par value per share of P20 and fair value per share of P200. Entity B's net
identifiable assets have a fair value of P1,900,000. In addition,Entity A agrees to issue
additional 2,000 shares if Entity B’s 20x1 profit will exceed P3,600,000. The fair value of the
contingent consideration is P280,000.
Requirements:
a.How much is the goodwill recognized on acquisition date?
b.Entity B's 20x1 profit is P3,800,000. EntityA issues the additional shares on January 14,
20x2. Provide the journal entries.
C.Entity B’s 20x1 profit is P2,800,000. Provide the journal entries.
