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Assets Carrying Amounts Fair Values Cash 10,000 10,000 Receivables, Net 400,000 280,000 Inventory Liabilities

Saturday Co. acquires 80% of Sunny Co. for $2 million cash and technical know-how valued at $200,000. Sunny has identifiable assets of $3.4 million and liabilities of $1.7 million. Saturday measures non-controlling interest using the proportionate share method. Goodwill from the acquisition is $200,000.

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Tine Vasiana Duerme
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2K views2 pages

Assets Carrying Amounts Fair Values Cash 10,000 10,000 Receivables, Net 400,000 280,000 Inventory Liabilities

Saturday Co. acquires 80% of Sunny Co. for $2 million cash and technical know-how valued at $200,000. Sunny has identifiable assets of $3.4 million and liabilities of $1.7 million. Saturday measures non-controlling interest using the proportionate share method. Goodwill from the acquisition is $200,000.

Uploaded by

Tine Vasiana Duerme
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Activity 1.1.

Name: ______________________________

Direction: Show your solution. No solution means wrong.

1. On January 1, 2021, Saturday Co. acquires 80% of the outstanding voting shares of Sunny Co. Sunny’s identifiable assets and
liabilitie4s have fair value of P 3,400,000 and P 1,700,000, respectively. Relevant information follows:
∙ Saturday Co. agrees to pay Sunny’s former owners P 2,000,000 cash, half of which is to be paid on January 1, 2021,
while the other half will be paid in five equal annual installments starting December 31, 20x1. The current market rate
of interest on January 1, 2021 is 12%
∙ Saturday also agrees to provide a technical know-how to be used in Sunny’s operations after the business combination.
The technical know-how has a fair value of P 200,000.
∙ Saturday opts to measure the non-controlling interest at the NCI’s proportionate share in Sunny’s net identifiable assets.

How much is the goodwill (gain on bargain purchase)? ______________

2. Silent Co. acquires 80% controlling interest in Peaceful Co. for P 1,200,000. Peaceful Co.’s identifiable assets and liabilities
have fair values of P 3,300,000 and P 1,700,000, respectively. Included in Peaceful’s assets is a web press machine with fair
value of P 900,000 which Silent Co. intends to sell immediately. The machine qualifies for classification as “held for sale”. The
costs to sell are P 150,000. Silent Co. opts to measure the non-controlling interest at fair value. How much is the goodwill?
(Assume the fair value of the NCI is equal to the grossed-up value of the consideration transferred multiplied by the NCI
percentage). ______________

3. Carpenter Co. acquires 100% controlling interest in Wood Co. by issuing 2,000 shares with par value per share of P 100 and fair
value per share of P 500. Carpenter Co. incurs stock issuance costs of P 10 per share. On acquisition date, Wood Co.’s
identifiable assets and liabilities have fair values of P 2,800,000 and P 1,600,000, respectively. Carpenter Co. incurred P
40,000 in hiring an independent appraiser to value Wood’s assets and liabilities. After the combination. Carpenter intends to
eliminate some of Wood’s activities. The estimated costs are P 20,000. In addition, Carpenter Co. expects to incur losses of P
80,000 during the first year after the business combination. How much is the goodwill (gain on bargain purchase)?
______________

4. Mason Co. acquired all the assets and liabilities of Hammer Co. for P 2,600,000. On acquisition date, Hammer’s identifiable
assets and liabilities have fair values of P 5,900,000 and P 3,500,000, respectively. Relevant information follows: ∙ Mason is
renting out a building to Hammer Co. on an operating lease. The terms of the leaser compared with market terms are
favorable. The fair value of the differential is P 90,000.
∙ Hammer is a defendant on a pending lawsuit. No provision was recognized because Hammer’s legal counsel believes
they will successful defend the case. The fair value of setting the lawsuit is P 10,000.

How much is the goodwill (gain on bargain purchase)? _____________

5. On January 1, 20x1, Creek Co. acquired all the assets and assumed all the liabilities of Bamboo Co. for P 2,400,000. Relevant
information follows:
Assets Carrying amounts Fair values Cash 10,000 10,000 Receivables, net 400,000 280,000 Inventory
480,000 350,000 Land 2,000,000 2,200,000 Goodwill 110,000 20,000 Total Assets 3,000,000 2,860,000

Liabilities
Payables 400,000 480,000

∙ Bamboo Co. has research and development projects with fair value of P 60,000. Creek Co., does not intend to use those R&Ds.
However, there have been exchange transactions involving the information generated from Bamboo’s R&D, but those
transactions are infrequent.
∙ All fair value adjustments result to temporary differences but dot not affect the tax base of the assets and liabilities. The tax rate is
30%.
∙ Creek incurred P 100,000 on general administrative costs of maintaining an internal acquisitions department.

How much is the goodwill (gain on bargain purchase)? __________________


6. On January 1, 20x1, DIMINUTIVE Co. acquired all of the assets and assumed all of the liabilities of SMALL, Inc. As of this
date, the carrying amounts and fair values of the assets and liabilities of SMALL acquired by DIMINUTIVE are shown below:
Assets Carrying amounts Fair values
Cash in bank 20,000 20,000
Receivables 400,000 240,000
Allowance for probable losses on
(60,000)
receivables
Inventory 1,040,000 700,000
Building – net 2,000,000 2,200,000
Goodwill 200,000 40,000
Total assets 3,600,000 3,200,000
Liabilities
Payables 800,000 800,000

On the negotiation for the business combination, DIMINUTIVE Co. incurred transaction costs amounting to ₱200,000 for legal,
accounting, and consultancy fees.

Case #1: If DIMINUTIVE Co. paid ₱3,000,000 cash as consideration for the assets and liabilities of SMALL, Inc., how much is the
goodwill (gain on bargain purchase) on the business combination?

Case #2: If DIMINUTIVE Co. paid ₱2,000,000 cash as consideration for the assets and liabilities of SMALL, Inc., how much is the
goodwill (gain on bargain purchase) on the business combination?

Fact pattern
2. On January 1, 20x1, KNAVE acquired 80% of the equity interests of RASCAL, Inc. in exchange for cash. Because the former
owners of RASCAL needed to dispose of their investments in RASCAL by a specified date, they did not have sufficient time to
market RASCAL to multiple potential buyers.

As January 1, 20x1, RASCAL’s identifiable assets and liabilities have fair values of ₱2,400,000 and ₱800,000, respectively.

Case #1:
KNAVE Co. elects the option to measure non-controlling interest at fair value. An independent consultant was engaged who determined
that the fair value of the 20% non-controlling interest in RASCAL, Inc. is ₱310,000.

If KNAVE Co. paid ₱2,000,000 cash as consideration for the 80% interest in RASCAL, Inc., how much is the goodwill (gain on bargain
purchase) on the business combination?

Case #2:
KNAVE Co. elects the option to measure non-controlling interest at fair value. An independent consultant was engaged who determined
that the fair value of the 20% non-controlling interest in RASCAL, Inc. is ₱310,000.

If KNAVE Co. paid ₱1,200,000 cash as consideration for the 80% interest in RASCAL, Inc., how much is the goodwill (gain on bargain
purchase) on the business combination?

Case #3:
KNAVE Co. elects the option to measure non-controlling interest at fair value. A value of ₱500,000 is assigned to the 20% non-
controlling interest in RASCAL, Inc. [(₱2M ÷ 80%) x 20% = 500,000].

If KNAVE Co. paid ₱2,000,000 cash as consideration for the 80% interest in RASCAL, Inc., how much is the goodwill (gain on bargain
purchase) on the business combination?

Case #4:
KNAVE Co. elects the option to measure the non-controlling interest at the non-controlling interest’s proportionate share of RASCAL,
Inc.’s net identifiable assets

If KNAVE Co. paid ₱2,000,000 cash as consideration for the 80% interest in RASCAL, Inc. and, how much is the goodwill (gain on
bargain purchase) on the business combination?

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