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ACCP304 Notes

The document discusses business combinations and goodwill under PFRS 3. It provides examples of different types of business combinations, including acquisition of assets and acquisition of stock. It also discusses the accounting entries for business combinations, such as working paper elimination entries to consolidate the financial statements. Goodwill is defined as an intangible asset representing the connection between customers and a company or its products. Factors that can help create goodwill include providing free premium content, personality, aesthetics, customer service, and mission.

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Angelica Rubios
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48 views10 pages

ACCP304 Notes

The document discusses business combinations and goodwill under PFRS 3. It provides examples of different types of business combinations, including acquisition of assets and acquisition of stock. It also discusses the accounting entries for business combinations, such as working paper elimination entries to consolidate the financial statements. Goodwill is defined as an intangible asset representing the connection between customers and a company or its products. Factors that can help create goodwill include providing free premium content, personality, aesthetics, customer service, and mission.

Uploaded by

Angelica Rubios
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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8/5/21

8/10
Business combination PFRS 3
- Acquirer obtains control of one or more business
How to acquire control
- Transfer of cash
- Incurring liability
- Issuing equity security

Classify business combination:


Acquisition of assets
- Acquisition of all net identifiable assets
- Except existing goodwill(excluded in computation)
- Merger: A + B = A
- Consolidation: A + B = C

Acquisition of stock
- Acquisition of majority voting common stocks
- Stock acquisition: A + B = A + B

8/12 synch
Business combination does not exist in vacuum

Schedule of allocation of excess


Considerations
→ cash, shares of stock owned, liability, other assets
→ given up, ano si tigtao

FV of net identifiable assets of acquiree


→ date of acquisition
→ assets and liability except existing goodwill

Given up xx
Received (xx)
goodwill/gain xx

High given up = goodwill


High received = gain

Goodwill
- Asset not something to sell
- Intangible account
- Create goodwill every time customer interacts with your product/company
- Good feeling
- Intangible asset in assessing the value of an enterprise and reflecting its commercial reputation, customer
connection
- Significant conveyance of energy passion and love to one’s customers through the experience and interactions
they have w/ one’s company and products
- Connection of the customers and the product/company
- Can be leverage
- How to create, convey your passion to the product to customer
1. Give away free premium content
2. Personality
-
3. Aesthetics
-
4. Customer service
5. Mission: do something that matters

8/17 async
In looking at the problem, identify first if acquisition of net identifiable assets or acquisition of stock
Then, what kind of business combination

Case 1
Considerations:
Cash 12,000
Note payable 8,000
Contingent liability 2,000 22,000

Less: FV of all net identifiable asset of MEG Except Goodwill


AR 7,000
Merch. Inventory 10,000
PPE 19,000
Current liab (3,000)
Notes payable (11,000) 22,000
Excess 0

Journal entries
AR 7,000
Merch inv 10,000
PPE 19,000
CL 3,000
NP 11,000
Cash 12,000
NP 8,000
CL 2,000

Business combination expense 1,000


Cash 1,000

Shares premium
Cash

Case 2
Considerations:
Shares of stock - FV (8,800 *2.50) 22,000
Cash 12,000
NP 8,000
CL 2,000 44,000

Less:
FV of al NIA MEG except goodwill 22,000
Goodwill 22,000

Journal entry:
AR 7,000
Merch inv 10,000
PPE 19,000
Goodwill 22,000
CL 3,000
NP 11,000
Cash 12,000
NP 8,000
Cont. Liab 2,000
Ordinary shares
(2 * 8,800) 17,600
Shares premium 4,400

Business combination expense 1,000


Cash 1,000

Shares premium 3,000


Cash 3,000

Case 3
Shares of stock (1,000 * 2.50) 2,500
Cash 12,000
NP 4,000
CL 2,000 20,500

Less: 22,000
Gain on acquisition 1,500

Journal entries:
AR 7,000
Merch inv 10,000
PPE 19,000
CL 3,000
NP 11,000
Cash 12,000
NP 8,000
CL 2,000
Ordinary shares
(2 *1,000) 2,000
Shares premium 500
Gain 1,500

Business combination expense 1,000


Cash 1,000

Shares premium 3,000


Cash 3,000

Net increase of decrease in RE = expenses - gain


Net increase of decrease in SHE = shares - expenses + gain - issuance
Net increase of decrease in NIA = total assets of acquiree - cash payment
8/24 async
Acquisition of 100% ordinary shares of stocks

Working paper elimination entries


- Only a tool, to consolidate
- To prepare a consolidated FS
- Not journal entries

Quiz 1
9/8 async
Acquiring majority of common stock
- Parent and subsidiary relationship
- Parent is required to prepare consolidated FS → as if parent and subsidiary are one entity

To gain control
- Majority of shares of stock
- 50% + 1 share

Working paper elimination entry (WPEN)


OS (S) xx
SP (S) xx
RE (S) xx
Investment in sub (P) XX
Eliminate the SHE of subsidiary in consolidated FS
- Madodoble yung pagrecord
- Stockholder ni S is stockholder man ni P. Ang may sadiri kang asset ni S and P si stockholder ni P
- Kontrolado niya si sa P and S kaya tighahali si S, ang maappear na lang si P sa consolidated FS

AR (S)
Equipment (S)
Longterm debt (S)
Inventory (S)
Invest in sub (P)
To present the net identifiable of S at FV
- Because of the concept na presenting them as if they are one entity
- As if the P purchase the net identifiable asset
- Nirecord lang si under valuation, kasi ang BV nakarecord na sa books ni S

Goodwill(consolidated)
Invesment in S (P)
Recognize goodwill
- as if P purchase identifiable asset

Why credit/tighahali investment in S in the books of P


- Replacing investment in S, ang tigdadagdag si net identifiable asset of S at FV and goodwill

Consolidated FS on date of acquisition


JE books of Acquirer
1.
Investment in S xx
Cash xx
OS xx
SP xx

2. Schedule of allocation of excess


Cash xx
Shares of stock xx xx
Less: BV of SHE - S
OS xx
SP xx
RE xx (xx)
Uncollected excess xx
Less: O/U of FV NIA - S
AR xx
Inventory xx
Equipment xx (xx)
Xx

3. WPEN
A.
OS - S xx
SP - S xx
RE - S xx
Investment in S xx

B.
AR xx
Equipment xx
Long term debt xx
Inventory xx
AP xx
Investment in S xx

C.
Goodwill xx
Investment in S xx

9/14 sync

4
Acquired goodwill
- Goodwill arising from schedule of allocation of excess
Consolidated goodwill
- Goodwill of parent and acquired goodwill
Same ang acquired and consolidated if

Consolidated cash
= cash of P ( after recording investment in s) + cash of S

Sept 21 - quiz 2

9/23 async
non-controlling interest is an equity account and appears in consolidated B/S

9/28 sync
Non controlling interest
- Minority

Date of acquisition
GW computation/Gain
= PP + NCI vs FVNA-S

Price paid + contingent consideration = FVNA + GW


Consolidated SHE = SHE-P + gain + NCI
Consolidated assets = Total asset of P and S + GW - PP

Measured at FV si NCI = PP * %
Measure at NCI’s proportionate share of INA = FVNA * %

Subsequent to date of acquisition

10/21 async
WPEN ( 1 year after acquisition)
Debit div rev. To eliminate the div rev of S on consolidated FS

10/26 async
Subsequent to date of acquisition

11/16 sync

12/7

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