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    Unit 4 - Business Combination

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    Jeselyn Solante Ariar
    This document contains information about two business combination cases involving Northpoint Company and Dominion Enterprises (Case 1) and Philrabbit Company and Superlines Enterprises (Case 2). For Case 1, Northpoint acquired Dominion's net assets in exchange for shares of Northpoint stock, cash payments, and an agreement regarding a potential decrease in share price. Information is provided about the carrying values, fair values, and consideration exchanged. For Case 2, Philrabbit acquired the net assets of Superlines by issuing new shares. Balance sheet information is provided for both companies before the merger, along with agreed upon fair values for some of Superlines' assets and liabilities. Philrabbit also incurred acquisition costs. The

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    Unit 4 - Business Combination

    Uploaded by

    Jeselyn Solante Ariar
    157 views2 pages
    This document contains information about two business combination cases involving Northpoint Company and Dominion Enterprises (Case 1) and Philrabbit Company and Superlines Enterprises (Case 2). For Case 1, Northpoint acquired Dominion's net assets in exchange for shares of Northpoint stock, cash payments, and an agreement regarding a potential decrease in share price. Information is provided about the carrying values, fair values, and consideration exchanged. For Case 2, Philrabbit acquired the net assets of Superlines by issuing new shares. Balance sheet information is provided for both companies before the merger, along with agreed upon fair values for some of Superlines' assets and liabilities. Philrabbit also incurred acquisition costs. The

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    Unit 4- Business Combination

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    This document contains information about two business combination cases involving Northpoint Company and Dominion Enterprises (Case 1) and Philrabbit Company and Superlines Enterprises (Case 2). For Case 1, Northpoint acquired Dominion's net assets in exchange for shares of Northpoint stock, cash payments, and an agreement regarding a potential decrease in share price. Information is provided about the carrying values, fair values, and consideration exchanged. For Case 2, Philrabbit acquired the net assets of Superlines by issuing new shares. Balance sheet information is provided for both companies before the merger, along with agreed upon fair values for some of Superlines' assets and liabilities. Philrabbit also incurred acquisition costs. The

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    157 views2 pages

    Unit 4 - Business Combination

    Uploaded by

    Jeselyn Solante Ariar
    This document contains information about two business combination cases involving Northpoint Company and Dominion Enterprises (Case 1) and Philrabbit Company and Superlines Enterprises (Case 2). For Case 1, Northpoint acquired Dominion's net assets in exchange for shares of Northpoint stock, cash payments, and an agreement regarding a potential decrease in share price. Information is provided about the carrying values, fair values, and consideration exchanged. For Case 2, Philrabbit acquired the net assets of Superlines by issuing new shares. Balance sheet information is provided for both companies before the merger, along with agreed upon fair values for some of Superlines' assets and liabilities. Philrabbit also incurred acquisition costs. The

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    of 2

    UNIT 4: BUSINESS COMBINATION

    Case 1 – Computations of GW or IFA


    NORTHPOINT COMPANY acquired the net assets of DOMINI0N ENTERPRISES on January 1, 2020 The carrying and fair values
    of DOMINION at the date of acquisition follows:
    Carrying
    Value Fair Value
    Cash P16,000 P16,000
    Accounts receivable 32,000 32,000
    Merchandise Inventory 48,000 56,000

    Plant and Property 360,000 368,000


    Patent 48,000 44.000
    Total assets P 504,000 P 516,000

    Accounts Payable P24,000 P24,000


    Long-term debt 320,000 296,000
    Capital stock
    96,000

    APIC 16,000
    Retained Earnings 48,000
    Total Equities P504f000

    NORTHPOINT COMPANY issued the following considerations in exchange for the net assets of
    DOMINION: 1. 40,000, P1 par shares of NORTHPOINT. Fair value- P2.75 at January 1, 2020.
    2. NORTHPOINT agreed to pay additional cash consideration for the value of any decrease in the share price below P2.75 for
    the 40,000 shares issued. The guarantee is for 90 days and is to expire on March 31, 2020. NORTHPOINT believes there
    was only a 20% chance the price of the shares would fall to P2.60 during the guarantee period.
    3. Cash of P72,000; P24,000 to be paid on date of exchange and the balance in one year's time. The incremental borrowing
    rate of NORTHPOINT is 10% per annum.
    4. DOMINION was currently being sued by an enraged client; the company's lawyers believe there's an 95% chance it will win
    the case. The expected damages in the event DOMINION lost the case is P200,000.
    5. An old-model KIA delivery van carried in the books of NORTHPOINT at P40,000, net of P8,000 accumulated depreciation.
    The fair value at the date of the exchange is P28,000.
    ➢ In addition to the purchase consideration NORTHPOINT had an out-of-pocket costs of P6,816 for direct acquisition cost;
    P1,600 for issuing and registering the shares; and P1,200 indirect cost.

    Required:
    1. Prepare a schedule for the determination of the cost of combination.
    2. Prepare a schedule for the computation of the fair value of the net assets.
    3. Determine goodwill or excess from the business combination, and
    4. Prepare journal entries to record the acquisition of the net assets of DOMINION ENTERPRISES in the books of
    NORTHPOINT COMPANY.

    Case 2 – Merger Combination


    The following balance sheets at December 31, 2020 are for PHILRABBIT Company and SUPERLINES Enterprises, respectively
    just before the business combination.. On this date, PHILRABBIT acquires the net assets of SUPERLINES and issues 9,600
    new shares in consideration thereof. . The issued shares have a market value of P35 each.

    PHILRABBIT SUPERLINES
    Cash P 112,000 P 40,000
    Accounts receivable 96,000 28,000
    Land 176,000 40,000
    Buildings, net 280,000 168,000
    Equipment, net 328,000 100,000
    Total assets P 992,000 P 376,000

    Accounts payable P 128,000 P 44,000


    Bonds payable 160,000 80,000
    Share capital, P10 par 320,000 144,000
    Share premium - 20,000
    Retained profit 384,000 88,000
    Total liabilities and
    equity P 992,000 P 376,000

    The following market values have been agreed upon by the parties over some of SUPERLINES’s net asset items:
    Accounts receivable, P24,000; Land, P48,000; Buildings, P200,000; Equipment, P120,000; and
    Bonds payable, P88,000.

    PHILRABBIT Company also paid out-of-pocket costs: P6,400 for direct acquisition costs; P12,000 for stock issuance and
    registration; and P1,600 for indirect acquisition expenses.

    Required:
    (1) Prepare a schedule for the computation of goodwill or income from combination.
    (2) Prepare the necessary journal entries in the books of PHILRABBIT Company. The journal entries in the books of
    SUPERLINES Enterprises may be ignored.
    (3) Prepare the balance sheet of PHILRABBIT Company just after the merger business combination.

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