Business Combination Practical Accounting 2 Date of Acquisition
Business Combination Practical Accounting 2 Date of Acquisition
Business Combination Practical Accounting 2 Date of Acquisition
DATE OF ACQUISITION
Problem 1. Condensed Statement of Financial Position of Marks Corp. and Spencer Corp. as
of December 31, 2011 were as follows:
Marks Spencer
Current assets P275,000 P65,000
Noncurrent assets 625,000 425,000
Total assets 900,000 490,000
Problem 2. ABC Company acquired all of JKL Corporation's assets and liabilities on October
2, 2011, in a business combination at that date. JKL reported assets with a book value of
P998,400 and liabilities of P569,600.
ABC noted that JKL included the amount of P64,000 obsolete merchandise at the
acquisition date that did not appear of any value.
ABC also determined that an old delivery van previously used by JKL had a fair value
of P192,000, but had not been recorded by JKL.
Except for machinery and equipment, ABC determined the fair value of all other
assets and liabilities reported by JKL approximated the recorded amounts.
In recording the transfer of assets and liabilities in its books, ABC recorded gain on
acquisition of P148,800. ABC paid P327,200 to acquire JKL's assets and liabilities.
If the book value of JKL's machinery and equipment was P345,600, what was their fair
value?
Using the information presented in problem 3 but assuming ABC recorded goodwill of
P402,000. ABC paid P1,037,000 to acquire JKL's assets and liabilities.
If the book value of JKL's machinery and equipment was P516,500, what was their fair
value?
A. P264,800; P438,300
B. P426,400; P438,300
C. P264,800; P594,700
D. P426,400; P594,700
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Problem 3. On September 18, 2011, DG Co. acquired all the AX Inc.'s P2,150,000 identifiable
assets and P530,000 liabilities. Book values of the AX's assets and liabilities equal to their
fair values except for the overvalued furniture and fixtures.
As a consideration, DG issued its own shares of stock with a market value of
PI,715,000 and cash amounting to P375,000.
Contingent consideration that was probable and reasonably estimated on the date of
acquisition amount to P148,000.
The merger resulted into P647,000 goodwill.
Assuming DG Co. had P4,890,000 total assets and P2,731,000 total liabilities prior to
the combination and no additional cash payments were made, but expenses were
incurred for related cost amounting to P28,000.
After the merger, how much is the combined total assets in the books of the acquirer?
After the merger, how much is the increase in liabilities in the books of the acquirer?
a. P7,283,000; P706,000
b. P7,128,000; P678,000
c. P7,658,000 ; P706,000
d. P7,255,000; P678,000
Problem 4. Blue Co. merged into Soda Corp. on June 30, 2011. In
exchange for the net assets at fair market value of Blue Co.
amounting to P2,785,800 , Soda issued 68,000 common shares at P36
par value, then going at a market price of P41 per share.
Relevant data on stockholders' equity immediately before the
combination show;
Soda Blue
Common stock P 8,790,000 P 2,030,000
APIC 3,834,000 782,000
Retained earnings/(deficit) (1,516,000) 495,000
Legal fees for the contract of business P 174,700
Out of Audit fee for SEC registration of stock issue 198,400 pocket
costs of Printing costs of stock certificates 144,900 the
Broker's fee 135,000
Accountant's fee for pre-acquisition audit 161,000
Other direct cost of acquisition 90,400
General and allocated expenses 115,300
Listing fees in issuing new-shares 172,000
combination were as follows:
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D. P940,700
Problem 5. On August 1, 2011 the Polo Company acquired the net assets of Sport Company
for a consideration transferred of P17,450,000 cash.
At the acquisition date, the carrying amount of Sport's net assets was P11,925,000
and a temporary appraisal of P12,385,000.was attributed to the net assets.
In addition to the consideration transferred above is another P1,015,000 cash to be
transferred nine months after the acquisition date if a specified profit target was met
by the acquirer.
At the acquisition date there was only a low probability of the profit target being
met, so the fair value of the additional consideration liability was determined to be
P468,000.
On December 31, 2011, an update of the provisional fair value of P16,815,000 was
attributed to the net assets. Also, at year end the estimated amount of the
consideration liability is determined to decrease by P72,000 from the last date of the
change in estimate.
On March 31, 2012 the estimated amount of the consideration liability is determined
to be probable at P284,000
On July 1, 2012 the temporary appraisal decreased by P940,000 from the last
additional valuation date.
The provisional fair value was finalized on August 31, 2012 with an amount that is
higher by P1,070,000 from the temporary appraisal as of July 1, 2012.
As a subsequent event, the profit target was met and the P1,015,000 cash was
transferred.
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Problem 6. On January 2, 2012, the Statement of Financial Position of Body and Shop
Company prior to the combination are:
Body Co. Shop Co.
Cash P 675,000 P 22,500
Inventories 450,000 45,000
Property and equipment (net) 1,125,000 157,500
Total Assets P 2,250,000 P 225,000
2. Assuming Body Company acquired 70% of the outstanding common stock of Shop
Company for P157,500 and Non-controlling interest is measured at fair value of
P91,500, how much is the goodwill (gain on acquisition)?
A. P(25,500)
B. P25,500
C. P34,650
D. P(34,650)
3. Assuming Body Company acquired 80% of the outstanding common stock of Shop
Company for P205,200 and Non-controlling interest is measured at Non-controlling
interest's proportionate share of Shop Company's identifiable net assets, how much
is the consolidated stockholder's equity on the date of acquisition?
A. P2,115,000
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B. P2,129,400
C. P2,169,900
D. P2,184,300
4. Assuming Body Company acquired 90% of the outstanding common stock of Shop
Company for P364,500 and Non-controlling interest is measured at fair value, how
much is the total consolidated assets on the date of acquisition?
A. P2,313,000
B. P2,677,500
C. P2,605,500
D. P2,241,000
Problem 7. On July 1, 2011, Giordano, Inc. acquired most of the outstanding common
stock of Esprit Company for cash. The incomplete working paper elimination entries on
that date for the consolidated statement of financial position of Giordano, Inc. and its
subsidiary are shown below:
Inventories 62,500
Equipment 312,500
Patent 61,250
Goodwill ?
Investment in Esprit 468,750
Non-controlling interest ?
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At the acquisition date, net loss reported by RL for the four-month ended amounted
to P50,000.
The fair value of the 10% non-controlling interest is P72,000. Non-controlling
interest is valued using the proportionate basis.
CK also paid the following: P5,000 for legal fees, P4,000 for finder's fee, P4,300 for
accountant's fee, P3,600 for audit fee for SEC registration of stock issued and PI,100
for printing of stock certificates.
Immediately after the business combinations, what is the consolidated total equity of
CK Company and Subsidiary after the business combination?
A. P553,000
B. P599,000
C. P579,500
D. P513,500
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