Problem A

ACCO 30103
ACCOUNTING FOR BUSINESS COMBINATIONS (PFRS 3)
PROBLEM A
Par Corp. acquired Star Co. on January 2, 2023 by issuing 6,000 ordinary shares. In connection with this
combination, the following costs were incurred:
Finder’s fee 20,000
Accountant’s fee for pre-acquisition audit 40,000
Legal fee for contract of business combination 80,000
Legal and accounting fees for SEC registration of shares 60,000
Printing cost of stock certificates issued 5,000
Balance sheet accounts on the date of business combination follows:

Star Co.
Par Corp. BV FMV
Cash 400,000 100,000 100,000
Accounts Receivable 200,000 150,000 150,000
Inventory 150,000 130,000 140,000
Land 290,000 80,000 120,000
Equipment 300,000 200,000 150,000
Investment in Marketable Securities 100,000 125,000 140,000
Accounts Payable 270,000 200,000

Ordinary Shares, P50 par 400,000
Ordinary Shares, P10 par 200,000
Share Premium 200,000
Retained Earnings 570,000 385,000
The ordinary shares of Par Corp.’s stock has a market value of P130 at the time of acquisition.
1. Journalize the merger on the books of Par Corporation.
2. Prepare the balance sheet right after the merger.
3. Assume that the business combination is an acquisition of control, journalize the business
combination on the books of the parent company.
4. Prepare a balance sheet right after the business combination, assuming it is an acquisition of
control.
Problem B
On October 1, 2022, Aloe Company is interested in the business of Vera Company. An agreement was
reached on January 3, 2023 and the net assets were exchanged on this date for the following:
100,000 shares in Aloe Company, par P10, market value, P25
P4,000,000 cash, half to be paid on date of exchange and the other half to be paid on January 3,
2024 (assume a market rate of interest of 12%)
Non-cash assets, book value of P200,000, fair market value of P250,000
In issuing the equity instruments, Aloe Company incurred the following:
-underwriting costs and brokerage fees, P20,000
-transaction costs such as stamp duties and professional advisers fee, P5,000.
Legal and accounting fees related with the business combination, P30,000.
Required: Determine the fair value of consideration transferred.
Problem C
On September 1, 2021, Patricia Co. acquired the net assets of the Justine Co. for a price of P32M. At the
acquisition date, the carrying value of Justine’s net assets was P20M but the provisional fair value was
P24M. An additional valuation on June 30, 2022 increased the provisional value to P27M and on August
31, 2022, the fair value was finalized at P28.5M.
Required: Determine the amount of goodwill on the December 31, 2022 statement of financial
position of Patricia Co.
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Problem D
Whisper Corp. acquired Softee Co. in a business combination. At the time of acquisition, the property
and equipment of Softee Co. had a book value of P7,000,000 and a fair market value of P7,500,000;
these were originally acquired at a cost of P10,000,000 but, at present, would already cost P12,000,000.
Whisper’s property and equipment had a book value of P10,000,000 and a fair market value of
9,500,000.
Required: Determine the combined property and equipment.
Problem E
On October 31, 2022, Times Company merged with Prime Company. Times exchanged three of its
ordinary shares for each share of Prime’s ordinary shares. The fair value of Time’s ordinary shares was
P10.00 per share. Direct costs related to the business combination amounted to P20,000 and indirect
costs amounted to P10,000.
The balance sheet accounts prior to the merger are presented below:
Prime Company
Times Book value FMV
Current assets P120,000 P 80,000 P110,000
Plant assets 450,000 360,000 820,000
Goodwill 90,000 20,000
Current liabilities 105,000 50,000 50,000
Notes payable 120,000
Bonds payable 300,000 280,000
Ordinary Shares (P1 par) 225,000
(P5 par) 150,000
Retained Earnings (deficit) 210,000 ( 40,000)
Required:
1. Determine the goodwill after the merger.
2. Calculate the total stockholders’ equity in the balance sheet of Times after the business
combination.
PROBLEM F
P Company previously owned a 20% interest in S Company with a carrying value of P80,000. On January
1, 2023, P Company purchased an additional 5,000 shares at P50 per share from the 10,000 outstanding
shares of S Company. The fair market value of net assets of S Company at the time of acquisition
amounted to P450,000. The fair value of previously held equity interest is P90,000. (use proportionate
method in measuring NCI)
Required: Determine the goodwill (gain) on the January 1, 2023 consolidated balance sheet.
PROBLEM G
On January 1, 2022, Planters Co. purchased an 80% interest in Landers Co. for P560,000. On this date,
Landers Co. had Ordinary Share Capital of P200,000 and Retained Earnings of P100,000. An examination
of Landers Co.’s assets and liabilities revealed that book values were equal to market values except for
Inventory and Equipment. The Inventory and Equipment were both understated by P40,000 and
P100,000, respectively. The equipment had an expected remaining life of five (5) years. Both
companies use the FIFO method in inventory costing.
Planters Co.’s net income from its own operations were P200,000 and P300,000 in 2022 and 2023,
respectively. Landers Co.’s net income for 2022 and 2023 amounted to P100,000 and P150,000,
respectively. Lander Co. paid dividends of P40,000 and P60,000 in 2022 and 2023. Loss on impairment
in 2022 and 2023 amounted to P5,000 and P10,000, respectively.
Required:
1. Journalize all entries on the separate books of Planters Co. under the cost method and equity
methods.
2. Determine the investment balance on December 31, 2022 and 2023 under the equity method.
3. Determine the Investment income in 2022 and 2023 under the equity method.
end**********end
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ACCO 30103

ACCOUNTING FOR BUSINESS COMBINATIONS (PFRS 3)

Balance sheet accounts on the date of business combination follows:

Accounts Payable 270,000 200,000

Required: Determine the fair value of consideration transferred.

Required: Determine the combined property and equipment.

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