Accountancy Department

ACTREV 4 Business Combination

Problem A. Condensed statements of financial position of Rick Corp. and Yani Corp. as of
December 31, 2017 are as follows:

Rick Yani
Current assets P 43,750 16,250
Noncurrent assets 181,250 106,250
Total assets P225,000 122,500

Liabilities P16,250 8,750

Common stocks, P20 par 137,500 75,000
Additional Paid-in capital 8,750 6,250
Retained earnings 62,500 32,500

On January 1, 2018, Rick Corp. issued 8,750 stocks with a market value of P25/share for
the assets and liabilities of Yani Corp. the book value reflects the fair value of the assets
and liabilities, except that the noncurrent assets of Yani has a temporary appraisal of
P157,500 and the noncurrent assets of Rick are overstated by P7,500. Contingent
consideration, which is determinable, is equal to P3,750. Rick also paid for the stock
issuance costs worth P8,500 and other acquisition costs amounting to P4,750.

On March 1, 2018 the contingent consideration has a determinable amount of P 5,000.

On June 1, 2018, the provisional value of the noncurrent assets of Yani increased by
P2,250.

1. How much is the combines assets at the end of 2018?

Problem B. The Statement of Financial Position of Angela on June 30, 2017 shows total
assets at P450,000 and liabilities at P87,500.

All the assets and the liabilities of Angela assumed to approximate their fair values
except for land and building. It is estimated that the fair values of the land and building
be increased by P130,000 and P80,000 respectively.

Papa Jerwin acquired 80% of Angela’s capital stock for P500,000.

2. Assuming the consideration paid includes control premium of P142,000, how much
is the goodwill/(gain of bargain purchase) on the consolidated financial statement?

3. Assuming the consideration paid excludes control premium of P23,000 and the fair
value of the non-controlling interest is P122,750, how much is the goodwill/(gain of
bargain purchase) on the consolidated financial statement?

4. Assuming the consideration paid includes control premium of P37,000, how much is
the goodwill/(gain of bargain purchase) on the consolidated financial statement?

2nd semester AY 2017 – 2018 Page 1 of 4 K.T. Tegio

Problem C. On July 1, 2017, Giordano, Inc. acquired most of the outstanding common
stocks of Esprit Company for cash. The incomplete working paper per elimination entries
on that date for the consolidated statement of financial position of Giordano, Inc. and its
subsidiary are shown below:

Stockholder’s equity – esprit 2,437,500

Investment in esprit 1,584,375
Non-controlling interest 853,125

Inventories 62,500
Equipment 312,500
Patent 61,250
Goodwill ?
Investment in esprit 468,750
Non-controlling interest ?

Included in the purchase price is a control premium of P68,750.

The amount of goodwill to be reported in the consolidated statement of financial

position on July 1, 2017:
5. Assuming non-controlling interest is measure at fair value
6. Assuming non-controlling interest is measure at relevant share
7. Assuming non-controlling interest is measure at fair value. The fair value of the non-
controlling interest is P1,150,000

Problem D. Acquirer Corporation acquires 25% of Acquired Company’s common stock

for P190,000 cash and carries the investment using the cost method. After three
months, Parent purchases another 60% of Subsidiary’s common stock for P540,000. On
this date, acquired company reports identifiable net assets with carrying value of
P720,000 and fair value of P920,000. The liabilities of the acquired company has a book
value and a fair value of P280,000. The fair value of the 15% non-controlling interest is
P125,000.

8. How much is the goodwill or (gain on acquisition)

Problem E. On January 1, 2017, Parent Company acquired 90% of Subsidiary Company in

exchange for 5,400 shares of P10 par ordinary shares having a market value of
P120,600. Parent and Subsidiary condensed balance sheets on January 1, 2017 before
the combination were as follows:
Parent Subsidiary
Cash P30,900 P37,400
Accounts receivable 34,200 9,100
Inventories 22,900 16,100
Equipment, net 179,000 40,000
Patents ___________ 10,000
Total assets P 267,000 P112,600

Accounts payable P4,000 P 6,600

Bonds payable, 10% 100,000
Ordinary share, P10 par 100,000 50,000
Share premium 15,000 15,000
Retained earnings 48,000 41,000
Total liabilities and equities P267,000 P112,600

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At the date of acquisition, all assets and liabilities of Subsidiary Company have a book
value approximately equal to their respective market values except the following as
determined by appraisals as follows:
Inventories (FIFO method) P 17,100
Equipment, net – 4 years remaining life 48,000
Patents – 10 years remaining life 13,000

9. Compute the amount of partial goodwill on January 1, 2017:

10. Compute the non-controlling interests on January 1, 2017:
11. Compute the consolidated retained earnings on January 1, 2017:

Assuming that on December 31, 2017, the following results were given:
Dividend paid Net Income
Parent Company P 15,000 P 30,200
Subsidiary Company 4,000 9,400

12. Compute the non-controlling interest in net income on December 31, 2017:
13. Compute the investment balance on December 31, 2017:
14. Compute the non-controlling interest on December 31, 2017:
15. Compute the profit for the period attributable to equity holders of parent on
December 31, 2017:
16. Compute the consolidated net income on December 31, 2017:

Problem F. Positive Corporation acquired 80% of the outstanding common stock of

Synergy Company on June 1, 2015 for P586,250.

 Synergy Company’s stockholder’s equity components at the end of this year are as
follows: Ordinary shares, P100 par, P250,000, APIC P112,500, Retained earnings
P222,500.

 Non-controlling interest is measured at fair value.

 All the assets of Synergy were fairly valued, except for inventories, which are
overstated by P11,000 and equipment, which was understated by P15,000.
Remaining useful life of equipment is 4 years.

 Both Companies use the straight-line method for depreciation and amortization.
Stockholder’s equity of Positive on January 1,2015 is composed of Ordinary shares
P750,000, Share premium P175,000, Retained Earnings P525,000.

 Fair value of non-controlling interest on the date of acquisition is P117,5000.

 Goodwill, if any, should be written down by P14,225 at year-end.

 Net income for the first year of parent and subsidiary are P75,000 and P42,500
( from date of acquisition) respectively.

 Dividends declared at the end of the year amounted to P20,000 and P15,000. During
the year, there was no issuance of new ordinary shares.

17. What is the balance of the non-controlling interest in net assets of subsidiary on
December 31,2015?
18. What is the amount of consolidated shareholder’s equity?

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Problem G. Pure Corporation acquired an 80% interest in Sincere Company on January 2,
2017 for P2,520,000. On this date, the share capital and retained earnings of the two
companies follow:
Pure Corp. Sincere Co.
Share Capital P6,000,000 P2,250,000
Retained Earnings P3,000,000 P450,000

On January 2, 2017, the assets and liabilities of Sincere Co. Were stated at their fair
values except for machinery which is undervalued by P 225,000 (remaining life is 3
years). On September 30, 2017, Sincere sold merchandise to Pure at an inter-company
profit of P 150,000; 25% was still unsold at year end. Likewise, on October 1, 2018,
Sincere purchased merchandise from Pure for P 3,600,000. The selling affiliate included
in a 20% mark-up on cost on this sale. Only 75% of these purchases had been sold to
unrelated parties as of December 3, 2018. As of December 31, 2018, goodwill was
determined to be impaired by P 60,000.

The following is the summary of the 2018 transactions of the affiliated companies:
Pure Corp Sincere Co.
Net Income P1,500,000 P600,000
Dividends declared and paid P600,000 P180,000

On the 2018 consolidated financial statements, how much would be the:

19. Goodwill per consolidated financial statement
20. Goodwill per single financial statement of the acquirer
21. Goodwill per single financial statement of the target firm
22. Consolidated profit
23. Net income attributable to the parent’s equity holders
24. Net income attributable to the minority controlling stake

Problem H. Gagala company owns 70% of Gaviola Company, which in turn possesses
60% of Gaddi Company. The following information is available:

Gagala Company Gaviola Company Gaddi Company

Separately calculated
operating income excluding P600,000 P300,000 P100,000
dividend income
Cash dividends from:
Subsidiary 80,000 50,000 -0-
Associate (s) 20,000 -0- -0-
Other investments at
-0- -0- 30,000
Fair Value
Net deferred inter-company
gains within current year P110,000 80,000 20,000
income
Amortization expense relating
to excess fair value over book 30,000 25,000 -0-
value of investment

25. What is the consolidated net income attributable to Gagala Company stockholders?
26. How much is the dividend income in the consolidated statement of income?

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