BUSINESS COMBINATION

A. Leonard Company acquired 80% of Sheila Company’s ordinary share for P750,000 cash. At that date, Sheila reports identifiable assets with
book value of P1,240,000 and a fair value of P1,350,000, and it has liabilities with book value and fair value of P600,000.
1. How much is the goodwill arising on combination if NCI is measured at fair value and that control premium of P30,000 is
included in the purchase price?

B. On July 1, 2017, Exploding Kittens Company acquired 700,000 shares of Bad Dog Company at a price of P13 per share. Exploding Kittens
estimated that the price paid include P1.50 premium in order to gain control over Bad Dog. On this date, the fair values of Bad Dog’s identifiable
assets and liabilities and their carrying values are given below:
Book Value Fair Value
Current assets P2,000,000 P2,000,000
Property, plant and equipment 9,000,000 11,000,000
Liabilities P3,000,000
Ordinary shares, P5 par 5,000,000
Retained earnings 3,000,000
2. Determine the amount of goodwill assuming the non-controlling interest is measured at fair value.
3. Determine the amount of goodwill assuming the non-controlling interest is measured at the proportionate share in the net
assets.

C. Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P10 and bonds payable with face amount of
P500,000. The bonds are classified as financial liability at amortized cost.
At the time of acquisition, the ordinary shares are publicly quoted at P20 per share. On the other hand, the bonds payable classified as financial
liability at amortized cost are trading at 110.
Entity A paid P10,000 share issuance costs and P20.000 bond issue costs. Entity A also paid P40,000 acquisition related costs and P30,000
indirect costs of business combination.
Before the date of acquisition, Entity A and Entity B reported the following data:
Entity A Entity B
Current assets 1,000,000 500,000
Noncurrent assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Noncurrent liabilities 300,000 500,000
Ordinary shares 500,000 200,000
Share premium 1,200,000 300,000
Retained earnings 800,000 100,000

At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent assets of Entity B have fair value
of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000 while the noncurrent liabilities of Entity A have
fair value of P500,000.
4. What is the goodwill or gain on bargain purchase arising from business combination?
5. What total amount should be expensed as incurred at the time of business combination?
6. What is Entity A's amount of total assets after the business combination?
7. What is Entity A's amount of total liabilities after the business combination?

D. In December 2017, Nein Company started negotiating for the acquisition of Ja Company. The offer was for shareholders of Ja Company to
receive one Nein Company share with a market value of P125 for every four shares held in exchange for all assets of Ja Company (except cash
and shares in listed companies). In addition to the shares, Nein Company will transfer its shares in listed companies which has a fair market
value of P750,000. Nein Company will also pay Ja Company sufficient cash to enable Ja Company to pay all its creditors then Ja will liquidate.
The shareholders of Ja Company accepted the offer.
Balance Sheet on December 31, 2017 is given below:
Nein Ja
Cash P7,250,000 P260,000
Accounts receivable 1,700,000 1,065,000
Inventory 2,800,000 1,500,000
Shares in listed company 800,000 1,100,000
Land and building – net 3,500,000 2,000,000
Property, plant & equipment 6,500,000 5,250,000
Accounts payable 3,250,000 2,000,000
Mortgage loan 7,500,000 1,500,000
Equity, Common stock, P50 par 10,000,000 7,500,000
Retained earnings 1,800,000 175,000
The net assets of Ja Company are reflected at their fair values except for the following:
 Inventory, P1,300,000 fair market value
 Land and building, P4,000,000 fair market value
 Shares in listed companies, P900,000 fair market value
8. Determine the total assets of Nein Company immediately after the merger.

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