AFAR 2 Notes

SUM.
TABS
Advanced Financial Accounting and Reporting 2- Summary of Tabs
Tab Name Topic/s Term

SM.SA Summary Notes- Stock Acquisition
JE.SA Journal Entroes- Stock Acquisition
SM.AA Summary Notes- Asset Acquisition
SM.EG Summary Notes- Estimating Goodwill
BCP.M Business Combination Problems- Manuel
BCP.D Business Combination Problems- Dayag
SM.STA Summary Notes- Step Acquisition
Prelims
Midterms
Finals
Page 315 Problem
Situation 1
Big Company= acquirer
Small company 1,000.00 shares
90% 10%
CI NCI
Cash 390,000.00
Less:
broker prof fees (30,000.00)
Acquisition cost/ FV of NCI/ FV of acquiree 360,000.00 40,000.00
FV of net assets acquired (337,500.00) (37,500.00)
Goodwill 22,500.00 2,500.00
Acquirer:
Investment in Subsidiary 360,000.00
Cash 360,000.00
To record acquisition cost
Acquisition related costs 30,000.00

Cash 30,000.00
To record acquisition related costs
Big Small
Eliminating
Cash 500,000.00 30,000.00
Current Assets 1,140,000.00 100,000.00
License Agreement 0.00 100,000.00
Land 100,000.00 50,000.00
Equipment, net 200,000.00 120,000.00
In Process Research & Development
Investment in Subsidiary
Goodwill 150,000.00
Total 1,940,000.00 550,000.00
Liabilities 400,000.00 50,000.00

Common Shares 200,000.00 100,000.00
Share Premium 100,000.00 100,000.00
Non controlling interest 0.00 0.00
Retained Earnings 1,240,000.00 300,000.00
Total 1,940,000.00 550,000.00
FV of CI 360.00 40.00
BV of NA (1) 315.00 35.00
Excess of BV 45.00 5.00
Over/under (2)
LA 22.50 2.50
Land (63.00) (7)
Liabilities 18.00 2.00
Total Adjusted Goodwill (3) (22.50) (2.50)
Elimination entries of acquiree

(1) Shareholders' Equity of Acquiree
Common Stock 100,000.00
Share Premium 100,000.00
Retained Earning 300,000.00
Non-Controlling Interest 50,000.00
(2) Over/undervaluation
Land 70,000.00
Liabilities 20,000.00
License Agreement 25,000.00
(3) Investment in Subsidiary 112,500.00

Goodwill 125,000.00
full goodwill approach
Situation 2
60% 40%
CI NCI
Acquisition Cost 270,000.00 180,000.00
Book value of NA (207,000.00) (138,000.00)
Excess of BV 63,000.00 42,000.00
Over/Under
License Agreement (24,000.00) (16,000.00)
R&D (18,000.00) (12,000.00)
21,000.00 14,000.00
Eliminating Entries
Cash 70,000.00

Acquisition Related Expense 100,000.00
Cash 110,000.00
Big Midget
Eliminating
Cash 500,000.00 100,000.00
Current Assets 1,140,000.00 100,000.00
License Agreement 0.00 0.00
Land 100,000.00 80,000.00
Equipment, net 200,000.00 55,000.00
In Process Research & Development 70,000.00
Goodwill 0.00
Total 1,940,000.00 405,000.00
Liabilities 400,000.00 60,000.00

Common Shares 200,000.00 150,000.00
Share Premium 100,000.00 100,000.00
Non controlling interest 0.00 0.00
Total 1,940,000.00 405,000.00
Eliminating Entries of SHE of acquirer

Retained Earnings 95,000.00
Licensing Agreement 40,000.00

Research & Development 30,000.00
Goodwill 35,000.00
Partial Goodwill Approach
Note: cash acquisition: except cash, kapag may sinabi pero kapag wala kasama padin
stock acquisition: includes cash
100%
Total
400,000.00
(375,000.00)
25,000.00
FULL
Acquirer Acquiree Consolidated
Dr. Cr. Total @FV Acqr Dr. Cr 140,000.00
1,240,000.00
390,000.00 110,000.00 75,000.00
1,140,000.00 220,000.00
0.00 25,000.00 320,000.00
100,000.00 70,000.00
200,000.00
0.00
360,000.00 360,000.00 111,250.00 472,500.00
12,500.00 25,000.00
1,910,000.00 2,020,000.00
400,000.00 470,000.00
200,000.00 100,000.00 200,000.00
100,000.00 100,000.00 100,000.00
1,210,000.00 12,500.00 52,500.00 1,210,000.00
30,000.00 1,910,000.00 300,000.00 40,000.00
2,020,000.00
400.00
350.00
50.00
25.00
(70.00)
20.00
(25.00)
Investment n Subsidiary 112,500.00

NCI 15,000.00
GW 127,500.00
Partial goodwill approach
100%
Total
450,000.00
(345,000.00)
105,000.00
(40,000.00)
(30,000.00)
35,000.00
Dr. Cr. Total @FV Acqr
180,000.00 320,000.00
1,140,000.00
0.00
100,000.00
200,000.00
0.00
270,000.00 270,000.00
2,030,000.00
400,000.00
100,000.00 300,000.00
10,000.00 100,000.00 190,000.00
100,000.00 1,140,000.00
2,030,000.00
Goodwill 21,000.00
Full Goodwill Approach
kasama padin
PARTIAL
140,000.00
1,240,000.00
75,000.00
220,000.00
320,000.00
22,500.00
2,017,500.00
470,000.00
200,000.00
100,000.00
1,210,000.00
37,500.00
2,017,500.00
SM.SA
Summary Notes on Stock Acquistion (Reference: Dayag)
Stock Acquistion -Group is a business combination in which the acquirer is a "parent" and the acquire
-results from the parent acquiring a controlling interest in the equity of the subsidiary
-both retain their status as separate legal entities
-in economic point of view, they are viewed as single reporting entity
-separate and consolidated financial statements should be prepared
Three Elements of Control -power over investee

-exposure rights, to variable returns
-ability to use power over the investee
Take note: investor that holds only protective rights cannot have power over an investee
Default Presumption: -ownership of more than 50% of voting rights constitutes control,
in the absence of any evidence to the contrary
-statute, contractual arrangements, implicit contorl over BODs
Valuation/Classification of Accounts
Account Whose Accounts Valuation
i. Investment Account Parent Market Value
ii. Asset Accounts Subsidiary Historical Values
iii. Liability Accounts Subsidiary Historical Values
**Consolidated statements ignore the legal aspects of the separate entities but focus instead on the economic e
under the "control" of management. (Substance rather than Form)
Investments at Date of Acquisition

i. Recording Investment's at Cost (Parent's Books)
> stock investment is recorded at its cost as measured by the fair value of the consideration given/received
is clearly evident
ii. Treatment of Acquisition-related Costs (Separate Financial Statements)
Situations Treatment
> Acquisition-related costs not capitalizable Deduction to Retained Earnings*
> Acquisition-related costs capitalizable Addition to Investment in Subsidiary**
*Basis is "Before Separation of PAS 27 and PFRS 10- acquisition costs are considered expenses
**Basis is "After the Separation of PAS 27"- general rule is direct acquisition costs are included in the investm
Take Note: computation of goodwill under two assumptions above are still the same
iii. Full-Goodwill/ Partial Goodwill
Full Goodwill Approach (Fair Value Approach)
Situations Components of NCI
* Share of BV of identifiable net assets
of subsidiary
* Share of net identifiable net assets of
> Non-controlling interests @ Fair Value
Subsidiary @acquisition date
> Non-controlling interests @ Fair Value
* Share of Goodwill in subsidiary
@acquisition date
Partial-Goodwill Approach
* Share of BV of identifiable net assets
of subsidiary
Parial-Goodwill/ Proportion of Acquiree's Identifiable
> * Share of identifiable net assets of
Net Assets
identifable net assets of subsidiary
@acqusition date
iv. Computation of Goodwill (Simplified Format)
X%
Controlling Interest
Line Item 1 xxx
Line Item 2 xxx
Cash xxx
Total xxx
Less: Acqusition Related Costs
Indirect Acquisition Costs (xxx)
Direct Acquistion costs (except bond issue cost (xxx)
and costs to issue/register equity instruments)
Acquisition Cost/FV of NCI/ FV of Acquiree xxx
Less: Fair Value of Net Assets Acquired (xxx)
Goodwill xxx
Add: Undervaluation of Assets xxx
Overvaluation of Liabilities xxx
Less: Overvaluation of Assets (xxx)
Undervaluation of Liabilities (xxx)
Adjusted Goodwill (Partial/not recognized/ Full) xxx
a "parent" and the acquiree is a "subsidiary"
he equity of the subsidiary
nstitutes control,
orl over BODs
Classification
One Account
Multiple Accounts
Multiple Accounts
nstead on the economic entity
nsideration given/received, which ever
ment Effect on Goodwill
n Subsidiary**
ered expenses
are included in the investment acquired
e
nts of NCI Other Notes

fiable net assets * NCI are determined with reference to
either active market price of equity
ble net assets of share s of the subsidiary @acq. Date/
other valuation techniques
subsidiary * may differ to FV/share of acquirer
because of control premium paid
fiable net assets * measured as a proportion of the

acquiree's identifiable net assets
net assets of * NCI's share in goodwill is not
s of subsidiary recognized (PFRS 3)
100%-X% 100%
NCI Total
xxx xxx
xxx xxx
xxx xxx
xxx xxx
(xxx) (xxx)
(xxx) (xxx)
xxx xxx
(xxx) (xxx)
xxx xxx
xxx xxx
xxx xxx
(xxx) (xxx)
(xxx) (xxx)
xxx xxx
Journal Entries for Stock Acquisition/ Consolidated Financial Statements
Transaction Entry
i. Purchases controlling interest by cash Investment in Subsidiary
Cash
ii. Acquisition-related costs Acquisition Related Costs

Cash
Elimination of BV of net identifiable asset Common Stock
iii.
of Acquiree/ SHE of Acquiree Share Premium
Retained Earnings
Non-Controlling Interest
iv. Elimination of Adjustements Asset Account (undervaluation)
Liability Account (overvaluationvaluation)
Investment in Subsidiary (BF)
Non-Controlling Interest (BF)
Asset Account (overvaluation)
Liability Account (undervaluation)
Investment in Subsidiary (BF)
Non-Controlling Interest (BF)
v. Elimination of Goodwill Interest in Subsidiary

Goodwill
(Full goodwill approach)
Investment in Susbidiary
Goodwill
(Partial Goodwill)
y Valuation
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Summary notes on Business Combination (Asset Acquisition)
Measurement Principle
According to PFRS 3:
Treatment Reason
shall not recognize a separate effects of uncertainty about

Assets with uncertain cashflow valuation allowance future cashflows are included
(valuation for allowances) in the fairvaue measure
Assets that the acquirer shall measure the asset at fair

intends not to use value regardless whether acquirer
intends to use asset or not
Restructuring Provisions
Meaning: program that is planned and controlled bythe management and materially changes either: (1) scope
undertaken (2) manner in which that business is conducted.
Costs Type of Costs Treatment
general rule: NOT part of

business combination
to exit an activity of the exception: if there are (1)

liquidation costs present obligation to settle
acquiree
costs assumed (2) detailed
formal plan (3) publicly
announce on or before the
acquisition date

involuntary terminate exception: if there are (1)

liquidation costs present obligation to settle
employees of acquiree
costs assumed (2) detailed
formal plan (3) publicly
announce on or before the
acquisition date

to relocate non-continuing recognized as post-
not liquidation costs
employees of acquiree combination expenses of the
combined entity when incurred

marketing or investment in
new systems and distribution not liquidation costs
networks
recognized as post-
marketing or investment in combination expenses of the
new systems and distribution not liquidation costs combined entity when incurred
networks
Specific Recognition Principles

1) Operating Lease
Situation: Treatment Effect on Computation
Gen rule: shall not recognize asset/
Acquiree is the lessee liability IGNORE
Exceptions:
Favorable market term recognize an intangible asset add to FV of identifiab
Unfavorable market term recognize a liability add to FV of identifiab
Acquiree is the lessor do not recognize asset/ liability IGNORE (whether favo
2) Intangible Assets
Recognition Treatment Effect on Computation
Separability Criterion
If passed Separability Criterion:shall
be recognized as identifiable intangible add to FV of ideentifia
Meaning: capable of being separated from asset
the acquiree (can be sold, transferred,
licensed, rented, exchanged individually or
together
If do not pass criterion: not recognized IGNORE
as indentifiable intangible asset
Contractual-Legal Criterion
If passed Separability Criterion:shall
be recognized as identifiable intangible add to FV of ideentifia
Meaning: basta may contract na legal or asset
may protection pero hindi dapat yung
required by law na hindi pwede gamitin or
what
If do not pass criterion: not recognized IGNORE
as indentifiable intangible asset
Exceptions to the Recognition Principle

Contingent Liabilities
According to PFRS 3: Treatment
A contingent liability assumes in a business combination is recognized if: Recognized as identifia
a) present obligation that arises from past events assumed
b)fair value can be measured reliably Effect on Computation
add to FV of liabilities
Exceptions to the Measurement Principle

Exempted Treatment Effect on Goodwill Co
a) Reacquired Rights recognize as intangible asset add to FV of identifiab
b) Share-based payment transactions
recognize as identifiable asset (amount= add to FV of identifiable
c) Assets held for sale
FV less cost to sell) recorded
Effect on Goodwill
computation
No effect (because allowance Other Important Notes to Remember:
is already included in the FV of >other intangible assets: sum of all
asset) unrecorded identifiable intagible assets and
FV of identifiable intangible assets recorded
Considered as identifiable
by the acquiree
asset
>Premium on Bonds Payable-: credited

when there is a difference between BV and
y changes either: (1) scope of business FV of bonds payable recorded by acquiree
nducted.
Effect on Computation of
Goodwill
If meets the exception:
considered as identifiable
liabilities
If doesn't meet exceptions:

IGNORE
If meets the exception:

considered as identifiable
liabilities
If doesn't meet exceptions:

IGNORE
IGNORE
IGNORE
IGNORE
Effect on Computation of Goodwill
IGNORE
add to FV of identifiable assets

add to FV of identifiable liabilies
IGNORE (whether favorable or not)
add to FV of ideentifiable assets
IGNORE
add to FV of ideentifiable assets
IGNORE
Treatment
Recognized as identifiable liabilites
assumed
add to FV of liabilities assumed
Effect on Goodwill Computation

add to FV of identifiable assets
add to FV of identifiable assets, if not

recorded
Summary Notes for Special accounting topics for business combinations
Special Accounting Topics fro Business Combinations

a) Goodwill
b) Reverse Acquisition
c) Combination of Mutual Entities
Goodwill**
Situations Treatment/ Recognition
- arises from business combination recognized as asset
- arising from other sources not recognized
-subsequent expenditures on maintaing good will expensed immediately
** subsequent to initial recognition, shall not be amotized but tested for impairment at least
annually
** shall be allocated to each of the acquirer's cash-generating units in the year of business
combination
**CGU to which good will has been allocated shall be tested for impairment annually.
Impairement Loss= Recoverable amount of CGU to which good will is allocate < CGU's carrying amount inclu
Level of Priority of amount of Impairement Loss

1st- allocated goodwill
2nd- other assets in the CGU (if there are any excess)
Note: impairment loss recognizeed for goodwill shall not be reversed in a subsequent period
Methods of Estimating Goodwill

Methods Definition Features
residual approach where goodwill is Required by PFRS 3
measured as the excess of the sume
of consideration transferred, NCI,
and previously held equity interest in Simply: (Consideration+NCI+ Pr
> Indirect Valuation
the acquiree over the FV of net equity interest)- FV of net identi
identifiable assets acquired assets= Goodwill
GW is measured in the basis of

> Direct Valuation expected future earnings from
business to be acquired
Averages annual Earnings
(normalized earnings**/no. of ye
average excess earnings is Less: Normal Earnings*
i. Multiples of Ave. excess earnings multiplied by the probable duration of (FV of acquiree's net assets x N
excess earnings Excess Earnings
Divided by: Prob. Duration of Ex
Good will
* Normal Earnings= Normal rate of return x FV of net assets of acquiree
**Normalized Earnings= Earnings- expropriation gains/losses
Average Earnings
Less: Normal Earnings
Capitalization of average Excess average excess earnings divided by
ii. Excess Earnings
Earnings a pre-determined capitalization rate
Divide by: Capitalization rate
Goodwill
Average Earnings
Divide by: Capitalization rate
average earnings is divided by a pre- Estimated Purchase Price
iii. Capitalization of Average Earnings determined capitalization rate to Less: FV of acquiree's net asse
estimate the purchase price of
Goodwill
business combination. Less the FV
of net assets acquired is the goodwill
Average Earnings
measured at PV of average excess
Present Value of Average Excess earnings discounted at pre-
iv.
Earnings determined discount rate over the Excess Earnings
probable duration of the excess Mutliply by: PV of ordinary annu
earnings (discount rate/return on investm
Cash- generating Unit: smallest identifiable group of assets
that generates cash inflows that are largely independent of the
cash inflows of other assets or group of assets
if not must be completed before the end of the immediately

done following year
U's carrying amount including the allocated goodwill
Due Dilligence
> the acquirer normally initiates a due diligence audit for the purpose of determining
the appropriate amount of consideration to be transferred in the acquiree
Due Diligence Audit

> refers to the investigation of all the arees of a potential acquiree's business before
Features investigator agrees to a business combination transaction.
ed by PFRS 3
Potential risk which may be determined:
> possibility of futre losses due to the acquiree's pending litigations and other unreco
(Consideration+NCI+ Prev. held
contingencies
nterest)- FV of net identifiable
= Goodwill > Overstatement in the consideration for the business combinations due to thw acqui
overstated assets and understated liabilities
> Incompatibility of internal cultures, systems and policies
es annual Earnings Potential rewards which may be determined:

ized earnings**/no. of years) > Unrecorded assets, such as trade secrets, trade name, customer lists and the like
ormal Earnings* > Understatement in the consideration for the business combination due to the acqui
acquiree's net assets x NROR) understated assets and overstated liabilities
by: Prob. Duration of Ex Earns

e Earnings
ormal Earnings
by: Capitalization rate
e Earnings
by: Capitalization rate
ed Purchase Price
V of acquiree's net assets
e Earnings
ormal Earnings
by: PV of ordinary annutity

nt rate/return on investment)
or the purpose of determining
ferred in the acquiree
tial acquiree's business before an
ing litigations and other unrecorded
combinations due to thw acquiree's
me, customer lists and the like

s combination due to the acquiree's
CHAPTER 13: BUSINESS COMBINATION PROBLEMS
Problem No.4
Data Given:
Silver Corporation
Book Values
Cash 100,000.00
Current Assets 400,000.00
Plant Assets, Net 1,000,000.00
Patents 100,000.00
Total 1,600,000.00
Current Liabilities 300,000.00

Long term debt 400,000.00
Share Capital, P10 100,000.00
Total 1,600,000.00
Requirements:
a) Table of determination of gain
Equity securities transferred

Cash Transferred
Total Consideration Transferred
Less: FV of Net Assets Acquired
Identifiable Assets
Identifiable Liabilities
Goodwill (Bargain Purchase Gain)
Question: need pa ba isama yung Current liabilites @BV if wala siyang FV?
Table for reassessment of plant assets
Equity securities transferred

Cash Transferred
Less: FV of Net Assets Acquired
Identifiable Assets
Less: overstatement of Plant Assets
Adjusted Goodwill
b) Journal Entries to record Business Combination

Investment in Silver Coporation
Share Capital
Share Premium
To record issuance of equity securties
Investment in Silver Corporation

Cash
To record transfer of cash consideration
Share Premium
Cash
To record expenses on issuance of equity securities
Legal Fees
Cash
To record acquisition related costs
c) Amounts after Combination (plant assets, patents, share capital, share premium, retained earnings)
Book Values
Cash 750,000.00
Plant Assets, Net 1,500,000.00
Patents 500,000.00
Investment in Silver 0.00
Total 3,000,000.00

Long term debt 1,000,000.00
Share Capital, P10 1,500,000.00
Share Premium 0.00
Total 3,000,000.00
d) Number of Shares and cash dividend a share holder will receive (Silver company) holding 1,200 shares
Cash Balance of Silver

Cash Consideration Received
Total Cash
Divided by: Outstanding no. of shares
Ratio
Multiply by: No. of shares of shareholder
Cash Dividends
No. of shares issued by Gold

Divided by: No. of shares of Silver
Total
Multiply by: no. of shares of shareholder
No. of shares Received
Problem No. 5
Cosmos Co.
Book Values
Plant Assets 500,000.00
Total 700,000.00
Common stock, P25 par 200,000.00
Paid-in Capital in excess of par 80,000.00
Retained Earnings (deficit) 120,000.00
Total 700,000.00
Average Earnings
Requirements:
a) Compute for net assets and goodwill of Cosmos and Orange
Equity Secutities transferred

Total Consideration
Less: FV of net assets Acquired
Idenfiable assets 800,000.00
Identifiable liabilities (300,000.00)
Net Contributions 500,000.00
Average Earnings 100,000.00
Normal Earnings 50,000.00
Excess Earnings 50,000.00
Muliply 4.33
Goodwill
Acquisition Cost
b) Distribution of 10,000 to acquired corporations

Cosmos Orange
Acquisition costs 716,473.83 584,520.11
Total Acquisition Cost 1,300,993.95

Divided by: 10,000 10,000.00
Ratio 130.10
Acquisition Costs 716,473.83 584,520.11

Divided by: cost/share 130.10 130.10
No. of shares 5,507.13 4,492.87
c) Goodwill from the combination

Goodwill- Cosmos 216,473.83
Goodwill- Orange 164,520.11
Total Goodwill 380,993.95
d) Record business combination in records of RC Corporation
Investment in Cosmos 716,473.83

Investment in Orange 584,520.11
Common Stock
Pain in Capital in excess of par
Expenses 25,000.00
Paid in Capital in excess of Par 20,000.00
Cash

Plant Assets 1,150,000.00
Goodwill 380,993.95
Liabilities
Investment in Cosmos
Investment in Orange
Problem No.7
Current Assets
Investment in Sharon Corp. (1,000 shares)
Plant & Equipment, net
Liabilities
Share Capital (Par 5, Par 10)
Share Premium
Retained Earnings
Totals
Additional Information:
> acquire resources of sharon corporation with leslie issuing 17,500 common shares
> Fair values of shares of lesie and sharon are 50 and 25 respectively
> Assets and liabilities of sharon are equaal to current fair values
Requirements:
a) Table to determine if goodwill exists
Issuance of stocks@FV
Less: FV of net identifiable assets
Identifiable assets 1,000,000.00
Goodwill
b) Journal entries to record combination of agreement
Investment in Sharon Corp 875,000.00

Share Capital
Share Premium

Plant & Equipment, net 400,000.00
Goodwill 75,000.00
Liabilities
Investment in Sharon Corp
Problem No. 8
What if instead that the acquirer is Sharon who paid P500,000 cash and issued an 18% thirty-day note for 1,
Requirements:
a) Table to determine if goodwill exists
Cash
Issuance of 18%, 30-day note
Total consideration transferred
Less: FV of identiafiable net assets
Identifiable assets 2,625,000.00
Goodwill (Baragain Purchase Gain)
Question: Kasama ba sa Identifiable assets yung existing investment in Sharon Corp?
b) Journal entries to in the books of sharon to record the combination arrangements
Investment in Leslie Corp 1,700,000.00

Cash
Notes Payable

Investment in Sharon Corp. 25,000.00
Plant & Equipment 2,000,000.00
Liabilities
Investment in Leslie Corp.
Baragain Purchase Gain
Problem no. 9
R
Goodwill 100,000.00
Land 100,000.00
Equipment 500,000.00
Share Capital ( Par value 50/100/50) 390,000.00
Retained Earnings (20,000.00)
Fair Market values of stocks 120.00
Appraised Value:
Land 500,000.00
Equipment
Assune that 3/4 of the current assets is non-cash in nature
Situation 1:
Requirements
a) Journal entries of acquirer and table for goodwill or gain
Acquiring R Corporation
Cash
Land
Less: FV of net Identifiable asstes
Identifiable Assets 1,075,000.00
Identifiable Liabilities (350,000.00)
Investment in R 800,000.00
Cash 400,000.00
Land 400,000.00
Consultant's Fee 55,000.00

Cash 55,000.00

Land 500,000.00
Goodwill 75,000.00
Investment in R 800,000.00
b) Journal Entries in the books of R and T

Cash 400,000.00
Land 400,000.00
Current Asstes 75,000.00
Land 500,000.00
Goodwill 75,000.00
c) If you own 500 of company R shares, how much cash will you receive?
Cash Balance of R 25,000.00

Cash Consideration 400,000.00
Total Cash 425,000.00
Divided by: Shares of R 7,800.00 > TAKE NOTE: dapat hindi ileless yung
Cash/share 54.49
Multiply by: 500.00
Cash received 27,243.59
d) If you own 500 of Company T shares, how many new shares will you receive?
Shares Issued by S Company 4,000.00

Divided by: Shares of T company 8,000.00
Shares of S/ Shares of T 0.50
Multiply by: 500.00
Shares Received 250.00
e) Consolidated Balances
S
Goodwill
Land 500,000.00
Invetment in R/T 0.00
Equipment 1,500,000.00
Total 2,750,000.00
Liabilities 1,100,000.00
Share Capital ( Par value 50/100/50) 1,000,000.00
Total 2,750,000.00
Situation 2
Requirements:
a) How many new shares will Mr. Ong will receive if he holds 250 R shares?
Expected Earnings
Excess Earnings
Multiply by: PV of ordinary annuity@5% for 4 years
Goodwill
Identifiable Net Assets

Goodwill
Acquisition Costs
No of Shares to be Distributed 50,000.00

Divided by: no. of shares outstanding
No. of new shares per current shares
Multiply by
No. of news shares to be received
b) Goodwill recognized from the combination
Goodwill-R 177,297.53
Goodwill-S 124,108.27
Goodwill-T 106,378.52
Total 407,784.31
STOCK ACQUISITION METHOD (BUSINESS COMBINATION)
Re-answering Problem Illustrations
> Illustration 1: Total Ownership Interest, Consideration Equal to Subsidiary Interest
Facts Relevant:
> Consideration: by cash 150,000.00 ------->
> Revaluation of Asset 100,000.00 ------>
Consideration 150,000.00
Less: FV of SHE (100,000.00)
Goodwill 50,000.00
Less: Revaluation (50,000.00)
Goodwill 0.00
Journal Entries to reqcord Acquistion of S Co.
> Investment in Subsidiary 150,000.00

Cash 150,000.00
To record acquisition of S.Co
CONSOLIDATION WORKING PAPER
P Co.
cash and other current assets 100,000.00
plant assets 70,000.00
Goodwill 0.00
Total 320,000.00
Share Capital 125,000.00
Total 320,000.00
> Partial Ownership, Consideration Equal to Fair Vlaue of Subsidiary Interest Acquired
Facts Relevant:
> P CO. is the acquirer
> acquired 80% of the stocks of S Co.
> Cash Consideration is 100,000.00
> Revaluation of plant assets must be 75,000.00
P Co. (80%)
Acquisition Cost/FV of NCI/Total FV 100,000.00
Less: FV of Stocks Acquired 80,000.00
Excess over FV 20,000.00
Less: Revaluation
Goodwill 0.00
Journal Entry to record acquisition:

Cash
Eliminating Entries:
> Share Capital 75,000.00
> Total Ownership Interest, Excess Consideration over the Fair Values of the Subsidiary Interest Acqui
P Co.
Acquisition Cost/FV of NCI/ Total FV 250,000.00
Less: FV of SHE's Acquired 140,000.00
Excess over Fair value of Intererst 110,000.00
Less: Revaluation
Plant & Equipment 25,000.00
Goodwill (full) 85,000.00
Journal Entry to Record Acquisition:

Share Capital Stock
Share Premium
Eliminating Entries
> Share Capital Stock 100,000.00
> Plant Assets 25,000.00

> Goodwill 85,000.00

> Partial Ownership, Excess Consideration Over the Fair values of the Subsidiary Interest, Goodwill Re
Facts Relevant
Consideration paid: 250,000.00
Revaluation: 75,000.00
FV of interest 140,000.00
Partial Goodwill Approach:

P Co.
Consideration/FV of NCI/Total 43,000.00
FV of Subsidiary Interest 28,000.00
Excess Over FV of interest 15,000.00
Less: Revaluation
Partial Goodwill 0.00
> Partial Ownership Interest, Excess Fair Value of Subsidiary Interest Acquired Over the Consideration
P Co.
Consideration/FV of NCI/ Total 150,000.00
Less: FV of Interest in Subsidiary 112,000.00
Excess over Fair Value 38,000.00
Less: Revaluation 40,000.00
Goodwill (Bargain Purchase Gain) (2,000.00)
> Share Capital Stock 100,000.00
Non- Controlling Interest 28,000.00


Bargain Purchase Gain
> Partial Ownership Interest, Excess Consideration Over Fair Value of Subsidiary Interest which Includ
Facts Relevant
> P Company acquired 4,500 shares for 630,000
> P Company paid for 30,000 for out of the pocket Costs
> Plant assets should be 480,000
> Fair value of stocks of S company is 130
> Premium price paid by P Company is 140
Computation of Full goodwill

P Co. (90%)
Less: Fair value of interest 540,000.00
Excess over Fair value 90,000.00
Less: Revaluation
Int. Goodwill (50,000.00) 27,000.00
Goodwill (Bargain Purchase gain) 63,000.00
STOCK ACQUISITION PROBLEMS: MANUEL
PROBLEM (Page 315)

> Situation 1 -Acquisition of Small Company
Big Co.
Cash 390,000.00
Less: Included Broker and Prof Fees (30,000.00)
Acquisition Costs/FV of NCI/ Total FV 360,000.00
Less: FV of Subsidiary Interest (450,000.00)
Excess over FV of interest (90,000.00)
Overvaluation-LA (25,000.00)
Undervaluation-land 70,000.00
Undervaluation-liabilities (20,000.00)
Total revaluation 25,000.00
Goowill (150,000.00)
Total (125,000.00)
Goodwill (Bargain Purchase Gain) 22,500.00
Requirements:
a) Investment Entry in the Books of Big

Cash 360,000.00
Acquisition-Related Costs 30,000.00

Cash 30,000.00
b) Table for determination and allocation of excess (see table above)
c) Working paper entries and consolidated statement of financial position
Common Shares 100,000.00
Land 70,000.00
Non- Controlling Interest 12,500.00
Goodwill 125,000.00
------------------------------------------------------------------------------------------- what if Partial Goodwill approach? -----
Big Co.
Cash 390,000.00
Less: Included Broker and Prof Fees (30,000.00)
Acquisition Costs/FV of NCI/ Total FV 360,000.00
Less: FV of Subsidiary Interest (450,000.00)
Excess over FV of interest (90,000.00)
Overvaluation-LA (25,000.00)
Undervaluation-land 70,000.00
Undervaluation-liabilities (20,000.00)
Total revaluation 25,000.00
Goowill (150,000.00)
Total (125,000.00)
Elimination Entries
Land 70,000.00

Goodwill 127,500.00
TAKE NOTE: yung value ng NCI sa elim

(goowillx %of NCI - (Total goodwill (fu
Problem Page 315

> Situation 2
(FULL GOOWILL APPROACH) Big Co.
Less: FV of Interest in Subsidiary (234,000.00)
Add back: repair expense should not be cap. 27,000.00
Excess in FV of interest 63,000.00
Less: Revaluation:
Land 40,000.00
R&D in Process 30,000.00 (42,000.00)
Goodwill (Bargain Purchase) Gain 21,000.00
Journal Entries in the books of Big Company

Common Stock
Cash
Share Premium
Cash
Elimindating Entries
Land 40,000.00
Research and Development, in process 30,000.00
Goowill 35,000.00
WORKING PAPER FOR CONSOLIDATION

Big Company Midget Co.
Cash 320,000.00 100,000.00
Current Assets 1,140,000.00 100,000.00
License Agreement 0.00
Land 100,000.00 80,000.00
Equipment, net 200,000.00 55,000.00
In process R&D 0.00 70,000.00
Goodwill 0.00 0.00
Investment in Subsidiary 270,000.00 0.00
Total 2,030,000.00 405,000.00
Liabilities 400,000.00 60,000.00
Common Shares 300,000.00 150,000.00
Share Premium 190,000.00 100,000.00
40% of Non-Controlling interest 0.00 0.00
Total 2,030,000.00 405,000.00
Exercise no. 1 page 309
Situation A
Requirements:
a) Compute for the percent of ownership
% of ownership
Acquired Int. Share capital/par 100
10,000.00 10,000.00 1.00 --> 100%
b) Investment Entry:
Investment in Subsidiary 1,750,000.00
Cash 1,750,000.00
c) Table for determination and allocation of excess

Textbook Co. Viewpoint Co.
Consideration/FV of NCI/Total 1,750,000.00 0.00
Less: FV of interest in subsidiary (1,550,000.00) 0.00
Excess over FV 200,000.00 0.00
Less: Revaluation 0.00 0.00
Goodwill (Bargain Purchase Gain) 200,000.00 0.00
d) Adjustment and Elimination Entries:

Share Capital 1,000,000.00
Goodwill 200,000.00
Exercise no. 2 Page 309

Situation A
Requirements:
Acquired Int. Share capital/par 100 % of ownership
10,000.00 10,000.00 1.00 --> 100%
Cash 1,750,000.00

Textbook Co. Viewpoint Co.
Consideration/FV of NCI/Total 1,750,000.00 0.00
Less: FV of interest in subsidiary (1,550,000.00) 0.00
Excess over FV 200,000.00 0.00
Less: Revaluation (350,000.00) 0.00
Goodwill (Bargain Purchase Gain) (150,000.00) 0.00

Land 350,000.00

Bargain Purchase Gain 150,000.00
Exercise No. 3 page 309

SITUATION A
Requirements:
a) Percent of owenership
Capital stock of acquiree 50,000.00

Divided by par value 5.00
Total shares 10,000.00
Acquired shares 8,000.00
percentage of ownership 80%
b) Table for determination and allocation of excess

Pen Co. 80% Sol Co. 20%
Cash paid 160,000.00
Less: acquisition related costs (30,000.00)
Acquistion cost/FV of NCI/Total 130,000.00 32,500.00
Less: FV of interest in subsidiary (120,000.00) (30,000.00)
Excess over FV of interest 10,000.00 2,500.00
Revaluation (8,000.00) (2,000.00)
Goodwill (Bragain Purchase gain) 2,000.00 500.00
c) Investment Entry
Cash 130,000.00
d) Work paper adjustment and elimination entries

Capital Stock 50,000.00
Equipment 10,000.00
Goodwill 2,500.00
Non-Controlling Interest 500.00
WORKING PAPER
Pen Co. Sol Co.
Cash 50,000.00 10,000.00
Accounts Receivable 50,000.00 5,000.00
Inventory 50,000.00 50,000.00
Long-Term Investments 90,000.00 15,000.00
Plant & Equipment, net 500,000.00 50,000.00
Land 200,000.00 60,000.00
Goodwill 0.00 0.00
Total 1,070,000.00 190,000.00
Accounts Payable 75,000.00 15,000.00

Notes Payable 125,000.00 25,000.00
Capital Stock 500,000.00 50,000.00
APIC 170,000.00 0.00
Retained Earnings 200,000.00 100,000.00
20% Non-Controlling Interest 0.00 0.00
Total 1,070,000.00 190,000.00

SITUATION A
Requirements:
a) Table for determining and allocation of excess
Pan Co. Stan Co.

Consideration/FV of NCI/Total 102,000.00 18,000.00
Excess over Fair value 34,000.00 6,000.00
Less: Revaluation:
Inventories (10,000.00)
Long- term inv (3,000.00)
Plat & equipment (9,000.00)
Patents (8,000.00)
Estimated warranty 500.00 (25,075.00) (4,425.00)
Goodwill (Bargain Purchase Gain) 8,925.00 1,575.00
b) Investment Entry
Acquisition Related Costs 20,000.00

Cash 20,000.00
c) Adjustment and Elimination Entries

Inventories 10,000.00
Long term Investments 3,000.00
Plant & equipment 9,000.00
Patents 8,000.00
Estimated Warranties Payable 500.00
Goodwill 10,500.00

Requirements:
a) Table for determination and allocation of excess
Page Co. Shake Co.

Less: FV of interest in Subsidiary (392,400.00) (43,600.00)
Excess over Fair Value 147,600.00 20,000.00
Less: Revaluation
Inventory (20,000.00)
Plant Asset (150,000.00)
Patents (15,000.00)
Long-term debt (15,000.00) (180,000.00) (20,000.00)
b) Page Corporation's Journal entries to record the business combination

Ordinary Shares 100,000.00
Paid-In Capital in Excess of Par 440,000.00

Cash 90,000.00
c) Consolidated Working Paper

Page Co. Shake Co.
Cash 160,000.00 150,000.00
Inventories 860,000.00 600,000.00
Other Current Assets 500,000.00 260,000.00
Plant Assets 9net) 3,400,000.00 1,500,000.00
Patents (net) 0.00 80,000.00
Goodwill 0.00
Total 5,460,000.00 2,590,000.00
Income Taxes Payable 40,000.00 60,000.00

Other Current Liabilities 390,000.00 854,000.00
Long-term debt 950,000.00 1,240,000.00
Ordinary shares, Par 2 1,600,000.00
Ordinary Shares, Par 5 100,000.00
Paid-in Capital in excess of par 1,884,750.00
10% Non-Controlling Interest 0.00
Total 5,460,000.00 2,590,000.00

a) Table for determination and allocation of excess
Page Co. Shake Co.

Less: FV of interest in Subsidiary (327,000.00) (109,000.00)
Excess over Fair Value 213,000.00 71,000.00
Less: Revaluation
Inventory (20,000.00)
Plant Asset (150,000.00) (127,500.00) (42,500.00)
Goodwill (Bargain Purchase Gain) 85,500.00 28,500.00
b) Page Corporation's Journal entries to record the business combination


Cash 90,000.00
c) Eliminating and Adjusting Entries

Non-Controlling Intererst 109,000.00
Goodwill 114,000.00
d) Consolidated Working Paper

Page Co. Shake Co.
Cash 160,000.00 150,000.00
Inventories 860,000.00 600,000.00
Other Current Assets 500,000.00 260,000.00
Plant Assets 9net) 3,400,000.00 1,500,000.00
Patents (net) 0.00 80,000.00
Goodwill 0.00
Total 5,460,000.00 2,590,000.00
Income Taxes Payable 40,000.00 60,000.00

Other Current Liabilities 390,000.00 854,000.00
Long-term debt 950,000.00 1,240,000.00
Ordinary shares, Par 2 1,600,000.00
Ordinary Shares, Par 5 100,000.00
Paid-in Capital in excess of par 1,884,750.00
10% Non-Controlling Interest 0.00
Total 5,460,000.00 2,590,000.00
Silver Corporation Gold Corporation
Fair Values Book Values Fair Values >
750,000.00 300,000.00 >
475,000.00 250,000.00 2,000,000.00 >
1,200,000.00 1,500,000.00 400,000.00
150,000.00 500,000.00
3,000,000.00
150,000.00 800,000.00 >

450,000.00 1,000,000.00
1,500,000.00
350,000.00
3,000,000.00
700,000.00
225,000.00
925,000.00
1,825,000.00
(750,000.00) 1,075,000.00
(150,000.00)
700,000.00
225,000.00
925,000.00
1,825,000.00
(750,000.00) 1,075,000.00
(150,000.00)
75,000.00
(75,000.00)
700,000.00 Current Assets
500,000.00 Plant Assets
200,000.00 Patents
Current Liabilities
Long Term Debt
225,000.00 Investment in Silver Corporation
225,000.00 Bargain Purchase Gain
To record transfer of acquired net assets
75,000.00
75,000.00
50,000.00
50,000.00
are premium, retained earnings)

Adjustements
Dr. Cr. Consolidated
350,000.00 400,000.00
475,000.00 725,000.00
1,125,000.00 2,625,000.00
150,000.00 650,000.00
925,000.00 925,000.00 0.00
2,675,000.00 1,275,000.00 4,400,000.00
300,000.00 450,000.00
450,000.00 1,450,000.00
500,000.00 2,000,000.00
75,000.00 200,000.00 125,000.00
50,000.00 75,000.00 375,000.00
125,000.00 1,525,000.00 4,400,000.00
ompany) holding 1,200 shares
100,000.00
225,000.00
325,000.00
10,000.00
32.50
1,200.00
39,000.00 ?
50,000.00
10,000.00
5.00
1,200.00
6,000.00
Cosmos Co. Orange Co.

Fair Values Book Values Fair Values >
170,000.00
600,000.00 500,000.00 550,000.00 >
670,000.00 >
>
300,000.00 280,000.00 300,000.00 >
250,000.00 >
150,000.00
(10,000.00)
670,000.00
100,000.00 80,000.00
Cosmos Orange
500,000.00 500,000.00
500,000.00 500,000.00
720,000.00
(300,000.00)
500,000.00 420,000.00 420,000.00
80,000.00
42,000.00
50,000.00 38,000.00 38,000.00
4.33 4.33
216,473.83 164,520.11
716,473.83 584,520.11
Total
1,300,993.95
1,000,000.00
300,993.95
45,000.00
600,000.00
716,473.83
584,520.11
Leslie Sharon
Debit Credit Debit Credit
600,000.00 600,000.00
25,000.00
2,000,000.00 400,000.00
750,000.00 200,000.00
850,000.00 500,000.00
500,000.00 200,000.00
525,000.00 100,000.00
2,625,000.00 2,625,000.00 1,000,000.00 1,000,000.00
875,000.00
800,000.00
75,000.00
87,500.00
787,500.00
200,000.00
875,000.00
ssued an 18% thirty-day note for 1,200,000
500,000.00
1,200,000.00
1,700,000.00
1,875,000.00
(175,000.00)
nt in Sharon Corp?
arrangements
500,000.00
1,200,000.00
750,000.00
1,700,000.00
175,000.00
S T Situation 1: S decides to purchase net assets of R
750,000.00 250,000.00 plus 1/2 of land it owns
Consultant's fee is 55,000
500,000.00 250,000.00 S will also acquire the net assets of T
1,500,000.00 500,000.00 basis, pay 50,000 for broker's fee and
1,100,000.00 350,000.00 cost of certificates
1,000,000.00 400,000.00
200,000.00 Situation 2: Constituent companies decide to cons
450,000.00 250,000.00 which will issue 50,000 shares with pa
150.00 100.00 based on their net identifiable asstes
Expected earnings: 125,000, 300,000
800,000.00 500,000.00 normal rate of return 10%, discount ra
2,200,000.00 300,000.00
Acquiring T Corporation
400,000.00 Shares Issued, 4000 shares
400,000.00 Less: FV of net identifiable asets
800,000.00 Identifiable Assets 1,050,000.00
Identifiable Liabilities (350,000.00)
725,000.00
75,000.00 Investment inT Corp. 600,000.00
Share Capital
Share Premium
Broker's Fee 10,000.00

Cash

Land 500,000.00
Investment in T 600,000.00
KE NOTE: dapat hindi ileless yung share premium
Adjustments- R Adjustments-T
Dr Cr Dr Cr Total
75,000.00 455,000.00 250,000.00 60,000.00 560,000.00
75,000.00 75,000.00
500,000.00 250,000.00 500,000.00 1,250,000.00
800,000.00 800,000.00 600,000.00 600,000.00 0.00
500,000.00 300,000.00 2,300,000.00
4,185,000.00
350,000.00 350,000.00 1,800,000.00

500,000.00 1,500,000.00
50,000.00 250,000.00 400,000.00
55,000.00 10,000.00 100,000.00 485,000.00
4,185,000.00
R S T Computation of Net Identifiable Asset

125,000.00 300,000.00 100,000.00
(75,000.00) (265,000.00) (70,000.00) Identifiable Assets
50,000.00 35,000.00 30,000.00 Identifiable Liabilities
3.55 3.55 3.55 Identifiable net assets
177,297.53 124,108.27 106,378.52
Total
750,000.00 2,650,000.00 700,000.00
177,297.53 124,108.27 106,378.52
927,297.53 2,774,108.27 806,378.52 4,507,784.31
10,285.51 30,770.20 8,944.29

7,800.00 10,000.00 8,000.00
1.32 3.08 1.12
250.00
329.66
sidiary Interest
Full amount
undervalued by: 50,000.00
> Share Capital 75,000.00

To eliminate Shareholders' Equity of Subsidairy

To eliminate revaluation
S Co. Debit Credit Consolidated

120,000.00 220,000.00
50,000.00 50,000.00 170,000.00
0.00 150,000.00 0.00
0.00 0.00
170,000.00 390,000.00
70,000.00 210,000.00
75,000.00 75,000.00 125,000.00
10,000.00 10,000.00 30,000.00
15,000.00 15,000.00 25,000.00
170,000.00 150,000.00 150,000.00 390,000.00
nterest Acquired
S Co. (20%) Total (100%)

25,000.00 125,000.00
20,000.00 100,000.00
5,000.00 25,000.00
5,000.00 25,000.00
0.00 0.00

P Co. (80%) S Co. (20%)
100,000.00 Cash 150,000.00 120,000.00
Plant Assets 70,000.00 50,000.00
Goodwill 0.00 0.00
Total 320,000.00 170,000.00
80,000.00 Liabilities 140,000.00 70,000.00

20,000.00 Share Capital 125,000.00 75,000.00
Share Premium 30,000.00 10,000.00
20,000.00 Share in NCI Asset Revaluation
5,000.00 20% NCI
Total 320,000.00 170,000.00
s of the Subsidiary Interest Acquired, Goodwill Recognized
S Co. Total
0.00 250,000.00
0.00 140,000.00
0.00 110,000.00
0.00 25,000.00
0.00 85,000.00
100,000.00
150,000.00
140,000.00
25,000.00
85,000.00
Subsidiary Interest, Goodwill Recognized
If partial goodwill approach, para makuha yung FV of NCI dapat If full goodwill approac
imultiply yung % of NCI sa sum ng (1) FV of subsidiary interest and (2) consideration by % of c
Total revaluation - Dapat yung pianakatotal na yung FV of NCI
Full Goodwill Approach:

S Co. Total
250,000.00 293,000.00 Consideration/FV of NCI/Total
112,000.00 140,000.00 FV of Subsidiary Interest
138,000.00 153,000.00 Excess Over FV of interest
Less: Revaluation
60,000.00 75,000.00 Plant Assets
78,000.00 78,000.00 Full Goodwill
Acquired Over the Consideration, Gain from Bargain Purchase Recognized for Parent
S Co. Total
38,000.00 188,000.00
28,000.00 140,000.00
10,000.00 48,000.00
10,000.00 50,000.00
0.00 (2,000.00)
This is under the Economic Entity Theory
2,000.00
Subsidiary Interest which Includes Internally Developed Goodwill
If may given na premium price and no. of shares na inacquire ni parent

kay subsidiary, para makuha yung FV ni NCI dapat:
(no. of shares ni subsidiary- no. shares acquired by parent) x FV of
shares ni subsidiary. HINDI MO GAGAWIN YUNG NORMAL NA DIVIDE
BY % OF CI YUNG CONSIDERATION KASI HINDI EQUAL YUNG MGA % OF
OWNERSHIP NILA.
S Co. (10%) Total (100%)

65,000.00 695,000.00
60,000.00 600,000.00 Sa eliminating entry for goodwill, dapt yung value na
5,000.00 95,000.00 magrereflect sa entry is yung (total goodwill-internal
goodwill)
3,000.00 30,000.00
2,000.00 65,000.00
Small Co. Total Small Co. Shares
No. of acquired shares
% of Controlling Interest
40,000.00 400,000.00
(50,000.00) (500,000.00)
(10,000.00) (100,000.00)
12,500.00 125,000.00
2,500.00 25,000.00

Big Company Small Co.
Cash 110,000.00 30,000.00
Current Assets 1,140,000.00 100,000.00
Land 100,000.00 50,000.00
Equipment, net 200,000.00 120,000.00
In process R&D 0.00 0.00
Goodwill 0.00 150,000.00
Total 1,910,000.00 550,000.00
Liabilities 400,000.00 50,000.00

Common Shares 200,000.00 100,000.00
Share Premium 100,000.00 100,000.00
Total 1,910,000.00 550,000.00
at if Partial Goodwill approach? --------------------------------------------------------------------------------------------------------
Small Co. Total
37,500.00 397,500.00
(50,000.00) (500,000.00)
(12,500.00) (102,500.00)
12,500.00 125,000.00
0.00 22,500.00

Big Company Small Co.
Cash 110,000.00 30,000.00
Current Assets 1,140,000.00 100,000.00
Land 100,000.00 50,000.00
Equipment, net 200,000.00 120,000.00
In process R&D 0.00 0.00
Goodwill 0.00 150,000.00
Total 1,910,000.00 550,000.00
Liabilities 400,000.00 50,000.00

Common Shares 200,000.00 100,000.00
Share Premium 100,000.00 100,000.00
Total 1,910,000.00 550,000.00
TAKE NOTE: yung value ng NCI sa elimination ni Goodwill under Partial goodwill approach dapat
(goowillx %of NCI - (Total goodwill (full)- Total goowill (partial)
Midget Co. Total (PARTIAL GOODWILL APPROACH)
180,000.00 450,000.00 Consideration/FV of NCI/ Total
(156,000.00) (390,000.00) Less: FV of Interest in Subsidiary
18,000.00 45,000.00 Add back: repair expense should not be cap.
42,000.00 105,000.00 Excess in FV of interest
Less: Revaluation:
Land 40,000.00
(28,000.00) (70,000.00) R&D in Process 30,000.00
14,000.00 35,000.00 Goodwill (Bargain Purchase) Gain
TAKE NOTE FOR CASES LIKE THIS:

Under partial goodwill approach, FV of NCI is computed as follows:
100,000.00
70,000.00 FV of interest in subsidiary 390,000.00
100,000.00 Add: total undervaluation 70,000.00
Less: total overvaluation 0.00
Less:exp capitalized (45,000.00)
110,000.00 Total 415,000.00
Multiply by: % of NCI 0.40
FV of NCI 166,000.00
Retained Earnings in the Eliminating entry must be

207,000.00 adjusted to its real BV since there was an
overstatement in the equipment due to capitalization
138,000.00 of repair expense which should be recognized as
outright expense.
42,000.00
28,000.00
21,000.00 -----------------------> Goodwill 21,000.00

14,000.00 Investment in Subsidiary
FULL PARTIAL
Debit Credit 40% NCI Consolidated Consolidated
420,000.00 420,000.00
1,240,000.00 1,240,000.00
0.00 0.00
40,000.00 220,000.00 220,000.00
255,000.00 255,000.00
30,000.00 100,000.00 100,000.00
35,000.00 35,000.00 21,000.00
270,000.00 0.00 0.00
2,270,000.00 2,256,000.00
460,000.00 460,000.00
150,000.00 300,000.00 300,000.00
100,000.00 190,000.00 190,000.00
95,000.00 1,140,000.00 1,140,000.00
180,000.00 180,000.00 166,000.00
2,270,000.00 2,256,000.00
Situation B
Requirements:
Share capital/par % of ownership

Acquired Int. 100
9,000.00 12,000.00 0.75 ---------> 75%
Cash 1,200,000.00

Total Textbook Co. Viewpoint Co.
1,750,000.00 Consideration/FV of NCI/Total 1,200,000.00 400,000.00
(1,550,000.00) Less: FV of interest in subsidiary (1,068,750.00) (356,250.00)
200,000.00 Excess over FV 131,250.00 43,750.00
0.00 Less: Revaluation 0.00 0.00
200,000.00 Goodwill (Bargain Purchase Gain) 131,250.00 43,750.00

Goodwill 175,000.00
Situation B
Requirements:
Acquired Int. Share capital/par 10% of ownership
9,000.00 12,000.00 0.75 ---------> 75%
Cash 1,200,000.00

1,750,000.00 Consideration/FV of NCI/Total 1,200,000.00 400,000.00
(1,550,000.00) Less: FV of interest in subsidiary (1,068,750.00) (356,250.00)
200,000.00 Excess over FV 131,250.00 43,750.00
(350,000.00) Add: Overvaluation 112,500.00 37,500.00
(150,000.00) Goodwill (Bargain Purchase Gain) 243,750.00 81,250.00


Machineries 150,000.00
Goodwill 325,000.00
SITUATION B
Requirements:
a) Percent of owenership
Capital stock of acquiree 50,000.00

Divided by par value 5.00
Total shares 10,000.00
Acquired shares 9,000.00
percentage of ownership 90%
b) Table for determination and allocation of excess

Total Pen Co. 90% Sol Co. 10%
Acquistion cost/FV of NCI/Total 121,500.00 17,500.00
162,500.00 Excess over FV of interest (13,500.00) 2,500.00
(150,000.00) Less: Revaluation (22,500.00) (2,500.00)
12,500.00 Goodwill (Bragain Purchase gain) (36,000.00) 0.00
(10,000.00)
2,500.00 c) Investment Entry
APIC 21,500.00
d) Work paper adjustment and elimination entries
Equipment 25,000.00

Baragain Purchase Gain 36,000.00
Adjustments SET B
Debit Credit NCI 20% Consolidated Consolidated
60,000.00 140,000.00
55,000.00 55,000.00
100,000.00 100,000.00
105,000.00 105,000.00
10,000.00 560,000.00 575,000.00
260,000.00 260,000.00
130,000.00 0.00 0.00
2,500.00 2,500.00 0.00
1,142,500.00 1,235,000.00
90,000.00 90,000.00
150,000.00 150,000.00
50,000.00 500,000.00 591,500.00
170,000.00 0.00
100,000.00 200,000.00 216,000.00
32,500.00 32,500.00 17,500.00
1,142,500.00 1,065,000.00
SITUATION B
Requirements:
a) Table for determining and allocation of excess
Total Pan Co. Stan Co.

120,000.00 Consideration/FV of NCI/Total 72,000.00 21,900.00
(80,000.00) Less: FV of interest in subsidiary (64,000.00) (16,000.00)
40,000.00 Excess over Fair value 8,000.00 5,900.00
Less: Revaluation:
Inventories (10,000.00)
Long- term inv (3,000.00)
Plat & equipment (9,000.00)
Patents (8,000.00)
(29,500.00) Estimated warrant 500.00 (23,600.00) (5,900.00)
10,500.00 Goodwill (Bargain Purchase Gain) (15,600.00) 0.00
b) Investment Entry

SharePremium 15,000.00
Cash 35,000.00
c) Adjustment and Elimination Entries

Long term Investments 3,000.00
Plant & equipment 9,000.00
Patents 8,000.00
Estimated Warranties Payable 500.00

d) Eliminating and Adjusting Entries
Total Inventories 20,000.00

603,600.00 Plant Assets 150,000.00
(436,000.00) Patents 15,000.00
167,600.00 Long-Term Debt 15,000.00

(200,000.00) Bargain Purchase Gain 32,400.00
(32,400.00)
Non-Controlling Intererst 43,600.00

310,000.00
20,000.00 1,480,000.00
760,000.00
150,000.00 5,050,000.00
15,000.00 95,000.00
32,400.00 572,400.00 0.00
0.00
7,695,000.00
100,000.00
1,244,000.00
15,000.00 2,175,000.00
1,600,000.00
100,000.00 0.00
1,884,750.00
336,000.00 32,400.00 627,650.00
63,600.00 63,600.00
7,695,000.00
Total
720,000.00
(436,000.00)
284,000.00
(170,000.00)
114,000.00

310,000.00
20,000.00 1,480,000.00
760,000.00
150,000.00 5,050,000.00
80,000.00
540,000.00 0.00
114,000.00 114,000.00
7,794,000.00
100,000.00
1,244,000.00
2,190,000.00
1,600,000.00
100,000.00 0.00
1,884,750.00
336,000.00 595,250.00
180,000.00 180,000.00
7,794,000.00
Other Information:
Gold corp issued 50,000 shares ,P10 par, FV 14
225,000.00 cash consideration
out of the pocket expenses 125,000.00
where:
Legal Fees 50,000.00
SEC registration for printing equity securities 75,000.00
Plant Assets 50% of bargain purchase

475,000.00
1,125,000.00
150,000.00
nt Liabilities 300,000.00
450,000.00
ment in Silver Corporation 925,000.00
in Purchase Gain 75,000.00
uired net assets
Other Information:
RC Corp will issue 10,000 shares, P100 par for outstanding common stock
of Cosmos and Orange
Out of the pocket fees 25,000.00
Registtarion fees 20,000.00
Normal profit margin 10%
Discount rate @5 years 5%
will issue shares equally
1,300,993.95
des to purchase net assets of R, except cash and pay 400,0000
/2 of land it owns
ultant's fee is 55,000
also acquire the net assets of T ans issue shares on a 0.5 to 1
pay 50,000 for broker's fee and 10,000 for registration, filing and
f certificates
tuent companies decide to consolidate and form the RST Company

will issue 50,000 shares with par value of 100 to be distributed
on their net identifiable asstes plus goodwill computed as follows
ted earnings: 125,000, 300,000 and 100,000 respectively
l rate of return 10%, discount rate is 5% for 4 years
Computation of shares to be issued:

600,000.00
Share Capital-S 1,000,000.00
Less: Share Premium-S (200,000.00)
700,000.00 Total Shares 800,000.00
(100,000.00) Divided by: Par value 100.00
No of shares 8,000.00
Multiply by: 0.50
500,000.00 No. of shares to be issued 4,000.00
250,000.00
60,000.00
Take note: Kapag ang consideration ay non-cash asset, ang
adjustment dapat or yung value ng marereceive ni acquiree
ay yung book value ni acquirer hindi yung fair value. Sa good
will computation lang magrereflect yung FV ng non-cash
asset transferred.
utation of Net Identifiable Assets

R S T
iable Assets 1,100,000.00 3,750,000.00 1,050,000.00
iable Liabilities (350,000.00) (1,100,000.00) (350,000.00)
iable net assets 750,000.00 2,650,000.00 700,000.00
Debit Credit NCI Consolidated
270,000.00
25,000.00 145,000.00
100,000.00 0.00
0.00
415,000.00
210,000.00
60,000.00 15,000.00 125,000.00
8,000.00 2,000.00 30,000.00
12,000.00 3,000.00 25,000.00
5,000.00 5,000.00 0.00
25,000.00 25,000.00
415,000.00
If full goodwill approach naman, para makuha yung total idivide yung
consideration by % of controlling interest then less na lang yung CI para makuha
yung FV of NCI
P Co. S Co. Total

250,000.00 62,500.00 312,500.00
112,000.00 28,000.00 140,000.00
138,000.00 34,500.00 172,500.00
60,000.00 15,000.00 75,000.00
78,000.00 19,500.00 97,500.00
r goodwill, dapt yung value na

s yung (total goodwill-internally generated
1,000.00
900.00
90%
Debit Credit Consolidated

140,000.00
1,240,000.00
25,000.00 75,000.00
70,000.00 220,000.00
320,000.00
0.00
0.00 125,000.00 25,000.00
112,500.00 472,500.00 0.00
2,020,000.00
20,000.00 470,000.00
100,000.00 200,000.00
100,000.00 100,000.00
300,000.00 1,210,000.00
12,500.00 52,500.00 40,000.00
2,020,000.00
--------------------

140,000.00
1,240,000.00
25,000.00 75,000.00
70,000.00 220,000.00
320,000.00
0.00
0.00 127,500.00 22,500.00
112,500.00 472,500.00 0.00
2,017,500.00
20,000.00 470,000.00
100,000.00 200,000.00
100,000.00 100,000.00
300,000.00 1,210,000.00
15,000.00 52,500.00 37,500.00
2,017,500.00
Big Co. Midget Co. Total
270,000.00 166,000.00 436,000.00
(234,000.00) (156,000.00) (390,000.00)
27,000.00 18,000.00 45,000.00
63,000.00 28,000.00 91,000.00
(24,000.00) (16,000.00) (40,000.00)

(18,000.00) (12,000.00) (30,000.00)
21,000.00 0.00 21,000.00
CI is computed as follows:
21,000.00
Situation C
Requirements:
Share % of ownership
Acquired Int. capital/par 100
7,500.00 10,000.00 0.75 ---------> 75%
Cash 900,000.00

1,600,000.00 Consideration/FV of NCI/Total 900,000.00 330,000.00
(1,425,000.00) Less: FV of interest in subsidiary (990,000.00) (330,000.00)
175,000.00 Excess over FV (90,000.00) 0.00
0.00 Less: Revaluation 0.00 0.00


Baragain Purchase Gain 90,000.00
Situation C
Requirements:
Acquired Int. Share capital/par% of ownership
7,500.00 10,000.00 0.75 ---------> 75%
Cash 900,000.00

1,600,000.00 Consideration/FV of NCI/Total 900,000.00 325,000.00
(1,425,000.00) Less: FV of interest in subsidiary (990,000.00) (330,000.00)
175,000.00 Excess over FV (90,000.00) (5,000.00)
150,000.00 Add: overvaluation 15,000.00 5,000.00


Investment in Subisidiary 75,000.00

Total
139,000.00
(150,000.00)
(11,000.00)
(25,000.00)
(36,000.00)
Total
93,900.00
(80,000.00)
13,900.00
(29,500.00)
(15,600.00)
Total
1,230,000.00
(1,320,000.00)
(90,000.00)
0.00
(90,000.00)
Total
1,225,000.00
(1,320,000.00)
(95,000.00)
20,000.00
(75,000.00)
ASSET ACQUISITION
I. Valuation of Assets and Liabilities, Consideration Transferred, Goodwill and Bargain Purchase
Stocks issued
Less: FV of Net Identifiable Assets
Identifiable Assets
a) Journal entries to record acquisition on Tony's books
Investment in Jaramillo Co. 4,000,000.00

Common Stock
APIC
Cash 90,000.00
Receivables 190,000.00
Inventories 7,000,000.00
Plant & Equipment 40,000,000.00
Trademarks 4,000,000.00
Brand Names 5,000,000.00
Secret Formulas 7,000,000.00
Noncompetition Agreement 10,000,000.00
Current Liabilities
Long-term Liabilities
Investment in Jaramillo Co.
Acquisition-Related Costs 1,100,000.00

Cash
II. Valuation of Assets acquired and Liabilities assumed, Measurement of Consideration Transferred, C
In-process R&D
Stocks issued
Contingent Liability
Consideration Transferred
Less: FV of Identifiable Assets 6,485,000,000.00
Identifiable Assets (7,710,000,000.00)
Goodwill (Bragain Purchase Gain)
Investment in Sandy 750,000,000.00
Common Stock
Acquisition-related Costs 150,000,000.00

Share Premium 100,000,000.00
Cash
Cash and Receivables 200,000,000.00

Inventories 400,000,000.00
Property, plant & equipment 5,500,000,000.00
Customer Contracts 25,000,000.00
Skilled workforce 45,000,000.00
In-process research and development 300,000,000.00
Potential Contracts 15,000,000.00
Goodwill 1,975,000,000.00
Investment in Sandy
Current Liabilities
Long-term debt
Waranty Liabilities
III. Assets and Liabilities Acquired, Goodwill and Bargain Purchase Gain, Contingent Consideration, Ch
Less: FV of Identifiable Net Assets
Identifiable Liabilities (13,500,000.00)
Goodwill (bargain Purchase Gain)
Investment in Sicle Co. 40,000,000.00

Common Stock
Additional Paid in Capital
Share Premium 1,100,000.00
Cash
Current Assets 5,400,000.00 Current Liabilities

Investments 1,500,000.00 Long-term Liabilities
Land 16,000,000.00 Total Liabilities
Buildings (net) 56,000,000.00
Equipment (net) 27,000,000.00 Common Stock
Intangibles 5,000,000.00 APIC
Goodwill 22,500,000.00 Retained Earnings
Total Assets 133,400,000.00 Total SHE
--------------------------------------------------------------------------------------------------------
Stocks Issued
Contingent Consideration
Less: FV of Identifiable Net Assets
Identifiable Liabilities (13,500,000.00)
Goodwill (bargain Purchase Gain)
Investment in Sicle Co. 18,000,000.00

Common Stock
Additional Paid in Capital

Cash
IV. Consideration Tansferred: Cash Plus Contingent Consideration
Cash 720,000.00
Contingent Consideration 135,000.00
Consideration Transferred 855,000.00
Less: FV of Net Identifiable Assets
Assets 1,064,000.00
Liabilities (263,000.00) 801,000.00
Investment in Senn Co. 855,000.00

Cash
Accounts Receivable 65,000.00

Inventory 99,000.00
Land 162,000.00
Buildings 450,000.00
Goodwill 54,000.00
Accounts Payable
Note Payable
Investment in Senn Co.
V. Acquiree: Two Corporations

Take note: Common Stock exchange ratio was 1:1
Acquirer's no. of shares issued x

Divided by: no. of outstanding shares 140,000.00
Ratio 1.00
x 140,000.00
Smith
Consideration Transferred 2,100,000.00
Less: FV of net Identifiable Assets (1,720,000.00)
Investment in Smith 2,100,000.00

Investment in Platz 60,000.00
APIC 1,440,000.00

Long-term Assets 2,013,000.00
Goodwill 395,000.00
Long-term Debt 491,000.00
Investment in Smith 2,100,000.00
Investment in Platz 60,000.00
VI. Allocation of Purchase Price to Various Assets and Liabilities
Goodwill Current Assets Long-lived Assets

Case A 10,000.00 20,000.00 130,000.00
Case B 20,000.00 30,000.00 80,000.00
Case C (5,000.00) 40,000.00 40,000.00
VII. Consideration Transferred: Using Bonds
Less: FV of net identifiable Assets
Identifiable Assets 968,350.00
Identifiable Liabilities 355,300.00
Investment in Stalton Co. 531,180.47

Discount on Bonds Payable 68,819.53
Bonds Payable@PV
Cash 114,000.00
Land 315,000.00
Buildings 54,900.00
Equipment 39,450.00
Discount on Bonds Payable 40,000.00
Investment in Stalton 531,180.47
Bond Payable 300,000.00
VIII. Acquisition with In-Process Research and Development
Cash
Lees: FV of Identifiable net assets
Assets 342,000.00
Liabilities (60,000.00)
Investment in SS 315,000.00
Cash

Cash
Inventory 70,000.00
Equipment 25,000.00
Customer List 22,000.00
Research& Development 30,000.00
Goodwill 33,000.00
Investment in SS
Current Liabilites
Long-Term Liabilities
STOCK ACQUISTION
I. Acquisition Costs

Cash
Common Stock
Share Premium

Deferred Acquition Charges
Acquistion Costs Payable
II. 100% Owned Subsidiary: Computation of Goodwill, Acquistion Costs with Contingent Consideration
Cash 300,000.00
Consideration 315,000.00
Less: BV of Interest in Subsidiary
Retained Earnings 100,000.00 (190,000.00)
Excess over Book Value 125,000.00
Less: Revaluation
Understatement (92,000.00) (92,000.00)

Cash 300,000.00

Cash 10,000.00
III. 80% Owned Subsidiary: Computation of Goodwill (Partial or Full) and Non-Controlling Interest
CASE 1:
Phil CO.
Consideration/FV of NCI/Total 12,000,000.00
Less: BV of Interest in Subsidiary (5,760,000.00)
Excess over Book Value 6,240,000.00
Less: Revaluation
Excess of FV (1,920,000.00)
Goodwill (Bragain Purchase Gain) 4,320,000.00
Phil Co.
Consideration/FV of NCI/Total 12,000,000.00
Less: BV of Interest in Subsidiary (5,760,000.00)
Excess over Book Value 6,240,000.00
Less: Revaluation
Excess of FV (1,920,000.00)
Goodwill (Bragain Purchase Gain) 4,320,000.00
V. 80% Owned Susbidiary: Bargain Purchase Gain

Parlor Co.
Less: BV of Interst in Subsidiary (189,000.00)
Excess over Book value 81,000.00
Less: Revaluation
Undervaluation of Assets 132,000.00 (99,000.00)
Parlor Co.
Less: BV of Interst in Subsidiary (189,000.00)
Excess over Book value 81,000.00
Less: Revaluation
Undervaluation of Assets 132,000.00 (99,000.00)
VI. Determination of Goodwill/Bargain Purchase Gain and Working Paper Eliminating Entries
CASE A:

Less; BV of Interest in Subsidiary (705,000.00)
Excess over Book Value (30,000.00)
Less: Revaluation
Inventory-Over (10,000.00)
Plant -Under 20,000.00 10,000.00

Cash 675,000.00

Plant and Equipment 20,000.00
Inventories
CASE C:
Porter Co. Sewell Co.
Consideration Transferred 318,000.00 79,500.00
Less; BV of Interest in Subsidiary (624,000.00) (156,000.00)
Excess over Book Value (306,000.00) (76,500.00)
Less: Revaluation
Inventory- (10,000.00)
Plant -Und 20,000.00 8,000.00 2,000.00
Goodwill (Bargain Purchase Gain) (314,000.00) (78,500.00)
Porter Co. Sewell Co.

Consideration Transferred 318,000.00 158,000.00
Less; BV of Interest in Subsidiary (624,000.00) (156,000.00)
Excess over Book Value (306,000.00) 2,000.00
Less: Revaluation
Inventory- (10,000.00)
Plant -Und 20,000.00 8,000.00 2,000.00

Cash 318,000.00

Plant and Equipment 20,000.00
VII. Date of Acquisition: 100% Owned Susbidiary

Less: Book Value of Interest in Susbidiary
Excess Over Book Value
Less: Revaluation
Assets-Under 90,000.00
Assets-Over (12,000.00)
Liabilities- Under (42,000.00)

Cash 408,000.00

Paid in Capital in Excess of Par 24,000.00
Goodwill 12,000.00
Inventory 18,000.00
Land 72,000.00
Buildings and Equipment
Accounts Payable
VIII. 80% Owned Susbidiary

Peer Co.
Less: Book Value of Subsidiary Interest (288,000.00)
Less: Revaluation
Assets Under 90,000.00
Liabilities-Under (42,000.00) 28,800.00
Peer Co.
Less: Book Value of Subsidiary Interest (288,000.00)
Less: Revaluation
Assets Under 90,000.00
Liabilities-Under (42,000.00) 28,800.00

Cash 360,000.00

Cash 14,400.00

Paid In Capital in Excess of Par 24,000.00
Inventory 18,000.00
Land 72,000.00
Building and Equipment
Premium on Bonds Payable
Goodwill 54,000.00
CONSOLIDATED WORKING PAPER-FAIR VALUE APPROACH
Peer Co. Sky Co.

Cash 45,600.00 60,000.00
Accounts Receivable 90,000.00 60,000.00
Inventory 120,000.00 72,000.00
Land 210,000.00 48,000.00
Buildings and Equipment 960,000.00 720,000.00
Accumulated Depreciation (480,000.00) (360,000.00)
Goodwill 0.00 0.00
Total 1,305,600.00 600,000.00

Bonds Payable 240,000.00 120,000.00
Premium on Bonds Payable 0.00
Common Stock 600,000.00 240,000.00
Paid in capital in excess of par 60,000.00 24,000.00
20% Non-Controlling Interest 0.00 0.00
Total 1,305,600.00 600,000.00
CONSOLIDATED BALANCE SHEET (FAIR VALUE AND PROPORTIONATE APPROACH)
---------------------------------------------------------------------------------Fair Value Approach-------------------------------
Cash 105,600.00 Accounts Payable

Accounts Receivable 150,000.00 Bonds Payable
Inventory 210,000.00 Premium on Bonds Payable
Land 330,000.00 Controlling Interest
Buildings and Equipment 1,668,000.00
Accumulated Depreciation (840,000.00)
Goodwill 54,000.00
Total 1,677,600.00 Non-Controlling Interest
Total
-------------------------------------------------------------------------------Proportionate Approach-----------------------------
Accounts Receivable 150,000.00 Bonds Payable
Inventory 210,000.00 Premium on Bonds Payable
Land 330,000.00 Controlling Interest
Buildings and Equipment 1,668,000.00
Accumulated Depreciation (840,000.00)
Goodwill 43,200.00
Total 1,677,600.00 Non-Controlling Interest
Total
X. 100% Owned-Subsidiary has Recorded Goodwill at Acquisition Date

Per Co.
Cash 288,000.00
Common Stocks 144,000.00
Less: BV of Subsidiary Interest (360,000.00)
Less: Revaluation
Under Assets 90,000.00
Over Assets (12,000.00)
Under Liabilities (42,000.00)
Over Liabilities
Total 36,000.00
Less: Goodwill (6,000.00)

Cash
Common Stock
Paid in Capital in Excess of Par

Paid in Capital in Excess of Par 8,400.00
Cash

Additional Paid in Capital 24,000.00
Goodwill 36,000.00
Inventory 18,000.00
Land 72,000.00
Building and Equipment
Premium on Bonds Payable
d, Goodwill and Bargain Purchase
4,000,000.00
4,000,000.00
73,280,000.00
(47,400,000.00) 25,880,000.00
(21,880,000.00)
Tony, Inc.
Cash 25,000,000.00
Receivables 2,000,000.00
100,000.00 Inventories 20,000,000.00
3,900,000.00 Plant & Equipment 99,500,000.00
Trademarks 5,000,000.00
Brand Names
Secret Formulas
Noncompetition Agreement
Investment in Jaramillo
Total 151,500,000.00

Long-term Liabilites 70,000,000.00
400,000.00 Common Stock 2,000,000.00
47,000,000.00 APIC 55,000,000.00
4,000,000.00 Retained Earnings 25,000,000.00
21,880,000.00 Treasury stock (1,000,000.00)
Total 151,500,000.00
1,600,000.00
ent of Consideration Transferred, Change in Value of Assets, Pre-Acquisition Contingency
Cash and Receivables

700,000,000.00 Inventories
50,000,000.00 Property, plant & equipment
750,000,000.00 Customer Contracts
Skilled work force
(1,225,000,000.00) In-process research and development
1,975,000,000.00 Potential Contracts
Identifiable Assets
Current Liabilities
Long-term debt
Waranty Liabilities
---------------------- if ppe is less than prev estimate------------------------

700,000,000.00 Stocks issued
50,000,000.00 Contingent Liability
Less: FV of Identifiable Assets
Identifiable Assets
250,000,000.00 Goodwill (Bragain Purchase Gain)
Investment in Sandy
Common Stock
Acquisition-related Costs
Share Premium
Cash
750,000,000.00 Cash and Receivables

400,000,000.00 Inventories
7,300,000,000.00 Property, plant & equipment
10,000,000.00 Customer Contracts
Skilled workforce
In-process research and development
Potential Contracts
Investment in Sandy
Current Liabilities
Long-term debt
Waranty Liabilities
Gain, Contingent Consideration, Changes in Contingent Consideration
40,000,000.00 Current Assets 1,500,000.00

Investments 500,000.00
Land 6,000,000.00
17,500,000.00 Buildings (net) 16,000,000.00
22,500,000.00 Equipment (net) 2,000,000.00
Intangibles 5,000,000.00
4,000,000.00
36,000,000.00
1,100,000.00
5,500,000.00
32,000,000.00
37,500,000.00
9,000,000.00
74,900,000.00
12,000,000.00
95,900,000.00
---------------
10,000,000.00 Current Assets 5,700,000.00
8,000,000.00 Investments 1,500,000.00
18,000,000.00 Land 16,000,000.00
Equipment (net) 27,000,000.00
17,500,000.00 Intangibles 5,000,000.00
500,000.00 Goodwill 500,000.00
Total Assets 111,700,000.00
1,000,000.00
9,000,000.00 Current Assets 1,500,000.00
8,000,000.00 Investments 500,000.00
Land 6,000,000.00
800,000.00 Equipment (net) 2,000,000.00
Intangibles 5,000,000.00
Goodwill 500,000.00
Investment in Sicle Co.
Current Liabilities
Long Term Liabilies
Accounts Receivable 65,000.00 Accounts Payable

Inventory 99,000.00 Note Payable
Land 162,000.00 Total
Total 1,064,000.00
720,000.00
135,000.00
83,000.00
180,000.00
855,000.00
Smith Platz
Current Assets 350,000.00 12,000.00
x Long term assets 1,910,000.00 103,000.00
4,000.00 total 2,260,000.00 115,000.00
1.00
4,000.00 Current Liabilities 110,000.00 9,000.00
Long-term Debt 430,000.00 61,000.00
Platz Total 540,000.00 70,000.00
60,000.00
(45,000.00)
15,000.00
Liabilities Retained Earnings

30,000.00 0.00
20,000.00 0.00
40,000.00 5,000.00
531,180.47 Present Value of Maturity value @10 year
Present Value of Interest payements
Total Present Value
(613,050.00) Less: Par
(81,869.53) Discount on Bonds Payable
Cash 114,000.00 Current Liabilities

Receivables 135,000.00 Bond Payable
600,000.00 Inventories 310,000.00 Total
Land 315,000.00
Buildings 54,900.00
Equipment 39,450.00
Total 968,350.00
Kapag may bond payable si acquiree always check the difference beyween
the BV and FV, kapag mas mababa si FV meaning may discount, if mas
mataas, premium. Yung entry on the books of the acquirer always remember
to record bonds payable ni acquiree @BV then debit na lang si Discount on
Bonds or Credit si Premium on Bonds
300,000.00 Inventory 70,000.00
15,000.00 Buildings 115,000.00
315,000.00 Equipment 25,000.00
Customer List 22,000.00
Research& Development 30,000.00
282,000.00 Total Assets 342,000.00
33,000.00
300,000.00
15,000.00
10,000.00
315,000.00
10,000.00
50,000.00
2,500,000.00
30,000.00
570,000.00
90,000.00
7,000.00
Costs with Contingent Consideration
Land 40,000.00
Customer 22,000.00
Research 30,000.00
Total 92,000.00
) and Non-Controlling Interest

Sentry CO. Total Goodwill 5,400,000.00
3,000,000.00 15,000,000.00 Non-Controlling Interest 3,000,000.00
(1,440,000.00) (7,200,000.00)
1,560,000.00 7,800,000.00
(480,000.00) (2,400,000.00)
1,080,000.00 5,400,000.00
Sentry Co, Total

1,920,000.00 13,920,000.00 Goodwill 4,320,000.00
(1,440,000.00) (7,200,000.00) Non-Controlling Interest 1,920,000.00
480,000.00 6,720,000.00
(480,000.00) (2,400,000.00)
0.00 4,320,000.00
Saloon Co. Total

61,200.00 360,000.00 CHECK THIS
(37,800.00) (252,000.00)
23,400.00 108,000.00
(19,800.00) (132,000.00)
3,600.00 (24,000.00)
Saloon Co. Total

57,600.00 360,000.00
(37,800.00) (252,000.00)
19,800.00 108,000.00
(19,800.00) (132,000.00)
0.00 (24,000.00)
Paper Eliminating Entries
CASE B:
Porter Co.
Less; BV of Interest in Subsidiary (634,500.00)
Less: Revaluation
Inventory-Over (10,000.00)
Plant -Under 20,000.00 9,000.00
------------------------------------------Fair Value Approach:------------------------------

Investment in Subidiary 675,000.00
Cash 675,000.00

10,000.00 Goodwill 35,000.00
675,000.00 Plant and Equipment 20,000.00
40,000.00 Inventories 10,000.00
Total
397,500.00 -----------------------------------------------------------Proportionate Approach---------------------------------
(780,000.00) Investment in Subsidairy 675,000.00
(382,500.00) Cash 675,000.00

10,000.00 Paid-In Capital in Excess of Par 180,000.00
(392,500.00) Retained Earnings 75,000.00
Goodwill 31,500.00
Total Plant and Equipment 20,000.00
476,000.00 Inventories 10,000.00
(780,000.00) Investment in Subsidiary 675,000.00
(304,000.00) Non-Controlling Interest 71,500.00
10,000.00
(314,000.00)
CONSOLIDATION WORKING PAPER
408,000.00 Per Co. Sia Co.
(360,000.00) Cash 12,000.00 60,000.00
48,000.00 Accounts Receivable 90,000.00 60,000.00
Inventory 120,000.00 72,000.00
Land 210,000.00 48,000.00
Buildings and Equipment,net 480,000.00 360,000.00
36,000.00 Goodwill 0.00
12,000.00 Investment in Subsidiary 408,000.00
Total 1,320,000.00 600,000.00

Bonds Payable 240,000.00 120,000.00
Common Stock 600,000.00 240,000.00
Paid in Capital in Excess of Par 60,000.00 24,000.00
Total 1,320,000.00 600,000.00

12,000.00 Accounts Receivable 150,000.00 Bonds Payable
42,000.00 Inventory 210,000.00 Common Stock
408,000.00 Land 330,000.00 Paid in Capital in Excess of Par
Buildings and Equipment,net 828,000.00 Retained Earnings
Goodwill 12,000.00 Total
Total 1,602,000.00
Sky Co. Total

90,000.00 450,000.00
(72,000.00) (360,000.00)
18,000.00 90,000.00
7,200.00 36,000.00
10,800.00 54,000.00
Sky Co. Total

79,200.00 439,200.00
(72,000.00) (360,000.00)
7,200.00 79,200.00
7,200.00 36,000.00
0.00 43,200.00

Cash 360,000.00

Cash 14,400.00

72,000.00 Non-Controlling Interest
Inventory 18,000.00
Land 72,000.00
12,000.00 Building and Equipment
42,000.00 Premium on Bonds Payable
7,200.00 Non-Controlling Interest
Goodwill 43,200.00
10,800.00
FAIR VALUE APPROACH PROPORTIONATE APPROACH

Debit Credit Total Debit Credit
105,600.00
150,000.00
18,000.00 210,000.00 18,000.00
72,000.00 330,000.00 72,000.00
12,000.00 1,668,000.00 12,000.00
(840,000.00)
360,000.00 0.00 360,000.00
54,000.00 54,000.00 43,200.00
1,677,600.00
240,000.00
360,000.00
42,000.00 42,000.00 42,000.00
240,000.00 600,000.00 240,000.00
24,000.00 60,000.00 24,000.00
96,000.00 285,600.00 96,000.00
90,000.00 90,000.00 79,200.00
1,677,600.00
RTIONATE APPROACH)
alue Approach-------------------------------------------------------------------------------
240,000.00
360,000.00
Bonds Payable 42,000.00

ling Interest 90,000.00
1,677,600.00
ionate Approach-------------------------------------------------------------------------------
240,000.00
360,000.00
Bonds Payable 42,000.00

ling Interest 79,200.00
1,677,600.00
Sia Co. Total
432,000.00
(360,000.00)
0.00 72,000.00
30,000.00
42,000.00
288,000.00
120,000.00
24,000.00
20,400.00
12,000.00
42,000.00
432,000.00
Dr. Cr. CONSO
90,000.00 1,600,000.00 23,490,000.00
190,000.00 2,190,000.00
7,000,000.00 27,000,000.00
40,000,000.00 139,500,000.00
4,000,000.00 9,000,000.00
5,000,000.00 5,000,000.00
7,000,000.00 7,000,000.00
10,000,000.00 10,000,000.00
4,000,000.00 4,000,000.00 0.00
223,180,000.00
400,000.00 900,000.00
47,000,000.00 117,000,000.00
100,000.00 2,100,000.00
500,000.00 3,900,000.00 58,400,000.00
1,100,000.00 21,880,000.00 45,780,000.00
(1,000,000.00)
223,180,000.00
200,000,000.00 200,000,000.00
400,000,000.00 400,000,000.00
5,500,000,000.00 7,498,500,000.00
25,000,000.00 25,000,000.00
45,000,000.00 45,000,000.00
300,000,000.00 300,000,000.00
15,000,000.00 15,000,000.00
6,485,000,000.00 8,483,500,000.00
400,000,000.00 400,000,000.00
7,300,000,000.00 7,300,000,000.00
10,000,000.00 10,000,000.00
7,710,000,000.00 7,710,000,000.00
te------------------------
700,000,000.00
50,000,000.00
750,000,000.00
8,483,500,000.00
(7,710,000,000.00) 773,500,000.00
(23,500,000.00)
750,000,000.00
700,000,000.00
50,000,000.00
150,000,000.00
100,000,000.00
250,000,000.00
200,000,000.00
400,000,000.00
7,498,500,000.00
25,000,000.00
45,000,000.00
300,000,000.00
15,000,000.00
750,000,000.00
400,000,000.00
7,300,000,000.00
10,000,000.00
23,500,000.00
Current Liabilities 1,500,000.00

Long-term Liabilities 12,000,000.00
Identifiable Liabilities 13,500,000.00
Current Liabilities 5,500,000.00
Contingent Liability 8,000,000.00
Long-term Liabilities 32,000,000.00
Total Liabilities 45,500,000.00
Common Stock 6,000,000.00

APIC 48,200,000.00
Retained Earnings 12,000,000.00
Total SHE 66,200,000.00
18,000,000.00
1,500,000.00
12,000,000.00
83,000.00
180,000.00
263,000.00
187,082.84
344,097.64
531,180.47
(600,000.00)
(68,819.53)
95,300.00
260,000.00
355,300.00

Long-term Liabilities 50,000.00
Total 60,000.00
Sewell Co. Total
75,000.00 750,000.00
(70,500.00) (705,000.00)
4,500.00 45,000.00
1,000.00 10,000.00
3,500.00 35,000.00
--------------
ach-------------------------------------------------------
72,000.00
150,000.00
18,000.00 210,000.00
72,000.00 330,000.00
12,000.00 828,000.00
12,000.00 12,000.00
408,000.00 0.00
1,602,000.00
42,000.00 282,000.00
360,000.00
240,000.00 600,000.00
24,000.00 60,000.00
96,000.00 300,000.00
1,602,000.00
282,000.00
360,000.00
600,000.00
apital in Excess of Par 60,000.00
300,000.00
1,602,000.00
288,000.00
72,000.00
12,000.00
42,000.00
28,800.00
7,200.00
43,200.00
Total
105,600.00
150,000.00
210,000.00
330,000.00
1,668,000.00
(840,000.00)
0.00
43,200.00
1,666,800.00
240,000.00
360,000.00
42,000.00
600,000.00
60,000.00
285,600.00
79,200.00
1,666,800.00
SM.STA
Summary Notes on Step Acquisition
> Bussiness Acquistion Achieved in Stages acquirer has previously held equity interest in the subs
new additional shares where acquirer obtained control
FLOW OF THE BUSINESS COMBINATION ACHIEVED IN STAGES
Acquisition of shares from Acquiree

ACQUIRER (w/o significant influence yet)
Initial Measurement/Treatment
>Intitial Measurement/ Treatment: Trading Securities/ Financial Assets- F
Journal Entry to Record the acquisition: (Parent's Books)
Trading Securities xxx
Cash xxx
Take note: Cash is used when the problem is silent
Subsequent Measurement/Transactions
>Declaration of Dividends by the Subsidiary Company
Entry in Parent's Books Entry in S
Cash/Dividend Receivable Retained Earnings
Dividend Income
Valuation: (Dividend declared by sub x % of Valuation: full amoun
ownership)
>Reported Net Income of the Subsidiary
NO ENTRY Income Summary
Valuation: amount of
>Reported Net Loss of the Subsidiary
NO ENTRY Retained Earnings
Valuation: amount of
>Changes in Fair Value (Increase)
Trading Securities
Unrealized Gain from Change in FV
Valuation: (Difference between CA and FV)
>Changes in Fair Value (Decrease)
Unrealized Loss from Change in FV
Trading Securities
uity interest in the subsidiary and acquires
quirer obtained control over the subsidiary
from Acquiree Acquisition of Addition

fluence yet) (Results to having Significan
ment/Treatment Acquisition of Additional Sh

es/ Financial Assets- FVPL
Journal Entry to Record the acquisition: (Parent's Books)
Investment in Associate
Cash/Other Accounts
Valuation: No. of new shares acquired x Purchase Price
ement/Transactions Treatment for Previously Held I

> must be reclassified as investment in associate
Entry in Subsidiary's Books > any changes must be accounted in P&L if FVPL, OCI if FVOCI
Retained Earnings Steps in Reclassifying previously Held Interest
Cash/ Dividend Receivable 1) Recognize the Change in Fair Value of OS (Subsidiary)
Valuation: full amount of dividends declared Trading Securities @Date of acquisition of Significant Influence
Trading Securities @Carrying Amount-previous year
Unrealized Gain or Loss
Entry in Subsidiary's Books Valuation:
Income Summary (1) No. of shares (previously held) x purchase
Retained Earnings (2) Carrying Amount of Previously held share
Valuation: amount of net income reported (3) Simply the difference of the two
Entry in Subsidiary's Books Entry in Parent's Books
Retained Earnings Trading Securities
Income Summary Unrealized Gain from Change in FV
Valuation: amount of net loss reported Valuation: (Difference between CA and FV)
NO ENTRY Unrealized Loss from Change in FV
Trading Securities
2) Reclassification of Previously Held Interest
NO ENTRY Investment in Associate (1)
(2) Trading Securities
-----------------------------------------------------------or------------
Investment in Associate (3)
Trading Securities (4)
Valuation:
(1) No. of shares (previously held) x purchase
(2) Carrying Amount of Previously held share
(3) No. of shares (previously held) x purchase
(4) Carrying Amount of Previously held share
Subsequent Measurement/Trans
>Declaration of Dividends by the Subsidiary Company
Entry in Parent's Books
Cash/Dividend Receivable
Dapat ang decalaration date ng Investment in Associate
dividends is after maobtain yung Valuation: (Dividend declared by sub x % of
significant influence
ownership)
>Reported Net Income of the Subsidiary
Investment in Associate
Investment Income
Valuation: Net income x% ofownership
>Reported Net Loss of the Subsidiary
yung amount na imumultiply sa %
of ownership is dapat Entry in Parent's Books
proportionate kung kelan siya Investment Income
nagkaroon ng significant Investment in Associate
influence.
Valuation: Net income x% ofownership


Acquisition of Additional Shares Acquisition of Additio
sults to having Significant Influence) (Results to having Control ov
ion of Additional Shares Acquisition of Additi
Parent's Books) Journal Entry to Record the acquisition: (Parent's Book

Cash/Other Accounts
chase Price Valuation: No. of new shares acquired x Purchase Price
for Previously Held Interest Treatment for Previousl

> must be reclassified as investment in subsidiary
FVPL, OCI if FVOCI Steps in Reclassifying previously Held Interest
1) Update the Carrying Amount of Investment in Asso
OS (Subsidiary) ***From the start of the year until on the date of acquisition
f Significant Influence (1) xxx Events that affects the Carrying Amount of the Investment i
evious year (2) xxx >Share in the dividends declared by the subsidiary
(3) xxx >Share in reported net income/loss
2) Reclassification of Investment in Associate to Inve
ously held) x purchase price of new shares Entry in Parent's Books
Previously held shares before Significant Influence Investment in Subsidiary
e of the two Investment in Associate
Gain on Reclassification-P&L
Entry in Subsidiary's Books Valuation:
NO ENTRY Computation of Goodwill/ Ba
Take note:
the book value of interest of subsidiary mus
upto the date of actual acquistion
Entry in Subsidiary's Books
NO ENTRY
--------------or--------------------------------------------------------
ously held) x purchase price of new shares
Previously held shares adjusted in step no.1
ously held) x purchase price of new shares
Previously held shares adjusted in step no.1
Measurement/Transactions
ry Company
Retained Earnings
Cash/ Dividend Payable
Valuation: full amount of dividends declared

Income Summary
Retained Earnings
Valuation: amount of net income reported

Retained Earnings
Income Summary
Valuation: amount of net loss reported

NO ENTRY

NO ENTRY
Acquisition of Additional Shares
sults to having Control over the Subsidiary)
Acquisition of Additional Shares
sition: (Parent's Books)
er Accounts
ed x Purchase Price
eatment for Previously Held Interest

in subsidiary
Held Interest
of Investment in Associate Account
the date of acquisition of control
ount of the Investment in Associate Account
ed by the subsidiary
nt in Associate to Investment in Subsidiary

Books Entry in Subsidiary's Books
NO ENTRY
tation of Goodwill/ Bargain Purchase Gain
erest of subsidiary must be updated from the very start

al acquistion
Special Business Combination Problems-Step Acquisition
Problem 1
Pares Company aacquires 15% of the Serap Company's common stock for 500,000 cash and carries the in
Serap Company reports identifiable assets with book value of 3,900,000 and a fair value of 5,100,000, a
Requirements:
1) Goodwill arising on consolidation is to be valued on the proportionate basis or partial goodwill
2) amount of non-controlling interest arising on consolidation is to be valued on the proportionate basis or pati
3) amount of goodwill on consolidation is to be valued on the full (fair value) basis
4) amount of gain or loss should be recognize when the additional shares are acquired
Requirement 1: Goodwill-partial
Parent Subsidiary Total
Consideration-60% shares 2,160,000.00
FV of previously helad interest 540,000.00
Consideration/FV of NCI/Total 2,700,000.00 800,000.00 3,500,000.00
Less: Book Value of Net Assets (1,500,000.00) (500,000.00) (2,000,000.00)
Excess over Book Value 1,200,000.00 300,000.00 1,500,000.00
Less: Revaluation (900,000.00) (300,000.00) (1,200,000.00)
Goodwill(Baragin Purchase Gain) 300,000.00 0.00 300,000.00
Requirement 2: Non-Controlling Interest on Consolidation-Partial
BV of Assets 3,900,000.00
Less: Book value of liabilities (1,900,000.00)
Identifiable net Assets 2,000,000.00
Add: undervaluation of net assets 1,200,000.00
FV of net Assets 3,200,000.00
Multiply by: % of NCI 0.25
NCI on Consolidation-partial 800,000.00
Requirement 3:Goodwill on cosolidation-full

Parent Subsidiary Total
Consideration-60% shares 2,160,000.00
FV of previously helad interest 540,000.00
Consideration/FV of NCI/Total 2,700,000.00 900,000.00 3,600,000.00
Less: Book Value of Net Assets (1,500,000.00) (500,000.00) (2,000,000.00)
Excess over Book Value 1,200,000.00 400,000.00 1,600,000.00
Less: Revaluation (900,000.00) (300,000.00) (1,200,000.00)
Goodwill(Baragin Purchase Gain) 300,000.00 100,000.00 400,000.00
Requirement 4: amount of gain or loss should be recognized
fair value of 15% shares acquired 540,000.00

Less: CA of 15% shares acquired (500,000.00)
Gain on reclassification 40,000.00 -----> this should be charged in P&L
Problem 2
Seminarian, Inc. has 100,000 shares of 2 par value stock outstanding. Priests Corporation acquired 30,000
2018 Priests agreed to buy an additional 60,000 shares of Seminarian from single stockholder for 6 pesos
Seminarian would produce significant revenue synergies to
Requirement: how much goodwill on Full fair value basis should Priests report in this post-combination consolid
Parent Subsidiary
FV of previously held subsidiary 150,000.00 ----->shares x FV of shares of
Consideration for newly acquired shares 360,000.00
Less: Fair value of net identifiable assets (450,000.00) (50,000.00)
Goodwill (bragain Purchase Gain) 60,000.00 0.00
0 cash and carries the investment using the cost method. A few months later, Pares purchases another 60% of Serap Company
air value of 5,100,000, and it has liabilities woth a book value and fair value of 1,900,000. The fair value of the 25% Non-controll
900,000.
portionate basis or patial goodwill

rged in P&L
poration acquired 30,000 shares of Seminarian's shares on January 1, 2015 for 120,000 when Seminarian's net assets had a to
stockholder for 6 pesos per share. Although Seminarian's shares were selling in the 5 peso range arounf July 1, 2018, Priests f
ant revenue synergies to justify the premium price paid. If Seminarian's net idetifiable assets had a FV of 500,000 .
st-combination consolidates balance sheet
Total
ares x FV of shares of subsidiary
560,000.00
(500,000.00) (Total shares- shares acquired by
60,000.00 parent) x FV of shares of subsidiary
her 60% of Serap Company's stock for 2,160,000. At that date,
ue of the 25% Non-controlling interest in Serap Company is
arian's net assets had a total fair value of 350,000. On July 1,
ounf July 1, 2018, Priests forecasted that obtaining control of
V of 500,000 .

AFAR 2 Notes

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SUM.

Tab Name Topic/s Term

Acquisition related costs 30,000.00

Liabilities 400,000.00 50,000.00

Elimination entries of acquiree

(3) Investment in Subsidiary 112,500.00

Share Premium 10,000.00

Liabilities 400,000.00 60,000.00

Eliminating Entries of SHE of acquirer

Licensing Agreement 40,000.00

Investment n Subsidiary 112,500.00

Three Elements of Control -power over investee

Investments at Date of Acquisition

orl over BODs

nstead on the economic entity

nsideration given/received, which ever

ment Effect on Goodwill

nts of NCI Other Notes

fiable net assets * measured as a proportion of the

ii. Acquisition-related costs Acquisition Related Costs

v. Elimination of Goodwill Interest in Subsidiary

shall not recognize a separate effects of uncertainty about

Assets that the acquirer shall measure the asset at fair

Costs Type of Costs Treatment

general rule: NOT part of

to exit an activity of the exception: if there are (1)

general rule: NOT part of

involuntary terminate exception: if there are (1)

general rule: NOT part of

general rule: NOT part of

Specific Recognition Principles

Exceptions to the Recognition Principle

Exceptions to the Measurement Principle

>Premium on Bonds Payable-: credited

If doesn't meet exceptions:

If meets the exception:

If doesn't meet exceptions:

Effect on Computation of Goodwill

add to FV of identifiable assets

Effect on Computation of Goodwill

add to FV of ideentifiable assets

add to FV of ideentifiable assets

Effect on Goodwill Computation

add to FV of identifiable assets, if not

Special Accounting Topics fro Business Combinations

Level of Priority of amount of Impairement Loss

Methods of Estimating Goodwill

GW is measured in the basis of

if not must be completed before the end of the immediately

U's carrying amount including the allocated goodwill

Due Diligence Audit

es annual Earnings Potential rewards which may be determined:

by: Prob. Duration of Ex Earns

by: Capitalization rate

by: PV of ordinary annutity

tial acquiree's business before an

ing litigations and other unrecorded

combinations due to thw acquiree's

me, customer lists and the like

Current Liabilities 300,000.00

Equity securities transferred

Table for reassessment of plant assets

Equity securities transferred

b) Journal Entries to record Business Combination