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    Bus. Comb. Handout 2

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    Eriane Mae C. Samane
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    Bus. Comb. Handout 2

    Uploaded by

    Eriane Mae C. Samane
    20 views2 pages
    Handout

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    BUS.-COMB.-HANDOUT-2

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    20 views2 pages

    Bus. Comb. Handout 2

    Uploaded by

    Eriane Mae C. Samane
    Handout

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    © All Rights Reserved
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    PRFRS 3: BUSINESS COMBINATION MS.

    NAPAROTA

    PROBLEM 1

    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 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.

    1. What is the goodwill or gain on bargain purchase arising from business combination?
    2. What total amount should be expensed as incurred at the time of business combination?
    3. What is the Entity A’s amount of total assets after the business combination?
    4. What is the Entity A’s amount of total liabilities after the business combination?

    PROBLEM 2

    The Statement of Financial Position of LUMINA Corporation on June 30, 2020 is presented below:

    Current assets P195,000


    Land 1,320,000
    Building 660,000
    Equipment 525,000
    Total Assets P2,700,000

    Liabilities 525,000
    Ordinary shares, P5 par 900,000
    Share premium 825,000
    Retained earnings 450,000
    Total Liabilities and Equity P2,700,000

    All the assets and liabilities of Lumina assumed to approximate their fair values except for land and
    building. It is estimated that the land have a fair value of P2, 100,000 and the fair value of the building
    increased by P480, 000. Enigma Corporation acquired 80% of Lumina’s outstanding shares for
    P3,000,000. The non-controlling interest is measured at fair value.

    1. Assuming the considerations paid includes control premium of P852, 000, how much is the
    goodwill/(gain on acquisition) on the consolidation financial statement?
    2. Assuming the consideration paid excludes control premium of P138, 000 and the fair value
    of the non-controlling interest is P736, 500, how much is the goodwill/(gain on acquisition) on
    the consolidated financial statement?
    PROBLEM 3

    On January 1, 2021, Giordano, Inc. acquired most of the outstanding common stock of Esprit
    Company for cash. The incomplete working paper elimination entries on that date for consolidated
    statement of financial position of Giordano, Inc. and its subsidiary are shown below:

    Stockholders’ 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.

    1. Assuming non-controlling interest is measured at fair value. What is the goodwill to be


    reported in the consolidated statement of financial position at the date of acquisition?

    2. Assuming non-controlling interest is measured at the proportionate or relevant sharer. What


    is the goodwill to be reported in the consolidated statement of financial position at the date of
    acquisition?

    3. Assuming non-controlling interest is measured at fair value in the amount of P1, 150,000.
    What is the goodwill to be reported in the consolidated statement of financial position at the
    date of acquisition?

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