5.

P purchased all of the outstanding shares of S for P1,300,000 at a time when the underlying book value of
S was P1,200,000. S's assets and liabilities consist of the following:

Fair value Book value

Cash, receivables P250,000 P250,000

Inventory 360,000 380,000

Equipment 900,000 600,000

Liabilities 30,000 30,000

The gain on acquisition is:

a. P140,000
b. P180,000
c. P220,000
d. P260,000
ANS: B

Rationale:

Cost P1,300,000

Book value 1,200,000

Excess of cost over book value P 100,000

Excess

Inventory P(20,000)

Equipment 300,000 280,000

Gain P 180,000