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Problem 2: To Record Stock-Related Issuance Costs
Problem 2: To Record Stock-Related Issuance Costs
Blue Co. Merged into Soda Corp. on June 30, 2020. In exchange for the net assets at fair market
value of Blue Co. amounting to P2,785,800, Soda issued 68,000 ordinary shares at P36 par value,
with a market price of P41 per share. Relevant data on ordinary shareholders’ equity immediately
before the combination show:
Soda Blue
Share Capital 8,790,000 2,030,000
Share Premium 3,834,000 782,000
Retained Earnings (Deficit) (1,516,000) 495,000
Included as part of the acquisition agreement is the additional cash consideration of P163,000 in the
event Soda Co.’s share price will reach P32 per share by year-end.
At acquisition date, the share price is P27.50 and increased by P4.80 by December 31, 2020.
At acquisition date, there was only a low probability of reaching the target share price, so the fair
value of additional consideration was determined at P74,000.
1. What is the amount of expense to be recognized in the statement of comprehensive income
for the year ended December 31, 2020?
Problem 2
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 P10,000 share issuance costs and P20,000 bond issue costs. Entity A also paid P40,000
acquisition related costs and P30,000 indirect costs of business combination.
Before the date of acquisition, Entity A and Entity B reported the following data:
Entity A Entity B
Current assets 1,000,000 500,000
Non-current assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Non-current 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 acquisition, the Current assets of Entity A have a fair value of P1,200,000, while the Non-
current assets of Entity B have fair value of P1,300,000. On the same date, the Current liabilities of
Entity B have a fair value of P600,000 while the Non-current liabilities of Entity A have a fair value of
P500,000.
1. How much is the GW or BPG?
2. What total amount should be expensed as incurred at the time of business combination?
Entity B
Current assets 500,000 Acquisition related costs 40,000
Non-current assets 1,300,000 Indirect costs 30,000
Current liabilities (600,000) Indirect/Direct Costs 70,000
Non-current liabilities (500,000)
FVNAA 700,000
Problem 3
The Statement of Financial Position of Lumina Corporation on June 30, 2020 is presented below:
Liabilities 525,000
Ordinary shares, P5 par 900,000
Share Premium 825,000
Retained Earnings 450,000
Total Liabilities and Equity 2,700,000
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 fir value of the building
increased by P480,000. Enigma Corporation acquired 80% of Lumina’s outstanding shares for
P3,000,000. The consideration paid includes control premium of P852,000.
1. How much is the GW or BPG on the consolidated FS?
2. Assuming the consideration paid excludes control premium of P138,000 and the fair value
of non-controlling interest is P736,500, how much is the GW/BPG on the consolidated FS?
Parent Subsidiary
80% 20%
FVCGU 3,784,500 3,138,000 736,500
FVNAA 3,435,000 2,748,000 687,000
Goodwill 439,500 390,000 89% 49,500 11%
Impairment (339,500) 302,155 37,345
100,000 87,845 12,155
Problem 4
On January 2, 2020, the Statement of Financial Position of Arden Company and Wonder Company
immediately before the combination are:
Arden Co. Wonder Co.
Cash 2,700,000 90,000
Inventories 1,800,000 180,000
Property and Equipment (net) 4,500,000 630,000
Total Assets 9,000,000 900,000
The fair value of Wonder Company’s equipment is P918,000. Arden Company acquired 80% of the
outstanding shares of Wonder Company for P820,800 and non-controlling interest is measured at
the proportionate share of Wonder Company’s identifiable net assets.
1. How much is the consolidated stockholder’s equity of the date of acquisition?
2. Assuming Arden Company acquired 90% of the outstanding shares of Wonder Company for
P1,458,000 and non-controlling interest is measured at fair value, how much is the total
consolidated assets on the date of acquisition?
Cash 90,000
Inventories 180,000
Property and Equipment (net) 918,000
Current Liabilities (90,000)
FVNAA 1,098,000
Parent Subsidiary
90% 10%
FVCGU 1,620,000 1,458,000 162,000
FVNAA 1,098,000 988,200 109,800
Goodwill 522,000 469,800 52,200
Problem 5
On January 1, 2020, Vector acquired 90% of the equity share capital of Fern in a share exchange in
which Vector issued two new shares for every three shares it acquired in Fern. Additionally on
December 31, 2020, Vector will pay the shareholders of Fern P13.2 per share acquired. Vector’s cost
of capital is 10% per annum. At the date of acquisition, shares in Vector and Fern had a stock market
value of P48.75 and P18.75 each, respectively. Income statements for the year ended September 30,
2020.
Vector Fern
Revenue 4,845,000 2,850,000
Cost of Sales (3,840,000) (1,950,000)
Gross Profit 1,005,000 900,000
Distribution Costs (102,000) (130,500)
Administrative expenses (285,000) (180,000)
Investment Income 37,500 ----
Finance Costs (31,500) ----
Profit before tax 624,000 589,500
Income tax expense (210,000) (120,000)
Profit for the year 414,000 469,500
At the date of acquisition, the fair values of Fern’s assets were equal to their carrying amounts with
the exception of Land, which had a fair value of P135,000 above its carrying amount. Also, Fern had
a contingent liability which Vector estimated to have a fair value of P337,500. This has not changed
as at September 30, 2020. Fern has not incorporated these fair value changes into its financial
statements. Vector’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For the purpose, Fern;s share price at that date can be deemed to be representative of
the fair value of the share held by non-controlling interest.
1. How much is the GW or BPG?
At the acquisition date, net loss reported by Rome for the four-month ended amounted to
P900,000. the fair value of the 10% non-controlling interest is P1,296,000. Non-controlling interest is
valued using the proportionate basis. Clark also paid the following: P90,000 for legal fees, P72,000
for finder’s fee, P77,400 for accountant’s fee, P64,800 for audit fee for SEC registration of stock
issued and P19,800 for printing stock certificates.
1. Immediately after the business combination, how much is the consolidated total equity?