1.

Desired Learning Outcomes

At the end of the learning session, you should be able to:
a. Apply the steps in acquisition method
b. Identify the acquirer and the consideration transferred. (1st step)
c. Determine the acquisition date. (2nd step)

Step 1 – Identify the acquirer and the consideration transferred.

(ACQUIRER) (ACQUIREE)
Manulife Financial Corporation consideration transferred SM Investments Corporation

OWNERS OF ACQUIREE

JOURNAL ENTRIES

Assets: @cost -> @FV NOT AFFECTED

Land – 5m -> 12m

BOOKS OF ACQUIRER BOOKS OF

ACQUIREE

CRITERIA IN DETERMINING WHO IS THE ACQUIRER:

IT IS THE LARGER/DOMINANT ENTERPRISE.

Consideration Transferred:
Asset - transferor
Liability - debtor
Equity - issuer

HOW MUCH IS THE CONSIDERATION TRANSFERRED?

 FAIR VALUE AT ACQUISITION DATE

ASSET What is the account title?

->Investment in Subsidiary
LIABILITIES @ FAIR VALUE MEASUREMENT

EQUITY

PROCEDURE: REMEASUREMENT OF ASSETS!!!!

COST ->>>>>>>>>> FAIR VALUE
ASSETS: XXX XXX

LIABILITIES - XXX

EQUITY - XXX
 On September 9, 2020, Manulife Financial Corporation issued 1,000,000 shares with par value P100 and fair value of
P500, issued bonds with fair value of 50 million and transferred land with cost of 300 million and fair value of 400 million for
100% ownership of SM Investments Corporation.

Cost ->>>>> Fair Value

Land: 300 million 400 million

BOOKS OF THE ACQUIRER

1st Journal Entry: REVALUATION OF ASSET

Asset (Land) 100 million

Gain on remeasurement 100 million

To be reported in the PROFIT/LOSS STATEMENT

2ND Journal Entry Entry to record consideration transferred

Investment in Subsidiary 950 million

Land 400 million
Bonds Payable 50 million
Share Capital (@ par) 100 million
Share Premium 400 million
MANULIFE FINANCIAL CORPORATION
During business combination, the company may incur expenses.

DIRECT COSTS – FEES PAID TO EXTERNAL PARTIES

Example: fees paid to lawyers, advisors, consultants and CPAs

CONSULTANT
I. Acquisition Costs
Acquisitions
INDIRECT COSTS – FEES PAID TO INTERNAL PARTIES Department
Examples: fees paid to employees and cost of maintaining
Acquisitions department

TREATMENT: EXPENSED OUTRIGHT!

(not capitalized) -> It will not affect your Investment in Subsidiary account.

3rd Journal Entry:

Expenses xxx
Cash/Liability xxx
 STOCK ISSUANCE COSTS- cost to issue and register the stocks. TREATMENT:
Example: cost of printing and filing certificate of stocks To be charged against
Cost of registration (shares) SHARE PREMIUM
II. SECURITY ISSUANCE COSTS cost to audit shares

DEBT ISSUANCE COSTS – cost to issue and register debt. To be included as part
Example: cost of printing certificate of bonds of Discount on Bonds
Payable
4th Journal Entry:
Share Premium xxx
Discount on Bonds Payable xxx
Cash/Liability xxx

Other items:
What is the treatment of liquidation costs and restructuring provisions?
General rule: IGNORE! If shouldered by the buyer,
Investment in Subsidiary xxx
Cash/Liability xxx

What is the treatment of contingent liability? – remote, possible, probable and absolute (regardless)
PFRS 3: recognize!!!!! Provided, there is fair value measurement!!!!!

5th Journal Entry Investment in Subsidiary xxx

Contingent Liability xxx

MANULIFE CORPORATION PROMISED TO GIVE 100 MILLION PHP TO THE PREVIOUS OWNERS OF SM
INVESTMENT CORPORATION IF THE EARNINGS OF THE LATTER WILL INCREASE by 100%. The fair value of contingent
consideration amounted to 40 million php

Investment in Subsidiary 40 million php

Contingent Liability 40 million php

POSSIBLE SCENARIOS

SM reported 120% increased SM reported 45% increased

in its earnings. in its earnings.

6th Journal Entry Contingent Liability 40 million Contingent Liability 40 million

Loss on contingent consideration 60 million Gain on contingent
Cash 100 million consideration 40 million
STEP ACQUISITION

In 2011, Wency Corporation purchased 300 million shares

Of Goldy Corporation for 300 million php representing 30% interest. Investment in Associate 300m
Cash 300m
300millionphp/300 million shares = 1php/share
450 million

In 2020, Wency Corporation purchased additional 30% interest Investment in Associate 150m
Of Goldy Corporation at P1.50 per share. Fair value/sp Gain on Remeasurement 150m

300 million x 1.50 = 450 million

600 million shares x 1.50 = 900m Investment in Subsidiary 900m

Investment in Associate 450m
Cash 450m

On January 1, 2018, G&G Corporation(acquirer) issued 6,000 shares of its P 10 par value common stock to acquire the assets
and liabilities of Ford Company. G&G Corporation shares were selling at P 90 on that date. Historical cost and fair value balance
sheet data for Ford Company (acquiree) at the time of acquisition were as follows:
Balance Sheet Item Historical Cost Fair Value
Cash and Receivables P 50,000 P 50,000
Inventory 120,000 200,000
Building & Equipment 400,000 300,000
Less: Accumulate Depreciation (150,000) -
Total Assets P 420,000 P 550,000
Accounts Payable P 50,000 P 50,000
Common Stock (P 20 par value) 200,000
Retained Earnings 170,000
Total Liabilities and Equities 420,000

G&G Corporation incurred but not paid listing fees of P 10,000 and audit fees of P 5,000 in issuing the new shares and paid a
finder’s fee of P 25,000 in locating the merger candidate.

Investment in Subsidiary (6,000 x P90) 540,000

Share Capital (6,000 @P10 par) 60,000
Share Premium (6,000 @ 80 excess) 480,000

Share Premium (10,000 + 5,000) 15,000

Expenses 25,000
Accounts Payable 40,000

Step 2: Determine the acquisition date – normally the closing date!