Professional Documents
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Business Combination
Business Combination
1. On December 2015, Killua Ltd. acquired all the assets and liabilities of Gon Ltd. with Killua Ltd. issuing
100,000 shares to acquire these net assets. The fair value of Gon Ltd.’s assets and liabilities at this date
were:
ANSWER: B
2. The E. Vendivel Company acquired the net assets of the Vivar Company on January 1, 2015 and made
the following entry to record the purchase:
Current Assets……………………………………… 100, 000
Equipment…………………………………………… 150, 000
Land…………………………………………………….. 50, 000
Buildings………………………………………………. 300, 000
Goodwill………………………………………………. 100, 000
Liabilities…………………………………. 80, 000
Common Stock, P1 par……………. 100, 000
Paid-in capital in excess of par… 520, 000
Assuming that the additional shares on January 1, 2017 would be issued on that date to compensate for
any fall in the value of E. Vendivel common stock below P16 per share, the settlement would be to cure
the deficiency by issuing added shares based on their fair values on January 1, 2017. The fair price of the
shares on January 1, 2017 was P10.
What is the additional number of shares issued on January 1, 2017 to compensate for any fall in the value
of the stock?
a. P160, 000 c. 60, 000
b. 100, 0000 d. 10, 000
ANSWER: C
Deficiency (16-10) x 100, 000shares issued to acquire………………………………. P600, 000
Divided by: Fair value of the share……………………………………………………… 10
Additional number of shares to issued…………………………………………………. P60, 000
X Company Y Company
P30,000,000 P10,000,000
a. P 2,000,000
b. P 3,000,000
c. P 6,000,000
d. P 11,000,000
ANS: C
Cost P8,000,000
Fair value of net assets acquired
Reported assets P 5,000,000
Customer lists 3,000,000
Liabilities (6,000,000) 2,000,000
Goodwill P6,000,000
4 .P acquires all of the voting shares of S by issuing 500,000 shares of P1 par common stock valued at
P10,000,000. Included in the agreement is a contingency guaranteeing the former shareholders of S that
P's shares will be worth at least P18 per share after one year. If the shares are worth less, P will pay the