Consideration transferred (fair value) 315,000

Fair value of net identifiable assets282,000

GoodwillP33,000

Receivables80,000
Inventory70,000
Buildings 115,000
Equipment25,000
Customer list22,000
IPRD30,000
Goodwill33,000
Current liabilities 10,000
Long-term liabilities 50,000
Contingent performance liability 15,000
Cash300,000

Acquisition expenses10,000
Cash 10,000

Problem XVI
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Total P 966,000
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash P 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess - Goodwill P 102,000

b. The journal entries by Peter Corporation to record the acquisition is as follows:

Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 102,000
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent Consideration 36,000
 Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.

Acquisition-related expenses 78,000

Cash 78,000
Acquisition related costs – direct costs.

Paid-in capital in excess of par 32,400

Cash 32,400
Acquisition related costs – costs to issue and register
stocks.

Acquisition-related expenses 27,600

Cash 27,600
Acquisition related costs – indirect costs.

c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:

Pure Corporation
Balance Sheet
December 31, 20x4

Assets
Cash P 162,000
Receivables – net 144,000
Inventories 360,000
Land 348,000
Buildings – net 840,000
Equipment – net 732,000
In-process research and development 60,000
Goodwill 102,000
Total Assets P2,748,000

Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 288,000
Other liabilities 408,000
Notes payable 180,000
Estimated liability for contingent consideration 36,000
Total Liabilities P 912,000
Stockholders’ Equity
Common stock, P10 par P 1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2 158,400
Total Stockholders’ Equity P1,836,000
Total Liabilities and Stockholders’ Equity P2,748,000
1
P240,000 + P446,400 – P32,400
2
P264,000 - P78,000 – P27,600

It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition
date. This requirement does not extend to R&D in contexts other than business combinations.
2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively adjusted
in value during the measurement period for new information that clarifies the acquisition-date value.
The adjustments affect goodwill since the measurement period is still within one year (i.e., eight
months) from the acquisition date. Therefore, the goodwill to be reported then on the acquisition
should be P78,000 (P102,000 – P24,000).

b.
Buildings 24,000
Goodwill 24,000
Adjustment to goodwill due to measurement date.

3.
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 + P24,000).

b. The adjustment is still within the measurement period, the entry to adjust the liability would be:
Goodwill 24,000
Estimated liability for contingent consideration 24,000
Adjustment to goodwill due to measurement date.

c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once
(last August 31, 20x5).

c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to
P48,000, the entry to adjust the liability would be:

Estimated liability for contingent consideration 12,000

Gain on estimated contingent consideration 12,000
Adjustment after measurement date.

In this case, the measurement period ends at the earlier of:

 one year from the acquisition date, or
 the date when the acquirer receives needed information about facts and circumstances
(or learns that the information is unobtainable) to consummate the acquisition.

c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done only
once (last August 31, 20x5).

c.3.2. On December 15, 20x5, the entry would be:

Loss on estimated liability contingent consideration 30,000

Estimated liability for contingent consideration 30,000
Adjustment after measurement date.

c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s average income in 20x5 is P270,000 and 20x6 is
P260,000, which means that the target is met, Peter Corporation will make the
following entry:
Estimated liability for contingent consideration 78,000
Loss on estimated contingent consideration 42,000
Cash 120,000
Settlement of contingent consideration.

4.
a. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385

b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 106,386
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent Consideration 40,385
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000

c.
c.1. Goodwill remains at P106,385.
c.2. The entry for Pure Corporation on December 31, 20x5 to record such occurrence would be:

Estimated liability for contingent consideration 40,385

Gain on estimated contingent consideration 40,385
Adjustment after measurement date.

Since the contingent event does not happen, the position taken by PFRS 3 is that the
conditions that prevent the target from being met occurred in a subsequent period and that
Peter had the information to measure the liability at the acquisition date based on
circumstances that existed at that time. Thus the adjustment will flow through income statement
in the subsequent period.

d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent consideration
would be:

Estimated liability for contingent consideration 36,000

Loss on estimated contingent consideration 66,000
 Cash [(P78,000 + P84,000)/2 – P30,000] x 2 102,000
Settlement of contingent consideration.

5.
a. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Contingent consideration (stock contingency) 18,000
Total P 984,000
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Positive Excess – Goodwill P 120,000

b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 120,000
Accounts payable 72,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent Consideration 36,000
Paid-in capital for Contingent Consideration 18,000
Common stock (P10 par x 30,000 shares) 300,000
Additional paid-in capital [(P25 – P10) x 30,000 450,000
shares]
Acquisition of Saul Company.

c. Pure Corporation will make the following entry for the issuance of 1,200 additional shares:
Paid-in capital for Contingent Consideration 18,000
Common stock (P10 par x 1,200 shares) 12,000
Paid-in capital in excess of par 6,000
Settlement of contingent consideration.

6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event occurs). Thus,
the entry record the occurrence of such event to reassign the P750,000 original consideration to
36,000 shares (30,000 original shares issued + 6,000 additional shares due to contingency) would be:

Paid-in capital in excess of par 60,000

Common stock (P10 par x 6,000 shares) 60,000
Settlement of contingent consideration.

7. On January 1, 20x7, the contingent event happens since the fair value per share fall below P25. Thus,
the entry record the occurrence of such event to reassign the P750,000 original consideration to
37,500 shares (30,000 original shares issued + 7,500* additional shares due to contingency) would
be:
Paid-in capital in excess of par 75,000
Common stock (P10 par x 7,500 shares) 75,000
Settlement of contingent consideration.
* Deficiency: (P25 – P20) x 25,000 shares issued to acquire..P150,000
Divide by fair value per share on January 1, 20x7………….P 20
Added number of shares to issue………………………………. 7,500

8. The amount of goodwill on acquisition will be recomputed as follows:

Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Positive Excess – Goodwill P 158,308
* present value of P1 @ 4% for one period.

The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 158,308
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Paid-in capital for Contingent Consideration 92,308
Common stock (P10 par x 25,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000

On December 31, 20x5, the contingent event occurs, wherein Peter’s stock price had fallen to P20,
thus requiring Peter to issue additional shares of stock to the former owners of Saul Corporation. The
entry for Peter Corporation on December 31, 20x5 to record such occurrence such event to reassign
the P750,000 original consideration to 37,500 shares (30,000 original shares issued + 7,500*
additional shares due to contingency) would be:

Paid-in capital for Contingent Consideration 92,308

Common stock, P10 par 75,000
Paid-in capital in excess of par 17,308
Settlement of contingent consideration.
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P 20
Added number of shares to issue……………………………… 7,500

Problem XVII
1. The computation of bargain purchase gain is as follows:
Consideration transferred;