CONSOLIDATION AT THE DATE OF ACQUISITION PROBLEMS

PROBLEM I
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 paid 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
Noncurrent assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Noncurrent 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 of acquisition, the current assets of Entity A have fair value of P1,200,000 while the noncurrent assets of Entity
B have fair value of P1,300,000. On the same date, the current liabilities of Entity B have fair value of P600,000 while the
noncurrent liabilities of Entity A have fair value of P500,000.
1. What is the goodwill or gain on bargain purchase arising from business combination?
2. What total amount should be expensed as incurred at the time of business combination?
3. What is Entity A's amount of total assets after the business combination?
4. What is Entity A's amount of total liabilities after the business combination?

PROBLEM II

On January 1, 2019, JANUS Company purchased the net assets of Francis Company (excluding cash) by paying P850,000
cash and issuing shares 180,000 shares with par of P16 of stocks at P3,110,000 fair market value. Book value and fair value
data on the Statement of Financial Position on January 1, 2019 are as follows:
JANUS Company Francis Company
Book Value Fair Value Book Value Fair Value
Cash 4,600,000 4,600,000 300,000 300,000
Accounts Rec. 1,000,000 1,000,000 980,000 980,000
Inventory 1,500,000 1,300,000 710,000 600,000
Building & Eqpt. 1,800,000 1,460,000 1,520,000 1,064,000
Goodwill 90,000 80,000
Total 8,900,000 8,360,000 3,600,000 3,024,000

Liabilities 1,000,000 1,000,000 570,000 570,000

Share Capital 1,600,000 600,000
Share Premium 900,000 960,000
Retained Earnings 5,400,000 1,470,000
Total 8,900,000 3,600,000

JANUS incurred and paid legal fees and brokerage fees of P25,600 for business combination; share issue costs of P23,000
and P12,000 indirect costs. It is determinable that contingency fee of P118,000 would be paid within the year. JANUS
Company is classified as SME.

1. The goodwill arising from business combination is

2. The total assets after the business combination is
3. The total shareholders’ equity after the business combination is
PROBLEM III

On January 2, 2020, the Balance Sheet of JAA Company and SG Company immediately before the combination are:

JAA SG
Cash 2,700,000 90,000
Inventories 1,800,000 180,000
Property & Equipment 4,500,000 630,000
Total Assets 9,000,000 900,000

Current Liabilities 540,000 90,000

Ordinary shares 900,000 90,000
Share premium 2,700,000 180,000
Retained Earnings 4,860,000 540,000
Total Liabilities & Equity 9,000,000 900,000

1. JAA acquired 80% of the outstanding shares of SG Company, how much is the consolidated shareholders’ equity?

PROBLEM IV

Lexi Company’s stockholders’ equity as of December 31, 2019 is P7,308,000. On January 1, 2020, Lexi acquires 30% of
Rome Company’s ordinary shares for P540,000 cash and by issuing its own shares with a fair value of P1,350,000. Clark
acquired significant influence over Rome as a result of stock acquisition. After four months, Lexi purchases another 60% of
Rome’s ordinary shares for a cash payment of P3,942,000. On this date, Rome reports identifiable net assets with carrying
value of P6,480,000 and fair value of P11,520,000 and it has liabilities with a book value and fair value of P3,240,000.

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. Lexi also paid
the following: P90,000 for legal fees, P72,000 for finder’s fees, P77,400 for accountant’s fees, P64,800 for audit fee and
P19,800 for printing of stock certificates.

1. Immediately after the business combination, how much is the consolidated total equity?