Use the following information for 72 and 73:

AA Company acquired all of BB Corporation’s assets and liabilities on October 2, 20x5, in a business
combination at that date. BB reported assets with a book value of P1,198,080 and liabilities of P683,520.
AA noted the BB included the amount of P76,800 obsolete merchandise at the acquisition date that did
not appear of any value. AA also determined that an old delivery van previously used by BB had a fair
value of P230,400, but had not been recorded by BB. Except from machinery and equipment, AA
determined the fair value if all other assets and liabilities reported by BB approximated the recorded
amounts. In recording the transfer of assets and liabilities in its books, AA recorded a gain on acquisition
of P178,560. AA paid P392,640 to acquire BB’s assets and liabilities.

72. If the book value of BB’s machinery and equipment was P414,720, what was their fair value?
A. Nil
B. 322,080
C. P394,720
D. None of the above
Answer: D
Consideration transferred
Cash 392,640
Face value of net assets
Assets 1,254,720
Liabilities 683,520 571,200
Gain on acquisition (178,560)

Assets- Fair value unadjusted 1,198,080

Adjustments:
Obsolete merchandise (76,800)
Unrecorded Van 230,400
Total 1,351,680
Adjusted fair value of assets (1,254,720)
Decrease in fair value of machinery and equipment 96,960
Less: Book value of machinery and equipment (414,720)
Fair value of machinery and equipment 317,760

73. Assuming that BB recorded goodwill of P482,400. AA paid P1,244,400 to acquire BB’s assets and
liabilities. If the book value of the machinery and equipment was P619,800, what was the FV?
A. Nil
B. P713,640
C. P790,320
D. None of the above
Answer: B
Consideration transferred
Cash
1,244,400
Fair value of net assets
Assets 1,445,520
Liabilities 683,520 762,000
Goodwill 482,400

Assets-Fair value unadjusted 1,198,080

Adjustments:
Obsolete merchandise (76,800)
 Unrecorded Van 230,400
Total 1,351,680
Adjusted Fair value of assets 1,445,520
Increase in fair value of machinery and equipment 93,840
Add: Book value of machinery and equipment 619,800
Fair value of machinery and equipment 713,640

Using the following information for 74 to 76:

On September 18, 20x5, XX Co. acquired all the YY Inc.’s P2,580,000 identifiable assets and P636,000
liabilities. Carrying amounts of the YY’s assets and liabilities equal their fair value except for the
overvalued furniture and fixtures.
 As a consideration, XX issued its own shares with a market value of P2,058,000 and cash
amounting to P450,000
 Contingent consideration that was probable and reasonably estimated on the date of acquisition
amount to P177,600
 The merger resulted into P776,400 goodwill.
 Assuming XX had P5,868,000 total assets and P3,277,200 total liabilities prior to the
combination and no additional cash payments were made, but expenses were incurred for
related cost amounting to P33,600
74. Determine the amount of overvaluation of the furniture and fixtures.
A. Nil
B. P33,600
C. P34,800
D. None of the above
Answer: C

75. After the merger, how much is the combined total identifiable assets in the books of the acquirer?
A. Nil
B. P6.644,400
C. P7,963,200
D. None of the above
Answer: C

76. After the merger, how much is increase in liabilities in the books of the acquirer?
A. Nil
B. 847,200
C. P880,800
D. None of the above
Answer: B
Solution for number 74 to 76
Consideration transferred
Common stock 2,058,000
Cash 450,000
Estimated contingent consideration 177,600 2,685,600
Less: FV of net assets 1,909,200
Goodwill 776,400

Fair value of net assets 1,909,200

Fair value of liabilities 636,000
Fair value of assets 2,545,200
Book value of assets 2,580,000
Overvaluation of furniture and fixture 34,800
 Total assets of XX Co. before acquisition 5.868,000
Cash paid to YY Co. 450,000
Total
5,418,000
FV of asset acquired 2,545,200
Combined Total Identifiable assets 7,963,200

Liabilities acquired 636,000

Accrued expenses 33,600
Estimated contingent liabilities 177,600
Increase in liabilities 847,200

77. On August 1, 20x7, the ReSA Co. acquired the net assets of LV Co. for a consideration of
P20,940,000 cash. On acquisition date, the carrying amount of LV’s net assets was P14,310,000 and
temporary appraisal of P14,862,000 was attributed to the net assets. In addition to the consideration
transferred above is another P1,218,000 cash to be transferred nine months after the acquisition date if
specified profit target was met by the acquirer.

On the acquisition date, there was only a low probability of the profit target being met, so the fair value of
the additional consideration liability was determined to be P561,600. On December 31, 20x7, an update
of the provisional fair value of P20,178,000 was attributed to the net assets. Also, at year end the
estimated amount of the consideration liability is determined to decrease by P86,400 from the last date of
the change in estimate.

On March 31, 20x8, the estimated amount of the consideration liability is determined to be probable at
P340,800. On July 1, 20x8 the temporary appraisal decreased by P1,128,000 from the last additional
valuation date.

The provisional value was finalized on August 31, 20x8 with an amount that is higher by P1,284,000 from
the temporary appraisal as of July 1, 20x8.

As a subsequent event, the profit target was met and the P1,218,000 cash was transferred. What amount
of goodwill (gain) is presented in the separate statement of financial position of the acquirer as of
December 31, 20x8?
A. P39,600
B. P1,323,600
C. P2,451,600
D. P7,296,000
Answer: C
Consideration transferred
Cash P20,940,000
Contingent consideration 561,600
Less: Face value of net assets P21,501,000
Net assets provisional value P20,178,000
Adjustments (1,128,000) 19,050,000
Goodwill P2,451,000

Use the following information for 78 and 79:

Porpoise Corporation acquired Sims Company through an exchange of common shares. All of Sim’s
assets and liabilities were immediately transferred to Porpoise. Porpoise Company’s common stock was
trading at P20 per share at the time of exchange. The following selected information for Porpoise
Corporation is also available:
Before Acquisition After Acquisition
Par value of shares outstanding……… P200,000 P250,000
Additional Paid in Capital……………... 350,000 550,000

78. What is the par value of Porpoise’s common stock?

A. P10
B. P5
C. P4
D. P1
Answer: C

79. What is the fair value of Sim’s net assets, if goodwill of P56,000 is recorded?
A. P194,000
B. P244,000
C. P300,000
D. P306,000
Answer: A
Solution for number 78 and 79:
Paid-in capital before issuance (200,000+350,000) 550,000
Paid-in capital after issuance (250,000+550,000) 800,000
Paid-in capital at time of exchange P250,000
Divide: Fair value of shares 20
Additional shares issued 12,500

Par value of shares outstanding before issuance 200,000

Par value of shares outstanding after issuance 250,000
Par value of additional shares issued 50,000
Divide: additional shares issued 12,500
Par value per share 4

Consideration transferred (12,500x20) 250,000

Goodwill 56,000
Net assets acquired 194,000

80. Chapel Hill Company had common stock of P350,000 and the retained earnings of P490,000. Blue
Town Inc. had common stock of P700,000 and retained earnings of P980,000. On January 1, 20x8, Blue
Town issued 34,000 shares of common stock with a P12 par value and a P35 fair value for all of Chapel
Hill Company’s net assets. This combination was accounted for as an acquisition. Immediately after the
combination, what were the consolidated net assets?
A. P2,870,000
B. P2,520,000
C. P2,030,000
D. 1,680,000
E. P1,190,000
Answer: A
Before acquisition (P700,000+P980,000) P1,680,000
Shares issued (34,000xP35) 1,190,000
Consolidated net assets P2,870,000
81. Vibe Company purchased the net assets of Atlantic Company in a business combination accounted
for as a purchase. As a result, goodwill was recorded. For tax purposes, this combination was considered
to be a tax-free merger. Included in the assets is a building with an appraisal value of P210,000 on the
date of the business combination. This asset had a net book value of P70,000, based on the use of
accelerated depreciation for accounting purposes. The building had an adjusted tax basis to Atlantic (and
to Vibe as a result of the merger) of P120,000. Assuming a 36% income tax rate, at what amount should
Vibe record this building on its books after the purchase?
A. P120,000
B. P134,400
C. P140,000
D. P210,000
Answer: D

Use the following information for 82 to 86:

Zyxel Corporation acquired all the assets and liabilities of Globe Tattoo Corporation by issuing shares of
its common stock on January 1, 2011. Partial balance sheet data for the companies prior to the business
combination and immediately following the combination is provided:
Zyxel Globe Tattoo
Book Value Book Value Combination

Cash………………………………. P 65,000 P 25,000 P90,000

Accounts receivable……………… 72,000 20,000 94,000
Inventory…………………………... 33,000 45,000 88,000
Buildings and equipment (net)…. 400,000 150,000 650,000
Goodwill…………………………… ?
Total Assets……………………… P570,000 P240,000 P ?

Accounts Payable………………… P 50,000 P25,000 P75,000

Bonds Payable…………………… 250,000 100,000 350,000
Common Stock, P2 par…………. 100,000 25,000 160,000
Additional paid-in capital………. 65,000 20,000 245,000
Retained Earnings………………... 105,000 70,000 ?
Total Liabilities and Equities……... P570,000 P240,000 P ?

82. What number of shares did Zyxel issue for this acquisition?
A. P80,000
B. P50,000
C. P30,000
D. P17,500
Answer: C

83. At what price was Zyxel stock trading when stock was issued for this acquisition?
A. P2.00
B. P5.63
C. P6.00
D. P8.00
Answer: D

84. What was the fair value of the net assets held by Globe Tattoo at the date of combination?
A. P115,000
B. 227,000
C. P270,000
D. 497,000
Answer: B

85. What amount of goodwill will be reported by the combined entity immediately following the
combination?
A. P13,000
B. P125,000
C. P173,000
D. P413,000
Answer: A

86. What balance in retained earnings will the combined entity report immediately following the
combination?
A. P35,000
B. P70,000
C. P105,000
D. P175,000
Answer: C
Solution for 82 to 86
Common stock combined 160,000
Common stock- Zyxel 100,000
Total: 60,000
Divide: Par value 2
Number of share issue 30,000

Paid-in capital, combined (160,000+245,000) 405,000

Paid-in capital-Zyxel before acquisition (100,000+65,000) 165,000
Paid-in capital- Additional shares 240,000
Divide: Number of share issue 30,000
Fair value of stock 8

Net identifiable asset-combined 497,000

Net identifiable asset of Zyxel before acquisition 270,000
Fair value of identifiable assets acquired 227,000

Consideration transferred (30,000x8) 24,000

FV of net identifiable asset 227,000
Goodwill 13,000

Retained Earnings = 105,000

87. Bats In., a new corporation formed and organized because of the recent consolidation of II Inc. and JJ
Inc., shall issue 10% participating preferred stocks with a par value of P100 for II and JJ net assets
contributions, and common shares with a par value of P50 for the difference between the total shares to
be issued and the preferred shares to be issued. The total shares to be issued by Bats shall be equivalent
to average annual earnings capitalized at 10%. Relevant data on II and JJ follows:

II JJ
Total Assets…………………...... P720,000 P921,600
Total Liabilities…………………... 432,000 345,600
Annual Earnings (average)……... 46,080 69,120
The total preferred shares to be issued and the amount of goodwill to be recognized by Bats are:
A. Preferred shares: 8,640 Goodwill: P288,000
B. Preferred shares: 5,760 Goodwill: P288,000
C. Preferred shares: 2,880 Goodwill: P864,000
D. Preferred shares: 7,280 Goodwill: P864,000
Answer: A
II JJ Total

Average annual earnings P46,080 P69,120 P115,200

Divided by: Capitalize at 10%
Total stock to be issued P1,152,000
Less: Net assets 864,000
Goodwill for common stock 288,000
Preferred stock (864,000/100) 8,640

Net assets P720,000 P921,600

432,000 345,600
P288,000 P576,000 P864,000