Bachelor of Science in Accountancy

Partido State University

Goa Campus

Accounting for Business Combinations (PRE7)

A/Y 2021 - 2022

FINAL EXAMINATION

1. On January 1, 20x6, ABC Co. obtained 85% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co.
incurred transaction costs of ₱300,000 for legal, accounting and consultancy fees in negotiating the
business combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in XYZ,
Inc.’s identifiable net assets. The carrying amounts and fair values of XYZ’s assets and liabilities
at the acquisition date were as follows:

Assets Carrying amounts Fair values

Cash in bank 50,000 50,000
Accounts receivable 400,000 300,000
Inventory 1,000,000 875,000
Equipment – net 2,000,000 2,750,000
Goodwill 250,000 50,000
Total assets 3,700,000 4,000,000
Liabilities
Payables 1,000,000 1,000,000

How much is the goodwill (gain on a bargain purchase)?

2. On January 1, 20x1, PSU Co., and AdMU, Inc. entered into a business combination effected
through exchange of equity instruments. The combination resulted to PSU obtaining 100% interest
in AdMU. Both of the combining entities are publicly listed. As of this date, PSU’s shares have a
quoted price of ₱400 per share. PSU Co. recognized goodwill of ₱300,000 on the business
combination. No acquisition-related costs were incurred. Additional selected information at
acquisition date is shown below:

PSU Co. Combined entity

(before acquisition) (after acquisition)
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000

How many shares were issued by PSU Co. in the business combination?
3. Pig Co. paid ₱150,000 for its 75% interest in Piglet Co. Pig elected to value NCI at fair value. Piglet’s
net identifiable assets approximated their fair values at acquisition date. The acquisition resulted
in a goodwill attributable to NCI of ₱10,000.

Since the acquisition date, Owlet has made accumulated profits of ₱200,000. There have been no
changes in Piglet’s share capital since acquisition date.

A summary of the individual statements of financial positions of the entities as at the end of
reporting period is shown below:
Pig Co. Piglet Co.
Total assets 1,000,000 500,000
Total liabilities 200,000 120,000
Share capital 300,000 100,000
Retained earnings 500,000 280,000
Total liabilities and equity 1,000,000 500,000

Requirements:
a. How much is the fair value assigned to NCI at date of acquisition?
b. How much is the goodwill at the end of reporting period?
c. How much is the NCI in net assets?
d. How much is the consolidated retained earnings?
e. How much is the consolidated total assets?
f. How much is the consolidated total equity?

4. On January 1, 20x1, ABC Co. acquired 60% interest in XYZ, Inc. for ₱2,000,000 cash. ABC Co.
incurred transaction costs of ₱100,000 in the business combination. ABC Co. elected to measure
NCI at fair value. An independent valuer assessed the NCI’s fair value at ₱1,080,000. The fair
values of XYZ’s identifiable assets and liabilities at the acquisition date were ₱6,000,000 and
₱3,500,000, respectively. How much is the goodwill (gain on a bargain purchase)?

5. On September 1, 20x1, Pig Co. acquired 75% interest in Piglet Co. On this date, Piglet's net
identifiable assets have a carrying amount of ₱180,000, which approximates fair value.

In December 20x1, Piglet sold goods to Pig for ₱81,000. Piglet had marked up these goods by 50%
based on cost. One-third of these goods remain unsold at year-end. The group assessed that there is
no impairment loss on goodwill for the current year.

The individual statements of profit or loss of the entities for the year ended December 31, 20x1 are
shown below:

Pig Co. Piglet Co.

Revenue 1,000,000 720,000
Cost of sales (400,000) (300,000)
Gross profit 600,000 420,000
Distribution costs (200,000) (100,000)
 Administrative costs (80,000) (45,000)
Profit before tax 320,000 275,000
Income tax expense (96,000) (95,000)
Profit after tax 224,000 180,000

All of Piglet’s income and expenses (including profit from intercompany sale) were earned and
incurred evenly during the year.

Requirements:
a. How much is the consolidated gross profit?
b. How much is the consolidated profit?
c. How much is the profit attributable to Owners of the parent and NCI

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