8/5/21

8/10
Business combination PFRS 3
- Acquirer obtains control of one or more business
How to acquire control
- Transfer of cash
- Incurring liability
- Issuing equity security

Classify business combination:

Acquisition of assets
- Acquisition of all net identifiable assets
- Except existing goodwill(excluded in computation)
- Merger: A + B = A
- Consolidation: A + B = C

Acquisition of stock
- Acquisition of majority voting common stocks
- Stock acquisition: A + B = A + B

8/12 synch
Business combination does not exist in vacuum

Schedule of allocation of excess

Considerations
→ cash, shares of stock owned, liability, other assets
→ given up, ano si tigtao

FV of net identifiable assets of acquiree

→ date of acquisition
→ assets and liability except existing goodwill

Given up xx
Received (xx)
goodwill/gain xx

High given up = goodwill

High received = gain

Goodwill
- Asset not something to sell
- Intangible account
- Create goodwill every time customer interacts with your product/company
- Good feeling
- Intangible asset in assessing the value of an enterprise and reflecting its commercial reputation, customer
connection
- Significant conveyance of energy passion and love to one’s customers through the experience and interactions
they have w/ one’s company and products
- Connection of the customers and the product/company
- Can be leverage
- How to create, convey your passion to the product to customer
1. Give away free premium content
2. Personality
-
3. Aesthetics
-
4. Customer service
5. Mission: do something that matters

8/17 async
In looking at the problem, identify first if acquisition of net identifiable assets or acquisition of stock
Then, what kind of business combination

Case 1
Considerations:
Cash 12,000
Note payable 8,000
Contingent liability 2,000 22,000

Less: FV of all net identifiable asset of MEG Except Goodwill

 AR 7,000
Merch. Inventory 10,000
PPE 19,000
Current liab (3,000)
Notes payable (11,000) 22,000
Excess 0

Journal entries
AR 7,000
Merch inv 10,000
PPE 19,000
CL 3,000
NP 11,000
Cash 12,000
NP 8,000
CL 2,000

Business combination expense 1,000

Cash 1,000

Shares premium
Cash

Case 2
Considerations:
Shares of stock - FV (8,800 *2.50) 22,000
Cash 12,000
NP 8,000
CL 2,000 44,000

Less:
FV of al NIA MEG except goodwill 22,000
Goodwill 22,000

Journal entry:
AR 7,000
Merch inv 10,000
PPE 19,000
Goodwill 22,000
CL 3,000
NP 11,000
Cash 12,000
NP 8,000
Cont. Liab 2,000
Ordinary shares
(2 * 8,800) 17,600
Shares premium 4,400

Business combination expense 1,000

Cash 1,000

Shares premium 3,000

Cash 3,000

Case 3
Shares of stock (1,000 * 2.50) 2,500
Cash 12,000
NP 4,000
CL 2,000 20,500

Less: 22,000
Gain on acquisition 1,500

Journal entries:
AR 7,000
Merch inv 10,000
PPE 19,000
CL 3,000
NP 11,000
Cash 12,000
NP 8,000
CL 2,000
Ordinary shares
(2 *1,000) 2,000
Shares premium 500
Gain 1,500

Business combination expense 1,000

Cash 1,000

Shares premium 3,000

Cash 3,000

Net increase of decrease in RE = expenses - gain

Net increase of decrease in SHE = shares - expenses + gain - issuance
Net increase of decrease in NIA = total assets of acquiree - cash payment
8/24 async
Acquisition of 100% ordinary shares of stocks

Working paper elimination entries

- Only a tool, to consolidate
- To prepare a consolidated FS
- Not journal entries

Quiz 1
9/8 async
Acquiring majority of common stock
- Parent and subsidiary relationship
- Parent is required to prepare consolidated FS → as if parent and subsidiary are one entity

To gain control
- Majority of shares of stock
- 50% + 1 share

Working paper elimination entry (WPEN)

OS (S) xx
SP (S) xx
RE (S) xx
Investment in sub (P) XX
Eliminate the SHE of subsidiary in consolidated FS
- Madodoble yung pagrecord
- Stockholder ni S is stockholder man ni P. Ang may sadiri kang asset ni S and P si stockholder ni P
- Kontrolado niya si sa P and S kaya tighahali si S, ang maappear na lang si P sa consolidated FS

AR (S)
Equipment (S)
Longterm debt (S)
Inventory (S)
Invest in sub (P)
To present the net identifiable of S at FV
- Because of the concept na presenting them as if they are one entity
- As if the P purchase the net identifiable asset
- Nirecord lang si under valuation, kasi ang BV nakarecord na sa books ni S

Goodwill(consolidated)
Invesment in S (P)
Recognize goodwill
- as if P purchase identifiable asset

Why credit/tighahali investment in S in the books of P

- Replacing investment in S, ang tigdadagdag si net identifiable asset of S at FV and goodwill

Consolidated FS on date of acquisition

JE books of Acquirer
1.
Investment in S xx
Cash xx
OS xx
SP xx

2. Schedule of allocation of excess

Cash xx
Shares of stock xx xx
Less: BV of SHE - S
OS xx
SP xx
RE xx (xx)
Uncollected excess xx
Less: O/U of FV NIA - S
AR xx
Inventory xx
Equipment xx (xx)
Xx

3. WPEN
A.
OS - S xx
SP - S xx
RE - S xx
Investment in S xx

B.
AR xx
Equipment xx
Long term debt xx
Inventory xx
AP xx
Investment in S xx

C.
Goodwill xx
Investment in S xx

9/14 sync

4
Acquired goodwill
- Goodwill arising from schedule of allocation of excess
Consolidated goodwill
- Goodwill of parent and acquired goodwill
Same ang acquired and consolidated if

Consolidated cash
= cash of P ( after recording investment in s) + cash of S

Sept 21 - quiz 2

9/23 async
non-controlling interest is an equity account and appears in consolidated B/S

9/28 sync
Non controlling interest
- Minority

Date of acquisition
GW computation/Gain
= PP + NCI vs FVNA-S

Price paid + contingent consideration = FVNA + GW

Consolidated SHE = SHE-P + gain + NCI
Consolidated assets = Total asset of P and S + GW - PP

Measured at FV si NCI = PP * %
Measure at NCI’s proportionate share of INA = FVNA * %

Subsequent to date of acquisition

10/21 async
WPEN ( 1 year after acquisition)
Debit div rev. To eliminate the div rev of S on consolidated FS

10/26 async
Subsequent to date of acquisition

11/16 sync

12/7