Contingent Liabilities to be included in FVNA:

1. In FAR, it must be both probable and measurable

2. In Business Com, measurable is enough regardless if probable or not.

The fair value of the CL is increasing as the probability of payment (occurence)

increases and vice versa.

Contingent consideration to be included in COST:

1. It must be both probable and measurable to be included in the cost.

For example, if the probability is 80%, include the entire amount.

However, if not probable, there should be a probability given for it to be included

in the cost of business comb.

If the probability is 40%, include the 40% of the entire amount.

Case 1.
1. Consideration - 206,836
2. FVNA - 186,000
3. Goodwill - 20,836

Assets 516,000
Loss on sale 12,000
Acc. dep 8,000
Goodwill 20,836
Lib 320,000
Cont. Liab 10,000
Share Cap 40,000
Share Prem 70,000
Cont. Cons 1,200
Cash 24,000
NP 43,836
Delivery Van 48,000

APIC 8,016
Expenses 1,600
Cash 9,616

Case 2.
1. Consideration 336K
2. FVNA 300K
3. Goodwill 36K

If the acquiree has Goodwill or Prepaid Expenses, they are excluded in computing
the FVNA.

Prepaid expenses can have a fair value but it should be stated in the problem.

BS after acquisition
Cash 132K
AR 120K
Land 224K
Bldg. 480K
Eqpt. 448K
GW 36K
Total 1,440K

AP 172K
BP 248K
SC 416K
SP 228K
RE 376K
Total 1,440K

Share Acquisition:
Goodwill is not recorded in the separate FS of the parent. It only appears in the
consolidated FS.

MCQ
1. 35 per share
2. D , if SME 2,464M
3. B, if SME = 4M+752M-32 = 4,720K
4. A
5. B, if SME = 1,496K
6. A, if SME smae still because the costs are related to issuance and registration
of stocks.
7. D