Illustration 1 Measuring Goodwill/gain on Bargain purchase

On January 1, 20x1, ABC Co. Acquired all the assets and assumed all of the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ acquired
are shown below:

Carrying Amount Fair Values

Cash in Bank 10,000 10,000
Receivables 200,000 120,000
Allowance for Doubtful Accounts -30,000 -
Inventory 520,000 350,000
Building net: 1,000,000 1,100,000
goodwill 100,000 20,000
Total Assets 1,800,000 1,600,000
liabilities
Payables 400,000 400,000

On the negotiation for the business combination. ABC Co. incurred transaction costs amounting to P100,000
for legal and accounting and consultancy fees.

Case 1 if ABC Co. paid P1,500,000 cash as consideration for the assets and liabilities of XYZ, Inc.
how much is the goodwill (gain on bargain purchases) on the business combination

Consideration transferred 1,500,000

Non Controlling Interest -
Previously held equity interest in the acquiree -
Total 1,500,000

less: Fair value of net identifiable assets acquired 1,180,000

Goodwill/ (Gain on a bargain purchase) 320,000 Asset in Balance Sheet

Case#2 if ABC paid 1,000,000 Cash as consideration for the assets and liabilities of XYZ, Inc., how
much is the goodwill (gain on bargain purchase) on the business combination?

Consideration transferred 1,000,000

Non Controlling Interest -
Previously held equity interest in the acquiree -
Total 1,000,000

less: Fair value of net identifiable assets acquired 1,180,000

Goodwill/ (Gain on a bargain purchase) (180,000.00) NGW - Profit and loss statement
 PP + NCI = FVNA GW (NGW)

Cash FV FV of Assets
Non Cash Propotionate Interest Less Liabilities
Shares FVNA
Contingent Consideration

FV of Assets ###
Less: Liabilitiies 400,000
FVNA ###

FV of Assets ###
Less: Liabilitiies 400,000
FVNA ###

ss statement
Illustration 2 : Non Controlling Interest
PP +

On January 1, 20x1, ABC acquired 80% of XYZ., Inc. in exchange for cash. Because Cash
the former owners of XYZ needed to dispose of their investment in XYZ by a specified Non Cash
date, they did not have sufficient time to market XYZ to multiple potential buyers. Shares
Contingent Consideration
On January 1, 20x1, XYZ's identifiable assets and liabilities have fair values of P1,200,000
and P400,000 respectively

Case 1 - Non Controling Interest at Fair value

ABC Co. elects the option to measure non-controlling interest at fair value. The independent
consultant engage by ABC Co. Determined that the Fair value of the 20% non controlling interest
in XYZ, Inc. is P155,000

ABC Co. Paid P1,000,000 for the 80% Interest in XYZ, Inc How much is the goodwill (gain on bargain purchase)
on the business combination?

Consideration transferred 1,000,000 80% FV of Assets

Non Controlling Interest 155,000 20% Less Liabilities
Previously held equity interest in the acquiree - FVNA
Total 1,155,000

less: Fair value of net identifiable assets acquired 800,000

Goodwill/ (Gain on a bargain purchase) 355,000

Case 2 - Non Controling Interest measured at Fair Value

ABC Co. elects the option to measure non-controlling interest at fair value.
assigned to the non controlling interestin XYZ, Inc.
The consideration transferred is 1,000,000. How much is the goodwill (gain on bargain purchase)

Consideration transferred 1,000,000 80% (1M /.80%) ### FV of Assets

Non Controlling Interest 250,000 20% Less Liabilities
Previously held equity interest in the acquiree FVNA
Total 1,250,000 100%

less: Fair value of net identifiable assets acquired 800,000

Goodwill/ (Gain on a bargain purchase) 450,000

Case#3 NCI's proportionate share in net assets.

ABC Co. elects the option to measure non-controlling interest at NCI proportionate share
of XYZ Inc's net identifiable assets.

ABC Co. Paid P1,000,000 for the interest acquired in XYZ., Inc. how much is the goodwill
(gain on bargain purchase) on the business combination? FV of Assets
Less Liabilities
Consideration transferred 1,000,000 80% FVNA
Non Controlling Interest 20% 160,000 20% Proportionate Interest 20%
Previously held equity interest in the acquiree NCI
Total 1,160,000

less: Fair value of net identifiable assets acquired 800,000

Goodwill/ (Gain on a bargain purchase) 360,000
 NCI = FVNA + GW (NGW)

FV FV of Assets
Propotionate InteresLess Liabilities
FVNA
nt Consideration

FV of Assets 1,200,000
Less Liabilities 400,000
800,000
FV of Assets 1,200,000
Less Liabilities 400,000
800,000

FV of Assets 1,200,000
Less Liabilities 400,000
800,000
Proportionate Interest 20% 20%
160,000
Restructuring Provision

Provision 40,000 FV of Assets ### Consideration transferred ###

Less Liabilities 440,000 Non Controlling Interest 20% 160,000
FVNA 760,000 Previously held equity interest in the acquiree
Total ###

less: Fair value of net identifiable assets acquired 760,000

Goodwill/ (Gain on a bargain purchase) 400,000

Operating Lease

Favorable terms 20,000 FV of Assets ### Consideration transferred ###

Less Liabilities 400,000 Non Controlling Interest 20% 160,000
FVNA 820,000 Previously held equity interest in the acquiree
Total ###

less: Fair value of net identifiable assets acquired 820,000

Goodwill/ (Gain on a bargain purchase) 340,000

Un Favorable Terms 40,000 FV of Assets ### Consideration transferred ###

Less Liabilities 440,000 Non Controlling Interest 20% 160,000
FVNA 760,000 Previously held equity interest in the acquiree
Total ###

less: Fair value of net identifiable assets acquired 760,000

Goodwill/ (Gain on a bargain purchase) 400,000
INCOME TAXES Carrying Value Fair Value Difference CV>FV Deductible temporary Differenc
Cash 100,000 100,000 - Loss on Disposal
Inventory 120,000 180,000 (60,000.00) DTL Deferred Tax Assets
PPE 140,000 100,000 40,000.00 DTA
Liabilities 80,000 80,000 - CV < FV Taxable temporary Difference
Deffered Tax Liabilities
Taxable temporary Difference 60,000
Tax rate 30%
DTL 18,000 FV of Assets
Less Liabilities
Deductible temporary Difference 40,000 FVNA
Tax rate 30%
DTA 12,000
Deductible temporary Difference Consideration transferred ###
oss on Disposal Non Controlling Interest 20% 160,000
Deferred Tax Assets Previously held equity interest in the acquiree
Total ###
Taxable temporary Difference
Deffered Tax Liabilities less: Fair value of net identifiable assets acquired 734,000
Goodwill/ (Gain on a bargain purchase) 426,000

###
478,000
734,000
National College of Business and Arts
Business Combination

1. Key Corporation acquireed all the assets and assumed all the liabilities of Tool Beck Co. PP + NCI
for 12,000,000. The acquisition qualifies as business combination. The carrying amounts and
fair values of Tool Beck's Assets and Liabilities on Acquisition date are shown below: Consideration transferred
Non Controlling Interest
Carrying Value Fair Value Previously held equity interest in the acquiree
Account Receivable 100,000 82,000 Total
Inventory 650,000 500,000
Property Plant and Equipment ### 11,000,000 less: Fair value of net identifiable assets acquire
Goodwill 10,000 2,000 Goodwill/ (Gain on a bargain purchase)
Account Payable -60,000 -84,000
Total ### 11,500,000
Fair Value of Assets
Tool Beck Co. Paid P50,000 for legal and accounting fees related to the Less Liabilities
Acquisition. FVNA

Requirements: Compute for the goodwill (negative goodwill) arising from

the business combination.

2. Cold Co. acquired 80% interest in the voting rights of Hot Co. for 800,000 the carrying amount
and Fair values of Hot's assets and liabilities on acquisition date are shown below:

Carrying amount Fair value

Cash 74,000 74,000
Inventory 480,000 500,000
Equipment ### 500,000
Goodwill 50,000 4,000
 Account Payable -58,000 -58,000
### 1,020,000

Requirements: Compute for the goodwill (negative goodwill) arising from the business combination PP + NCI
under the following assumptions:
A) Consideration transferred
a. NCI is measured at Fair value. An independent consultant determined that the NCI's at Non Controlling Interest
Fair Value at acquisition date is P202,000 Previously held equity interest in the acquiree
Total
B. NCI is measured at Fair value. No Consultant was engaged to value the NCI. However,
Cold Management strongly believes that the NCI's Fair value correlates with the consideration less: Fair value of net identifiable assets acquire
transferred on the business combination. Goodwill/ (Gain on a bargain purchase)

PP + NCI = FVNA + GW (NGW) Fair Value of Assets of Acquiree

Less: Liabilities
Consideration transferred 800,000 80% FVNA
Non Controlling Interest 200,000 20%
Previously held equity interest in the acquiree
Total 1,000,000 100%

less: Fair value of net identifiable assets acquired 1,016,000

Goodwill/ (Gain on a bargain purchase) (16,000)

C. NCI is Measured at its proportionate share in the acquiree's net assets.

PP + NCI
Consideration transferred
Non Controlling Interest
Fair Value of Assets of Acquiree
= FVNA + GW (NGW) Less: Liabilities
FVNA
800,000 Multiply Proportionate share 20%
203,200 NCI
 Previously held equity interest in the acquiree
Total 1,003,200

less: Fair value of net identifiable assets acquired 1,016,000

Goodwill/ (Gain on a bargain purchase) (12,800)

3. Night Co. acquired Day Co. in a business combination. Night Co. incurred the following transaction costs.

> Finder's Fee 10,000

> Professional Fees of Consultants 50,000
> General administrative costs 30,000
> Registration costs of the debt and Equity securities issued 60,000
150,000

requirement: how much of the acquisition related costs listed above will be
expensed outright?

> Finder's Fee 10,000

> Professional Fees of Consultants 50,000
> General administrative costs 30,000
> Registration costs of the debt and Equity securities i 60,000
Cash 150,000
 = FVNA + GW (NGW)

12,000,000
-
uity interest in the acquiree -

et identifiable assets acquired 11,498,000

a bargain purchase) 502,000

Fair Value of Assets 11,582,000

Less Liabilities 84,000
11,498,000
 = FVNA + GW (NGW)

800,000
202,000
uity interest in the acquiree -
1,002,000

et identifiable assets acquired 1,016,000

a bargain purchase) (14,000)

e of Assets of Acquiree 1,074,000

58,000
1,016,000

e of Assets of Acquiree 1,074,000

58,000
1,016,000
onate share 20% 20%
203,200
National College of Business and Arts
Business Combination

Fact pattern
1.       On January 1, 20x1, SMUTTY acquired all of the identifiable assets and assumed all of the liabilities of OBSCENE, Inc.
On this date, the identifiable assets acquired and liabilities assumed have fair values of ₱3,200,000 and ₱1,800,000, respectively.

SMUTTY incurred the following acquisition-related costs: legal fees, ₱20,000, due diligence costs, ₱200,000,
and general administrative costs of maintaining an internal acquisitions department, ₱40,000.

Case #1: As consideration for the business combination, SMUTTY Co. transferred 8,000 of its own equity instruments with par value per share of ₱200
and fair value per share of ₱250 to OBSCENE’s former owners. Costs of registering the shares amounted to ₱80,000. How much is the goodwill
(gain on bargain purchase) on the business combination?

PP + NCI = FVNA + GW (NGW)

APIC
Consideration transferred (8,000 x 250) 2,000,000 FV of Assets ###
Non Controlling Interest - Less: liabilities ###
Previously held equity interest in the acquiree FVNA ###
Total 2,000,000

less: Fair value of net identifiable assets acquired 1,400,000

Goodwill/ (Gain on a bargain purchase) 600,000

Case #2: As consideration for the business combination, SMUTTY Co. issued bonds with face amount and fair value of ₱2,000,000.
Transaction costs incurred in issuing the bonds amounted to ₱100,000. How much is the goodwill (gain on bargain purchase) on the business combination?

PP + NCI = FVNA + GW (NGW)

 Consideration transferred 2,000,000
Non Controlling Interest -
Previously held equity interest in the acquiree -
Total 2,000,000

less: Fair value of net identifiable assets acquired 1,400,000

Goodwill/ (Gain on a bargain purchase) 600,000

2.       On January 1, 20x1, ENTREAT Co. acquired all of the identifiable assets and assumed all of the liabilities of BEG, Inc.
by paying cash of ₱2,000,000. On this date, the identifiable assets acquired and liabilities assumed have fair values of ₱3,200,000 and ₱1,800,000, respectively.

ENTREAT Co. has estimated restructuring provisions of ₱400,000 representing costs of exiting the activity of BEG,
costs of terminating employees of BEG, and costs of relocating the terminated employees.

Requirement: Compute for the goodwill (gain on bargain purchase).

PP + NCI = FVNA + GW (NGW)

Consideration transferred 2,000,000

Non Controlling Interest -
Previously held equity interest in the acquiree -
Total 2,000,000

less: Fair value of net identifiable assets acquired 1,400,000

Goodwill/ (Gain on a bargain purchase) 600,000

3.       On January 1, 20x1, HISTRIONAL Co. acquired all of the identifiable assets and assumed all of the liabilities of THEATRICAL, Inc.
by paying cash of ₱2,000,000. On this date, the identifiable assets acquired and liabilities assumed have fair values
of ₱3,200,000 and ₱1,800,000, respectively.
Case #1:

As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to THEATRICAL, Inc.
under operating leases. HISTRIONAL has determined that the terms of the operating lease on the building compared with
market terms are favorable. The fair value of the differential is estimated at ₱40,000.

Requirement: Compute for the goodwill (gain on bargain purchase).

PP + NCI = FVNA + GW (NGW)

FV of assets ###
Consideration transferred 2,000,000 Favorable Terms 40,000
Non Controlling Interest - Total FV of Assets ###
Previously held equity interest in the acquiree - Less: Liabilities ###
Total 2,000,000 FVNA ###

less: Fair value of net identifiable assets acquired 1,440,000

Goodwill/ (Gain on a bargain purchase) 560,000

Case #2:

As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to THEATRICAL, Inc.
under operating leases. HISTRIONAL has determined that the terms of the operating lease on the patent compared
with market terms are unfavorable. The fair value of the differential is estimated at ₱40,000.

Requirement: Compute for the goodwill (gain on bargain purchase).

FV of assets ###
PP + NCI = FVNA + GW (NGW) Total FV of Assets ###
Less: Liabilities ###
Consideration transferred 2,000,000 Un Favorable Terms 40,000
Non Controlling Interest - FVNA ###
 Previously held equity interest in the acquiree -
Total 2,000,000

less: Fair value of net identifiable assets acquired 1,360,000

Goodwill/ (Gain on a bargain purchase) 640,000

Case #3:

As of January 1, 20x1, HISTRIONAL is renting a building and a patent from THEATRICAL, Inc. under operating leases.
HISTRIONAL has determined that the terms of the operating lease on the building compared with market terms are favorable.
The fair value of the differential is estimated at ₱40,000.

Requirement: Compute for the goodwill (gain on bargain purchase).

PP + NCI = FVNA + GW (NGW)

Consideration transferred 2,000,000

Non Controlling Interest -
Previously held equity interest in the acquiree -
Total 2,000,000

less: Fair value of net identifiable assets acquired 1,400,000

Goodwill/ (Gain on a bargain purchase) 600,000
share of ₱200

80,000
Cash 80,000

iness combination?
1,800,000, respectively.