BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 1

Problem 1: B/C/A/A/D/D/A/D/A/D

Req. 1:
Acquisition costs
Cash 1,000,000
Ordinary share (10,000 x P120) 1,200,000
Contingent consideration liability 150,000
Non-controlling interest 1,200,000
Total 3,550,000
Less: Fair Value of Net Identifiable Assets of acquiree
(3,847,000 - 1,200,000) 2,647,000
Goodwill 903,000

Req. 2

Parent - book value 1,250,000

Subsidiary - fair value 1,200,000
Contingent consideration liability 150,000
Total liability 2,600,000

Req. 3

Parent SHE before business combination 8,030,000

Issuance of shares 1,200,000
Non-controlling interest 1,200,000
Total SHE 10,430,000

Req. 4:

Parent - book value 9,280,000

Subsidiary - fair value 3,847,000
Goodwill from business combination 364,750
Cash consideration (1,000,000)
Total Assets 12,491,750

Req. 5:

Parent SHE before business combination 8,030,000

Issuance of shares 1,200,000
Non-controlling interest 661,750
Total SHE 9,891,750

Req. 6: ZERO

Req. 7:

Total P NCI
Acquisition costs 3,550,000 2,350,000 1,200,000
FV of Net Identifiable Assets of acquiree 2,647,000 1,985,250 661,750
Goodwill 903,000 364,750 538,250

Req. 8: ZERO

Total P NCI
Acquisition costs 3,011,750 2,350,000 661,750
FV of Net Identifiable Assets of acquiree 2,647,000 1,985,250 661,750
Goodwill 364,750 364,750 -

Req. 9: Consideration 2,350,000 /80% x 20% = 587,500

Req. 10: D
Acquisition costs
Cash 1,000,000
Ordinary share (10,000 x P120) 1,200,000
Contingent consideration liability 150,000
Non-controlling interest 587,500
Total 2,937,500
Less: Fair Value of Net Identifiable Assets of acquiree
(3,847,000 - 1,200,000) 2,647,000
Goodwill 290,500

Problem 2: C/B/B/A/C
Acquisition Costs
Cash 4,000,000
NCI -
Total 4,000,000
Less: Fair value of Net Identifiable Assets
(2.85M - 1M) 1,850,000
Goodwill 2,150,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 2

Req. 2:

Subsidiary 2,600,000
Goodwill 2,400,000
Cash Consideration (4M – [2.6M – 1M]) (4,000,000)
Direct cost paid (50,000)
Indirect cost paid -
Total Increase in assets 950,000

Req. 3:

January 1, 20x1
Acquisition Costs
Cash 4,000,000
NCI (4M / 80% x 20%) 1,000,000
Total 5,000,000
Less: Fair value of Net Identifiable Assets
(2.6M - 1M) 1,600,000
Goodwill 3,400,000

Req. 4&5
Acquisition Costs
Cash 4,000,000
NCI (1,850,000 x 20%) 370,000
Total 4,370,000
Less: Fair value of Net Identifiable Assets
(2.85M - 1M) 1,850,000
Goodwill 2,520,000

Problem 3: D/A/A
Req. 1 & 3
Acquisition Costs
Cash 5,158,400
Contingent consideration - share premium 80,000
Non-controlling interest (8,320,000 x 40%) 3,328,000
Total 8,566,400
Less: Fair Value of Net Identifiable assets of Slug 8,320,000
Goodwill 246,400

Req. 2:
Answer: 5,760,000 / P100 par = 57,600 share; 34,560 shares / 57,600 = 60%

Problem 4: D/B/A/A/C
Req. 1:
Acquisition Costs
Cash 2,000,000
Ordinary shares (5,000 sh x 105) 525,000
NCI (2,350,000 x 20%) 470,000
Total 2,995,000
Less: Fair value of Net Identifiable Assets
(3,200,000 - 850,000) 2,350,000
Goodwill 645,000

Req. 2:

Parent 13,150,000
Subsidiary 3,200,000
Goodwill from business combination 645,000
Cash consideration (2,000,000)
Total Assets 14,995,000

Req. 3:

Acquisition Costs
Cash 2,000,000
Ordinary shares (5,000 sh x 105) 525,000
NCI (2M + 525K = 2,525,000 - CP 500,000)/80% x 20% 506,250
Total 3,031,250
Less: Fair value of Net Identifiable Assets
(3,200,000 - 850,000) 2,350,000
Goodwill 681,250

Note: The implied fair value of NCI should not be lower than the NCI proportionate share in the net assets of
acquiree.
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 3
Req. 4:
Parent - SHE before business combination 10,650,000
Issuance of shares 525,000
Gain on bargain purchase -
Expenses -
NCI 506,250
Total SHE 11,681,250

Req. 5:
Acquisition Costs
Cash 2,000,000
Ordinary shares (5,000 sh x 105) 525,000
NCI 520,000
Total 3,045,000
Less: Fair value of Net Identifiable Assets
(3,200,000 - 850,000) 2,350,000
Goodwill 695,000

Parent 13,150,000
Subsidiary 3,200,000
Goodwill from business combination 695,000
Cash consideration (2,000,000)
Total Assets 15,045,000

Problem 5: B/D/A/C
Req. 1
Acquisition costs
Cash 4,000,000
NCI 2,000,000
Total 6,000,000
Fair Value of Net Assets of acquiree excluding goodwill 4,850,000
Goodwill 1,150,000

Req. 2
Total P (70%) NCI (30%)
Acquisition Cost 6,000,000 4,000,000 2,000,000
FV of NA including goodwill 5,350,000 3,745,000 1,605,000
Goodwill in the working paper 650,000 255,000 395,000

Req. 3
Parent 12,500,000
Subsidiary - fair value excluding goodwill 5,650,000
Goodwill from business combination 1,150,000
Cash consideration (4,000,000)
Direct cost paid (15,000)
Total 15,285,000

Req. 4

Parent SHE before combination 10,500,000

Expenses (15,000)
NCI 2,000,000
Total Consolidated SHE 12,485,000

Problem 6: A/C
Req. 1:

Acquisition Costs
Cash (1,235,475 + 349,775 +25,000 control premium) 1,610,250
NCI (1,453,500 + 33,150 + 280,500) x 15% 265,073
Total 1,875,323
Less: Book Value of Net Assets of Subsidiary 1,453,500
Excess of cost over book value 421,823
Allocation of Net identifiable Assets
Inventories (33,150)
Equipment (280,500)
Goodwill 108,173

Controlling Interest = 1,235,475 / 1,453,500 = 85%

NCI = 218,025 / 1,453,500 = 15%

Req. 2:

Acquisition Costs
Cash (1,235,475 + 349,775) 1,585,250
NCI (1,585,250 – 20,000) /85% x 15% 276,221
Total 1,861,471
Less: Book Value of Net Assets of Subsidiary 1,453,500
Excess of cost over book value 407,971
Allocation of Net identifiable Assets
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 4
Inventories (33,150)
Equipment (280,500)
Goodwill 94,321

Problem 7: A

Acquisition Costs
Cash 6,900,000
Non-controlling interest (6,900,000 / 80% x 20%) 1,725,000
Total 8,625,000
Less: Fair Value of Net Identifiable assets (8.75M + 50K) 8,800,000
Goodwill (175,000)

Parent -SHE before combination 48,440,000

Gain on bargain purchase 175,000
NCI 1,725,000
Total 50,340,000

Problem 8: B
Acquisition Cost
Cash 2,677,500
NCI -
Total 2,677,500
FV of net identifiable assets 2,327,500
Goodwill 350,000

Problem 9: C/C/
Req. 1
Acquisition Costs
Cash 2,500,000
Contingent consideration liability (500,000 x 40%) 200,000
Dividend purchase (dividend-on) (450,000)
NCI -
Total 2,250,000
Fair Value of Net Identifiable Assets excluding goodwill
(4,900,000 - 500,000 GW - 2,450,000 Liab) 1,950,000
Goodwill 300,000

Req. 2: the goodwill shall only be presented in the consolidated FS and shall not be recorded in the separate books
of parent entity

Problem 10: C/D/A/B/A/C

Req. 1:

FVNA of Subsidiary = BVNA 2,080,000 + 260,000 MI adjustment + 650,000 equipment adjustment = 2,990,000

Req. 2 & 5:

Total NCI in Shell P1,046,500 / FVNA of subsidiary 2,990,000 = 35% -100% = 65%

Acquisition Costs
Investment in Shell 1,995,500
NCI 1,046,500
Total 3,042,000
Book Value of Net Assets 2,080,000
Excess of cost over book value 962,000
Allocation of Net Identifiable assets of Shell
Inventory (260,000)
Equipment (650,000)
Goodwill 52,000

Req. 3 - 5:

Petron Shell Consolidated Fair Value

Cash 650,000 260,000 910,000 260,000
Accounts receivables 520,000 130,000 650,000 130,000
Inventory 1,300,000 650,000 2,210,000 910,000
Equipment 3,250,000 1,300,000 5,200,000 1,950,000
Investment in Shell 1,995,500
Goodwill 52,000
Total 7,715,500 2,340,000 9,022,000

Accounts payable 455,000 260,000 715,000 260,000

Notes payable 1,900,000 - 1,900,000 -
Interest payable 50,000 - 50,000 -
Ordinary shares 1,625,000 975,000 1,625,000
Retained earnings 3,685,500 1,105,000 3,685,500
Non-controlling interest 1,046,500
Total 7,715,500 2,340,000 9,022,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 5
Req. 6:
Total P (65%) NCI (35%)
Acquisition cost 3,042,000 1,995,500 1,046,500
FVNA of Shell 2,990,000 1,943,500 1,046,500
Goodwill. 52,000 52,000 -

Problem 11: B/D/B/A/C

Req. 1:
Acquisition Costs FV
Cash 3,000,000
NCI (3M / 80% x 20%) 750,000
Total 3,750,000
Fair Value of Net Identifiable Assets 3,240,000
Goodwill 510,000

Ordinary shares – S P2.5M / P100 par = 25,000 share – TS 1,000 = 24,000 outstanding
19,200 ordinary shares acquired / 24,000 shares outstanding = 80%

Req. 2

Parent - SHE before BC 8,015,000

Expenses (22,000)
NCI 750,000
Total 8,743,000

Req. 3:

Acquisition Costs PROP

Cash 3,000,000
NCI (3,240,000 x 20%) 648,000
Total 3,648,000
Fair Value of Net Identifiable Assets 3,240,000
Goodwill 408,000

Req. 4:

Parent 9,015,000
Subsidiary 3,440,000
Goodwill 408,000
Cash consideration (3,000,000)
Total Assets 9,863,000

Req. 5:

Parent 1,000,000
Subsidiary 200,000
Expenses not paid 22,000
Total Liabilities 1,222,000

Problem 12: D/A/A/A/C/C/D

Req. 1:
Acquisition Cost
Cash - 50% 3,000,000
Previously acquired interest - (3M / 50% x 20%) 1,200,000
NCI 2,250,000
Total 6,450,000
FV of Net identifiable Assets (7.2M - 1.5M) 5,700,000
Goodwill 750,000

Req. 2:

50% interest 3M + implied FV of 15% 1.2M = 4.2M

Req. 3 & 4
Acquisition Cost
Cash - 50% 3,000,000
Previously acquired interest - (3M / 50% x 20%) 1,200,000
NCI (5.7M x 30%) 1,710,000
Total 5,910,000
FV of Net identifiable Assets (7.2M - 1.5M) 5,700,000
Goodwill 210,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 6
Req. 5 & 6
Investment - Jan. 10, 20x2 1,500,000
Investment - Dec. 31, 20x1: 1.35M + ([2M - 500K] x 20%) 1,650,000
Loss on remesurement (150,000)
Acquisition Cost
Cash - 50% 3,000,000
Previously acquired interest - (3M / 50% x 20%) 1,500,000
NCI 1,800,000
Total 6,300,000
FV of Net identifiable Assets (7.2M - 1.5M) 5,700,000
Goodwill 600,000

Req. 7:

Books of Paul Corp.

Loss on remeasurement 150,000
Investment in associate 150,000

Investment in Subsidiary 4,500,000

Cash 3,000,000
Investment in associate 1,500,000

Problem 13: C/B/A/C

Req. 1 & 2
Acquisition Cost
New (60%) 22,000,000
Previous interest (20%) 6,000,000
NCI (19M x 20%) 3,800,000
Total 31,800,000
BV of NA (14,000,000)
Excess of Cost 17,800,000
Allocation
Land (5,000,000)
Goodwill 12,800,000

Outstanding share of S - 2020 2,000,000

x Previous interest 20%
Total shares of - 20% previous 400,000
x Current market price 15
Fair Value of previous shares – 20% 6,000,000

Req. 3: Intercompany accounts is eliminated

Req. 4: Only the retained earnings of Pancho because the retained of earnings of Sham is already eliminated in
preparing the consolidated financial statements

Problem 14: C/D

Req. 1: 42,000 shares / (100,000 shares – TS 25,000 shares) = 56%

Req. 2:
Acquisition Cost
Cash 672,000
NCI (44% x 1.2M) 528,000
Total 1,200,000
FV of net identifiable assets 1,200,000
Goodwill -

Investment in subsidiary 672,000

Investment in associate (650,000 + {[300,000 NI - 125,000 Div) x42%} 723,500
Loss on remeasurement (51,500)

Investment in subsidiary 672,000

Loss on remeasurement 51,500
Investment in associate 723,500

Problem 15: A ELIMINATED

Problem 16: A
Acquisition Cost
Cash -
NCI 3,500,000
Total 3,500,000
FV of net identifiable assets 3,000,000
Goodwill 500,000

Assets 5,000,000
Goodwill 500,000
Liabilities 2,000,000
NCI 3,500,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 7

Problem 17: D/A/B

Req. 1 - 3

Brother - accounting acquiree

Currently issued shares 18,000 25%
Shares to be issued (13,500 x 4 shares) 54,000 75%
Total 72,000 100%

Sister - accounting acquirer

Currently issued shares 13,500 75%
Shares have to be issued to Brother shareholders to enable
them to have the same interest in Sister Corp. (13,500 / 75% x 25%) 4,500 25%
Total 18,000 94%

Acquisition Costs
Issuance of shares (4,500 sh. X P200 per share) 900,000
NCI -
Total 900,000
Fair Value of Net Identifiable assets of acquiree
(1,650,000 - 800,000) 850,000
Goodwill 50,000

Brother Sister
(legal parent - (legal subsidiary -
acquiree) acquirer)
Book Fair Book Fair
value Value value Value Consolidated
Current Assets 500,000 550,000 750,000 800,000 1,300,000
Non-current assets 1,000,000 1,100,000 3,200,000 3,500,000 4,300,000
Goodwill 50,000
Total 1,500,000 1,650,000 3,950,000 4,300,000 5,650,000

Liabilities 800,000 800,000 1,000,000 1,000,000 1,800,000

Ordinary shares
18,000 shares @ P20 360,000
13,500 shares @ P100 1,350,000
72,000 shares (P1,350,000 + P900,000) 2,250,000
Retained earnings 340,000 1,600,000 1,600,000
1,500,000 3,950,000 5,650,000

Problem 18: B/C/

Req. 1- 2
Mother Father
(legal parent - (legal subsidiary -
acquiree) acquirer)
Book Fair Book Fair
value Value value Value
Current Assets 300,000 380,000 500,000 480,000 880,000
Non-current assets 1,300,000 1,500,000 3,000,000 3,500,000 4,500,000
Goodw ill 120,000
T otal 1,600,000 1,880,000 3,500,000 3,980,000 5,500,000

Liabilities 500,000 500,000 800,000 800,000 1,300,000

Ordinary shares
20,000 shares @ P30 600,000
15,000 shares @ P100 1,500,000
50,000 shares (1,500,000 + 1,500,000) 3,000,000
Retained earnings 500,000 1,200,000 1,200,000
1,600,000 3,500,000 5,500,000

Mother - accounting acquiree

Currently issued shares 20,000 40%
Shares to be issued (15,000 sh x 2) 30,000 60%
Total 50,000 100%
Father - accounting acquirer
Currently issued shares 15,000 60%
Shares have to be issued to Mother shareholders to enable
them to have the same interest in Father Corp. (15,000 / 60% x 40%) 10,000 40%
Total 25,000 100%

Acquisition Costs
Issuance of shares ( 10,000 share x P250 per share) 1,500,000
NCI -
Total 1,500,000
Fair Value of Net Identifiable assets of acquiree
1,380,000
Goodwill 120,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 8

Problem 19: D/E/A

Req. 1

Acquisition costs
Cash 2,500,000
NCI 594,000
Total 3,094,000
Fair Value of Net Identifiable Assets 2,970,000
Goodwill 124,000

Books of Iram (Subsidiary)

Accounts receivable 20,000
Land 300,000
Building 10,000
Goodwill 124,000
Retained earnings 700,000
Inventory 30,000
Equipment 30,000
Share premium 1,094,000

Req. 2:
Consolidation working paper
Ordinary share - Iram 1,500,000
Share premium – Iram (500K + 1.094M) 1,594,000
Investment in Iram 2,500,000
Non-controlling interest 594,000
To eliminate the SHE of subsidiary, investment in Iram and recognize NCI

Req. 3:
Consolidated
Adjustments & Financial
eliminations Position
Jan Iram Dr. Cr.
Separate Separate
books books
Cash 3,500,000 1,000,000 4,500,000
Accounts Receivable 500,000 220,000 720,000
Inventories 750,000 470,000 1,220,000
Land 2,800,000 1,300,000 4,100,000
Building - net 1,200,000 760,000 1,960,000
Equipment - net 800,000 220,000 1,020,000
Investment in Iram 2,500,000 2,500,000 -
Goodwill 124,000 124,000
Total 12,050,000 4,094,000 13,644,000

Accounts Payable 1,500,000 1,000,000 2,500,000

OrdP0inary share - P100
par 5,000,000 1,500,000 1,500,000 5,000,000
Share premium 2,000,000 1,594,000 1,594,000 2,000,000
Retained earnings 3,550,000 - 3,550,000
Noncontrolling interest 594,000 594,000
Total Liabilities and SHE 12,050,000 4,094,000 13,644,000

Problem 20: C

Problem 21: C/A/D/C/A/A

Req. 1:

Acquisition Costs Equity

Cash - newly acquired interest - 50% 800,000
Previously acquired interest -25% 340,000
NCI 280,000
Total 1,420,000
FV of Net Identifiable assets of acquiree 1,000,000
Goodwill 420,000

a. Req. 2:
FV 340,000
Adjusted Cost (300K + [100NI - 60K DIV] x 25% 310,000
Gain on remeasurement 30,000

Req. 3:
Acquisition Costs Cost
Cash - newly acquired interest - 50% 800,000
Previously acquired interest -25% (800K/50% x 25%) 400,000
NCI (1M x 25%) 250,000
Total 1,450,000
FV of Net Identifiable assets of acquiree 1,000,000
Goodwill 450,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 9

Req. 4:
FV 400,000
Cost 300,000
Gain on remeasurement 100,000

Req. 5:

Acquisition Costs Fair value

Cash - newly acquired interest - 50% 800,000
Previously acquired interest -25% 400,000
NCI 400,000
Total 1,600,000
FV of Net Identifiable assets of acquiree 1,000,000
Goodwill 600,000

Req. 6:

FV 400,000
Cost 300,000
Gain on remeasurement 100,000

Problem 22: B/B

Req. 1

Prior to additional sales (15,000 shares x 80%) 12,000

Add: additional interest of Xyria 3,000
Total shares held by Xyria 15,000
Divide by Outstanding ordinary shares 18,000
Controlling interest 83%
Less: 100%
Non-controlling Interest 16.67%

Req. 2:

Prior to additional sales (15,000 shares x 80%) 12,000

Divide by Outstanding ordinary shares 18,000
Controlling interest 66.67%

Problem 23: B/A

Req. 1 - 2
Book value of Net Assets of Subsidiary 6,200,000
Overvalued inventory (40,000)
Undervaluation of depreciable assets 100,000
Fair value of Net Identifiable Assets Subsidiary 6,300,000

Total Ordinary shares 3,000,000

Divide by Par Value 50
No. of ordinary shares 60,000
x NCI % 40%
No. of NCI ordinary shares 24,000
x Fair Value per ordinary shares 90
Acquisition Costs of NCI - ordinary shares 2,160,000

Total Preference Share 1,000,000

Divide by Par Value 100
No. of Preference Shares 10,000
x Fair Value per preference Share 220
Acquisition Cost of NCI preference shares 2,200,000

Cumulative Ordinary Preference Excess

Fair Value of Net Identifiable Assets of Subsidiary 3,000,000 1,000,000 2,300,000
Dividend in arrears (15% x 2 years x 1,000,000) 300,000 (300,000)
Balance 2,000,000
Excess To Ordinary shares 2,000,000 (2,000,000)
Fair Value of Net Identifiable Assets Allocation 5,000,000 1,300,000 -

NCI- NCI-
Total Parent Ordinary Preference
Acquisition Costs 7,860,000 3,500,000 2,160,000 2,200,000.00
Fair Value of Net Identifiable Assets of Jose 6,300,000 3,000,000 2,000,000 1,300,000.00
Goodwill 1,560,000 500,000 160,000 900,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 10
Cumulative and Participating Ordinary Preference Excess
Fair Value of Net Identifiable Assets of Subsidiary 3,000,000 1,000,000 2,300,000
Dividend in arrears (15% x 2 years x 1,000,000) 300,000 (300,000)
Balance 2,000,000
Share of Ordinary share (15% x 3M) 450,000.00 (450,000)
Excess To Ordinary shares 3:1 ratio 1,162,500 387,500 (1,550,000)
Fair Value of Net Identifiable Assets Allocation 4,612,500 1,687,500 -

NCI- NCI-
Total Parent Ordinary Preference
Acquisition Costs 7,860,000 3,500,000 2,160,000 2,200,000
Fair Value of Net Identifiable Assets of Jose 6,300,000 2,767,500 1,845,000 1,687,500
Goodwill 1,560,000 732,500 315,000 512,500

Problem 24 B

Problem 25: A/A

Req. 1 - 2

Acquisition Costs
Cash 1,200,000
NCI 250,000
Total 1,450,000
Less: FV of Net Identifiable assets 1,085,000
Goodwill 365,000

Parent 10,900,000
Subsidiary 1,485,000
Goodwill 365,000
Cash consideration (1,200,000)
Receivable from Shey (100,000)
Total Assets 11,450,000

SHE of Parent before combination 9,700,000

NCI 250,000
Total 9,950,000

Problem 26 -100
26 B 38 B 50 C 62 B 74 D 86 C 98 B
27 D 39 B 51 B 63 A 75 B 87 B 99 C
28 A 40 B 52 C 64 C 76 C 88 C 100 A
29 D 41 D 53 B 65 C 77 C 89 B
30 C 42 B 54 D 66 D 78 A 90 A
31 C 43 D 55 D 67 B 79 B 91 D
32 B 44 B 56 B 68 A 80 B 92 A
33 A 45 A 57 C 69 D 81 D 93 B
34 C 46 D 58 A 70 A 82 C 94 A
35 D 47 C 59 D 71 D 83 B 95 B
36 C 48 D 60 C 72 D 84 A 96 B
37 D 49 A 61 C 73 C 85 D 97 D
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 11

STRAIGHT PROBLEMS

Problem 1:

Acquisition cost
Cash 3,250,000
NCI -
Total 3,250,000
Book value of Net assets of subsidiary 2,600,000
Excess of cost over book value 650,000
Allocation of net identifiable assets
Accounts receivable 50,000
Patent (200,000)
Goodwill 500,000

Books of ABC
Investment in XYZ 3,250,000
Cash 3,250,000
To record investment in subsidiary

Consolidation working paper

Ordinary share - XYZ 1,000,000
Share premium- XYZ 200,000
Retained earnings - XYZ 1,400,000
Investment in Subsidiary 2,600,000
To eliminate the SHE of XYZ

Patent 200,000
Accounts receivable 50,000
Investment in XYZ 150,000
To record adjustment to fair value of assets of
subsidiary

Goodwill 500,000
Investment in XYZ 500,000
To recognized goodwill

Adjustments and
ABC XYZ eliminations Consolidated
Book value Book Value Dr Cr
Cash 1,750,000 600,000 2,350,000
Accounts Receivable 500,000 400,000 (b)50,000 850,000
Inventories 800,000 500,000 1,300,000
Land 2,500,000 - 2,500,000
Building - net 1,000,000 - 1,000,000
Equipment - net 1,000,000 600,000 1,600,000
P atent - 1,000,000 (b)200,000 1,200,000
Investment in XYZ 3,250,000 (a)2,600,000 -
(b)150,000
(c)500,000
Goodw ill (c)500,000 500,000
T otal 10,800,000 3,100,000 11,300,000

Accounts P ayable 2,500,000 500,000 3,000,000

Ordinary share 5,000,000 1,000,000 (a)1,000,000 5,000,000
Share premium 1,000,000 200,000 (a)200,000 1,000,000
Retained earnings 2,300,000 1,400,000 (a)1,400,000 2,300,000
T otal Liabilities and SHE 10,800,000 3,100,000 11,300,000

Problem 2:

A. NCI at Fair Value

Acquisition Costs -
Cash 2,000,000
Ordinary shares (P110 x 30,000) 3,300,000
Non-controlling interest 1,000,000
Total 6,300,000
Fair Value of Net Identifiable Assets (excluding goodwill) -
(5,350,000 - 500,000) 4,850,000
Goodwill 1,450,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 12
Books of Medy (Parent) - -
Investment in Gino 5,300,000 -
Cash 2,000,000
Ordinary shares (P100 x 30,000) 3,000,000
Share premium 300,000
To record the investment in subsidiary and the consideration paid
Share premium 10,000
Expenses 25,000
Cash 35,000
To record acquisition related costs

Consolidation Working Paper

Ordinary shares - Gino 2,000,000
Share premium - Gino 500,000
Retained earnings - Gino 2,050,000
Investment in Gino (80%) 3,640,000
NCI (20%) 910,000
To eliminate the SHE of Gino

Inventories 50,000
Land 800,000
Accounts receivable 20,000
Building 500,000
Equipment 30,000
Investment in Gino (300K x 80%) 240,000
NCI (300K x 20%) 60,000
To record the adjustment of Gino net assets to fair value

Goodwill 1,450,000
Investment in Gino 1,420,000
NCI 30,000
To record goodwill

Total P NCI
Acquisition Cost 6,300,000 5,300,000 1,000,000
FV of net assets of acquiree 4,850,000 3,880,000 970,000
Goodwill in the working paper 1,450,000 1,420,000 30,000

Adjustments and
Medy Gino eliminations
Book
Book value Value Dr. Cr Consolidated
Cash 2,965,000 500,000 3,465,000
Accounts Receivable 500,000 400,000 (b)20,000 880,000
Inventories 1,000,000 500,000 (b)50,000 1,550,000
Land 4,000,000 1,000,000 (b)800,000 5,800,000
Building - net 2,000,000 2,000,000 (b)500,000 3,500,000
Equipment - net 1,500,000 650,000 (b)30,000 2,120,000
Investment in Gino 5,300,000 (a)3,640,000
(b)240,000
(c)1,420,000
Goodw ill (c)1,450,000 1,450,000
T otal 17,265,000 5,050,000 18,765,000

- -
Accounts P ayable 2,500,000 500,000 3,000,000
Ordinary share - P100 par 8,000,000 2,000,000 (a)2,000,000 8,000,000
Share premium 1,290,000 500,000 (a)500,000 1,290,000
Retained earnings 5,475,000 2,050,000 (a)2,050,000 5,475,000
Non-controlling interest (a)910,000 1,000,000
(b)60,000
(c)30,000
T otal Liabilities and SHE 17,265,000 5,050,000 18,765,000

B. NCI at proportionate share basis

Acquisition Costs -
Cash 2,000,000
Ordinary shares (P110 x 30,000) 3,300,000
Non-controlling interest (4,850,000 x 20%) 970,000
Total 6,300,000
Fair Value of Net Identifiable Assets (excluding goodwill) -
(5,350,000 - 500,000) 4,850,000
Goodwill 1,420,000

Books of Medy (Parent) - -

Investment in Gino 5,300,000 -
Cash 2,000,000
Ordinary shares (P100 x 30,000) 3,000,000
Share premium 300,000
To record the investment in subsidiary and the consideration paid
Share premium 10,000
Expenses 25,000
Cash 35,000
To record acquisition related costs
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 13

Consolidation Working Paper

Ordinary shares - Gino 2,000,000
Share premium - Gino 500,000
Retained earnings - Gino 2,050,000
Investment in Gino (80%) 3,640,000
NCI (20%) 910,000
To eliminate the SHE of Gino

Inventories 50,000
Land 800,000
Accounts receivable 20,000
Building 500,000
Equipment 30,000
Investment in Criz (300K x 80%) 240,000
NCI (300K x 20%) 60,000
To record the adjustment of Criz net assets to fair value

Goodwill 1,420,000
Investment in Criz 1,420,000
To record goodwill

Total P NCI
Acquisition Cost 6,270,000 5,300,000 970,000
FV of net assets of acquiree 4,850,000 3,880,000 970,000
Goodwill in the working paper 1,420,000 1,420,000 0

Adjustments and
Medy Gino eliminations
Book Book
value Value Dr. Cr Consolidated
Cash 2,965,000 500,000 3,465,000
Accounts Receivable 500,000 400,000 (b)20,000 880,000
Inventories 1,000,000 500,000 (b)50,000 1,550,000
Land 4,000,000 1,000,000 (b)800,000 5,800,000
Building - net 2,000,000 2,000,000 (b)500,000 3,500,000
Equipment - net 1,500,000 650,000 (b)30,000 2,120,000
Investment in Gino 5,300,000 (a)3,640,000
(b)240,000
(c)1,420,000
Goodw ill (c)1,420,000 1,420,000
T otal 17,265,000 5,050,000 18,735,000

- -
Accounts P ayable 2,500,000 500,000 3,000,000
Ordinary share - P100 par 8,000,000 2,000,000 (a)2,000,000 8,000,000
Share premium 1,290,000 500,000 (a)500,000 1,290,000
Retained earnings 5,475,000 2,050,000 (a)2,050,000 5,475,000
Non-controlling interest (a)910,000 1,000,000
(b)60,000
T otal Liabilities and SHE 17,265,000 5,050,000 18,735,000

Problem 3:
a.

a.
Acquisition Costs
Cash 2,100,000
NCI (2.1M / 70% x 30%) 900,000
Total 3,000,000
Fair Value of Net Identifiable Assets 2,360,000
Goodwill 640,000

b.
Books of Pencil
Investment in Stabilo 2,100,000
Cash 2,100,000
To record the investment in subsidiary

c.
Ordinary shares - Stabilo 1,500,000
Share premium - Stabilo 100,000
Retained earnings - Stabilo 800,000
Treasury shares - Stabilo 150,000
Investment in Stabilo (2.25M x 70%) 1,575,000
NCI (30%) 675,000
To eliminate the SHE of subsidiary
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 14
Inventory 10,000
Equipment 20,000
Patent 100,000
Accounts receivable 20,000
Investment in Stabilo (110K x 70%) 77,000
NCI (110K x 30%) 33,000
To adjust the assets and liabilities of subsidiary to fair value
Goodwill 640,000
Investment in Stabilo (70%) 448,000
NCI (30%) 192,000
To recognized goodwill

d.
Adjustments and
Eliminations
P encil Stabilo
Consolidated
Book Value Book Value Dr. Cr. Financial P osition
Cash 2,900,000 600,000 3,500,000
Accounts receivable 400,000 200,000 20,000 580,000
Inventory 500,000 150,000 10,000 660,000
Equipment 1,000,000 800,000 20,000 1,820,000
P atent - 1,000,000 100,000 1,100,000
Investment in Stabilo 2,100,000 1,575,000 -
77,000
448,000
Goodw ill 640,000 640,000
T otal 6,900,000 2,750,000 8,300,000

Accounts P ayable 1,000,000 500,000 1,500,000

Ordinary shares, P100 par 2,000,000 1,500,000 1,500,000 2,000,000
Share premium 500,000 100,000 100,000 500,000
T reasury shares 1,500 shares - (150,000) (150,000) -
Retained Earnings 3,400,000 800,000 800,000 3,400,000
NCI 675,000 900,000
33,000
192,000
T otal 6,900,000 2,750,000 3,170,000 2,870,000 8,300,000

Problem 4:

Acquisition Costs
Newly acquired 1,260,000
Previously acquired (1,260,000/70% x 10%) 180,000
NCI (1,560,000 x 20%) 312,000
Total 1,752,000
FV of Net Assets 1,560,000
Goodwill 192,000

Ordinary shares P400,000/20 par = 20,000 shares

New shares 14,000 shares + 2,000 old shares = 16,000 shares
16,000 shares /20,000 shares = 80% interest

Books of Prince
Investment in equity securities 160,000
Cash 160,000
To record the 10% interest

Investment in equity securities 20,000

Unrealized gain - PL 20,000
To record the remeasurement at fair value

Investment in Subsidiary 1,440,000

Cash 1,260,000
Investment in equity securities 180,000
To record the investment in subsidiary

Consolidation Working Paper

Ordinary share 400,000
Retained earnings 960,000
Investment in subsidiary 1,088,000
NCI 272,000
To eliminate SHE of subsidiary

Non-current assets 200,000

Investment in subsidiary 160,000
NCI 40,000
To record the adjustment of non-current assets to fair value

Goodwill 192,000
Investment in subsidiary 192,000
To record goodwill
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 15

Problem 5:

A. Fair Value
Acquisition Costs
Cash 2,200,000
Bonds payable (P1M x 105%) 1,050,000
Non-controlling interest 2,000,000
Total 5,250,000
Fair Value of Net Identifiable Assets (excluding goodwill)
(5,880,000 - 200,000 GW - 1,000,000 Liab.) 4,680,000
Goodwill 570,000

Books of Tonio (Parent)

Investment in Criz 3,250,000
Cash 2,200,000
Bonds payable 1,000,000
Premium on bonds payable 50,000
To record the investment in subsidiary and the
consideration paid
Bond issue costs 10,000
Expenses (charged to retained earnings) 25,000
Cash 35,000
To record acquisition related costs

Consolidation Working Paper

Ordinary shares - Criz 1,500,000
Share premium - Criz 500,000
Retained earnings - Criz 2,600,000
Investment in Criz (60%) 2,760,000
NCI (40%) 1,840,000
To eliminate the SHE of Criz

Inventories 30,000
Land 300,000
Building 100,000
Accounts receivable 50,000
Equipment 100,000
Investment in Criz (280K x 60%) 168,000
NCI (280K x 40%) 112,000
To record the adjustment of Criz net assets to fair
value

Goodwill 370,000
Investment in Criz 322,000
NCI 48,000
To record goodwill

Total P NCI
Acquisition Cost 5,250,000 3,250,000 2,000,000
FV of Net assets including goodwill 4,880,000 2,928,000 1,952,000
Goodwill in the working paper 370,000 322,000 48,000

Consolidated
Adjustments and Financial
Tonio Criz Eliminations P osition
Book
Book value Value Dr Cr
Cash 2,515,000 1,500,000 4,015,000
Accounts Receivable 300,000 500,000 50,000 750,000
Inventories 500,000 300,000 30,000 830,000
Land 3,000,000 1,500,000 300,000 4,800,000
Building - net 2,000,000 1,000,000 100,000 3,100,000
Equipment - net 1,000,000 600,000 100,000 1,500,000
Goodw ill 200,000 370,000 570,000
Investment in Criz 3,250,000 2,760,000 -
168,000
322,000
T otal 12,565,000 5,600,000 15,565,000

Accounts Payable 2,500,000 1,000,000 3,500,000

Bonds payable 1,000,000 1,000,000
P remium on Bonds payable 50,000 50,000
Bond issue costs (10,000) (10,000)
Ordinary share 5,000,000 1,500,000 1,500,000 5,000,000
Share premium 1,000,000 500,000 500,000 1,000,000
Retained earnings 3,025,000 2,600,000 2,600,000 3,025,000
Noncontrolling interest 1,840,000 2,000,000
112,000
48,000
T otal Liabilities and SHE 12,565,000 5,600,000 15,565,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 16
Problem 6:
Acquisition Cost
Cash 1,125,000
NCI (43.75% x 2M) 875,000
Total 2,000,000
FV of net identifiable assets 2,000,000
Goodwill -

Investment in associate 720,000

Cash 720,000
Investment in associate 180,000
Investment income (400,000 x 45%) 180,000
Cash 112,500
Investment in associate (250,000 x 45%) 112,500

Investment in subsidiary 1,125,000

Investment in associate 787,500
Gain on remeasurement 337,500

Problem 7:
Acquisition Cost
Cash -
NCI 100% 1,800,000
Total 1,800,000
FV of net identifiable assets 1,800,000
Goodwill -

Assets 2,000,000
Liabilities 200,000
NCI 1,800,000

Problem 8:
Answer
Paz - accounting acquiree
Currently issued shares 10,000 20%
Shares to be issued ( 2 sh. X 20,000 sh.) 40,000 80%
Total 50,000 100%

Anton - accounting acquirer

Currently issued shares 20,000 80%
Shares have to be issued to Paz shareholders to enable
them to have the same interest in Anton Corp. (20,000 / 80% x 20%) 5,000 20%
Total 25,000 100%

Anton (unlisted P az (listed Consolidated

company) company) Financial P osition
(legal subsidiary - (legal parent -
accounting accounting
acquirer) acquiree)
Current Assets 2,000,000 1,600,000 3,600,000
Non-current assets 2,800,000 1,600,000 4,400,000
Goodw ill 650,000
T otal 4,800,000 3,200,000 8,650,000

Liabilities 1,400,000 2,600,000 4,000,000

Ordinary shares
20,000 shares @ P10 200,000
16,000 shares @ P100 1,600,000
100,000 shares (P1,600,000 + P1,250,000) 2,850,000
Retained earnings 1,800,000 400,000 1,800,000
4,800,000 3,200,000 8,650,000

Acquisition Costs
Issuance of shares (5,000 sh. X P250 per share) 1,250,000
NCI -
Total 1,250,000
Fair Value of Net Identifiable assets of acquiree
(3,200,000 - 2,600,000) 600,000
Goodwill 650,000

Problem 9:
Acquisition costs
Cash 2,750,000
NCI 1,200,000
Total 3,950,000
Fair Value of Net Identifiable Assets 3,790,000
Goodwill 160,000
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 17
Paul's Books (Parent)
Investment in Shirley 2,750,000
Cash 2,750,000
To record the investment in subsidiary and consideration paid
Books of Shirley Inc. (Subsidiary)
Inventory 20,000
Land 500,000
Building 100,000
Goodwill 160,000
Retained earnings 1,750,000
Accounts receivable 50,000
Equipment 30,000
Share premium 2,450,000
To record the goodwill and to push-down the fair value adjustment in Shirley's books

Consolidation working paper

Ordinary share - Shirley 1,000,000
Share premium - Shirley (500K + 2.45M) 2,950,000
Investment in Shirley 3,750,000
Non-controlling interest 1,200,000
To eliminate the SHE of subsidiary, investment in Shirley and recognize NCI

Consolidated
Adjustments & Financial
eliminations P osition
Paul Shirl ey Dr. Cr.
Separate Separate
books books
Cash 4,750,000 750,000 5,500,000
Accounts Receivable 300,000 450,000 750,000
Inventories 500,000 820,000 1,320,000
Land 3,000,000 2,500,000 5,500,000
Building - net 2,000,000 1,100,000 3,100,000
Equipment - net 1,000,000 170,000 1,170,000
Investment in Shirley 3,750,000 3,750,000 -
Goodw ill 160,000 160,000
T otal 15,300,000 5,950,000 17,500,000

Accounts Payable 2,500,000 2,000,000 4,500,000

Ordinary share - P 100 par 5,000,000 1,000,000 1,000,000 5,000,000
Share premium 1,000,000 2,950,000 2,950,000 1,000,000
Retained earnings 5,800,000 - 5,800,000
Noncontrolling interest 1,200,000 1,200,000
T otal Liabilities and SHE 14,300,000 5,950,000 17,500,000

Problem 10:

Answer
Book value of Net Assets of Subsidiary 4,000,000
Undervalued inventory 20,000
Undervaluation of depreciable assets 50,000
Fair value of Net Identifiable Assets Subsidiary 4,050,000

Total Ordinary shares 2,000,000

Divide by Par Value 20
No. of ordinary shares 100,000
x NCI % 30%
No. of NCI ordinary shares 30,000
x Fair Value per ordinary shares 40
Acquisition Costs of NCI - ordinary shares 1,200,000

Total Preference Share 500,000

Divide by Par Value 100
No. of Preference Shares 5,000
x Fair Value per preference Share 150
Acquisition Cost of NCI preference shares 750,000

a. Cumulative

Ordinary Preference Excess

Fair Value of Net Identifiable Assets of Subsidiary 2,000,000 500,000 1,550,000
Dividend in arrears (12% x 3 years x 500,000) 180,000 (180,000)
Balance 1,370,000
Excess To Ordinary shares 1,370,000 (1,370,000)
Fair Value of Net Identifiable Assets Allocation 3,370,000 680,000 -
 BUSINESS COMBINATION – CONSOLIDATED FS Date of Acquisition 18
NCI- NCI-
Total Parent Ordinary Preference
Acquisition Costs 5,000,000 2,800,000 1,200,000 1,000,000
Fair Value of Net Identifiable Assets of Shayne 4,050,000 2,359,000 1,011,000 680,000
Goodwill 950,000 441,000 189,000 320,000

b. Cumulative and participating

Ordinary Preference Excess

Fair Value of Net Identifiable Assets of Subsidiary 2,000,000 500,000 1,550,000
Dividend in arrears (12% x 3 years x 500,000) 180,000 (180,000)
Balance 1,370,000
Share of Ordinary share (12% x 2M 240,000.00 (240,000)
Excess To Ordinary shares 20:5 ratio 904,000 226,000 (1,130,000)
Fair Value of Net Identifiable Assets Allocation 3,144,000 906,000 -

NCI- NCI-
Total Parent Ordinary Preference
Acquisition Costs 5,000,000 2,800,000 1,200,000 1,000,000
Fair Value of Net Identifiable Assets of Shayne 4,050,000 2,200,800 943,200 906,000
Goodwill 950,000 599,200 256,800 94,000