Questions 1 – 3

On January 1, 20X5, CC Co. acquired the identifiable net assets of DD, Inc. On this date, the identifiable assets and liabilities
assumed have fair values of P6,680,000 and P4,320,000, respectively. CC Co. incurred the following acquisition-related
costs: legal fees, P48,000; due diligence costs, P480,000; and general and administrative costs of maintaining an internal
acquisition, P96,000. As consideration, CC Co. transferred P9,600 of its own shares with par value and fair value per share
of P400 and P500, respectively, to DD’s former owners. Costs of registering the shares (previously issued and newly issued)
amounted to P192,000 (P24,000 pertains to listing fees of previously issued shares).
1. How much is the goodwill (gain on bargain purchase) on the business combination?
a. P667,200
b. P720,000
c. P1,440,000
d. None of the above
2. How much is the total amount charged to profit or loss in relation to the transaction above?
a. P624,200
b. P648,000
c. P816,000
d. None of the above
3. Ignoring the consideration and issue costs above, but instead, CC Co. issued bonds with face value and fair value
of P4,800,000 before incurring the transaction costs. Transaction Cost in issuing the bonds amounted to P240,000.
How much is the goodwill (gain on bargain purchase) on the business combination.
a. P667,200
b. P720,000
c. P1,440,000
d. None of the above
Question 4 – 7
The balance sheet of SUMAN Company, along with market values of the assets and liabilities is as follows:
SUMAN Company
BV dr (cr) FV dr (cr)

Current assets P2,000,000 P1,500,000

Plant and equipment (net) 30,000,000 35,000,000
Patents 100,000 2,000,000
Completed technology - 10,000,000
Broader customer base - 16,000,000
Technically skilled workforce - 3,000,000
Potentially profitable future contracts - 2,000,000
Licensing agreements - 4,000,000
Potential contracts with new customers - 1,500,000
Advertising jingles - 1,000,000
Future cost savings - 1,800,000
Goodwill 200,000 700,000
Liabilities (28,000,000) (30,000,000)
Common shares, P10 par (1,000,000)
Share premium (5,000,000)
Retained earnings 1,700,000

4. PUTO Company pays P100,000,000 in cash for SUMAN Company’s assets and liabilities. PUTO records goodwill
of:
a. P50,000,000
b. P66,800,000
c. P72,500,000
 d. P77,500,000
5. Now assume that PUTO Company pays P10,000,000 in cash to acquire the assets and liabilities of SUMAN
Company. PUTO records an income from acquisition of:
a. Zero
b. P12,500,000
c. P17,500,000
d. P28,500,000
6. PUTO paid P100,000,000 in cash for SUMAN. Three months later, SUMAN’s patents are determined to have been
worthless as of the date of acquisition. The entry to record this information includes:
a. A debit to loss of P2,000,000.
b. A debit to patents of P2,000,000.
c. A debit to goodwill of P2,000,000.
d. A debit to retained earnings of P2,000,000.
7. PUTO paid P10,000,000 in cash for SUMAN. Three months later, it is determined that SUMAN’s acquisition-date
(as of the date of acquisition) liabilities omitted a pending lawsuit valued at P2,000,000. The entity to record this
information includes:
a. A debit to income from acquisition of P2,000,000.
b. A debit to liabilities of P2,000,000.
c. A debit to goodwill of P2,000,000.
d. A debit to retained earnings of P2,000,000.
8. PISO issues common stock to acquire all the assets of SINGKO Company on January 1, 20X6. There is a contingent
share agreement, which states that if the income of the SINGKO Division exceeds a certain level during 20X6 and
20X7, additional shares will be issued on January 1, 20X8. The impact of issuing the additional shares is to
a. Increase the price assigned to fixed assets.
b. Have no effect on assets values, but to reassign the amounts of assigned to equity accounts.
c. Reduce retained earnings.
d. Record additional goodwill.
Question 9 – 14
On December 31, 2022, PP Inc. acquired assets and liabilities of SS Company. PP will maintain SS as a wholly
owned subsidiary with its own legal and accounting identity. The consideration transferred to the owner of SS
included 50,000 newly issued PP common shares (P20 market value, P5 par value) and an agreement to pay an
additional P130,000 cash if SS meets certain project completion goals by December 31, 2023, PP estimates a 50
percent probability that SS will be successful in meeting these goals and uses a 4 percent discount rate to
represent the time value of money.
Immediately prior to the acquisition, the following date for both firms were available: (parentheses indicate a credit
balance)

SS SS
PP Book Values Fair Values

Revenues (P1,200,000)
Expenses 875,000
Net income (P325,000)
Retained earnings, 1/1/2022 (950,000)
Net Income (325,000)
Dividends paid 90,000
Retained earnings, 12/31/2022 (P1,185,000)
Cash P85,000 P85,000
Receivables and inventory 190,000 180,000
Property plant, and equipment 450,000 600,000
Trademarks 300,000 160,000 200,000
 Total assets P2,560,000 P885,000
Liabilities (P500,000) (P180,000) (P180,000)
Additional paid-in capital (400,000) (200,000)
Common stock (475,000) (70,000)
Retained earnings (1,185,000) (435,000)
Total liabilities and equity (P2,560,000) (P885,000)
In addition, PP assessed a research and development project under way of SS to have a fair value of P100,000. PP
paid legal and accounting fees of P15,000 in connection with the acquisition and P9,000 in stock issue and
registration costs. Use a 0.961538 present value factor where applicable.

9. The consideration transferred amounted to:

a. P1,000,000
b. P1,015,000
c. P985,000
d. P1,062,500
10. The additional paid-in capital after combination amounted to:
a. P400,000
b. P600,000
c. P1,141,000
d. P1,150,000
11. The expenses for 2022 amounted to:
a. P0
b. P875,000
c. P884,000
d. P890,000
12. The net income for 2022:
a. P0
b. P310,000
c. P316,000
d. P325,000
13. The retained earnings on December 31, 2022 amounted to:
a. P435,000
b. P1,170,000
c. P1,185,000
d. P1,620,000
14. Assuming that on June 15, 2023, the contingent performance obligation was revised to P75,000 due to facts and
information that exists on December 31, 2022, determine the amount of goodwill?
a. P0
b. P62,500
c. P75,000
d. P90,000
15. In a business combination, how should long-term debt of the acquired company generally be recognized on
acquisition date?
a. Fair value
b. Amortized cost
c. Carrying amount
d. Fair value less cost to sell
16. In a business combination accounted for under the acquisition of method, the fair value of the net identifiable assets
acquired exceed the consideration transferred. How should the excess fair value be reported?
a. As negative goodwill, recognized in profit or loss in the period the business combination occurred.
b. As an extraordinary gain.
c. As a reduction of the values assigned to noncurrent assets and an extraordinary gain for any unallocated
portion.
 d. As positive goodwill.
17. The cost of issuing equity securities in a business combination are
a. Expensed
b. Treated as direct reduction in equity
c. Included in the initial measurement of the credit to share capital account
d. B and C
18. A business combination is accounted for properly as an acquisition. Direct costs of combination, other than
registration and issuance of equity securities, should be:
a. Capitalized as deferred charge and amortized.
b. Deducted directly from the retained earnings of the combined corporation.
c. Deducted in determining the net income of the combined corporation for the period in which the costs were
incurred.
d. Included in the acquisition cost to be allocated to identifiable assets according to their fair values.
19. Rivendell paid finder’s fees of P40,000, accountant’s fee (Advisory) of P10,000, legal fees (advisory) of P15,000,
salaries of Rivendell’s employees assigned to the implementation of the merger of P16,000, cost of closing duplicate
facilities of P12,000, cost of printing stock certificates of P7,000, audit and accountant’s fee related to the stock
issuance of P3,000, SEC registration fee of P5,000 and stock listing application fees of P4,000. Based on the
preceding information, under the acquisition method following PFRS 3, what amount relating to the business
combination would be expensed?
a. P42,000
b. P50,000
c. P107,000
d. P124,000
20. ABC Co. is acquiring XYZ Inc. XYZ has the following intangible assets:
• Patent on a product that is deemed to have no useful life P10,000.
• Customer list with an observable fair value of P50,000.
• A 50-year operating lease with favorable terms with a discounted present value of P8,000.
• Identifiable R & D of P100,000.
ABC will record how much of acquired intangible Assets from the purchase of XYZ Inc?
a. P168,000
b. P158,000
c. P150,000
d. P58,000
21. Companies A and B decide to consolidate. Asset and estimated annual earnings contribution are as follows:
Company A Company B Total

Net assets contribution P300,000 P400,000 P700,000

Estimated annual earnings contribution 50,000 80,000 130,000

Stockholder of the two companies agree that a single class of stock be issued, that their contributions be measured
by net assets plus allowances for goodwill, and the 10% be considered as a normal rate of return. Earnings in excess
of the normal rate of return shall be capitalized at 20% in calculating goodwill. It was also agreed that the authorized
capital stock of the new corporation shall be 20,000 shares with a par value of P100 a share
(1) The amount of goodwill credited to Company A, and (2) the total contribution of Company B (net assets plus
goodwill):
a. (1) P100,000; (2) P400,000
b. (1) P150,000; (2) P500,000
c. (1) P100,000; (2) P600,000
d. (1) P200,000; (2) P600,000
Questions 22 – 27
Sandy Corporation’s balance sheet at January 2, 2023 is as follows:
 Dr (Cr)
Cash and receivables P200,000
Inventories 600,000
Property, plant, and equipment, net 7,500,000
Current liabilities (400,000)
Long-term debt (7,200,000)
Capital stock (7,200)
Retained earnings (25,000)
Accumulated other comprehensive income (5,000)
An analysis of Sandy’s assets and liabilities reveals that book values of some reported items do not reflect their
market values at the date of acquisition:
• Inventories are overvalued by P200,000.
• Property, plant, and equipment is overvalued by P2,000,000.
• Long-term debt is undervalued by P100,000.
In addition, the following items are not currently reported on Sandy’s balance sheet:
• Customer contracts, valued at P25,000.
• Skilled work force, valued at P45,000.
• In process research and development, valued at P300,000.
• Potential contracts with prospective customers, valued at P15,000.
• Sandy has not recorded expected future warranty liabilities with a present value P10,000.
On January 2, 2023, Velasco issues new stock with a market value of P700,000 to acquire the assets and liabilities
of Sandy. Stock registration fees are P100,000 paid in costs. Consulting, accounting and legal fees connected with
the merger are P150,000, paid in cash. In addition, Velasco enters into an earnings contingency agreement, whereby
Velasco will pay the former shareholders of Sandy an additional amount if Sandy’s performance meets certain
minimum levels. The present value of the contingency is estimated at P50,000.
22. Consideration transferred amounted to:
a. P0
b. P50,000
c. P700,000
d. P750,000
23. The market value of assets and liabilities / net assets acquired amounted to:
a. P1,285,000
b. P1,335,000
c. P1,575,000
d. P1,345,000
24. The amount of goodwill in the books of the acquiree amounted to:
a. P0
b. P1,785,000
c. P2,035,000
d. P2,095,000
25. The amount of goodwill in the balance sheet amounted to:
a. P0
b. P1,785,000
c. P2,035,000
d. P2,095,000
26. Total liabilities after combination amounted to:
a. P0
b. P7,710,000
c. P7,760,000
d. P7,810,000
27. Total stockholder/shareholder’s equity after combination amounted to:
 a. P0
b. P700,000
c. P725,000
d. P730,000
28. Dull and Sharp are the stockholders of Knives Unlimited and Safe and Cracker are the owners of Quicky
Locksmiths. Knives Unlimited purchases all the assets of Quicky Locksmiths by paying cash and issuing notes
payable. Who are the stockholders of Quicky Locksmiths immediately after the above transaction?
a. Dull and Sharp (100%)
b. Safe and Cracker (100%)
c. Dull and Sharp (50%) and Safe and Cracker (50%)
d. Dull and Sharp (50%) and Quicky Locksmiths (50%)
29. On July 1, 2022 The Magi Company acquired 100% of The Nato Company for a consideration transferred of
P160,000,000. At the acquisition date the carrying amount of Nato’s net assets was P100,000,000. At the acquisition
date a provisional fair value of P120,000,000 was attributed to the net assets. An additional valuation received on
May 31, 2023 increased this provisional fair value to P135,000,000 and on July 30, 2023 this fair value was finalized
at P140,000,000. What amount should Magi present for goodwill in its statement of financial position on December
31, 2023, according to PFRS 3 Business Combination?
a. P20,000,000
b. P25,000,000
c. P40,000,000
d. P60,000,000
30. Lucio, Inc. is to acquire Lucia Corp. by absorbing all the assets and liabilities of the latter in exchange for shares of
the former’s stock. Below are the balance sheets of the two companies, with the corresponding appraised value
increment for Lucia Corp.
LUCIO LUCIA

Assets, per books P4,000,000 P2,500,000

Asset, appraisal increase P300,000
Liabilities 1,500,000 P800,000
Common stock (No par; 100 par) 2,000,000 800,000
Additional paid-in capital 700,000 300,000
Retained earnings (deficit) (200,000) 400,000
The parties agree to use the appraised values, against which the fair market value of the shares will be matched.
Lucio’s common stock is currently selling at P100 per share. The number of shares to be issued by Lucia is:
a. 10,000
b. 13,000
c. 17,000
d. 20,000
Question 31 – 35
StarBuko Corporation acquired all the assets and liabilities of Monggos Beans Corporation by issuing shares of its
common stock on January 1, 2023. Partial balance sheet data for the companies prior to the business combination
and immediately following the combination is provided:
StarBuko Monggos Combination
Beans

Cash P65,000 P25,000 P90,000

Accounts receivable 72,000 20,000 94,000
Inventory 33,000 45,000 88,000
Goodwill ?
Accounts payable P50,000 P25,000 P75,000
Bonds payable 250,000 100,000 350,000
 Common stock, P2 par 100,000 25,000 160,000
Additional paid-in capital 65,000 20,000 245,000
Retained earnings 105,000 70,000 ?
31. What number of shares did StarBuko issue for this acquisition?
a. 80,000
b. 50,000
c. 30,000
d. 17,500
32. At what price was StarBuko stock trading when stock was issued for this acquisition?
a. P2.00
b. P5.63
c. P6.00
d. P8.00
33. What is the fair value of the net assets held by Monggos Beans at the date of combination?
a. P115,000
b. P227,000
c. P270,000
d. P497,000
34. What amount of goodwill will be reported by the combined entity immediately following the combination?
a. P13,000
b. P125,000
c. P173,000
d. P413,000
35. What balance in retained earnings will be combined entity report immediately following the combination?
a. P35,000
b. P70,000
c. P105,000
d. P175,000
36. Statement 1: In a business combination accomplished as a stock acquisition normally two companies exist after the
combination. Statement 2: A combination accomplished as a stock acquisition must be accomplished with a stock
for stock exchange.
a. True; True
b. True; False
c. False; True
d. False; False
37. Statement 1: A stock acquisition is the only form of business combination that might require the preparation of
consolidated financial statements. Statement 2: the substance of statutory mergers, statutory consolidations, and
stock acquisitions is the same if income tax considerations are ignored.
a. True; True
b. True; False
c. False; True
d. False; False
38. Statement 1: When two entities competing in the same industry combine, it is called a horizontal business
combination. Statement 2: Horizontal business combinations are likely to occur when management is attempting to
dominate a geographic segment of the market.
a. True; True
b. True; False
c. False; True
d. False; False
39. Statement 1: Control over the acquiree assets is directly achieved in an asset for asset exchange but indirectly
achieved in an asset (acquirer) for stock (acquiree) exchange. Statement 2: A business combination that occurs
where only one of the original entities in existence after the combination is called as statutory combination.
a. True; True
 b. True; False
c. False; True
d. False; False
40. Statement 1: In an acquisition where the acquirer pays cash for the acquiree assets, the book value of the acquirer
increases. Statement 2: In an acquisition of assets, the ownership structure of the acquiree does not change.
a. True; True
b. True; False
c. False; True
d. False; False
Question 41 – 49
The financial statements of Dark, Inc. and Light Company for the year ended December 31, 2023, prior to Dark’s
business combination transaction regarding Light, follow:

DARK LIGHT

Revenues P 2,700,000 P 600,000

Expenses 1,980,000 400,000
Net Income P 720,000 P 200,000

Retained earnings, 1/1 P 2,400,000 P 400,000

Net Income 720,000 200,000
Dividends (270,000) (0)
Retained earnings, 12/31 P 2,850,000 P 600,000

Cash P 240,000 P 220,000

Receivables and inventory 1,200,000 340,000
Buildings (net) 2,700,000 600,000
Equipment (net) 2,100,000 1,200,000
Total assets P 6,240,000 P 2,360,000

Liabilities P 1,500,000 P 820,000

Common stock 1,080,000 400,000
Additional paid-in capital 810,000 540,000
Retained earnings 2,850,000 600,000
Total liabilities and stockholder’s equity P 6,240,000 P 2,360,000
On December 31, 2023, Dark issued P600,000 in debt and 30,000 shares of its P10 par value common stock to the
owners of Light to purchase all of the outstanding shares of that company. Dark shares had a fair value of P40 per
share. Dark paid P25,000 to a broker for arranging the transaction. Dark paid P35,000 in stock issuance costs.
Light’s equipment was worth P1,400,000 but its buildings were only valued at P560,000.
41. What amount is the investment recorded on Dark’s books?
a. P1,540,000
b. P1,800,000
c. P1,825,000
d. P1,860,000
42. Compute the consolidated revenues for 2023:
a. P3,300,000
b. P2,700,000
c. P1,540,000
d. P720,000
43. Compute the consolidated expenses for 2023:
 a. P1,980,000
b. P2,005,000
c. P2,015,000
d. P2,040,000
44. Compute the consolidated cash account at December 31, 2023:
a. P460,000
b. P435,000
c. P425,000
d. P400,000
45. Compute the consolidated buildings (net) account at December 31, 2023:
a. P2,700,000
b. P3,370,000
c. P3,260,000
d. P3,300,000
46. Compute the consolidated goodwill account at December 31, 2023:
a. P0
b. P100,000
c. P125,000
d. P160,000
47. Compute the consolidated common stock account at December 31, 2023:
a. P1,080,000
b. P1,380,000
c. P1,480,000
d. P2,280,000
48. Computed the consolidated additional paid-in capital at December 31, 2023:
a. P810,000
b. P1,350,000
c. P1,675,000
d. P1,910,000
49. Compute the consolidated retained earnings at December 31, 2023:
a. P2,800,000
b. P2,825,000
c. P2,850,000
d. P3,425,000
50. Contingent consideration should be valued at
a. The fair value of the consideration on the date of acquisition.
b. The book value of the consideration at the date of acquisition.
c. The acquirer’s pro-rata share of the subsidiary’s net assets at book value at the date of acquisition.
d. The acquirer’s pro-rata share of the subsidiary’s net assets at fair value at the date of acquisition.