COLLEGE OF BUSINESS AND ACCOUNTANCY

Mabini Extension, Cabanatuan City

Name: Score:
Year & Block: Date:
AC 11/MAC 2b – Accounting for Business Combinations
Quiz #1

1. The KURIMAW Company had these accounts at the time it was acquired by TOKNENENG Inc.:
Cash P36,000
Accounts Receivable 457,000
Inventories 120,000
Plant, property, & equipment 696,400
Accounts payable 350,800

TOKNENENG paid P1,400,000 for net assets of KURIMAW. It was determined that fair market values of inventories
and PPE were P133,000 and P900,000, respectively. An assumed contingent liability arising from past events with a fair
value amounting to P10,000 and such amount is considered a reliable measurement. In the books of TOKNENENG, this
transaction resulted in a goodwill of what amount?
Consideration
transferred 1,400,000.00
Less: FVNIA

Cash 36,000.00

Accounts Receivable 457,000.00

Inventories 133,000.00

PPE 900,000.00

Accounts Payable (350,800.00)

Provision for Liability (10,000.00) 1,165,200.00

Goodwill 234,800.00

2. The ISAW Company acquired 100% of the BBQ Company for a consideration transferred of P112million. At the
acquisition date, the carrying amount of BBQ’s net assets was P100 million and the fair value was P120 million.
How should the difference between consideration transferred and the net assets acquired be presented in ISAW’s
financial statements, according to PFRS 3 Business Combinations?

GAIN ON BARGAIN PURCHASE P8 MILLION

3. The balance sheet of CHINGCHONG Company, along with market values of the assets and liabilities is as
follows:

CHINGCHONG Company
Book value Market value
 Dr (Cr) Dr (Cr)
Current assets P2,000,000 P1,500,000
Plant & equipment, net 30,000,000 35,000,000
Patents 100,000 2,000,000
Completed technology 0 10,000,000
Broader customer base 0 16,000,000
Technically skilled workforce 3,000,000
Potentially profitable future contracts 2,000,000
Licensing agreements 0 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 stock, P10 par (1,000,000)
Additional paid-in capital (5,000,000)
Retained earnings 1,700,000

a. SUMMER company pays P100,000,000 in cash for CHINGCHONG company’s assets and liabilities. SUMMER
records goodwill of what amount?

P77,500,000 = P100,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000 + P4,000,000 – P30,000,000)

b. Now assume SUMMER company pays P10,000,000 in cash to acquire the assets and liabilities of
CHINGCHONG company. SUMMER records a gain on bargain purchase of what amount?

(P12,500,000) = P10,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000 + P4,000,000 – P30,000,000)

c. SUMMER paid P100,000,000 in cash for Salt. Three months later, CHINGCHONG’s patents are determined to
have been worthless as of the date of acquisition. The entry to record this information includes: (shade the
appropriate answer)
o A debit to loss of P2,000,000
o A debit to patents of P2,000,000
o A debit to goodwill of P2,000,000
o A debit to retained earnings of P2,000,000

GOODWILL P2,000,000
PATENTS P2,000,000

d. SUMMER paid P10,000,000 in cash for CHINGCHONG. Three months later, it is determined that
CHINGCHONG’s acquisition-date (as of the date of acquisition) liabilities omitted a pending lawsuit values at
P2,000,000. The entity to record this information includes: (shade the appropriate answer)
o A debit to bargain purchase gain on acquisition of P2,000,000
o A debit to liabilities of P2,000,000
o A debit to goodwill of P2,000,000
o A debit to retained earnings of P2,000,000
GAIN ON ACQUISITION P2,000,000
LIABILITIES (LAWSUIT) P2,000,000

Prepared by:

GLYZELLE ANN Y. FERNANDEZ, CPA

Course Instructor