BYE-BYE

CORPORATION
Solution:

Consideration Transferred (a) P1,110,461

Non-controlling Interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,110,461

Fair Value of net identifiable assets acquired (1.6M – (700,000)

0.9M)

Goodwill P410,000
Statement of Affairs:

Bye-bye Corporation is undergoing

liquidation. Relevant information as of
January 1, 20x1 is shown below:

ASSETS Carrying Amounts Realizable Values

Cash P200,000 200,000

Accounts Receivable 500,000 450,000

Equipment – net 600,000 150,000

Land 1,000,000 1,300,000

Total P2,300,000 P2,100,000.00

Statement of Affairs:
Bye-bye Corporation is undergoing
liquidation. Relevant information as of
January 1, 20x1 is shown below:

LIABILITIES Carrying Amounts Realizable Values

Accounts Payable 700,000 700,000

Salaries Payable 800,000 800,000

Note Payable 500,000 500,000

Loan Payable 750,000 750,000

Total P2,750,000 P2,750,000.00

 EQUITY

Share Capital P1,000,000

Deficit (1,450,000)

Capital Deficiency (450,000)

TOTAL LIABILITIES & EQUITY P2,300,000.00

Additional Information:
• Administrative expenses of P180,000 are expected to be incurred during the liquidation
process.
• The equipment is pledged as collateral security for the note payable.
• The land is pledged as collateral for the loan payable.
Cash Payment (P1M*50%) P500,000

PV of Future Cash Payment 310,461

Land Transferred to former owners of XYZ (@Fair Value) 300,000

Fair Value of Consideration Transferred P1,110,461

Requirements:
a. Compute for the amounts of the following: (1) Assets pledged to fully secured
creditors; (2) Assets pledged to partially secured creditors; and (3) Free assets
and Net free assets.
b. Compute for the amounts of the following: (1) Unsecured Liabilities with
priority; (2) Fully secured liabilities; (30 Partially secured liabilities; and (4)
Unsecured liabilities without priority.
c. Compute for the estimated deficiency.
d. Compute for the estimated recovery percentage of unsecured creditors without
priority.
e. Mr. A, an unsecured non-priority creditor, has a P500,000 claim. How can Mr. A
expect to collect from Bye-bye Corporation?
f. Prepare the statement of affairs.
 Requirement A:
Assets pledged to Realizable Value Available for
fully secured creditor unsecured Creditors
Land P1,300,000

Less: Loan Payable (750,000) P550,000

Assets Pledged to
Partially Secured
Creditor
Equipment 150,000

Free Assets

Cash 200,000

Accounts Receivable 450,000 650,000

Total Free Assets P1,200,000

Requirement A
Total Asset’s NRV P2,100,000

Less: Unsecured Liability w/ Priority (980,000)

Fully Secured Liability (750,000)

Partially Secured Liability (150,000)

NET FREE ASSETS P220,000

Requirement B
Unsecured Liabilities w/ Realizable Value Unsecured Liability w/o
Priority Priority
Salaries Payable P800,000
Administrative Payable 180,000
Total P980,000

Fully Secured Creditors

Loan Payable P750,000

Partially Secured Creditor

Note Payable P500,000

Equipment (150,000) P350,000

700,000 (A/P)
Total Unsecured liability w/o P1,050,000
Priority
Requirement C
Restated Assets P2,100,000

Less: Restated Liabilities (2,930,000)

Estimated Deficiency P850,000

Requirement D
Net Free Asset P220,000
Divided by: Total Unsecured 1,050,000
Liability w/o Priority
Estimated Recovery 21%
Percentage

Requirement E
Claim P500,000
Multiply by: Estimated 21%
Recovery Percentage
Collection P105,000
 Bye-bye Corporation
Statement of Affairs
As of January 1, 20x1
Book Values Assets Realizable Value Available for
Unsecured Creditors

Assets Pledged to fully secured creditors

P1,000,000 Land P1,300,000
- Loan Payable (750,000) P550,000
Assets pledged to partially secured creditors:
600,000 Equipment 150,000
- Note Payable (500,000)
Free Assets
200,000 Cash 200,000
500,000 Accounts Receivable 450,000 650,000

Total Free Assets 1,200,000

Less: Unsecured (980,000)

Liability w/ priority

Net Free Assets 220,000

Estimated Deficiency 830,000

P2,300,000 P1,050,000
Requirement F
 Bye-bye Corporation
Statement of Affairs
As of January 1, 20x1
Book Values Liabilities And Equity Realizable Value Unsecured non-
priority liabilities
Unsecured Liabilities w/ Priority
P800,000 Salaries Payable P800,000
- Administrative 180,000
Expense
Total P980,000
Fully Secured Creditors
750,000 Loan Payable 750,000

Partially Secured Creditors

500,000 Note Payable 500,000
- Equipment (150,000) 350,000
Unsecured Creditors
Accounts Payable 700,000 700,000
Total Unsecured 1,050,000
Creditors
(450,000) Shareholders Equity -
P2,300,000 P1,050,000

Requirement F
Statement of Realization and Liquidation:
2. Use the statement of financial position
of Bye-bye Corporation above ( carrying
amount only) and the additional
information below.

ASSETS Carrying Amounts

Cash P200,000

Accounts Receivable 500,000

Equipment – net 600,000

Land 1,000,000

Total P2,300,000
Statement of Realization
and Liquidation:
2. Use the statement of financial position
of Bye-bye Corporation above ( carrying
amount only) and the additional
information below.

LIABILITIES Carrying Amounts

Accounts Payable 700,000

Salaries Payable 800,000

Note Payable 500,000

Loan Payable 750,000

Total P2,750,000
 EQUITY

Share Capital P1,000,000

Deficit (1,450,000)

Capital Deficiency (450,000)

TOTAL LIABILITIES & EQUITY P2,300,000.00

Bye-bye’s liquidation is entrusted to Hello, a receiver.

Information on January 1, 20x1:
• Interest of P30,000 is expected to be paid on the loan.
• Liquidation costs of P180,000 are expected to be incurred..
Information on transactions for the year ended Dec. 31, 20x1:
a. P280,000 were collected on P400,000 accounts receivable.
b. The Equipment was sold for P150,000, net of P40,000 disposal
costs. The net proceeds were used to fully settle the note
payable. The creditor canceled the balance.
c. The land was sold for P1,500,000. Disposal costs of P100,00
were incurred on the sale. The net proceeds were used to fully
settle the loan payable, including the interest.
d. Half of the accounts payable and one-fourth of the salaries
payable were settled.
e. Liquidation costs of P240,000 were paid. Additional P120,000
are expected to be incurred in 20x2.
Requirements:
a. Provide the following journal entries in the books of the
receiver:
○i. opening journal entry
○ii. “new” assets and liabilities
○iii. Transactions during 20x1
b. Prepare the statement of realization and liquidation.
c. Compute for the ending balance of cash.
d. Compute for the ending balance of the estate deficit account and
make a reconciliation for the computed cash balance.
 Requirement A
i. Opening journal entry

Cash P200,000

Accounts 500,000
Receivable
Equipment 600,000

Land 1,000,000

Estate Deficit 450,000

Accounts P700,000
Payable
Salaries Payable 800,000

Notes Payable 500,000

Loan Payable 750,000

 Requirement A

ii. “new liabilities

Estate Deficit P30,000

Interest Payable P30,000

iii. Transactions during 2x21

a. Cash P280,000

Estate Deficit 120,000

Accounts P400,000
Receivable
Requirement A

iii. Transactions during 20x1

b. Cash P150,000

Estate Deficit 450,000

Equipment P600,000

Note Payable P500,000

Cash P150,000

Estate Deficit 350,000

 Requirement A

iii. Transactions during 20x1

c. Cash P1,400,000

Land P1,000,000

Estate Deficit 400,000

Loan Payable P750,000

Interest Payable 30,000

Cash P780,000
 Requirement A

iii. Transactions during 2x21

d. Accounts Payable P350,000
Salaries Payable 200,000
Cash P550,000

iii. Transactions during 2x21

e. Estate Deficit P240,000

Cash P240,000
Requirement B
Bye-bye Corporation
Statement of Realization and Liquidation
Dec. 31, 20x1

ASSETS

Assets to be realized Assets Realized

Accounts P500,000 Accounts P280,000

Receivable Receivable

Equipment 600,000 Equipment 150,000

Land 1,000,000 Land 1,400,000

Total P2,100,000 P1,830,000

Assets Acquired Assets not Realized

- Accounts P100,000
Receivable
 Requirement B
Bye-bye Corporation
Statement of Realization and Liquidation
Dec. 31, 20x1
LIABILITIES
Liabilities Liquidated Liabilities to be liquidate
Notes Payable P150,000
Accounts Payable P700,000

Loan Payable 750,000

Salaries Payable 800,000
Accounts Payable 350,000 Notes Payable 500,000

Salaries payable 200,000 Loan Payable 750,000

Interest Payable 30,000

Total P1,480,000 Total P2,750,000

Liabilities not Liquidated Liabilities Assumed
Accounts Payable P350,000 Interest Payable P30,000

Salaries Payable 600,000

Total P950,000
Requirement B

SSUPPLEMENTARY ITEMS

Supplementary Supplementary
Expenses Income
Liquidation Cost P240,000 -

Net loss during (60,000)

the period
P4,710,000 P P4,710,000
Requirement C

Ending Balance of Cash

Beg. P200,000

Assets Realized 1,830,000 P1,480,000 Liabilities

liquidated
240,000 Liquidation Cost

P2,030,000 P1,720,000

P310,000
Requirement D

Ending Balance of Estate Deficit

Opening Bal. P 450,000

New Liability 30,000

a. 120,000

b. 450,000 b. P350,000

e. 240,000 c. 400,000

P1,290,000 P750,000

P540,000
Requirement D

Reconciliation of Cash
Assets Liabilities + Equity

Cash P 310,000 P950,000 Liabilities not

liquidated
Asset not realized 100,000 (540,000) Estate Deficit

Total: P P410,000 P410,000

Solution:

Assets P1,500,000

Building, net of cost to sell 500,000

Patented Technology 100,000

Total P2,100,000

Less: Liabilities (1,000,000)

Fair Value of Net identifiable assets acquired P1,100,000

Solution:

Consideration transferred (a) P1,110,461

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,110,461

Fair Value of net identifiable assets acquired (1.6M-.9M) (700,000)

Goodwill P410,461
(a) Cash payment (P1M x 50%) P500,000

PV of future cash payment (P1M x 50% x PV of 310,461

@10%, n=5)

Land transferred to former owners of XYZ (at fair 300,000

value)

Fair value of consideration transferred P1,110,461

Solution:

Consideration transferred (1M -100K dividends on) P900,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P900,000

Fair Value of net identifiable assets acquired (700,000)

(1.6M-.9M)

Goodwill P200,000
Journal Entries

Jan. 1, 20x1 Identifiable Assets Acquired P1,600,000

Goodwill 200,000

Liabilities Assumed (including P900,000

dividends)

Cash 900,000

Jan. 1, 20x1 Dividends Payable 100,000

Cash 100,000

to record the extinguishment of

the purchased dividends
Solution:

Consideration transferred P1,000,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,000,000

Fair value of net identifiable assets acquired (1.6M- (730,000)

20K costs to sell + 50K R&D - 9M liabilities)

Goodwill P270,000
General recognition and measurement principles:

The net identifiable assets acquired in a business combination are

recognized when they meet the recognition criteria under the Conceptual
Framework and are measured at acquisition-date fair values in accordance
with PFRS 3.

Exception to the Exceptions to both the Exceptions to the

recognition principle recognition and measurement principle
measurement principles

1. Contingent liabilities - 1. Deferred taxes - (PAS 1. Reacquired rights -

recognized when they
represent a present
obligation and their fair
value is determinable,
even if the outflow is
improbable.
12 is applied). measured based on the
remaining term of the
2. Employee benefits - related contract.
(PAS 19 is applied).
2. Share-based payment -
3. Indemnification assets- (PFRS 2 is applied).
recognized and measured
on the same basis as the 3. "Held for sale" assets
indemnified item. measured - at fair value
less costs to sell.
Solution

 Consideration transferred P1,000,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,000,000

Fair value of net identifiable assets acquired (a) (720,000)

Goodwill P280,000
(a) Fair value of identifiable assets acquired, including P1,620,000
intangible assets on the operating lease with favorable
terms (P1.6M + P20K)

Fair value of liabilities assumed (900,000)

Fair value of net identifiable assets acquired P720,000

Solution

 Consideration transferred P1,000,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,000,000

Fair value of net identifiable assets acquired (b) (680,000)

Goodwill P320,000
(b) Fair value of identifiable assets acquired P1,600,000

Fair value of liabilities assumed, including liability on the (920,000)

operating lease with unfavorable terms (P900K+ P20K)

Fair value of net identifiable assets acquired P680,000

Solution

 Consideration transferred P1,000,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,000,000

Fair value of net identifiable assets acquired (1.6M – (700,000)

0.9M)
Goodwill P300,000
 Carrying Amounts Fair Values

Other Assets P1,600,000 P1,480,000

Computer Software 100,000 -

Patent - 50,000

Goodwill 100,000 20,000

Assets P1,800,000 P1,550,000

Liabilities P400,000 P450,000

Solution

Consideration transferred P1,500,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,500,000

Fair value of net identifiable assets acquired (a) (1,130,000)

Goodwill P370,000
(b) Fair value of identifiable assets acquired, P1,580,000
excluding computer software and recorded goodwill
but including patent and R&D
(P1.55M -20K goodwill +50K R&D)

Fair value of liabilities assumed (450,000)

Fair value of net identifiable assets acquired P1,130,000

 Type of intangible asset Fair value

Customer list P40,000

Customer contract #1 30,000

Customer contract #2 20,000

Order (production) backlog 10,000

Internet domain name 15,000

Trademark 25,000

Trade secret processes 35,000

Mask works 45,000

Total P220,000
Solution

Consideration transferred P1,000,000

Non-controlling interest in the acquiree -

Previously held equity interest in the acquiree -

Total P1,000,000

Fair value of net identifiable assets acquired (b) (920,000)

Goodwill P80,000
(a) Fair value of identifiable assets acquired, including all P1,820,000
of the unrecorded intangible assets
(P1.6M - P220K)

Fair value of liabilities assumed (900,000)

Fair value of net identifiable assets acquired P920,000