CPA REVIEW SCFIOOL OF T}iE PHILIPPINUES

MANII-A

PRACTICAL ACCOI.';'ITING PROBLEMS II BUSINESS COMBINATION

dJERR.ERO 1 GERMAN DATE OF ACQUISITION
stY I ffi.lEsus I IJM / trRRER

PROBLEM 1.

STARCorporaticnisaCompi]n),invclvedinmanufactLtringcars,onJanuaryl,20l3,theboardofdirectors
and RISE Corporation'
of tire said company has deci,:1eci to acqLrire the net asieis of l',lovA Corporation
suppliers of materials they Lrss in prorluctir.rn. The merger is expected
to result in producing higher quality
cars with lower total cost
was gathered from the books of
The deal was clo:ecl on i.ebruary 29,2073 anci the following information
the entilies:
I
NOVA RISE
,G'il
I

,{ -o-i.lu=ipp[l-t:rjplql - ,t1P,,0:F
__]-
L,"JEq{g[t Cggglr :;zi,pq0 , 2rss0,0rc i 14!pq!,1
fl-,il,q!eete--- -l-- r,.stE'Xo L-Ptj!,-0-0q- e! oqo.oo-q I

n{ rn nnn
Liabilities
Liabilities jlt-,'!.!!!-" r-Il^i11"-"-l
-_---_l_-
@ *- -- : r/e,5oq
wqc -*,(41!2u-W-1-=r-
. ?qq i--1-1ry,99?]
---1,1s-0,
:il.-t:.:.'. L.
&d{letel-8!id-i! Gp1al
L1yy,ly,t?_t_:t",1, = -- .1-9?.P91 s2opqoj
. ----j.: : lll-1?l i
I Retaineci earninqs i l,25u.ooo _ _ zll.".u i . _
@-31g!niql----.:, I -o+]oqCqL -P2,e-40,o00 I -e1,05o.ooo-1
and 11,200 of its common
Star vrrlil issue 22,500 of its ccr'nnron stock in exchange for- the net assets of Nova
stock in exchange for the net assets of Rise, tnJ fair value of Star's shares is P150' In addition, the
following adjustments shc'".rlcl Le triade:

. Current assets of liluva ancj Risc have a fair value of tr450,000 and P230,000 respectiveiy'
Rise, respectively'
" Noncurrent assets nlve a fair value of P2,150,CCO arid P1,9/5,000 for Nova and

Ccmpute for the folio'win! balances of Star Compan;'on ihe date oi acquisition:

D Stockholders'equlty

A. P6, 118,5Ci-)
B. P7.980,00i'
c, P3,496,500
D. P9,615,000

A Assets

A. P10,290,000
B. P9,240,000
c. P10,500,000
PAT-7400
D P9,840,000
 ?aEc- I
PR,OBLEM 2.

Denim Co. merged into Kraft Corp, on July 1, 2013. In exchange for the net assets at fair market value of Denim
Co. amountirrg to P696,450 , Kraft issued 68,000 common siiares at P9 par value with a market price of P12 per
share.

Out of pocket costs of the combination were as follows:

iG-eel GsiiqltLErerifqqJpi !,Gu-e-qq!q[bi!rai'.q!- I - -PIi-6,q! I

l_A@it ruejq1lEc Iqgislrq_tjgt of_9!o9[ 1s:qe

1- 90,0qq i ;

l_p,,|.tri,lgl9{r_-qlrlq.Kqgtjllcalet . - !4,!9q i

i-grot-e-rtree-- - ---, -23-qop

L@ition ____ - _-.1_i__LlPqgl

-" rya19.;
-[-
rceneiJi ancl allocateilqxpsdiq- ,---
--- -f.l,ppp
@e'-.r-
i

--: -l -
;;Pqo-.
-
Denim rvill pay an adrJitionai cash consideration of P455,000 in the event ti,at Kraft's net income will be equal or
greater than P950,Ct00 for the period ended December 31, 2013. At acquisition date, lhere is a high probability of
ieaching the target qet income ancJ the fair rralue of the acJdilional consicJeratiolt ',vas determined to be P195,000.

Actual net incrme ior the period end:d Decembei-31,20i3 amounted to P1,250,J00. The additional cash
consideration was paid,

C VVhat is the arnount of goodwill to be recognized in the staler-lertt of finarrciai rrcsition as of December 31'
20t3?

A. P295,450
B. P3OB,5CG
c, P314,550
D, P326,550

B What is the amount of expense to be recogttized rn ihe statel[ent ci"ic:lipiefiefisive income for the year
ended December 3i, 2013?

A. P257,240
B. P517,244
c, P307,4llc
D. P412,500

PROBLEM 3.

On October L, 7-913, Winner Corporation acquired all i.ne clSS;€rr Sird asbri:ned all the liaoriities of Getter
Company by rssr.ring 20,000 snares rryith a fair vllr"re of Pc7 5 oer sliirl'e and an obligation to pay a
contingent consideration wiih a fair value of P750,000,

In additron, \Ninrrer paici the foilow!ng acquisiiion :eiaieri co:!:s:

P{\"**740C
 YaqeZ

and Getter, togelher with the fair

The Statement of i:inencial position as of September 30, 2013 of Winner
market value of the assets un6 116[ililies are presenled below:

s*k vai"tfi*yefge-L q99t(Valqe-Eel'-Jqpe

--i l=t610-qc0-!--r!tp.q4"----B1r/otf
l1J,f
iffi,r*.a,vabte -l---:ooxoo f
't@--l-gggf /uuuu'
33s,00c I _--70,000
33s.ooc
--P1L9P : )'1'uuu
f_:___. . __--_---l----,-;1ffi t- -:;ffi0 -!-1q00
- --7aooI
--7g
-:=ffin-l--_.-;7ono"i
l-- airc-o"r
Llrvetqlqe, -J- l.:.q!! ;- l;;,3$ tlrr,;;3i3
OOO

i
rlisausxp-s,rer- - ; uooo'oo0 [.-,
fE!g_--:-- -=t I gqop* z,ooo,ooo I ;;;;,
2q00'00J1
2,900,00!l ;H 33] [
e00/0qq--l!lg.uuy
--9!!Iqq --l!lg.ur
I suirdinq [L - i:]*:
ioaqop
i--- [- r99,qr!-]
!q0l_0r,_t_-,I99,qr!_]
19aqo!-
_Jl;;aqa
ffi-ffi,___:--l---_z_oqgqql-- -z;.qqoH*1---leqpry
*--i-Ps,000,000"t - . -:l -.:90'00! l--
qdluL- --- -l---,--.-i-- ^--
rotar acsetc
Tg!9]_e5e_1":.=___ Ptr50,000 L-Pa!!9000 I P2'860'009
|ri tr5,guu/uuu+-8l-?UqU
Notes qJqI-itr
stork 50 00_q!!o_ _B_S.qqq.
400,000
n{d r
I pqg_iLqgp tel
!_c1!rl i
L!!!pQO_i
Retainecl earni 750,000 liq,0qq"
Total equities P!,0_0_ql0! _L e2,sqE-o_o_q

statement of financial position of the

Cornpute for the b,:larrces that will be shov;r'l on the Cctober 1, 2013
surviving comPanY:

C Retained earnings

A. P480,000
B. P540,000
c. P526,000
D. P475,000

D Total assets

A. P7,015,000
R P6,980,000
C. P7,1 18,00C
P7,491,000

PROBLEM 4,
presented below:
The Statement of Financial Position cf Luster Co;-poration cn June 30, 2013 is

Current assets
Land

Equ

C Elal p!o5k, 5_ frsf _

Aq![!o na I pqlc!_t n _qqPltq]

for land ancl building'

All the assets and iiabiiitres of Luster assumeci to apprr:rimate their falr values except
of the building increased bY
It is estimaled lhat the iand have a faii- value of P350,000 and the fair value
PBC,OOC.
PA2-7+o(
 ?"g. *
Kernel Corporation acquired B0o/o of Luster's capital stock for P500,000,

C Assuming the consideration paid irrcludes contro! premium of P142,000, how much is the goodwill/(gain
on acquisition) on the consolidated financiai statement?

A. P60,000
B, P48,000
c. P42,000
D, P50,000

Assulning the ccnsideration paiC excludes -control premium of P23,000 and the fair value of the non
B controlling interest is P122,750, how muc6 is the goodwilll(gain on acquisition) on the consolidated
financial statement?

P 78,250
B. P73,254
C. P69,500
D, P74,750

Assuming the consideratiorr paid includes control Drerniunr cf P37,000, hotv rnuch is the gor:'Jwill/(gain
A on acquisition). on the consclidated financial statenrent?

A. P43,250
B. ?73,250
c. P56,750
D. P68,350

PROBTEM 5.

tsetter Company has gainect conlrol cver the operatii:ns r:f Calnr Corocration ily acouiring B5olo of its
outstanding capital stoik for p2,580,00C. This arnorrnt includes a contrcl prerrium of P30,000. Acquisition
expenses, direct and indirect, amounted to P83,0C0 and 42,0C0 respectivelv

r ..-|
, Better- i Caim _j
i
r-
i

qpel* ilg_e *Ee+ 6- ^t. tr.-1..^ : E-,iv lfrlrrr-

^\:..+: r[?ir *--
Vdue_:
1

lEqrL --f-:fuQol- ?l-zq.-oo!:-

@ll1-sq'yeuLe--- -]- ---lq-,r,0gc[ -'r5pqq, - - -
I

Irtyeltgriel I 5.s!,0c9 - 150,00! i

a -!r_^ 'r,1n I {)-,.1 /',rlil '

---
qurqu---_* - -: l,soO,qooi- 5c,tgo;
qqulPrnenl ___ i I-
l- :oo,ooo
_.iuuruuu Ii__ i85,1,00
!.9.,.,-'YY,l .. _
3o_o,cooI
,

ECd*rL _ __ I ___
I
ihn'r,rvr
Iolgi qs_sg!:
i

, _ Pq,7s0r!q0 :
J2,8i0,00!
--li
l-----,--.-li
i

LAligllls pgyaple_ _ __ Zp3p]q :-

+_ __575,000 . - - 130rqW-1,- -- -l
-
--- --
par- I-
*Nqtls-psv!q!e---
:-"'::-r:l-::=--- i,tqq,-o-q0-1
II -----J- : ='----.
-i--
_--- l

!spi!ei:!9"9!,Ee--)--'-zlq-c,'i-0!-;---!ry.qqq-i
capital stock,
;L_:-r'-- --:-', 50 :_-t.-_-j_.-__ _._!()(l.Oqq_
-- r11 _____=l_-- J,tq.c,,.:_o!_ .--.-t _
-.---- _ --l
Additional paio
I Rdditlonat paici in capital
caoital 1,575,000
1,575,00C ;i - -- _ tr00,000 I
'lJC,0.!! - -- i
]

i_Belq49d_eernilgs____l . _1,2,]_q,8qQ I Sit,tag ._ - i '

I Total equ!t1e9 Pj,ZsQ,0!o-L t-- -

- -8,9-bo,;O

The following was ascertained on the date cf acquisiticn for Calm Corporation:

. The value of receivables and equipmeni has decreased by P25,000 and P1,4,000 respectively.
. The fair value of inventories is riow P43ti,000 whereas the valire of lancl and building has increased by
P471,000 and P107,000 respeciively.
. There was an unrecorded accounts payabie amourrting io P27,000 and the fair value of notes
F738,000,
[eA&_"F*0c
 logc 5

Compute for the following balances to be presented in the consolidated statement of financial position at
the date of business combination:

B Total assets

A. P9,875,000
B. Pi0,093,000
c. P10,112,000
D, P9,215,000

A Tctal shareholder's equitY

A. P7,000,000
B. P7,500,000
c. P8,200,000
D, P8,000,000

PROBLEM 6.
prior to the
On January 2, 7A13, the Statement of Financial Position of Pepper and Steak Company
cornbination are:
Pepper Co. Steak Co.
Cash P 450,000 P 15,000
300,000 30,000
Inventories
Property and eqr"riPment (net) z5a,-Qaa u5-0!q
P_!J!!e9B g.$.'Q,000
lotalAssets

Current LiaLrilities P 90,000 P 15,000

150,000 I 5,000
Common Stcck, P100 Par
450,C00 30,000
Additiorral Paid in CaPital
B1o,0o0 90,000
Retained Earnings
Total Liabilities and Stockholder's Equity LLSog!0Q L15.9*gqQ

'The
fair value of Steak Company's equipment is P153,000'

@ependentcases:
for
1, Assuming pepper Company acquired TOoic of the outstanding commort stock of Steak Company
A p105,000 and Non-controlling interest is measurec at fair value of P61,000, how much is the
goodwill (gain on acquisition)?

A, P(17,000)
B, P17,000
c. P23,100
D, P(23,100)

2. Assuming pepper Company acquired B0% of lhe outstanding commorl stock ol Steak Company for
D p136,800 and Non-controlling interest is i-neasurecl at Non-controliing interest's proporlionate share
of Steak Company's identifiatle net assets, how much is the consolldated stockholder's equity on
the date of acquisition?

A. P1,41-0,000
B. P1,419,600
c. P1,446,600
D. P1,456,200
for
3, Assuming pepper Company acquired 90o/o of the outstanding common stock of Steak Company
A p243,000 and Non-controlling interest is rneasured at fair value, how much is the total
consolidated assets on the date of acquisition?

A, P1,542,000
PA2-72/o/
B. P1,785,000
c, PL,737,000
n D1 4A4 nr)n
 ?age Q

PROBLEM 7.

Acquirer Company acquires of Acquired Company's common stock for P190,000 cash and carries
25o/o
the investment using the cost method, After three months, Parent purchases another 600/o of
net assets
Subsidiary's common stock for P540,000. On this clate, acquired company reports identifiable
with carrying value of p720,000 and fair value ol p920,000. The liabilities of ihe acquired company has
p280,000. The fair value of the non-controlling interest is
a book value and a fair value of 15o/o
P i25,000.

A How much is the goodwill or (gain on acquisition)

A. P(17,000)
B. P250,000
c. P(30,000)
D. P263,000

PROBLEM 8.

Condensed statements of financial position ol Care Corp, anci Chai-m Corp. as of December 31, 2012 are
as follows:

Current assets
Noncurrent assets
Total assets

. iiabitities
'i LlaDllltlgs )trn
I fP 16,250
IO/Z)U
--- -L
D
_t r
aTqn
oLt rw _.
I

_: _7?,_?o-o_
qo_ -Ll-B.ZIq ,

t A!9rlip@-!.7-s-o- - - i - =^E2:9
-=--L---q?J!!
i Belcllgd-gglllrrgs -i- r?-'-co ]

- -]

On January ZOl3, Care Corp. issued 8,750 stocks',ryith a market value of PZ5lshare for the assets
l,
and liabilities of Charm Corp. the book value rerlects lhe fair value of the assets and liabilities,
except that the noncurrenl assets of Cnarm has a temporary appraisal of P157,500 and the
noncurrent assets of Care are overstated by P7,500. Contingent consideration, which i5
determinable, is equal to P3,750. Care also paid for the stock issuance costs worth P8,500 and
olher
acquisition costs amounting to P4,754.

On March 1,2013 the contingent considei-ation has a determinable amount cf P5,000. On June 1,

2013, the provisional fair value of the noncurren[ assets of Charm increased by P2,250.

D How much is the combined total assets at the end of Z0I3?

P435,500
B, P443,000
C. P442,000
D, P444,250
-end of hanciouts-

' :-1, .'"

?A2*71ob

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