You are on page 1of 3

ADVANCED FINANCIAL ACCOUNTING & REPORTING

ACQUISITION OF NET ASSETS AND ACQUISITION OF STOCKS

ROBLEM 1. IDEAL Corporation is a company involved in manufacturing mining equipment. At the


beginning of the year, the board of directors of the said company has decided to enter into a business
combination with SUPERIOR Corporation and BRIGHT Corporation, top suppliers of materials in the mining
industry which they use in production. The said acquisition is expected to result in producing higher quality
mining equipment with lower total cost. The deal was closed on February 28, 2016 and the following
information was gathered from the books of the entities:

IDEAL SUPERIOR BRIGHT


Current assets P8,250,000 P2,340,000 P1,560,000
Noncurrent assets 18,750,000 15,300,000 10,200,000
Total assets P27,000,000 P17,640,000 P11,760,000

Liabilities P1,950,000 P1,260,000 P840,000


Ordinary shares, P100 par 16,491,000 10,681,200 7,120,800
Share premium 1,059,000 1,018,800 679,200
Retained earnings 7,500,000 4,680,000 3,120,000
Total equities P27,000,000 P17,640,000 P11,760,000

IDEAL, who has the legal and economic entity, will issue 135,000 of its ordinary shares in exchange for the
acquisition of SUPERIOR and 67,200 of its ordinary shares in exchange for the acquisition of BRIGHT. The
fair value of IDEAL’s shares is P150. In addition, the following adjustments should be made to the current
assets of Superior and Bright which has a fair value of P2,700,000 and P1,380,000, respectively. The
noncurrent assets has a fair value of P12,900,000 and P11,850,000 for Superior and Bright, respectively.

Compute for the following balances in the books of the surviving company on the date of acquisition:

1. Stockholders’ equity

A. P25,050,000
B. P55,380,000
C. P53,070,000
D. P57,690,000
2. Assets

A. P61,740,000
B. P55,440,000
C. P55,830,000
D. P56,400,000

PROBLEM 2. The Statement of Financial Position of LUMINA Corporation on June 30, 2016 is presented
below:
Current assets P195,000
Land 1,320,000
Building 660,000
Equipment 525,000
Total Assets P2,700,000

Liabilities 525,000
Ordinary shares, P5 par 900,000
Share premium 825,000
Retained earnings 450,000
Total equities P2,700,000
All the assets and liabilities of Lumina assumed to approximate their fair values except for land and building.
It is estimated that the land have a fair value of P2,100,000 and the fair value of the building increased by
P480,000. Enigma Corporation acquired 80% of Lumina’s outstanding shares for P3,000,000. The non-
controlling interest is measured at fair value.

1. Assuming the consideration paid includes control premium of P852,000, how much is the goodwill/(gain
on acquisition) on the consolidated financial statement?

A. P315,000
B. P(750,000)
C. P102,000
D. P252,000

2. Assuming the consideration paid excludes control premium of P138,000 and the fair value of the non
controlling interest is P736,500, how much is the goodwill/(gain on acquisition) on the consolidated
financial statement?

A. P469,500
B. P439,500
C. P301,500
D. P448,500

3. Assuming the consideration paid includes control premium of P222,000, how much is the goodwill/(gain
on acquisition) on the consolidated financial statement?

A. P259,500
B. P439,500
C. P340,500
D. P410,100

PROBLEM 3. Great Company has gained control over the operations of Superb Corporation by acquiring
85% of its outstanding capital stock for P15,480,000. This amount includes a control premium of P180,000.
Acquisition expenses, direct and indirect, amounted to P498,000 and P252,000 respectively.

Great Superb
Book Value Book Value
Cash P21,249,000 P768,000
Accounts receivable 1,800,000 1,950,000
Inventories 3,300,000 2,160,000
Prepaid expenses 891,000 750,000
Land 14,100,000 5,274,000
Building 9,360,000 3,348,000
Equipment 1,800,000 1,110,000
Goodwill - 1,800,000
Total assets P52,500,000 P17,160,000

Accounts payable 4,050,000 1,518,000


Notes payable 8,400,000 4,380,000
Ordinary shares, 50 par 20,400,000 4,800,000
Share premium 9,450,000 3,600,000
Retained earnings 10,200,000 2,862,000
Total equities P52,500,000 P17,160,000

The following were ascertained on the date of acquisition for the Acquired Corporation:

 The value of receivables and equipment has decreased by P150,000 and P84,000 respectively.
 The fair value of inventories is now P2,616,000 whereas the value of land and building has increased
by P2,826,000 and P642,000 respectively.
 There was an unrecorded accounts payable amounting to P162,000 and the fair value of notes is

Page 2 of 3
P4,428,000.

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

1. Total assets

A. P73,500,000
B. P60,558,000
C. P61,308,000
D. P76,788,000

2. Total shareholder’s equity

A. P42,000,000
B. P45,000,000
C. P39,300,000
D. P40,050,000

PROBLEM 4. On January 2, 2016, the Statement of Financial Position of Arden Company and Wonder
Company immediately before the combination are:
Arden Co. Wonder Co.
Cash P 2,700,000 P 90,000
Inventories 1,800,000 180,000
Property and equipment (net) 4,500,000 630,000
Total Assets P 9,000,000 P 900,000

Current Liabilities P 540,000 P 90,000


Ordinary shares, P100 par 900,000 90,000
Share premium 2,700,000 180,000
Retained Earnings 4,860,000 540,000
Total Liabilities and Stockholder’s Equity P 9,000,000 P 900,000

The fair value of Wonder Company’s equipment is P918,000.

Assume the following independent cases:

1. Assuming Arden Company acquired 80% of the outstanding shares of Wonder Company for
P820,800 and non-controlling interest is measured at the proportionate share of Wonder
Company’s identifiable net assets, how much is the consolidated stockholder’s equity on the date of
acquisition?

A. P8,460,000
B. P8,517,600
C. P8,679,600
D. P8,737,200

2. Assuming Arden Company acquired 90% of the outstanding shares of Wonder Company for
P1,458,000 and non-controlling interest is measured at fair value, how much is the total
consolidated assets on the date of acquisition?

A. P9,252,000
B. P10,710,000
C. P10,422,000
D. P8,964,000
-end of handouts-

Page 3 of 3

You might also like