AFAR C1 MC Answers

PROBLEMS (STRAIGHT)
I - Statutory Merger (Chapter 1) versus Stock Acquisition (Chapters 2-5)

Valuation of assets and liabilities acquired, stock acquisition, goodwill,
stock price contingency.
Below is the condensed balance sheet of Sons, Inc. along with estimates
of fair values. Pop, Inc. is planning to acquire Sons by issuing 100,000
shares of its P1 par value common stock (market value P8/share) in
exchange for all the outstanding common stock of Sons, Pop also
guarantees the value of its shares issued. The expected present value of
this stock price contingency is P200,000.
Pre-Combination Condensed Balance Sheet
Book Fair
Value Value
Current Assets 380,000 P 350,000
Plant assets 740,000 810,000
Total assets P 1,
120,000
Liabilities P 500,000 450,000
Common stock 50,000
Additional paid-in 170,000

capital
Retained earnings 400,000
Total liabilities and P 1,

equity 120,000
Required:
1. Statutory Merger (Chapter 1): prepare Pops'
(acquirer/acquiring) entry(ies) to record the acquisition.
2. Stock Acquisition (Chapters 2-5): prepare Pops'
(parent/acquirer/acquiring) entry to record the acquisition.
Solution:
1. Current Assets 350,000
Plant Assets 810,000
Goodwill 290,000*
Liabilities 450,000
Common Stock, 1par 100 shares 100,000
Additional Paid-in capital(7x100)/SPrem. 700,000
APIC Stock Contingent Consideration 200,000
Common Stock ( 100k shares x 8 ) 800,000

Expected probability of PV stock price contingency 200,000
Total Consideration Transferred: 1,000,000
FV of net identifiable assets and liabilities acquired
Current Assets 350,000
Plant Assets 810,000
Liabilities (450,000) (710,000)
*Goodwill 290,000
2. Investment in Subsidiary(consi transferred) 1,000,000

Common Stock, 1par 100 shares 100,000
Additional Paid- in capital(7x100) 700,000
APIC Stock Contingent Consideration 200,000
Consideration transferred:
Common Stock ( 100 shares x 8 ) 800,000
PV stock price contingency 200,000
FV of Subsidiary 1,000,000
BV of Shareholders’ Equity of Subsidiary:
Common Stock, 50,000
Additional Paid-in capital 170,000
Retained Earnings 400,000 (620,000)
Allocated Excess 380,000
Add (Deduct): Over/Undervaluation of net assets
Decrease in Current Asset(350-380) (30,000)
Increase in Plant Asset(810-740) 70,000
Decrease in Liabilities(450-500) 50,000 (90,000)
*Goodwill 290,000
�There is an undervaluation of assets for 90,000. Therefore

90,000 is deducted from allocated excess.
Notes:
 When we involve contingent consideration, it will be included in
the:
o Liability - if paid in cash or other liabilities
o Equity - if the company will be issuing additional shares
III - Assets and Liabilities Acquired, Goodwill and Bargain Purchase Gain,
Contingent Consideration, Changes in Contingent Consideration
Here are the pre acquisition balance sheets of Pop Company and Sicle
Company on December 31, 20x5:
Pop Co. Sicle Co.
Book Book Market

Value Value Value
Current Assets P 5,000,000 P 2,000,000 P 1,500,000
Investments 1,000,000 500,000 500,000
Land 10,000,000 5,000,000 6,000,000
Building (net) 40,000,000 25,000,000 16,000,000
Equipment (net) 25,000,000 10,000,000 2,000,000
Total Assets P P
81,000,000 42,500,000
Current Liabilities P 4,000,000 P 1,500,000 P 1,500,000
Long-Term Liabilities 20,000,000 10,000,000 12,000,000
Common Stock, P10 5,000,000 1,000,000

par
APIC 40,000,000 20,000,000
Retained Earnings 12,000,000 10,000,000
Total Liabilities and P P

Equity 81,000,000 42,500,000
In addition to the above, Sicle Co. has identifiable intangibles with a fair
value of P5.000,000, not recognized on its books but appropriately
capitalized by Pop.
On January 1, 20x6, Pop issues 400,000 shares of its stock, with a par
value of P10/share and a market value of PlO0/share, to acquire Sicle
Company's assets and liabilities. SEC registration fees are Pl1,100.000.
paid in cash.
Required:
1. Determine the following:
(a) Total assets;
(b) Total liabilities;
(c) Additional paid-in capital (share premium);
(d) Retained earnings (accumulated profit or loss); and
(e) Stockholders'/Shareholders' equity:
a. Assets of Pop .(81M - 1.1M) P 79,900,000

Assets of Sicle:
Current Assets P 1,500,000
Investment 500,000
Land 6,000,000
Building (net) 16,000,000
Equipment (net) 2,000,000
Initial Goodwill 5,000,000
Goodwill 22,500,000* 53,500,000
Total Assets P 133,400,000
b. Liabilities of Pop: (4M + 20M) P 24,000,000

Liabilities of Sicle:
Current Liabilities P 1,500,000
Long Term Liabilities 12,000,000 13,500,000
Total Liabilities P 37,500,000
c. Pop: (40M + (90 X 400k) - 1.1M) P 74,900,000
Sicle: - .
APIC (Share Premium) P 74,900,000
d. Pop: P 12,000,000
Sicle: - .
Retained Earnings (AP/L) P 12,000,000
e. Pop: 5M + (10 X 400k) P 9,000,000

APIC (Share Premium) - c 74,900,000
Retained Earnings (AP/L) - d 12,000,000
Stockholders’ Equity P 95,900,000
JOURNAL ENTRIES:
Current Assets 1,500,000
Investment 500,000
Land 6,000,000
Identifiable Intangibles 5,000,000
Goodwill 22,500,000
Current Liabilities 1,500,000
Long Term Liabilities 12,000,000
Common Stock 4,000,000
APIC (90 x 400 shares) 36,000,000
Share Issue Cost 1,100,000

Cash 1,100,000
 Debited as deduction for apic

Consideration Transferred (100 x 400 shares) 40,000,000
Less: FV of assets and liabilities acquired
Investment 500,000
Land 6,000,000
Current Liabilities (1,500,000)
Long Term Liabilities (12,000,000) 17,500,000
*Goodwill 22,500,000
2. Assume Pop issued 90,000 shares of stock at a market value of P100

per share with
Contingent cash consideration amounted to P500,000 that is present
obligation and
reliably measurable, expected present value of earnout agreement of
P200,000 and
probability present value of stock price contingency agreement of
P300,000. The
following Out-of-pocket costs in relation to acquisition are as follows:
Legal fees for the contract of business combination 80,000

Broker's fee 40,000
Accountant's fee for pre-acquisition audit 100,000
Other direct cost of acquisition 70,000
Internal Secretarial, general and allocated expenses 60,000
Documentary stamp tax on the new shares 20,000
SEC registration tee of issued snores 90,000
Printing costs of share certificates 50,000
Stock exchange listing fee 30,000
Total Out of Pocket Cost 540,000
Determine the following:

(a) Total assets;
(b) Total liabilities:
(c) Additional paid-in capital (share premium);
(d) Retained earnings (accumulated profíft or loss; and
(e) Stockholders'/Shareholders' equity:
a. Assets of Pop.(81M - 540K) P 80,460,000

Assets of Sicle:
Current Assets P 1,500,000
Investment 500,000
Land 6,000,000
Identifiable Goodwill 5,000,000 31,000,000
b. Liabilities of Pop: (4M + 20M + 200k) P 24,200,000

Liabilities of Sicle:
Current Liabilities P 1,500,000
Long Term Liabilities 12,000,000 13,500,000
c. Pop: 40M + (90 X 90k shares) + 300k P 48,400,000

Less: Stock Issuance Cost:
DS 20,000
SEC Reg fee 90,000
Printing costs SC 50,000 160,000
APIC of Pop 48,240,000
Sicle: - .
APIC (Share Premium) P 48,240,000
d. Pop:RE,Initial P 12,000,000
Legal fees (80,000)
Broker's fee (40,000)
Accountant's fee for pre-acquisition audit (100,000)
Other direct cost of acquisition (70,000)
Internal Secretarial, general and allocated exp (60,000)
Stock exchange listing fee (30,000)
Total 11,620,000
Negative Goodwill/GAIN 8,000,000*
Sicle: - .
Retained Earnings (AP/L) P 19,620,000
f. Pop: 5M + (10 X 90k) P 5,900,000

APIC (Share Premium) - c 48,240,000
Retained Earnings (AP/L) - d 19,620,000
Stockholders’ Equity P 73,760,000
Consideration Transferred (100 x 90M shares) 9,000,000

PV of Cash Contingent Consideration 200,000
PV of Stock Price Contingent 300,000
Total Consideration Transferred 9,500,000
Investment 500,000
Land 6,000,000
*Negative Goodwill 8,000,000
*Negative goodwill is added to the retained earnings
3. Now assume that Pop issues 100,000 shares for all of Sicle's shares, as
in requirement (1) above, and Pop agrees to pay cash fo Salt's previous
Owners if the combined earnings of Pop and Sicle exceed a certain
threshold over the next two years. The expected present value of the
earnings contingency is P8,000,000. Determine the amount of
g00dwill (bargain purchase gain or gain on acquisition).
Consideration Transferred (100 x 100M shares) 10,000,000

Estimated Liability for Contingent Consideration 8,000,000
Total Consideration Transferred 18,000,000
Investment 500,000
Land 6,000,000
Goodwill 500,000
4. Assume the same facts as in requirement (3). Before the contingency

period is over, the estimated value of the earnings contingency declines
to P7,800.000. Prepare Pop's entry to reflect the change in value of the
earnings contingency, if
(a) the value decline occurs within the measurement period, or
(b) the value decline is due to events occurring subsequent to acquisition.
*The measurement period is only good for 1 year. - mod.2
Journal Entries:
a. Estimated Liability for contingent consideration 200,000
Goodwill (8M - 7.8M) 200,000
b. Estimated Liability for contingent consideration 200,000

Gain on Acquisition(8M - 7.8M) 200,000
Gain on Acquisition 200,000

Retained Earnings 200,000
MULTIPLE CHOICE PROBLEM :

1. Manet Corporation exchanges 150,000 shares of newly issued P1 par
value common stock with a fair market value of P25 per share for all of
the outstanding P5 par value common stock of Gardner Inc and Gardner
is then dissolved. Manet paid the following costs and expenses related to
the business combination:
Costs of special shareholders’ meeting to vote on the merger

P 13,000
Registering and issuing securities 14,000
Accounting and legal fees 9,000
Salaries of Manet’s employees assigned to the implementation of the
merger 15,000
Cost of closing duplicate facilities 11,000
In the business combination of Manet and Gardner:

a. all of the items listed above are treated as expenses.
b. all of the items listed above except the cost of registering and
issuing the securities are expensed.
c. the costs of registering and issuing the securities are
deducted from the fair market value of the common stock
used to acquire Gardner.
d. only the costs of closing duplicate facilities, the salaries of Manet's
employees assigned to the merger, and the costs of the
shareholders' meeting would be treated as expenses.
PFRS 3, recognizes acquisition cost related as expenses in the period at

which the costs incurred and the services received,with one exception,
the cost to issue equity securities as recorded to ‘’debit - APIC’’. In the
currency, because registering and issuing the certificates are deducted
from the FV of the common stock so that would mean ‘’debit - APIC’’
2-6: DJ pays P 5,000,000 in cash and issues 50,000 shares of stock with a
par value of P10/share and fair value of P40/share to acquire Builder's
assets and liabilities on January 1, 20x4. Refer to page 76 (, Dayag 2021)
for the balance sheet just prior to the acquisition and other details:
2. Calculate the amount of consideration transferred:

a. P 7,000,000
b. P 7,694,440
c. P 8,094,440
d. None of the above
Cash - to former shareholder P 5,000,000

FV of stock - to former shareholder (50k x 40) 2,000,000
PV of cash contingent consideration (4M x .25 x .69444) 694,440
Total consideration transferred P 7,694,440
3. Calculate the goodwill that should be reported on this transaction:
a. P 1,724,440
b. P 2,384,440
c. P 2,434,440

Less: FV of net identifiable assets acquired
PPE 3,000,000
Identifiable Intangible Assets 7,000,000
Previously unreported Intangible:
Advance Production technology 170,000
Non-competition agreements 70,000
Customer contracts 50,000
Long term debt (5,800,000)
Prev. unreported warranty con. obli. (280,000)
(5,310,000)
Goodwill P 2,384,440
Pero hambl ni ma’am letter C pro ang amount ya na for letter B.
4. The total asset after the acquisition:

a. P 70,400,000
b. P 71,284,440
c. P 71,574,440
Initial Asset DJ 62,400,000

FV of net identifiable assets acquired
PPE 3,000,000
Identifiable Intangible Assets 7,000,000
Goodwill 2,384,440
Direct Cost (400,000)
Cost to issue (200,000)
Cash consideration (5,000,000)
*
Unreported Intangibles:
Cash Paid (290,000)
Total 0
5. The total liabilities after the acquisition:

a. P 43,300,000
b. P 44,274,440
c. P 44,554,440
Initial Liabilities DJ (6.5M +30M) 36,500,000

Current Liabilities 1,000,000
Long term debt 5,800,000
Prev. unreported warranty con. obli. 280,000
PV of cash contingent consideration 694,440
6. The stockholders’/shareholders/equity holders of DJ after the

acquisition:
a. P 25,900,000
b. P 27,300,000
c. P 27,900,000
Common Stock (200k + 300k) P 700,000

APIC: 22M + (50k x 30=1.5)- 200k 23,300,000
RE (4M - 400k) 3,600,000
Accum. OCI 100,000
Treasury Shares (400,000)
Stockholders Equity P 27,300,000
7-13: Dr. Pepper Snapple Group (DPSG) acquired the assets and
liabilities of Turquoise Water Inc. on September 30, 2018, in a merger.
The acquisition involves the following payments: Refer to page 77 (,
Dayag 2021)

a. P 92,000,000
b. P 97,000,000
c. P 104,600,000
Cash paid P 85,000,000
New stock issued (100k x 50) 5,000,000
PV of Earnings contingent 2,000,000
8. Calculate the goodwill that should be reported on this transaction:
a. P 86,200,000
b. P 91,200,000
c. P 92,200,000

Less: FV of net identifiable assets acquired
PPE 10,000,000
Patents and trademarks 20,000,000
Bottlers franchise rights 5,000,000
Customers contracts for cp 1,000,000
I’net domain names 3,000,000

Customer order backlogs 1,500,000
Employment Contracts 500,000
Reg. company names 1,000,000
Well-publicized i’net DN 2,000,000
Trade dress 1,200,000
Proprietary databases of ind.data 800,000
Trade Secrets 400,000
Current Liabilities (400,000)
Long term debt (41,000,000) (5,800,000)
Goodwill P86,200,000
9. The total asset in the balance sheet of DPSG on september 30, 20x5:
a. P 185,800,000
b. P 190,800,000
c. P 191,800,000
Initial Asset DPSG 150,000,000

Cash paid for acquisition (85,000,000)
Cash paid for consulting (12,000,000)
Cash paid for stock registration (600,000)
PPE 10,000,000
Patents and trademarks 20,000,000
Bottlers franchise rights 5,000,000
Customers contracts for cp 1,000,000
I’net domain names 3,000,000
Customer order backlogs 1,500,000
Employment Contracts 500,000
Reg. company names 1,000,000
Well-publicized i’net DN 2,000,000
Trade dress 1,200,000
Proprietary databases of ind.data 800,000
Trade Secrets 400,000
Goodwill 86,200,000 133,400,000
10. The total liabilities in the balance sheet of DPSG on September 30,
20x5:
a. P 13,000,000
b. P 43,400,000
c. P 54,400,000
Initial Liabilities of DPSG (10M + 1M) 11,000,000

PV of Earnings contingency 2,000,000
Liabilities Assumed:
Current Liabilities 400,000
Long term debt 41,000,000 41,400,000
Total Liabilities 54,400,000
11. The common stock in the balance sheet of DPSG on September 30,
20x5:
a. P 77,200,000
b. P 77,700,000
c. P 77,250,000
Common Stock - DSPG 77,200,000

Issue @ par - (100k x .50) 50,000
Common stock P 77,250,000
12. The APIC in the balance sheet of DPSG on September 30, 20x5:
a. P 36,200,000
b. P 40,550,000
c. P 44,700,000
APIC - DPSG 36,200,000

APIC for issuance 4,350,000
Total P 40,550,000
5m - 650k (6oo+50) = 4.35m

13. The stockholders’/shareholders/equity holders of DJ after the
acquisition:
a. P 131,400,000
b. P 139,000,000
c. P 161,000,000
Common stock P 77,250,000

APIC 40,550,000
RE -initial 8,800,000?
Accum OCI 5,500,000
Treasury Stock (700,000)
RE P 131,400,000
14-16: Geri acquired the net assets of Caigo Corp. on July 1,20x5. In
exchange for net assets at fair market value of Caiga Co. amounting to
P835,740, Geri issued 81,600 shares at a market price of P12 per share
(P9 par value). Refer to page 78 (, Dayag 2021)
14. What is the amount of goodwill to be recognized in the SFP as of

December 31, 20x5?
a. P 0
b. P 257,040
c. P 377,460
d. P 425,640
Issued common shares(81,600 x 12) P 979,200

Contingent consideration 234,000
Total consideration 1,213,200
FV net identifiable assets and liab. Assumed (835,740)
Goodwill P 377,460
15. What is the amount of expense to be recognized in the SFP as of

December 31, 20x5, assuming that Geri issued 45,000 share capital on
July 1, 20x5?
a. P 0
b. P 257,200
c. P 377,640
d. P 620,640
Issued shares (45,000 x 12) P 540,000

Contingent consideration 234,000
Total 774,000
FV net identifiable assets and liab. Assumed (835,740)
Bargain Purchase Gain P 61,740
Since the target is met ,therefore the actual payment of contingent

consideration were as follows:
Estimated Liability of contingent consideration 234,000
Loss/Expense on contingent consideration 312,000
Cash 546,000
Out-0f-Pocket:
Legal Fees 42,720
Broker’s Fee 28,320
Accountant’s fee 96,000
Other direct Cost 90,000
General and allocated exp 51,600
Total 308,640
Loss/Expense on contingent consideration 312,000
Total Expense P 620,640
16. What Amount to be chargeable to operations/profit or loss (net) for

the year ended December 31, 20x5, assuming that Geri issued 45,000
shares ?
a. P 0
b. P 257,200
c. P 315,720
d. P 558,900
Total Expense P 620,640

Bargain Pu rchase Gain (61,740)
Total P 558,900
17. Maplewood Corporation purchased the net assets of West

Corporation on January 2, 20x4 from P500,000 and also paid P20,000
indirect acquisition costs. Refer to page 77 (, Dayag 2021) for West
balance sheet on January 2, 20x4.
The bargain purchase gain amounted to:

a. None
b. P 30,000
c. P 50,000
d. P 70,000
Acquisition related expenses P 20,000

Accounts Receivable 180,000
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
Bargain Purchase Gain 50,000
Long term debt 160,000
Cash 520,000
18-20: On January 1, 20X5, CC Co acquired the identifiable net assets of
DD, Inc. On this date, the identifiable assets acquired and liabilities
assumed have fair values of P7,680,000 and P4,320,000, respectively. CC
Co incurred the following acquisition cost: Refer to page 77 (, Dayag
2021)
18. How much is the goodwill (bargain purchase gain) on the business
combination?
a. P 667,200
b. P 720,000
c. P 1,440,000
Contingent consideration:
Issued shares (9,600 x 500) P 4,800,000
FV net identifiable assets and liab. Assumed
7,680,000 - 4,320,000 (3,360,000)
19. How much is the total amount charged to profit or loss in relation to
the transaction above?
a. P 624,200
b. P 648,000
c. P 816,000
Acquisition related costs:

Legal Fees 48,000
Allegiance Cost 480,000
Gen and Admin 96,000
Listing fees 24,000
Total 648,000
20. Ignoring the consideration and issue costs above, but instead,
issued both bonds with a face value of P4,800,000 before incurring the
transaction costs. Transaction Costs issuing the bonds amounted to
P240,000. How much is the goodwill (gain on bargain purchase) on the
business combination.
a. P 667,200
b. P 720,000
c. P 1,440,000
FV Issued bonds P 4,800,000
FV net identifiable assets and liab. Assumed
7,680,000 - 4,320,000 (3,360,000)
21-22: Balance sheet of Hope Corporation at January 1, 20x4 as follows:
Refer to page 80 (, Dayag 2021)

a. P 2,240,000
b. P 2,251,000
c. P 2,256,000
d. Not determinable
(80,000 x 28) = P 2,240,000
22. Calculate the goodwill from the business combination:

a. P 475,000
b. P 520,000
c. P 531,000
d. Not determinable
Consideration transferred P 2,240,000

FV net identifiable assets -Hope
(2,720,000 + 200,000 - 1,200,000) (1,720,000)
Goodwill P 520,000
23. Pretzel Company acquired the assets (except for cash) and assumed
the liabilities of Salt Company on January 2, 20x4. Calculate any goodwill
from the business combination.
a. P 0
b. P 683,000
c. P 798,000
d. P 848,000

Inventory 330,000
Land 550,000
Building and Equipment 1,144,000
Goodwill 848,000
Bonds Payable 450,000
Premiums on Bonds Payable 45,000
Preferred Stock (15k x 100) 1,500,000
Common Stock (30k x 10) 300,000
Additional Paid in Capital (30k x 15) 450,000
Cash 50,000
24. Air Philippines June 1, 20x5 balance sheet is as follows (in millions).
(Page 81 Dayag,2021)
Phlippine Airlines acquired Air Philippines on June 1, 20x5. Philippine

Airlines accounted for the acquisition by putting Air Philippines' assets
and liabilities directly on its own books. Air Philippines cash and
receivables, investments, and current liabilities were reported at market
value. It’s maintenance supplies had a fair value of P400 million, flight
equipment had a fair value of P12,000 million, and international routes
were worth P500 million. Long-term debt had a fair value of P6,000
million. Air Philippines also had an unrecorded intangible, representing
eases with favorable terms, worth P800 million. Philippine Airlines paid
P8,000 million in cash to Air Philippines. the gain/goodwill arising from
the business combination. (in millions):
a. P 1,250 gain
b. P 1,650 gain
c. P450 goodwill
d. P850 goodwill
Cash 1,400
Accounts Receivable 650
Investment 1,000
Maintenance Supply 400
Flight Equipment 12,000
International Routes 500
Leases 800
Goodwill 450
Long - term debt 6,000
Cash 8,000
24. Edina Company acquired the assets (except cash) and assumed the
liabilities of Burns Company on January 1, 20x4, paying P2,600,000 cash.
Immediately prior to the acquisition, Bums Company's balance sheet was
as follows; (Page 81 Dayag,2021)
Edina Company agreed to pay Burns Company's former stockholders

P200,000 cash in 20x6 if post- combination earnings or in Combined
company reached P1,000,000 during 20x5. Calculate the gain on
contingent consideration for Edina Company in 20x6 assuming the
earnings contingency was not met:
a. P 0
b. P 30,000
c. P 200,000
d. P230,000

Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 230,000
Accounts Payable 270,000
Notes Payable 600,000
Cash 2,600,000
Estimated contingent consideration 200,000
Cash paid P 2,600,000
Estimated contingent consideration 200,000
Total P 2,800,000
(3,440,000 - 870,000) 2,570,000
Goodwill 230,000
Estimated liab for contingent consideration 200,000

Gain on contingent consideration 200,000
25-26: On January 1, 20x5, Kim Co. acquired all of the identifiable assets
and assumed all liabilities of Dorothy, Inc. by paying cash of P4,80.000.
On this date, identifiable assets and liabilities assumed to have fair value
of P7,680,000 and P4,320,000, respectively. Kim has estimated
restructuring provisions of P960,000 representing exit cost of the
acquiree's activities, termination costs of employees of Dorothy and
relocation costs of the said employees. The restructuring plan is
conditional until the business combination process is done. If the
combination will not happen, no restructuring will happen.
25. For purposes of computing the goodwill (gain on bargain purchase),

how much is the fair value of net assets to be deducted from the
consideration transferred?
a. P2,400,000
b. P3,360,000
c. P5,280,000
P7,680,000 - P4,320,000 = P3,360,000
26. How much is the goodwill (gain on bargain purchase) on the business
combination:
a. (P 480,000)
b. P1,440,000
c. P2,400,000
Consideration transferred 4,800,000

Fair value of net assets (3,360,000)
Goodwill P1,440,000
*Possible future costs connected with restructuring or exit activities that
may be planned by the acquirer are not part of the acquisition and are
expensed in future periods.
*Estimated Restructuring Plan is not included in consideration
transferred because it is conditional.
27. On January 1, 20x5, Drei Co. acquired all of the identifiable assets
and assumed all liabilities of Cease, Inc. by paying P4,800,000. On this
date, identifiable assets and liabilities assumed to have fair value of
P7,680,000 and P4,320,000, respectively. Terms of the agreement are as
follows:
 20% of the price shall be paid on January 1, 20x5 and the balance
on December 31, 20x6 (the prevailing market rate on the same date
is 10%);
 The acquirer shall glso transfer its piece of land with book and fair
value of P2,400,000 and Pl,440,000, respectively. Included in the
liabilities assumed is an estimated warranty liability.
The carrying amount and fair value of those warranty liability amounted
to P576,000 and P468,000, respectively. The acquiree guarantees that
the warranty liability would only be settled for P480.000. How much is
the goodwill on the business Combination?
a. P2,105,37
b. P2,201,376
c. P2,213,376
20x5 - 20% x 4.8M 960,000
Land 1,440,000
Consideration payable:
20x6 - 80% x 4.8M x .8264 3,173,376
Total 5,573,376
FV warranty liability 468,000
Estimated warranty liability (480,000)
Fair value of net assets:
(7,680,000 - 4,320,000) (3,360,000)
Goodwill P2,201,376
28-32: On January, 20x4, NT Company exchanged 15,000 shares of its

common stock for all of the assets and liabilities of OTG. Inc. Each of
NT's shares has a P4 par value and a P50 fair value. The fair value of the
stock exchanged in the acquisition was considered equal to OTG's fair
value. NT also paid P25.000 in stock registration and issuance costs in
connection with the merge.
Several of OTG's accounts have fair values that differ from their book
values on this date: Refer to page 82 of (Dayag, 2021)
Assume that this combination is a statutory merger so that OTG's
accounts will be transferred to the records of NI. OG will be dissolved
and will no longer exist as a legal entity. Immediately the business
combination using the acquisition method, determine:
28. The total assets amounted to:

a. P2,124,000
b. P2,547,000
c. P2,574,000
d. P2,599,000
Initial Asset NT P 1,770,000

Cash paid for stock registration and issuance cost (25,000)
Cash 29,000
Receivables 63,000
Trademarks 225,000
Record music catalog 180,000
PPE 105,000
R&D 200,000 802,000
Goodwill 27,000 *
Total Assets P2,574,000
Shares (15k x 50) 750,000
FV identifiable assets: (802k - 79k) (723,000)
Goodwill 27,000*
29. The total liabilities amounted to:

a. P 84,000
b. P564,000
c. P480,000
d. P559,000
Initial Liabilities NT (110k +370k) P 480,000

Accounts Payable 34,000
Notes Payable 45,000 79,000
Total Liabilities P559,000
30. The common stock amounted to:

a. P 50,000
b. P400,000
c. P450,000
d. P460,000
Initial Common Stock NT P 400,000

Issue (15k x 4) 60,000
Total Common Stock P460,000
31. The additional paid-in capital amounted to:
a. P 30,000
b. P695,000
c. P720,000
d. P 60,000
Initial APIC P 30,000

Issuance (15k x 46) 690,000
Total P720,000
32. The retained earnings amounted to:

a. P190,000
b. P835,000
c. P 860,000
d. P1,050,000
Common Stock 460,000

APIC 695,000
Retained Earnings 860,000
Total Shareholders Equity (2574-559) P2,015,000
24-30: On December 31, 20x4, 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. he 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. 20x5. 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 data for both firms
were available:
Pp. 83 of (Dayag, 2021)
In addition, PP assessed a research and development project under way

at SS to have a fair value of PI00.000. 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 0.61536 present value factor where
applicable.
24. The consideration transferred amounted to:

a. P1,000,000
b. P1,015,000
c. P1,030,000
d. P1,062,500
Issued shares (50k x 20) 1,000,000
Consideration payable:
20x6 - 50% x 130k x .961538 62,500
Total P1,062,500
Fair value of net assets acquired:
(1,065,000 - 180,000) ( 885,000)
R&D ( 100,000)
Goodwill P 77,500
25. The additional paid-in capital after combination amounted to:

a. P 400,000
b. P 600,000
c. P1,141,000
d. P1,150,000
Initial APIC 400,000

Issued (50k x 15) 750,000
Total 1,135,000
Stock issue and
registration cost (9,000)
Total P1,141,000
26. The expenses for 20x4 amounted to:

a. P 0
b. P875,000
c. P 884,000
d. P 890,000
Initial P875,000
Legal and accounting fees 15,000
Total P 890,000
27. The net income for 20x4 amounted to:

a. P 0
b. P310,000
c. P 316,000
d. P325,000
Initial P325,000
Legal and accounting fees 15,000
Total P310,000
28. The retained earnings on December 31, 20x4 amounted to.

a. P 435,000
b. P1,170,000
c. P1,185,000
d. P1,620,000
Initial 1,185,000
Legal and accounting fees (15,000)
Retained Earnings 1,170,000
29. Assuming that on June 15, 20x5, the contingent performance

obligation was revised to P75,000 due to facts and information that exists
on December 31, 20x4, determine the amount of goodwill?
a. P 0
b. P62,500
c. P75,000
d. P90,000
Issued shares (50k x 20) 1,000,000
contingent performance obligation 75,000
Total P1,075,000
Fair value of net assets acquired:
(1,065,000 - 180,000) ( 885,000)
R&D ( 100,000)
Goodwill P90,000
30. In relation to No. 29, assuming that on July 31, 20x6, the contingent
performance obligation was revised to P80,000 due to facts and
information that exists on December 31, 20x4, determine the amount of
goodwill and contingent performance obligation?
Goodwill Obligation
a. P90,000 P75,000
b. P90,000 P80,000
c. P95,000 P75,000
d. P95,000 P80,000
31. To induce the owners of Axel Company to sell to Ayala Corporation,

an amount was
included in the acquisition agreement. Ayala agrees to pay the former
owners of Axel P5.00 for every peso of total Net Income before Interest
and Taxes(NIBIT) earned over P20 million in the next four years. The
payment would be made at the end of four years. Expected total NIBIT in
the next four years is as follows:
Total NIBIT (earned) Probability

P 5,000,000 0.20
15,000,000 0.50
30,000,000 0.20
35,000,000 0.10
P 85,000,000
What is the value of the earnout after the date of acquisition, assuming a
discount rate of 12% (PV factor of 1.57351936)?
a. P11,121,566
b. P11,801,395
c. P15,751,936
d. P17,500,000
(85M - 20M) / 4 = 16,250,000 ?
32. Raphael Company paid P20,000,000 for the net assets of Paris
Corporation and Paris was then dissolved. Paris had no liabilities. ihe Tai
values ol Pans' assets P2.500.000. Paris only current assets were land
and equipment and fair values of P160,000 and P640,000, respectively. At
what value will the equipment be recorded by Raphael?
a. P640,000
b. P400,000
c. P240,000
d. P 0
Equipment is recorded at its fair value of P640,000.
33. Company Y is purchased by Company X, and the purchase price is

P2,500,000 greater than the fair values of the identifiable net assets
acquired. One of the assets acquired is a building, originally valued at
P1,000,000 at the date of the purchase. Six months after the acquisition,
it was discovered that the building was really only worth P200,000 at the
date of acquisition. What entry is made to reflect this new information?
a. dr. goodwill, cr. building for P800,000.

b. dr. loss on building, cr. building for P800,000.
c. dr. others contributed capital, cr. building for P800,000.
d. dr. retained earnings, cr. building for P800,000.
The discovery of adjustment is within the measurement period, therefore

any adjustment to the acquired building is debited directly to the
goodwill.
34. Bolton Company acquires the net assets of Pamelia Company for a
cash consideration of P100,000. One half is to be paid on acquisition date
and one half is payable in one year's time. The appropriate discount rate
is 10% p.a. The present value of the cash outflow in one year's time is?
a. P45,454
b. P50,000
c. P54,545
d. P55,000
PV (100k x 50% x .90909) = P45,454
35. On October 1, 20x4, The Tingling Company acquired the net assets of
the Greenbank Company when the fair value of Greenbank's net assets
was P116 million and their carrying amount was P120 millon. The
consideration transferred comprised P200 million in, cash transferred at
the acquisition date, plus another P60 million in cash to be transferred
11 months after the acquisition date if a specified profit target was met
by Greenbank. At the acquisition date there was only a low probability of
the profit target being met, so the fair value of the additional
consideration liability was P10 million. In the event, the profit target was
met and the P60 million cash was transferred.
What amount should Tingling present for goodwill in its statement of

consolidated financial position on December 31, 20x4, according to PFRS
3 Business combinations?
a. P80 million
b. P84 million
c. P 94 million
d. P144 million
Cash 200
FV Estimated consideration liability 10
FV of assets (116)
Total P 94 million
36. An acquirer made the following entry to report an acquisition:

Tangible assets………………………………………. 4,000
Customer Lists………………………………………. 600
Goodwill……………………………………………….. 1,000
Cash……………………………………………….. 2,000
Liabilities.……………………………………….. 3,600
Six months after the acquisition, the customer lists are determined to be
worthless. How is this information reported if (1) the new information
relates to the value of the customer lists as of the date of acquisition, and
(2) the new information relates to changes in value since acquisition?
Customer lists are written off, and
a. A gain on acquisition of P600 is recorded. Goodwill decreases

P600.
b. Goodwill increases P600. A loss of P600 is recorded.
c. A loss of P600 is recorded. Goodwill increases P600.
d. Cash is reduced by P600. A loss of P600 is recorded.
37. Dosmann, Inc., acquired net assets of Lizzi Corporation on January 1,

20x4, for P700,000 in cash. This portion of the consideration transferred
results in a fair-value allocation of P35,000 of equipment and goodwill of
P88,000. At the acquisition date, Dosmann also agrees to pay Lizzi’s
previous owners an additional P110,000 on January 1, 20x6, It Lizzi earns
a 10 percent return on the fair value of its assets in 20x4 and 20x5.
Lizzi's profits exceed this threshold in both years. Which of the following
is true?
a. the additional P110,000 payment is a reduction in retained
earnings.
b. the fair value of the expected contingent payment increases
goodwill at the acquisition date.
c. Goodwill as of January 1.20x6, increases by P110,000
d. P110,000 is recorded as an expense in 20x6.
38-41:The balance sheet of Salt Company,along with market values of its

assets and abilities, is as follows: Please refer to pp. 86 (Dayag, 2021)
38. Pail Company pays P100,000,000 in cash for Salt Company's assets
and liabilities. Pail records goodwill of:
a. P50,800,000
b. P66,800,000
c. P72,500,000
d. P77,500,000
Consideration Transferred P100,000,000

FV of identifiable assets
(1.5 + 35 + 2 + 10 + 4 - 30 ) (22,500,000)
Goodwill P77,500,000
39 Now assume Pail Company pays P10,000,000 in cash to acquire the

assets and liabilities of Salt Company. Pail records a bargain purchase
gain on acquisition of:
a. Zero
b. P12,500,000
c. P17,500,000
d. P28,500,000
Consideration Transferred P 10,000,000

FV of identifiable assets
(1.5 + 35 + 2 + 10 + 4 - 30 ) (22,500,000)
Bargain purchase gain P12,500,000
40. Pail paid P100,000,000 in cash for Salt. Three months later, Salt'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
41. Pail paid P10,000,000 in cash for Seattle. Three months later, it is
determined that Seattle's acquisition-date liabilities omitted a pending
lawsuit valued at P2,000,000. The entry to record this information
includes
a. a debit to bargain purchase gain on 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.
42 and 43: Ping Company acquires all of Sun Corp. in an asset

acquisition. Ping paid P1,000,000 more than Sun's book value, and this
excess was offered entirely to goodwill, as all of Sun's assets and
liabilities were carried at amounts equivalent to fair value. At the time of
the combination, a lawsuit was pending against Sun, which was not
recorded on its books. It was felt at the time that Sun would win the
lawsuit, so no provišion for it was made when Ping recorded the asset
acquisition.
42. Six months after the acquisition, new information reveals that the
expected value of the lawsuit at the date of acquisition was P400,000.
The appropriate entry on Ping's books to record this new information.
a. Retained earnings………………………………. 400,000
Estimated lawsuit liability.…………. 400,000
b. Loss on lawsuit…..………………………………. 400,000
c. Goodwill………..…..………………………………. 400,000
d. No entry required.
43. Assume the same information as above, except that the value change
is a result of events occurring subsequent to acquisition. The appropriate
entry on Ping's books to record the new information.
a. Retained earnings………………………………. 400,000

b. Loss on lawsuit…..………………………………. 400,000
c. Goodwill………..…..………………………………. 400,000
d. No entry required.
44 to 46: Nercom acquires all the assets of P570,000,000 and liabilities

amounting to P100,000,000 of Unicom by issuing 25,000,000 shares of
no-par common stock valued at P400,000,000 plus cash of P50,000,000
and records the acquisition as a statutory merger acquisition. Included in
the agreement is a contingency guaranteeing the former shareholders of
Unicom that Netcoms shares will be worth at least P350,000,000 after
one year. if not, Unicom will issue additional snares to bring the total
value of shares issued to P350,000.000. This contingency is valued at
P20,000,000 at the date of acquisition. At the end of the first year
following the acquisition, the 25,000,000 shares of Netcoms stock held
by the former shareholders of Unicom are worth P12/share.
44. The Netcom's journal entry to initially record the acquisition.
a. Investment in S………..…..………………………………. 470,000,000
Common Stock..…..……………………………….
400,000,000
Cash………...………………………………………….
50,000,000
PIC - Stock contingency.………………………….
20,000,000
b. Assets……………...………..…..………………. 570,000,000
Liabilities..…..…………………….………. 400,000,000
Common Stock..…..……………………….
400,000,000
Cash………...………………………………….
50,000,000
PIC - Stock contingency.…………………….
20,000,000
c. Loss on Contingency.………..…..………………………. 470,000,000
Common Stock..…..……………………………….
400,000,000
Cash………...………………………………………….
50,000,000
PIC - Stock contingency.………………………….
20,000,000
d. No entry required
45. How many additional shares must Netcom subsequently issue to the
former shareholders of Unicom?
a. 25,000,000
b. 4,166,667
c. 2,083,333
d. No additional shares
Total shares to be issued (350m / 12) = 29,166,667

Shares acquired 25,000,000
Addt’l shares to be issued 4,166,667
46. the Netcom's journal entry to record the issuance of the Addt’l
shares the previous
number should be:
a. Loss on Contingency..…..………………………………. 50,000,000
Common Stock..…..……………………………….
50,000,000
b. PIC - Stock contingency.………………………………... 20,000,000
Loss on Contingency..…..………………………………. 30,000,000
Common Stock..…..……………………………….
50,000,000
c. PIC - Stock contingency.………………………... 20,000,000
PIC -Others………….....…..………………………. 30,000,000
Common Stock..…..………………………. 50,000,000
e. No entry required
47. Polk issued common stock to acquire all the assets of the Sam
Company on January 1, 20x5. There is a contingent share agreement,
which states that if the income of the Sam Division exceeds a certain
level during 20x5 and 20x6, additional shares will be issued on January
1,20x7. The impact of issuing the additional shares is to?
a. increase the price assigned to fixed assets
b. have no effect on asset values, but to reassign the amount
designed for equity accounts
c. reduce retained earnings
d. record additional goodwill
48. P Corporation issued 10,000 shares of common stock with a fair value
ot P25 per share for all the outstanding common stock of S Company in a
business combination property accounted for as an acquisition. The fair
value of S Company's net assets on that date was P220,000. P Company
also agreed to issue an additional 2,000 shares of common stock with a
fair value of P50,000 to the former stockholders of S Company as an
earnings contingency.
Assuming that the contingencý is expected to be met, the P50,000 fair
value of the
additional shares to be issued should be treated as a(n):
a. decrease in noncurrent liabilities of S Company that were assumed
by P Company.
b. decrease in consolidated retained earnings.
c. increase in consolidated goodwill.
d. decrease in consolidated other contributed capital.
49. P Co. issued 5,000 shares of its common stock, valued at P200,000, to
the former shareholders of S Company two years after S Company was
acquired in an all-stock transaction. The additional shares were issued
because P Company agreed to issue additional shares of common stock if
the average post combination earnings over the next two years exceeded
P500,000. P Company will treat the issuance of the additional shares as a
(decrease in)
a. retained earnings.
b. Goodwill.
c. paid-in capital.
d. non-current liabilities of s Company assumed by P Company.
50 to 53: Bullen InC. acquired assets and liabilities of Vicker inc. on

January 1, 20x4. The book value and fair value of Vickers accounts on
that date (prior to creating the combination) follow, along with the book
value of Bullen's accounts:
Refer to page 88-89 of (Dayag, 2021)
50. Assume that Bullen issued 12,000 shares of common stock with a P5
par value and a P47 fair value to obtain all of Vickers outstanding stock.
In this transaction how much goodwill should be recognized:
a. P144,000
b. P104,000
c. P 64,000
d. P60,000
e. P 0
Consideration transferred: (12,000 shares x 47) 564,000

FV of net assets acquired: (880k - 420k) (460k,000)
Goodwill P104,000
51. Assume that Bullen issued 12,000 shares of common stock with a P5
par value and a P47 fair value to obtain all of Vickers outstanding stock.
What will be the Additional Paid-In Capital and Retained Earnings after
the combination:
a. P20,000 and P160,000
b. P20,000 and P260,000
c. P380,000 and P160,000
d. P464,000 and P160,000
e. P380,000 and P260,000
Additional Paid-In Capital Retained

Earnings
Initial 20,000 160,000
Issuance of shares(12k x 37) 444,000 _______
Total P464,000 P160,000
52. Assume that Bulen issued preferred stock with a par value of
P240,000 and a fair value of P500,000 for all of the net assets of Vicker in
a business combination. What will be the balance in the Inventory and
Land accounts after the business combination:
a. P440,000, P496,000
b. P440,000, P520,000
c. P425,000, P505,000
d. P402,000, P520,000
e. P427,000, P510,000
Inventory Land
Initial 230,000 280,000
FV of acquired asset of Vicker 210,000 240,000
Total P440,000 P520,000
53. Assume that Bullen paid a total of P480,000 in cash for all of the
shares of Vicker. In addition, Bullen paid P35,000 to a group of attorneys
for their work in arranging the combination to be accounted for as an
acquisition. What will be the balance in goodwill?
a. P 0
b. P20,000
c. P35,000
d. P55,000
Consideration transferred: 480,000
FV of net assets acquired: (880k - 420k) (460,000)
Goodwill P20,000
P35,000 paid to a group of attorneys is credited/deducted to Bullen’s

account. Since this is not part of consideration transferred rather an
expense to the part of Bullen. It is an acquisition related cost, credited to
retained earnings account of Bullen.
54. Prior to being united in a business combination, AA, Inc., and WS

Corporation had the following stockholders' equity figures:
AA WS
Common Stock (P1 par value) P180,000 P45,000
Additional paid- in-capital 90,000 20,000
Retained Earnings 300,000 110,000
AA issues 51,000 new shares of its common stock valued at P3 per share
for all of
the outstanding stock of WS. Assume that AA acquires WS immediately
afterward,
What are Additional Paid-In Capital and Retained Earnings. respectively?

a. P104,000 and P300,000
b. P110,000 and P410,000
c. P192,000 and P300,000
d. P212,000 and P410,000
Additional Paid-In Capital Retained

Earnings
Initial 90,000 300,000
Issuance of shares(51k x 2) 102,000 _______
Total P192,000 P300,000
55. Pat Corporation paid P100,000 cash for the net assets of Sag
Company, which consisted of the following:
BV FV
Current Assets P 40,000 P56,000
PPE 160,000 220,000
Liabilities assumed (40,000) (36,000)
Assume Sag Company is dissolved. The plant and equipment acquired in

this business
Combination should be recorded at;
a. P220,000
b. P200,000
c. P183,332
d. P180,000
The acquired PPE is based on its fair value.
56. Balter Inc, acquired Jersey Company on January 1, 20x4, When the
purchase occurred Jersey Company had the following information related
to fixed assets:
Land P80,000
Building 200,000
Accumulated Depreciation (100,000)
Equipment 100,000
Accumulated Depreciation (50,000)
The building has a 10-year remaining useful life and the equipment has a
5-year remaining useful life. The fair values of the assets on that date
were:
Land P100,000
Building 130,000
Equipment 75,000
What is the 20x4 depreciation expense Balter will record related to

purchasing Jersey
Company.
a. P 8,000
b. P15,000
c. P28,000
d. P30,000
Building 130,000 /10 = 13,000

Equipment 75,000/5 = 15,000
Total P28,000
57 and 58: North Company issued 24,000 shares of its P20 par value
common stock for the net assets of Prairie Company in a business
combination under which Prairie Company will be merged into North
Company. On the date of the combination, North Company common stock
had a fair value of P30 per share. Balance sheets for North Company and
Prairie Company immediately prior to the combination were as follows:
Please refer to pp 90 of (Dayag, 2021)
57. If the business combination is treated as an acquisition and Prairie

Company's net assets have a fair value of P686,400, North Company's
balance sheet immediately after the combination will include goodwill of:
a. P30,600.
b. P 38,400.
c. P33,600.
d. P56,000.
Consideration transferred: (24k x 30) 720,000

Fair value of net assets acquired 686,400
Goodwill P33,600
58. If the business combination is treated as an acquisition and the fair

value of Prairie
Company's current assets is P270,000, its plant and equipment is
P726,000, and its liabilities are P168,000, North Company's financial
statements immediately after the combination will include?
a. Negative goodwill of P108,000
b. Plant and equipment of P2,133,000.
c. Plant and equipment of P2,343,000.
d. An ordinary gain of P108,000.
Consideration transferred: (24k x 30) P 720,000

Fair value of net assets acquired
Current assets P270,000
PPE P726,000
Liabilities (P168,000) (828,000)
Negative Goodwill P108,000
59. Publics Company acquired the net assets of Citizen Company during
20x4. The purchase price was P800,000. On the date of the transaction,
Citizen had no long-term investments in marketable equity securities and
P400,000 in liabilities. The fair value of Citizen assets on the acquisition
date was as follows:
Current assets P800,000
Non Current assets P600,000
How should Publics account for the P200,000 difference between the fair
value of the net assets acquired, P1,000,000, and the cost, P800,000?
a. Retained earnings should be reduced by P200,000.
b. Current assets should be recorded at P685,000 and noncurrent
assets
recorded at P515,000.
c. A P200,000 gain on acquisition of business should be
recognized
c. A deferred credit of P200,000 should be set up and subsequently
amortized for future net income over d period not to exceed 40 years.

Fair value of net assets acquired (1,000,000)
Gain on Bargain of Purchase P200,000
60 and 61: During its inception, Devon Company purchased land for
P100,000 and a building for P180,000. After exactly 3 years, it
transferred these assets and cash of P50,000 to a newly created
subsidiary, Regan Company, in exchange for 15,000 shares of Regan's
P10 par value stock. Devon uses straight-line depreciation. Useful life for
the building is 30 years, with zero residual value.
60. At the time of the transfer, Regan Company should record:

a. Building at P180,000 and no accumulated depreciation
b. Building af P162,000 and no accumulated depreciation.
c. Building at P200,000 and accumulated depreciation of P24,000.
d. Building at P180,000 and accumulated depreciation of P18,000.
Building 180,000 - (180,000 x 3/30) = 162,000
61. Regan Company will report

a. additional paid-in capital of PO
b. additional paid-in capital of P150,000
c. additional paid-in capital of P162,000
d. additional paid-in capital of P180,000
The amount of Building acquired at P162,000 will credited to APIC
62. The Geek Company acquired net assets of The Okay Company for
consideration
transfer of P112 million. At the acquisition date the carrying amount of
Okay's net assets was P100 million and their fair value was P120 milion.
How should the difference between the consideration transferred and the
net assets acquired be presented in Geek's financial Statements,
according to PFRS 3 Business combinations?
a. Gain on bargain purchase of P8 million recognized in other
comprehensive income
b. Gain on bargain purchase of P8 million deducted from other
intangibles assets
c. Gain on bargain purchase of P8 million recognized in profit or
loss
d. Goodwill of P12 million as an intangible asset
Consideration transferred: 100

Fair value of net assets acquired ( 120)
Gain on Bargain of Purchase P8
Gain on Bargain of Purchase 8m

Retained Earnings - P/L 8m
63. Homer Ltd. is seeking to expand its share of the widgets market and
has negotiated for takeover the operations of Tan Ltd. on January 1,
20x4. The balance sheets to the two companies as of December 31, 20x4
were as follows. Refer to pp 91 - 92 of book ( Dayag, 2021).
The excess of fair value of net assets over cost or gain on acquisition that
will be recognized immediately in the income statement is
a. Nil or Zer0
b. P17,700
c. P29,700
d. P34,300
64 and 65: ACME CO. paid P110,000 for the net assets of Comb Corp. At
the time of the acquisition the following information was available
related to Comb's balance sheet
BV FV
Current Assets P 50,000 P50,000
Building 80,000 100,000
Equipment 40,000 50,000
Liabilities assumed (30,000) (30,000)
64. What is the amount recorded by ACME for the Building?

a. P110,000
b. P 20,000
c. P 80,000
d. P100,000
Building is recorded at its fair value of P100,000.
65. What amount of gain (loss) on disposal of a business should Comb

Corp, recognize?
a. Gain of P30,000
b. Gain of P60,000
c. Loss of P30,000
d. Loss of P60,000
Loss on Disposal ( SP - BV) 110k - 140k = 30,000
66 to 71: TT Corporation acquired assets and assumed liabilities of A

Corporation's on December 3120x4. Balance sheet data for the two
companies immediately following the acquisition follow: Please refer to
page 92-93 0f (Dayag, 2021)
At the date of the business combination, the book values of SS's net
assets and liabilities approximated fair value except for inventory, which
had a fair value of P85,000, and land, which had a fair válue of P45,000.
Indicate the appropriate total that should appear in the balance sheet
prepared immediately after the business combination.
66. What amount of inventory will be reported?

a. P70,000
b. P130,000
c. P200,000
d. P215,000
Initial 130,000
FV of acquired inventory 85,000
Total P215,000
67. What amount of goodwill will be reported?

a. P-O-
b. P23,000
c. P43,000
d. P58,000
Consideration transferred: 198

Fair value of net assets acquired (440k - 265) ( 175)
Goodwill P 23
68. What amount of total assets will be reported?

a. P84,400
b. P1,051,000
c. P1,109,000
d. 1,249,000
Initial Asset TT (844k - 198k) P 646,000

FV of identifiable assets acquired 440,000
Goodwill 23,000
69. What amount of total liabilities will be reported?

a. P265,000
b. P436,500
c. P701,500
d. P1,249,000
Initial Liabilities TT (61.5k + 95k + 280k) P 436,500

FV of identifiable liability acquired 265,000
Total Liabilities P701,500
70. What amount of retained earnings will be reported?

a. P547,500
b. P397,500
c. P347,500
d. P257,500
The balance of Retained Earnings of TT Co.
71. What amount of total stockholders' equity will be reported?

a. P407,500
b. P547,500
c. P844,000
d. P1,249,000

Total Liabilities (701,500)
Total Stockholders' Equity P407,500
72 and 73: AA Company acquired all of BB Corporation's assets and

liabilities on October 2, 20x5, in a business combination at that date. BB
reported assets with a book value of P1,198,080 and liabilities of
P683,520. AA noted that BB included the amount of P76,800 obsolete
merchandise at the acquisition date that did not appear of any value. AA
also determined that an old delivery van previously used by BB had a fair
value of P230,400, but had not been recorded by BB. Except for
machinery and equipment, AA determined the fair value of all other
assets and liabilities reported by BB approximated the recorded amounts.
In recording the transfer of assets and liabilities in its books, AA
recorded a gain on acquisition of P178,560. AA paid P392,640 to acquire
BB's assets and liabilities.
72.If the book value of BB's machinery and equipment was P414,720,
what was their fair value?
a. Nil
b. P322,080
c. P394,560

Fair value of net assets acquired (571,200)
Gain on acquisition (P178,560)

Book value of net assets acquired P1,198,080- P683,520 = (514,560)
Increase in net assets 56,640
Obsolete merchandise 76,800
Unrecorded van (230,400)
Decrease in FV of Machinery and Equipment (96,960)
BV Machinery and Equipment 619,800
FV Machinery and Equipment P522,840
73. Assuming that BB recorded goodwill of P482,400. AA paid

P1,244,400 to acquire BB's assets and liabilities. If the book value of the
machinery and equipment was P619,800, what was their FV?
a. Nil
b. P713,640
c. P790,320
Consideration transferred: 1,244,400
Fair value of net assets acquired (762,000)
Goodwill P482,400

Book value of net assets acquired P1,198,080- P683,520 = (514,560)
Increase in net assets 247,440
Obsolete merchandise 76,800
Unrecorded van (230,400)
Increase in FV of Machinery and Equipment 93,840
BV Machinery and Equipment 619,800
FV Machinery and Equipment P713,640
74 to 76: On September 18, 20x5, XX Co. acquired all the YY Inc.'s

P2,580,000 identifiable assets and P636,000 liabilities. Carrying amounts
of the YYs assets and liabilities equal their fair value except for the
overvalued furniture and fixtures.
 As a consideration, xx Issued its own shares with a market value of
P2,058,000 and cash amounting to P450,000.
 Contingent consideration that was probable and reasonably
estimated on the date of acquisition amounted to P177,600.
 The merger resulted in P776,400 goodwill.
 Assuming XX had P5,868,000 total assets and P3,277,200 total
liabilities as prior to the combination and no additional cash
payments were made, but expenses were incurred for related cost
amounting to P33,600
74. Determine the amount of overvaluation of the furniture and fixtures.

a. Nil
b. P33,600
c. P34,800
Contingent consideration ( 2.058M + .45 + .1776) 2,685,600

FV of net assets acquired: (1,909,200)
Goodwill 776,400
FV of net assets acquired: 1,909,200

BV of net assets acquired: (2,580,000 - 636,000) (1,944,000)
Decrease in net asset acquired or (P34,800)
overvaluation of the furniture and fixtures
75. After the merger, how much is the combined total identifiable assets
in the books of the acquirer?
a. Nil
b. P6,644,400
c. P7,963,200
Initial Asset (5,868k - 33.6k) P 5,834,400
FV of assets acquired 1,387,200
Overvaluation of the furniture and fixtures (34,800)
Goodwill 776,400
76. After the merger, how much is the increase in liabilities in the books
of the acquirer?
a. Nil
b. P847,200
c. P880,800
Initial Liabilities P 3,277,200

FV of liabilities 847,200
4,074,400

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PROBLEMS (STRAIGHT)

I - Statutory Merger (Chapter 1) versus Stock Acquisition (Chapters 2-5)

Current Assets 380,000 P 350,000

Plant assets 740,000 810,000

Liabilities P 500,000 450,000

Common stock 50,000

Additional paid-in 170,000

Retained earnings 400,000

Total liabilities and P 1,

Common Stock ( 100k shares x 8 ) 800,000

2. Investment in Subsidiary(consi transferred) 1,000,000

�There is an undervaluation of assets for 90,000. Therefore

Pop Co. Sicle Co.

Book Book Market

Current Assets P 5,000,000 P 2,000,000 P 1,500,000

Investments 1,000,000 500,000 500,000

Land 10,000,000 5,000,000 6,000,000

Building (net) 40,000,000 25,000,000 16,000,000

Equipment (net) 25,000,000 10,000,000 2,000,000

Current Liabilities P 4,000,000 P 1,500,000 P 1,500,000

Long-Term Liabilities 20,000,000 10,000,000 12,000,000

Common Stock, P10 5,000,000 1,000,000

APIC 40,000,000 20,000,000

Retained Earnings 12,000,000 10,000,000

Total Liabilities and P P

a. Assets of Pop .(81M - 1.1M) P 79,900,000

b. Liabilities of Pop: (4M + 20M) P 24,000,000

e. Pop: 5M + (10 X 400k) P 9,000,000

Share Issue Cost 1,100,000

 Debited as deduction for apic

2. Assume Pop issued 90,000 shares of stock at a market value of P100

Legal fees for the contract of business combination 80,000

Determine the following:

a. Assets of Pop.(81M - 540K) P 80,460,000

b. Liabilities of Pop: (4M + 20M + 200k) P 24,200,000

c. Pop: 40M + (90 X 90k shares) + 300k P 48,400,000

f. Pop: 5M + (10 X 90k) P 5,900,000

Consideration Transferred (100 x 90M shares) 9,000,000

*Negative goodwill is added to the retained earnings

Consideration Transferred (100 x 100M shares) 10,000,000

4. Assume the same facts as in requirement (3). Before the contingency

*The measurement period is only good for 1 year. - mod.2

b. Estimated Liability for contingent consideration 200,000

Gain on Acquisition 200,000

MULTIPLE CHOICE PROBLEM :

Costs of special shareholders’ meeting to vote on the merger

In the business combination of Manet and Gardner:

PFRS 3, recognizes acquisition cost related as expenses in the period at

2. Calculate the amount of consideration transferred:

Cash - to former shareholder P 5,000,000

Total consideration transferred P 7,694,440

Pero hambl ni ma’am letter C pro ang amount ya na for letter B.

4. The total asset after the acquisition:

Initial Asset DJ 62,400,000

5. The total liabilities after the acquisition:

Initial Liabilities DJ (6.5M +30M) 36,500,000

6. The stockholders’/shareholders/equity holders of DJ after the

Common Stock (200k + 300k) P 700,000

7. Calculate the amount of consideration transferred:

Total consideration transferred P 92,000,000

I’net domain names 3,000,000

Initial Asset DPSG 150,000,000

Initial Liabilities of DPSG (10M + 1M) 11,000,000