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Sample Problem: Net Asset Acquisition

Bravo and Charlie's financial positions as of January 1, 2020 are presented. Alpha Corp acquired the net assets of both Bravo and Charlie by paying cash and issuing shares. Various expenses related to the acquisitions are also listed. The problem asks to compute: a) goodwill, b) gain on bargain purchase, c) change in Alpha's retained earnings, d) change in shareholders' equity, and e) change in Alpha's identifiable assets.

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174 views

Sample Problem: Net Asset Acquisition

Bravo and Charlie's financial positions as of January 1, 2020 are presented. Alpha Corp acquired the net assets of both Bravo and Charlie by paying cash and issuing shares. Various expenses related to the acquisitions are also listed. The problem asks to compute: a) goodwill, b) gain on bargain purchase, c) change in Alpha's retained earnings, d) change in shareholders' equity, and e) change in Alpha's identifiable assets.

Uploaded by

Lyca Mae Cubangbang
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Sample Problem: NET ASSET ACQUISITION

The following are the condensed Statements of Financial Position of Bravo and Charlie on January 1,
2020:

Bravo Co. Charlie Inc.


Cash P 6,500,000 P 2,300,000
Receivables 1,950,000 400,000
Other Assets 1,800,000 357,500
Total Assets 10,250,000 3,057,500
Liabilities 2,775,000 800,000
Ordinary Shares 3,100,000 1,295,000
Share Premium 1,250,000 100,000
Retained Earnings 3,125,000 862,500

Alpha Corp. acquired the net assets of both Bravo and Charlie. Alpha paid cash in the amount of
P185,000 and issued 198,500 shares to acquire Bravo while cash amounting to P72,000 was paid and
54,350 shares were issued to Charlie. The par value of these shares is P30/share and market value as of
January 1, 2020 is P40/share. Alpha Corp. also incurred the following unpaid expenses:

Bravo Charlie
Indirect costs P 93,750 P 101,250
Finder’s fee 66,250 35,000
Accounting and legal fees for 343,750 362,500
SEC registration
Printing costs of stock 125,000 93,750
certificates

Alpha’s retained earnings has a balance of P10,750,000 on January 1, 2020 immediately before the
acquisition. As a result of the combination, compute for the following:

a. Goodwill
b. Gain on bargain purchase
c. Net increase or decrease in retained earnings of Alpha Corp.
d. Net increase or decrease in shareholders’ equity of Alpha Corp.
e. Net increase or decrease in identifiable assets of Alpha Corp.

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