No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

BUSINESS COMBINATIONS

PROBLEM 1
The Statement of Financial Position of Selah Corporation on Jan 1, 2025 is presented below:

Current assets P 1,170,000

Land 7,920,000
Building 3,960,000
Equipment 3,150,000
Total assets P16,200,000

Liabilities P 3,150,000
Ordinary shares, P5 par 5,400,000
Share premium 4,950,000
Retained earnings 2,700,000
Total equities P16,200,000

Additional information
• All the assets and liabilities of Selah assumed to approximate their fair values except for land and building.
• It is estimated that the land has a fair value of P12,600,000 and the fair value of the building increased by
P2,880,000.
• Psalm Corporation acquired 80% of Selah’s outstanding shares for P18,000,000. The non-controlling interest
is measured at fair value.

Required: (Independent case)

1. Assuming that the fair value of NCI is P5,000,000, how much is the goodwill (gain on acquisition) on
the consolidated financial statement?
2. Assuming that the fair value of NCI is P3,000,000, How much is the goodwill (gain on acquisition) on
the consolidated financial statement?
3. Assuming the consideration paid includes control premium of P5,112,000, how much is the goodwill
(gain on acquisition) on the consolidated financial statement?
4. Assuming the consideration paid excludes control premium of P276,000 and the fair value of the non-
controlling interest is P4,149,000, how much is the goodwill (gain on acquisition) on the consolidated
financial statement?
5. Assuming the consideration paid includes control premium of P1,332,000, how much is the goodwill
(gain on acquisition) on the consolidated financial statement if the NCI is measured based on
proportionate share?

Problem 2

The following are the condensed Statement of Financial Position of AAA and BBB on January 1, 2025:

AAA BBB
Total assets P61,500,000 P18,345,000

Liabilities P16,650,000 P 4,800,000

Ordinary share capital 18,600,000 7,770,000
Share premium 7,500,000 600,000
Retained earnings 18,750,000 5,175,000

KKK Corporation acquired the net assets of both AAA and BBB by paying cash in the amount of P1,210,000 and by
issuing 593,500 shares to AAA while paying cash in the amount of P452,000 and by issuing 164,050 shares to BBB.
As of January 1, 2025, the par value and market value of these shares are P210 and P240, respectively. The total
assets of AAA are undervalued by P100,000 while total assets of BBB are overvalued by P150,000. KKK Corporation
also incurred the following unpaid expenses:

AAA BBB
Indirect costs P 562,500 P 607,500
Accounting and legal fees for SEC registration 2,062,500 2,175,000
Printing costs of stock certificates 750,000 562,500
Documentary stamp tax 10,000 5,000

KKK’s retained earnings has a balance of P64,500,000 on January 1, 2025 immediately before the acquisition.

1|P a g e RFERRER/RLACO/ATANG/PDEJESUS
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Required:
As a result of the merger, compute for the amount of:
1. Goodwill (Gain on BP)
2. Net increase or (net decrease) in the identifiable assets of KKK Corporation
3. Net increase or (net decrease) in the liabilities of KKK Corporation
4. Net increase or (net decrease) in the shareholders’ equity of KKK Corporation
5. Total cost to issue and cost to register
6. Total expense

Problem 3
Entity AAA acquired 85,000 out of 100,000 outstanding ordinary shares of Entity BBB which enabled the former to
obtain control of the latter at an acquisition price of P1,000,000. Entity A paid P150,000 acquisition related costs,
P60,000 indirect costs of business combination and cost to issue and cost to register of P 50,000

At the date of acquisition, the net assets of Entity BBB are reported at P1,500,000. Building of Entity BBB is overvalued
by P50,000, Equipment is undervalued by P80,000 while one liability is overvalued by P60,000.

1. What is the initial measurement of noncontrolling interest in net assets in the consolidated statement of
financial position?
2. What is the goodwill or gain on bargain purchase arising from business combination?

Problem 4

On Jan 1, 2025, ZZZ Company has gained control over the operations of SSS Corporation by acquiring 90% of its
outstanding capital stock for P3,600,000. This amount excludes a control premium of P30,000. Out of pocket costs include
unpaid direct cost of P90,000, paid indirect cost of P50,000 and paid direct costs of P60,000. The contingent consideration,
which is determinable, is equal to P50,000. On Dec 1, 2025, the contingent consideration has a determinable amount of
P60,000.

ZZZ SSS
Book Value Book Value Fair Value
Cash P3,541,500 P128,000
Accounts receivable 300,000 325,000
Inventories 550,000 360,000
Prepaid expenses 148,500 125,000
Land 2,350,000 879,000
Building 1,560,000 558,000
Equipment 300,000 185,000
Goodwill - 300,000
Total assets P8,750,000 P2,860,000

Accounts payable 675,000 253,000

Notes payable 1,400,000 730,000
Share capital, 50 par 3,400,000 800,000
Share premium 1,575,000 600,000
Retained earnings 1,700,000 477,000
Total equities P8,750,000 P2,860,000

The following was ascertained on the date of acquisition for SSS Corporation:

• The value of receivables and equipment has increased by P25,000 and P14,000 respectively.
• The fair value of inventories is now P450,000 whereas the value of land and building has decreased by P400,000
and P100,000 respectively.
• There was an unrecorded accounts payable amounting to P30,000 and the fair value of notes is P700,000.
• The company measures the NCI based on the proportionate share.
• The fair value of NCI is P410,000.

Compute for the following balances to be presented in the consolidated statement of financial position at the end of the
year:

1. Total assets
2. Total liabilities
3. Total shareholder’s equity

2|P a g e RFERRER/RLACO/ATANG/PDEJESUS
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Problem 5

XXX Company acquires 30% of YYY Company’s share capital for P570,000 cash and carries the investment using
the cost method. After six months, Parent purchases another 50% of Subsidiary’s share capital for P1,620,000. On
this date, acquired company reports identifiable assets with carrying value of P1,800,000 and fair value of P2,100,000.
The liabilities of the acquired company have a book value of P500,000 and a fair value of 600,000. The fair value of
the non-controlling interest is P500,000.
How much is the goodwill or (gain on acquisition)?

3|P a g e RFERRER/RLACO/ATANG/PDEJESUS