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Business Combination Part 2

ABC Co. acquired 100% of XYZ Inc. through a share-for-share exchange. ABC issued 10,000 shares with a par value of $10 per share. The fair value of ABC's shares was $100 per share. The acquisition-date fair value of XYZ's net identifiable assets was $700,000. ABC recognized $300,000 of goodwill from the business combination. The combined entity's retained earnings immediately after the combination was $800,000.

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311 views3 pages

Business Combination Part 2

ABC Co. acquired 100% of XYZ Inc. through a share-for-share exchange. ABC issued 10,000 shares with a par value of $10 per share. The fair value of ABC's shares was $100 per share. The acquisition-date fair value of XYZ's net identifiable assets was $700,000. ABC recognized $300,000 of goodwill from the business combination. The combined entity's retained earnings immediately after the combination was $800,000.

Uploaded by

Danielle Juntilla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Business Combination Part 2

Share-for-share exchanges
Illustration:
ABC Co. and XYZ Inc. combined their business through echange of equity instruments which
resulted to ABC obtaining 100% interest in XYZ. Both entities are publicly listed. At the
acquisition date. ABC’s shares are quoted at 100 per share. ABC Co. recognized goodwill of
300,000 on the business combination.
Additional information follows:
ABC Co. (before acquisition) Combined Entity (after acquisition)
Share Capital 600,000 700,000
Share Premium 300,000 1,200,000
Totals 900,000 1,900,000

Requirements: Comppute for the following:


a) Number of shares issued by ABC Co.
b) Par Value per share of the shares issued
c) Acquisition-date fair value of the net identifiable assets of XYZ.
Solution:

A) Number of shares issued

ABC Co Combined Entity Increase


Share Capital 600,000 700,000 100,000
Share Premium 300,000 1,200,000 900,000
Totals 900,000 1,900,000 1,000,000 FV consideration

Fair Value of shares issued 1,000,000


Divided by FV per ABC’s share 100
Number of shares issued 10,000

B) Par value per share


Increase in share capital 100,000
Divided by: number of shares issued 10,000
Par value per share 10

C) Fair Value of the Assets acquired


Consideration Transferred 1,000,000
NCI -
PHE -
Total 1,000,000
FVNA (squeeze) 700,000
Goodwill (given) 300,000
Illustration 2 :
ABC Co. issued shares in exchange for 100% interest in XYZ. Relevant information follows:

ABC Co. Carrying XYZ Inc. (Fair Values) Combined Entity


Amounts
Identifiable Assets 2,400,000 1,600,000 4,000,000
Goodwill - - ?
Total assets 2,400,000 1,600,000 ?

Liabilities 700,000 900,000 1,600,000


Share Capital 600,000 300,000 700,000
Share Premium 300,000 250,000 1,200,000
Retained Earnings 800,000 150,000 ?
Total Liabilities and 2,400,000 1,600,000 ?
Equity

Additional Information:
 ABC’s share of capital consists of 60,000 ordinary shares with par value of P10 per share
 XYZ’s share of capital consists of 3,000 ordinary shares with par value of P100 per share.
Requirements: Compute for the following
a) Number of shares issue by ABC Co.
b) Fair Value per share of the shares issued
c) Goodwill recognized on acquisition date
d) Retained earnings of the combined entity immediately after the business combination

Solution:
A) Number of shares issued
ABC Co Combined Entity Increase
Share Capital 600,000 700,000 100,000

Increase in ABC’s share capital 100,000


Par value per share 10
Number of shares issued 10,000

B) Fair Value per share of the shares issued

ABC Co Combined Entity Increase


Share Capital 600,000 700,000 100,000
Share Premium 300,000 1,200,000 900,000
Total 1,000,000
Fair Value of the consideration transferred 1,000,000
Divided by: Number of shares issued 10,000
Fair Value per share 100

C) Goodwill
Consideration Transferred 1,000,000
NCI -
PHE -
Total 1,000,000
FVNA (1.6m-900k) 700,000
Goodwill 300,000

D) Retained Earnings of the Combined Entity


Combined Entity
Identifiable assets 4,000,000
Goodwill 300,000
Total assets 4,300,000

Liabilities
Share Capital 1,600,000
Share Premium 700,000
Retained Earnings 800,000
Total Liabilities and Equity 4,300,000

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