ACCT200 EXAM PORTFOLIO
ACCOUNTING NOTES,
QUESTION AND ANSWERS
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ACCOUNTING FOR BUSINESS COMBINATIONS
SECOND GRADING EXAMINATION
1. On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co.
incurred transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating
the business combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in
XYZ, Inc.’s identifiable net assets. The carrying amounts and fair values of XYZ’s assets and
liabilities at the acquisition date were as follows:
Assets Carrying amounts Fair values
Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000
Liabilities
Payables 1,000,000 1,000,000
How much is the goodwill (gain on a bargain purchase)?
a. 140,000 c. 278,500
b. 287,500 d. 264,500
Solution:
Fair value of identifiable assets acquired excluding
goodwill (4,000,000 total assets – 50,000 goodwill) 3,950,000
Less: Fair value of liabilities assumed (1,000,000)
Fair value of identifiable net assets acquired 2,950,000
Fair value of identifiable net assets acquired 2,950,000
Multiply by: Non-controlling interest (100% - 75%) 25%
NCI’s proportionate share in identifiable net assets 737,500
Goodwill (Negative goodwill) is computed as follows:
Consideration transferred 2,500,000
NCI in the acquiree 737,500
Previously held equity interest in the acquiree -
Total 3,237,500
Less: Fair value of identifiable net assets acquired (2,950,000)
Goodwill 287,500
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The ₱250,000 transaction costs are expensed. Acquisition-related costs do not affect the
measurement of goodwill.
2. On January 1, 20x1, HISTRIONAL Co. acquired all of the identifiable assets and assumed all of
the liabilities of THEATRICAL, Inc. by paying cash of ₱4,000,000. On this date, the identifiable
assets acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000,
respectively.
As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to
THEATRICAL, Inc. under operating leases. HISTRIONAL has determined that the terms of the
operating lease on the patent compared with market terms are unfavorable. The fair value of the
differential is estimated at ₱80,000. How much is the goodwill (gain on bargain purchase)?
a. 1,080,000 b. 1,280,000 c. 1,120,000 d. 1,200,000
B
Solution:
A liability shall be recognized because the terms of the operating lease where the acquiree is the lessee
is unfavorable.
The fair value of net identifiable assets acquired is computed as follows:
Fair value of identifiable assets acquired 6,400,000
Fair value of liabilities assumed, including liability on the (3,680,000)
operating lease with unfavorable terms (₱3.6M + ₱80K)
Fair value of net identifiable assets acquired 2,720,000
Goodwill (gain on bargain purchase) is computed as follows:
Consideration transferred 4,000,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 4,000,000
Fair value of net identifiable assets acquired (2,720,000)
Goodwill 1,280,000
Use the following information for the next three questions:
On January 1, 20x1, CONJUNCTION Co., and UNION, Inc. entered into a business combination
effected through exchange of equity instruments. The combination resulted to CONJUNCTION
obtaining 100% interest in UNION. Both of the combining entities are publicly listed. As of this date,
CONJUNCTION’s shares have a quoted price of ₱400 per share. CONJUNCTION Co. recognized
goodwill of ₱300,000 on the business combination. No acquisition-related costs were incurred.
Additional selected information at acquisition date is shown below:
CONJUNCTION Co. Combined entity
(before acquisition) (after acquisition)
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000
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3. How many shares were issued by CONJUNCTION Co. in the business combination?
a. 40,000 b. 20,000 c. 12,000 d. 10,000
D
Solution:
COLLOQUY Co. Combined entity Increase
Share capital 2,400,000 2,800,000 400,000
Share premium 1,200,000 4,800,000 3,600,000
Totals 3,600,000 7,600,000 4,000,000
Fair value of shares transferred 4,000,000
Divide by: ABC’s fair value per share 400
Number of shares issued 10,000
4. What is the par value per share of the shares issued?
a. 10 b. 40 c. 12 d. 32
B
Solution:
400,00
Increase in share capital account (see table above)
0
10,00
Divide by: Number of shares issued
0
Par value per share 40
5. What is the acquisition-date fair value of the net identifiable assets of UNION?
a. 3,700,000 b. 3,200,000 c. 2,800,000 d. 2,400,000
A
Solution:
Consideration transferred (see previous computation) 4,000,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 4,000,000
Fair value of net identifiable assets acquired (squeeze) (3,700,000)
Goodwill (given information) 300,000
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ACCOUNTING NOTES,
QUESTION AND ANSWERS
FOR FURTHER CLARIFICATION CONTACT ME
AT:
, lOMoARcPSD|44660598
Page |1
NAME: Date:
Professor: Section: Score:
ACCOUNTING FOR BUSINESS COMBINATIONS
SECOND GRADING EXAMINATION
1. On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co.
incurred transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating
the business combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in
XYZ, Inc.’s identifiable net assets. The carrying amounts and fair values of XYZ’s assets and
liabilities at the acquisition date were as follows:
Assets Carrying amounts Fair values
Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000
Liabilities
Payables 1,000,000 1,000,000
How much is the goodwill (gain on a bargain purchase)?
a. 140,000 c. 278,500
b. 287,500 d. 264,500
Solution:
Fair value of identifiable assets acquired excluding
goodwill (4,000,000 total assets – 50,000 goodwill) 3,950,000
Less: Fair value of liabilities assumed (1,000,000)
Fair value of identifiable net assets acquired 2,950,000
Fair value of identifiable net assets acquired 2,950,000
Multiply by: Non-controlling interest (100% - 75%) 25%
NCI’s proportionate share in identifiable net assets 737,500
Goodwill (Negative goodwill) is computed as follows:
Consideration transferred 2,500,000
NCI in the acquiree 737,500
Previously held equity interest in the acquiree -
Total 3,237,500
Less: Fair value of identifiable net assets acquired (2,950,000)
Goodwill 287,500
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The ₱250,000 transaction costs are expensed. Acquisition-related costs do not affect the
measurement of goodwill.
2. On January 1, 20x1, HISTRIONAL Co. acquired all of the identifiable assets and assumed all of
the liabilities of THEATRICAL, Inc. by paying cash of ₱4,000,000. On this date, the identifiable
assets acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000,
respectively.
As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out to
THEATRICAL, Inc. under operating leases. HISTRIONAL has determined that the terms of the
operating lease on the patent compared with market terms are unfavorable. The fair value of the
differential is estimated at ₱80,000. How much is the goodwill (gain on bargain purchase)?
a. 1,080,000 b. 1,280,000 c. 1,120,000 d. 1,200,000
B
Solution:
A liability shall be recognized because the terms of the operating lease where the acquiree is the lessee
is unfavorable.
The fair value of net identifiable assets acquired is computed as follows:
Fair value of identifiable assets acquired 6,400,000
Fair value of liabilities assumed, including liability on the (3,680,000)
operating lease with unfavorable terms (₱3.6M + ₱80K)
Fair value of net identifiable assets acquired 2,720,000
Goodwill (gain on bargain purchase) is computed as follows:
Consideration transferred 4,000,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 4,000,000
Fair value of net identifiable assets acquired (2,720,000)
Goodwill 1,280,000
Use the following information for the next three questions:
On January 1, 20x1, CONJUNCTION Co., and UNION, Inc. entered into a business combination
effected through exchange of equity instruments. The combination resulted to CONJUNCTION
obtaining 100% interest in UNION. Both of the combining entities are publicly listed. As of this date,
CONJUNCTION’s shares have a quoted price of ₱400 per share. CONJUNCTION Co. recognized
goodwill of ₱300,000 on the business combination. No acquisition-related costs were incurred.
Additional selected information at acquisition date is shown below:
CONJUNCTION Co. Combined entity
(before acquisition) (after acquisition)
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000
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3. How many shares were issued by CONJUNCTION Co. in the business combination?
a. 40,000 b. 20,000 c. 12,000 d. 10,000
D
Solution:
COLLOQUY Co. Combined entity Increase
Share capital 2,400,000 2,800,000 400,000
Share premium 1,200,000 4,800,000 3,600,000
Totals 3,600,000 7,600,000 4,000,000
Fair value of shares transferred 4,000,000
Divide by: ABC’s fair value per share 400
Number of shares issued 10,000
4. What is the par value per share of the shares issued?
a. 10 b. 40 c. 12 d. 32
B
Solution:
400,00
Increase in share capital account (see table above)
0
10,00
Divide by: Number of shares issued
0
Par value per share 40
5. What is the acquisition-date fair value of the net identifiable assets of UNION?
a. 3,700,000 b. 3,200,000 c. 2,800,000 d. 2,400,000
A
Solution:
Consideration transferred (see previous computation) 4,000,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 4,000,000
Fair value of net identifiable assets acquired (squeeze) (3,700,000)
Goodwill (given information) 300,000
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