REVERSE ACQUISITION

PROBLEM 1
The Balance Sheets of Company A and B immediately before business combination:
A B
Current Assets 500 700
Non-Current Assets 1300 3000
TOTAL ASSETS 1800 3700

Current Liabilities 300 600

Non-Current Liabilities 400 1100
TOTAL LIAB 700 1700
Owners Equity
RE 800 1400
Issued Equity
100 shares 300
60 shares 600
TOTAL SHE 1100 2000

Other Information:
 On 30 September 20X1, A issues 2½ shares in exchange for each ordinary share of B. All of B’s
shareholders exchange their shares in B. Therefore, A issues 150 ordinary shares in exchange for
all 60 ordinary shares of B.
 The fair value of each ordinary share of B at 30 September 20X1 is P40. The quoted market price
of A’s ordinary shares at that date is CU12.
 The fair values of A’s identifiable assets and liabilities at 30 September 20X1 are the same as their
carrying amounts, with the exception of non-current assets. The fair value of A’s non-current assets
at 30 September 20X1 is P1,500.

How much is the goodwill or gain on bargain purchase on the business combination?

PROBLEM 2
Balance sheets of AAA and BBB just prior to a reverse acquisition are as follows:

AAA BBB
Net current assets P 20,000 P 50,000
Common shares outstanding 100 500
Capital stock (par value) P 10 P 100
APIC 990 4,900
Retained earnings 19,000 45,000
Total shareholders’ equity P 20,000 P 50,000

AAA is a public company with a fair value of P1,000 per share (total fair value of P100,000). BBB is a
public company with a fair value of P800 per share (total fair value of P400,000).
Under the following assumptions, compute for the goodwill or gain on bargain purchase:
 AAA issues 400 shares of common stock to acquire all of the outstanding 500 common shares of BBB.
 AAA purchases only 80% or 400 shares of BBB, leaving a legal minority interest in BBB of 100 shares
outstanding.

CONSOLIDATED FINC’L STATEMENT– STOCK ACQUISITION

PROBLEM 1
Company A acquires 80% of Company B for P5,000,000, carrying value of Company B net assets at time
of acquisition being P3,000,000 and fair value of these net identifiable assets being P4,000,000.
 Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
 Using the same information above, the amount of non-controlling interest arising on consolidation is
to be valued on the proportionate basis or “Partial” Goodwill:
 Using the same information above, the amount of goodwill arising on consolidation is to be valued on
the full (fair value) basis or “Full/Gross-up” Goodwill:
 Using the same information above, the amount of non-controlling interest arising on consolidation is
to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
PROBLEM 2
Pine Company acquires 15 percent of Shine Company’s common stock for P1,000,000 cash and carries the
investment using the cost method. A few months later, Pine purchases another 60 percent of Shine
Company’s stock for P4,320,000. At that date, Shine Company reports identifiable assets with a book value
of P7,800,000 and a fair value of P10,200,000, and it has liabilities with a book value and fair value of
P3,800,000. The fair value of the 25% non-controlling interest in Shine Company is P1,800,000.
 Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
 Using the same information above, the amount of non-controlling interest arising on consolidation is
to be valued on the proportionate basis or “Partial” Goodwill:
 Using the same information above, the amount of goodwill arising on consolidation is to be valued on
the full (fair value) basis or “Full/Gross-up” Goodwill:
 Using the same information above, the amount of non-controlling interest arising on consolidation is
to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
 Using the same information above, the amount of gain or loss should be recognized when the additional
shares are acquired:

PROBLEM 3
On September 1, 2010, Company A acquires 75% (750,000 ordinary shares) of Company B for P7,500,000
(P10per share). In the period around the acquisition date, Company B’s shares are trading at about P8 per
share. Company A pays a premium over market because of the synergies it believes it will get. It is therefore
reasonable to conclude that the fair value of Company B’s as a whole may not be P10,000,000. In fact, an
independent valuation shows that the value of company B is P9,700,00 (fair value of Company B).
Assuming that the fair value of the net identifiable assets is P8,000,000 ( carrying value is P6,000,000).
 Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
 Using the same information above, the amount of non-controlling interest arising on consolidation is
to valued on the proportionate basis or “Partial” Goodwill
 Using the same information above, the amount of Goodwill arising on consolidation is to be valued on
the full (fair value) basis or “Full/Gross-up” Goodwill:
 Using the same information above, the amount of non-controlling interest arising on consolidation is
to valued on the full (fair value) basis or “Full/Gross-up” Goodwill:

PROBLEM 4
All the issued and outstanding common stock of Dau Company were bought by Angeles Company on
October 1, 2010 for P700,000. The assets and liabilities of Dau Company were:

Cash P 50,000
Accounts receivable (net of P25,000 allowance for doubtful accounts) 250,000
Inventory 150,000
Property & equipment (net of P100,000 allowance for depreciation) 300,000
Accounts/ Notes Payable 130,000

On October 1, 2010 the fair value of the following assets were as follows:
Accounts receivable (net) P235,000
Inventory 130,000
Property & equipment (net) 400,000

There is unrecorded warranty liability on prior-product sales estimated P20,000 discounted cash flow based
on estimated future cash flows.
 The amount of goodwill as a result of the business combination should be:
 Using the same information above, the amount of goodwill in the books of Angeles Co, as a result of
the business combination should be:

PROBLEM 5
On January 1, 2011, Lotto Company acquires 80% ownership in Dagupan Corporation for P400,000. The
fair value of the non-controlling interest at that time is determined to be P100,000. It reports net assets with
a book value of P400,000 and fair value of P460,000. Lotto Company reports net assets with a book value
of P1,200,000 and a fair value of P 1,300,000 at that time, excluding its investment in Dagupan. What will
be the amount of goodwill that would be reported immediately after the combination under current
accounting practice if the option of full-goodwill method is used?
PROBLEM 6
Mark acquired 70% of the net assets of Ray for P1.1 million. The assets of Ray have a book value of 1.2
million and a fair market value of P1.3 million; its liabilities are P.2 million. What is the amount of “excess
of cost over book value of subsidiary” on the consolidated balance sheet?

PROBLEM 7
Rupert Corporation issued 100,000 shares of P20 for common stock for all the outstanding stock of Rita
Corporation in a business combination consummated on July 1, 2010. Rupert Corporation common stock
was selling at P30 per share at the time of the business combination was consummated. Out-of-pocket costs
of the business combination were as follows:
Finder’s fee P50,000
Accountant’s fee (advisory) 10,000
Legal fees (advisory) 20,000
Printing costs 5,000
SEC registration costs and fees 12,000
P97,000
The fair value of the consideration transferred accounting will be:

PROBLEM 8
Sun Inc. bought all outstanding shares of Shine Corporation on January 1, 2010, for P700,000 in cash. The
portion of the consideration transferred results in a fair-value allocation of P35,000 to equipment and
goodwill of P88,000. At the acquisition date, Sun also agrees to pay Shine’s previous owners and additional
P110,000 on January 1, 2012, if Shine earns a 10 percent return on the fair value of its assets in 2010 and
2011. Sun’s profits exceed this threshold in both years. Under 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, 2012, increases by P110,000.
d) The P110,000 is recorded as an expense in 2012.

PROBLEM 9
On June 30, 2010, Moon Corporation purchased for cash at P10 per share all 100,000 shares of the
outstanding common stock of the River Company. The total fair value of all identifiable net assets of River
was P1,400,000. The only noncurrent asset is property with a fair value of P350,000. The consolidated
balance sheet of Moon and its wholly owned subsidiary on June 30, 2010, should report:
a) A retained earnings balance that is inclusive of a gain of P400,000
b) Goodwill of P400,000
c) A retained earnings balance that is inclusive of a gain of P350,000
d) A gain of P400,000

PROBLEM 10
Pia Co. owns 80,000 shares of Rose Corp.’s 100,000 outstanding common shares, acquired at book value.
The December 31, 2010, consolidated balance sheet presented by Pia and Rose included net assets of Rose
in the amount of P600,000. On January 1, 2011, Pia sells 70,000 shares of Rose for P490,000. The fair
value of Pia’s remaining 10% interest in Rose is P70,000. What amount of gain or loss, if any, should be
recognized on the sale of Pia’s shares resulting in deconsolidation, and how much of that should be
attributed to Pia? Determine the gain or loss on disposal (or deconsolidation) should be:

PROBLEM 11
Darlene Ltd. Has an 80% investment in Syndelle Ltd. With a carrying amount of P80,000,000. The fair
value of Syndelle Ltd. Is P200,000,000. The following year, Darlene Ltd. Decided to sell a 29% interest in
Subsidiary to a third party in exchange for cash. Determine the gain or loss on disposal of shares to be
recognize in the profit or loss statement:

PROBLEM 12
John company owns 80,000 shares of Carlo Corporation’s 100,000 outstanding common shares,
acquired at book value. The December 31, 2010, consolidated balance sheet presented by John and Carlo
included net assets of Carlo in the amount of P600,000. On January 1, 2011, John sells 10,000 shares (10%)
of its Carlo stock to unrelated parties for P70,000. Determine the gain or loss on disposal of shares to be
recognized in the profit or loss statement:

PROBLEM 13
Darlene, Inc. buys 60% of the outstanding stock of Shyndelle Inc. in an acquisition that resulted in the
acquisition of goodwill. Shyndelle owns a piece of land that cost P200,000 but was worth P500,000 at the
acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of
takeover?

PROBLEM 14
Jack company had common stock of P350,000 and retained earnings of P490,000. Jill Inc. had
common stock of P700,000 and retained earnings of P980,000. On January 1, 2010, Jill issued 34,000 shares
of common stock with a P12 par value and a P35 fair value for all of Jack Company’s outstanding common
stock. This combination was accounted for as an acquisition. Immediately after the combination, what was
the consolidated net asset?

PROBLEM 15
Bea Company acquired 100 percent of the voting common shares of Ali Corporation, its bitter rival, by
issuing bonds with a par value and fair value of P300,000. Immediately prior to the acquisition, Bea reported
total assets of P1,000,000, liabilities of P560,000, and stockholders’ equity of P440,000. At that date, Ali
reported total assets of P800,000, liabilities of P500,000, and stockholders equity of P300,00. Included in
Ali’s liabilities was an accounts payable to Bea in the amount of P40,000, which Bea included in its
accounts receivable. Based on the preceding information, what amount of total assets did Bea report in its
balance sheet immediately after the acquisition? What amount of total assets was reported in the
consolidated balance sheet immediately after acquisition?

PROBLEM 16
The financial statements for Good, Inc and Best Company for the year ended December 31, 2011, prior to
Good’s business combination transaction regarding Best Co., follow (in thousands):
Good Inc. Best Co.
Revenues P 1,350 P 300
Expenses 990 200
Net income P 360 P 100

Retained earnings, 1/1 P 1,200 P 200

Net income 360 100
Dividends ( 135) ( 0)
Retained earnings, 12/31 P 1,425 P 300

Cash P 120 P 110

Receivables and Inventory 600 170
Buildings (net) 1,350 300
Equipment (net) 1,050 600
Total Assets P 3,120 P 1,180

Liabilities P 750 P 410

Common stock 540 200
Additional paid-in capital 405 270
Retained earnings 1,425 300
Total liabilities and Stockholders’ equity P 3,120 P 1,180

On December 31, 2011, Good Inc issued P300 in debt and 15 shares of its P10 par value common stock to
the owners of Best to purchase all of the outstanding shares of that company. Good Inc. shares had a fair
value of P40 per share. Good Inc. paid P12.50 to a broker for arranging the transaction. Good Inc. paid
P17.50 in stock issuance costs. Best’s equipment was actually worth P700 but its building were only valued
at P280.
 What amount is the investment recorded on Good Inc’s. books?
 Using the same information above, compute the consolidated revenues for 2011.
 Using the same information above, compute the consolidated expenses for 2011.
 Using the same information above, compute the consolidated cash account at December 31, 2011.
 Using the same information above, compute the consolidated buildings (net) account at December 31,
2011:
 Using the same information above, compute the consolidated goodwill account at December 31, 2011:
 Using the same information above, compute the consolidated common stock account at December 31,
2011:
 Using the same information above, compute the consolidated additional paid-in capital account at
December 31, 2011:
 Using the same information above, compute the consolidated retained earnings account at December
31, 2011:

PROBLEM 17
On January 1, 2010, Maru Corporation and Nong Corporaton and their condensed balance sheet are as
follows:

Maru Corp. Nong Corp

Current Assets P 140,000 P 40,000
Non-current Assets 180,000 80,000
Total Assets P 320,000 P 120,000
Current Liabilities P 60,000 P 20,000
Long-term Debt 100,000 -
Stockholders’ Equity 160,000 100,000
Total Liabilities & Equities P 320,000 P 120,000

On January 2, 2010, Maru Corporation borrowed P120,000 and used the proceeds to obtain 80% of the
outstanding common shares of Nong Corporation. The acquisition price was considered proportionate to
Nong’s fair value. The P120,000 debt is payable in 10 equal annual principal payments, plus interest,
beginning December 31, 2010. The excess fair value of the investment over the underlying book value of
the acquired net assets is allocated to inventory (60%) and to goodwill (40%).

On a consolidated balance sheet as of January 2, 2010, what should be the amount for each of the following:
 The amount of goodwill using proportionate basis (partial):
 Using the same information above, the amount of goodwill using full fair value (full/gross-up)basis:
 Using the same information above, the amount of current assets should be:
 Using the same information above, the amount of non-current asset using proportionate basis (partial)
in computing goodwill should be:
 Using the same information above, the amount of non-current asset using full fair value basis
(full/gross-up) in computing goodwill should be:
 Using the same information above, the amount of current liabilities should be:
 Using the same information above, the amount of non-current liabilities should be:
 Using the same information in above, the amount of stockholders’ equity using proportionate (partial
goodwill) basis to determine non-controlling interest should be:
 Using the same information above, the amount of stockholders’ equity using full fair value (full/gross-
up goodwill) basis to determine non-controlling interest should be: