Total stockholders equity P6,458,000

20. The statement of financial position of B.o.B. Company as of December 31, 2013 is as follows:

Assets Liabilities and Shareholder’s Equity

Cash 175,000 Current Liabilities 250,000

Accounts Receivable 250,000 Mortgage payable 450,000

Inventory 725,000 Ordinary Share Capital 200,000

Property, plant and equipment 950,000 Share Premium 400,000

2,100,000 Accumulated Profits 800,000

2,100,000

On December 31, 2013 the Taylor Swift Inc. bought all of the outstanding shares of B.o.B. Company for P
1,800,000 cash. On the date of acquisition, the fair market value of B.o.B.’s inventories was P 675,000,
while the fair value of B.o.B.’s property, plant equipment was P 1,100,000. The fair value of all other
assets and liabilities of B.o.B. were equal to their book values. In addition, not included above were costs
in-process research and development of B.o.B Company amounting to P 100,000.

Goodwill amounted to:

a. P 400,000

b. P 300,000

c. P 200,000

d. P -0-

Ans. C

Consideration Transferred P1,800,000

Book Value of Net Assets:

Ordinary Share Capital P200,000

Share Premium P400,000

Accumulated Profits (P800k+P100k) P900,000

Allocable excess P300,000

Increase/Decrease in assets:

Inventory (675k-725k) P50,000

P200,000

21.Bruno Mars Company acquired Billboard Company’s net assets by issuing its own P 14 par value
ordinary shares totaling 50,000 shares at market price of P 14.55. Bruno Mars Company had the
following expenditures incurred:

Finder’s fee paid P 50,000

Pre-acquisition audit fee, 30% was paid 40,000

General administrative costs 15,000

Doc stamp paid on issuance for the combination 3,500

Legal fees for the combination paid 32,000

Audit fees for SEC registration of share issue 46,000

SEC registration for the share issue paid 10,000

Share issuance costs paid (inclusive of taxes paid) 10,000

sOther indirect costs paid 16,000

The total amount debited to expense should be

a. P 153,000

b. P 156,500

c. P 195,000

d. P 191,500

Ans. D

Finder’s fee paid P 50,000

Pre-acquisition audit fee, 30% was paid 40,000

Doc stamp paid on issuance for the combination 3,500

Legal fees for the combination paid 32,000

Audit fees for SEC registration of share issue 46,000

Share issuance costs paid (inclusive of taxes paid) 10,000

P191,500

22. On 1 December 2015, Casio Ltd. acquired all the assets and liabilities of Aurora Ltd. With Casio Ltd.
Issuing 100, 000 shares to acquire these net assets. The fair value of Aurora Ltd.’s assets and liabilities at
this date were:

Cash P50, 000

Furniture and fittings 20, 000

Accounts receivable 5, 000

Plant 125, 000

Accounts payable 15, 000

Current tax liability 8, 000

Provision for annual leave 2, 000

The financial year for Casio Ltd. is January – December.

The fair value of each Casio Ltd. Share at acquisition date is P1.90. At acquisition date, the acquirer could
only determine a provisional fair value for the plant. On 1 March 2016, Casio Ltd. received the final value
from the independent appraisal, the fair value at acquisition date being P131, 000. Assuming the plant
had further five-year life from the acquisition date.

The amount of goodwill arising from the business combination of December 1, 2015:

a. P15, 000

b. P9, 000

c. P5, 000

d. 0

Ans: B
Solution:

Consideration transferred (100, 000 shares x P1.90) P190, 000

Less: fair value of net identifiable assets acquired:

Cash P50, 000

Furniture and fittings 2, 000

Accounts receivable 5, 000

Plant 131, 000

Accounts payable (15, 000)

Current tax liability (8, 000)

Liabilities (2, 000) 181, 000

Goodwill P9, 000

One of the problems that may arise in measuring the assets and liabilities of the acquiree is that the
initial accounting for the business combination may be incomplete by the end of the reporting period.
For example, the acquisition date may be August 18 and the end of reporting period may be August 31.

In this situation, in accordance with par. 45, the acquirer must report provisional amounts in its financial
statements. The provisional amounts will be best estimates and will need to be adjusted to fair values
when those amounts can be determined after the end of the reporting period. The measurement period
in which the adjustments can be made cannot exceed one year after the acquisition date.

The carrying amount of the plant must be calculated as if its fair value at the acquisition date has been
recognized from that date, with an adjustment to goodwill.

If the plant had a 5-year life from the acquisition dates. Casio Ltd. would have charged depreciation for 1
month in 2015. Extra depreciation of P100 being P6, 000 ÷ 5 years x 1/12 is required in 2016.

The adjusting entry at March 1, 2016 is:

(Adjustment for provisional accounting)

Plant6, 000

Goodwill6, 000
(Adjustment to depreciation due to provisional accounting)

Retained earnings, 1/1/16100

Accumulated depreciation100