SOLUTIONS TO QUIZ 2:

1. Solutions:
Case #1
(1) Consideration transferred 3,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 3,000,000
Fair value of net identifiable assets acquired* (2,360,000)
Goodwill 640,000

* Fair value of identifiable assets acquired excluding goodwill

(3.2M – 40K) 3,160,000
Fair value of liabilities assumed ( 800,000)
Fair value of net identifiable assets acquired 2,360,000

Case #2:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
Fair value of net identifiable assets acquired (2,360,000)
Gain on a bargain purchase (360,000)

2. Solutions:
Case #1:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree 310,000
(3) Previously held equity interest in the acquiree -
Total 2,310,000
Fair value of net identifiable assets acquired (1,600,000)
Goodwill 710,000

Case #2:
(1) Consideration transferred 1,200,000
(2) Non-controlling interest in the acquiree 310,000
(3) Previously held equity interest in the acquiree -
Total 1,510,000
Fair value of net identifiable assets acquired (1,600,000)
(90,000
Gain on a bargain purchase )

Case #3:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree 500,000
(3) Previously held equity interest in the acquiree -
Total 2,500,000
Fair value of net identifiable assets acquired (1,600,000)
Goodwill 900,000

Case #4:
(1) Consideration transferred 2,000,000
 (2) Non-controlling interest in the acquiree* 320,000
(3) Previously held equity interest in the acquiree -
Total 2,320,000
Fair value of net identifiable assets acquired (1,600,000)
Goodwill 720,000

*The non-controlling interest’s proportionate share of acquiree’s identifiable net assets

is computed as follows:
Fair value of identifiable assets acquired 2,400,000
Fair value of liabilities assumed ( 800,000)
Fair value of net identifiable assets acquired 1,600,000
Multiply by: Non-controlling interest 20%
Non-controlling interest’s proportionate share
in net identifiable assets 320,000

SOLUTIONS TO QUIZ 3:

1. Solutions:
Case #1:
(1) Consideration transferred (8,000 sh. x P250) 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
(1,400,000
Fair value of net identifiable assets acquired )
Goodwill 600,000

Case #2:
(1) Consideration transferred (fair value of bonds) 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
(1,400,000
Fair value of net identifiable assets acquired )
Goodwill 600,000

2. Solution:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
(1,400,000
Fair value of net identifiable assets acquired )
Goodwill 600,000

3. Solutions:
Case #1:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
(1,440,000
Fair value of net identifiable assets acquired* )
Goodwill 560,000

*The fair value of net identifiable assets acquired is computed as follows:

Fair value of identifiable assets acquired , including
intangible asset on the operating lease with
favorable terms (P3.2M + P40K) 3,240,000
Fair value of liabilities assumed (1,800,000)
Fair value of net identifiable assets acquired 1,440,000

Case #2:
Goodwill (gain on bargain purchase) is computed as follows:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
(1,360,000
Fair value of net identifiable assets acquired* )
Goodwill 640,000

* The fair value of net identifiable assets acquired is computed as follows:

Fair value of identifiable assets acquired 3,200,000
Fair value of liabilities assumed, including liability
on the operating lease with unfavorable terms
(P1.8M + P40K) (1,840,000)
Fair value of net identifiable assets acquired 1,360,000

Case #3:
Goodwill (gain on bargain purchase) is computed as follows:
(1) Consideration transferred 2,000,000
(2) Non-controlling interest in the acquiree -
(3) Previously held equity interest in the acquiree -
Total 2,000,000
(1,400,000
Fair value of net identifiable assets acquired )
Goodwill 600,000

1. Solutions:
Method #1: Multiples of average excess earnings
Average earnings (13.8M – .8M expropriation gain) ÷ 5 years 2,600,000
Normal earnings in the industry (20M x 12%) (2,400,000)
Excess earnings 200,000
Multiply by: Probable duration of excess earnings 5
Goodwill 1,000,000
Method #2: Capitalization of average excess earnings
Average earnings (13.8M – .8M expropriation gain) ÷ 5 years 2,600,000
Normal earnings in the industry (20M x 12%) (2,400,000)
Excess earnings 200,000
Divide by: Capitalization rate 25%
Goodwill 800,000

Method #3: Capitalization of average earnings

Average earnings (13.8M – .8M expropriation gain) ÷ 5 years 2,600,000
Divide by: Capitalization rate 12.5%
Estimated purchase price 20,800,000
Fair value of acquiree’s net assets (20,000,000)
Goodwill 800,000

Method #4: Present value of average excess earnings

Average earnings (13.8M – .8M expropriation gain) ÷ 5 years 2,600,000
Normal earnings in the industry (20M x 12%) (2,400,000)
Excess earnings 200,000
Multiply by: PV of an ordinary annuity @10%, n=5 3.79079
Goodwill 758,158

SOLUTION:

Goodwill is computed as follows:

(
150,00
1
0
) Consideration transferred
(
2 Non-controlling interest in the 36,000
) acquiree (180K* x 20%)
(
3 Previously held equity interest in the -
) acquire
186,00
Total 0
Fair value of net identifiable assets (180,0
acquired 00)
Goodwill 6,000

* fair value of net assets (see given table above)

ABC Group
Consolidated statement of financial
position
As of January 1, 20x1

ASSETS
30,00
Cash (20,000 + 10,000)
0
Accounts receivable (60,000 84,00
+ 24,000) 0
Inventory (80,000 + 62,000 142,00
fair value) 0
Equipment (400,000 + 520,00
120,000 fair value) 0
Accumulated depreciation (64,00
(40K + 24K FV) 0)
6,00
Goodwill (see above)
0
718,00
TOTAL ASSETS
0

LIABILITIES AND EQUITY

Accounts payable (40,000 + 52,00
12,000) 0
60,00
Bonds payable (60,000 + 0)
0
Total liabilities 112,000
Share capital (parent’s
340,000
only)
Share premium (parent’s
130,000
only)
Retained earnings (parent’s
100,000
only)
Owners of parent 570,000
Non-controlling interest 36,00
(see above) 0
Total equity 606,000
TOTAL LIABILITIES AND
718,000
EQUITY