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ULOd ANSWER KEY

Chik Company acquired the net assets of Team Company for ₱900,000 on July 1, 2017. The provisional fair values assigned to the assets and liabilities were subject to change during the one-year measurement period, which expired on July 1, 2018. The equipment value was revised to ₱180,000 and building to ₱550,000. Total depreciation expense for 2017 was ₱32,500 based on provisional values, while 2018 expense was ₱63,500 based on the revised values.

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309 views2 pages

ULOd ANSWER KEY

Chik Company acquired the net assets of Team Company for ₱900,000 on July 1, 2017. The provisional fair values assigned to the assets and liabilities were subject to change during the one-year measurement period, which expired on July 1, 2018. The equipment value was revised to ₱180,000 and building to ₱550,000. Total depreciation expense for 2017 was ₱32,500 based on provisional values, while 2018 expense was ₱63,500 based on the revised values.

Uploaded by

zee abadilla
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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Let’s Check

Consideration Transferred P160,000,000


Provisional Fair Value P 135,000,000
Goodwill P25,000,000

Let’s Analyze

Chik Company is acquiring the net assets of Team Company for an agreed-upon price
of ₱900,000 on July 1, 2017. The value was tentatively assigned as follows:
Current assets ₱100,000
Land 50,000
Equipment (5-year life) 200,000
Building (20-year life) 500,000
Current liabilities (150,000)
Goodwill 200,000

Values were subject to change during the measurement period. The measurement
period expired on July 1, 2018, at which time the fair values of the equipment and
building as of the acquisition date were revised to ₱180,000 and ₱550,000,
respectively.

How much total depreciation expense should be recorded in 2017 and 2018?

Analysis:

2017
Equipmen
t Building
Provisional value ₱200,000 ₱500,000
Useful life (in months) 60 240
No. of months depreciated 6 6
Depreciation expense ₱20,000 ₱12,500

During 2017, the depreciation amounting to ₱32,500 is be based on the provisional


value at the date of acquisition.

2018
Equipme
nt Building
Provisional value ₱180,000 ₱550,000
Useful life (in months) 60 240
No. of months depreciated 12 12
Depreciation expense ₱36,000 ₱27,500
In 2018, the total depreciation expense amounting to 63,500 is based on the revalued
amount of equipment and building.

Note: Take note that changes in provisional value of depreciable assets should be
adjusted retrospectively. Hence, accumulated depreciation from 2017 to 2018 should be
based on the revalued amount and not on the provisional value identified at the date of
acquisition. Adjustments should also be made on depreciation expense and closed
directly to retained earnings if it includes a prior year transaction.

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