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Business Combination
MARK ALYSON B. NGINA, CPA, CMA

BUSINESS COMBINATION
MARK ALYSON B. NGINA, CPA CMA

Business Combination
A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. A business
is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of
providing a return directly to investors or other owners, members or participants.

Applying the acquisition method

Acquisition method. The acquisition method (called the 'purchase method' in the previous version of PFRS 3) is used for
all business combinations.
Steps in applying the acquisition method are:
1. Identification of the 'acquirer'
2. Determination of the 'acquisition date'
3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling
interest (NCI, formerly called minority interest) in the acquiree
4. Recognition and measurement of goodwill or a gain from a bargain purchase

Computation of Goodwill / Bargain purchase (negative goodwill)

Fair value of consideration transferred xx
Non-controlling interest xx
Fair value of previously held equity interest xx
Total xx
Less: Fair value of identifiable net asset xx
Goodwill (gain on bargain purchase) xx
Note: All items should be measured at the date of acquisition.

REVIEW QUESTIONS: THEORETICAL

1. A business combination is a transaction where:
a. An acquirer obtains control over one or more businesses
b. A vendor and a customer enter into a mutual business deal
c. Two or more business merge into one single entity
d. An acquirer obtains significant influence over one or more businesses
2. The elements of a business do not include
a. Input b. Process d. Output d. Throughput
3. Which of the following statements is false about a business, according to PFRS 3?
a. Although businesses usually have outputs, outputs are not required for an integrated set of activities to qualify as a
business.
b. When a business is acquired, all of the inputs or processes that the seller used in operating that business need to
be acquired in order to qualify as a business.
c. Nearly all businesses also have liabilities, but a business need not have liabilities.
d. In the assessment of whether an entity is a business, it is not relevant whether a seller operated the set as business
or whether the acquirer intends to operate the set as a business, just as long as it is capable.
4. Business combination may be structured in variety of ways for legal, taxation or other reasons and may include the
following, except
a. One or more businesses become subsidiaries of an acquirer or the net assets of one or more businesses are legally
merged into the acquirer
b. One combining entity transfers its net assets, or its owners transfer their equity interests, to another combining
entity or its owners
c. All of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests,
to a newly formed entity (sometimes referred to as a roll-up or put-together transaction)
d. A group of former owners of one of the combining entities obtains control of the combined entity
e. None of these
5. Which of the following is not considered a Business Combination?
a. Buying the shares of a company

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MARK ALYSON B. NGINA, CPA, CMA

BUSINESS COMBINATION

b. Purchasing the net assets of a company

c. Reverse acquisitions
d. A combination of entities or businesses under common control.
6. Which of the following accounting methods must be applied to all business combinations under PFRS 3, Business
Combinations?
a. Pooling of interests method. c. Equity method.
b. Proportionate consolidation. d. Acquisition method.
7. Which of the following statements about identifying the acquirer is/are true?
a. In a cash acquisition, the acquirer is generally the entity that pays the cash.
b. When a new holding entity issues shares to effect the combination, another of the combining entities must be
identified as the acquirer.
c. Usually the acquirer is the entity that becomes the parent of the other combining party or parties, but not always.
d. In a reverse acquisition, the entity that becomes the subsidiary of the other entity is the acquirer.
e. All of the above are true.
8. CPA’s acquisition of BSA for cash proceeded as follows:
January 23 Approach made to the management of BSA seeking endorsement of the acquisition
March 2 Public offer made for 100% of the equity shares of BSA, conditional on regulatory
approval, shareholder approval and receiving acceptances representing 60% of BSA’s
shares
June 12 Regulatory approval received
July 1 Shareholder approval received
October 30 Acceptances received to date represent 55% of BSA’s shares
November 15 Acceptances received to date represent 95% of BSA’s shares
November 25 Cash paid out to BSA’s accepting shareholders
When is the acquisition date?
a. March 2 b. October 30 c. November 15 d. November 25
9. A general rule in recognition of assets acquired under business combinations is to measure them at:
a. Cost to the original entity c. Fair value as at date of reporting period
b. Fair value as at acquisition date d. Replacement Value
10. PFRS 3 requires all identifiable intangible assets of the acquired business to be recorded at their fair values. Many
intangible assets that may have been subsumed within goodwill must be now separately valued and identified. Under
PFRS 3, when would an intangible asset be “identifiable”?
a. When it meets the definition of an asset in the Framework document only.
b. When it meets the definition of an intangible asset in PAS 38, Intangible Assets, and its fair value can be measured
reliably.
c. If it has been recognized under local generally accepted accounting principles even though it does not meet the
definition in PAS 38.
d. Where it has been acquired in a business combination.
11. Which of the following statements is not correct about recognizing and measuring the assets, liabilities, contingent
liabilities and non-controlling interest according to PFRS 3?
a. For intangible assets, fair value must be reliably measurable, but the probability of the outflow of future economic
benefits need not be tested.
b. The acquirer can recognize liabilities for future losses or costs based on its intentions for the future
c. Liabilities that were existing obligations of the acquiree at the acquisition date shall be recognized.
d. The appendix to PFRS 3 explains that uncertain future cash flows are included in the fair value measure and not
recognized as a separate valuation allowance.
e. The exception for non-current assets held for sale comes from PFRS 5: these items are to be valued at fair value
minus costs to sell, not simply at fair value.
12. Which of the following statements is in accordance to PFRS3 Business combinations with regards to acquisition?
I. The acquirer should recognize the acquiree's contingent liabilities if certain conditions are met.
II. The acquirer should recognize the acquiree's contingent assets if certain conditions are met.
a. I only b. II only c. Both I and II d. Neither I nor II
13. Apple Company granted Coca-Cola Company a right to use its intellectual property in the year 2019. In 2020, Apple
Company acquired control over Coca-Cola Company. In this case:
a. Both the transactions are combined and goodwill is accordingly accounted
b. One of the transactions should be voided and closed
c. Both the transactions are ignored
d. Both the transactions are accounted independently

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MARK ALYSON B. NGINA, CPA, CMA

BUSINESS COMBINATION

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BUSINESS COMBINATION

14. Which is a measurement period adjustment?

a. Meeting an earnings target
b. Reaching a specified share price
c. Reaching a milestone in research and development project
d. Contingent consideration based on a pending lawsuit at the date of acquisition
15. Non-controlling interest in the acquiree is measured at the acquisition date at
a. Fair value
b. Proportional interest in investee’s net assets
c. Either A or B
d. Both A and B
16. The “excess of the acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities, and contingent
liabilities over cost” (formerly known as negative goodwill) should be
a. Amortized over the life of the assets acquired.
b. Reassessed as to the accuracy of its measurement and then recognized immediately in profit or loss.
c. Reassessed as to the accuracy of its measurement and then recognized in retained earnings.
d. Carried as a capital reserve indefinitely.
17. Plant Company acquired controlling interest in Seed Company in a legal acquisition. Which one of the following could
not be part of the entry to record the acquisition?
a. Debit: Investment in Seed Company c. Debit: Goodwill
b. Credit: Cash d. Credit: Common stock
REVIEW QUESTIONS: COMPUTATIONAL
1. Based on the data below, calculate the fair value of work in progress acquired in a business combination according to
PFRS 3.
Selling price of finished product = ₱500,000
Cost of disposal = ₱40,000
Cost of completion = ₱100,000
Profit allowance for the selling effort of the acquirer = ₱80,000
a. ₱460,000 b. ₱420,000 c. ₱360,000 d. ₱280,000
2. Our Co. issued 120,000 shares of ₱25 par ordinary shares for all the outstanding stock of Hour Co. in business
combination consummated on July 1, 2019. Our’s ordinary shares were selling at ₱40 per share at the time of the
combination. An additional cash payment of ₱200,000 was made and a deferred cash payment of ₱1,500,000 payable
on July 1, 2020. Market rate of interest is 10%. Hour’s net assets were ₱3.8 million at book value. Out of pocket costs
of the combination were as follows: Legal and accounting fees related to the combination - ₱120,000; printing cost of
stock certificates - ₱9,400; listing fee of shares in the PSE - ₱20,000. A contingent consideration guaranteed by Our
over the market value of its issued shares not falling under a minimum amount is measured at ₱50,200. The probability
of Our’s issued shares would fall below the guaranteed market value over the guarantee period is 5%.
Using the acquisition method, the total cost of the investment is
a. ₱ 6,425,836 b. ₱ 6,363,637 c. ₱ 6,413,837 d. ₱ 6,425,836
3. Using the purchase method, the total cost of the investment is
a. ₱ 6,425,836 b. ₱ 6,363,637 c. ₱ 6,413,837 d. ₱ 6,533,837
4. At the acquisition date, an acquirer has established fair values for items that was either not recognized, recognized as
an asset or recognized as an expense in profit or loss by the acquiree and is trying to decide whether they can be
classified as identifiable assets.
Item Book Value Fair Value
Technically skilled workforce 0 ₱ 1,000,000
In-process development of new compounds for food flavoring 0 1,500,000
Patents developed internally 0 500,000
Selling efforts leading to an order backlog 0 300,000
Franchise agreements developed internally 0 700,000
Potentially profitable future contracts 0 400,000
Favorable leaseholds 0 2,000,000
Advertising contracts 0 4,000,000
Possible liability from a lawsuit 0 5,000,000
Completed technology 500,000 1,000,000
Broader customer base 0 400,000
Licensing agreements 1,600,000 2,000,000
Potential contracts with new customers 0 900,000
Advertising jingles 0 1,000,000
Future cost savings 0 2,000,000

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BUSINESS COMBINATION

Goodwill 2,000,000 3,000,000

What is the aamount that should be recognized as identifiable intangible asset
a. ₱18,000,000 b. ₱15,000,000 c. ₱13,000,000 d. None of the choices
5. Flower Company had these accounts at the time it was acquired by Flour Company:
Cash ₱ 36,000 Inventories ₱ 120,000
Accounts receivable 457,000 Plant Assets 696,400
Liabilities 350,800
Flour Company paid ₱1,400,000 for 100% of the net asset of Flower. It was determined that fair values of inventories
and plant assets were ₱133,000 and ₱900,000.
An assumed contingent liability with a fair value amounting to ₱10,000 and such amounts is considered a reliable
measurement. Also, a ₱25,000 future losses or reorganization/restructuring costs are expected to be incurred as a
result of the business combination.
In the books of Flour Company, this transaction resulted to:
a. Goodwill recorded at ₱259,800 c. Goodwill recorded at ₱224,800
b. Goodwill recorded at ₱234,800 d. Current assets increased by ₱234,800
6. On July 1, 2020 Grab Company acquired 100% of Uber Company for a consideration transferred of ₱2,400,000. At the
acquisition date the carrying amount of Uber's net assets was ₱1,500,000. At the acquisition date a provisional fair
value of ₱1,800,000 was attributed to the net assets. An additional valuation received on May 31, 2021 increased this
provisional fair value to ₱2,000,000 and on July 30, 2021 this fair value was finalized at ₱2,100,000.
Which of the following statements is incorrect in accordance with PFRS 3 Business Combinations?
a. Grab will present goodwill amounting to ₱600,000 in its statement of financial position on December 31, 2020.
b. Grab will present goodwill amounting to ₱400,000 in its statement of financial position on December 31, 2021.
c. Grab will present goodwill amounting to ₱300,000 in its statement of financial position on December 31, 2020.
d. In preparing the 2021 financial statement, the goodwill that Grab will present in its comparative statement of financial
position on December 31, 2020 is ₱400,000.
7. The National Company acquired 80% of The Local Company for a consideration transferred of ₱1,000,000. The
consideration was estimated to include a control premium of ₱240,000. Local's net assets were ₱850,000 at the
acquisition date. Which of the following statements is in accordance to PFRS3 Business combinations?
I. Goodwill should be measured at ₱320,000 if the non-controlling interest is measured at its share of Local's net
assets.
II. Goodwill should be measured at ₱340,000 if the non-controlling interest is measured at fair value.
a. I only b. II only c. Both I and II d. Neither I nor II
Use the following to answer the next two questions:
8. Chikiting Company acquires 75 percent of Chicken Company’s common stock for ₱225,000 cash. At that date, the non-
controlling interest in Chicken has a book value of ₱52,500 and a fair value of ₱82,000. Also, on that date, Chicken
reports identifiable assets with a book value of ₱400,000 and a fair value of ₱510,000, and it has liabilities with a book
value and fair value of ₱190,000.
How much is the gain on bargain purchase arising on consolidation if fair value of net identifiable assets is to be valued
on the proportionate basis?
a. Zero b. ₱15,000 c. ₱13,000 d. ₱17,333
9. How much is the gain on bargain purchase arising in consolidation if fair value of net identifiable assets is to be valued
on the full (fair value) basis?
a. Zero b. ₱15,000 c. ₱13,000 d. ₱17,333
10. On January 1, 2020, Conceited acquired a 50% interest in Constanding for ₱50M cash and a land with a carrying
amount of ₱8M and a fair value of ₱10M. Conceited already held a 20% interest which had been acquired for ₱20M but
which was valued at ₱24M at January 1, 2020. The consideration transferred includes a control premium of ₱1M, and
the fair value of the identifiable net assets of Constanding was ₱110M.
Which of the following statements is incorrect?
a. The amount of goodwill attributable to the parent if NCI is measured at fair value is ₱7,000,000.
b. The gain on exchange on land amounting to ₱2,000,000 is recognized in P&L regardless of the previous
classification of the previous interest held.
c. A gain amounting to ₱4,000,000 will be recognized in P&L if the previous equity held is classified as associate, joint
venture or FVTPL.
d. A gain amounting to ₱5,000,000 will be recognized in OCI if the previous equity held is classified as FVTOCI.
11. Synergy held a 540 out of the 1,200 outstanding shares of Energy Corporation. Synergy accounts for its investment as
investment in associate and have ₱3,000,000 carrying value on December 31, 2019. On January 1, 2020, Energy

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BUSINESS COMBINATION

Corporation acquired 200 of its outstanding shares to be held in treasury at fair value of ₱6,000 per share. Just after
the acquisition, Energy has net assets which equal their fair value of ₱5,000,000.
How much is the (1) goodwill on combination and (2) gain on exchange to be recognized at the acquisition date?
a. (1) ₱1,000,000; (2) ₱240,000 c. (1) ₱1,540,000; (2) ₱240,000
b. (1) ₱540,000; (2) ₱240,000 d. None of the choices
12. On January 1, 2020, Riki Co. acquires the entire share capital of Doom Co. by issuing 100,000 new ₱2 ordinary shares
at a fair value at the acquisition date of ₱2.50. The professional fees associated with the acquisition are ₱20,000 and
the issue costs of the shares are ₱10,000. The carrying value of the net assets of Doom Co. at the time of acquisition
is ₱150,000, which is equal to its fair value.
A contract exists whereby Riki Co. will buy certain components from Doom Co. over the next five years. The contract
was signed when market prices for these components were markedly higher than they are at the acquisition date. At
the acquisition date the fair value of the amount by which the contract prices are expected to exceed market prices over
the next five years is ₱1.5 million.
Required: Based on the above data, prepare the journal entries and compute the goodwill (gain) assuming:
Case No. 1: If Doom’s profits for the first full year following acquisition exceed ₱2 million, Riki Co. will make an additional
cash consideration of ₱200,000 within one month after that year end. It is doubtful whether Doom Co. will achieve this
profit, hence the acquisition-date fair value of this contingent consideration is ₱100,000.
On July 15, 2020, the value of the contingent consideration is determined to be ₱125,000. This additional valuation is
related to facts and circumstances that existed as of the acquisition date.
On September 16, 2020, the value of the contingent consideration is revised to ₱129,000. This additional valuation is
not related to facts and circumstances that existed as of the acquisition date.
On October 1, 2020, Riki Co. receives the information it was seeking about facts and circumstances that existed as of
the acquisition date.
Doom’s profits for the first full year is ₱2.5 million and settlement was made on January 15, 2021.
Case No. 2: Riki Co. agreed to issue 2,000 additional shares of common stock to the former stockholders of Doom
Company one year later if the fair value of acquirer (Riki’s common stock) fell below ₱2.50 per share. The fair value of
the contingent consideration on January 1, 2020 amounted to ₱5,000. The fair value of shares on January 1, 2021
amounts to ₱2.30.
Case No. 3: If Doom’s profits for the first full year following acquisition exceed ₱2 million, Riki Co. agreed to issue 2,000
additional shares of common stock to the former stockholders of Doom Company. The profit in the first year amounted
to ₱2,100,999.
Case No. 4: In addition to the stock issue, Riki Company also agreed to issue additional shares of common stock to
the former stockholders of Doom Company, to compensate for any fall in the market value of Riki common stock below
₱2.00 per share. The settlement would be to cure the deficiency by issuing added shares based on their fair value on
January 1, 2021.
On January 1, 2021, the common stock of Riki had a fair value of ₱1.60.
Case 1 Case 2
Investment in subsidiary ₱350,000 Investment in subsidiary ₱255,000
Share capital (par) 200,000 Share capital (par) 200,000
Share premium 50,000 Share premium 50,000
ELCC 100,000 Share premium – CC 5,000
Expense (R/E) 20,000 Expense (R/E) 20,000
Share premium 10,000 Share premium 10,000
Cash 30,000 Cash 30,000

ELCC 25,000

ELCC 4,000
ELCC Share premium – CC 5,000
Loss on contingent consideration
Cash Share capital (par) 4,000
Case 3 Case 4
Investment in subsidiary ₱250,000 Investment in subsidiary ₱250,000
Share capital (par) 200,000 Share capital (par) 200,000
Share premium 50,000 Share premium 50,000

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BUSINESS COMBINATION

Expense (R/E) 20,000 Expense (R/E) 20,000

Share premium 10,000 Share premium 10,000
Cash 30,000 Cash 30,000

Share capital (par) 4,000

Share capital (par) 50,000
13. The following are the statement of financial position of PP and TT Corporation on January 2, 2020, just before they
entered into a business combination:
PP Corporation TT Corporation
Book Value Fair Value Book Value Fair Value
Assets
Cash ₱ 310,000 ₱ 310,000 ₱ 35,000 ₱ 35,000
Accounts receivable 75,000 75,000 70,000 70,000
Merchandise inventory 200,000 250,000 50,000 78,000
Property and equipment 400,000 450,000 100,000 124,000
Accumulated depreciation (100,000) (25,000)
Goodwill - 50,000 30,000
Total Assets ₱ 885,000 ₱280,000
Liabilities and Stockholder’ Equity
Accounts payable ₱ 125,000 ₱ 125,000 ₱ 70,000 ₱ 70,000
Bonds payable 200,000 225,000 30,000 42,000
Common stock, ₱30 par value 210,000
Common stock, ₱20 par value 50,000
Additional paid in capital 50,000 60,000
Retained earnings 300,000 70,000
Total Liabilities and SHE ₱ 885,000 ₱280,000
PP Corporation acquired the net assets of TT Corporation by paying cash of ₱10,000 and issuing 2,500 shares of its
₱30 par value common stock. In addition, PP Corporation incurred the following costs in completing the acquisition:
Legal fees to arrange the business combination ₱ 30,000
Finder’s fees 10,000
Other professional fees 50,000
Indirect costs 10,000
Listing fee of shares in the Philippine Stock Exchange (PSE) 5,000
Stock issuance costs (printing of stock certificates and SEC registration fees) 75,000
PP Corporation also agreed to pay an additional ₱125,000 on January 2, 2022, if the average income for the 2-year
period of 2020 and 2021 exceeds ₱80,000 per year. The expected value is estimated at ₱50,000 based on the 40%
probability of achieving the target average income.
Required:
1. Prepare the acquisition of the net assets of TT Corporation in the books of PP Corporation under the following
cases:
Case 1: The stock issued by PP Corporation has a fair value of ₱64 per share.
Case 2: The stock issued by PP Corporation has a fair value of ₱34 per share.
2. Prepare the statement of financial position of PP Corporation after the business combination in each of the two
cases above.
3. Supply the following table:
Case No. 1 Case No. 2
Total Asset
Total Liabilities
Shareholders’ Equity
Common stock
Additional Paid in Capital
Retained Earnings
Gain (loss) on sale by TT
Case 1 Case 2
Debit Credit Debit Credit
1) Cash ₱ 35,000 Cash ₱ 35,000
Accounts Receivable 70,000 Accounts Receivable 70,000
Merchandise Inventory 78,000 Merchandise Inventory 78,000
Property, plant and equipment 124,000 Property, plant and equipment 124,000

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BUSINESS COMBINATION

Goodwill 25,000 Accounts payable ₱ 70,000

Accounts payable ₱ 70,000 Bonds payable 42,000
Bonds payable 42,000 Common stock, par 75,000
Common stock, par 75,000 Additional paid in capital 10,000
Additional paid in capital 85,000 ELCC 50,000
ELCC 50,000 Bargain purchase (Retained earnings) 50,000
Cash 10,000 Cash 10,000
₱332,000 ₱332,000 ₱307,000 ₱307,000
2) Expense (retained earnings) 105,000 Expense (retained earnings) 105,000
Additional paid in capital 75,000 Additional paid in capital 10,000
Cash 180,000 Retained earnings 65,000
Cash 180,000

14. Soar High Eagle Corporation (SHEC) and Mediocre Maya Co. (MMC) have announced terms of an exchange
agreement under which, SHEC will pay ₱60,000 cash and will issue 8,000 shares of its ₱10 par value common stock
to acquire all the assets of MMC. SHEC share currently trading at ₱50, and MMC ₱5 par value shares are trading at
₱18 each. Book value and fair value statement of financial position data on January 1 prior to acquisition are as follows:
SHEC Company MMC Company
Book Value Fair Value Book Value Fair Value
Cash and Receivable ₱150,000 ₱150,000 ₱ 40,000 ₱ 40,000
Land 100,000 170,000 50,000 85,000
Building & Equipment, net 300,000 400,000 160,000 230,000
TOTAL ASSETS ₱550,000 ₱720,000 ₱250,000 ₱355,000
Ordinary shares ₱200,000 ₱100,000
Share premium 20,000 10,000
Accumulated profits 330,000 140,000
TOTAL EQUITIES ₱550,000 ₱250,000
In addition, SHEC incurred the following costs:
• Legal fees to arrange the business combination ₱ 5,000
• Other professional fees 6,000
• Cost of SEC registration & other stock issuance costs 12,000
• Indirect costs 17,000
Determine the following adjusted amounts to be reported on the SHEC’s statement of financial position after the
acquisition:
Cash and Receivables Goodwill Share premium Accumulated profits
a. ₱90,000 ₱105,000 ₱308,000 ₱313,000
b. ₱90,000 ₱105,000 ₱328,000 ₱302,000
c. ₱90,000 ₱116,000 ₱328,000 ₱313,000
d. ₱150,000 ₱116,000 ₱308,000 ₱302,000
15. Angkas Corporation acquired all the assets and liabilities of Kandong Corporation by issuing shares of its common stock
on January 1. Partial statement of financial position data for the companies prior to the business combination and
immediately following the combination is provided:
Angkas Kandong Combination
Book Value Value
Cash ₱ 65,000 ₱ 25,000 ₱ 90,000
Accounts receivable 72,000 20,000 94,000
Inventory 33,000 45,000 88,000
Buildings and equipment (net) 400,000 150,000 650,000
Goodwill ?
Total assets ₱ 570,000 ₱ 240,000 ₱ ?
Accounts payable ₱ 50,000 ₱ 25,000 ₱ 75,000
Bonds payable 250,000 100,000 350,000
Common stock, ₱2 par 100,000 25,000 160,000
Additional paid-in capital 65,000 20,000 245,000
Retained earnings 105,000 70,000 ?
Total Liab. & Equities ₱ 570,000 ₱ 240,000 ₱ ?
Questions:
a. What number of shares did Angkas issue for this acquisition?
b. At what price was Angkas stock trading when stock was issued for this acquisition?
c. What was the fair value of the net assets held by Kandong at the date of combination?
d. What amount of goodwill will be reported by the combined entity immediately following the combination?

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BUSINESS COMBINATION

e. What balance in retained earnings will the combined entity report immediately following the combination?
16. To comply with certain capital requirements, companies X, Y and Z agreed to consolidate. The new corporation will be
known as AAA Corporation, and the following pertinent information were gathered:
X Y Z
Total assets ₱ 1,100,000 ₱ 1,500,000 ₱ 1,200,000
Total liabilities 800,000 900,000 800,000
Annual net income 105,000 240,000 136,000
Additional information:
• The total assets and the total liabilities are at audited values, and they have been agreed upon as the basis for the
consolidation.
• AAA Corporation will issue 10%, ₱100 par value, cumulative preferred shares for the net assets contributed, and
₱100 par value common stocks for earnings in excess of a 15% normal rate of return capitalized at 20%.
• Cash equivalent to 30% of the par value of the common stock to be issued will be paid by the stockholders of the
three companies and will be treated as premium on common shares.
The total preferred shares to be issued and the premium on common shares are (RPCPA):
a. 13,000 shares and ₱429,000 c. 13,000 shares and ₱487,500
b. 12,900 shares and ₱377,500 d. 13,700 shares and ₱539,000
17. A condensed statement of financial position at July 31 and the related current fair value data for Waze Company are
presented below:
Carrying value Fair value
Current assets ₱ 800,000 ₱ 880,000
Property and equipment 1,000,000 1,300,000
Patent 200,000 190,000
Total assets ₱ 2,000,000 ₱ 2,370,000
Current liabilities ₱ 200,000 ₱ 230,000
Non-current liabilities 500,000 450,000
Share capital, ₱20 par value 420,000
Accumulated profits 880,000
Total liabilities and shareholder’s equity ₱ 2,000,000
On August 1, Gmaps Corporation issued 20,000 shares of its ₱20 par value ordinary shares (fair value, ₱45 per share)
and ₱800,000 cash for the net assets of Waze Company. ₱80,000 of share issuance cost was paid by Gmaps. Gmaps
and Waze is subject to 30% tax rate.
Which of the following statements is incorrect?
a. The goodwill on the acquisition is ₱10,000.
b. The net increase in asset is ₱1,653,000.
c. The net increase in liabilities is ₱809,000.
d. The increase in net assets is ₱844,000.
"In the game of life, it's a good idea to have a few early losses, which relieves you of the pressure of trying to maintain an
undefeated season."
“It is perseverance in the right direction that bears true success.”
 -- END OF HANDOUT -- 

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