SAN SEBASTIAN COLLEGE RECOLETOS

Business Combinations Midterm

Christopher C. Lim

Multiple Choice: Choose the best answer from the given choices. Key in your
answer in the google classroom.

Test 1 Theory Questions 2 points each

Test 2 Problems Solving Questions 4 points each.

On January 1, 20x1, Bass Co. issued equity instruments in exchange for 75% interest in
Guitar Co. On acquisition date, Bass Co. elected to measure non-controlling interest at
fair value. Bass Co.’s management believes that the fair value of the consideration
transferred correlates to the fair value of the controlling interest acquired and that the
fair value of the controlling interest is proportionate to the fair value of the remaining
interest.

Guitar Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and
₱360,000, respectively. The difference is attributable to a building with a remaining
useful life of 6 years.

The December 31, 20x1 statements of financial position of Bass Co. and Guitar Co. are
summarized below:

Bass Co. Guitar Co.

ASSETS
Investment in subsidiary (at cost) 300,000 -
Other assets 1,372,000 496,000
1,672,00
TOTAL ASSETS 496,000
0

LIABILITIES AND EQUITY

Trade and other payables 292,000 120,000
Share capital 940,000 200,000
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
1,672,00
TOTAL LIABILITIES AND EQUITY 496,000
0

No dividends were declared by either entity during year. There were also no inter-
company transactions and impairment in goodwill.

1. What amount of goodwill is presented in the consolidated statement of financial

position on December 31, 20x1?
2. How much is the consolidated total assets as of December 31, 20x1?
3. How much is the non-controlling interest in the net assets of the subsidiary on
December 31, 20x1?
4. How much is the consolidated retained earnings on December 31, 20x1?
5. How much is the consolidated total equity on December 31, 20x1?
On January 1, 20x1, Laughter Co. issued equity instruments in exchange for 75%
interest in Tears Co. Tears Co.’s net identifiable assets have carrying amount and fair
value of ₱300,000 and ₱360,000, respectively. The difference is attributable to a
building with a remaining useful life of 6 years.

The December 31, 20x1 statements of profit or loss of Laughter Co. and Tears Co. are
summarized below:

Statements of profit or loss

For the year ended December 31, 20x1
Laughter Co. Tears Co.
Revenues 1,200,000 480,000
Operating expenses (960,000) (400,000)
Profit for the year 240,000 80,000
6. How much is the consolidated profit in 20x1?
7. How much is the consolidated profit attributable to owners of the parent in 20x1?
8. How much is the consolidated profit attributable to non-controlling interest in 20x1?

On January 1, 20x1, COLLOQUY Co. acquired all of the identifiable assets and assumed
all of the liabilities of CONVERSATION, Inc. by issuing its own ordinary shares.
Information at acquisition date is shown below:
CONVERSATION, Combined
COLLOQUY Co. Co. entity
(carrying amounts) (fair values)
Identifiable assets 9,600,000 6,400,000 16,000,000
Goodwill - - ?
Total assets 9,600,000 6,400,000 ?
Liabilities 2,800,000 3,600,000 6,400,000
Share capital 2,400,000 1,200,000 2,800,000
Share premium 1,200,000 1,000,000 4,800,000
Retained earnings 3,200,000 600,000 ?
Total liabilities & equity 9,600,000 6,400,000 ?
Additional information:
 COLLOQUY’s share capital consists of 60,000 ordinary shares with par value of ₱40
per share.
 CONVERSATION’s share capital consists of 3,000 ordinary shares with par value of
₱400 per share.
9. How much is the fair value of consideration transferred on the business
combination?
10. How many shares were issued in the business combination?
11. How much is the acquisition-date fair value per share?
12. How much goodwill was recognized on acquisition date?
13. What is the retained earnings of the combined entity immediately after the business
combination?

Rainy Afternoon Co. owns 80% interest in Sunny Morning Co. During 20x1, Rainy sold
inventories costing ₱200,000 to Sunny for ₱300,000. One-fourth of the inventories were
unsold as of December 31, 20x1 and were included in Sunny’s year-end statement of
financial position at the purchase price from Rainy. The individual financial statements
of Rainy and Sunny on December 31, 20x1 show the following information:
Rainy Sunny
Inventory 1,260,000 380,000
Sales 6,700,000 2,700,000
Cost of
(3,015,000) (1,755,000)
sales
Gross profit 3,685,000 945,000
There are no fair value adjustments arising from the business combination date.
14. How much is the consolidated inventory on December 31, 20x1?
15. How much is the consolidated sales?
16. How much is the consolidated cost of sales?

On January 1, 20x1, Horse Co. acquired 80% interest in Colt Co. by issuing bonds with
fair value of ₱250,000. NCI is measured at proportionate share. The following
information was determined immediately before the acquisition:
Horse Co. Colt Co. Colt Co.
Carrying amount Carrying amount Fair value
Total assets 1,000,000 400,000 430,000
Total liabilities (600,000) (200,000) (200,000)
Net assets 400,000 200,000 230,000
Included in Colt’s liabilities is an account payable to Horse amounting to ₱20,000.
17. How much is the total assets in Horse’s separate financial statements immediately
after the combination?
18. How much is the total assets in the consolidated financial statements?

Lion Co. acquired 80% of Cub Co. on January 1, 20x1 for ₱100,000. The following
information was determined at acquisition date:

Lion Co. Cub Co. Cub Co.

Carrying amt. Carrying amt. Fair value
Equipment 1,000,000 500,000 400,000
Accumulated depreciation (200,000) (100,000) (80,000)
Net 800,000 400,000 320,000
Remaining useful life, 1/1/ x1 10 yrs. 5 yrs. 5 yrs.
19. How much is the consolidated “Equipment – net” in the December 31, 20x2 financial
statements?
20. The consolidation journal entry for the depreciation of the fair value adjustment on
December 31, 20x2 includes which of the following?