Wholly and Partially-owned Subsidiary: Goodwill - Date of Acquisition

Assume the following independent cases for Per Company acquires Sia Company’s outstanding stock on
January 1, 20x4 and immediately prepares a consolidated balance sheet:
Consideration Interest Additional Information,
Case Transferred Acquired January 1, 20x4
1 P 408,000 cash 100%
2 100%
P288,000 cash plus 12,000 common shares with a
fair value of P12 per share. The following costs
were incurred: indirect costs, P12,000 and costs to
issue and register stocks amounted to P8,400.
P360,000 (also pays P14,400 indirect costs)
3 A. Partial Goodwill (Proportionate Basis) 80% FV of NCI – none.
Approach
B. Full-goodwill (Fair Value Basis)
Approach
4 100%
P288,000 cash plus 12,000 common shares with a (Subsidiary Subsidiary (Sia) has recorded
fair value of P12 per share. The following costs has goodwill of P6,000 and the
were incurred: indirect costs, P12,000 and costs to Recorded Cash amounted to P54,000 (at
issue and register stocks amounted to P8,400. Goodwill at book and fair value) and total
Date of assets at fair value is P672,000.
Acquisition
5 P 408,000 cash on a cum-dividend or dividends-on 100% Subsidiary (Sia) has recorded
basis (Subsidiary (at book and fair value)
has Accounts payable of P114,000
Recorded and Dividends payable
Dividends amounted P6,000
at Date of
Acquisition
The separate balance sheets of the two companies immediately before the consolidation with acquiree’s
fair value were presented as follows:
Per Co. Book Sia Co. Book Sia Co.
Assets value value Fair value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 420,000 P 60,000 P 60,000
Accounts receivable . . . . . . . . . . . . . . . . . . 90,000 60,000 60,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 72,000 90,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,000 48,000 120,000
Buildings and equipment (net) . . . . . . . . . . 480,000 360,000 348,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,320,000 P 600,000 P 678,000

Liabilities and Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . P 120,000 P 120,000 P 120,000
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . 240,000 120,000 162,000
Common stock, P10 par . . . . . . . . . . . . . . . . . . . . . 600,000 240,000
Paid in capital in excess of par . . . . . . . . . . 60,000 24,000
Retained earnings . . . . . . . . . . . . . . . . . . . . 300,000 96,000
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . P 1,320,000 P 600,000
Solution:

1. Schedule of Determination and Allocation of Excess

Case 1: Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred P 408,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%) 24,000
Retained earnings (P96,000 x 100%) 96,000 360,000
Allocated excess (excess of cost over book value) P 48,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment (P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair value) P 12,000

January 1, 20x4
Investment in S Company…………………………………………… 408,000
Cash…………………………………………………………………….. 408,000

……………………………………………..
4. WPEEs
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity-S Co
(E2)
Inventory…………………………………………………………. 18,000
Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 48,000
Eliminate investment against allocated excess.

Consolidated working paper:

Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
P P
Cash*…………………………. 12,000 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
P600,00
Total Assets P1,320,000 0 P1,602,000
Liabilities and Stockholders’ Equity
P120,00
Accounts payable…………… P 120,000 0 P 240,000
Bonds payable………………… 240,000 120,000 360,000
 Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000

Common stock, P10 par……… 240,000 (1) 240,000

Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
_________
Retained earnings…………… _________ 96,000 (1) 96,000 _ _________
Total Liabilities and Stockholders’ P600,00 P
Equity P1,320,000 0 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.

Schedule of Determination and Allocation of Excess (Case 2)

Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)………………... 24,000 360,000
Allocated excess (excess of cost over book value)…… P 72,000

Less: Over/under valuation of assets and liabilities:

Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
Decrease in buildings and equipment
(P12,000 x
100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 36,000

January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
Cash…………………………………………………………………….. 288,000
Common stock, P10 par…………………………………………….. 120,000
Paid-in capital in excess of par……………………………………. 24,000
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)…………………………………………………………… 12,000
Cash……………………………………………………………………. 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. 8,400
Cash……………………………………………………………………. 8,400
Costs to issue and register stocks.

WPEEs
(E1) Common stock – S Co………………………………………… 240,000
 Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity of S Co.

(E2) Inventory…………………………………………………………. 18,000

Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 36,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 72,000
Eliminate investment against allocated excess.

Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
P P
Cash*………………………….. 111,600 60,000 P 171,600
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 36,000 36,000
Investment in S Co…………. 432,000 (1) 360,000
(2) 72,000 -
P600,00
Total Assets P1,443,600 0 P1,725,600
Liabilities and Stockholders’ Equity
P120,00
Accounts payable…………… P 120,000 0 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par**…..… 720,000 720,000
Common stock, P10 par……… 240,000 (1) 240,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
_________
Retained earnings…………… _________ 96,000 (1) 96,000 _ _________
Total Liabilities and Stockholders’ P600,00
Equity P1,443,600 0 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
**P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
***P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
****P300,000 – P12,000 = P288,000.

Case 3: Date of Acquisition - January 1, 20x4

Proportionate Basis (Partial-goodwill Approach)
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Fair value of Subsidiary (80%)
Consideration transferred………(P400,000)……………………….. P 360,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 80%) P 192,000
Paid-in capital in excess of par (P96,000 x 80%) 76,800
 Retained earnings (P24,000 x 80%) 19,200 288,000
Allocated excess (excess of cost over book value) P 72,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 80%) P 14,400
Increase in land (P72,000 x 80%) 57,600
Decrease in buildings and equipment (P12,000 x 80%) ( 9,600)
Increase in bonds payable (P42,000 x 80%) ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over fair value) P 43,200

Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Fair value of Subsidiary (100%)
Consideration transferred (P360,000 / 80%) P 450,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P96,000 x 100%) 96,000
Retained earnings (P24,000 x 100%) 24,000 360,000
Allocated excess (excess of cost over book value) P 90,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment
(P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over fair value) P 54,000

Case 4: Date of Acquisition - January 1, 20x4

Schedule of Determination and Allocation of Excess (Full-goodwill)
Fair value of Subsidiary (100%)
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)………………... 24,000 360,000
Allocated excess (excess of cost over book value)…… P 72,000
Add: Existing Goodwill of SS Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess P 78,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment (P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair value) P 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing goodwill in the
books of the subsidiary, thus:

Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Fair value of Subsidiary (100%)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
Positive excess: Goodwill (excess of cost over fair value) P 42,000
Case 5: Date of Acquisition - January 1, 20x4
Schedule of Determination and Allocation of Excess (Full-goodwill)
Fair value of Subsidiary (100%)
Consideration transferred (P408,000 – P6,000)…….. P 402,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P96,000 x 100%) 96,000
Retained earnings (P24,000 x 100%) 24,000 360,000
Allocated excess (excess of cost over book value) P 42,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment (P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair value) P 6,000