BAINTE2X – INTEGRATED ACCOUNTING 2: PRACTICAL ACCOUNTING 2

BUSINESS COMBINATION (part 2)

Problem A
On June 1, 20x1, P Co. acquired 80% of S Co. for ₱8,400,000. A control premium of ₱400,000 is included in the
consideration paid by P Co. The carrying and fair value of net identifiable assets of S Co. amounted to ₱8,000,000
and ₱9,500,000, respectively.

1. How much is the amount of goodwill under proportionate share basis or partial goodwill?
2. How much is the amount of goodwill under full fair value basis or full goodwill?
3. Assume that the fair value of NCI is assessed at 1,950,000, how much is the amount of goodwill under gross up
value basis?

Problem B
P Co. has gained control over the operations of S Co. by acquiring 75% of its outstanding share capital for
₱4,650,000. This amount includes a control premium of ₱225,000. Data from the balance sheets of the two entities
included the following amounts as of the date of acquisition:
P Co. S Co.
Cash 1,012,500 800,000
Accounts Receivable 2,770,000 675,000
Inventory 1,600,000 1,200,000
Land 3,000,000 2,400,000
Building 6,750,000 3,400,000
Accum. Dep. - Building -1,687,500 -1,700,000
Equipment 800,000 250,000
Accum. Dep. - Equipment -162,000 -50,000
Investment in S Co. 4,650,000
Totals 18,733,000 6,975,000

Accounts Payable 700,000 1,012,000

Other Current Liabilities 562,500 360,000
Notes Payable - Long Term 1,418,000
Bonds Payable 2,500,000
Share Capital, 100 Par 9,000,000 2,500,000
Share Premium 2,595,000 500,000
Retained Earnings 3,375,500 1,185,000
Totals 18,733,000 6,975,000

At the date of acquisition, the book values of S Co.’s net assets and liabilities approximated their fair values except
for the following:
Accounts Receivable 600,000
Land 3,000,000
Building 2,000,000
Other Current Liabilities 412,000
Notes Payable - Long Term 1,118,000

Non-controlling interest is to be measured at fair value.

1. At what amount should the non-controlling interest be initially recognized?

2. How much goodwill is to be presented in the separate statement of financial position of the parent company
and the consolidated statement of financial position?
3. How much goodwill is attributable to the controlling interest and non-controlling interest?
4. What amount of Investment in S Co. is to be presented in the consolidated statement of financial position?

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5. How much is the consolidated current assets at the date of acquisition?
6. How much is the consolidated noncurrent assets at the date of acquisition?
7. How much is the consolidated total assets at the date of acquisition?
8. How much is the consolidated total liabilities at the date of acquisition?
9. What amount of non-controlling interest is to be presented in the separate statement of financial position and
consolidated statement of financial position?
10. How much is the consolidated shareholders’ equity at the date of acquisition?

Problem C
On July 1, 20x1, P Co. acquired most of the outstanding voting stocks of S Co. for cash. The incomplete working
paper elimination entries on that date for the consolidated statement of financial position of P Co. and its
subsidiary are shown below:
Common Stocks - S Co. 1,500,000
Share Premium - S Co. 937,500
Investment in S Co. 1,584,375
Non-controlling Interest 853,125

Inventories 62,500
Equipment 312,500
Patent 61,250
Investment in S Co. ?
Non-controlling Interest ?

Goodwill ?
Investment in S Co. 185,187.50
Non-controlling Interest ?

Included in the purchase price is a control premium of ₱68,750.

1. How much is the fair value of the identifiable net assets of S Co. on July 1, 20x1?
2. What is the percentage ownership of the controlling interest and non-controlling interest?
3. Compute for the amount of goodwill to be reported in the consolidated statement of financial position on July
1, 20x1 assuming non-controlling interest is measured at fair value.
4. Compute for the amount of goodwill to be reported in the consolidated statement of financial position on July
1, 20x1 assuming non-controlling interest is measured at proportionate share.
5. Compute for the amount of goodwill to be reported in the consolidated statement of financial position on July
1, 20x1 assuming non-controlling interest is measured at fair value. The fair value of the non-controlling
interest is ₱1,150,000.
6. Compute for the amount of goodwill to be reported in the consolidated statement of financial position on July
1, 20x1 assuming non-controlling interest is measured at fair value. The fair value of the non-controlling
interest is ₱975,000.

Problem D
On January 1, 20x4, P Co. acquired 90% interest of the outstanding ordinary shares of S Co. in exchange for 24,000
ordinary shares of ₱10 par value with a market value of ₱603,000 and account its investment using cost method. P
opted to measure the non-controlling interest at proportionate share basis. The statement of financial position of P
and S on January 1, 20x4 are as follows:
P Co. S Co.
Cash 154,500 187,000
Accounts Receivable 171,000 45,500
Inventories 114,500 80,500
Equipment 895,000 200,000
Patent 50,000
Total Assets 1,335,000 563,000

Accounts Payable 520,000 33,000

Ordinary Shares, 10 Par 500,000 250,000
Share Premium 75,000 75,000
Retained Earnings 240,000 205,000

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
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 Total Liabilities and SHE 1,335,000 563,000

The assets and liabilities of S Co. have book values approximately equal to their fair values except for the following
accounts with fair values of:
Inventories 85,500
Equipment - 4 years remaining life 240,000
Patent - 10 years remaining life 65,000

On December 31, 20x4, the goodwill is not impaired and the entities reported the following:
P Co. S Co.
Net Income 151,000 47,000
Dividends Paid 75,000 20,000

1. What is the amount of goodwill on January 1, 20x4?

2. What is the non-controlling interest on January 1, 20x4?
3. What is the consolidated total assets on January 1, 20x4?
4. What is the consolidated shareholders’ equity on January 1, 20x4?
5. What is the investment in subsidiary account balance on December 31, 20x4?
6. What is the investment income on December 31, 20x4?
7. What is the non-controlling interest in net income of subsidiary on December 31, 20x4?
8. What is the total non-controlling interest in net assets of subsidiary on December 31, 20x4?
9. What is the consolidated net income attributable to parent on December 31, 20x4?
10. What is the consolidated retained earnings on December 31, 20x4?
11. What is the consolidated shareholders’ equity on December 31, 20x4?

Problem E
The following statement of financial position was prepared for P Co. and S Co. on January 1, 20x1, just before they
entered into business combination:

P Co. S Co.
Book value Fair Value Book value Fair Value
Cash and Receivables 900,000 900,000 160,000 160,000
Inventory 600,000 800,000 100,000 130,000
Building (5 year life) 1,125,000 1,400,000 300,000 400,000
Equipment (5 year life) 300,000 400,000 250,000 200,000
Accounts Payable 450,000 400,000 50,000 50,000
Bonds Payable 750,000 750,000 40,000 40,000
Ordinary Shares
₱20 Par 750,000
₱10 Par 200,000
Share Premium 150,000 50,000
Retained Earnings 825,000 470,000

On the same day, P purchased 70% ordinary shares of S Co. for 600,000. For two years ended December 31, P Co.
and S Co. reported their separate income statement the following results:
P Co. S Co.
20x1 262,500 200,000
20x2 165,500 115,000

As Christmas bonus to the shareholders, it is the policy of both companies to declare dividends every 25 th of
December and pay such after 15 days.
P Co. S Co.
20x1 50,000 25,000
20x2 100,000 50,000

Additional information:
• The fair value of non-controlling interest is assessed at ₱250,000.
• P issued additional 10,000 shares at market price of 25 per share in 20x2.

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• The impairment test shows that goodwill is impaired at 10% yearly starting 20x2.
• P paid half of its accounts payable in 20x2 while S Co.’s bonds payable matures in 20x2.

1. How much is the amount of goodwill (gain from bargain purchase) to be presented in the 20x1 consolidated
financial position?
2. How much is the amount of allocated excess?
3. How much is the amount of net amortization of excess to be adjusted to the net income of the subsidiary in
20x1 and 20x2?
4. How much is the non-controlling interest in the net income of subsidiary in 20x1?
5. How much is the consolidated net income in 20x1?
6. How much is the amount of NCI in net assets of the subsidiary as of December 31, 20x1?
7. How much is the consolidated retained earnings in 20x1?
8. How much is the consolidated shareholders’ equity in 20x1?
9. How much is the consolidated liabilities in 20x1?
10. How much is the consolidated assets in 20x1?
11. How much is the consolidated net income in 20x2?
12. How much is the non-controlling interest in the net income of the subsidiary in 20x2?
13. How much is the non-controlling interest in the 20x2 consolidated net income?
14. How much is the controlling interest in the 20x2 net income of the subsidiary?
15. How much of the consolidated net income is attributable to parent in 20x2?
16. How much is the consolidated retained earnings as of 20x2?
17. How much is the non-controlling interest in the net assets of the subsidiary as of 20x2?
18. How much is the consolidated shareholders’ equity as of 20x2?
19. How much is the consolidated liability as of 20x2?
20. How much is the consolidated assets as of 20x2?

- End -

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 admissions-nubaliwag@nu.edu.ph