PROBLEM A.

SIR VIBE COMPANY acquires all the assets and assumes all the liabilities of THE SOLVE
COMPANY on January 1, 2019 for the following considerations:

 50,000 of SVC’s unissued common stocks with par value of P2 but a market value of P80.
 Cash in the amount of P18 million

In addition, SVC also paid P500,000 cash for registration fees connected with the issuance of the new shares,
and P1,100,000 cash for the broker’s fee.

The statements of financial position for the two companies immediately before the acquisition are as follow:

SVC (@BV) TSC (@BV) TSC (@FV)

Cash 25,000,000 90,000 ?
Receivables 2,000,000 200,000 190,000
Inventories 20,000,000 8,110,000 7,000,000
PPE, net 99,500,000 50,000,000 40,000,000
Intangibles, net 5,000,000 1,000,000 4,000,000

Current liabilities 500,000 400,000 400,000

Long term liabilities 70,000,000 45,000,000 47,000,000
Common stock 2,000,000 1,000,000
APIC 55,000,000 10,000,000
Retained Earnings 25,000,000 6,000,000
Treasury Stocks (1,000,000) (3,000,000)

In addition to the assets and liabilities reported above, TSC has unrecorded intangible assets that meet the
requirements for capitalization. Fair value of these intangible assets amount to P12 million.
PROBLEM B. NATTY RAJ COMPANY acquired 100% of DEE SAPIR COMPANY’s net assets on January 2,
2019. On this date, the par value of NRC shares is P200, while its quoted price is P203. The statements of
financial position for both companies immediately before the acquisition are as follows:

NRC (@BV) NRC (@FV) DSC (@BV) DSC (@FV)

Cash 9,000,000 9,000,000 2,000,000 2,000,000
Receivables 5,000,000 3,000,000 2,500,000 2,500,000
Inventories 7,500,000 9,500,000 4,200,000 4,500,000
PPE, net 12,000,000 13,000,000 5,000,000 5,500,000

Liabilities 7,500,000 1,000,000 2,700,000 7,000,000

Share Capital 20,000,000 10,000,000
Retained Earnings 6,000,000 1,000,000

Aside from paying the required purchase price, NRC has estimated that additional contingent consideration of
P500,000, which is reasonable and measurable, is expected to be incurred as a result of business
combination.

Out of pocket costs of business combination are as follows:

 Legal fees, P450,000

 Finders fees, P200,000
 Professional fees paid to a CPA, P100,000
 Professional fees paid to a lawyer, P150,000
 Additional indirect costs, P20,000
PROBLEM C. On December 31, 2019, B. Lee Corporation enters into a business combination by acquiring all
the assets and assuming all the liabilities of B. Nenta Corporation, resulting to the latter being dissolved. B.
Lee’s considerations consist of the following:

 Cash payment of P1,977,500

 60,000 unissued shares of its P100 par ordinary shares with a market value of P101 per share
 6% P2,000,000 bonds payable
 A contingent payment of P1,500,000 cash on January 1, 2021 if the cash flows from operations during
the 2-year period 2017-2018 exceed P2,500,000 per year. B. Lee estimates that there is a 40% chance
of probability that the P1,500,000 will be required.

In addition, B. Lee paid the following at the time of merger:

 Finder’s fee, P10,000

 SEC registration cost, P125,000
 Cost of printing and issuing stock certificates, P25,000
 Audit fee, P75,000
 General and Administrative expenses attributable to the merger, P175,000

The statements of financial position for the two companies as of December 31, 2019 immediately before the
merger are as follow:

B. Lee B. Nenta
Book Value Fair Value Book Value Fair Value
Cash 2,950,000 2,950,000 720,000 720,000
Receivables 1,200,000 1,200,000 900,000 900,000
Inventories 2,400,000 2,500,000 1,500,000 1,750,000
PPE, net 17,000,000 15,200,000 9,400,000 8,550,000
Goodwill 750,000 0 50,000 0
R&D 0 0 0 500,000

Payables 3,600,000 3,750,000 1,120,000 1,200,000

Accrued Expenses 1,500,000 1,100,000 880,000 900,000
Share Capital 10,000,000 5,000,000
APIC 4,200,000 2,500,000
Retained Earnings 5,000,000 3,070,000
PROBLEM D. On January 1, 2019, RER1 Corp has decided to acquire the net assets of REE2 Corp and RED3
Corp. The deal was closed on February 28, 2019, and the following info was available on that date:

RER1 REE2 RED3

Current assets 1,375,000 390,000 260,000
Noncurrent assets 3,125,000 2,550,000 1,700,000

Liabilities 325,000 210,000 140,000

Common stock (P100 par) 2,748,500 1,780,200 1,186,800
APIC 176,500 169,800 113,200
Retained Earnings 1,250,000 780,000 520,000

RER1 will issue 22,500 of its common stock in exchange for the net assets of REE2, and 11,200 of its stocks
for the net assets of RED3. In addition, RER1 will pay P150,000 to REE2. The fair value of RER1’s shares is
P150. Current assets of REE2 and RED3 have fair values of P450,000 and P230,000, respectively. Non-
current assets of REE2 and RED3 have fair values of P2,150,000 and P1,975,000 respectively.

Out of pocket costs were as follows:

 Audit fee for SEC registration of stock issue, P104,500

 Listing fee in issuing new shares, P36,000
 Legal fees for the contract of business combination, P35, 600
 Accountant’s fee for pre-acquisition audit, P80,000
 Broker’s fee, P23,600
 Other direct costs of acquisition P75,000
 Allocated administrative expenses, P43,000
PROBLEM A. POUIE Corporation acquired 65% of SARASIGAN Corporation’s common stocks on December
31, 2019. The statement of financial position of SARASIGAN immediately before the combination showed the
following balances:

Cash 120,000 Accounts payable 90,000

Inventory 210,000 Income tax payable 120,000
Land 270,000 Bonds payable 300,000
Building, net 750,000 Ordinary shares 300,000
Retained earnings 540,000

A review of the fair value of SARASIGAN’s assets and liabilities indicated that inventory, land, and building had
fair values of P195,000, P300,000, and P900,000 respectively. All other assets and liabilities have book values
equal to their fair values.
PROBLEM B. PADVANCED Corporation has gained control over the operations of SACCOUNTING
Corporation by acquiring 85% of its outstanding voting shares for P2,580,000 on December 31, 2019. This
amount includes a control premium of P30,000. Direct and indirect expenses paid amounted to P83,000 and
P42,000, respectively. Book values immediately before the business combination are as follows:

PADVANCED SACCOUNTING
Cash 3,541,500 128,000
Accounts Receivable 300,000 325,000
Inventory 550,000 360,000
Prepaid expenses 148,500 125,000
Land 2,350,000 879,000
Building 1,560,000 558,000
Equipment 300,000 185,000
Goodwill 0 300,000

Accounts payable 675,000 253,000

Notes payable 1,400,000 730,000
Capital stock, P50 par 3,400,000 800,000
APIC 1,575,000 600,000
Retained earnings 1,700,000 477,000

The following additional information were ascertained on the date of acquisition:

 The value of receivables and equipment has decreased by P25,000 and P14,000, respectively
 The fair value of inventories is now P436,000 whereas the value of land and building has increased by
P471,000 and P107,000, respectively.
 There was an unrecorded accounts payable amounting to P27,000 and the carrying value of notes is
P738,000
 All other assets not mentioned above are worthless
PROBLEM C. On January 1, 2019, PETS CORP acquires 15% of STEP CORP’s voting shares for P600,000
cash. After a couple of months, PETS acquires another 60% of STEP’s voting shares for P2,592,000. At that
date, the book value of STEP’s net identifiable assets is P2,400,000, which is P1,440,000 lower than its fair
value. Also on that day, STEP’s liabilities had a book value and fair value of P2,280,000. The fair value of the
non-controlling interest on that day was P1,080,000.

CASE A. Assuming the fair value of the original 15% STEP shares was P650,000.

CASE B. Assuming the fair value of the original 15% STEP shares was not given.

CASE C. Assuming the fair value of the original 15% STEP shares was not given, and that partial goodwill (aka
proportionate share) basis was to be used.

PROBLEM D. PENDED CORP’s stockholders’ equity as of December 31, 2019 is P7,308,000. On January 1,
2020, PENDED acquires 30% of SUS CORP’s ordinary shares for P540,000 cash and by issuing its own
shares with fair value of P1,350,000 (par value P1 million), and as an effect, PENDED acquired significant
influence over SUS. After four months, PENDED acquires an additional 60% of SUS’s outstanding ordinary
shares for P3,942,000 cash. On this date, SUS reports identifiable assets with carrying value of P6,840,000
and fair value of P11,520,000 and it has liabilities with book value equal to its fair value of P3,240,000.

At the date of acquisition, net loss reported by SUS for the four-month ended amounted to P900,000. The fair
value of the 10% non-controlling interest is P1,296,000. Non-controlling interest is valued using the
proportionate basis. PENDED also paid the following: P90,000 legal fees, P72,000 finder’s fee, P77,400
accountant’s fee, P64,800 audit fee for SEC registration of stock issued, P19,800 printing of stock certificates.