Afar-bc1.pdf

Advanced Financial Accounting and Reporting Business Combination February 14, 2019 Theoretical 1.

A business combination may be legally structured as a merger, a consolidation, an investment in stock, or a direct acquisition of assets. Which of the following describes a business combination that is legally structured as a merger? A. The surviving company is one of the two combining companies. B. The surviving company is neither of the two combining companies. C. An investor-investee relationship is established D. A parent-subsidiary relationship is established.

2.

Should the following costs be included in the consideration transferred in a business combination, according to IFRS 3, Business Combination? I- Costs of maintaining an acquisitions department II- Fees paid to accountants to effect the combination A. B. C. D.

3.

Cost (I) No No Yes Yes

Cost (II) No Yes No Yes

In a purchase business combination, the direct acquisition, indirect acquisition, and security issuance costs are accounted for as follows:

A. B. C. D.

Direct Acquisition Added to price paid Added to price paid Expensed Expensed

Indirect Acquisition Added to price paid Expensed Expensed Expensed

Security Issuance Added to price paid Deducted from value of security issued Deducted from value of security issued Expensed

4.

Lea Co. acquired all of the assets and liabilities of Sherilyn Co. for cash in a legal merger. Which one of the following would not be recognized by Lea in its books in recording the business combination? A. Accounts receivable B. Investment in Sherilyn C. Intangible asset- patent D. Accounts payable

5.

Gabriel Co. acquired controlling interest in Eddezon Co. is a legal acquisition. Which one of the following could not be part of the entry to record the acquisition? A. Debit: Investment in Eddezon B. Debit: Goodwill C. Credit: Cash D. Credit: Common stock

6.

Business combinations are accomplished either through a direct acquisition of assets and liabilities by a surviving corporation or by stock investment in one or more companies. A parent-subsidiary relationship always arise from a A. Tax-free reorganization. B. Vertical combination. C. Horizontal combination. D. Greater than 50% stock investment in another company.

Advanced Financial Accounting and Reporting Business Combination February 14, 2019 Computational Problem I On July 1, 2019, Krizianhor, Inc. acquired most of the outstanding common stock of Kevin Company for cash. The incomplete working paper elimination entries on that date for the consolidated statement of financial position of Krizianhor, Inc. and its subsidiary are shown below: Stockholders’ equity - Kevin Investment in Kevin Non-controlling interest Inventories Equipment Patent Goodwill Investment in Kevin Non-controlling interest

P2,437,500

62,500 312,500 61,250 ?

P1,584,375 853,125

468,750 ?

Included in the purchase price is a control premium of P68,750. Compute the amount of goodwill (gain on acquisition) to be reported in the consolidated statement of financial position on July 1, 2019, assuming non-controlling interest is measured at 1. Fair value. 2. Proportionate or relevant share. 3. Fair value and the fair value of the non-controlling interest is P1,150,000. Problem II The Statement of Financial Position of Earl Corporation on June 30, 2019 is presented below: Current assets Land Building Equipment Total Assets

P 3 2,500 220,000 110,000 87,500 P450,000

Liabilities Capital stock, P5 par Additional paid in capital Retained earnings Total equities

P 87,500 150,000 137,500 75,000 P450,000

All the assets and liabilities of Earl assumed to approximate fair value except for land and building. It is estimated that the land have a fair value of P350,000 and the fair value of the building increased by P80,000. Dennica Corporation acquired 80% of Earl’s capital stock for P500,000. Compute the amount of goodwill (gain on acquisition) to be reported in the consolidated statement of financial position on June 30, 2019, assuming the consideration paid 1. Includes control premium of P142,000. 2. Excludes control premium of P23,000 and the fair value of the non-controlling interest is P122,750. 3. Includes control premium of P37,000.

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Advanced Financial Accounting and Reporting Business Combination February 14, 2019 Problem III On September 18, 2019, John Co. acquired all the Prince Inc.’s P2,150,000 identifiable assets and P530,000 liabilities. Book values of the Prince’s assets and liabilities equal to their fair values except for the overvalued furniture and fixtures. As a consideration, John issued its own shares of stock with a market value of P1,715,000 and cash amounting to P375,000. Contingent consideration is determined to be P148,000 on the date of acquisition. The merger resulted into P647,000 goodwill. John Co. had P4,890,000 total assets and P2,731,000 total liabilities prior to the combination and no additional cash payments were made but expenses were incurred for related cost amounting to P28,000. After the merger, compute for the amount of 1. Total assets 2. Increase in liabilities Problem IV On January 2, 2019, the Statement of Financial Position of Jayson and Shaira Company prior to the combination are: Cash Inventories Property and equipment (net) Total assets Current liabilities Common stock, P100 par Additional paid in capital Retained earnings Total liabilities and stockholder’s equity

Jayson Co. P 450,000 300,000 750,000 P1,500,000

Shaira Co. P 15,000 30,000 105,000 P 150,000

P

P 15,000 15,000 30,000 90,000 P 150,000

90,000 150,000 450,000 810,000 P1,500,000

The fair value of Shaira Co.’s equipment is P153,000. Assume the following independent cases: 1. Assuming Jayson Company acquired 80% of the outstanding common stock of Shaira Co. for P136,800 and noncontrolling interest is measured at non-controlling interest’s proportionate share of Shaira Co.’s identifiable net assets, how much is the consolidated stockholder’s equity on the date of acquisition? 2. Assuming Jayson Company acquired 90% of the outstanding common stock of Shaira Co. for P243,000 and noncontrolling interest is measured at fair value, how much is the total consolidated assets on the date of acquisition?

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