11. Richard Ltd. and Liway Ltd. are two family owned ice cream producing companies in Pampanga Richard Ltd. is owned by the Melsd family, while the Basilio family owns Liway Ltd. The Meled family has only one son and he s engaged to be married to the daughter of Basilio family. Because the son currently managing Liway Ltd. it is proposed that he be allowed to manage both companies after the wedding. As a result, it is agreed by the two families that Richard and Lid should take over the net assets of Liway Ltd The balance sheet at Liway Ltd immedistely prior to the takeover is as follows: Carrying Amount Fair Value Accounts receivable P20,000 P 20.000 Inventory 140,000 125.000 Land 620.000 840.000 Buildings (net 530,000 550.000 Farm equipment (net) 380,000 384,000 Irrigation equipment (net) 220.000 225.000 Vehicles (net) 100.000 172,000 Total assets P2.000.000 Accounts payable P80,000 P 80.000 Loan-Metrobank 480,000 480,000 Share capital 670,000 Retained earnings 320.000 Total P2.050.000 The takeover agreement specified the following details: * Richard Ltd is to acquire all the assets of Liway Ltd and except one of the vehicles (having a carrying amount of P45,000 and of fair value of P43,000) and assume all the lisbilities except for the loan from Metrobank Liway Ltd is then to go into liquidation Cash at P20,000 half to be paid on date of exchange and half in one year's time. The incremental borrowing rate is 10% per annum (present value for P1 at 10% for 1 period is 0.909091). Supply of a patent relating to the manufacture of ice cream. The has a fair value of P50,000 but has not been recognized in the records of Liway Ltd because it resulted from an internally generated research project * Richard Ltd is to supply suficient cash to enable the debt to Metrobank to be paid for and to cover the liquidation costs of P5.600. it will also give P150.000 to be distributed to Mr. an Mrs. Meisd to assists in paying the wedding costs Richard Ltd is also to give a piece of its own prime and to Liway to be distributed to Mr and Mrs. Meled, this eventually being available to be given to any ofspring of the forthcoming marriage. The piece of land in question has e carrying amount of P80,000 and a fair value of P220.000. Richard Ltd is to issue 80.000 shares these having a fair value of P14 pe share to be distributed via Liway Ltd to the soon to-be-married-daughter of Mr. and Mrs. Meled, who is currently a shareholder in Llway Ltd. The takeover proceeded as per the agreement with Richard Ltd, incurring incidental soquisition costs of P25,000, while there were P 18.000 share issue costs
