ANSWER THE FOLLOWING AND PLEASE INCLUDE STEP BY STEP EXPLANATION:

50 Chapter 1 PROBLEM 3: FOR CLASSROOM DISCUSSION Business combination 1. In which of the following instances is a business combination least likely to occur? a. Entity A acquires all the assets and assumes all the liabilities of Entity B in exchange for Entity A's shares of stocks. b. Entity A purchases 80% of Entity B's outstanding voting shares. c. Entity A acquires 30% interest in Entity B's voting shares. All the other shares of Entity B are held by various shareholders in very small denominations. Accordingly, Entity A has the power to appoint the majority of the board of directors of Entity B. d. Entity A acquires a group of assets from Entity B that does. not constitute a business. Acquisition method 2. PFRS 3 requires the use of the acquisition method in accounting for all business combinations. Which of the following is not an application of the acquisition method? a. Identifying the acquirer which is the entity that obtains control over another business in a business combination. b. Determining the acquisition date which is the date the acquirer obtains control over the acquiree. c. Measuring the consideration transferred at fair value. d. Measuring the non-controlling interest at the NCI's proportionate share in the acquiree's net identifiable assets or fair value, whichever is higher. Goodwill 3. Entity A acquired all the assets and assumed all the liabilities of Entity B for #1,800,000. Information on Entity B's assets and liabilities as at the acquisition date is shown below: 3/16Business Combinations (Part 1) 51 Assets Carrying amounts Receivables - net Fair values 200,000 100,000 Inventory 600,000 450,000 Building - net 1,200,000 1,800,000 Goodwill 100;000 20,000 Total assets 2,100,000 2,370,000 Liabilities Payables 900,000 700,000 Requirement: Compute for the goodwill (gain on bargain purchase). Non-controlling interest Use the following information for the next two items: Entity A acquired 75% of the outstanding voting shares of Entity B for #2,000,000. On acquisition date, Entity B's identifiable assets and liabilities have fair values of #4,000,000 and #1,600,000, respectively. 4. How much is the goodwill if Entity A opts to measure the non-controlling interest at the NCI's proportionate share in Entity B's net identifiable assets? 5. Entity A opts to measure the non-controlling interest at fair value. An independent valuer assessed the NCI's fair value to be #540,000. How much is the goodwill? Acquisition-related costs and Restructuring provisions 6. Entity A acquired all the assets and liabilities of Entity B by issuing 18,000 shares with par value of #10 per share and fair value of #100 per share. On acquisition date, Entity B's identifiable assets and liabilities have fair values of #3,800,000 and #1,900,000, respectively. Entity A incurred stock issuance costs of $36,000 and finder's fees related to the business combination of #60,000. Moreover,52 Chapter 1 Entity A expects to incur liquidation costs of P280,000 in terminating Entity B's activities. Requirement: Compute for the goodwill (gain on bargain purchase). Operating leases and Intangible assets 7: Entity A acquired all the assets and assumed all the liabilities of Entity B for #2,800,000. On acquisition date, Entity B's identifiable assets and liabilities have fair values of P4,000,000 and #1,600,000, respectively. Additional information: Entity B has an unrecorded patent with fair value of #100,000. . Entity B has research and development (R&D) projects with fair value of #160,000. Entity B charged the R&D costs as expenses when they were incurred. Entity A is renting out a property to Entity B under an operating lease. The terms of the lease compared with market terms are favorable. The fair value of the differential is P40,000. Requirement: Compute for the goodwill. Contingent liabilities 8. Entity A acquired 75% of the outstanding voting shares of Entity B for #1,800,000. On acquisition date, Entity B's identifiable assets and liabilities have fair values of #4,000,000 and #1,600,000, respectively. Additional information: . Entity A replaces Entity B as a guarantor on a loan of a third party. As at the acquisition date, the third party has defaulted on the loan. However, because negotiations for debt restructuring are ongoing with the lender and Entity B strongly believes that the lender will agree on the proposedterms, no provision was recognized; The faiIValue of. Ether . _ Deferred taxes 9 Entity A acquired all the assets and assumed all the liabilities _~ of Entity B for 94 0,00 000. InformatiOrl on Entity 3'8 identifiable aSse'cs and liabilities as at the acquisition date is I shown below: ' 7 ' I ' Cama'ng amounts , Fair values . ' A3593 ' - 5,300,000 6,100,000 Liabilities 2,100,000 2,300,000 All fair value adjustments to the identifiable assets acquired and liabilities assumed have deferred tax consequences, but do not . affect their tax bases. The mcome tax rate' 18 30%. Requirement: Compute for the goodwill. consideration transferred _ _ . . . ' 10. On October 26, 20x1, Entity A acquired 100% interest in Entity B for 92, 800, 000. On this date, Entity B's identifiable assets'and liabilities have fair values of #4 000,000 and 91 500 000 respectively. Included in Entity B's liabilities are cash dividends of #280, 000 declared on October 1, 203,1 to shareholders of record on November 1, 20x1, and payable on December 1, 20x1 ' Requirement: Compute for the goodwill