Business Combination

4. On January 1, 202X, Anna Corporation (AC) acquires 60% of the equity capital of Papa Corporation. On this date, the identifiable assets and liabilities of Papa Corporation are valued at P350 million. The maintainable profits of Papa Corporation are estimated at P50 million per year. Based on a price-earnings ratio of 11 times, the fair value of the ordinary shares of Papa Corporation is estimated at P550 million. The purchase consideration consists of the following: An initial payment of P100 million on January 1, 202X. An amount of P180 million payable before January 1, 202Y, which is contingent on the achievement of the maintainable profit in the first year; and An amount of P321 million payable on January 1, 202Z, which is contingent on the achievement of the maintainable profit in the second year. Anna Corporation's maintainable profits have been averaging about P60 million per year in the past 10 years. This level would probably be maintained in the foreseeable future. At the acquisition date, Anna Corporation's borrowing cost is 10% per year. Required: Determine the goodwill or gain on bargain purchase from the above acquisition if NCI is measured on a proportionate basis. b. Give entry to be made at the date of acquisition. c. Give the adjusting entry to be made by AC at the end of year one (1), assuming that Papa Corporation earned P53,000,000 profit. d. Give the adjusting entry to be made by AC at the end of year two (2), assuming that Papa Corporation earned P65,000,000 profit.5. On January 1, 202X, Dianne Corporation acquired the net assets of Cyril Corporation by issuing 60,000 shares with par and market values of P20 and P2,300,000, respectively. Moreover, it agreed to pay an additional P170,000 on January 1, 202Z if the average income in 202X and 202Y exceeds P150,000 per year. The expected value of the additional payment is estimated at P102,000 based on the 60% probability of achieving the target average income. The carrying and fair values of Cyril Corporation's identifiable net assets as of the acquisition date are P2,200,000 and P2,000,000, respectively. Required: a. Determine the amount of goodwill or gain on bargain purchase from the above transaction. b. Give the adjusting entry assuming that the company determined on September 30, 202X that there is an 80% probability that the estimated average income will be achieved. C. Give the adjusting entry assuming that the company determined on March 31, 202Y that there is a 90% probability that the estimated average income will be achieved