BUSINESS COMBINATIONS- SUBSEQUENT MEASUREMENT AND ACCOUNTING.

1.Nicole Company acquires 75% of Carl John Company (CJC) for P6,000,000. The carrying and fair values of CJC's net assets at the time of acquisition are P4,500,000 and P4,900,000, respectively.

Required:

a.Determine the goodwill or gain on bargain purchase from the above acquisition if the non-controlling interest (NCI) is to be valued on a proportionate basis.

b.Determine the goodwill or gain on bargain purchase from the above acquisition if the NCI is to be valued on a fair value basis.

2.The Statement of Financial Position (SFP) of Arthur Corporation on June 30, 202X is presented below:

Current Assets P195,000

Land 1,320,000

Building 660,000

Equipment 525,000

Total Assets P2,700,000

Liabilities P525,000

Ordinary Shares, P5 par 900,00

Share Premium 825,000

Retained Earnings 450,000

Total Equities P2,700,000

All the assets and liabilities of Arthur were assumed to approximate their fair values except for land and building. It is estimated that the land has a fair value of P2,100,000, and the fair value of the building increased by P480,000. Ezekeil Corporation acquired 80% of Arthur's outstanding shares for P3,000,000. The non-controlling interest is measured at fair value.

Required:

a.Determine the goodwill or gain on bargain purchase assuming the consideration paid includes control premium of P852,000.

b. Determine the goodwill or gain on bargain purchase assuming the consideration paid excludes control premium of P138,000 and the fair value of the non-controlling interest is P736,500.

3.Father Corporation (FC) acquires 20% ownership interest in Son Corporation (SC) on January 1, 202X, for P1,750,000 cash, which is the fair value of the investment at that date. FC has concluded that it does not have a significant influence over SC. At the same date, the fair and carrying values of SC's identifiable assets is P5,000,000 and P3,000,000. The identifiable assets include land, which has fair and carrying values of P4,000,000 and P3,000,000, respectively.

For the year ended December 31, 202X, SC reported a profit of P3,000,000 but did not pay any dividends. Moreover, the fair value of SC's land increases by P1,500,000. However, the carrying amount of the land remains unchanged at P3,000,000. Given below is the Statement of Financial Position (SFP) of SC, together with the fair values of the identifiable assets, at December 31, 202X:

Carrying Amount Fair Value

Cash and Receivables 4,000,000 4,000,000

Land 3,000,000 5,500,000

Ordinary Shares 2,500,000

Retained Earnings 4,500,000

On January 1, 202Y, FC acquired another 60% ownership interest in SC for P11,000,000 cash. FC's initial investment was measured at its fair value of P3,500,000. However, SC's 1,000,000 ordinary shares have a quoted price of P15 per share on December 31, 202X. Therefore, the carrying amount of FC's initial investment was remeasured to P3,000,000 on December 31, 202X. The P1,250,000 increase was recognized as a component of other comprehensive income. FC's SFP on December 31, 202X before the acquisition of the 60% interest was as follows:

Carrying Amount

Cash 4,000,000

Investment in SC 3,000,000

Ordinary Shares 2,500,000

Unrealized Gain on Equity Investment - FVTOCI 4,500,000

Required:

a.Determine the goodwill or gain on bargain purchase from the above acquisition if the NCI is to be valued on a proportionate basis.

b.Determine the balance of the NCI in FC's consolidated financial statements.

4.On January 1, 202X, Anna Corporation 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, Mama Corporation's borrowing cost is 10% per year.

Required:

a.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 FC at the end of year one (1), assuming that the company earned P53,000,000 profit.

d.Give the adjusting entry to be made FC at the end of year two (2), assuming that the company 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.