Direction: Provide what is asked. Show your solution.

1. Gamer Co. and Player Co. are planning to combine their businesses and put up a new entity called App Corporation.

App will issue 100,000 ordinary shares, which are to be subdivided between Gamer and Player based on their total contributions, including goodwill.

Goodwill is computed by capitalizing excess earnings at 20%.

The industry normal earnings are 5% of net assets. Gamer Co. Player Co.

Fair value of net identifiable assets 500,000 380,000

Average annual earnings 40,000 39,000

Requirement: a. How much is the total goodwill expected to arise from the business combination? b. How many shares will be issued to Gamer and Player?

2.Cloudy Co. plans to acquire all the assets and liabilities of Day Co. Cloudy expects that it will need to pay a premium equal to the discounted amount of Day's excess average annual earnings in order to effect the transaction. The appropriate discount rate is 10%.

Day's earnings in the past 5 years:

Year Earnings:

20x1 120,000

20x2 130,000

20x3 135,000

20x4 125,000

20x5 140,000

Total 650,000

The 20x4 earnings include an expropriation loss of P 40,000.

Day's net assets have a current fair value of P 590,000.

The industry average rate of return on net assets is 12%.

The probable duration of "excess earnings" is 5 years.

How much is the estimated purchase price?

1.Sunday Co., a publicly listed entity, and Monday Co., a private company, exchange equity interests in a business combination.

Sunday Co. issues 12 shares for all outstanding shares of Monday.

Sunday's shares are quoted at P 60 per share, while Monday's shares have a fair value of P 200 per share.

The net assets of the entities immediately before the combination are shown below: (The amounts approximate the acquisition-date fair values)

Equity Sunday Co. Monday Co.

Share capital: 12,000 ordinary shares, P10 par 120,000

9,000 ordinary shares, P 100 par 900,000

Retained earnings 10,000 800,000

Total Equity 130,000 1,700,000

How much is the goodwill?