Problem 6: Blue Co. merged into Soda Corp on June 30, 2020. In exchange for the net assets at fair market value of Blue Co. amounting to P2,785,800, Soda issued 68,000 ordinary shares at P36 par value, with at a market price of P41 per share. Relevant data on ordinary shareholders' equity immediately before the combination show:

SODA BLUE

Share capital 8,790,000 2,030,000

Share premium 3,834,000 782,000

Retained earnings(deficit) (1,516,000) 495,000

Out of pocket costs of the combination were as follows:

• Legal fees for the contract of business combination 174,700
• Audit fee for SEC registration of stock issue 198,400
• Printing costs of stock certificates 144,900
• Broker's fee 135,000
• Accountant's fee for pre-acquisition audit 161,000
• Other direct cost of acquisition 90,400
• General and allocated expenses 115,300
• Listing fees in issuing new shares 172,000

*Included as part of the acquisition agreement is the additional cash consideration of P163,000 in the event Soda Co.'s share price will reach P32 per share by year-end.

*At acquisition date, the share price is P27.50, and increased by P4.80 by Dec 31, 2020.

*At acquisition date, there was only a low probability of reaching the target share price so the fair value of the additional consideration was determined at P74,000.

1. What is the amount of expense to be recognized in the statement of comprehensive income for the year ended Dec 31, 2020?

a. 676,400

b. 851,700

c. 848,400

d. 937,400

Problem 7: On Jan 1, 2020, VECTOR acquired 90% of the equity share capital of FERN in a share exchange in which Vector issued 2 new shares for every 3 shares it acquired in Fern. Additionally, on Dec 31, 2020, Vector will pay the shareholders of Fern P13.2 per share acquired. Vector's cost of capital is 10% per annum. At the date of acquisition, shares in Vector and Fern had a stock market value of P48.75 and P18.75 each, respectively. Income statements for the year ended Sept 30, 2020

Vector Fern

Revenue P4,845,000 2,850,000

Cost of sales (3,840,000) (1,950,000)

Gross profit 1,005,000 900,000

Distribution costs (102,000) (130,500)

Admin. Expenses (285,000) (180,000)

Investment income 37,500 ----

Finance costs (31,500) ----

Profit before tax 624,000 589,500

Income tax expense (210,000) (120,000)

Profit for the year 414,000 469,500

Equity as of Oct 1, 2019

Equity shares of P7.5 each 1,800,000 562,500

Retained earnings 4,050,000 2,625,000

At the date of acquisition, the FV of Fern's assets were equal to their carrying amounts with the exception of Land which had a FV of P135,000 above its carrying amount. Also, fern had a contingent liability which Vector estimated to have a FV of P337,500. This has not changed as at 09/30/2020. Fern has not incorporated these FV changes into its financial statements. Vector's policy is to value the NCI at FV at the date of acquisition. For this purpose, Fern's share price at that date can be deemed to be representative of the FV of the shares held by the NCI.

Compute the goodwill (gain on acquisition) resulting on the date of acquisition.

a. (160,500)

b. 235,125

c. 211,613

d. 42,000