BUSINESS COMBINATION (PA2.M-1413) STRAIGHT PROBLEMS
Problem 1
Agdao corporation paid P!"""!""" to p#rc$a%& NC' corporation on an#ar 2! 2"13! and NC' *a% di%%o+,&d. T$& p#rc$a%& pric& con%i%t&d o 1""!""" %$ar&% o agdao% co//on %toc0 *it$ a /ar0&t ,a+#& o P4!"""!""" p+#% P1!"""!""" ca%$. In addition! Agdao paid 1""!""" or r&gi%t&ring and i%%#ing t$& 1""!""" %$ar&% and P 2""!""" or ot$&r co%t% in con%#//ating t$& co/ination. T$& %tat&/&nt o inancia+ Po%ition or t$& co/pani&% i//&diat&+ &or& co/ination i% %#//ari&d a% o++o*%
Cash Accounts Receivable (net Notes Receivable,(net Receivable,(net &nventories ther current assets )and Buildings, (net *+ui-ent,(net .otal .otal Assets
Accounts a/able ortgage a/able, '01 Caital stock, 2'0 ar Additional 2aid3in caital Retained *arnings .otal .otal )iabilities )iabilities and hareholder5s *+uit/
Agdao Book Fair Value value 6,000,0 6,000,0 00 00 !,600,0 !,4"0,0 00 00 $,000,0 !,%00,0 00 00 ",000,0 6,000,0 00 00 ',400,0 ',"00,0 00 00 4,000,0 6,000,0 00 00 '8,000, '#,000, 000 000 !0,000, '8,""0, 000 000 60,000, 60,$"0, 000 000 !,000,0 00 '0,000, 000 !0,000, 000 '6,000, 000 '!,000, 000 60,000, 000
!,000,0 00 '0,"00, 000
NCR Book Fair Value Value 480,00 480,000 0 #!0,00 #!0,000 0 600,00 600,000 0 ',000,0 840,000 00 400,00 $60,000 0 400,00 !00,000 0 ',!00,0 !,400,0 00 00 ',600,0 ',!00,0 00 00 6,000,0 #,!00,0 00 00
600,000 ',400,0 00 !,000,0 00 ',!00,0 00 800,000 6,000,0 00
600,00 0 ',!00,0 00
a. Pr&par& t$& 5o#rna+ &ntri&% to r&cord Agdao% ac6#i%ition o NC' Corporation i it *a% a p#rc$a%& o a%%&t% and +iai+iti&% and i it *a% a p#rc$a%& o ,oting %$ar&%. . Pr&par& a %tat&/&nt o inancia+ po%ition or Agdao Corporation on an#ar 2! 2"13! i//&diat&+ at&r t$& co/ination.
Problem 2
7&ncio Co. /&rg&d into 8it Corp. on #+ 1! 2"13. In &9c$ang& or t$& n&t a%%&t at air /ar0&t ,a+#& o 7&ncio Co. a/o#nting to P:;:! 4"! 8it i%%#&d :&ga+ &&% or t$& contract o #%in&%% co/ination A#dit && or SEC r&gi%tration o %toc0 i%%#& Printing co%t% o %toc0 c&rtiicat&% Bro0&r% && Acco#ntant% && or pr&-ac6#i%ition a#dit Ot$&r dir&ct co%t o ac6#i%ition @&n&ra+ and a++ocat&d &9p&n%&% >i%ting &&% in i%%#ing n&* %$ar&%
P3!:"" ;"!""" 14!"" 23!:"" <"!""" ?!""" 43!""" 3:!"""
7&ncio *i++ pa an additiona+ ca%$ con%id&ration o P4!""" in t$& &,&nt t$at 0it!% n&t inco/& *i++ & &6#a+ or gr&at&r t$an P;"!""" or t$& p&riod &nd&d 7&c&/&r 31! 2"13. At ac6#i%ition dat&! t$&r& i% a $ig$ proai+it o r&ac$ing t$& targ&t n&t inco/& and t$& air ,a+#& o t$& additiona+ con%id&ration *a% d&t&r/in&d to & P1;!""". Act#a+ n&t inco/& or t$& p&riod &nd&d 7&c&/&r 31! 2"13 a/o#nt&d toP1!2"!""". T$& additiona+ ca%$ con%id&ration *a% paid. 1. $at i% t$& a/o#nt o good*i++ to & r&cogni&d in t$& %tat&/&nt o inancia+ po%ition a% o 7&c&/&r 31! 2"13 2. $at i% t$& a/o#nt o &9p&n%& to & r&cogni&d in t$& %tat&/&n&t o inancia+ po%ition a% o t$& &ar &nd&d 7&c&/&r 31! 2"13
Problem 3
S#//ar inor/ation i% gi,&n or 7UBAI! Inc. and 7AAO Co/pan at #+ 1! 2"13. T$& 6#ot&d /ar0&t pric& o 7UBAI and 7AAO %$ar&% ar& P3: and P4"! r&%p&cti,&+.
Current Assets 2lant Assets 9ood :ill .otals
)iabilities Co--on tocks, 2'0 A2&C Retained *arnings .otals
7BA& &nc AVA Co-an/ Book Book Fair Value Value value 8,000,0 !4,000, !4,000, 00 000 000 !!,000, !6,000, !",000, 000 000 000 ',"00,0 00 $',"00, "0,000, 000 000 ",000,0 00 '0,000, 000 !,000,0 00 '4,"00, 000 $',"00, 000
'",000, 000 !0,000, 000 $,000,0 00 '!,000, 000 "0,000, 000
'","00, 000
T$& oo0 ,a+#&% o 7UBAI r&+&ct% t$&ir air ,a+#&% &9c &pt or in,&ntor it&/% *$o%& r&a+ia+& ,a+#& i% :"""" /or& t$an it% carring a/o#nt! #nr&port&d ca%$ on $and o 3"""" and a #i+ding co%ting <"""""" t$at i% 2"D d&pr&ciat&d and i% apprai%&d at 1"4""""" 7AAO Co/pan ac6#ir&% a++ t$& n&t a%%&t% o 7UBAI i%%#ing ?""""" o it% o*n %$ar&% and it$ P1""!""" 1"D ond%. 7AAO co/pan inc#rr&d t$& o++o*ing o#t o poc0&t co%t% r&+ating to t$& ac6#i%ition= >&ga+ &&% to arrang& t$& #%in&%% co/ination Co%t o SEC r&gi%tration Co%t o printing and i%%#ing n&* %toc0 c&rtiicat&% Indir&ct co%t o co/ination ind&r% && Bond i%%#anc& tran%action co%t
P 2!""" 12!""" 3!""" 2"!""" 3!""" 1!"""
Ca+c#+at& t$& o++o*ing a%%#/ing t$& &ntiti&% adopt t$& #++ I'S and I'S or SME% a. . c. d. &.
N&t a%%&t% r&6#ir&d Con%id&ration tran%&rr&d @ood*i++ gain ari%ing ro/ #%in&%% co/ination Tota+ a%%&t% i//&diat&+ at&r co/ination Tota+ r&tain&d &arning% at&r co/ination
Problem 4
Cond&n%&d %tat&/&nt% o inancia+ po%ition o C#r& Corp. and C+a%% Corp. a% o 7&c&/&r 31! 2"12 ar& a% o++o*%=
C#rr&nt A%%&t Nonc#rr&nt A%%&t Tota+ A%%&t
CU'E P 43!?" 1<1!2" P22!"""
C>ASS P 1:!2" 1"!:2" P122!""
>iai+iti&% Co//on Stoc0%! P2" Par Additiona+ Paid in Capita+ '&tain&d &arning%
P1
P
On an#ar 1! 2"13! C#r& corp. i%%#&d " %toc0% *it$ a /!ar0&t ,a+#& on P2%$ar& or t$& a%%&t% and +iai+iti&% o C+a%% corp. t$& oo0 ,a+#& r&+&ct% t$& air ,a+#& o t$& a%%&t% and +iai+iti&% &9c&pt t$at t$& nonc#rr&nt a%%&t% o c+a%%$a% a t&/porar apprai%a+ o 1?"" and t$& nonc#rr&nt a%%&t% o C#r& ar& o,&r%tat&d P? "". Conting&nt con%id&ration! *$ic$ i% d&t&r/ina+&! i% &6#a+ to P3?". C#r& a+%o paid or t$& %toc0 i%%#anc& co%t% *ort$ P<" " and t$& ot$&r ac6#i%itionco%t% a/o#nting to P4?". On /arc$ 1! 2"13 t$& conting&nt con%id&ration $a% a d&t&r/ina+& a/o#nt o P""". On 5#n& 1! 2"13! t$& pro,i%iona+ air ,a+#& o t$& nonc#rr&nt a%%&t% o c+a%% incr&a%&d P22". Fo* /#c$ i% t$& co/in&d tota+ a%%&t% at t$& &nd o 2"13 Problem 5
On S&pt&/&r 1! 2"13! S>U ac6#ir&% ?D(?"!""" ordinar %$ar&%) o UB co/pan or P?!""!""". $&n UB!% %$ar&% ar& trading at P< p&r %$ar& at t$& %toc0 /ar0&t .An ind&p&nd&nt apprai%&r &%ti/at&d t$at t$& air o UB i% P;!?"""!""". A%%#/ing t$at t$& n&t id&ntiia+& a%%&t% *it$ a carring ,a+#& o P:!"""!""" $a% a air ,a+#& o P
a) Non-Contro++ing Int&r&%t and @ood*i++gain i t$& non-contro++ing int&r&%t i% to & ,a+#&d at t$& proportionat& a++ocation o ac6#ir&% n&t a%%&t%. ) Non-contro++ing int&r&%t and @ood*i+@ain i t$& non-contro++ing int&r&%t i% to & ,a+#&d at t$& air ,a+#& o %$ar&% $&+d NCI.
Problem 6
T$& %tat&/&t o inancia+ Po%ition o >anc&r Corporation on #n& 3"! 2"13 i% pr&%&nt&d &+o*= C#rr&/t A%%&t% >and B#i+ding E6#ip/&nt Tota+ A%%&t%
32!"" 22"!""" 11"!""" !"" 4"!"""
>iai+iti&% Capita+ %toc0! P par Additiona+ paid in capita+ '&tain&d &arning% Tota+ E6#iti&%
!"" 1"!""" 13?!"" ?!""" P4"!"""
A++ t$& a%%&t% and +iai+iti&% o >anc&r a%%#/&d to appro9i/at& t$&ir air ,a+#&% &9c &pt or +and and #i+ding. It i% &%ti/at&d t$at t$& +and $a,& a air ,a+#& o P3"!""" and t$& air ,a+#& o t$& #i+ding incr&a%&d P<"!""". 8ri%ta Corporation ac6#ir&d <"D o >anc&r% capita+ %toc0 or P""!""". '&6#ir&d 1. A%%#/ing t$& con%id&ration paid inc+#d&% contro+ pr&/i#/ o P142!""! $o* /#c$ i% t$& good*i++(gain on ac6#i%ition) on t$& con%o+idat&d inancia+ %tat&/&nt 2. A%%#/ing t$& con%id&ration paid &9c+#d&% contro+ pr&/i#/ good*i++(gain on ac6#i%ition) on t$& con%o+idat&d inancia+ %tat&/&nt 3. A%%#/ing t$& con%id&ration paid inc+#d&% contro+ pr&/i#/ o P3?!"""! $o* /#c$ i% t$& good*i++(gain on ac6#i%ition) on t$& con%o+idat&d inancia+ %tat&/&nt Problem 7
Bag#io Co/pan ac6#ir&% 1D o San &rnando co/pan% ordinar %$ar&% or P!"""!""" ca%$ and carri&% t$& in,&%t/&nt #%ing t$& co%t t$& co%t /&t$od. A &* /ont$% +at&r! Bag#io p#rc$a%&% anot$&r :"D o San &rnando% ordinar %$ar&% or P2!1:"!""". At t$at dat&! San &rnando co/pan r&port% id&ntiia+& a%%&t% *it$ a oo0 ,a+#& o P3!;""!""" a air ,a+#& o P!1""!"" and it $a% +iai+iti&% *it$ a oo0 ,a+#& o and air ,a+#& o P1!;""!""". T$& air ,a+#& o t$& 2D non-contro++ing int&r&%t in San &rnando co/pan i% P";""!""". 7&t&r/in& t$&= a. Non-Contro++ing Int&r&%t and @ood*i++ @ain ari%ing ro/ t$& #%in&%% co/ination i NCI i% to & ,a+#&d #%ing t$& proportionat& a%i%. . Non-Contro++ing Int&r&%t and @ood*i++@ain ari%ing ro/ t$& #%in&%% co/ination i NCI i% to & ,a+#&d at t$& NCI %$ar&% air a+#&.
Problem 8
MM Corporation p#rc$a%&d 3"D int&r&%t in STO Corporation or P;"!""" o n an#ar 1! 2"13 *$&n STO $ad ordinar %$ar&% o P24"!""" and r&tain&d &arning% o P4"!""". An di&r&nc& &t*&&n t$& co%t o in,&%t/&nt and oo0 ,a+#& ac6#ir&d i% d#& to #nd&r,a+#&d &6#ip/&nt *it$ r&/aining #%&#+ +i& o 3 &ar%. or t$& &ar% 2"13 to 2"1 STO Corporation r eorted the ;ollo:ing < !0'$ !0'4 !0'"
Net &nco-e $0,000 "0,000 '0,000
ividend eclaired !0,000 40,000 40,000
F Cororation urchased additional 401 o; . Cororation on =anuar/ ', !0'$ ;or 2'40,000 Assu-ing that the $01 invest-ent ac+uired in !0'$ is no: :ith a ;air value o; 2%0,000 (reresenting $01 o; net assets ;air value on that date3di>erence attributable to land Re+uired< ' =ournal entire to record the above transaction ! .he cost o; ac+uisition on =anuar/ ', !0'$ $ .he resulting good:ill?gain ;ro- ac+uisition 4 .he non3controlling interest on =anuar/ ', !0'$ Problem 9 *ntit/ A issued e+uit/ instru-ent to *ntit/ B on $0 ete-ber !0@' .heir rice co-bination balance sheets are< A B Current Assets 2 "00 2 #00 Non3current Assets ',$00 $,000 2 ',800 2 $,#00
Current )iabilities Non3Current )iabilities
2 2 #00
:ners *+uit/ Retained *arnings
$00 2 400 2 800
600 ','00 ',#00 ',400
&ssued *+uit/ '00 ordinar/ shares 60 ordinar/ shares
$00 2 ',800
600 2 $,#00
Additional in;or-ation< a n $0 ete-ber !0@', A issues ! shares in eDchange ;or each ordinar/ share o; B All o; Bs shareholders eDchange their share in B A issues '"0 ordinar/ shares in eDchange ;or all 60 ordinar/ shares o; B b .he ;air value o; each ordinar/ share o; B at $0 ete-ber !0@' is 240 .he +uoted -arket rice o; As ordinar/ shares at that date is 2'! c .he ;air value o; As identiEable assets and liabilities at $0 ete-ber !0@' are the sa-e as their carr/ing a-ounts, :ith the eDce-tion o; non3 current assets .he ;air value o; As non3current assets at $0 ete-ber !0@' is 2',"00 Re+uired< ' hat is the consideration e>ectivel/ trans;erred to e>ect the co-binationG ! Ho: -uch is good:illG $ 2reare theconsolidation Enancial state-ent a;ter the co-bination 4 hat is the nu-ber and t/e o; e+uit/ interest issued to be disclosed in the e+uit/ structure o; the consolidated Enancial state-entsG " Assu-e that onl/ "6 o; Bs ordinar/ shares are tendered ;or eDchange rather than all 60 a Ho: -uch is the -inorit/ interestsG b Ho: -uch is the cost o; business co-binationG c Ho: -uch is good:illG
MULTIPLE CHOICE QUESTION
' .BB issued '!0,000 shares o; its 2!"ar ordinar/ shares ;or all the net assets o; HAF Co-an/ on =ul/ ', !0'$ .BBs ordinar/ shares :ere selling at 2$0 er share at the ac+uisition date &n addition a cash a/-ent o; 2!00,000 :as -ade lus an agree-ent de;erred cash a/-ent o; 2%%0,000 a/able on =ul/ ', !0'$ .he -arket rate oEnterest at the ti-e is '01 .BB also agreed to a/ additional cash consideration o; 2!"0,000 in the event .BBs net inco-e ;alls belo: the current level :ithin the neDt ! /ears .BBs Enancial oIcers :ere %%1 sure the current level o; inco-e at least be sustained during the rescibed eriod .he ;ollo:ing out3o;3ocket costs :ere aid in cash b/ .BB )egal and accounting ;ees aid to advisers 2 8,000
Brokers ;ees &ndirect ac+uisition costs Costs to issue and register the shares .otal
4,000 $,000 '0,400 2 !",400
eter-ine the cost o; the invest-ents ;or .BB A 4,#00,000 B $,800,000 C. 5,040,000 4,%"0,000 Juestions ! K $ are based on the ;ollo:ing n ctober ', !0'$, ater Cororation ac+uired all the assets and assu-ed all the liabilities o; 9ula-an Co-an/ b/ issuing !0,000 shares :ith a ;air value o; 26#" er share and an obligation to a/ a contingent consideration :ith a ;air value o; 2#"0,000 &n addition, ater aid the ;ollo:ing ac+uisition related costs< )egal ;ees 2 '0",600 Audit ;ee ;or *C registration o; stock issue $!0,400 Costs o; stock certiEcates $",000 Brokers ;ee 4%,000 ther direct cost o; ac+uisition "0,000 9eneral and Allocated eDenses '4,000 .he tate-ent o; Financial 2osition as o; ete-ber $0, !0'$ o; ater and 9ula-an, together :ith the ;air -arket value o; the assets and liabilities are resented belo:<
ater Book Value Fair Value Cash 2 640,000 4",000 2 4",000 Accounts Receivable $60,000 "4,000 &nventories 4#",000 #8,000 2reaid *Denses !",000 '$,"00 ",000 )and !,000,000 ',""0,000 Building 800,000 #68,000
9ula-an Book Value
Fair Value 2
640,000
2
$$",000 $%0,000
#0,000 8#,000
3 !,%00,000 %00,000
%00,000 #!$,000
*+ui-ent $60,000 9ood:ill 3 .otal assets 2 !,860,000
#00,000
"8",000
$6',"00
3
3
2 ",000,000
2 ",#"0,000
Accounts 2a/able $'!,"00 !00,000 !00,000 Notes 2a/able %$#,"00 #00,000 #6",000 Caital stock,"0 ar !,000,000
$'!,"00
Additional aid in ca',000,000 Retained *arnings .otal *+uities
#"0,000 2 ",000,000
$00,000 2 !,"00,000
%80,000 8"0,000 400,000 $"0,000 2 !,"00,000
Co-ute ;or the balances that :ill be sho:n on ctober ',!0'$ state-ent o; Enancial osition o; the surviving co-an/< ! Reatained earnings a 2480,000 b 2"40,000 c. P526,000 d 24#",000 $ .otal assets a 2#,0'",000 b 26,%80,000 c. P7,11,000 d 2#,4%',000 Q!e"#$o% 4&5 're b'"e( o% #)e *ollo+$% Best Co-an/ has gained control over the oerations o; Cure Cororations b/ ac+uiring 8"1 o; its outstanding caital stock ;or 2 !,"80,000 .his a-ounts includes a control re-iu- o; 2$0,000 Ac+uisition eDenses, direct and indirect, a-ounted to 28$,000 and 24!,000 resectivel/
.he ;ollo:ing :as ascertained on the date o; ac+uisition ;or Cure Cororation< .he value o; receivables and e+ui-ent has decreased b/ 2!",000 and 2'4,000 resectivel/ .he ;air value o; inventories is no: 24$6,000 :hereas the value o; land an;air value o; and building has increased b/ 24#',000 and 2'0#,000 resectivel/ .here :as an unrecorded accounts a/able a-ounting to 2!#,000 and the ;air value o; notes is 2#$8,000 Co-ute ;or the ;ollo:ing balances to be resented in the consolidated state-ent o; Enancial osition at the date o; business co-bination< 4 .otal assets A 2%,8#",000 B 2'0,0%$,000 C 2'0,''!,000 2%,!'",000 •
•
" hareholders e+uit/ A 2#,000,000 B 2#,"00,000 C 28,!00,000 28,000,000 6 A&9 Co-an/ ac+uired a #01 interest in *A.*. Co-an/ ;or 2',%60,000 :hen the ;air value o; *A.*.s identiEable assets and liabilities :as 2#00,000 and elected to -easure the non3controlling interests at its share o;
the identiEable net assets Annual i-air-ent revie:s o; good:ill have not resulted in an/ i-air-ent losses being recogniLed *A.*.s current state-ent o; Enancial osition sho:s share caital o; 2'00,000, a revaluation reverse o; 2$00,000 and retained earnings o; 2',400,000 7nder &FR$ Business combinations , the Egure in resect o; good:ill should no: be carried in A&9s consolidated state-ent o; Enancial ositionG A 2',4#0,000 B 2 '60,000 C 2',!60,000 2#00,000 # 2atrick Co-an/ ac+uired the assets (eDcet ;or cash and assu-ed the liabilities o; teve Co-an/ on =anuar/ !,!0'$ and teve Co-an/ is dissoved As co-ensation, 2atrick Co-an/ gave !4,000 shares its co--on stock, '!,000 shares o; its 81 re;erred stock, and cash o; 2!40,000 to the stockholders o; teve Co-an/ n the date o; ac+uisition, 2atrick Co-an/ had the ;ollo:ing characteristics< Co--on,ar value 2"M ;air value,2!" 2re;erred,ar value 2'00M ;air value, 2'00 &--ediatel/ rior to ac+uisition, teve Co-an/s balance sheet :as as ;ollo:s<
An araisal o; teve Co-an/ sho:ed that the ;air values o; its assets and liabilities :ere e+ual to their book values eDcet ;or the ;ollo:ing, :hich had ;air values as indicated< Accounts Receivable 2'"8,000 )and 2"40,000 &nventor/ 4'!,000 Bonds 2a/able 448,000 Ho: -uch -ust be the good:ill recogniLed as a result o; this business co-binationG A 2$!!,000 B 24"4,000 C 2 %4,000 2 0
8 n ctober !0'$ B Co-an/ ac+uired '001 o; 2C& Co-an/ :hen the ;air value o; 2C&s net assets :as 2''6 -illion and their carr/ing a-ount :as 2'!0,000 -illion .he consideratrion trans;erred co-rised 2!00 -illion in cash trans;erred at the ac+uisition date, lus another 260 -illion in cash be trans;erred '' -onths a;ter the ac+uisition date i; a seciEed roEt target :as -et b/ 2C& At the ac+uisition date there :as onl/ a lo: robabilit/ o; the roEt target being -et, so the ;air value o; the additional consideration liabilit/ :as 2'0 -illion &n the event, the roEt target :as -et and the 260 -illion cash :as trans;erred hat a-ount should B resent ;or good:ill in its state-ent o; consolidated Enancial osition at $' ece-ber !0'4, according to &FR$ Business combinations? A 2%4 illion B 280 illion C 284illion 2'44 illion Q!e"#$o% 9 '%( 10 're b'"e( o% #)e *ollo+$% 9iordano Co-an/ urchased the net assets o; Hanes Co-an/ on =anuar/ ', !0'$, and -ade the ;ollo:ing entr/ to record the urchase< Current assets '00,000 *+ui-ent '"0,000 )and "0,000 Buildings $00,000 9ood:ill '00,000 )iabilities 80,000 Co--on stock,2' ar '00,000 2aid3in Caital in eDcess o; ar "!0,000
% A contingent consideration agree-ent :as -ade on =an ', !0'$, :herein an additional cash a/-ent :ould be on =an ', !0'", e+ual to t:ice the a-ount b/ :hich average annual earnings o; the Hanes ivision eDceed 2!",000 er /ear, rior to =anuar/ ', !0'" Net inco-e :as 2"0,000 in !0'$ and 260,000, in !0'4 Ho: -uch good:ill :ill still be recorded on the books on =anuar/ ', !0'"G A 260,000 B 2'!0,000 C 28",000 None '0A contigent consideration agree-ent :as -ade on =anuar/ ', !0'$, :herein additional shares :ould be issued on =anuar/ ',!0'", to co-ensate ;or an/ ;all in the value o; 9iordano co--on stock belo: 26 er share .he settle-ent :ould be to cure the deEcienc/ b/ issuing added shares based on
their ;air value on =an ',!0'" .he -arket rice o; the shares on =an ',!0'", :as 24 Ho: -an/ shares :ill 9iordano still issue on =anuar/ ',!0'"G A "0,000 B '00,000 C !0,000 "',66#