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On June 10, 2016 FoxLe Company purchases 8,000 shares of Marmen Inc. for P37 per share.
Just prior to
the purchase, Marmen Inc. has the following statement of financial position:

Assets Liabilities and Equity
Cash 20,000 Current Liabilities 250,000
Inventory 280,000 Common Stock, P5 par 50,000
Equipment 400,000 APIC 130,000
Goodwill 100,000 Retained Earnings 370,000
Total Assets 800,000 Total Liabilities and Equity 800,000

On June 10, 2016, Marmen Inc. has a total fair value of net assets of P400,000 and it has been determined
that the equipment is worth P500,000.

What is the amount of goodwill (gain on acquisition) to be reported in consolidated statement of
financial position on the date of acquisition?
30,000
Statement of Financial Position reflecting the fair values that are to be used as basis of the combination
are prepared on November 27, 2019 as follows:

A Company L Company P Company
Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000
Capital Stock, all P10 par 1,700,000 1,200,000 275,000
Share Premium - 500,000 140,000
Retained Earnings (Deficit) (400,000) 2,450,000 (45,000)
Total Liabilities and Equity 5,250,000 6,800,000 900,000

‘A’ Company shares have a market value of P22 per share. Market values are not available for shares of L
Company and P Company.

On November 27, 2019, A Company acquires all of the assets and assumes the liabilities of L Company
and P Company by issuing 200,000 shares to L Company and 29,000 shares to P Company, respectively.

In addition, A Company pays P10,000 for registering and issuing securities and P20,000 for other
acquisition related costs.

What is the goodwill to be recorded by A Company on November 27, 2019?
518,000
On January 1, 20x1, Laughter Co. issued equity instruments in exchange for 75% interest in Tears Co.
Tears Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and ₱360,000,
respectively. The difference is attributable to a building with a remaining useful life of 6 years.

The December 31, 20x1 statements of profit or loss of Laughter Co. and Tears Co. are summarized
below:

Statements of profit or loss
For the year ended December 31, 20x1

Laughter Co. Tears Co.
Revenues 1,200,000 480,000
Operating expenses (960,000) (400,000)
Profit for the year 240,000 80,000

How much is the consolidated profit in 20x1?
310,000
On January 1, 20x1, CHIDE Co. acquired 90% of the identifiable assets and assumed all of the liabilities
of SCOLD, Inc. by paying cash of ₱4,000,000. On this date, SCOLD’s identifiable assets and liabilities
have fair values of ₱6,400,000 and ₱3,600,000, respectively. Non-controlling interest has a fair value of
₱320,000.

As of January 1, 20x1, SCOLD had the following which were not included in the
acquisition-date fair value measurement of liabilities:
 SCOLD has an existing contract with a customer to deliver products at a
specified future date. In accordance with the agreement, SCOLD shall pay a
penalty for failure to deliver the said goods. CHIDE determined that the fair value
of the penalty is ₱40,000. However, because CHIDE expects to comply with the
agreement, it was assessed that payment of penalty is improbable.
 SCOLD has guaranteed a bank loan of a third party. CHIDE shall replace
SCOLD as the guarantor. If the third party defaults on the loan, CHIDE will be
held liable for the guarantee. CHIDE determined that the fair value of the
guarantee is ₱120,000. However, both SCOLD and CHIDE believe that the third
party will not default on its loan from the bank.
 There is a pending unresolved litigation filed by a third party against SCOLD.
CHIDE determined that the fair value of settling the litigation is ₱200,000.
However, because the legal counsels of both CHIDE and SCOLD strongly believe
that they will win the case, it was assessed that payment for the settlement of the
litigation is improbable.

How much is the goodwill (gain on bargain purchase)?
1,880,000
David Co. plans to acquire all the assets and liabilities of Saul Co. David expects that it will need to pay a
premium equal to the discounted amount of Saul’s excess average annual earnings in order to effect the
transaction. The appropriate discount rate is 10%. Below are Saul’s earnings in the past 5 years:

Year Earnings
2011 120,000
2012 130,000
2013 135,000
20x4 125,000
20x5 140,000
Total 650,000

 The 2014 earnings include an expropriation loss of P40,000
 Saul’s net assets have a current fair value of P590,000
 The industry average rate of return on assets is 12%
 The probable duration of “excess earnings” is 5 years

How much is the estimated purchase price?
844,741
On January 1, 20x1, Bass Co. issued equity instruments in exchange for 75% interest in Guitar Co. On
acquisition date, Bass Co. elected to measure non-controlling interest at fair value. Bass Co.’s
management believes that the fair value of the consideration transferred correlates to the fair value of the
controlling interest acquired and that the fair value of the controlling interest is proportionate to the fair
value of the remaining interest.

Guitar Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and ₱360,000,

The December 31, 20x1 statements of financial position of Bass Co. and Guitar Co. are summarized
below:

Bass Co. Guitar Co.
ASSETS
Investment in subsidiary (at cost) 300,000 -
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000
LIABILITIES AND EQUITY
Trade and other payables 292,000 120,000
Share capital 940,000 200,000
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND 1,672,000 496,000
EQUITY

No dividends were declared by either entity during year. There were also no inter-company transactions
and impairment in goodwill.

How much is the consolidated retained earnings on December 31, 20x1?
489,500


below:

Bass Co. Guitar Co.
ASSETS
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND
1,672,000 496,000
EQUITY


How much is the consolidated total equity on December 31, 20x1?
1,546,000
Paul Corp acquired 80% of Silas Corp. Outstanding shares. The statement of Financial position
of both entities right after the acquisition are shown below:

Paul Co. Silas Co.
Investment in Subsidiary (at cost) 430,000 0
Other Assets 1,570,000 750,000
Total Assets 2,000,000 750,000

Liabilities 750,000 400,000
Ordinary Share Capital 1,000,000 310,000
Retained Earnings 250,000 40,000
Total Liabilities and Equity 2,000,000 750,000

At the date of purchase, the fair value of Silas' assets was P50,000 more than the aggregate carrying
amounts. Non-controlling interest is measured under the proportionate share method.

In the consolidated balance sheet prepared immediately after the date of acquisition, the equity
attributable to the owners of the parent is:
1,250,000

Paul Co. Silas Co.
Other Assets 1,570,000 750,000
Total Assets 2,000,000 750,000



In the consolidated balance sheet prepared immediately after the date of acquisition, the
consolidated total assets should amount to?
2,480,000
On January 1, 20x1, KNAVE acquired 80% of the equity interests of RASCAL, Inc. in exchange for
cash. Because the former owners of RASCAL needed to dispose of their investments in RASCAL by a
specified date, they did not have sufficient time to market RASCAL to multiple potential buyers.

As January 1, 20x1, RASCAL’s identifiable assets and liabilities have fair values of ₱4,800,000 and
₱1,600,000, respectively.

KNAVE Co. elects the option to measure non-controlling interest at fair value. A value of ₱1,000,000 is
assigned to the 20% non-controlling interest in RASCAL, Inc. [(₱4M ÷ 80%) x 20% = 1,000,000].

If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80% interest in RASCAL, Inc., how much
is the goodwill (gain on bargain purchase) on the business combination?

800,000


below:

Bass Co. Guitar Co.
ASSETS
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000
Total equity 1,380,000 376,000
1,672,000 496,000
EQUITY


How much is the consolidated total assets as of December 31, 20x1?

1,958,000
On January 1, 20x1, CONJUNCTION Co., and UNION, Inc. entered into a business combination effected
through exchange of equity instruments. The combination resulted to CONJUNCTION obtaining 100%
interest in UNION. Both of the combining entities are publicly listed. As of this date, CONJUNCTION’s
shares have a quoted price of ₱400 per share. CONJUNCTION Co. recognized goodwill of ₱300,000 on
the business combination. No acquisition-related costs were incurred. Additional selected information at
acquisition date is shown below:
CONJUNCTION Co. Combined entity
(before acquisition) (after acquisition)
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000

40

Paul Co. Silas Co.
Other Assets 1,570,000 750,000
Total Assets 2,000,000 750,000



How much is the goodwill at the consolidated balance sheet prepared immediately after the
acquisition?

110,000

Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000
Share Premium - 500,000 140,000




How much is the total asset under ALP Company consolidated balance sheet?
13,438,000
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000

What is the acquisition-date fair value of the net identifiable assets of UNION?
3,700,000
Share capital 2,400,000 2,800,000
Share premium 1,200,000 4,800,000
Totals 3,600,000 7,600,000

How many shares were issued by CONJUNCTION Co. in the business combination?
10,000

below:


Revenues 1,200,000 480,000

How much is the consolidated profit attributable to non-controlling interest in 20x1?
17,500


KNAVE Co. elects the option to measure non-controlling interest at fair value. An independent consultant
was engaged who determined that the fair value of the 20% non-controlling interest in RASCAL, Inc. is
₱620,000.

If KNAVE Co. paid ₱2,400,000 cash as consideration for the 80% interest in RASCAL, Inc., how much
is the goodwill (gain on bargain purchase) on the business combination?
(180,000)
On January 1, 20x1, FORTITUDE Co. acquired 15% ownership interest in ENDURANCE, Inc. for
₱400,000. The investment was accounted for under PFRS 9. From 20x1 to the end of 20x3, FORTITUDE
recognized net fair value gains of ₱200,000.

On January 1, 20x4, FORTITUDE acquired additional 60% ownership interest in ENDURANCE, Inc. for
₱3,200,000. As of this date, FORTITUDE has identified the following:
a. The previously held 15% interest has a fair value of ₱720,000.
b. ENDURANCE’s net identifiable assets have a fair value of ₱4,000,000.
c. FORTITUDE elected to measure non-controlling interests at the non-controlling interest’s
proportionate share of ENDURANCE’s identifiable net assets.

The previously held interest was initially classified as FVOCI. How much is the goodwill ( gain on
bargain purchase)?

920,000
Abraham Co., a publicly listed entity, and Isaac Co., a private company, exchange equity interests in a
business combination.

 Abraham Co. issues 12 shares for all the outstanding shares of Isaac
 Abraham’s shares are quoted at P60 per share, while Isaac’s shares
have a fair value of P200 per shares
 The net assets of the entities immediately before the combination are
shown below: (The amounts approximate the acquisition-date fair value)

Equity Abraham Co. Isaac Co.
Share capital:
12,000 ordinary shares P10 par 120,000
9,000 ordinary shares, P100 par 900,000
Total equity 130,000 1,700,000

How much is the goodwill?

70,000
When David Company acquired Goliath Corporation’s net assets by issuing its own capital stock, the
following acquisition related costs were incurred:

Brokers’ fees 50,000
Underwriters’ fees for the sale of stocks 25,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000
Legal fees for the combination 32,000
Audit fee for SEC registration of stock issue 46,000
SEC registration fee of stock issue 5,000

Other acquisition costs 6,000

How much of the cost above should be debited to Additional Paid in Capital?
76,000
On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co. incurred
transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating the business
combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in XYZ, Inc.’s
identifiable net assets. The carrying amounts and fair values of XYZ’s assets and liabilities at the
acquisition date were as follows:

Assets Carrying amounts Fair values
Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000

Liabilities
Payables 1,000,000 1,000,000

How much is the goodwill (gain on a bargain purchase)?
287,500


below:

Bass Co. Guitar Co.
ASSETS
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000
Total equity 1,380,000 376,000
1,672,000 496,000
EQUITY


What amount of goodwill is presented in the consolidated statement of financial position on
December 31, 20x1?
40,000


KNAVE Co. elects the option to measure the non-controlling interest at the non-controlling interest’s
proportionate share of RASCAL, Inc.’s net identifiable assets

If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80% interest in RASCAL, Inc. and, how
much is the goodwill (gain on bargain purchase) on the business combination?
1,440,000
On January 1, 20x1, SUBTERFUGE Co. acquired all of the identifiable assets and assumed all of the
liabilities of DECEPTION, Inc. by paying cash of ₱4,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively.

Additional information:
 SUBTERFUGE intends to sell immediately a factory plant included in the
identifiable assets of DECEPTION. All of the “held for sale” classification
criteria under PFRS 5 are met. As of January 1, 20x1, the factory plant has a fair
value of ₱1,200,000 and a carrying amount of ₱1,000,000 in the books of
DECEPTION. Costs to sell the factory plant is ₱80,000.
 Not included in the identifiable asset of DECEPTION is a research and
development intangible asset that SUBTERFUGE does not intend to use. The fair
value of this asset is ₱200,000.
 Also, not included in the identifiable asset of DECEPTION is a customer list, with an
estimated value of ₱40,000, in the form of a database where the nature of the information is
subject to national laws regarding confidentiality.
1,080,000


below:

Bass Co. Guitar Co.
ASSETS
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000
Total equity 1,380,000 376,000
1,672,000 496,000
EQUITY


How much is the non-controlling interest in the net assets of the subsidiary on December 31, 20x1?
116,500

Paul Co. Silas Co.
Other Assets 1,570,000 750,000
Total Assets 2,000,000 750,000


In the consolidated balance sheet prepared immediately after the date of acquisition, the
consolidated stockholders equity should amount to?
1,330,000

Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000
Share Premium - 500,000 140,000




What is the total stockholder’s equity in the combined statement of financial position after
combination on November 27, 2019?
6,308,000

below:


Revenues 1,200,000 480,000

How much is the consolidated profit attributable to owners of the parent in 20x1?
292,500
On June 10, 2016 FoxLe Company purchases 8,000 shares of Marmen Inc. for P37 per share. Just prior to
the purchase, Marmen Inc. has the following statement of financial position:

Assets Liabilities and Equity
Cash 20,000 Current Liabilities 250,000
Inventory 280,000 Common Stock, P5 par 50,000
Equipment 400,000 APIC 130,000
Goodwill 100,000 Retained Earnings 370,000
Total Assets 800,000 Total Liabilities and Equity 800,000

On June 10, 2016, Marmen Inc. has a total fair value of net assets of P400,000 and it has been determined
that the equipment is worth P500,000.

What is the amount of the non-controlling interest in the consolidated statement of financial
position on the date of acquisition?
74,000
_____________________________________________________________________________________
On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co.
incurred transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating
the business combination. ABC Co. elected to measure NCI at the NCI’s proportionate
share in XYZ, Inc.’s identifiable net assets. The carrying amounts and fair values of XYZ’s
assets and liabilities at the acquisition date were as follows:

Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000

Liabilities
Payables 1,000,000 1,000,000
How much is the goodwill (gain on a bargain purchase)?
287,500
On January 1, 20x1, ENTREAT Co. acquired all of the identifiable assets and assumed all of the
liabilities of BEG, Inc. by paying cash of ₱4,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively.
ENTREAT Co. has estimated restructuring provisions of ₱800,000 representing costs of exiting
the activity of BEG, costs of terminating employees of BEG, and costs of relocating the
terminated employees. How much is the goodwill (gain on bargain purchase)?
1,200,000
On January 1, 20x1, SMUTTY acquired all of the identifiable assets and assumed all of the
liabilities of OBSCENE, Inc. On this date, the identifiable assets acquired and liabilities assumed
have fair values of ₱6,400,000 and ₱3,600,000, respectively.
SMUTTY incurred the following acquisition-related costs: legal fees, ₱40,000, due diligence
costs, ₱400,000, and general administrative costs of maintaining an internal acquisitions
department, ₱80,000.

As consideration for the business combination, SMUTTY Co. transferred 8,000 of its own equity
instruments with par value per share of ₱400 and fair value per share of ₱500 to OBSCENE’s
former owners. Costs of registering the shares amounted to ₱160,000. How much is the goodwill
(gain on bargain purchase) on the business combination?

1,200,000
On January 1, 20x1, HISTRIONAL Co. acquired all of the identifiable assets and assumed all of
the liabilities of THEATRICAL, Inc. by paying cash of ₱4,000,000. On this date, the identifiable
assets acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000,
respectively.
As of January 1, 20x1, HISTRIONAL holds a building and a patent which are being rented out
to THEATRICAL, Inc. under operating leases. HISTRIONAL has determined that the terms of
the operating lease on the building compared with market terms are favorable. The fair value of
the differential is estimated at ₱80,000. How much is the goodwill (gain on bargain purchase)?
1,120,000
KNAVE Co. elects the option to measure non-controlling interest at fair value. An independent
consultant was engaged who determined that the fair value of the 20% non-controlling
interest in RASCAL, Inc. is ₱620,000.
If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80% interest in RASCAL, Inc.,
how much is the goodwill (gain on bargain purchase) on the business combination?
1,420,000
A business combination is accounted for properly as an acquisition. Direct costs of combination,

other than registration and issuance costs of equity securities, should be:
Deducted in determining the net income of the combined corporation for the period in
which the costs were incurred.
PDX Corp. acquired 100% of the outstanding common stock of Sea Corp. in an acquisition
transaction. The cost of the acquisition exceeded the fair value of the identifiable assets and
assumed liabilities. The general guidelines for assigning amounts to the inventories acquired
provide for:
Inventories to be valued at acquisition-date fair values.
In a business combination accounted for under the acquisition method, the fair value of the net
identifiable assets acquired exceeded the consideration transferred. How should the excess fair
value be reported?
As negative goodwill, recognized in profit or loss in the period the business combination
occurred.
The costs of issuing equity securities in a business combination are
treated as direct reduction in equity
The costs of issuing debt securities in a business combination are
accounted for like a “discount” on liability & included in the initial measurement of the
debt securities issued.
Easton Company acquired Lofton Company in a business combination. Easton was able to
acquire Lofton at a bargain price. The fair value of the net identifiable assets acquired exceeded
the consideration transferred to Lofton. After revaluing noncurrent assets to zero, there was still
some "negative goodwill." Proper accounting treatment by Easton is to report the amount as
part of current income in the year of combination.
A contingent liability assumed in a business combination is recognized
All of these
A business combination is accounted for as an acquisition. Which of the following expenses

related to the business combination should be included, in total, in the determination of net
income of the combined corporation for the period in which the expenses are incurred?
Incorrect answer:
Fees of finders and consultants (YES) , Registration fees for equity securities

issued (NO)
In a business combination, how should long-term debt of the acquired company generally be
recognized on acquisition date?
Fair value
Goodwill may be capitalized
only when it arises in a business combination.
Acquisition accounting requires an acquirer and an acquiree to be identified for every business
combination. Where a new entity (H) is created to acquire two preexisting entities, S and A,
which of these entities will be designated as the acquirer?
A or S
PFRS 3 requires that the contingent liabilities of the acquired entity should be recognized in the
balance sheet at fair value. The existence of contingent liabilities is often reflected in a lower
purchase price. Recognition of such contingent liabilities will:
Increase the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
This refers to the additional consideration for a business combination to be given to the acquiree
upon the happening of a contingency which is pre-agreed at the acquisition date.
Incorrect answer:
Contingent consideration
An acquirer should at the acquisition date recognize goodwill acquired in a business combination
as an asset. Goodwill should be accounted for as follows:
Recognize as an intangible asset and annually impairment test (or more frequently if
impairment is indicated).

Are the following statements about an acquisition true or false, according to PFRS 3 Business
combinations?

I. The acquirer should recognize the acquiree's contingent liabilities if certain conditions are
met.
II. The acquirer should recognize the acquiree's contingent assets if certain conditions are
met.
True, False
Which of the following methods must be applied in accounting for business combinations under
PFRS 3?
acquisition method
Given the following information, how is goodwill from a business combination computed under
PFRS 3?
A = Consideration transferred
B = Non-controlling interest in net assets of subsidiary
C = Previously held equity interest
D = Fair value of net identifiable assets of subsidiary
% = Percentage of ownership acquired by the parent in the subsidiary
A+B+C-D
According to PFRS 3, which of the following transaction costs would increase the amount of
goodwill from a business combination?
none of these
On September 1, 20x1, TEPID Co. acquired LUKEWARM Co. in a business combination that
resulted to goodwill. By December 31, 20x1, the initial allocation of goodwill is not yet
completed. According to PAS 36, TEPID should:
complete the initial allocation before the end of December 31, 20x2.
The company that obtains control over another company in a business combination transaction is
referred to as the
acquirer & parent
On January 1, 20x1, FARCICAL Co. acquired all of the assets and liabilities of ABSURD, Inc.
for ₱6.4M. As of this date, the carrying amounts and fair values of the assets and liabilities
of ABSURD are shown below:

Cash in bank 40,000 40,000
Receivables 800,000 480,000
Allowance for probable losses on
(120,000)
Receivables
Inventory 2,080,000 1,400,000
Building – net 4,000,000 4,400,000
Goodwill 400,000 80,000
Total assets 7,200,000 6,400,000

Liabilities
Dividends payable 400,000 400,000
Other payables 1,600,000 1,600,000
2,000,000 2,000,000

The dividends payable pertain to dividends declared by ABSURD, Inc. on December 28, 20x0 to
shareholders of record on January 15, 20x1. The dividends will be distributed on January 31,
20x1.

1,680,000
On January 1, 20x1, OBDURATE Co. acquired 30% ownership interest in STUBBORN, Inc. for
₱400,000. Because the investment gave OBDURATE significant influence over STUBBORN,
the investment was accounted for under the equity method in accordance with PAS 28.

From 20x1 to the end of 20x3, OBDURATE recognized ₱200,000 net share in the profits of the
associate and ₱40,000 share in dividends. Therefore, the carrying amount of the investment in
associate account on January 1, 20x3, is ₱560,000.

On January 1, 20x4, OBDURATE acquired additional 60% ownership interest in STUBBORN,
Inc. for ₱3,200,000. As of this date, OBDURATE has identified the following:
a. The previously held 30% interest has a fair value of ₱720,000.
b. STUBBORN’s net identifiable assets have a fair value of ₱4,000,000.
c. OBDURATE elected to measure non-controlling interests at the non-controlling interest’s
proportionate share of STUBBORN’s identifiable net assets.

How much is the goodwill?
320,000
On January 1, 20x1, PRODIGIOUS Co. acquired all of the identifiable assets and assumed all of
the liabilities of EXTRAORDINARY, Inc. by paying cash of ₱4,000,000. On this date, the
identifiable assets acquired and liabilities assumed have fair values of ₱6,400,000 and

The terms of the business combination agreement are shown below:
 Half of the ₱4,000,000 agreed consideration shall be paid on January 1, 20x1 and the
other half on December 31, 20x5. The prevailing market rate as of January 1, 20x1 is 10%.
 In addition, PRODIGIOUS agrees to provide for the following:
a. A piece of land with a carrying amount of ₱2,000,000 and fair value of ₱1,200,000 shall
be transferred to the former owners of EXTRAORDINARY.
b. After the combination, EXTRAORDINARY’s activities shall be continued by
PRODIGIOUS. PRODIGIOUS agrees to provide a patented technology for use in the
activities of EXTRAORDINARY. The patented technology has a carrying amount of
₱240,000 in the books of PRODIGIOUS and a fair value of ₱320,000.
Included in the liabilities assumed is an estimated liability on a pending lawsuit filed against
EXTRAORDINARY by a third party with an acquisition-date fair value of ₱400,000. The
carrying amount of the liability in EXTRAORDINARY’s books immediately before the business
combination is ₱480,000. EXTRAORDINARY guarantees to indemnify PRODIGIOUS for any
settlement amount of the liability in excess of ₱480,000.

1,561,843
On January 1, 20x1, COLLOQUY Co. acquired all of the identifiable assets and assumed all of
the liabilities of CONVERSATION, Inc. by issuing its own ordinary shares. Information at
Combined
COLLOQUY Co. CONVERSATION, Co. entity
(carrying amounts) (fair values)
Identifiable assets 9,600,000 6,400,000 16,000,000
Goodwill - - ?
Total assets 9,600,000 6,400,000 ?

Liabilities 2,800,000 3,600,000 6,400,000
Share capital 2,400,000 1,200,000 2,800,000
Share premium 1,200,000 1,000,000 4,800,000
Retained earnings 3,200,000 600,000 ?
Total liabilities & equity 9,600,000 6,400,000 ?

Additional information:
 COLLOQUY’s share capital consists of 60,000 ordinary shares with par value of ₱40 per
share.
CONVERSATION’s share capital consists of 3,000 ordinary shares with par value
of ₱400 per share.

How much is the fair value of consideration transferred on the business combination?
4,000,000
INNOCUOUS engaged an independent valuer to appraise a building acquired from

HARMLESS. However, the valuation report was not received by the time INNOCUOUS
authorized for issue its financial statements for the year ended December 31, 20x1. As such, the
building was assigned a provisional amount of ₱2,800,000. Also, the building was tentatively
assigned an estimated useful life of 10 years from acquisition date. INNOCUOUS uses the
straight line method of depreciation and recognized three months’ depreciation on the building
for 20x1.

On July 1, 20x2, INNOCUOUS finally received the valuation report from the independent valuer
which shows that the fair value of the building as of September 30, 20x1 is ₱2,000,000 and
remaining useful from that date is 5 years.

How should INNOCUOUS account for the new information obtained?
As a retrospective adjustment to the provisional amount of the building resulting to

increase in goodwill by ₱800,000.
An investor has power over the investee when the investor has existing rights that give it the
current ability to direct investee’s relevant activities.
Correct answer:
True
Control exist if the investor has power of the investee and ability to affect returns only.
False
In accounting for business combination achieve in stages, the acquirer remeasures the previously
held equity interest at acquisition date fair value.

True
The NCI balance in the consolidated financial statement composed of NCI fair value at date of
acquisition and share the profit or loss of the subsidiary.
True
Due diligence audit refers to exercise of care that a reasonable and prudent person should take
before entering a contract with another person.
False
Only a goodwill that arises from a business combination is recognized as an asset.
True
Major holdings is an element of control.
False
Non-controlling interests are measured at fair value only.
False
The acquisition method also applies to business combination in which the acquirer obtains
control without transferring any consideration, justifying the use of purchase method for business
combination.
False

If the consideration transferred in a business combination is deferred, the consideration may be
measured at present value.
True
A transaction initiated by the acquirer is not likely for the benefit of the acquirer or combined
entity and, therefore not a separate transaction.
False
The two important elements in the definition of business combination under PFRS 3 are
"business " and "combination".
False
If the contingent consideration is classified as liability, it is remeasured to fair value at each

reporting date.
True
An intangible asset that is unrecorded by the acquiree may nevertheless be recognized by the
acquirer in a business combination.
True
In analyzing the fair value of a re-acquired rights, the “off market” value’ is compare with re-
acquired asset.
False
Direct costs incurred in a business combination are:

Correct match: expensed, except for costs of issuing equity and debt instruments.
According to PFRS 3, the acquisition date is normally the___________

Correct match: closing date
Characteristics that distinguishes a business combination for other types of investment

transactions.
Correct Answer: obtaining of control
Business combination achieve in stages are accounted for____________.
Correct Answer: prospectively
In case of re-acquired right, the “at market” value pertains to___________.

Correct match: Intangible asset, if it relates to a reacquired right.
A contingent consideration classified as _________ is not remeasured.

Correct match: equity
Under this method, goodwill is measured based on expected future earnings from the business to
be acquired.
Correct match: Direct valuation
Good will is attributed to both owners of the parent and the non-controlling interest if_________.
Correct match: NCI is measured at fair value.
Refers to activities of investee that significantly affect the investee’s return. X relevant activities
Correct Answer: relevant activities
Control exist if investor has power, ability to affect returns and ______________.
Correct match: exposure or rights to variable return in the investee.
How is the non-controlling interest in the subsidiary’s net assets presented in the consolidated
financial position?
Within equity but separately from the equity of the owners of the parent.
Which of the following assets of an acquiree may not be included when computing for the
goodwill arising from a business combination?
goodwill
PFRS 3 requires that the contingent liabilities of the acquired entity should be recognized in the
balance sheet at fair value. The existence of contingent liabilities is often reflected in a lower
purchase price. Recognition of such contingent liabilities will
Increase the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
This type of business combination occurs when, for example, a private entity decides to have
itself “acquired” by a smaller public entity in order to obtain a stock exchange listing.
Reverse acquisition
Which of the following statements is incorrect regarding the consideration transferred in a

business combination?
It includes those that are retained in the combined entity.
Should the following costs be included in the consideration transferred in a business

combination, according to PFRS 3 Business Combinations?
I. Costs of maintaining an acquisitions department.
II. Fees paid to accountants to effect the combination.
No No
Entity A and Entity B combined their businesses. The acquirer in the business combination is not
clearly identifiable. Which of the following in not an indicator that Entity A is the acquirer?
Entity C, a new entity, is formed and Entity C transfers cash to Entity A and Entity B.
A contingent liability assumed in a business combination:
Both these
According to PFRS3, the acquirer measures non-controlling interest in the acquiree.
either a or b, as an accounting policy choice.
Are the following statements about an acquisition true or false, according to PFRS 3 Business
combinations?
I. The acquirer should recognize the acquiree's contingent liabilities if certain conditions are met.
II. The acquirer should recognize the acquiree's contingent assets if certain conditions are met.

True, False
The method required under PFRS 3 to be used in accounting for business combinations is
Acquisition method
The management of an entity is unsure how to treat a restructuring provision that they wish to set
up on the acquisition of another entity. Under PFRS 3, the treatment of this provision will be
A charge in the income statement in the post-acquisition period.
One of the essential elements of control is power. According to PFRS 10, an investor has power
if:
the investor has existing rights that give it the current ability to direct the investee’s
relevant affair.
Entity A acquired 80% interest in Entity B on December 31, 20x1. How much of entity’s B’s
profit will be included in the December 31, 20x1 consolidated statement of profit or loss?
none
According to PFRS 10:
a parent entity is required to consolidate its subsidiaries.

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On June 10, 2016 FoxLe Company purchases 8,000 shares of Marmen Inc. for P37 per share.

How much is the goodwill (gain on bargain purchase)?

Total assets 4,500,000 4,000,000

How much is the goodwill (gain on a bargain purchase)?

A business combination is accounted for properly as an acquisition. Direct costs of combination,

Inventories to be valued at acquisition-date fair values.

treated as direct reduction in equity

The costs of issuing debt securities in a business combination are

part of current income in the year of combination.

A contingent liability assumed in a business combination is recognized

A business combination is accounted for as an acquisition. Which of the following expenses

Fees of finders and consultants (YES) , Registration fees for equity securities

Goodwill may be capitalized

only when it arises in a business combination.

acquirer & parent

INNOCUOUS engaged an independent valuer to appraise a building acquired from

As a retrospective adjustment to the provisional amount of the building resulting to

Only a goodwill that arises from a business combination is recognized as an asset.

Major holdings is an element of control.

Non-controlling interests are measured at fair value only.

If the contingent consideration is classified as liability, it is remeasured to fair value at each

Direct costs incurred in a business combination are:

According to PFRS 3, the acquisition date is normally the___________

Characteristics that distinguishes a business combination for other types of investment

In case of re-acquired right, the “at market” value pertains to___________.

A contingent consideration classified as _________ is not remeasured.

Which of the following statements is incorrect regarding the consideration transferred in a

It includes those that are retained in the combined entity.

Should the following costs be included in the consideration transferred in a business

I. Costs of maintaining an acquisitions department.

II. Fees paid to accountants to effect the combination.

A contingent liability assumed in a business combination:

According to PFRS3, the acquirer measures non-controlling interest in the acquiree.

either a or b, as an accounting policy choice.

A charge in the income statement in the post-acquisition period.

According to PFRS 10:

a parent entity is required to consolidate its subsidiaries.

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