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Illustration 1 - Asset Acquisition

ABC Co. acquired all assets and liabilities of XYZ, Inc. The fair values and carrying amounts of assets and liabilities are shown. If ABC paid $1,500,000, goodwill would be $320,000. If ABC paid $1,000,000, there would be a $180,000 gain on bargain purchase.

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Shine Valdez
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75 views1 page

Illustration 1 - Asset Acquisition

ABC Co. acquired all assets and liabilities of XYZ, Inc. The fair values and carrying amounts of assets and liabilities are shown. If ABC paid $1,500,000, goodwill would be $320,000. If ABC paid $1,000,000, there would be a $180,000 gain on bargain purchase.

Uploaded by

Shine Valdez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Illustration 1: Asset Acquisition

On Jan. 1, 20x1, ABC Co. acquired all the assets and assumed all the liabilities of XYZ, Inc.
As of this date, the carrying amounts and fair values of the assets and liabilities of XYZ
acquired by ABC are shown below:

Assets Carrying amounts Fair values


Cash in bank 10,000.00 10,000.00
Receivables 200,000.00 120,000.00
Allowance for D.A. (30,000.00)
Inventory 520,000.00 350,000.00
Bldg - net 1,000,000.00 1,100,000.00
Goodwill 100,000.00 20,000.00 (non-identifiable asset; thus not part of FVNA)
Total 1,800,000.00 1,600,000.00 1,580,000.00

Liabilities FVNA
Payables 400,000 400,000 1,180,000.00

On the negotiation for the business combination, ABC Co. incurred transaction costs amounting to P100,000 for legal, accounting and consultancy fees.

Case 1: If ABC Co. paid P1,500,000 cash as consideration for the assets and liabilities of XYZ, Inc.,
how much is the goodwill (gain on bargain purchase) on the business combination?

Case 2: ABC Co. paid P1,000,000 cash

Solution - Case 1:
Computation of Goodwill or (Gain on Bargain Purchase)
Aggregate 1: Case 1 Case 2
Consideration 1,500,000 1,000,000
NCI 0 0
Prev. held equity int. in the acquiree 0 0
Total 1,500,000 1,000,000
Aggregate 2:
FVNA 1,180,000 1,180,000.00
Goodwill (Gain on bargain purchase) 320,000 (180,000)

Case 1 Case 2
Books of Acquirer (ABC)

Various assets 1,580,000 Various assets 1,580,000


Goodwill 320,000 Liabilities 400,000
Liabilities 400,000 Cash 1,000,000
Cash 1,500,000 Gain on bargain purchase 180,000

1,900,000 1,900,000

Expenses 100,000 Expenses 100,000


Cash 100,000 Cash 100,000
Books of Acquiree (XYZ)

Liabilities 400,000 Liabilities 400,000


Cash 1,500,000 Cash 1,000,000
Various Assets 1,800,000.00 Loss on disposal 400,000
Gain on disposal of assets 100,000 Various Assets 1,800,000

Share Capital 1,400,000 Share Capital 1,400,000


Gain on disposal of assets 100,000 Loss on disposal 400,000
Cash 1,500,000 Cash 1,000,000

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