APPLICATION: PROBLEMS

Illustration 1: Fair Value of NCI in Subsidiary is NOT GIVEN

Par Company acquires 80% of Son Company for P10,000,000, carrying value of Son Company’s
net assets at time of acquisition being P6,000,000 and fair value of these net identifiable assets
being P8,000,000. Determine the goodwill and NCI using a) Partial Goodwill Method b) FV / Full
Goodwill method

A. PARTIAL GOODWILL APPROACH

Fair value of subsidiary (80%):

Consideration transferred: Cash . . . . . . . . . . . . . . . . . . . . . . . P 10,000,000 (80%)
Less: Book value of stockholders’ equity (net assets)
– Son Company: P6,000,000 x 80% . . . . . . . . . . . . . . . . . . . . . . 4,800,000 (80%)
Allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,200,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P8,000,000 – P6,000,000) x 80% . . . . . . . . . . . . . . . . . . . . . . 1,600,000 (80%)
Positive excess: Goodwill (partial) . . . . . . . . . . . . . . . . . . . . . . . . . P 3,600,000 (80%)

B. NCI UNDER PARTIAL GOODWILL APPROACH

Book Value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . P 6,000,000

Adjustments to reflect fair value (over/undervaluation of assets
and liabilities): (P8,000,000 – P6,000,000) . . . . . . . . . . . . . . . . . . . . 2,000,000
Fair value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . . P 8,000,000
Multiplied by: Non-controlling interest percentage . . . . . . . . . . . . . 20%
Non-controlling interest (partial) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,600,000

C. FULL GOODWILL APPROACH/ FV METHOD

Fair value of subsidiary (100%):

Consideration transferred: Cash P 12,500,000 (100%)
(P10,000,000 / 80%). . . . . .

Less: Book value of stockholders’ equity

(net assets) 6,000,000 (100%)
– Son Company: P6,000,000 x 100% . . . .
................ ....
Allocated excess . . . . . . . . . . . . . . . . . . . . . . P 6,500,000 (100%)
 Less: Over/undervaluation of assets and
liabilities: 2,000,000 (100%)
(P8,000,000 – P6,000,000) x 100% . . .
Positive excess: Goodwill (full) . . . . . . . . . . P 4,500,000 (100%)

D. NCI UNDER FV METHOD

Full-goodwill . . . . . . . . . . . . . . . . P 4,500,000
Less: Controlling interest on full-goodwill or
Partial-goodwill (P4,500,000 x 80%). . . . . . . . . . . . . . 3,600,000
NCI on full-goodwill (P4,500,000 x 20%). . . . . . . . . . . . . P 900,000
Non-controlling interest (partial) . . . . . . . . . . . . P 1,600,000
Add: Non-controlling interest on full-goodwill
(P4,500,000— 900,000
P3,600,000 partial-goodwill) or (P4,500,000 x
20%)* . . . . . . . . . .
Non-controlling interest (full) . . . . . . . . . . . . . . P 2,500,000

ILLUSTRATION 2: FV OF NCI IN SUBSIDIARY IS GIVEN WITH CONTROL PREMIUM

A control premium:
• is an amount that a buyer is usually willing to pay over the current market price of a
publicly traded company
• is usually justified by the expected synergies, such as the expected increase in cash flow
resulting from cost savings and revenue enhancements achievable in the merger or
consolidation.

If the consideration transferred is proportionally more than the fair value of non-controlling
interests, there is a control premium. In the opposite situation, a control discount (which often
arises in a fire sale) or discount for lack of control (sometimes called a non-controlling interest
discount) arises.

Sun Company has 40% of its share publicly traded on an exchange. Pluto Company purchases
the 60% non-publicly traded shares in one transaction, paying P6,300,000. Based on the trading
price of the shares of Sun Company at the date of gaining control a fair value of P4,000,000
assigned to the 40% non-controlling interest (or fair value of non-controlling interest), indicating
that Sun Company has paid a control premium of P300,000. The fair value of Sun Company’s
identifiable net assets is P7,000,000 and a carrying value of P5,000,000.

A. PARTIAL GOODWILL
Fair value of subsidiary (60%):
Consideration transferred: Cash. .. .. .. .. .. .. .. .. P 6,300,000 (60%)
Less: Book value of stockholders’ equity (net assets)
– Sun Company: P5,000,000 x 60% . . . . . . . . . . . . . . . . . 3,000,000 (60%)
Allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,300,000 (60%)
Less: Over/undervaluation of assets and liabilities:
(P7,000,000 – P5,000,000) x 60% . . . . . . . . . . . . . . . . . 1,200,000 (60%)
Positive excess: Goodwill (partial) . . . . . . . . . . . . . . . . . . . . P 2,100,000 (60%)

B. NCI -PARTIAL GOODWILL

Book Value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . P 5,000,000

Adjustments to reflect fair value (over/undervaluation of assets
and liabilities): (P7,000,000 – P5,000,000) . . . . . . . . . . . . . . . . . . . . 2,000,000
Fair value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . . P 7,000,000
Multiplied by: Non-controlling interest percentage . . . . . . . . . . . . . 40%
Non-controlling interest (partial) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 2,800,000

C. FV METHOD

Fair value of subsidiary (100%):

Consideration transferred: Cash . . . . . . . . . . . . . . . . . . . . . P 6,300,000 ( 60%)
4,000,00 ( 40%)
Fair value of NCI (given)* . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Fair value of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 10,300,000 (100%)
Less: Book value of stockholders’ equity (net assets) –
Sun Company: P5,000,000 x 100% . . . . . . . . . . . . . . . . . . . 5,000,000 (100%)
Allocated Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,300,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P7,000,000 – P5,000,000) x 100% . . . . . . . . . . . . . . . . . . 2,000,000 (100%)
Positive excess: Goodwill (full) . . . . . . . . . . . . . . . . . . . . . . . . . P 3,300,000 (100%)

D. NCI – FV METHOD

Full-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,300,000
Less: Controlling interest on full-goodwill or
Partial-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 2,100,000
NCI on full-goodwill . . . . . . . . . . . . . . . . . . . . . . . . P 1,200,000
*This amount should not be lower compared to fair value of NCI of Stockholders’ equity of
subsidiary
(i.e., P7,000,000 x 40% = P2,800,000). Otherwise, the higher amount should be used:

Non-controlling interest (partial) . . . . . . . . . . . .(HIGHER AMOUNT) P 2,800,000

Add: Non-controlling interest on full-goodwill (P3,300,000—
P2,100,000 partial-goodwill). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
Non-controlling interest (full) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 4,000,000

Illustration 3: FV of “S” is Given

On September 1, 20x4, Pare Company acquires 75% (750,000 ordinary shares) of Sare Company
for P7,500,000 (P10 per share). In the period around the acquisition date, Sare Company’s
shares are trading at about P8 per share. Pare Company pays a premium over market because
of the synergies it believes it will get. It therefore reasonable to conclude that the fair value of
Sare’s as a whole may not be P10,000,000. In fact, an independent valuation shows that the
value of Sare Company is P9,700,000 (fair value of Sare Company). Assuming that the fair value
of the net assets acquired is P8,000,000 (carrying value is P6,000,000).

A. PARTIAL GOODWILL

Fair value of subsidiary (75%):

Consideration transferred: Cash . . . . . . . . . . . . . . . . . . . . . . P 7,500,000 (75%)

Less: Book value of stockholders’ equity (net assets)

– Sare Company: P6,000,000 x 75% . . . . . . . . . . . . . . . . . . . . . 4,500,000 (75%)

Allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,000,000 (75%)

Less: Over/undervaluation of assets and liabilities:

(P8,000,000 – P6,000,000) x 75% . . . . . . . . . . . . . . . . . . . . 1,500,000 (75%)

Positive excess: Goodwill (partial) . . . . . . . . . . . . . . . . . . . . . . . . P 1,500,000 (75%)

B. NCI – PARTIAL GW

Book Value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . P 6,000,000

 Adjustments to reflect fair value (over/undervaluation of assets
and liabilities): (P8,000,000 – 2,000,000
P6,000,000) . . . . . . . . . . . . . . . . . . . .
Fair value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . . P 8,000,000

Multiplied by: Non-controlling interest percentage . . . . . . . . . . . . . 25%

Non-controlling interest (partial) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 2,000,000

C. FULL GOODWILL METHOD

Fair value of subsidiary . . . . . . . . . . . . . . . . . . . . . . P 9,700,000 (100%)

Less: Book value of stockholders’ equity (net
assets) – 6,000,000 (100%)
Sare Company: P6,000,000 x 100% . . . . . . . . .
Allocated Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,700,000 (100%)
Less: Over/undervaluation of assets and
liabilities: 2,000,000 (100%)
(P8,000,000 – P6,000,000) x 100% . . . . . . . . .
Positive excess: Goodwill (full) . . . . . . . . . . . . . . . . P 1,700,000 (100%)

D. NCI – FULL GW

Full-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……… P 1,700,000

Less: Controlling interest on full-goodwill or

Partial-goodwill . . . . . . . . . . . . . . . . . . . . . . . . ……... 1,500,000

NCI on full-goodwill . . . . . . . . . . . . . . . . . . . . . . . ……... P 200,000

Non-controlling interest (partial) . . . . . . . . . . . . P 2,000,000

 Add: Non-controlling interest on full-goodwill (P1,700,000
— 200,000
P1,500,000 partial-goodwill). . . . . . . . . . . . . . . . . . . . . . . .

Non-controlling interest (full) . . . . . . . . . . . . . . . . . . . . . . . . . P 2,200,000

ILLUSTRATION 4: Step Acquisition: Fair value of Non-controlling Interest of the

acquiree/subsidiary) and Fair value of any previously held equity interest in the
acquiree/subsidiary

Pares Company acquires 15 percent of Serap Company’s common stock for P500,000 cash and
carries the investment as n FVTOCI investment. A few months later, Pares purchases another 60
percent of Serap Company’s stock for P2,160,000. At that date, Serap Company reports
identifiable assets with a book value of P3,900,000 and a fair value of P5,100,000, and it has
liabilities with a book value and fair value of P1,900,000. The fair value of the 25% non-
controlling interest in Serap Company is P900,000. The following computations for goodwill and
non-controlling interest under two options are as follows:

Control Achieved in Two or More Transactions-Step Acquisition

(Business Combinations Achieved in Stages)

A business combination occurs when the acquirer obtains control of the acquiree. It is
at that date of the second acquisition of shares that the business combination occurs;
this is referred to as a business combination achieved in stages – sometimes called a
step acquisition. Obviously, there may be a number of step purchases in the acquiree
prior to the obtaining control.

Table 2-1: Control Achieved in Two or More Transactions- Source: Deloitte

A. PARTIAL GOODWILL
 Fair value of subsidiary (75%):
Consideration transferred: Cash . . . . . . . P 2,160,000 (60%)
Fair value of previously held equity interest in acquired:
P2,160,000/60% = P3,600,000 x 15% . . . . . 540,000 (15%)
Fair value of Subsidiary . . . . . . . . . . . . . . . . . .. . P 2,700,000 (75%)
Less: Book value of stockholders’ equity (net assets)
– Serap Company: (P3,900,000 – P1,900,000) x 75% 1,500,00 (75%)
0
Allocated excess . . . . . . . . . . . . . . . . .. .. P 1,200,000 (75%)
Less: Over/undervaluation of assets and
liabilities:
[(P5,100,000 – P1,900,000) – 900,00 (75%)
(P3,900,000 – P1,900,000)] x 75% . . . .. . . . 0
Positive excess: Goodwill (partial) . . . .. . . . P 300,000 (75%)

B. NCI – PARTIAL

Book Value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . P 2,000,000

Adjustments to reflect fair value (over/undervaluation of assets
and liabilities): (P3,200,000 – P2,000,000) . . . . . . . . . . . . . . . . . . . . 1,200,000
Fair value of stockholders’ equity of subsidiary . . . . . . . . . . . . . . . . . P 3,200,000
Multiplied by: Non-controlling interest percentage . . . . . . . . . . . . . 25%
Non-controlling interest (partial) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 800,000

C. FULL GOODWILL

Fair value of subsidiary (100%):

Consideration transferred: P 2,160,000 (60%)
Cash . . . . . . . . . . . . . . . . .
Fair value of previously held 540,000 (15%)
equity interest in 900,000 (25%)
Acquire P2,160,000/60% = P 3,600,000 (100%)
P3,600,000 x 15% . . . . . .
Fair value of NCI (given)* . . . .
...................
Fair value of subsidiary . . . . . . . . . .
.....................
Less: Book value of stockholders’
equity (net assets) – 2,000,000 (100%)
Serap Company: P2,000,000 x
 100% . . . . . . . . . . . . . . .
Allocated P 1,600,000 (100%)
Excess . . . . . . . . . . . . . . . . . . . . . . . .
............
Less: Over/undervaluation of
assets and liabilities: 1,200,000 (100%)
(P3,200,000 – P2,000,000) x
100% . . . . . . . . . . . . . . . . . .
Positive excess: Goodwill (full) . . . . P 400,000 (100%)
.....................

D. NCI-FULL

Full-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 400,000

Less: Controlling interest on full-goodwill or

Partial-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

NCI on full-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 100,000

Non-controlling interest P 800,000

(partial) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Non-controlling interest on full-goodwill (P 400,000—
P 300,000 partial-goodwill). . . . . . . . . . . . . . . . . . . . . . . . . 100,000
......
Non-controlling interest P 900,000
(full) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ILLUSTRATION 5: Bargain Purchase Gain

Parlor Company acquires 75 percent of Saloon Company’s common stock for P225,000 cash. At
that date, the non-controlling interest in Saloon has a book value of P52,500 and a fair value of
P82,000. Also on that date, Saloon reports identifiable assets with a book value of P400,000 and
a fair value of P510,000, and it has liabilities with a book value and fair value of P190,000.

A. PARTIAL
Fair value of subsidiary (75%):
Consideration transferred: Cash . . . . . . . . . . . . . . . . . . . P 225,000 (75%)
Less: Book value of stockholders’ equity
(net assets) – Saloon Company:
(P400,000 – P190,000) x 75% . . . . . . . . . . . . . . . . . . . . . 157,500 (75%)
Allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 67,500 (75%)
Less: Over/undervaluation of assets and liabilities:
[(P510,000 – P190,000) – (P400,000 – P190,000) x 75% _ 82,500 (75%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) . . . . . . . . . . . . (P15,000) (75%)

B. FULL

Fair value of subsidiary (100%):

Consideration transferred: P 225,000 (75%)
Cash . . . . . . . . . . . . . . . . . . .
Fair value of non-controlling interest (given)* . . 82,000 (25%)
......
Fair value of P 307,000 (100%)
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Book value of stockholders’ equity
(net assets) – Saloon Company:
(P400,000 – P190,000) x 100% . . . . . . . . . . . . . 210,000 (100%)
.......
Allocated P 97,000 (100%)
excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Over/undervaluation of assets and liabilities:
[(P510,000 – P190,000) – (P400,000 – P190,000) 110,000 (100%)
x 100%

Negative excess: Bargain purchase gain (to

controlling (P 13,000) (100%)
interest or attributable to parent
only) . . . . . . . . . . . .
*This amount should not be lower compared to fair value of NCI of Stockholders’ equity
of subsidiary [i.e.,(P510,000 – P190,000 = P320,000) x 25% = P80,000). Otherwise, the
higher amount should be used

ILUSTRATION 6: CONSOLIDATION AT DATE OF ACQUISITION – 100% WHOLLY OWNED

SUBSIDIARY

Peer Company acquires all of Sky Company’s outstanding stock on January 1, 20x4, by
paying P340,000 cash, and immediately prepares a consolidated balance sheet. The
separate balance sheets of the two companies immediately prepared before the
consolidation with acquiree’s fair value were presented as follows:

Schedule of Determination and Allocation of Excess

 Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%)

Consideration transferred . . . . . . . . . . . . . . . . . . . . P 340,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P200,000 x 100%) . . . . . . . . . . . . P 200,000
Paid-in capital in excess of par (P20,000 x 100%) 20,000
Retained earnings (P80,000 x 100%) . . . . . . . . . . 80,000 300,000
Allocated excess (excess of cost over book value) . . . P 40,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P15,000 x 100%) . . . . . . . . P 15,000
Increase in land (P60,000 x 100%) . . . . . . . . . . . . 60,000
Decrease in buildings and equipment
(P10,000 x 100%) . . . . . . . . . . . . . . . . . . . . . . . . ( 10,000)
Increase in bonds payable (P35,000 x 100%) . . . ( 35,000) 30,000
Positive excess: Goodwill (excess of cost over fair
value) P 10,000

Peer Company records the stock acquisition on its books with the following entry on the date
of acquisition:

January 1, 20x4 DR CR
Investment in Sky Company . . . . . . . . . . . . .. . . 340,000
Cash . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 340,000
*Acquisition of Sky Company*

Eliminating entries are made to cancel the effects of intercompany transactions and are made
on the workpaper only

1. The first entry eliminates the BOOK VALUE of the stockholders’ equity accounts of the
subsidiary with its equivalent amount against Peer’s account, “Investment in Sky
Company”.

(E1) Common stock – Sky Co . . . . . . . . . . . . . . . . . . . 200,000

Additional paid-in capital – Sky Co . . . . . . . . . . . . . . 20,000
Retained earnings – Sky Co . . . . . . . . . . . . . . . . . . . . . 80,000
Investment in Sky Co . . . . . . . . . . . . . . . . . . 300,000
Eliminate investment against book value stockholders’
equity of Sky Co.
 2. The balance in the investment account will be attributable to ALLOCATED EXCESS
(excess of cost over book value) that must be assigned to other subsidiary accounts in
the consolidation.

(E2) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Buildings and equipment . . . . . . . . . . . . . . . 10,000
Premium on bonds payable . . . . . . . . . . . . 35,000
Investment in Sky Co . . . . . . . . . . . . . . . . 40,000
Eliminate investment against allocated excess

Figure 2 – 1: Worksheet for Consolidated balance Sheet

January 1, 20x4. Date of Acquisition; 100%-Owned Subsidiary
 The amounts that will appear on the consolidated balance sheet are shown in the final
column of Figure 2-1. Notice the consolidated 100% of the fair values of subsidiary
accounts with the existing book values of parent company accounts.

Peer Company and Subsidiary

Consolidated Balance Sheet
January 1, 20x4

I. Existing Dividends at the Acquisition Date:

If Subsidiary has dividends declared on the date of acquisition that is cum dividend or dividends
on-basis, the acquirer, acquires the right to the dividend declared at the acquisition date. The
said dividends is deducted from the Consideration transferred and is set up as dividend
receivable as follow:

Investment in “S” 335k

Dividends Receivable 5k
Cash 340K

II. “S” has Treasury Stocks

Assume that P company acquired 18,000 shares of S Company common stock on January 1,
2023 for a payment of P3M when S Company’s SHE appeared as follows:
 Account Amount
CS, P100 par, 25,000 shares 2,500,000
issued
Share Premium 700,000
Retained earnings 800,000
TOTAL 4,000,000
Less: Treasury Shares, 1000 200,000
shares at cost
SHE 3,800,000
S
Company has book value approximately equal to their respective fair values except the
following:
BV FV Over/Under
Inventory 100,000 130,000 30,000
Land 400,000 420,000 20,000
Net over/ under 50,000
valuation

What is the result of the business combination and prepare the entries at the date of
acquisition.

FV of “S” (100% )
Consideration Transferred (3M / 75%) 4,000,000
Less: BV of SHE: 100%
CS 2.5M
SP 700K
RE 800K
-TS 200K 3,800,000
Allocated Excess 200,000
Less: FVA
Undervaluation of assets 50,000
GW 150,000

Investment in “S” 3,000,000

Cash 3,000,000

Eliminating entries:
Common Stock “S” 2,500,000
Share premium 700,000
RE 800,000
Treasury stocks 200,000
Investment in “S” 2,850,000 (3.8M x 75%)
 NCI 950,000 (3.8M x 25%)

E2
Inventory 30,000
Land 20,000
Goodwill 150,000
NCI 50,000 (50K x 25% + 150K x 25%)
Investment in “S” 150,000 (3M – 2,850,000)

III. Push Down Accounting

Refers to the practice of revaluing an acquired “S” assets and liabilities to their fair values
directly on that “S” book at the date of acquisition.

Illustration: On December 31, 2022, AB acquired 60% of CD shares for P500,000. At the date
of acquisition, CD has a reported assets with BV of 500,000 and FV of 650,000 while AB has
a reported assets with BV of 1,000,000 and FV of 1,200,000. How much is the consolidated
assets at the date of acquisition using a) no push down accounting and b) with push down
accounting

IV. Sale of “S” – Deconsolidation

Acquisition and disposals that do not result in change of control

 Changes in parent’s ownership interest in a “S” that do not result in a loss of control
are accounted for as equity transaction (GW not remeasured, no gain or loss
recognized)
 Any changes in the NCI and FV of CT is directly in APIC/SP and attributed to the owners
of the parent.

Loss of control over a “S” happened

 A sale
 Distribution or
 Expropriation of “S” take into bankruptcy
 G/L is recognized

A. Entity P has a 90% controlling interest in Entity S. On December 31, 2015, the carrying
value of Entity S’ net assets in Entity P’s consolidated FS is p100K and the carrying
amount attributable to NCI in Entity S including the NCI -OCI si 10K. On January 1,
2016, Entity P sells 80% of the share in Entity S to a third party for cash proceeds of
P120K. As a result of the sale, Entity P losses control of Entity S but retains 10% NCI in
Entity S. The fair value of retained interest on that date is 12K. Determine the G/L on
disposal.
 Cash Proceeds 120,000
FV of retained NCI (90%-80%) 12,000
CV of NCI before sale (100%-90%) 10,000 *original ownership
Total 142,000
Less:
CV of Entity S’ net assets (“S” former net assets) 100,000
Gain on disposal 42,000

B. Parentis has 80% investment in Salentis with a carrying amount of 80,000,000. The fair
value of Salentis is 200,000,000. The following year, Parentis decided to sell 29%
interest in “S” to a third party in exchange for cash. Determine the Gain or loss on
disposal to be recognized in P/L Statement.

Cash Proceeds (200M x 29%) 58,000,000

Less: CV of NCI 80M/80%) x 29% 29,000,000
APIC 29,000,000

V. Reverse Acquisition

Occurs when enterprise obtains ownership of the share pf another enterprise but as part of
the transaction, issues enough voting shares as consideration that control of the combined
enterprise passes to the shareholders of the acquired enterprise.

Illustration: Mask a private limited company, has arranged for Man, a public limited company, to
acquire it as a means of obtaining stock in exchange listing. Man issues 15 million shares to
acquire the whole of the share capital of Mask (6 million shares). The FV of the net assets of
mask and Man are 30M and 18M respectively,. The FV of each of the share of Mask is P6 and
the quoted market price of Man’s share is P2. The share capital of Man is 25M shares after the
acquisition. Calculate the value of Goodwill in the above acquisition.

Man Mask
Shares Issued 15M 6M shares (15M / 25M = 60%)
Addt shares 10M 4M shares (diff)
Shares after 25M 10M (6M/60%)

CT/proceeds (4M shares x P6) 24m

Less: BV of SHE “MAN”
18M x 100% 18M
Allocated Excess 6M
FVA 0
GW 6M