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ABC Company acquired all assets and liabilities of XYZ Company on January 1, 2025, with various cash considerations and share issuances leading to different calculations of goodwill or gain on bargain purchase across multiple cases. The document includes financial positions of both companies, legal and accounting fees incurred, and details about contingent considerations related to the acquisition. Additionally, it outlines the need for journal entries and a consolidated balance sheet post-business combination.

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4 views3 pages

Activity

ABC Company acquired all assets and liabilities of XYZ Company on January 1, 2025, with various cash considerations and share issuances leading to different calculations of goodwill or gain on bargain purchase across multiple cases. The document includes financial positions of both companies, legal and accounting fees incurred, and details about contingent considerations related to the acquisition. Additionally, it outlines the need for journal entries and a consolidated balance sheet post-business combination.

Uploaded by

sapphirewanseu25
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Accounting for Business Combination

1. On Jan 1, 2025, ABC company acquire all assets and liabilities of XYZ Company. The following are
the statement of financial position for both companies.

XYZ Company ABC Company


Book Value Fair Value Book Value Fair Value
Cash 100,000 1,000,000
Accounts Receivables 150,000 100,000 100,000 150,000
Notes Receivables 50,000 50,000 200,000 150,000
Inventories 100,000 150,000 150,000 200,000
PPE 200,000 150,000 300,000
Goodwill 100,000 100,000
Total Assets 700,000 1,750,000

Accounts Payable 150,000 300,000


Notes Payables 150,000 200,000
Capital Stock, 10 par 200,000 1,000,000
Share Premium 50,000 50,000
Retained Earnings 50,000 200,000
Total Liabilities & Equities

 ABC Company incurs 200,000 for legal and accounting fees for the business combination.

Case 1. If ABC Company paid 400,000 cash consideration, how much is the goodwill or gain on bargain
purchase? Provide journal entries.

Case 2. If ABC Company paid 200,000 cash consideration, how much is the goodwill or gain on bargain
purchase? Provide journal entries.
Case 3: If ABC Company paid 100,000 cash consideration and issue 10,000 shares with market value of
P25 but incurs stock issuance cost of P20,000, how much is the goodwill or gain on bargain purchase?
Provide journal entries.

Case 4: If ABC Company paid 100,000 cash consideration and issue 10,000 shares with market value of
P25 but incurs stock issuance cost of P150,000, how much is the goodwill or gain on bargain purchase?
Provide journal entries.

2. On Jan 1, 2025, ABC company acquire all assets and liabilities of XYZ Company. ABC paid 100,000
cash and issue 10,000 shares. In addition, ABC will pay additional 100,000 if XYZ company earn
P1,000,000 net income for the next two years. The fair value of the contingent consideration is
P30,000. The following are the statement of financial position for both companies before
business combination.

XYZ Company ABC Company


Book Value Fair Value Book Value Fair Value
Cash 100,000 1,000,000
Accounts Receivables 150,000 100,000 100,000 150,000
Notes Receivables 50,000 50,000 200,000 150,000
Inventories 100,000 150,000 150,000 200,000
Land 200,000 ? 300,000 ?
Goodwill 100,000 100,000
Total Assets 700,000 1,750,000
Accounts Payable 150,000 300,000
Notes Payables 150,000 200,000
Capital Stock, 10 par 200,000 1,000,000
Share Premium 50,000 50,000
Retained Earnings 50,000 200,000
Total Liabilities & Equities

 ABC Company incurs P200,000 for legal and accounting fees and 100,000 stock issuance cost
for the business combination.
 On Jan 1, 2025, the fair value of the land of XYZ company was not yet determinable thereby
it was assigned by a provisional amount of P250,000. It was only on December 31, 2009 that
the fair value of land was finalized at P300,000.
 The fair value of the contingent consideration on December 31, 2009 and
July 1, 2010 was P40,000 and P50,000, respectively.

1. How much is the goodwill or gain on bargain purchase? Provide journal entries and create
consolidated balance sheet after business combination.

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