ACTIVITIES:

1. Devin Co. acquired all the assets and assumed all the liabilities of Zevrek, Inc. for
₱6,000,000 in cash. Information on Zevrek’s assets and liabilities on acquisition date is
as follows:
Carrying Fair
Assets amounts values
Cash in bank 40,000 40,000
Receivables 800,000 480,000
Allowance for bad
(120,000)
debts -
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
Payables 1,600,000 1,600,000

Devin incurred acquisition-related costs of ₱400,000. How much is the goodwill (gain
on bargain purchase) on the business combination?

2. Spinner Co. acquired all the assets and liabilities of Dryer, Inc. for ₱4,000,000 in
cash. On acquisition date, the identifiable assets and liabilities of Dryer have fair
values of ₱6,400,000 and ₱3,600,000, respectively. As of the acquisition date, Spinner
Co. is a lessor to Dryer, Inc. under an operating lease whose terms, when compared
with market terms, are considered unfavorable. The fair value of the differential is
estimated at ₱80,000. How much is the goodwill (gain on bargain purchase)?

3. Rondo Co. acquired 100% ownership interest in Allegretto Co. for ₱4,000,000. The
acquisition-date fair values of Allegretto’s identifiable assets and liabilities were
₱6,400,000 and ₱3,600,000, respectively. Included in Allegretto’s assets is equipment
which qualifies for classification as “held for sale” assets. The cost to sell is ₱80,000;
this is not reflected in the fair value of the total assets acquired. Not included in
Allegreto’s assets is an R&D project whose accumulated costs were charged as
expense. The R&D has a fair value of ₱200,000; however, Rondo Co. does not intend to
use this asset. Also, not included in Allegretto’s assets is a customer list in the form of
a database where the nature of the information is subject to national laws regarding
confidentiality. The list has a fair value of ₱40,000. How much is the goodwill (gain on
bargain purchase)?

4. On January 1, 20x1, Scarborough Co. acquired 90% ownership interest in Vivace Co.
by paying cash of ₱4,000,000. On this date, Vivace Co.’s identifiable assets and
liabilities have fair values of ₱6,400,000 and ₱3,200,000, respectively. Scarborough Co.
chose to measure the non-controlling interest at fair value – the fair value is ₱320,000.
Not included in the fair value measurement of the liabilities are the following:
 Vivace Co. has an existing contract with a customer in which a penalty is
imposed for nonperformance. Vivace Co. has breached the agreement and the
customer is demanding payment of the penalty. As at the acquisition date, the
obligation for the penalty has a fair value of ₱40,000. However, Vivace has not
recognized a provision because negotiations with the customer are ongoing and
Vivace believes the customer will sign a new agreement.
 Vivace Co. has guaranteed a bank loan of a third party. If the third party
defaults, the maximum amount that Vivace Co. will be held liable is ₱100,000.
As at the acquisition date, the third party has been timely in its loan payments.
How much is the goodwill (gain on bargain purchase)?

5. On January 1, 20x1, Allegro Co. acquired 30% ownership interest in Andante Co. for
₱400,000. Allegro Co. accounted for the investment using the equity method. From
20x1 to the end of 20x3, Allegro Co. recognized ₱200,000 net share in the profits of the
associate and ₱40,000 share in cash dividends. On January 1, 20x4, Allegro Co.
acquired additional 60% ownership interest in Andante Co. for ₱3,200,000. As of this
date, the previously held 30% interest has a fair value of ₱720,000, while Andante Co.’s
net identifiable assets have a fair value of ₱4,000,000. Allegro Co. elected to measure
the non-controlling interest at the non-controlling interest’s proportionate share in
Andante Co.’s net identifiable assets. How much is the goodwill and how much is the
remeasurement gain (loss) of the previously held equity interest? Indicate whether the
remeasurement gain or loss is recognized in profit or loss (PL) or other comprehensive
income (OCI). (Compute the investment in associate)

6. On September 21, 20x1, Pea Co. acquired all the assets and assumed all the
liabilities of Nuts Co. for ₱800,000. Nuts Co. incurred legal fees of ₱50,000 on the
acquisition. Information on Nuts Co.’s assets and liabilities as at the acquisition date is
as follows:
Carrying amount Fair value
Petty cash fund 40,000 40,000
Held for trading securities 60,000 66,000
Inventory 100,000 110,000
Land 30,000 72,000
Buildings, net 150,000 288,000
Equipment, net 80,000 145,000
Goodwill 50,000 -
Total assets 510,000
Accounts payable 25,000 25,000
Bonds payable 100,000 104,000
Share capital (₱1 par) 10,000
Share premium 140,000
Retained earnings 235,000
Total liabilities and equity 510,000

Additional information:
 The ₱288,000 fair value assigned to the buildings is a provisional amount because
the appraisals of the buildings were only partially completed as of Dec. 31, 20x1.
 Nuts Co. has a customer list and a warranty liability that were not recorded. These
were also assigned provisional amounts of ₱125,000 and ₱12,000, respectively.

On April 20, 20x2, the acquisition-date fair values were determined as follows:
 Buildings ₱320,000
 Customer list 150,000
 Warranty obligation 18,000

How much is goodwill on the following dates?

September 21, 20x1 April 20, 20x2

7. On January 1, 20x1, DIAPHANOUS Co. acquired all the identifiable assets and
assumed all the liabilities of TRANSPARENT, 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. In addition to the business combination
transaction, the following have also transcribed during the negotiation period:
 After the business combination, TRANSPARENT will enter into liquidation and
DIAPHANOUS agreed to reimburse TRANSPARENT for liquidation costs
estimated at ₱80,000.
 DIAPHANOUS agreed to reimburse TRANSPARENT for the appraisal fee of a
building included in the identifiable assets acquired. The agreed reimbursement
is ₱40,000.
 DIAPHANOUS entered into an agreement to retain the top management of
TRANSPARENT for continuing employment. On acquisition date, DIAPHANOUS
agreed to pay the key employees signing bonuses totaling ₱400,000.
  To persuade, Mr. Five-six Numerix, the previous major shareholder of
TRANSPARENT, to sell his major holdings to DIAPHANOUS, DIAPHANOUS
agreed to pay an additional ₱200,000 directly to Mr. Numerix.
 Included in the valuation of identifiable assets are inventories with fair value of
₱360,000. Ms. Vital Statistix, a former major shareholder of TRANSPARENT,
shall acquire title to the goods.

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

8. MULIEBRITY Co. purchases raw materials from FEMINITY, Inc. under a five-year
supply contract at fixed rates. Currently, the fixed rates are higher than the rates at
which MULIEBRITY could purchase similar raw materials from another supplier.
MULIEBRITY is allowed under the supply agreement to terminate the contract before
the end of the five-year term, but only by paying a ₱400,000 penalty. On January 1,
20x1, with three years remaining under the supply contract, MULIEBRITY Co.
acquired all the identifiable assets and assumed all the liabilities of FEMINITY, Inc. by
paying cash of ₱4,000,000. On this date, FEMINITY’s identifiable assets and liabilities
have fair values of ₱6,400,000 and ₱3,600,000, respectively. The fair value of the
supply contract is ₱640,000. The ₱640,000 amount includes a ₱280,000 component that
is “at market” because the pricing is comparable to pricing for current market
transactions for the same or similar items (selling effort, customer relationships and so
on) and a ₱360,000 component for pricing that is unfavorable to MULIEBRITY because
it exceeds the price of current market transactions for similar items. There are no
other assets or liabilities related to the contract in either MULIEBRITY’s or
FEMINITY’s books as of acquisition date. How much is the goodwill (gain on bargain
purchase)?

9. On January 1, 20x1, COLLOQUY Co. acquired all the identifiable assets and assumed
all the liabilities of CONVERSATION, Inc. by issuing its own ordinary shares.
Information at acquisition date is shown below:
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?

10. On January 1, 20x1, VERITY FIRMNESS Co. acquired all the identifiable assets and
assumed all the liabilities of FIRMNESS, Inc. by paying cash of ₱4,000,000. On this
date, FIRMNESS’s identifiable assets and liabilities have fair values of ₱6,400,000 and
₱3,600,000, respectively. VERITY agrees to pay an additional amount equal to 10% of
the 20x1 year-end profit that exceeds ₱1,600,000. FIRMNESS historically has reported
profits of ₱1,200,000 to ₱1,600,000 each year. After assessing the expected level of
profits for the year based on forecasts and plans, as well as industry trends, VERITY
estimated that the fair value of the contingent consideration is ₱40,000. How much is
the goodwill (gain on bargain purchase)?
a. 980,000 c. 1,200,000
b. 1,180,000 d. 1,240,000
11. Bathman Co. is contemplating on acquiring all the assets and liabilities of
Chaufferman Co. for ₱800,000 cash. Direct costs of ₱15,000 are expected to be
incurred on the acquisition. Information on Chaufferman’s current financial position is
as follows:
Assets Liabilities & Equity
Current assets 80,000 Current liabilities 100,000
Land 50,000 Share capital 100,000
Building 450,000 Share premium 150,000
Accumulated depreciation -
(200,000)
bldg. Retained earnings 230,000
Equipment 300,000
Accumulated depreciation -
(100,000)
equipt.
Total 580,000 Total 580,000

The following fair values have been obtained for Chaufferman’s identifiable assets and
liabilities:
100
Current assets
,000
7
Land
5,000
300
Building
,000
275
Equipment
,000
Current 102
liabilities ,000

What amount of goodwill (gain on bargain purchase) should Bathman expect to

recognize on the business combination?

12. Saints Co. bought 100% ownership interest in March Co. for ₱1,280,000. Saints Co.
incurred acquisition-related costs of ₱50,000. Information on March Co.’s assets and
liabilities as at the acquisition date is shown below:
Carrying
amount Fair value
Cash 80,000 80,000
Held for trading
securities 120,000 132,000
Inventory 200,000 220,000
Land 60,000 144,000
Buildings, net 300,000 576,000
Equipment, net 160,000 290,000
Goodwill 50,000 -
Total assets 970,000

Current liabilities 50,000 50,000

Bonds payable 200,000 208,000
Ordinary shares (₱1
par) 20,000
Share premium 280,000
Retained earnings 370,000
Total liabilities and
equity 920,000

March Co. has an unrecorded customer list with a fair value of ₱250,000 and an
unrecorded warranty obligation with a fair value of ₱24,000. How much is the goodwill
(gain on bargain purchase)?
13. Joyful Co. acquired 80% of the voting shares of Adore Co. for ₱2,000,000. Joyful Co.
elected to measure the non-controlling interest (NCI) at the NCI’s proportionate share
in Adore Co.’s net identifiable assets. Joyful Co. measured the NCI at ₱320,000. How
much is the goodwill?

14. Entity A acquired all the assets and assumed all the liabilities of Entity B for
₱2,800,000. On acquisition date, Entity B’s identifiable assets and liabilities have fair
values of ₱4,000,000 and ₱1,600,000, respectively.

Additional information:
 Entity B has an unrecorded patent with fair value of ₱100,000.
 Entity B has research and development (R&D) projects with fair value of ₱160,000.
Entity B charged the R&D costs as expenses when they were incurred.
 Entity A is renting out a property to Entity B under an operating lease. The terms of
the lease compared with market terms are favorable. The fair value of the
differential is ₱40,000.
How much is the goodwill?

15. Joshua Co. acquired 100% ownership interest in Franco Co. for ₱670,000. The
identifiable assets and liabilities of Franco Co., remeasured to fair values on the
acquisition date, are as follows:
Assets Liabilities
Current assets 200,000 Current liabilities 260,000
Building – net 400,000
Equipment – net 300,000
Total 900,000

The recognition of the assets acquired and liabilities assumed resulted to a deductible
temporary difference of ₱400,000. The income tax rate is 30%. How much is the
goodwill (gain on bargain purchase)?

16. Wet Co. and Dry Co. exchanged equity interests in a business combination.
Relevant information follows:
 Wet Co. has 2,000 issued shares. To effect the business combination, Wet Co.
will issue 2 new shares for each of the 3,000 total outstanding shares of Dry Co.
 Wet Co.’s shares have fair value of ₱100 per share, while Dry Co.’s shares have
fair value of ₱300 per share.
 The net identifiable assets of Wet Co. and Dry Co. have fair values of ₱260,000
and ₱980,000, respectively, as at the acquisition date.

How much is the goodwill?