Accounting

Contingent Consideration

1. On January 1, 2015, the fair values of Pink Conrad’s net assets were as follows:

Current assets                                                P100,000

Equipment                                                   150,000

Land                                                                 50,000

Buildings                                                   300,000

Liabilities                                                      80,000

On January 1, 2015, Blue George Co purchased the net assets of the Pink Conrad Co purchased the net assets of the Pink Conrad Company by issuing 100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. It was further agreed that Blue George would pay an additional amount on January 1, 2017, if the average income during the 2-year period of 2015-2016 exceeded P80,000 per year. The expected value of his consideration was calculated as P184,000. The measurement period is one year.

1. What amount will be recorded as goodwill on January 1, 2015
2. Assuming that on August 1, 2015 the contingent consideration happens to be P170,000, what amount will then be recorded as goodwill on said date.

Step Acquisition

1. Pares Co. acquires 15% of Serap’s Co’s common stock for P500,000 cash and carries the investment using the cost method. A few months later, Pares Co purchases another 60% of Serap Co’s stock for P2,160,000. At that date, Serap Co 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 Co. is P900,000.

1. How much is the goodwill arising on consolidation to be valued using the proportionate basis or partial goodwill?
2. How much is the amount of non-controlling interest arising on the consolidation to be valued using the proportionate basis or partial goodwill?
3. How much is the goodwill arising on consolidation to be valued using the full (fair value) basis?
4. How much is the amount of non-controlling interest arising on the consolidation to be valued using the full (fair value) basis?
5. What amount of gain or loss should be recognized when the additional shares are acquired?

1. Seminarian Inc. has 100,000 shares of P2 par value stock outstanding. Priests Corp acquired 30,000 shares of Seminarian Inc’s stocks on Jan 1, 2015 for P120,000 when Seminarian’s net assets had a total fair value of P350,000. On July 1, 2018, Priests Corp agreed to buy an additional 60,000 shares of Seminarian from a single stockholder for P6 per share. Although Seminarian’s shares were selling in the P5 range around July 1, 2018, Priests forecasted that obtaining control of Seminarian would produce significant revenue synergies to justify the premium price paid. If Seminarian’s net identifiable assets had a fair value of P500,000 on July 1. 2018, how much goodwill on full fair value basis should Priests report in its post combination consolidated balance sheet?

Reverse Acquisition

1. Mask, a private limited company, has arranged for Man, a public limited company, to acquire it as a means of obtaining a stock exchange listing. Man issues 15 million shares to acquire all of the share capital of Mask (6 million shares). The fair value of the net assets of Mask and Man are P30 million and P18 million, respectively. The fair value of each of the shares of Mask is P6 and the quoted market price of Man’s shares is P2. The share capital of Man is 25 million shares after the acquisition. Calculate the value of goodwill in the above acquisition.

Inter-company sale of inventory

1. Bruce co owns 80% of Lee Corp’s common stock. During October 2016, Lee sold merchandise to Bruce for P100,000. At December 31, 2016, one-half of the merchandise remained in Bruce inventory. For 2016, gross profit percentages were 30% for Bruce and 40% for Lee.  Upon consolidation at December 31, 201 6, what is the amount of unrealized intercompany profit in ending inventory that should be eliminated?

1. Clark Co had the following transactions with affiliated parties during 2016:

• Sales of P60,000 to Dean, Inc with P20,000 gross profit. Dean had P15,000 of this inventory on hand at year end. Clark owns a 15% interest in Dean and does not exert significant influence.
• Purchases of raw materials totaling P240,000 from Kent Corp, a wholly-owned subsidiary. Kent’s gross profit on the sale was P48,000. Clark had P60,000 of this inventory remaining on December 31, 2016

Before eliminating entries, Clark had consolidated current assets of P320,000. What amount should Clark report in its December 31, 2016, consolidated balance sheet for current assets?

Inter-company sale of fixed assets

1. On January 1, 2016, Poe Corp sold machine for P900,000 to Saxe Corp, its wholly-owned subsidiary. Poe paid P1,100,000 for this machine, which had accumulated depreciation of P250,000. Poe estimated a P100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy which Saxe continued. In Poe’s December 31, 2016 consolidated balance sheet, this machine could be included in cost and accumulated depreciation at how much?

1. The Lakers Co owns 75% of the Vikings Co.  On December 31, 2106, the last day of the accounting period, Vikings Co sold to Lakers a non-current asset for P200,000. The asset’s original cost was P500,000 and on December 31, 2016 its carrying amount in Vikings’ books was P160,000.

What adjustments should be made to the consolidated statement of financial  position for retained earnings and non-controlling interest?

Solutions:

Contingent Consideration