Activity Task No.

1 – Business Combination

Instruction: Choose the letter of the correct answer. Four points each number for a total of 120 points.
Write your answer and solution in a piece of paper, or in word/excel file and write your name on top of
it. Double rule your answer. Kindly submit your answer in [email protected] on or before
12 noon of April 8, 2021.

I. Rivendell paid finder’s fees of P40,000, accountant’s fee (Advisory) of P10,000, legal fees
(advisory) of P15,000, salaries of Rivendell’s employees assigned to the implementation of
the merger of P16,000, cost of closing duplicate facilities of P12,000, cost of shareholder’s
meeting to vote on the merger of P14,000, cost of printing stock certificates of P7,000, audit
and accountant’s fee related to the stock issuance of P3,000, SEC registration fee of P5,000
and stock listing application fees of P4,000.
1. Based on the preceding information, under the acquisition method following PFRS 3,
what amount relating to the business combination would be expensed?
A. P42,000
B. P50,000
C. P107,000
D. P124,000

2. Using the same information in Problem I:

A. P44,000 of stock issue costs are treated as a reduction in the issue price.
B. P19,000 stock issue costs are treated as a reduction in the issue price.
C. P19,000 of stock issue costs are expensed.
D. P44,000 of stock issue costs are expensed.

II. Entity Subsidiary has 40% of its share publicly traded on an exchange. Entity Parent purchases
the 60% non-publicly traded shares in one transaction, paying P6,300,000. Based on the
trading price of the shares of Entity Subsidiary at the date of gaining control a value of
P4,000,000 assigned to the 40% non-controlling interest (or fair value of non-controlling
interest), indicating that Entity Subsidiary has paid a control premium of P300,000. The fair
value of Entity Subsidiary’s identifiable net assets is P7,000,000 and a carrying value of
P5,000,000.
3. How much is the goodwill arising on consolidation if partial goodwill method will be
used?
A. P1,200,000
B. P2,100,000
C. P3,300,000
D. P4,120,000
4. Using the same information in Problem II, how much is the amount of non-controlling
interest arising on consolidation using the proportionate basis or Partial goodwill?
A. P2,000,000
B. P2,800,000
C. P4,000,000
D. P4,120,000
 5. Using the same information in Problem II, how much is the amount of goodwill arising
on consolidation using the full (fair value) basis or full/gross-up goodwill:
A. P1,200,000
B. P2,100,000
C. P3,300,000
D. P4,120,000
6. Using the same information in Problem II, how much is the amount of non-controlling
interest arising on consolidation using the full (fair value) basis or Full/Gross-up goodwill
is?
A. P2,000,000
B. P2,800,000
C. P4,000,000
D. P4,120,000

III. Pares Company acquires 15 percent of Serap Company’s common stock for P500,000 cash and
carries the investment using the cost method. A few months later, Pares purchases another
60% 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.

7. How much is the goodwill arising on consolidation using proportionate basis or partial
goodwill?
A. P84,000
B. P100,000
C. P300,000
D. P400,000
8. Using the same information in Problem III, how much is the amount of non-controlling
interest arising on consolidation using the proportionate basis or partial goodwill?
A. P300,000
B. P500,000
C. P800,000
D. P900,000
9. Using the same information in Problem III, how much is the amount of goodwill arising
on consolidation using the full (fair value) basis or “Full/Gross-up” Goodwill?
A. P84,000
B. P100,000
C. P300,000
D. P400,000
10. Using the same information in Problem III, how much is the amount of non-controlling
interest arising on consolidation using the full (fair value) basis or “Full/Gross-up”
Goodwill?
A. P300,000
B. P500,000
 C. P800,000
D. P900,000
11. Using the same information in Problem III, how much is the amount of gain or loss
should be recognized when the additional shares are acquired?
A. Zero
B. P40,000 gain
C. P40,000 loss
D. P68,000 loss

IV. 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
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.

12. How much is the gain on bargain purchase arising on consolidation if fair value of net
identifiable assets is to be valued on the proportionate basis?

A. Zero
B. P13,000
C. P15,000
D. P17,333

13. Using the same information in Problem IV, compute the gain on bargain purchase
arising on consolidation if fair value of net identifiable assets is to be valued on the full
(fair value) basis.
A. Zero
B. P13,000
C. P15,000
D. P17,333

V. Padyak Company owns 80,000 shares of Sirkulo Corporation’s 100,000 outstanding common
shares, acquired at book value. The December 31, 2017, consolidated balance sheet
presented by Padyak and Sirkulo included net assets of Sirkulo in the amount of P600,000.
On January 1, 2018, Padyak sells 10,000 shares (10%) of its Sirkulo stock to unrelated parties
for P70,000.
14. Determine the gain or loss on disposal of shares to be recognized in the profit or loss
statement:
A. Zero
B. P10,000 gain
C. P10,000 loss
D. P5,000 loss

VI. Padyak Company owns 80,000 shares of Sirkulo Corporation’s 100,000 outstanding common
shares, acquired at book value. The December 31, 2017, consolidated balance sheet
presented by Padyak and Sirkulo included net assets of Sirkulo in the amount of P600,000.
 On January 1, 2018, Sirkulo issues 25,000 additional shares of common stock to unrelated
parties for P175,000.
15. How much is the amount to be credited to “additional paid-in capital/share premium”
account?
A. Zero
B. P16,000
C. P55,000
D. P104,000

VII. 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 the
whole 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.
16. Calculate the value of goodwill in the above acquisition.
A. P16 million
B. P12 million
C. P10 million
D. P6 million

VIII. The separate incomes (which do not include investment income) of Pell Corporation and Sell
Corporation, its 80% owned subsidiary, for 2016 were determined as follows:

Pell Sell

Sales P400,000 P100,000

Less Cost of Sales 200,000 60,000

Gross Profit P200,000 P40,000

Other expenses 100,000 30,000

Separate Income P100,000 P10,000

During 2016 Pell sold merchandise that cost P20,000 to Sell for P40,000, and at December
31, 2016 half of these inventory items remained unsold by Sell.

17. How much is the non-controlling interest in net income for 2016?
A. P0
B. P2,000
C. P8,000
D. P10,000

18. How much is the Consolidated sales for 2016?

A. P500,000
B. P480,000
C. P460,000
 D. P400,000

19. How much is the Consolidated Cost of sales for 2016?

A. P230,000
B. P248,000
C. P270,000
D. P300,000

20. How much is the Profit attributable to Equity Holders of Parent or CNI Contributable to
controlling interests for 2016?
A. P108,000
B. P100,000
C. P98,000
D. P80,000

IX. Income statement information for the year 2016 for Perfect Corporation and its 60% owned
subsidiary, Seven Corporation, is as follows:

Perfect Seven

Sales P900,000 P350,000

Cost of Sales 400,000 250,000

Gross Profit P500,000 P100,000

Operating expenses 250,000 50,000

Seven’s net income P50,000

Perfect’s Separate Income P250,000

Intercompany sales for 2016 are upstream (from Seven to Perfect) and total P100,000.
Perfect’s December 31, 2015 and December 31, 2016 inventories contain unrealized profits of
P5,000 and P10,000, respectively.

21. How much is the Consolidated sales for 2016?

A. P900,000
B. P1,150,000
C. P1,190,000
D. P1,250,000

22. How much is the Consolidated Cost of sales for 2016?

A. P545,000
B. P550,000
C. P555,000
D. P560,000
 23. How much is the Profit attributable to Equity Holders of Parent or CNI Contributable to
Controlling Interest for 2016?
A. P277,000
B. P280,000
C. P282,000
D. P305,000

X. Income information for 2016 taken from the separate company financial statements of Peras
Corporation and its 75% owned subsidiary, Sky Corporation is presented as follows:

Peras Sky

Sales P1,000,000 P460,000

Gain on sale of building 20,000 -

Dividend income 75,000 -

Cost of goods sold (500,000) (260,000)

Depreciation expense (100,000) (60,000)

Other expenses (200,000) (40,000)

Net Income P295,000 P100,000

Peras gain on sale of building relates to a building with a book value of P40,000 and a
10-year remaining useful life that was sold to Sky for P60,000 on January 1, 2016.

24. At what amount will the gain on sale of building appear on the consolidated/group
income statement of Peras and Sky for the year 2016 should be?
A. Zero
B. P5,000
C. P15,000
D. P20,000

25. The Consolidated/group depreciation expense for 2016 should be?

A. P158,000
B. P160,000
C. P162,000
D. P180,000

26. The Profit Attributable to Equity Holders of Parent or CNI Contributable to Controlling
Interests for 2016 should be?
A. P295,000
B. P277,000
C. P275,000
D. P220,000
 XI. Silver Corporation is a 90% owned subsidiary of Proto Corporation acquired several years ago at
book value equal to fair value. For the years 2015 and 2016, Proto and Silver report the following:

2015 2016

Proto’s separate income………………………………………..P300,000 P400,000

Silver’s net income…………………………………………………80,000 60,000

The only intercompany transaction between Proto and Silver during 2015 and 2016 was the
January 1, 2015 sale of land. The land had a book value of P20,000 and was sold intercompany
for P30,000, its appraised value at the time of sale.

27. If the land was sold by Proto to Silver (downstream sales) and that Silver still owns the land
at December 31, 2016, compute the Profit Attributable to Equity Holders of Parent for
2015 and 2016:

2015 2016
A. P363,000 P454,000
B. P362,000 P454,000
C. P372,000 P460,000
D. P362,000 P460,000
28. Using the same information in Problem XI, the Consolidated/group net income for 2015 and
2016:

2015 2016
A. P362,000 P454,000
B. P380,000 P460,000
C. P370,000 P460,000
D. P372,000 P460,000

29. Using the same information in Problem XI, except that the land was sold by Silver to Proto
(upstream sales) and Proto still owns the land at December 31, 2016, compute the Profit
Attributable to Equity Holders of Parent or CNI Attributable to Controlling Interests for 2015 and
2016:

2015 2016
A. P363,000 P454,000
B. P362,000 P454,000
C. P370,000 P460,000
D. P363,000 P460,000

30. Using the same information in Problem XI, the Consolidated/group net income for 2015 and
2016:

2015 2016
A. P362,000 P454,000
B. P380,000 P460,000
C. P370,000 P460,000
D. P372,000 P460,000