11 Business Combination

IFRS 3: Business Combination
I. Ideal Corporation is a company involved in manufacturing mining equipment. At the

beginning of the year, the board of directors of the said company has decided to enter into a
business combination with Superior Corporation and Bright Corporation, top suppliers of
materials in the mining industry which they use in production. The said acquisition is
expected to result in producing higher quality mining equipment with lower total cost. The
deal was closed on Feb 28, 2016 and the following information was gathered from the books
of the entities:
Ideal Superior Bright

Current Assets P8,250,000 P2,340,000 P1,560,000
Non Current Assets P18,750,000 P15,300,000 P10,200,000
Total Assets P27,000,000 P17,640,000 P11,760,000
Liabilities P1,950,000 P1,260,000 P840,000

Ordinary Shares, P100 par P16,491,000 P10,681,200 P7,120,800
Share Premium P1,059,000 P1,018,800 P679,200
Retained Earnings P7,500,00 P4,680,000 P3,120,000
Total Equities P27,000,000 P17,640,000 P11,760,000
Ideal, who has the legal and economic entity, will issue 135,000 of its ordinary shares in
exchange for the acquisition of Superior and 67,200 of its ordinary shares in exchange for
the acquisition of Bright. The fair value of Ideal’s share is P150. In addition, the following
adjustments should be made to the current assets of Superior and Bright which has a FV of
P2,700,000 and P1,380,000, respectively. The NCA has a FV of P12,900,000 and
P11,850,000 for Superior and Bright, respectively.
Compute for the following balances in the books of the surviving company on the date of
acquisition:
1. Ordinary Shares
2. Share Premium
3. Retained Earnings
4. Current Assets
5. Non Current Assets
6. Liabilities
II. Clark Company’s stockholders’ equity as of December 31, 2015 is P7,308,000. On January 1,
2016, Clark acquires 30% of Rome Company’s ordinary shares for P540,000 cash and by
issuing its own shares with a fair value of P1,350,000. Clark acquired significant influence
over Rome as a result of the stock acquisition. After four months, Clark purchases another
60% of Rome’s ordinary shares for a cash payment of P3,942,000. On this date, Rome
reports identifiable assets with carrying value of P6,480,000 and fair value of P11,520,000
and it has liabilities with a book value and a fair value of P3,240,000.
At the acquisition date, net loss reported by Rome for the four-month ended amounted to
P900,000. The fair value of the 10% NCI is P1,296,000. NCI is valued using the proportionate
basis. Clark also paid the following: P90,000 for legal fees, P72,000 for finder’s fee, P77,400
for accountant’s fee, P64,800 for audit fee for SEC registration of stock issued and P19,800
for printing of stock certificates.
Immediately after the business combination, how much is the consolidated total equity?
III. Blue Co. merged into Soca Corp. on June 30, 2016. In exchange for the net assets at FMV of
Blue Co. amounting to P2,785,800, Soda issued 68,000 ordinary shares at P36 par value,
with a market price of P41 per share. Relevant data on ordinary shareholders’ equity
immediately before the combination show:
Soda Blue
Share Capital 8,790,000 2,030,000
Share Premium 3,834,000 782,000
Retained earnings (deficit) (1,516,000) 495,000
Out of pocket costs of the combination were as follows:
 Legal fees for the contract of business combination – 174,700

 Audit fee for the SEC registration of stock issue – 198,400
 Printing costs of stock cerrificates – 144,900
 Broker’s fee – 135,000
 Accountant’s fee for pre-acquisition audit – 161,000
 Other direct cost of acquisition – 90,400
 General and allocated expenses – 115,300
 Listing fees in issuing new shares – 172,000
Included as part of the acquisition agreement is the additional cash consideration of

P163,000 in the vent Soda Co.’s share price will reach P32 per share by year end.
At acquisition date, the share price is P27.50 and increase by P4.80 by December 31, 2016.
At acquisition date, there was only a low probability of reaching the target share price, so
the fair value of the additional consideration was determined at P74,000.
What is the amount of expense to be recognized in the statement of comprehensive

income for the year ended December 31, 2016?

11 Business Combination

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IFRS 3: Business Combination

I. Ideal Corporation is a company involved in manufacturing mining equipment. At the

Ideal Superior Bright

Liabilities P1,950,000 P1,260,000 P840,000

Out of pocket costs of the combination were as follows:

 Legal fees for the contract of business combination – 174,700

Included as part of the acquisition agreement is the additional cash consideration of

What is the amount of expense to be recognized in the statement of comprehensive

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