How much is the goodwill recognized on acquisition date

Assignment Help Accounting Basics

Reference no: EM132673052

Questions -

Q1. Share-for-share exchanges

Frown Co. issued shares in exchange for all the outstanding shares of Long Co. Frown's shares have par value of P20 per share and fair value per value of P100. On acquisition date, Long's net identifiable assets have fair value of P4,000,000. Frown recognized goodwill of P200,000 from the business combination. How many shares did Frown issue on the business combination?

Q2. Business combination achieved in stages

Angry Co. acquired 20% interest in Misery Co. many years ago. On January 1, 20x1, Angry acquired additional 40% interest in Misery for P300,000. On this date, Misery's net identifiable assets have a fair value of P690,000, and Angry's previous investment in Misery has a carrying amount of P128,000 and fair value of P138,000. Angry opted to measure the NCI at 'proportionate share'. How much is the goodwill?

Q3. Business combination without transfer of consideration

Nag Co. acquired 100% voting rights in Sag Co. by contract alone. No consideration was transferred on the arrangement. Sag's net identifiable assets have fair value of P1,800,000. Nag measured the NCI at 'proportionate share'. How much is the goodwill?

Q4. Measurement period

On November 2, 20x1, ABC Co. acquired all the identifiable assets and liabilities of XYZ, Inc. for P2,000,000.

Information on acquisition date:

XYZ's net identifiable assets were valued at P1,980,000. This amount included a provisional amount of P220,000 assigned to a specialized machine for which the fair value is not readily determinable. ABC tentatively depreciated the machine over 6 years using the straight-line method in 20x1.

Information after the acquisition date:

On April 1, 20x2, an independent consultant determined that the machine's fair value on acquisition date was P140,000 and the remaining useful life as of that date was 4 years.

On July 1, 20x2, the stock market crashed. Various held for trading securities acquired from XYZ, Inc. with acquisition-date fair value of P500,000 now have a fair value of only P20,000.

Requirement: Provide the adjusting entry to restate the goodwill.

Q5. Determining what is part of the business combination

Sky Co. acquired 100% interest in Star, Inc.'s net identifiable assets with fair value of P600,000 for P800,000. The valuation of the consideration transferred includes the following:

a. P30,000 reimbursement for appraisal fees incurred by Star in valuing a patent.

b. P50,000 fair value of a trade secret that Sky will grant Star after the business combination. The trade secret has a carrying amount of P40,000 in Sky's books

Requirement: Compute for the goodwill.

Q6. Reacquired rights & Settlement of pre-existing relationship

On January 1, 20x1, Entity A acquires all the assets and liabilities of Entity B for P2,000,000. Entity B's identifiable assets and liabilities have fair values of P4,000,000 and P2,200,000, respectively.

Additional information:

Prior to the business combination, Entity B is a franchisee of Entity A. The franchise agreement has a remaining term of 5 years, which either party can terminate without any penalty.

The franchise agreement has a fair value of P300,000, of which P100,000 is "at-market" value. The "off-market" value is favorable to Entity A, but unfavorable to Entity B.

Entity A's related 'contract liability' account has a carrying amount of P230,000, while Entity B's related 'franchise' account has a carrying amount of P150,000.

Requirement: Compute for the goodwill.

Q7. Contingent consideration

On January 1, 20x1, Entity A acquires 100% interest in Entity B in exchange for Entity A's 10,000 shares with par value per share of P20 and fair value per share of P200. Entity B's net identifiable assets have a fair value of P1,900,000. In addition, Entity A agrees to issue additional 2,000 shares if Entity B's 20x1 profit will exceed P3,600,000. The fair value of the contingent consideration is P280,000.

Requirements:

a. How much is the goodwill recognized on acquisition date?

b. Entity B's 20x1 profit is P3,800,000. Entity A issues the additional shares on January 14, 20x2. Provide the journal entries.

c. Entity B's 20x1 profit is P2,800,000. Provide the journal entries.

Reference no: EM132673052

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