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Primo and Sato Company Acquisition Analysis

Primo Corporation acquired 65% ownership of Sonia Company. The fair value of Sonia's net assets was ₱460,000. Primo paid ₱307,000 to acquire Sonia. Puro Corporation acquired 80% ownership of Sato Company for ₱260,000. Goodwill from the acquisition was ₱20,000. Consolidated retained earnings was ₱250,000 and non-controlling interest was ₱60,000. Dolce Inc. acquired the net assets of Gab Inc. through issuing shares worth ₱750,000 and paying ₱125,000 cash, incurring ₱93,000

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945 views2 pages

Primo and Sato Company Acquisition Analysis

Primo Corporation acquired 65% ownership of Sonia Company. The fair value of Sonia's net assets was ₱460,000. Primo paid ₱307,000 to acquire Sonia. Puro Corporation acquired 80% ownership of Sato Company for ₱260,000. Goodwill from the acquisition was ₱20,000. Consolidated retained earnings was ₱250,000 and non-controlling interest was ₱60,000. Dolce Inc. acquired the net assets of Gab Inc. through issuing shares worth ₱750,000 and paying ₱125,000 cash, incurring ₱93,000

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  • Problem 1: Prime Corporation and Sonia Company
  • Problem 2: Puro Corporation and Sato Company

Problem 1

Primo Corporation acquired majority of the stock of Sonia Company on January 2, 2021 and a consolidated
balance was prepared. Partial balance sheet for Primo, Sonia, and the consolidated entity follow: (The non-
controlling interest is measure at NCI’s proportionate share in the acquiree’s net identifiable assets)
Primo Corporation and Sonia Company
Partial Balance Sheet Data
January 2, 2021
Primo Sonia Consolidated
Accounts Corporation Company Entity
Cash and cash equivalents P100,000 P40,000 P140,000
Accounts receivable 80,000 20,000 100,000
Inventory 200,000 100,000 340,000
Equipment 500,000 200,000 800,000
Investment in Sonia Company 470,000
Goodwill 10,000
Total P ? P360,000 P1,390,000

Accounts payable P 70,000 P 40,000 P 110,000


Bonds payable 300,000 300,000
Common stock ? 150,000 250,000
Retained earnings 567,000 170,000 ?
Non-controlling interest 163,000
Total P ? P360,000 P1,390,000
1. What percentage ownership of Sonia does Primo hold? (round-off)
Goodwill ₱ 10,000
Fair Value of Net Assets of Sonia:
Cash and Cash Equivalents ₱ 40,000
Accounts Receivable 20,000
Inventory 140,000
Equipment 300,000
Accounts Payable (40,000) ₱ 460,000
Consideration Given (Amount of Investment) ₱ 470,000
Less: NCI 163,000
Consideration Given (Price Paid) ₱ 307,000

Percentage of Ownership = Price Paid / Amount of Investment


= 307,000 / 470,000
Percentage of Ownership = 65.32 % OR 65%

2. What amount of retained earnings is reported in the consolidated balance sheet?


The amount to be recorded in the consolidated balance sheet is 567,000, the amount of Primo’s Retained
Earnigns, since Primo is the acquirer, and also because there were no additional fees paid mentioned in
the problem.
3. What is the fair value of Sonia’s net assets at January 2, 2021?
Sonia Common Stock ₱ 150,000
Sonia Retained Earnings 170,000
Book Value of Sonia’s Net Asset 320,000
Add: Increase in fair value of Sonia’s Inventory 40,000
Increase in Fair value of Sonia’s Equipment 100,000
Fair Value of Sonia’s Net Asset ₱ 460,000

4. What amount did Primo pay to acquire the stock of Sonia on January 2, 2021?
Goodwill ₱ 10,000
Fair Value of Net Assets of Sonia:
Cash and Cash Equivalents ₱ 40,000
Accounts Receivable 20,000
Inventory 140,000
Equipment 300,000
Accounts Payable (40,000) ₱ 460,000
Consideration Given (Amount of Investment) ₱ 470,000
Less: NCI 163,000
Consideration Given (Price Paid) ₱ 307,000
Problem 2
Statement of Financial position for Puro Corp. and Sato Company on December 31, 2021, are given below:
Puro Corporation Sato Company Consolidated
Cash and cash equivalents P 70,000 P 90,000 160,000
Inventory 100,000 60,000 160,000
Property & Equipment (net) 500,000 250,000 800,000
Investment in Sato Company 260,000
Goodwill 20,000
Total Assets P930,000 P400,000 1,140,000

Current liabilities P 180,000 P60,000 240,000


Long-term liabilities 200,000 90,000 290,000
Common stock, P2 par 300,000 100,000 300,000
Retained earnings 250,000 150,000 250,000
NCI 60,000
Total liabilities & and equities P930,000 P400,000 1,140,000
Puro Corp. purchased 80% ownership of Sato Company on December 31, 2021 for P260,000. On that date,
Sato Company’s property and equipment had a fair value of P50,000 more than the book value shown. All
other book values approximated fair value. In the consolidated statement of financial position on December
31, 2021. (The non-controlling interest is measure at NCI’s proportionate share in the acquiree’s net
identifiable assets)
5. What amount of goodwill will be reported?
Controlling Interest (80%) ₱ 260,000
NCI (300,000 x 20%) 60,000
TOTAL ₱ 320,000
Book Value of Assets (Common Stocks + Retained Earnings) (300,000)
Goodwill ₱ 20,000

6. What amount of consolidated retained earnings will be reported?


250,000
7. What amount of non-controlling interest will be reported?
Fair Value of Assets ₱ 300,000
Multiply by 20%
Non-controlling interest ₱ 60,000
8. What amount of total liabilities will be reported?

9. Condensed Statement of Financial Position of Dolce Inc. and Gab Inc. as of 12/31/2021 were as follows:
Dolce Gab
Current assets P 275,000 P 65,000
Noncurrent assets 625,000 425,000
Total assets 900,000 490,000
Liabilities 65,000 35,000
Ordinary shares, P23 Par 549,700 296,700
Share Premium 35,300 28,300
Accumulated Profits (losses) 250,000 130,000
On January 1, 2021, Dolce Inc. issued 30,000 shares with market value of P25/share for the assets and
liabilities of Gab Inc. Dolce Inc. also paid P125,000 cash. The book value reflects the fair value of the
assets and liabilities, except that the non-current assets of Gab Inc. have fair value of P630,000 and the
noncurrent assets of Dolce Inc. are overstated by P30,000. Contingent consideration, which is
determinable, is equal to P15,000. Dolce paid for the share issuance costs only amounting to P74,000
and incurred other acquisition costs amounting to P19,000. As a result of acquiring the net assets of Gab
Inc., compute for the total liabilities in the books of Dolce.

Common questions

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In asset acquisition adjustments for Sato Company, property and equipment are recognized at a fair value exceeding the book value by ₱50,000, ensuring the fair presentation of assets. Similarly, for Gab Inc., while the book values reportedly match fair values, noncurrent assets require adjustment by additional ₱205,000 as overstated Dolce’s valuations are corrected by ₱30,000. These adjustments highlight discrepancies bridging book figures and fair market assessments, which affect consolidated financial statements through goodwill creation and accurate NCI computations .

For Primo Corporation, the consolidated cash and cash equivalents are ₱140,000, calculated as ₱100,000 from Primo and ₱40,000 from Sonia, reflecting 65% ownership influence. For Puro Corp., the consolidated cash is ₱160,000, combining ₱70,000 from Puro and ₱90,000 from Sato, factoring in 80% ownership while evaluating proportional influence without explicit NCI adjustment in given figures .

The amount of non-controlling interest in Sato Company is calculated based on the fair value of the net identifiable assets. It is equal to 20% of Sato Company's fair value of assets (₱300,000), resulting in a non-controlling interest amount of ₱60,000 .

The consolidated retained earnings reported for Primo Corporation is ₱567,000. This amount corresponds to the retained earnings of Primo as the acquirer since no additional fees or adjustments are mentioned to affect the retained earnings on the consolidated balance sheet .

Key adjustments for Dolce Inc. when incorporating Gab Inc.'s assets and liabilities include adjusting for the fair value of Gab's noncurrent assets, which should increase by ₱205,000 from their book value. Dolce's noncurrent assets are overstated by ₱30,000, which needs correction. Also, contingent consideration of ₱15,000 and costs directly attributable to the acquisition, such as share issuance costs of ₱74,000 and other acquisition costs of ₱19,000, should be considered, impacting the overall acquisition accounting .

The consideration transferred by Dolce Inc. for Gab Inc.’s net assets includes 30,000 shares issued at a market value of ₱25 each (₱750,000) and cash payment of ₱125,000, totaling ₱875,000. Additionally, there is a contingent consideration of ₱15,000, bringing the total consideration to ₱890,000. Acquisition costs incurred amount to ₱19,000, which while not affecting consideration transferred, impact financial reporting; share issuance costs of ₱74,000 do not affect the consideration calculation itself but are part of wrap-around acquisition costs .

The total liabilities in the consolidated balance sheet for Puro Corp. and Sato Company are calculated by summing up the current and long-term liabilities of both companies: Puro Corporation's liabilities total ₱380,000 (current: ₱180,000, long-term: ₱200,000), and Sato Company's total liabilities are ₱150,000. Thus, total pre-consolidation liabilities are ₱530,000, but consolidation adjustments like removal of intra-group liabilities (if any exist) must be checked from detailed bookkeeping that take NCI and inter-company transactions into account .

Goodwill reported in the acquisition of Sato Company by Puro Corporation is ₱20,000. This is determined by calculating the difference between the controlling interest of ₱260,000 and the book value of acquired net assets, which is the sum of Sato's common stock and retained earnings, both totaling ₱300,000. The calculated goodwill is a result of the total consideration being higher than the book value .

The percentage ownership of Sonia Company by Primo Corporation is calculated using the formula: Percentage of Ownership = Price Paid / Amount of Investment. Primo paid ₱307,000 for Sonia's stock, with the total investment value amounting to ₱470,000. Therefore, the percentage ownership is 307,000 / 470,000, which equals 65.32%, rounded off to 65% .

The fair value of Sonia Company’s net assets as of January 2, 2021, is ₱460,000. This is calculated by adjusting Sonia's book value of net assets of ₱320,000 with a ₱40,000 increase in inventory value and a ₱100,000 increase in equipment value: 320,000 + 40,000 + 100,000 = ₱460,000 .

Problem 1 Primo Corporation acquired majority of the stock of Sonia Company on January 2, 2021 and a consolidated balance was
Consideration Given (Price Paid) ₱ 307,000 Problem 2 Statement of Financial position for Puro Corp. and Sato Company on Decem

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