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Business Combination Accounting Analysis

The document outlines two problems related to business combinations involving ABC Co. and XYZ Co., as well as Entity A and Entity B. It includes financial positions, pro-forma journal entries for asset acquisition, and the statement of financial position post-combination. Additionally, it discusses goodwill recognition and journal entries related to contingent consideration based on Entity B's profit performance.

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Sharmaine manoban
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230 views3 pages

Business Combination Accounting Analysis

The document outlines two problems related to business combinations involving ABC Co. and XYZ Co., as well as Entity A and Entity B. It includes financial positions, pro-forma journal entries for asset acquisition, and the statement of financial position post-combination. Additionally, it discusses goodwill recognition and journal entries related to contingent consideration based on Entity B's profit performance.

Uploaded by

Sharmaine manoban
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Sharmaine Sipalay

Activity on Business Combination Part 2

Problem 1

ABC Co. issued 10,000 (10 par) shares in exchange for all the assets and liabilities of XYZ Co.
The financial positions of the combining entities as at the acquisition date as follows:
ABC Co. XYZ Co.
Identifiable Assets 2,400,000 1,600,000
Goodwill - -
Total Assets 2,400,000 1,600,000
Liabilities 700,000 900,000
Share Capital 600,000 300,000
Share Premium 300,000 250,000
Retained Earnings 800,000 150,000
Total Liabilities and Equity 2,400,000 1,600,000

On the acquisition date, ABC Co.'s Share have a fair value of P100 per share.

Requirements:

a. Prepare the pro-forma journal entry to record the assets acquired and liabilities assumed in
the business combination.

Identifiable Assets 1,600,000


Goodwill 300,000
Liabilities 900,000
Share Capital 100,000
Share Premium 900,000
#

10,000 x 100. 1,000,000


1.6M-900K (700,000)
Goodwill 300,000

1,000,000
10,000 x 10 (100,000)
Share Premium 900,000
b. Prepare the statement of financial position of ABC Co. After the business combination.

Statement of Financial Position


ABC Co.
December 31, 20xx
Identifiable Assets (2.4M +1.6M) 4,000,000
Goodwill 300,000
TOTAL ASSET 4,300,000

Liabilities (700K+900K) 1,600,000


Share Capital (600K+100K) 700,000
Share Premium (300K+900K) 1,200,000
Retained Earnings 800,000
TOTAL LIABILITIES AND EQUITY 4,300,000

Problem 2

On January 1, 2021, 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 fair value of P1,920,000. In addition, Entity A agrees to provide an
additional payment of P400,000 if Entity B's 2021 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?

Consideration transferred
(10,000 sh. x 1200) + 280K contingent consideration 2,280,000
Non-controlling interest in the acquiree -
Previously held equity interest in the acquiree -
Total 2,280,000
Fair value of net identifiable assets acquired (1,900,000)
Goodwill 380,000

b. Entity B's 2021 profit is P3,800,000. Entity A pays the additional P400,000 on January 14,
2022. Provide the journal entries.
c. Entity B's 2021 profit is P2,800,000. Provide the Journal Entrie

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