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37.
The stockholder’s equities of Milkita Corporation and Keanu Company at June 1,2016 before
combination were as follows:
Milkita Keanu
Capital Stock, P100 par value P10,000,000 P3,000,000
APIC 50,000 -
Retained Earnings 5,000,000 1,000,000
37.On June 2,2016, Milkita Corporation issued 50,000 of its unissued shares with a market value of P103
per share for the assets and liabilities of Keanu Company. On the same day Milkita Corporation paid
P100,000 for legal fees, documentary stamp tax of P20,000 and P190,000 for SEC registration fees of
equity securities.
Shareholder’s equity would include :
a. P15,000,000 Capital Stock ; P4,900,000 Retained earnings ; P10,000 Stock issuance cost
b. P15,000,000 Capital stock ; P10,000 APIC ; P4,880,000 Retained earnings
c. P15,150,000 Capital Stock ; P50,000 APIC ;P 4,690,000 Retained earnings
d. P15,000,000 Capital Stock ; P200,000 APIC ; P4,690,000 Retained earnings
Answer : A
Capital stock:
Before combination P10,000,000
Issued at par (50,000 x P100) 5,000,000 P15,000,000
APIC:
Before combination 50,000
Issuance (P3 x 50,000) 150,000
Documentary stamp tax ( 20,000 )
SEC Registration fees ( 180,000) --0—
Retained earnings:
Before combination 5,000,000
Legal fees ( 100,000 ) 4,900,000
Stock issuance cost (P190,000+20,000-200,000) ( 10,000 )
Stockholder’s equity P19,890,000

38.Red Company issued its common stock for the net assets of Blue Company in a business combination
treated as acquisition. Red’s common stock issued was worth P1,500,000. At the date of combination,
Red’s net assets had a book value of P1,600,000 and a fair value of P1,800,000. Blue’s net assets had a
book value of P700,000 and a fair value of P850,000. Immediately following the combination, the net
assets of the combined company should have been reported at what amount?
a. P3,000,000
b. P2,400,000
c. P3,100,000
d. P1,850,000
ANSWER: C
Rationale
Acquisition Cost P1,500,000
Net assets acquired 850,000
Goodwill 650,000
Red’s net assets @BV 1,600,000
Blue’s net assets @FV 850,000
Total net assets P3,100,000
39.Mata Inc. purchased all of the net assets of Torralba Company on February 1,2015 by issuing 8,000
shares of its P20 par common stock. At the time, the stock was selling for P40 per share. Direct costs
associated with consummating the combination totalled P5,000. Under IFRS 3, what total amount
should the net assets acquired be recorded by Mata Inc. Assuming the contingent consideration of
P7,000 is determined?
ANSWER: C
Rationale (8,000 shares X 40 = P320,000 + 7,000 contingent consideration = P327,000)
40.Payla Co. Will issue share of P12par common stock for the net assets of Talisay Co. Payla’s common
stock has a current market value of P40 per share. Talisay balance sheet accounts follow:
Current Assets P500 000 Common stock, parP4 (P80 000)
Property and equipment 1 500 000 Additional paid-in-capital (320 000)

Liabilities (400 000) Retained earnings (400 000)
Talisay current assets and property and equipment, respectively, are appraised of P 400 000 and P1600
000; it’s liabilities are fairly valued. Accordingly, Payla Co. Issued shares of it’s common stock with total
market value equal to that of Max net assets. To recognize goodwill of P200 000, how many shares were
issued?
a. 55 000 c. 40 000
b. 45 000 d. 50 000
Solution:
ANS: B
Fair value of net identifiable assets acquired:
Current assets P 500 000
Property and equipment 1 500 000
Liabilities (400 000)
FMV of net assets P1 600 000
Add: Goodwill 200 000
Consideration transferred P1 800 000
Divided By: Current market value per share P 40
Number of shares issued 45 000
41. Companies of P and J decide to consolidate. Asset and estimated annual earnings contributions are
as follows:
Co. P Co. J Total
Net asset contribution P400 000 P350 000 P750 000
Estimated annual earnings contribution 80 000 70 000 150 000
Stockholders of the two companies agree that a single class of stock be issued, that their contributions
be measured by net assets plus allowances for goodwill, and that 10% be considered as a normal rate of
return. Earnings in excess of the normal rate of return shall be capitalized at 20% in calculating goodwill.
It was also agreed that the authorized capital stock of the new corporation shall be 20,000 shares with a
par value of P100 a share.
(1)The total contribution of Co. J(net assets plus goodwill), and (2)The amount of goodwill credited to
Co. A:
a.(1)P475 000;(2)P100 000 c.(1)P525 000;(2)P200 000
b.(1)P500 000;(2)P150 000 d.(1)P600 000;(2)P100 000
Solution:
ANS: C

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37.

Capital Stock, P100 par value P10,000,000 P3,000,000

Retained Earnings 5,000,000 1,000,000

Shareholder’s equity would include :

b. P15,000,000 Capital stock ; P10,000 APIC ; P4,880,000 Retained earnings

c. P15,150,000 Capital Stock ; P50,000 APIC ;P 4,690,000 Retained earnings

d. P15,000,000 Capital Stock ; P200,000 APIC ; P4,690,000 Retained earnings

Before combination P10,000,000

Issued at par (50,000 x P100) 5,000,000 P15,000,000

Before combination 50,000

Issuance (P3 x 50,000) 150,000

Documentary stamp tax ( 20,000 )

SEC Registration fees ( 180,000) --0—

Before combination 5,000,000

Legal fees ( 100,000 ) 4,900,000

Stock issuance cost (P190,000+20,000-200,000) ( 10,000 )

Stockholder’s equity P19,890,000

Acquisition Cost P1,500,000

Net assets acquired 850,000

Red’s net assets @BV 1,600,000

Blue’s net assets @FV 850,000

Total net assets P3,100,000

Rationale (8,000 shares X 40 = P320,000 + 7,000 contingent consideration = P327,000)

Current Assets P500 000 Common stock, parP4 (P80 000)

Property and equipment 1 500 000 Additional paid-in-capital (320 000)

Fair value of net identifiable assets acquired:

Current assets P 500 000

Property and equipment 1 500 000

Liabilities (400 000)

FMV of net assets P1 600 000

Add: Goodwill 200 000

Consideration transferred P1 800 000

Divided By: Current market value per share P 40

Number of shares issued 45 000

Co. P Co. J Total

Net asset contribution P400 000 P350 000 P750 000

Estimated annual earnings contribution 80 000 70 000 150 000

a.(1)P475 000;(2)P100 000 c.(1)P525 000;(2)P200 000

b.(1)P500 000;(2)P150 000 d.(1)P600 000;(2)P100 000

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