BA 118.3 (D. Salazar/R. Placido/K.

Dela Cruz)
Quiz 1

1. The XYZ Corporation, on June 30, 2015, had assets with fair values as follows: current assets of P
=90,000
and noncurrent assets of P
=110,000. It had liabilities with a total fair value of P
=20,000, and it has no
investments in marketable securities.

On July 1, 2015, GHI Corporation purchased the net assets of XYZ Corporation for P=160,000 cash. How
much is the goodwill/gain on bargain purchase to be recognized from the acquisition in the books of GHI
Corporation? (Indicate whether goodwill or gain on bargain purchase.)

2. 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 Ideal
Corporation uses in its production. The said acquisition is expected to result in producing higher quality
mining equipment with lower total cost. The deal was closed on February 28, 2016 and the following
information was gathered from the books of the entities:

Ideal Superior Bright

Current assets P38,250,000
= =2,340,000
P =1,560,000
P
Noncurrent assets 18,750,000 15,300,000 10,200,000
Total assets P
=57,000,000 P
=17,640,000 P
=11,760,000

Liabilities =1,950,000
P =1,260,000
P =840,000
P

Ordinary shares, P
=100 par =46,491,000
P =10,681,200
P =7,120,800
P
Share premium 1,059,000 1,018,800 679,200
Retained earnings 7,500,000 4,680,000 3,120,000
Total liabilities and equity P
=57,000,000 P
=17,640,000 P
=11,760,000

Ideal Corporation will purchase Superior Corporation and Bright Corporation by paying =P20,250,000 and
=10,080,000 in cash, respectively. In addition, the following adjustments should be made to the current
P
assets of Superior Corp. and Bright Corp., which have fair values of P =2,700,000 and P =1,380,000,
respectively. The noncurrent assets have fair values of P=12,900,000 and P
=11,850,000 for Superior Corp.
and Bright. Corp., respectively.

Compute for the following balances in the books of the surviving company on the date of acquisition:
a. Total assets
b. Goodwill
c. Gain on bargain purchase

3. Garnet Corporation purchases the net assets of Pearl Corporation for ₱500,000 cash. Prior to the
acquisition, Pearl Corporation has the following Statement of Financial Position.

ASSETS LIABILITIES AND EQUITY

Receivable ₱120,000 Current Liabilities ₱50,000

Inventory 100,000
Property Plant and Equipment 280,000 Common Stock 200,000
Retained Earnings 250,000
Total Assets ₱500,000 Total Liabilities and Equity ₱500,000
 Fair values of assets and liabilities agree with book values except for inventories and property, plant and
equipment, which have fair values of ₱140,000 and ₱300,000 respectively. To consummate the
transaction, Garnet Corporation incurs ₱5,000 acquisition related costs.
a. How much is the goodwill/gain on bargain purchase recognized in the books of Garnet Corporation?
b. How much is the gain on disposal to be recognized in Pearl Company’s books?

4. On August 1, 2019, Red Corporation acquired all the net identifiable assets of Blue Corporation for
₱400,000 cash and a promissory note of ₱1,000,000. On the date of acquisition, the carrying value of Blue’s
identifiable net assets was ₱1,150,000. The current fair value of Blue’s inventories was ₱200,000 larger
than their carrying values, and the current fair value of Blue’s machineries was ₱400,000 less than their
carrying amount. The current fair values of all other identifiable net assets of Blue were equal to their
carrying value. How much goodwill does Red Corporation recognize upon acquisition of Blue Corporation?

5. On November 1, 2018, One Company paid ₱370,000 for the net assets of Uno Company in a transaction
properly accounted for as acquisition. On this date, the assets and liabilities of Uno Company were as
follows:
Cash ₱60,000
Merchandise inventory 180,000
Plant assets (net) 360,000
Liabilities 135,000

Furthermore, it was determined that the merchandise inventory of Uno Company had a fair market value
of ₱142,500 and the plant assets of ₱420,000. What should be the amount recorded as gain on bargain
purchase by One Company as a result of the business combination?