SMALL-MEDIUM SIZED ENTITIES

Investment in Associates P1

Investment in Associates P2

Investment in Associates P3
Investment in Associates P4

Investment in Associates P5

On April 30, 2019 Winter Ltd. acquired a 25% interest in the ordinary share capital of Coffee Ltd. for P88,000 in cash. On
that data Coffee’s credit balance on its share capital and retained earnings amounted to P100,000 and P215,000
respectively.

On April 30, 2019 all the identifiable assets and liabilities of Coffee were fairly valued. Since April 30, 2019 Winter
exercised significance influence over the financial and operating policy decision of Coffee.

Coffee made a profit for the period May 1, 2019 to December 31, 2019 of P92,000.

On June 30, 2019, Coffee revalued its plan for the first time by P30,000.

Coffee declared an ordinary dividend of P10,000 at December 20, 2019.

The fair value of the 25% investment in Coffee was P99,000 at December 31, 2019.

The reporting date of Winter and Coffee is December 31, 2019.

Required: Prepare necessary entries for the above transactions

Investment in Joint Arrangements P1

On January 1, 2018 entities A and B each acquired 30% of the ordinary shares that carry voting rights at a general
meeting of shareholders of entity Z for P300,000. Entities A and B immediately agreed to share control over entity Z. For
the year ended December 31, 2018 entity recognized a profit of P 400,000.

On December 30,2018 entity Z declared and paid a dividend of P 150,000 for the year 2011. At December 31, 2018, the
fair value of each ventures’ investment in entity Z is P 425,0000. However, there was no published price quotation for
entity Z.

Investment in Joint Arrangements P2

On January 1, 2018, entities A and B each acquired 30 percent of the ordinary shared that carry voting rights at a general
meeting of shareholders of entity Z for P300,000. Entities A and B immediately agreed to share control over entity Z. For
the year ended December 31, 2018, entity Z recognized a profit of P400,000.

Also on January 1, 2018, each venturer’s share of the fair value of the net identifiable assets of entity Z is P280,000 and
the fair value of on entity Z’s asset (a machine) exceeded its carrying amount (in entity Z’s statement of financial position)
by P50,000. That machine is depreciated on the straight-line method to a nil residual value over its remaining five-year
useful life.

Entities A and B estimated the useful life of the implicit goodwill as five years.

On December 30, 2018, entity Z declared and paid a dividend of P150,000 for the year 2018. At December 31, 2018, the
fair value of each venturer’s investment in entity Z is P425,000. However, there is no published quotation for entity Z.
Investment in Joint Arrangements P3

On January 1, 2018 SME A and SME B each acquired 25% of the equity of entities X,Y, and Z for P10, 000, P15,000, and
P28,000 respectively. SME A and SME B have joint control over the strategic financial and operating decisions of entities
X, Y, and Z. Transaction cost of 1% of the purchase price of the shares were incurred by SME A and SME B.

On January 2, 2018 entity X declared and paid dividend of P1,000 for the year ended 2010. On December 31, 2018 entity
Y declared a dividend of P8 000 for the year ended 2011. The dividend declared by entity Y was paid in 2012.

For the year ended December 31, 2018, entities X and Y recognized profit of respectively P 5,000 and P18,000. However,
entity Z recognized a loss of P20,000 for that year. Published price of quotations do not exist for the shares of entities X,
Y, Z. using appropriate valuation techniques the ventures (i.e. SME a and SME B) determined the fair value of each their
investment in entities X,Y,Z at December 31, 2011 as P13,000, P29,000 and P15,000 respectively. Cost to sell are
estimated at 5% of the fair value of the investment.

Neither SME A nor SME B prepares consolidated financial statements because they do not have any subsidiaries. SME A
measures its investments in jointly controlled entities using cost model and SME B measure its investment using the FV
model.

Investment in Joint Arrangements P4

On March 1, 2011 entities A and B each acquired 30% of the ordinary shares that carry voting rights at a general meeting
of shareholders of entity Z for P300,000. Entities A and B immediately agreed to share control over entity Z. On December
30,2011 entity Z declared a dividend of P 100,000 for the year 2011. Entity reported a profit of P80,000 for the year ended
December 31,2011. On December 31, 2011, the recoverable amount of each venturer’s investment in entity Z is P
290,0000 (calculation FV P293,000-cost to sell P3,000. There is no published price quotation for entity Z.

Investment in Joint Arrangements P5

On January 1, 2018, entities A and B (the venturers) form a joint venture (entity Z). Upon incorporation of entity Z, entities
A and B each take up 50 percent of the share capital of entity Z. In return for their interests in entity Z, entities A and B
each contribute P100,000 to entity Z. Entity A contributes a machine with a fair value of P100,000 and a carrying amount
of P80,000. Entity B’s contribution is P100,000 cash.

The machine contributed by entity A has an estimated useful life of 10 years with no residual value. Entity Z’s profit for the
year ended December 31, 2018 is P30,000 (after deducting depreciation expense of P10,000 on the machine contributed
by entity A) Entity A accounts for jointly controlled entities using the equity method.

Business Combination P1

The VV Company had the following accounts before it was acquired by Bush Company.
Cash P 36,000
AR 457,100
Inventory 120,000
PPE 696,400
AP 350,800

Bush Co. paid P1.4M for VV Co.’s net assets. It was determined that FV of inventories and PPE were P133,000 and
P900,000, respectively.

An assumed contingent liability arising from past events with a fair value amounting to P10,000 and such amount is
considered a reliable measurement. What is the amount of Goodwill?
Business Combination P2

ABC acquires 100% of TUV Co. December 31, 2019 when the fair values of assets and liabilities of TUV Co. are P10M
and P2M respectively. ABC issues 80,000 of its P100 par share with fair values of P150 per share. In addition, the
combining firms agreed on the following. The cost of business combination and goodwill on December 31, 2019?

Business Combination P3

On July 1, 2017, B Company acquired 100% of the A company for a consideration transferred of P160M. At the
acquisition date, the carrying amount of A company’s net assets was P100M. In the same day, a provisional value of
P120M was attributed to the net assets. An additional valuation received on May 31, 2018 increased this provisional FV to
P135M and on July 30, 2018 this FV was finalized to P140M.

1) What amount should B company present for goodwill in its statement of financial position at December 2018 accd to
IFRS 3 ?
2) Journal entries to record the business combination and the necessary adjustments.

Business Combination P4

Effective Dec 31, 2018, E Co. proposes to acquire, in a one-for-one exchange of common stock, all the assets and
liabilities of D Co. and R Co, after which the latter two companies will distribute the E Co. stock to their shareholders in
complete liquidation and dissolution. E Co. proposes to increase its outstanding stock for purposes of these acquisition.
Balance sheets of each of the companies immediately prior to merger on 12/31/18 in book values are:

E. Co. D. Co. R. Co.

Current Assets P2M P.5M P.025M
Fixed Assets (Net) 10M 4M .2M
TOTAL P12M P4.5M P.225M
Current Liabilities P1M P.3M P.02M
Long-term debts 3M 1M .105M
Common Stock (10par) 3M 1M .05M
Retained Earnings 5M 2.2M .05M
TOTAL P12M P4.5M P.225M
Outstanding Shares .3M .1M .005M
FV/sh P40 P40 P30
No. E share to be .1M
exchanged for D Share
No. E share to be .005M
exchanged for R Share

The fair Value of the common Shares of E Co. reflects the impact of the increased number of shares to be issued. 1) How
much goodwill will be recognized as a result of business combination? 2) How much is the total assets of E after business
combination? 3) How much is the total equity of E after the business combination?
Business Combination P5

On January 2, 2019 P Corp. issues its own P10 par common stock for all the outstanding stock of S Corp, and S is
dissolved. In addition, P pays P20,000 for registering and issuing securities and P30,000 for other costs of combination.
The market price of P’s stock on January 2, 2019 is P30 per share. Balance sheet of P and S on January 1, 2019 before
business combination, is at follows:

P - BV S - BV S - FV
Cash P120,000 P10,000 P10,000
Inventories 50,000 30,000 40,000
Other CA 100,000 90,000 100,000
Land 80,000 20,000 100,000
PPE 650,000 200,000 300,000
Total P1,000,000 P350,000 P550,000
Liabilities P200,000 P50,000 P50,000
CS (P10par) 500,000 100,000
APIC 200,000 50,000
RE 100,000 150,000
Total P1,000,000 P350,000