ABC Chapter 1 Solman - 2020 millan abc PDF

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Warning: TT: undefined function: 32Chapter 1Business Combinations (Part 1)PROBLEM 1: TRUE OR FALSE FALSE – “business” and “control” FALSE – acquisition method FALSE - acquirer TRUE FALSE – fair value or NCI’s proportionate share in the acquiree’s net identifiable assets TRUE FALSE – recognized in pr...

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Chapter 1 Business Combinations (Part 1) PROBLEM 1: TRUE OR FALSE 1. FALSE – “business” and “control” 2. FALSE – acquisition method 3. FALSE - acquirer 4. TRUE 5. FALSE – fair value or NCI’s proportionate share in the acquiree’s net identifiable assets 6. TRUE 7. FALSE – recognized in profit or loss after reassessment 8. TRUE 9. FALSE – fair value less costs to sell 10. TRUE

PROBLEM 2: TRUE OR FALSE 1. FALSE - ₱20 2. TRUE {100 + [(200 – 120) x 10%]} – (200 – 120) = 28 3. FALSE (100 + 10) – (200 – 120) = 30 4. FALSE 100 – (200 -120) = 20 5. TRUE 100 – (200 -120) = 20 (the liquidation costs are ignored because these are post-combination expenses) 6. FALSE 100 – (200 + 5 intangible asset -120) = 15 7. TRUE 100 – (200 + 30 -120) = (10) 8. TRUE 100 – (200 -120 – 30 contingent liability) = 50 9. FALSE 100 – (200 -120 – 15 DTL*) = 35 *(200 CA for financial reporting – 150 tax base) = 50 TTD; 50 x 30% = 15 DTL 10. TRUE 100 – (200 -120) = 20 The trade secret processes are not ‘consideration transferred’ to Entity B’s former owners.

Page |2 PROBLEM 3: FOR CLASSROOM DISCUSSION 1. D 2. D 3. Solution: Consideration transferred Non-controlling interest in the acquiree Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (2.37M – 20K goodwill – 700K liabilities)

Goodwill

1,800,000 1,800,000 (1,650,000) 150,000

4. Solution: Consideration transferred NCI [(4M –1.6M) x 25%] Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (4M –1.6M) Goodwill

2,000,000 600,000 2,600,000 (2,400,000) 200,000

5. Solution: Consideration transferred NCI Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (4M –1.6M) Goodwill

2,000,000 540,000 2,540,000 (2,400,000) 140,000

6. Solution: Consideration transferred (18,000 sh. x ₱100) Non-controlling interest in the acquire Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (3.8M –1.9M) Gain on bargain purchase

1,800,000 1,800,000 (1,900,000) (100,000)

Page |3 The ₱36,000 stock issuance costs are deducted from share premium. The ₱60,000 finder’s fees are expensed. The ₱280,000 liquidation costs are post-combination expenses. All of these do not affect the computation of goodwill. 7. Solution: Consideration transferred Non-controlling interest in the acquire Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (4M + 100K patent + 160K R&D + 40K intangible asset on operating lease w/ favorable terms –1.6M)

Goodwill

2,800,000 2,800,000

(2,700,000) 100,000

8. Solution: Consideration transferred NCI (2.2M ‘see below’ x 25%) Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired

1,800,000 550,000 2,350,000 (2,200,000) 150,000

(4M – 1.6M – 200K contingent liability)

Goodwill

9. Solution: Consideration transferred Non-controlling interest in the acquiree Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired

(3,770,000) 230,000

(6.1M + 60K DTA –2.3M – 90K DTL)

Goodwill

Assets Liabilities

Carrying amt. - fin'l. reptg. 6,100,000 2,300,000

4,000,000 4,000,000

Tax base 5,800,000 2,100,000

TTD (DTD) 300,000 (200,000)

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Taxable temporary difference

300,000

Multiply by: Tax rate Deferred tax liability Deductible temporary difference Multiply by: Tax rate Deferred tax asset

30% 90,000 200,000 30% 60,000

10. Solution: Consideration transferred (2.8M – 280K dividends on) Non-controlling interest in the acquiree Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (4M – 1.6M)

Goodwill

2,520,000 2,520,000 (2,400,000) 120,000

PROBLEM 4: EXERCISES 1. Solution: Consideration transferred Non-controlling interest in the acquiree Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (1.7M – 50K goodwill – 390K liabilities)

Gain on bargain purchase

1,200,000 1,200,000 (1,260,000) (60,000)

2. Solution: Consideration transferred NCI [(1.7M –.4M) x 20%] Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (1.7M –.4M) Goodwill

1,200,000 260,000 1,460,000 (1,300,000) 160,000

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3. Solution: Consideration transferred NCI Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (1.7M –.4M) Goodwill

1,200,000 300,000 1,500,000 (1,300,000) 200,000

4. Solution: Consideration transferred (10,000 sh. x ₱100) Non-controlling interest in the acquire Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (1.8M –.9M) Goodwill

1,000,000 1,000,000 (900,000) 100,000

5. Solution: Consideration transferred Non-controlling interest in the acquire Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (5M + 80K customer list –2.8M – 30K liability on operating lease with unfavorable terms)

Goodwill

1,500,000 800,000 2,300,000

(2,250,000) 50,000

6. Solution: Consideration transferred Non-controlling interest in the acquire Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (3.5M + 120K DTA – 1.9M – 100K contingent liability – 30K DTL)

Goodwill

1,600,000 1,600,000 (1,590,000) 10,000

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Carrying amt. - fin'l. reptg. Assets Liabilities Contingent liability

3,500,000 1,900,000

Tax base 3,800,000 2,000,000

100,000

TTD (DTD) (300,000) 100,000 (100,000)

-

Deductible temporary difference (DTD) Multiply by: Tax rate

400,000 30%

Deferred tax asset

120,000

Taxable temporary difference (TTD)

100,000

Multiply by: Tax rate Deferred tax liability

PROBLEM 5: MULTIPLE CHOICE - THEORY 1. C 2. C 3. B 4. C 5. D 6. B 7. D 8. D 9. A 10. D 11. C 12. D 13. B 14. D 15. C

30% 30,000

Page |7 PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL 1. A Solution: Consideration transferred 1M + (200K x PV of ordinary annuity of 1 @ 12%, n=5)

NCI (3.4M – 1.7M) x 20% Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (3.4M– 1.7M) Goodwill

1,720,955 340,000 2,060,955 (1,700,000) 360,955

2. C Solution: Consideration transferred NCI (1.2M ÷ 80%) x 20% Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (3.3M – 150K costs to sell – 1.7M)

Goodwill

1,200,000 300,000 1,500,000 (1,450,000) 50,000

3. C Solution: Consideration transferred (2,000 sh. x ₱500) NCI Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (2.8M – 1.6M)

Gain on bargain purchase

1,000,000 1,000,000 (1,200,000) (200,000)

4. A Solution: Consideration transferred NCI Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (5.9M + 90K int. asset on optg. lease – 3.5M – 10K cont. liab.)

Goodwill

2,600,000 2,600,000 (2,480,000) 120,000

Page |8 5. B Solution: Consideration transferred NCI Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired (2.860M – 20K recorded goodwill + 60K R&D + 99K DTA – .480M – 78K DTL)

Gain on bargain purchase

Fair values (CA for financial reporting) Cash Receivables – net Inventory Land R&D Payables

10,000 280,000 350,000 2,200,000 60,000 480,000

Previous Carrying amounts (TB for taxation) 10,000 400,000 480,000 2,000,000 400,000

Taxable temporary difference (200K + 60K) Multiply by: Tax rate Deferred tax liability Deductible temporary difference (120K + 130K + 80K) Multiply by: Tax rate Deferred tax asset

2,400,000 2,400,000

(2,441,000) (41,000)

TTD (DTD)

(120,000) (130,000) 200,000 60,000 (80,000)

260,000 30% 78,000 330,000 30% 99,000

Page |9 PROBLEM 7: MULTIPLE CHOICE – PFRS for SMEs 1. C 2. B Solution: Consideration transferred NCI in the acquiree Previously held equity interest in the acquiree Total Fair value of net identifiable assets acquired Goodwill 3. D Solution: Purchase cost Acquisition-related costs Total

1,000,000 200,000 1,200,000 (800,000) 400,000

1,000,000 100,000 1,100,000

Interest in net identifiable assets acquired (800K x 75%)

Goodwill 4. A 5. C

(600,000) 500,000...