Question

Case A

RED COMPANY issued 120,000 shares of its P25 par common stock for the net assets of BLUE CORPORATION in a business combination completed on March1, 2019. Blue Corporation’s net assets are worth P3,800,000 at FMV. Out of pocket costs of the combination were as follows:

Legal fees	26,000
Contingent consideration (probable & measurable)	18,000
Printing costs of stock certificates	8,500
Finder’s fees	27,000
Professional fees paid to a CPA	21,000
Fees paid to company lawyers	23,450
Fees paid to company accountants	38,900

The goodwill from the business combination is P418,000.

How much is the FMV per share of RED COMPANY at March 1, 2019? Show Solution.

a. P 25                            c. P 30

b. P 40                            d. P 35

Case B

WHITE COMPANY issued 100,000 shares of P20 par common stock for all the outstanding stock of BLACK CORPORATION in a business combination consummated on August 1, 2019. WHITE COMPANY common stock was selling at P30 per share at the time the business combination was consummated. Out-of-pocket costs of the business combination were as follows:

  

Finder's fee	P 50,000
Accountant's fee (advisory)	10,000
Legal fees (advisory)	20,000
Printing costs of stock certificates	5,000
SEC registration costs and fees	12,000
Total	P 97,000

The acquisition cost of the combination will be: (Show Solution)

a.   P3,097,000                c. P3,017,000

b. P3,080,000                d. P3,000,000

Case C

GRAY COMPANY acquired the net assets of VIOLET COMPANY by issuing 10,000 shares of stocks. Additional cash payments made by GRAY CORPORATION in completing the acquisition were:

Broker’s fee paid to firm that located VIOLET CORP.	P10,000
Cost to register and issue stocks	40,000
Professional fees paid to accountants	20,000
Professional fees paid to lawyers	20,000
Professional fees paid to official valuers	20,000
Indirect acquisition cost	15,000

Assuming the stocks issued by GRAY COMPANY has a market price of P40, how much is the total assets after the business combination? Show Solution.

a. P 1,720,000               c. P 1,870,000

b. P 1,800,000               d. P 1,145,000

Answer 1

Case-A

FMV or fair market vaue of the Assets	3800000
Less-Contingent Liability	18000
Add-Goodwill from business Combination	418000
Total value acquired(A)	4200000
Number of shares Issued(B)	120000
FMV per share(A/B)	35.00

Correct Option-d. P 35

Note-all the ther expenses incurred by RED company will not to be consided in deciding the FMV of the share . Because these are the expenses of RED company which are to be expenses in the Profit and loss account of RED company.

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Case-B

As per IFRS -3, Cost of acquisition is the total value of the shares and other secutities issued by the Acquirer.

All othre cost like accountant fees, finders fees etc are to be expensed by the acquirer.

acquisition cost of the combination= 100000 shares* P 30per share = P 3000000

Corect Option- d. P3,000,000

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Case-C

Increase in total assets after the business combination= Value of assets acquired- Expenses paid.

Value of assets Acquired = No. of shares issued*market price of share

total assets after the business combination= Total Assets Before acquisition+Increase in total assets after the business combination.

Number of shares issued(A)	10000
Market Price of share(B)	40
Value of total Assets Acquired(A*B)	400000
Less-Expenses paid
Broker’s fee paid to firm that located VIOLET CORP.	10,000
Cost to register and issue stocks	40,000
Professional fees paid to accountants	20,000
Professional fees paid to lawyers	20,000
Professional fees paid to official valuers	20,000
Indirect acquisition cost	15,000
Increase total assets after the business combination	275,000

Note-in the Case-c, no adequate information is given about the asset value of GRAY COMPANY, before business combination.

Add 27500 with the before combination asset value to get the answer.

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