Republic of the Philippines

Sultan Kudarat State University

College of Business Administration and Hospitality Management
Tacurong City Campus
E.J.C Montilla, Tacurong City

1st Semester Final Examination

(Advance Financial Accounting and Reporting II)

Name: _________________________________ Date: _____________

Course/Year&Section: _____________________ Score: ____________

General Instruction: Right all your answers in CAPITAL LETTER. Use only blue or
black Ballpen. Using of cellphone is not allowed only your calculator. No calculator,
No examination. NO CHEATING! Please answer your own. You have given one (1)
hour to finish the examination. Good Luck And GOD BLESS 

PART I: IDENTIFICATION
Instruction: Identify the following questions and write all your answers on the space
provided before the number. (1 point each).

1. A transaction or other event in which an acquirer obtain

control of one or more business.
2. It is an agreement to issue additional consideration at a later
date if specified events occur.
3. An asset representing the future economic benefits arising
from other assets acquired in a business combination that
are not individually identified and separately recognized.
4. The date on which the acquirer obtains control of the
acquire.
5. The amount for which an asset could be exchanged or a
liability settled between knowledgeable, willing parties in an
arm’s length transaction.
6. The entity that obtains control of the acquire
7. The business or business that the acquirer obtains control
of in a business combination.
8. The power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities.
9. The equity in a subsidiary not attributable, directly, or
indirectly to a parent.
10. It is an ownership interest of investor-owned entities and
owner, member or participants interests of mutual entities.
PART II: TRUE OR FALSE
Instruction: Write GOOD if the statement is correct. Otherwise write WILL. Draft your
answers on the space provided before the number. (1 point each)

1. Any Direct cost will be part of the consideration given.

2. Contingent Consideration is being measured at its acquisition fair
value.
3. Non- controlling interest are measured at carrying value.
4. Good will acquisition in a business combination is amortized over
its economic life.
5. Carrying amounts of the combinee’s identifiable net assets are
disregarded in accounting for a business combination.
6. Acquisition of net asset-true merger or merger of equals is one way
to control business unit.
7. Contingent consideration that is determinable on the date of a
business combination is part of the total cost of the combinor’s
investment in the combinee.
8. Under PFRS 3, both direct and indirect cost in business
combination all to be expense.
9. Book Value is the value of the asset and liabilities reflected in the
financial statements on the acquisition date of a business
combination.
10. Under PFRS 3, gain is recognized in consolidating financial
information when any bargain purchase is created.

PART III: MULTIPLE CHOICES

Instruction: Choose the letter of the correct answer. Write the letter of your answer
on the space provided before the number. Show necessary computations. (1 point
each)

1. Peter Pan paid finder’s fee of P50,000, legal fees of P18,000, audit fees related to
the stock issuance of P10,000, stock registration fees of P5,000, and stock listing
application of P4,000.

Based on the preceding information, under the acquisition method, what

amount relating to the business combination would be expense?
a. P14,000 b. P33,000 c. P68,000 d. 84,000

2. Which of the following is the best theoretical justification for consolidated financial
elements?
a. In form the companies are one entity in substance they are separate
 b. In form the companies are separate in substance they are entity
c. In form and substance the companies are entity
d. In form and substance the companies are separate

3. Barbie Corporation concluded that the fair value of Snow White Corporation was
P80,000 and paid the amount of acquire all of its net assets. Snow White reported
assets with a book value of P60,000 and fair value of P98,000 and liabilities with a
book value and fair value of P23,000 on the date of combination. Barbie also paid
P3,000 to search firm for finder’s fee related to the acquisition. What amount will be
recorded as goodwill by Barbie Company?
a. P47,000 b. 0 c. P5,000 d. P8,000

4. What constitutes a statutory merger?

a. A merger approved by the Securities and Exchange Commission
b. An acquisition involving the purchase of both stocks and assets
c. A takeover completed within are year of the initial tender offer
d. A business combination in which only one company continues to exist as a
legal entity.

5. Tide Corporation decided to purchase Surf Company wherein Tide Corporation

concluded that its fair value was P360,000 and paid the amount to acquire all of its
net assets. Surf reported assets with book value of P330,000 and fair value of
P520,000 and liabilities with a book and fair value of P77,000 on the date of
acquisition. Tide also paid finder’s fee of P10,000. What amount will be recorded by
Tide Corporation as Goodwill and Bargain purchase gain?
a. Goodwill, P160,000
b. Bargain purchase gain, P83,000
c. Goodwill, P83,000
d. Bargain purchase gain, P160,000

6. Goodwill arising from a business combination is

a. Charge to Retained Earnings after the acquisition is completed
b. Amortized over 40 years or its useful life, whichever is longer.
c. Amortized over 40 years or its useful life, whichever is shorter
d. Never amortized

Consider this problem for the 7-8 questions.

Jeannie Company acquired the assets (except cash) and assumed the
liabilities of JRA company on February 01,2018 paying P720,000 cash. JRA
Company January 31,2018, balance sheet showing its book value listed below:

Accounts Receivable P232,000

Inventory 415,000
 Land 80,000
Building,net 96,000
Equipment,net 57,000
Current Liabilities 60,000
Long-Term debt 180,000
Common stock, P1 par 40,000
Paid-in capital 360,000
Retained Earnings 50,000

Only current liabilities and long-term debt agreed in the book value by which
Accounts Receivable, Inventory,Land,Building and Equipment has a fair value of
235,000, 400,000, 93,000, 90,000, and 40,000 respectively.

7. Solve for the total fair value of JRA Company at the date of acquisition.
a. P628,000
b. P718,000
c. P618,000
d. P728,000

8. How much is the Purchase gain or goodwill of Jeannie Company?

a. P112,000 Bargain Purchase
b. P112,000 Goodwill
c. P102,000 Bargain Purchase
d. P102,000 Goodwill

9. In a business combination, which of the following will occur?

a. All identifiable assets and liabilities are recorded at fair value at the date of
acquisition
b. All identifiable assets and liabilities are recorded at book value at the date
of acquisition
c. Goodwill is recorded if the fair value of the net assets acquired exceeds the
book value of the net assets
d. None of the above is correct.

10. Jean Corporation paid P3,000,000 cash for the net asset of LEE Company with
the book value of current asset of P1,200,000, Property and Equipment, P2,000,000
and liabilities of 200,000. Fair value agreed with liabilities except current asset and
property and equipment by which current asset is 3% and 2% higher than its book
value.
How much is the total fair value of net assets of LEE Company?
a. P3,672,000 b. P3,076,000 c.P3,267,000 d. P3,276,000
PART IV: PROBLEM SOLVING
Instruction: Solve the following problems. Show your computation. ( 10 points each
item)

1. Mahal Kita Incorporation purchased the assets and liabilities of Pogi Company at
the close of the business on December 31, 2018. Mahal Kita Incorporation borrowed
P2,000,000 to complete this transaction, in addition to the P640,000 cash that they
paid directly.The fair value and book value of Pogi’s recorded assets and liabilities
as of the date of acquisition are listed below. In addition,Pogi had a patent that had
a fair value of P50,000.

Book Value Fair Value

Cash P120,000 P120,000
Inventories 220,000 250,000
Other current assets 630,000 600,000
Land 270,000 320,000
Plant assets net 4,650,000 4,600,000
Total Assets P5 ,890,000

Accounts Payable P1,200,000 P1,200,000

Notes payable 2,100,000 2,100,000
Capital stock, P5 par 700,000
Additional paid-in capital 1,400,000
Retained Earnings 490,000
Total Liabilities & Equities P5,890,000

Required:
a. Prepare Mahal Kita general journal entry for the acquisition of Pogi, assuming that
Pogi survives as a separate legal entity.
b. Prepare Mahal Kita general journal entry for the acquisition, assuming that Pogi
will dissolve as a separate legal entity.

2. On December 31, 2018, Rose Company acquired Sampaguita Company’s

outstanding stock by paying P400,000 cash and issuing 10,000 shares of its own
P30 par value common stock, when the market price was P32 per share. Rose paid
legal and accounting fees amounting to 35,000 in addition to stock issuance cost of
8,000. Sampaguita is dissolved on the date of the acquisition. Balance sheet
information for Rose and Sampaguita immediately preceding the acquisition is
shown below, including fair value for Sampaguita’s assets and liabilities.
 Rose Sampaguita Sampaguita
Book Value Book Value Fair Value

Cash 490,000 P140,000 P140,000

Accounts Receivable 560,000 280,000 280,000
Inventory 520,000 200,000 260,000
Land 460,000 150,000 140,000
Plant Asset- Net 980,000 325,000 355,000
Construction Permits 380,000 170,000 190,000
Accounts Payable (460,000) (140,000)
(140,000)
Other accrued expenses (160,000) (45,000)
(45,000)
Notes Payable (800,000) (460,000)
(460,000)
Common Stock (P30 par) (960,000)
Common Stock (P20 par) (200,000)
Additional P.I.C (192,000) (80,000)
Retained Earnings (818,000) (340,000)

Required:
Determine the consolidated balances which Rose would present on their
consolidated balance sheet for the following accounts:
a. Cash
b. Inventory
c. Construction Permits
d. Goodwill
e. Notes Payable
f. Common Stock
g. Additional Paid in Capital
h. Retained Earnings
“Having a vision for your life allows you to live out of HOPE, rather than out of FEARS”

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