On January 1, 2031, PNB and Allied Bank entered into a contract of merger wherein PNB will issue 100,000 ordinary shares with par value of P10 and quoted price of P20 to the existing shareholders of Allied in exchange for the net assets of Allied Bank. Aside from that, PNB is required to pay the stockholders of Allied Bank of cash amounting to P891,000 on December 31, 2031. The effective interest rate of this contingent consideration is 10%. PNB paid acquisition related cost of business combination amounting to P100,000, indirect cost of P50,000 and stock issuance cost amounting to P200,000. As of December 31, 2030, PNB has total assets with book value of P50M and fair market value of P60M while Allied Bank has total assets with book value of P5M and fair market value of P4M. As of December 31, 2030, Allied Bank has total liabilities with book value of P2.4M with fair value of P2.5M. A contingent liability of Allied Bank on December 31, 2030 amounting to P300,000 has been disclosed in its separate financial statements. The net assets of Allied Bank on December 31, 2030 is P2.6M. As of December 31, 2030, PNB has total liabilities with book value of P30M and fair value of P32M. What is the Goodwill/Gain on Bargain Purchase? What is the Fair Value of Net Assets Acquired?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 2031, PNB and Allied Bank entered into a contract of merger wherein PNB will issue 100,000 ordinary shares with par value of P10 and quoted price of P20 to the existing shareholders of Allied in exchange for the net assets of Allied Bank. Aside from that, PNB is required to pay the stockholders of Allied Bank of cash amounting to P891,000 on December 31, 2031. The effective interest rate of this contingent consideration is 10%. PNB paid acquisition related cost of business combination amounting to P100,000, indirect cost of P50,000 and stock issuance cost amounting to P200,000.

As of December 31, 2030, PNB has total assets with book value of P50M and fair market value of P60M while Allied Bank has total assets with book value of P5M and fair market value of P4M. As of December 31, 2030, Allied Bank has total liabilities with book value of P2.4M with fair value of P2.5M. A contingent liability of Allied Bank on December 31, 2030 amounting to P300,000 has been disclosed in its separate financial statements. The net assets of Allied Bank on December 31, 2030 is P2.6M. As of December 31, 2030, PNB has total liabilities with book value of P30M and fair value of P32M.

What is the Goodwill/Gain on Bargain Purchase?

What is the Fair Value of Net Assets Acquired?

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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