On July 1, 2020, Blue George Company purchased 25% interest of Pink Conrad for P150,000. Blue George incurred transaction cost equal to 5% on the transaction price. On October 1, 2020, Pink Conrad declared dividends of P80,000. At the end of 2020, Pink Conrad reported net income of P200,000.
On July 1, 2020, Blue George Company purchased 25% interest of Pink Conrad for P150,000. Blue George incurred transaction cost equal to 5% on the transaction price. On October 1, 2020, Pink Conrad declared dividends of P80,000. At the end of 2020, Pink Conrad reported net income of P200,000.
On January 1, 2021, the fair values of Pink Conrad's net assets were as follows:
Current Assets - P100,000;
Equipment - P150,000;
Patent – P120,000;
Land - P50,000;
Buildings - P300,000; and
Liabilities - P80,000.
On January 1, 2021, Blue George Company purchased 50% interest of the Pink Conrad Company by issuing 100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. Pink Conrad paid for the legal fees of P10,000 and securities SEC registration of P20,000 which was reimbursed by Blue George.
The Patent of Pink Conrad refers to the technology purchased by Pink Conrad from Blue George years ago. Blue George had an outstanding unearned revenue related to the Patent amounting to P100,000. The fair value of the same contract as of the date of acquisition was P250,000 in which P150,000 was the off market value.
It was further agreed that Blue George would pay an additional amount on January 1, 2023, if the average income during the 2-year period of 2021-2022 exceeded P80,000 per year. The expected value of this consideration was calculated as P184,000 at the date of acquisition. At the end of 2021, Pink Conrad generated P70,000 net income and the expected value of the contingent consideration was P5,000. At the end of 2022, Pink Conrad had P85,000 net income and on January 1, 2023 the contingent consideration was settled.
1. What is the
2. What is the total amount to be recognized in the profit or loss as a result of the business combination in 2021?
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