Sandy Corporation’s balance sheet at January 2, 20x5 is as follows: Sandy-Dr(Cr) Cash and receivables P200,000,000 Inventories 600,000,000.00 Property, plant and equipment, net 7,500,000,000.00 Current liabilities (400,000,000.00) Long-term debt (7,200,000,000.00) Capital stock (7,200,000.00) Retained earnings (25,000,000.00) Accumulated other comprehensive income (5,000,000.00) An analysis of Sandy’s assets and liabilities reveals that book values of some reported items do not reflect their market values at the date of acquisition: ● Inventories are overvalued by P200,000,000 ● Property, plant and equipment is overvalued by P2,000,000,000 ● Long-term debt is undervalued by P100,000,000 On January 2, 20x5, Velasco issues new stock with a market value of P700,000,000 to acquire the assets and liabilities of Sandy. Stock registration fees are P100,000,000, paid in cash. Consulting, accounting, and legal fees connected with the merger are P150,000,000, paid in cash. In addition, Velasco enters into an earnings contingency agreement, whereby Velasco will pay the former shareholders of Sandy an additional amount if Sandy’s performance meets certain minimum levels. The present value of the contingency is estimated at P50,000,000. Required: 1. Determine the amount of goodwill. 2. Assume that during March, 20x5, new information comes in regarding the value of Sandy’s property, plant and equipment at the date of acquisition. It is determined that the property was actually worth P1,500,000 less than previously estimated. Make the entry to record this new information.
Sandy Corporation’s
Sandy-Dr(Cr)
Cash and receivables P200,000,000
Inventories 600,000,000.00
Property, plant and equipment, net 7,500,000,000.00
Current liabilities (400,000,000.00)
Long-term debt (7,200,000,000.00)
Capital stock (7,200,000.00)
Accumulated other
comprehensive income (5,000,000.00)
- An analysis of Sandy’s assets and liabilities reveals that book values of some reported items
do not reflect their market values at the date of acquisition:
● Inventories are overvalued by P200,000,000
● Property, plant and equipment is overvalued by P2,000,000,000
● Long-term debt is undervalued by P100,000,000
On January 2, 20x5, Velasco issues new stock with a market value of P700,000,000 to
acquire the assets and liabilities of Sandy. Stock registration fees are P100,000,000, paid in
cash. Consulting, accounting, and legal fees connected with the merger are P150,000,000,
paid in cash. In addition, Velasco enters into an earnings contingency agreement, whereby
Velasco will pay the former shareholders of Sandy an additional amount if Sandy’s
performance meets certain minimum levels. The present value of the contingency is
estimated at P50,000,000.
Required:
1. Determine the amount of
2. Assume that during March, 20x5, new information comes in regarding the value of
Sandy’s property, plant and equipment at the date of acquisition. It is determined
that the property was actually worth P1,500,000 less than previously estimated.
Make the entry to record this new information.
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