On January 1, 2020, KISSES acquired 90% of the equity share capital of HUGS in a share exchange in which KISSES issued two new shares for every three shares it acquired in HUGS. Additionally, on December 31, 2020, KISSES will pay the shareholders of HUGS P13.2 per share acquired. KISSES's cost of acquisition is 10% per annum. At the date of acquisition, shares in KISSES and HUGS had a stock market value of P48.75 and P42.00, each respectively. Income statements for the year ended September 30, 2020 follows: HUGS KISSES Profit for the year Equity as at October 1, 2019 Equity shares of P7.50 each Retained earnings At the date of acquisition, the fair values of HUGS assets were equal to their carrying amounts with the exception of Land which had a fair value of P135,000 above its carrying amount. Also, HUGS had a contingent liability which KISSES estimated to have a fair value of P337,500. This has not changed as at September 30, 2019. HUGS has not incorporated these fair values changes into its financial statements. KISESS' policy is to value the non- controlling interest at fair value at the date of acquisition. For these purpose, HUGS' share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. 414,000 467,500 1,800,000 4,050,000 2,625,000 562,500 Compute the goodwill/(gain on acquisition) resulting on the date of acquisition.
On January 1, 2020, KISSES acquired 90% of the equity share capital of HUGS in a share exchange in which KISSES issued two new shares for every three shares it acquired in HUGS. Additionally, on December 31, 2020, KISSES will pay the shareholders of HUGS P13.2 per share acquired. KISSES's cost of acquisition is 10% per annum. At the date of acquisition, shares in KISSES and HUGS had a stock market value of P48.75 and P42.00, each respectively. Income statements for the year ended September 30, 2020 follows: HUGS KISSES Profit for the year Equity as at October 1, 2019 Equity shares of P7.50 each Retained earnings At the date of acquisition, the fair values of HUGS assets were equal to their carrying amounts with the exception of Land which had a fair value of P135,000 above its carrying amount. Also, HUGS had a contingent liability which KISSES estimated to have a fair value of P337,500. This has not changed as at September 30, 2019. HUGS has not incorporated these fair values changes into its financial statements. KISESS' policy is to value the non- controlling interest at fair value at the date of acquisition. For these purpose, HUGS' share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. 414,000 467,500 1,800,000 4,050,000 2,625,000 562,500 Compute the goodwill/(gain on acquisition) resulting on the date of acquisition.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 26E
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Transcribed Image Text:On January 1, 2020, KISSES acquired 90% of the equity share capital of HUGS in a share
exchange in which KISSES issued two new shares for every three shares it acquired in
HUGS. Additionally, on December 31, 2020, KISSES will pay the shareholders of HUGS
P13.2 per share acquired. KISSES's cost of acquisition is 10% per annum.
At the date of acquisition, shares in KISSES and HUGS had a stock market value of P48.75
and P42.00, each respectively. Income statements for the year ended September 30, 2020
follows:
HUGS
KISSES
Profit for the year
Equity as at October 1, 2019
Equity shares of P7.50 each
Retained earnings
At the date of acquisition, the fair values of HUGS assets were equal to their carrying
amounts with the exception of Land which had a fair value of P135,000 above its carrying
amount. Also, HUGS had a contingent liability which KISSES estimated to have a fair value
of P337,500. This has not changed as at September 30, 2019. HUGS has not incorporated
these fair values changes into its financial statements. KISESS' policy is to value the non-
controlling interest at fair value at the date of acquisition. For these purpose, HUGS' share
price at that date can be deemed to be representative of the fair value of the shares held by
the non-controlling interest.
414,000
467,500
1,800,000
4,050,000 2,625,000
562,500
Compute the goodwill/(gain on acquisition) resulting on the date of acquisition.
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