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Business Combinations (Part 1) Chapter 13: Multiple Choice - Computational (For classroom instruction purposes) Measuring goodwill / gain on bargain purchase Use the following information for the next two questions: Fact pattern On January 1, 20x1, DIMINUTIVE Co. acquired all of the assets and assumed all of the liabilities of SMALL, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of SMALL acquired by DIMINUTIVE are shown below: Assets Carrying amounts Fair values Cash in bank 40,000 40,000 Receivables 800,000 480,000 Allowance for probable losses on receivables (120,000) Inventory 2,080,000 1,400,000 Building - net 4,000,000 4,400,000 Goodwill 400,000 80,000 Total assets 7,200,000 6,400,000 Liabilities Payables 1,600,000 1,600,000 On the negotiation for the business combination, DIMINUTIVE Co. incurred transaction costs amounting to P400,000 for legal, accounting, and consultancy fees. Need an answer? Get it-with an explanation > 1. Case #1: If DIMINUTIVE Co. paid P6,000,000 cash as consideration for the assets and liabilities of SMALL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. 1,200,000 b. 1,120,000 c. 1,280,000 d. 1,240,000 Need an answer? Get it-with an explanation > 2. Case #2: If DIMINUTIVE Co. paid P4,000,000 cash as consideration for the assets and liabilities of SMALL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. (800,000) b. (720,000) c. (880,000) d. 1,200,000