10.

Malakas Company acquired all of Maganda Corporation's assets and liabilities on January 2,2013, in
a business combination. At that date, Maganda reported assets with a book value of P624,000 and
liabilities of P356,000. Malakas noted that Maganda had P40,000 of research and development costs on
its books at the acquistion date that did not appear to be of value. Malakas also determined that patents
developed by Maganda had a fair value of P120,000 but had not been recorded by Maganda. Except for
building and equipment, Malakas determined the fair value of all other assets and liabilities reported by
Maganda approximated Malakas recorded amounts. In recording the transfer of assets and liabilities to its
books, Malakas recorded goodwill of P93,000. Malakas paid P517,000 to acquire Maganda's asset and
liabilities.
If the book value of Maganda's buildings and equipment was P341,000 at the date of acquisition, what
was their fair value?
a. P441,000
b. P417,000
c. P341,000
d. P417,000
Answer: B.
Solution
Computation of Fair Value
Amount paid P517,000
Book Value of assets P624,000
Book Value of liabilities. (356,000)
Book Value of net assets. P268,000
Adjustment for RandD costs. (40,000)
Adjusted book value. P228,000
Fair value of patent. 120,000
Goodwill recorded. 93,000 (441,000)
Fair value increment of
building and equipment P76,000
Book value of building and Equipment. 341,000
Fair Value of buildings and equipment P417,000