Illustration 1. Share-for-share exchanges On January 1, 2022, Frank Co. and Richard, Inc. combined. As of this date, the fair values of the assets, liabilities and equity of Frank and Richard before the business combination are as follows: On the negotiation for the business combination, the acquirer incurred the following transaction costs: P45,000.00 for legal fees; P 5,000.00 for due diligence cost and P 80,000.00 for the general admin cost and cost of maintaining an internal acquisition department. Case 1: before the transaction, Frank, Co. have 7,000 outstanding shares
Illustration 1. Share-for-share exchanges
On January 1, 2022, Frank Co. and Richard, Inc. combined. As of this date, the fair values of
the assets, liabilities and equity of Frank and Richard before the business combination are as
follows:
On the negotiation for the business combination, the acquirer incurred the following
transaction costs: P45,000.00 for legal fees; P 5,000.00 for due diligence cost and P 80,000.00
for the general admin cost and cost of maintaining an internal acquisition department.
Case 1: before the transaction, Frank, Co. have 7,000 outstanding shares. Frank Co. Issued
additional 10,000 shares as consideration for a 100% interest in Richard. Frank’s shares currently
sells P150 per share in the market, while Richard’s shares are quoted at P200 per share.
With the stated facts, answer the following:
1. How much is the transaction costs incurred during the business combination?
a. P 50,000.00
b. P 75,000.00
c. P 150,000.00
d. P 130,000.00
2. How much is the par value of each Frank, Co.’s share?
a. P 100
b. P 150
c. P 200
d. P 250
3. How much is the Consideration Transferred?
a. P 1,000,000.00
b. P 1,350,000.00
c. P 1,500,000.00
d. P 1,850,000.00
Step by step
Solved in 2 steps
