On January 1, 2020, Shell Corporation acquired the net assets of Petron Inc. The acquirer
transferred cash amounting to P3,000,000 and obligates itself to pay additional P1,500,000 after
one year if the market price of Shell Corporation increased by 50%. The business
combination resulted to a goodwill of P300,000.
At the date of acquisition, it is estimated that there is a 70% probability that the condition will be
met.
On March 1, 2020, The operations of Shell Corporation was halted due to COVID 19 –
pandemic lockdown and restrictions, this resulted to a 30% decrease in probability estimation of
the contingent consideration.
1. What is the value of contingent consideration on March 1, 2020?
a. 1,500,000
b. 1,050,000
c. 450,000
d. 600,000
2. What is the effect of the March 1, 2020 information to the recognized goodwill?
a. Goodwill decreased by P450,000.
b. Gain on bargain purchase will be recognized in the amount of P150,000.
c. Gain on bargain purchase will be recognized in the amount of P300,000.
d. No effect in goodwill.