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Chapter 9

Consolidated Financial Statement


(IFRS 10)
Business combination is achieved by acquisition of stock when an existing company acquires a
majority or all of the stock of another existing company. The acquirer records the acquisition by
debiting the Investment in Stock account for the consideration given (price paid), which includes
cash disbursed, the fair value of other assets given or securities issued. After the acquisition of
stock a relationship exist that of parent/subsidiary relationship. The acquirer is called the parent
and the acquiree is called the subsidiary.

Consolidated financial statements


These are the financial statements of a group in which the assets, liabilities, equity, income,
expenses and cash flows of the parent and its subsidiaries are presented as those of a single
economic entity. Consolidated financial statements are prepared when an entity controls one
or more other entities.

Consolidation Procedures Basic Principles


When preparing consolidated financial statements, an entity first combines the financial
statements of the parent and the subsidiaries on a line-by-line basis by adding together like
items of assets, liabilities, equity, income, and expenses. So that the consolidated financial
statements present financial information about the group as that of a single economic entity,
the following adjustments are made:
(a) The carrying amount of the parents investment in each subsidiary and the parents
portion of equity in each subsidiary are eliminated. Goodwill or gain on a bargain
purchase if any is recognized.
(b) Non-controlling interests in the profit or loss of consolidated subsidiaries for the
reporting period are identified; and
(c) Non-controlling interests in the net assets of consolidated subsidiaries are identified
separately from the parents ownership interests in them. Non-controlling interests in
the net assets of the subsidiaries consists of:
I. The amount of those non-controlling interests at the date of the original
combination; and
II. The non-controlling interests share of changes in equity since the date of the
combination

Non-controlling interest is defined as the equity in a subsidiary not attributable directly or


indirectly, to a parent.

Problems involving stock investments usually involve the following:

1. Preparation of Consolidated statement of financial position at Date of Acquisition.


2. Preparation of Consolidated Financial Statements on date subsequent to acquisition.
3. Accounting for Intercompany Profits in:
a. Inventories
b. Plant Assets

Preparation of Consolidated Statement of Financial Position at Date of Acquisition Wholly


Owned Subsidiary

The following are the accounting procedures for the preparation of the consolidated statement
of financial position for a parent and its wholly owned subsidiary:

The amounts of the consolidated assets and liabilities (except goodwill) are the parent
companys book values and the subsidiarys current fair values.
Intercompany accounts (parents investment account and subsidiarys equity accounts)
are excluded (eliminated) from the consolidated statement of financial position.
The book value of the net asset is adjusted to their current fair values.
Goodwill is recognized in the consolidated statement of financial position, if the
consideration given (price paid) exceeds the fair value of the subsidiarys identifiable net
assets. On the other hand, of the consideration given is less than the fair value of the
subsidiarys identifiable net assets, gain on acquisition (closed to parents retained
earnings) is recognized.

Preparation of Consolidated statement of financial position at Date of Acquisition Partially


Owned Subsidiary

the consolidation of a parent company and its partially owned subsidiary differs from the
consolidation of a wholly owned subsidiary in one major aspect the recognition of non-
controlling interest (formerly minority interest). Non-controlling interest (NCI) represents the
claims of the other stockholders other than the parent company (controlling interest) to the
net income or losses and net assets of the subsidiary.

Non-controlling interest is recognized only in the consolidation process. It is not a result of any
business transaction or event of either the parent or the subsidiary and therefore not recorded
in the books of the either the parent or the subsidiary.

Measurement of Non-Controlling Interest

IFRS 3 (2008) provides two options of measuring non-controlling interest in an acquiree:


At fair value, or
At the non-controlling interests proportionate share of the acquirees identifiable net
assets (Proportionate Method).
There is no requirement within IFRS 3 (2008) to measure non-controlling interest on a
consistent basis for similar types of business combinations and therefore, an entity has a free
choice between the two options for each transaction undertaken. However the fair value
option is more appropriate than the non-controlling interests proportionate share of the
acquirees identifiable net assets, since it results in the recognition of the non-controlling
interests share of goodwill [IFRS 3 (2008).]

For the purpose of measuring non-controlling interest at fair value, it may be possible to
determine the acquisition-date fair value on the basis of active market prices of the equity
shares not held by the acquirer. When the market price is not available, the acquirer should
estimate the implied fair value of the non-controlling interest using other valuation techniques.
The fair value of the non-controlling interest on the date of acquisition should not be less than
the NCI percentage of the fair value of the net assets of the subsidiary. If this is the case the
NCI should be raised to the percentage of the fair value of the net assets of the subsidiary.

Goodwill or Gain on Acquisition

The principal problem in the consolidation process on the date of acquisition is the
measurement of goodwill or gain on acquisition when there is a non-controlling interest (NCI).
IFRS 3 (2008) prescribes the following procedures:

Goodwill is measured as the excess of:

The aggregate of (i) the acquisition date fair value of the consideration given, (ii) the
amount of NCI, and (iii) the fair value of the parents previously held interest in the
subsidiary; over
The net of the acquisition-date value of the net assets acquired.

Examples 9-1

P Company acquired S Company in two stages as follows:

In 2012, P Company acquired a 30% equity interest for cash consideration of P160,000
when the fair value of S Companys identifiable net assets was P500,000.
In 2013, P Company acquired a further 50% equity interest for cash consideration of
P375,000. On the acquisition date, the fair value of S Companys identifiable net assets
was P600,000. The fair value of P Companys original 30% holding was P200,000 and the
fair value of the 20% non-controlling interest is assessed as P140,000.
Using the two options, goodwill is calculated as follows:

NCI @ % of net NCI @


assets fair value
Fair value of consideration P375,000 P375,000
Non-controlling interests 120,000 140,000
Previously-held interest 200,000 200,000
Total 695,000 615,000
Fair value of identifiable net assets 600,000 600,000
Goodwill P95,000 P115,000

On the other hand, gain on acquisition (bargain purchase) is recognized when the fair value of
identifiable net assets is more than the aggregate of the consideration given, the non-
controlling interests and the fair value of any previously-held interest in the acquiree. The gain
is to be recognized only by the acquirer (Parent).

Determination and Allocation of Excess Schedule

The determination and allocation of excess schedule (D&A schedule) is used to compare the
company fair value with the recorded book value of the subsidiary. It also schedules the
adjustments that will be made to all subsidiary accounts in the consolidated worksheet process.

Examples 9-2

In January 2, 2013, P Company purchased 80% of the outstanding common stock of S Company
for P1,000,000. NCI is measured at its implied fair value.

S Companys statement of financial position with the additional fair values is as follows:

S Companys Book and Estimated Fair Values


January 2, 2013

Assets Book Value Fair Value


Cash and cash equivalents P300,000 P300,000
Accounts receivable 100,000 100,000
Inventory 200,000 240,000
Equipment (net) 600,000 800,000
Total assets 1,200,000 1,440,000

Liabilities and Equity


Current liabilities P200,000 P200,000
Fair value of net assets (assets - liabilities) P1,240,000

The D & A schedule is presented on the next page.

Note the following features of the D & A schedule for and 80% parent ownership interest:
The fair value of subsidiary line contains the implied value of the entire company, the
parent price paid, and the implied value of the NCI.
The total stockholders equity of the subsidiary (the net assets of the subsidiary at book
value) is allocated 80/20 to the controlling interest and NCI.
The excess of fair value over book value is shown for the company, the controlling
interest, and the NCI, this line means that the entire adjustment of subsidiary net assets
will be P250,000. The controlling interest paid P200,000 more than the underlying book
value of subsidiary net assets.
All subsidiary assets and liabilities will be increased to 100% of fair value.
The excess allocated to inventory and equipment is to be amortized on a date
subsequent to acquisition.

Determination and Allocation of Excess Schedule

Company
Implied Parent NCI Value
Fair Value Price (80%) (20%)*
Fair value of subsidiary P1,250,000 P1,000,000 P250,000
Less book value of interest acquired:
Stockholders equity (net assets) P1,000,000 P1,000,000 P1,000,000
Interest acquired 80% 20%
Book value P800,000 P200,000
Excess P250,000 P200,000 P50,000
Allocation/adjustment:
Inventory (40,000)
Equipment (10 years) (200,000)
Goodwill P10,000

*It is assumed that if the parent would pay P1,000,000 for an 80% interest, then the entire
subsidiary company is worth P1,250,000 (P1,000,000/80%). This is called the implied value of
the subsidiary company. Assuming this to be true, the NCI is worth 20% of the total subsidiary
company value (20% x P1,250,000 = 25,000). This technique assumes that the price the parent
would pay is directly proportional to the size of the interest purchased. This value should not
be less than the NCI in the fair value of the identifiable net assets of the subsidiary
(P1,240,000 x 20% = 248,000).

Fair value analysis schedule to compare the fair value of the company acquired with the fair
value of the identifiable net assets is prepared as follows:
Company
Implied Parent NCI Value
Fair Value Price (80%) (20%)
Company fair value P1,250,000 P1,000,000 P250,000
Fair value of net assets (excluding goodwill) 1,240,000 992,000 248,000
Goodwill P10,000 P8,000 P2,000

Preparation of Consolidated Financial Statement on a Date Subsequent to Acquisition. IFRS


10 requires that all intercompany transactions must be eliminated before the preparation of
consolidated financial statement.

The elimination procedures to prepare consolidated financial statements on a date subsequent


to acquisitions are summarized below:

1. Eliminate dividends declared by the subsidiary against dividend income and NCI
share.
2. Eliminate subsidiary equity accounts against the investment account and the NCI as
of the date of acquisition.
3. Allocate excess between the aggregate of NCI, price paid by the parent, and
previously-held interest and the book value of the identifiable net assets of the
subsidiary. This is done by adjusting the book value of the net assets to their current
fair value.
4. Amortize allocated excess.
5. Recognize NCI in net income of subsidiary.

In the consolidated financial statements, candidates should verify the following items:

1. NCI in comprehensive income of subsidiary.


2. NCI in net assets of subsidiary.
3. Consolidated total comprehensive income attributable to parent shareholders.
4. Consolidated retained earnings.
5. Consolidated stockholders equity.

The following example will illustrate the formulas to compute the above items.

Example 9-4 (Continuation of Example 9-2)

Assume the following data on December 31:

P Company S Company
2012 2013 2012 2013
Retained earnings, January 1 P500,000 P200,000
Total comprehensive income 150,000 180,000 100,000 90,000
Dividends declared 80,000 70,000 60,000 40,000
Amortization of allocated excess: 2012 2013
Inventory P40,000 -
Equipment (P200,000/10) 20,000 20,000

NCI in net income of subsidiary 2012 2013


Net income S Company P100,000 P90,000
Amortization of allocated excess (60,000) (20,000)
Adjusted net income S Company 40,000 70,000
NCI 20% 20%
NCI in comprehensive income of subsidiary P8,000 P14,000
This is presented in the consolidated statement of comprehensive income.
NCI in net assets of subsidiary: 2012 2013
Book value of net assets of S Company, January 2 P1,000,000 1,040,000
Increase in earnings during the year:
Net income 100,000 90,000
Dividends declared (60,000) (40,000)
Increase in earnings 40,000 50,000
Book value of net assets, December 31 1,040,000 1,090,000
Unamortized excess:
Excess 250,000 250,000
Amortization (60,000) (80,000)
Unamortized 190,000 170,000
Fair value of net assets of S Company, December 31 P1,230,000 P1,260,000
NCI 20% 20%
NCI in net assets of subsidiary P246,000 P252,000
This is presented in the stockholders equity section of the consolidated statement of financial
position.

Consolidated comprehensive income attributable to parent 2012 2013


Comprehensive income P Company P150,000 P180,000
Dividend income (80%) (48,000) (32,000)
Comprehensive income from own operation P Company 102,000 148,000
Adjusted comprehensive income S Company 40,000 70,000
Consolidated comprehensive income 142,000 218,000
NCI in comprehensive income of subsidiary (8,000) (14,000)
Attributable to parent shareholders P134,000 P204,000
This is presented in the consolidated statement of comprehensive income.
Consolidated retained earnings, December 31 2012 2013
Retained earnings, January 1 P Company P500,000 P554,000
Consolidated comprehensive income attributable to parent 134,000 204,000
Dividends declared P Company (80,000) (70,000)
Consolidated retained earnings, December 31 P554,000 P688,000
Consolidated stockholders equity 2012 2013
Common stock P Company (assumed) P900,000 P900,000
APIC (assumed) 400,000 400,000
Retained earnings 554,000 688,000
Controlling interest 1,854,000 1,988,000
NCI 246,000 252,000
Stockholders equity P2,100,000 P2,240,000

INTERCOMPANY PROFIT IN INVENTORY

Intercompany profit in inventory exists when there is intercompany sale of merchandise


between affiliates. Downstream intercompany sales of merchandise are those from a parent
company to its subsidiary. Upstream intercompany sales are those from subsidiary to the
parent company. Intercompany profit in inventories is computed by simply multiplying the
inventory of the buying affiliates by the gross profit rate (based on sales) of the selling affiliate.
Intercompany profit in ending inventory of the buying affiliate is unrealized until this inventory
is sold to outside parties. In the following year, this unrealized profit in ending inventory will be
the realized profit in beginning inventory.

The following are the working paper elimination procedures when there are intercompany
profits in inventory:

Intercompany merchandise sales are eliminated; only the purchase and sale to
outsiders should remain in the consolidated statements.
The profit must be eliminated from beginning inventory of the buying affiliate by
reducing the cost of goods sold and the retained earnings.
The profit must be eliminated from the ending inventory of the buying affiliate both
by reducing the inventory and by increasing the cost of goods sold.
Unpaid intercompany trade payables/receivables resulting from intercompany
merchandise sales are eliminated.

In the computation of the NCI in total comprehensive income of subsidiary at the end of the
year, under upstream sale, the unrealized profit in ending inventory is subtracted from the
subsidiary net income while the realized profit in beginning inventory is added to arrive at the
adjusted subsidiary income. The adjusted total comprehensive income is then multiplied by the
NCI proportionate share to get the NCI in net income of subsidiary.

If the intercompany sale is made by a parent company (downstream) or by a wholly-owned


subsidiary, there is no effect on the NCI net income, because the selling affiliate does not have
NCI.

In computing consolidated total comprehensive income, the intercompany profit in inventory


is adjusted to the net income of the selling affiliate.

INTERCOMPANY GAIN ON SALE OF PLANT ASSETS


This exists when there is intercompany sale of plant assets between affiliates. The gain on sale
(selling price less book value) is considered unrealized until the plant assets is sold to outside
parties or through use.

The following are the working elimination procedures when there is intercompany sale of plant
assets:

The gain on intercompany sale of non-depreciable fixed asset (land) cannot be


recognized until (if ever) the land is sold to outside parties. The gain is deducted from
the land account. In the year of intercompany sale, the gain is eliminated; in later
periods, retained earnings in reduced for the amount of gain.
A gain on the intercompany sale of a depreciable fixed asset is eliminated in the
period of sale and the net asset account restored to its book value as if no sales is
made. The gain is realized over the depreciable life of the asset as a reduction from
each periods depreciation expense.

To compute the comprehensive income applicable to NCI in the year of sale, under the
upstream sale, the subsidiary net income is adjusted by subtracting the unrealized gain and
adding the realized gain to get the adjusted net income of the subsidiary in the following year,
only the realized gain is to be added to the net income of the subsidiary.

In computing consolidated total comprehensive income, the total comprehensive income of


the selling affiliate is adjusted for the unrealized gain on sale of plant assets.
PROBLEMS
1. On May 1,2013, Pete Corporation acquires 80% of the outstanding common stock of Sure
Company for P2,800,000. Professional fees paid to effect paid to effect the combination
amounts to P70,000. On the date of acquisition, the stockholders equity of Sure Company is as
follows:
Capital Stock P3,000,000
Retained earnings 437,500
On May 1, the book value of the net assets of Sure is equal to their fair values. NCI is measured
at implied fair value.

In the preparation of consolidated statement of financial position on May 1,2013, what is the
working paper elimination entry?
a. capital stock sure P3,000,000
Retained earnings sure 437,500
Goodwill 62,500
Investment in Sure P2,800,000
NCI 700,000

b. capital stock sure 2,400,000


Retained earnings sure 350,000
Goodwill 120,000
Investment in Sure 2,870,000

c. . capital stock sure 2,400,000


Retained earnings sure 350,000
Investment in Sure 2,750,000

d. capital stock sure P3,000,000


Retained earnings sure 437,500
Investment in Sure 2,750,000
NCI 687,500

2. On May 1,2013, the separate statement of financial position of Pablo Corporation and Simon
Company are as follows:
Pablo Simon
Cash P145,700 P15,500
Accounts receivable 120,500 35,800
Inventories 42,500 10,200
Plant assets 185,800 78,00
Total assets P494,500 P139,500

Liabilities P110,400 P28,800


Capital stock, P100 pa value 200,000 50,000
Additional paid in capital 50,000 -
Retained earnings 134,100 60,700
Total liabilities & P494,500 P139,500
stockholders equity
On May 1,2013 Pablo acquired 100% of Simons outstanding capital stock for P100,000. Pablo
incurred additional P32,700 in acquisition-related costs. All the assets of Simon are failry valued
except the plant assets with a fair value of P90,000 on May 1,2013.

In the consolidated statement of financial position on May 1,2013, what amount of total assets
will be reported?
a. P646,000
b. P490,000
c. P523,300
d. P634,000

3. Using the same data in No. 2, what amount of stockholders equity will be reported in the
consolidate statement of financial position on May 1,2013?
a. P384,100
b. P494,800
c. P351,400
d. P472,600

4. The statement of financial position of Sisa Company on December 31,2013 is as follows:


Assets Liabilities and stockholders equity
Cash P100,000 Current liabilities P300,000
Accounts receivable 200,000 Long-term liabilities 500,000
Inventories 500,000 Capital stock, P1 par value 100,000
Property & equipment 900,000 Retained earnings 800,000
Total assets P1,700,000 Total liabilities & equity P1,700,000
On December 31,2013, Pluto Corporation purchases all of the outstanding stock of Sisa
Company for P1,500,000 cash. On that date, the fair (market) value of Sisas inventories and
property and equipment are P450,000 and P1,000,000 respectively. The fair values of all other
assets and liabilities were equal to their book values.

As a result of the acquisition of Sisas capital stock, Pluto should record goodwill of:
a. P500,000
b. P550,000
c. P600,000
d. P-0-

5. Using the same data in No. 4, the consolidated statement of financial position on December
31,2013 of Pluto and Sisa should report a goodwill in the amount of:
a. P500,000
b. P550,000
c. P600,000
d. P650,000

6. On December 31,2013, Parco Corporation purchased 80% of the outstanding common stock
of Stop Company for P395,000 cash. The condensed statement of financial position of Stop
Company as of the date of the purchase is shown below (in thousands):
Assets Liabilities and stockholders equity
Cash P150 Liabilities P400
Inventories 250 Common stock, P1 par value 50
Property & equipment (net) 450 Additional paid in capital 100
____ Retained earnings 300
Total P850 Total P850
On December 31,2013, the inventories and property and equipment of Stop had a fair values of
P275,000 and P500,000 respectively. The fair value of NCI on December 31,2013 is P100,000.

How much goodwill (gain on acquisition) must be shown in the consolidated statement of
financial position of Parco Corporation and its subsidiary Stop Company on December 31,2013?
a. P(30,000)
b. P30,000
c. P(25,000)
d. P25,000

7. On January 2,2013, Papa, Inc. acquired 80% of the outstanding shares of Son Company for
P1,952,000 cash. At the time of the acquisition, the stockholders equity section of the two
companies is shown below:
(in thousands)
Papa Inc. Son Company
Common stock P4,000 P1,600
Additional paid in capital 3,000 480
Retained earnings 6,840 420
total P13,840 P2,500
Assuming NCI is measured at its implied fair value. What is the stockholders equity on the
consolidated of financial position on January 2,2013?
a. P13,840,000
b. P14,328,000
c. P17,260,000
d. P15,440,000

8. The condensed statement of financial position of Pop Corporation and Sun Company as of
October 31,2013 are presented below:
Pop Corp. Sun Co.
Assets P3,800,000 P850,000
liabilities 1,350,000 250,000
Common stock, P100 par 1,500,000 500,000
Retained earnings 950,000 100,000
total P3,800,000 P3,800,000
On October 31,2013, Pop Corporation acquired 4,000 shares of Sun Company at P520,000. The
market price of the 1,000 shares of Sun on October 31,2013 is P140 per share.

In the consolidated statement of financial position on October 31,2013, total assets and the
stockholders equity are to be reported at:
Total assets Stockholders equity
a. P4,170,000 P2,570,000
b. P4,190,000 P2,590,000
c. P4,562,000 P2,450,000
d. P4,562,000 P2,500,000

9. Pit Corporation acquired 80% of the outstanding stock of Sam Company. The separate
statement of financial position of Pit Corporation immediately after the acquisition and the
consolidated statement of financial position are as follows:
Pit Corp. Consolidated
Current assets P106,000 P146,600
Investment in Sam Company 100,000 -0-
Goodwill -0- 7,500
Property & equipment (net) 270,000 359,900
Total

Current liabilities P15,000 P28,000


NCI -0- 25,000
Capital stock 350,000 350,000
Retained earnings 111,000 111,000
total P476,000 P514,000

P12,500 of the excess payment for the investment in Sam was ascribed to undervaluation of its
property and equipment; the balance of the excess payment was ascribed to goodwill. Current
assets of Sam included a P2,000 receivable from Pit which arose before the combination.

What was the total of the current assets on Sams separate statement of financial position at
the time Pit acquired its 80% interest?
a. P104,000
b. P38,000
c. P42,000
d. P40,000

10. Using the same data in No. 9, what was the stockholders equity of Sam Company before Pit
acquired its 80% interest?
a. P100,000
b. P117,000
c. P105,000
d. P70,000

Use the following data in answering Nos. 11 to 14:

On January 1,2013, Pure Company acquired 80% interest in Sure Company for P2,000,000 cash.
The stockholders equity of Sure at the time of acquisition is P1,875,000. On January 1,2013,
NCI is measured at its implied fair value. The excess of cost over the book value of interest
acquired is allocated to the following assets:
Inventories P100,000 (sold in 2009)
building P200,000 (5-year remaining life)
During 2013, Sure Company reported total comprehensive income of P500,000 and paid
dividends of P100,000.

11. What is the fair value on NCI on January 1, 2013?


a. P500,000
b. P375,000
c. P525,000
d. P400,000

12. How much goodwill (gain on acquisition) is reported in the consolidated statement of
financial position on 1/1/2013?
a. P325,000
b. P200,000
c. P(325,000)
d. P(375,000)

13. What is the consolidated total comprehensive income attributable to parent on December
31,2013, if Pures net income for 2013 is P600,000?
a. P860,000
b. P888,000
c. P808,000
d. P948,000

14. What is the NCI in net assets of subsidiary on December 31,2013?


a. P455,000
b. P552,000
c. P495,000
d. P495,900
15. Pearl Company paid P270,000 for a 90% interest in Seal Company on January 1,2013. The
stockholders equity of Seal Company included paid in capital of P200,000 and retained
earnings of P100,000.

During 2013 the total comprehensive of Pearl Company was P60,000 and dividends paid were
P20,000.

During 2013 Seal Company had a total comprehensive income of P20,000 and it paid dividends
of P10,000.

What is the non-controlling interest (NCI) on December 31,2013?


a. P30,000
b. P31,000
c. P70,000
d. P59,000

Use the following data in answering questions 16 and 17.

Power Corporation purchased a 70% interest in Star Company on January 1,2010, for P140,000
when Star stockholders equity consisted P30,000 common stock, P100,000 additional paid in
capital, and P20,000 retained earnings. Income and dividend data for Star are as follows:

Net Income (or loss) P50,000


Dividends 5,000

NCI is measured at fair value.

16. If Power reported separate income from own operations of P120,000 for 2013, what is the
consolidated total comprehensive income for 2013?

a. P113,870
b. P 70,000
c. P115,370
d. P116,500

17. What is the NCI at December 31, 2013?


a. P149,600
b. P148,000
c. P 73,500
d. P151,370

18. On January 1, 2013 Pat Corporation acquired 1,200 shares of the outstanding capital stock
of Sub Company for P294,000. As of this date, the stockholders equity of Sub Company
consisted of capital stock, P100 par, P300,000, and retained earnings, P120,000. The
investment is accounted for by the equity method.
On July 1,2013, Pat Corporation sold 300 shares of its investment of Sub Company stock for
P45,000. Changes in the retained earnings account of Sub Company are as follows:

2012: Comprehensive income from operations P84,000


Cash dividend declared 63,000

2013: Comprehensive income from operations P10,500


Cash dividend declared 94,500

What is the balance of the investment in associate account on December 31,2013?


a. P520,275
b. P308,700
c. P213,100
d. P250,500

19. On January 1,2013, Pony Inc. purchased 40% of Sotto Companys outstanding common
stock. On that date, the carrying amount of Sottos assets and liabilities approximated their fair
values. During 2013, Sotto paid P5,000 cash diidends to its stockholders. Summarized
statement of financial position for the two companies follows:

Pony Sotto
12/31/2013 12/31/2013 1/1/2013
Investment in Sony (Equity) P131,000
Other Assets 138,000 P115,000 P100,000
Total P269,000 P115,000 P100,000

Common stock P 50,000 P 20,000 P 20,000


Additional paid in capital 80,250 44,000 44,000
Retained earnings 138,750 51,000 36,000
Total P269,000 P115,000 P100,000

What amount of Investment Income is to be reported by Pony in its 2013 statement of comprehensive
income?
a. P12,000
b. P15,000
c. P 8,000
d. P20,000

20. Using the same data in No. 19, what is the price paid by Pony on January 1,2013?
a. P285,000
b. P125,000
c. P269,000
d. P384,000
21. Panasonic Corporation has several subsidiaries that are included in its consolidated financial
statements. In its December 31,2013, trila balance, Panasonic had the following inter-company balances
before eliminations:

Debit Credit
Current receivables due from Sony Co. P32,000
Non-current receivables from Sony Co. 114,000
Cash advance to Sure Corp. 6,000
Cash advance from Stop Co. P15,000
Inter-company payable to Stop Co. 101,000

In its December 31,2013 consolidated statement of financial position, what amount should Panasonic
report as inter-company receivables?
a. P152,000
b. P146,000
c. P 36,000
d. P -0-

22. On January 1,2013, Phil. Inc. issued 400,000 additional shares of P10 par value common stock for all
of Sony Companys common stock. Immediately before this business combination, Phils stockholders
equity was P16,000,000 and Sonys stockholders equity was P8,000,000.

On January 1,2013 the fair market value of Phils stock was P20 per share, and the fair value of Sonys
net assets was P8,000,000.

Data from separate companys 2013 operations follows:

Phil Sony
Net income P2,500,000 P600,000
Dividends paid 900,000

What is the consolidated stockholders equity at December 31,203?


a. P19,320,000
b. P17,600,000
c. P26,200,000
d. P18,200,000

23. Pinoy Corporation acquired on January 1,2013, 75% of the outstanding common stock of Sisa
Company for P207,000. On that date, Sisas statement of financial position showed stockholders equity
of :

Common stock, par P100 P200,000


Retained eranings 50,000

The excess between the price paid and the book value of subsidiary net assets is allocated to equipment
which has an estimated remaining useful life of ten years.
For the year ended December 31,203, Sisa reported net income of P60,000 and paid cash dividends of
P2of its common stock.

What is the excess allocated to equipment on January 1,203?


a. P69,000
b. P20,000
c. P26,000
d. P15,000
24. Using the same data in No. 23, what is the NCI on December 3,2013?
a. P45,000
b. P73,350
c. P42,500
d. P45,500

25. Using the same data in No. 23, assuming Pinoy's reported separate income of P100,000,
what is the consolidated comprehensive income attributable to parent?

a. P7145,000
b. P143.000
c. P7113,050
d. P145.500

Use the following data in answering questions Nos. 26 and 27

Pluro Company purchases 8,000 shares of Sun Company, for P64 per share. Before acquisition,
Sun Company has the following balance sheet:
Assets Liabilities and Equity
Cash and cash equivalents P 20,000 Current liabilities P250,000
Inventory 280,000 Common stock, P5 50,000
par
Property and equipment 400,000 APIC 130,000
Goodwill 100,000 Retained earnings 370,000
Total assets P800,000 Total liabilities and P800,000
equity

On the date of acquisition, Pluto believes that the inventory has a fair value of P400,000 and
that the property and equipment is worth P500,000.

26. On the date of acquisition, what is the goodwill (gain on acquisition) to be reported on the
consolidated statement of financial position?

a. P(30,000)
b. P 30,000
c. P(24,000)
d. P24,000

27. The allocation ofgoodwill (gain on acquisition) is:

Parent NCI
a. P(24,000) P(6,000)
b. P24,000 P6,000
c. P(24,000) -
d. P30,000 -

Use the following information in answering questions Nos. 28 and 29

PP Corporation purchased a 10% interest in SS Company on January 1, 2008 as an available-for-


sale investment for a price of P40,000.

On January 1, 2013, PP Corporation purchases 7,000 additional shares of SS Company from


existing stockholders for P315,000. This purchase increased PP's interest to 80%. SS Company
had the following statement of financial position just prior to PP's second purchase:

Assets Liabilities and Equity

Assets Liabilities and Equity


Current assets P165,000 Liabilities P65,000
Buildings (net) 140,000 Common stock, P10 100,000
par
Equipment (net) 100,000 Retained earnings 240,000
Total assets P405,000 Total Liabilities and P405,000
equity

On the date of the second purchase, PP determines that the equipment of SS was understated
by P50,000 and had a 5-year remaining life. All other book values approximate fair values. Any
remaining excess is attributed to goodwill.

28. What is the implied fair value of NCI to be reported on January 1, 2013?

a. P90,000
b. P42,000
c. P88, 750
d. P83,500

29. On January 1, 2013 consolidated statement of financial position, what is the amount of
goodwill to be reported?
a. P60,000
b. P15,000
c. P25,000
d. P40,000

30. The separate statements of comprehensive income of Pearl Company and its 90% owned
subsidiary, Serena Company, for the year ended December 31,2013 below the following:
Pearl company Serena company
Comprehensive income P108,000 P20,000
Dividend income 18,000 -
The following additional data apply:
On January 1,2013, Serena Company purchased a building, with a book value of
P100,000 and an estimated 20-year life, from Pearl Company for P180,000. The building
was being depreciated on a straight-line basis with no salvage value.
On January 1,2013, Serena Company sold a machine with a book value of P50,000 to
Pearl Company for P60,000. The machine had an expected life of 5 years and is being
depreciated on a straight-line basis with no salvage value. Serena company is a dealer
for the machine.

On December 31,2013, what is the consolidated comprehensive income?


a. P106,000
b. 122,000
c. 142,000
d. 130,000

31. Using the same data in No. 30. On December 31,2013, what is the consolidated
comprehensive income attributed to controlling interest?
a. P104,000
b. 122,000
c. 120,000
d. 110,000

Questions 32 and 33 are based on the following data

Penny Company owns an 80% controlling interest in the Sandy Company. Sandy regularly sells
merchandise to Penny, which then sold to outside parties. The gross profit on all such sales is
40%. On January 1,2012, Penny sold land and a building to Sandy. The value of the parcel is 20%
to land and 80% to structures. Pertinent data for the companies is summarize in the next page:

No, 32 & 33 -- Continued

Penny Sandy
Internally generated net P520,000 P250,000
income, 2012
Internally generated net 3440,000 235,000
income, 2013
Intercompany merchandise 100,000
sales, 2012
Intercompany merchandise 20,000
sales, 2013
Intercompany inventory, 15,000
December 31, 2012
Intercompany inventory, 20,000
December 31', 2013
Cost of real estate sold on 600,000
January 1, 2012
Sales price of real estate on 800,000
January 1, 2012
Depreciable life ofbuilding 20years

32. For 2012, what is the consolidated comprehensive income attributable to controlling
interest?

a. P523,200
b. P525,000
C. P625,000
d. P532,500

33. For 2013, whit is the consolidated comprehensive income attributable to controlling
interest?

a. P534,400
b. P543,000
c. P453,400
d. P543,400

34. Primo Company acquired 75% in Sofa Company, which is recorded on a cost basis. For the
fiscal year ended June 30,2013, the following data were taken from their respective books.

Net income of Primo Company was P250,000, while the net income of Sofa Company was
P90,000. There was intercompany interest on bonds of P10,000. Sofa company paid dividends
of P18,000.

What is the consolidated comprehensive income attributable to parent on June 30,2013?


a. P295,450
b. P304,000
c. P317,950
d. P326,500

35. On January 1, 2013, Padre Company purchased an 80% investment in Saint


pang. The price paid was equal to Padre's interest in Saints net assets at that
date. On January 1, 2013, Padre and Saint had retained earnings of P1,000,000 and
P200,000 respectively. During 2013:

(I) Consolidated comprehensive income is P400,000 including NCI net income


(2) Padre declared dividends of P 100,000.
(3) Saint had net income of P80,000 and declared dividends of P40,000.
(4) There were no other intercompany transactions.

On December 31, 2013, what is the consolidated retained earnings?


a. P1,300,000
b. P1,284,000
c. P1,532,000
d. P1,540,000

36. On January 1, 2013, Peru Company paid P900,000 for an 80% interest in Syria
Company at a price of P30,000 less than the underlying book value. The excess
was allocated to overvalued equipment with a three-year remaining useful life.

The net income of Peru and Syria from their own operations for 2013 are as
follows:
Peru P400,000
Syria 100,000

What is the consolidated comprehensive income on December 31, 2013?


a. P476,000
b. P490,000
C. P510,000
d. P474,200

37. Pal, Inc. owns 80% of Spirit Company's common stock. During October 2013,
Spirit sold merchandise to Pal for P100,000. At December 31, 2013, one-half of
the merchandise remained in Pal's inventory. For 2013, gross profit percentages
were 30% for Pal and 40% for Spirit.

No. 37 Continued

What amount of unrealized intercompany profit in ending inventory at December


31, 2013 should be eliminated in consolidation?
a, P40,000
b. P20,000
c. P16,000
d. P15,000

38. Pete Company acquired a 70% interest in Steve Company in 2011. During 2012
Steve sold merchandise to Pete for P10,000 at a gross profit of P2,000. The merchandise was
resold during 2013 by Pete to outsiders for P15,000.

The following are the net income of Steve company for the years ended December 31, 2012
and 2013:
December 31, 2012 P80,000
December 31, 2013 90,000

Compute the NCI in Steve total comprehensive income for 2012 and 2013.
2010 2011
a. P24,000 P27,000
b. P23,400 P26,400
c. P23,400 P28,200
d. P24,600 P27,600

39. SB Company is a wholly owned subsidiary of PG Corporation. The following are


excerpts from the 2013 condensed statements of comprehensive income of the
two companies:
(In thousands)
PG Corp. SB Co.
Sales to SB P 500
Sales to others 2,000 P1,500
Total P2,500 P1,500
Cost of goods sold
From PG P400
From others P1,750 950
Total P1,750 P1,350
Gross profit P750 P150

No 39 - continued

The sales of PG to SB are made on the same terms as those made to others.

For consolidation purposes, on December 31, the intercompany profit that should be
eliminated from SB's inventory is:
a. P150,000
b. P 30,000
c. P 45,000
d. P120,000

40. Selected information from the separate and consolidated income statements of PP
Corporation and its subsidiary, ST Company for the year ended December 31,
2013 are as follows:
PP Corp. ST Co. Consolidated
Sales P200,000 P140,000 P308,000
Cost of goods sold 150,000 110,000 231,000
Gross profit P 50,000 P 30,000 P77,000

During 2013, PP Corporation sold goods to ST Company at the same markup on


cost that P uses for all sales. At December 31, 2013, ST had not paid all of these
goods and still held 37.5% of them in inventory.

What is the original cost of goods in ST's inventory acquired from PP Corp.?
a. P12,000
b. P 9,000
c. P 3,000
d. P 6,000

41. PM Company acquired a 70% interest in the SP Company in 2011 at a cost equal
to its book value. For the year ended December 31, 2013, PM Company
Company reported net income from their own operations of P120,000 and P90,000
respectively.

During 2012, SP sold merchandise to PM for P10,000 at a profit of P2,000. The


merchandise was later resold by PM to outsiders for P15,000 during 2013.

No. 41 Continued

What is the consolidated total comprehensive income attributable to parent on


December 31, 2013?
a. P210,000
b. P182,400
c. P183,000
d. P182,000

42. During 2013, PP Corporation sold goods to its 80% owned subsidiary, SS Com-
pany. At December 31, 2013, one-half of these goods were included in SS Company's
ending inventory. Reported 2013 selling expenses were P110,000 and P40,000 for
PP and SS, respectively. PP's selling expenses included P5,000 in freight-out costs
for goods sold to SS.

What amount of selling expenses should be reported in PP's 2013 consolidated


statement of comprehensive income?
a. P150,000
b. P148,000
c. P 147,500
d. P145,000

43. On June 30, 2013, PJ Corporation issued 150,000 shares of its P20 par common
stock for which it received all of SG company's common stock. The fair value of
the common stock issued is equal to the book value of SG company's net assets.
Both companies continued to operate as separate businesses, maintaining accounting
records with years ending December 31. Net income from own operations and
dividends paid were:
PJ Corp. SG Co.
Net income:
Six months ended 6130/013 P750,000 P225,000
Six months ended 12/31/013 825,000 375,000

Dividends paid:
March 25, 2013 950,000 -
November 15, 2013 - 300,000

On December 31, 2013, SG held in its inventory merchandise acquired from PJ on


December 1, 2013 for P150,000, which included a P45,000 markup.

No 43 - Continued

What is the amount of consolidated total comprehensive income on December 31,


2013?

a. P1,650,000
b. P1,905,000
C. P1,950,000
d. P2,130,000

44. PX Co. had the following transactions with two subsidiaries, S1 and S2 during
2013:
Sales of P60,000 to S1, Inc., with P20,000 gross profit, S1 had P15,000 of this
inventory on hand at year end.
Purchases of raw materials totaling P240,000 from S2 Corp., a wholly-owned
subsidiary. S2's gross profit on the sale was P48,000. PX had P60,000 of this
inventory remaining on December 31, 2013.

Before eliminating entries, PX had combined current assets of P320,000, What


amount should PX report in its December 31, 2013, consolidated statement of
financial position for current assets?

a.P320,000
b.P317,000
C. P308,000
d. P303,000

45. Pat Corp. owns 80% of Sir Inc.'s common stock. During 2013, Pat sold Sir P250,000
of inventory on the same terms as sales made to third parties. Sir sold all of the
inventory puchased from Pat in 2013. The following information pertains for Sir
and Pat's lales for 2013:

Pat Sir
Sales P1,000,000 P700000
Cost of sales 400,000 350,000
Gross profit P 600,000 P350,000

What amount should Pat report as cost of sales in its 2013 consolidated statement
of comprehensive income?

a. P750,000
b. P680,000
C. P500,000
d. P430,000

46. Selected data for two subsidiaries of Fafa Corp. taken from December 31, 2013
pre-closing trial balances are as follows:
S1 Co. S2 Co.
Debit Credit
Shipments to S P- P150,000
Shipments from S2 200,000 -
Intercompany inventory
Profit on total shipments - 50,000
Additional data relating to the December 31, 2013 inventory are as follows:

Inventory acquired from outside parties P175,000 P250,000


Inventory acquired from S2 60,000
At December 31, 2013 the inventory reported on the combined statement of financial position
of the two subsidiaries should be:

a. P425,000
b. P435,000
C. P470,000
d. P485,000

47. On January 1, 2013, PPG Company purchased 80% of the stock outstanding of
SVT Company at a price that included P25,000 of "excess" due to undervaluation
of land.

On December 31, 2013, PPG company had in its inventories P22,000 of merchandise purchased
from SVT Company at 125% of cost; on the same date, SVT Company's inventories included
P15,000 of merchandise which were purchased from PPG Company at 120% of cost. The NCI
reported on the consolidated statement of financial position at December 31, 2013 was
P82,420. For 2013, PPG Company reported income of P215,600 computed under the equity
method. NCI net income was P26,180.

The net assets of SVT Company as December 31, 2013 is:

a. P281,200
b. P416,500
c. P270,500
d. P831,300

48. The PQ Corporation owns 60 percent of the voting shares of ST Companv. During
2013, ST Company sold merchandise costing P19,600 to Corporation for P28,000. PQ received
P40,000 when it resold 75 percent of the merchandise to outsiders before the end of 2013. The
remaining 25 percent was held as inventory by PQ on December 31, 2013. The companies had
no other transactions during 2013.

What amount of consolidated net income and inventory balance will be reported
the consolidated financial statements on December 31, 2013?

Consolidated comprehensive income Inventory balance


a. P25,300 P4,900
b. P27,000 P5,000
c. P29,000 P7,000
d. P25,000 P7,000

49. PR Corporation holds 80 percent of the stock of SR Company. During 2013 PR


purchased merchandise for P40,000 and resold P30,000 to SR for P48,000. SR
Company reported sales of P67,000 in 2013 and had inventory of P16,000 on
December 31, 2013. The companies had no beginning inventory and had no other transactions
in 2013.

What amount of cost of goods sold and consolidated comprehensive income will
be reported in the 2013 consolidated statement of comprehensive income?

Cost of goods sold Consolidated net income


a. P20,000 P53,000
b. P30,000 P40,000
c. P 52,00 P47,000
d. P20,000 P47,000

50. PC Corporation purchased 80 percent interest in SD Company for P600,000 on


January 1, 2012, at which time SD's stockholders' equity amounts to P700,000.
The excess cost over book value was assigned to goodwill which is not amortized.
Statements of comprehensive income of the two companies for 2013 are as follows:
PC SD
Sales P1,000,0 P500,000
Income from subsidiary SD 112,000
Cost of sales ( 400,000) ( 250,000)
Operating expenses ( 220,000) ( 100,000)
Comprehensive income P 492 000 P150,000

No. 50 - Continued

During 2012 SD sold inventory items to PC for P80,000. This merchandise cost SD P50,000 and
one-fourth of it remained in PC's December 31, 2013 inventory. During 2013 SD's sales to PC
amounted to P90,000. This merchandise cost SD P63,000 and one-half of it remained in PC's
December 31, 2013 inventory.

What is the consolidated comprehensive income attributable to parent on Decem-ber 31,


2013?

a. P492,600
b. P492,000
C. P495,200
d. P490,000

51. Below are relevant data for Pan and Sol Companies for 2012 and 2013:
2012 2013
Intercompany sales by Sol to Pan P100,000 P120,000
Intercompany cost of sates 40,000 60,000
Intercompany merchandise, in Pan's
inventory at December 31 at billed 20,000 30,000
prices
Comprehensive income from its own
operations:
Pan Company 200,000 250,000
Sol Company 80, 000 120,000
At January 1, 2012 Pan owned 80 percent of the outstanding voting common stock of Sol
Company, acquired several years ago at book value.

What is the consolidated comprehensive income attributable to parent for 2013?

a. P339,600
b. P346,000
c. P343,600
d. P338,600

54. On January 1, 2013, Poe Corp. sold a machine for 900,000 to Sex Corp.. its wholly-owned
subsidiary, Poe paid P1,100,000 for this machine, which had accumulated depreciation of
P250,000, Poe estimated a P100,000 salvage value and depreciated the machine on the straight
line method over 20 years, a policy which Sex continued. In Poets December 31, 2013,
consolidated statement of financial position, this machine should be included in cost and
accumulated depreciation as:

Cost Accumulated depreciation


a. P1,100,000 P300,000
b. P1,100,000 P290,000
c. P900,000 P40,000
d. P850,000 P42,500

55. On January 1, 2011 SST Company purchased a computer with an expected life of
5 years. On January 1, 2013 $ST company sold the computer to PMN corporaiton
and recorded the following entry:
Cash P39,000
Accumulated Depreciation 16,000
Computer Equipment 40,000
Gain on sale of Equipment 15,000
PMN Corporation holds 60% of the voting shares of SST Company SST Company and PMN
Corporation reported income from its own operations of P45,000 and P85,000 for 2013
respectively. There is no change in the estimated life of the equipment as a result of
intercompany sale.

What is the consolidated total comprehensive income attributable to parent for


2013.

a. P103,000
b. P106,000
c. P112,000
d. P130,000

56. SS Corporation is 80 percent owned by PP Inc. On January 1, 2007, SS Corpora tion paid
P100,000 for a truck wish an expected economic life of 10 years and no residual values. SS Corp.
sold the truck to PP Inc., on January 1, 2013. During the preparation of the consolidated
working paper for 2013, the following working
Paper entry was made to eliminate the effects of the intercompany truck sale:
Truck 48,000
Gain on sale of truck 12,000
Depreciation expense 3,000
Accumulated Depreciation 57,000

52. Ace Corp. owns 00% of Bee Corps common stock and 80% of Cee Corps common stock.
The remaining common shares off Bee and Cee are owned by their respective employees. Bee
sells exclusively from Bee, and Cee sells exclusively to unrelated companies. Selected 2013
information for Bee and Cee follows:

Bee Corp Cee Corp


Sales P130,000 P91,000
Cost of sales 100,000 65,000
Begini ning inventory None None
Ending inventory None 65,000

What amount should be reported as gross profit in Bee and Cee's combined statement of
comprehensive income for the year ended December 31, 2013?

a. P26,000
b. P41,000
c. P47,800
d. P56,000

53. On January 2, 2013, PG Corporation sold equipment costing P100,000 with


accumulated depreciation ofP25,000 to its wholly-owned subsidiary, SM Inc. The
selling price was P90,000. PG was depreciating the equipment on the straight-line size
method over twenty years with no salvage. SM continued this depreciation. What
are the cost and accumulated depreciation, respectively, of this equipment in the
December 31, 2013 consolidated statement of financial position?

a. P 75,000 and P 3,750


b. P 90,000 and P 4,500
c. P90,000 and P29,500
d. P100,000 and P30,000
No. 56 - Continued
What amount of depreciation expense was recorded by PP Inc, during 2013?

a. P10,000
b. P13,000
c. P50,000
d. P .5,200

Use the following information in answering Nos. 57 and 58.

On January 1, 2013, Peter Company purchases 80% percent of the outstanding


stock of Sally Company at a cost of P800,000. On that date, Sally companys
stockholders' equity amounted to P800,000.

On April 1, 2013, Peter Company sold an equipment with a book value of P50,000
to Sally Company for P90,000. The gain included in the 2013 net income of Peter
Company. The equipment is expected to have a remaining life of five years.

For 2013, the net incomes from their own operations are:

Peter Company P500,000


Sally Company 262,500

Peter Company used the equity method to account for its investment in Sally Company.

57. for 2013, what is the balance of Investment Income account in the books of Peter
Company?

a. P172,000
b. P176,000
c. P271,000
d. P170,000

58. What is the consolidated total comprehensive income attributable to parent on


December 31, 2013?

a. PS78,000
b. P676,000
c. P271,000
d. P170,000

Use the following data in answering Nos-. 59 and 60:


On January 1, 2008, Pedro Company purchased an 80% interest in Sally Inc. for P1,000,000. The
equity balances of Sally at the time of the purchase were as follows:

Common stock P100,000


Additional paid in capital 400,000
Retained earnings 500,000
Any excess of cost over book value is attributable to goodwill. No dividends were paid by either
company during 2013. The following income statement data were prepared for Pedro Company
and its subsidiary. Sally, Inc. on December 31 2013:

Pedro Sally
Sales P600,000 P300,000
Other income 40,000 15,000
Cost of goods sold 320,000 180,000
Operating expenses 150,000 32,000

On January 1, 2013, Sally sold a machine to Pedro Company for P40,000. The machine cost Sally
P50,000, and P25,000 of accumulated depreciation had been recorded as of the sale date. The
machine had a 5-year remaining life and no salvage value. Pedro Company is using straight-line
depreciation.

Since the purchase date, Pedro has sold merchandise for resale to Sally, Inc. at a mark-up on
cost of 25%. Sales during 2013 were P150,000. The inventory of these goods held by Sally was
P15,000 on January 1, 2013, and P18,000 on December 31, 2013.

59. What is the amount of goodwill to be reported on the January 1, 2008 consolidated
statement of financial position, assuming goodwill is measured at fair value?

a. P250,000
b. P200,000
C. P150,000
d. P300,000

60. What is the consolidated net income attributable to controlling interest to be reported in
the consolidated statement of comprehensive income on December 31,2013?

a. P242,200
b. P242,000
C. P363,000
d. P260,400
ANSWERS

1. A 11. A 21. D 31. A 41 B 51. C


2. B 12. A 22. B 32. A 42. D 52. B
3. C 13. C 23. C 33. A 43. B 53. D
4. D 14. B 24. B 34. B 44. D 54. A
5. B 15. B 25. C 35. B 45. C 55. B
6. C 16. B 26. C 36. C 46. C 56. B
7. B 17. C 27. C 37. B 47. B 57. B
8. B 18. A 28. A 38 C 48. A 58. B
9. C 19. C 29. A 39. B 49. D 59. A
10. C 20. B 30. A 40. B 50. C 60. A

SOLUTIONS AND EXPLANATIONS

1. implied fair value of NCI (P2,800,000/80%) x 20% P70,000


Price paid (parent) 2,800,000
Total 3,500,000
Less book of identifiable net assets- Sure 3,437,500
Goodwill P862,500

In the presentation of consolidated statement of financial position on the date of acquisition,


equity accounts of the subsidiary are eliminated against the investment account (parents
interest) and NCI. The excess is allocated to goodwill.

Therefore elimination entry (a) is correct.

2. consideration given (price paid) P150,000


Less book value of identifiable net assets Simon 110,500
Excess 39,500
Allocated to plant assets (12,000)
Goodwill P27,500

No 20 Continued
Total assets at book value before P 494,500
acquisition Pablo
Pride paid at acquisition (150,000)
Acquisition-related costs ( 32,700)
Total assets after acquisition Pablo P 311,800
Total assets at fair value Simon:
Cash P15,500
Accounts receivable 35,800
Inventory 10,200
Plant assets 90,000 151,500
Goodwill 27,500
Consolidated assets P490,800

3.
Capital stock Pablo P 200,000
APIC Pablo 50,000
Retained earnings (P134,100 P32,700) 101,400
Stockholders' equity, May 1, 2013 P 351,400

4. On the date of acquisition no goodwill is recorded in the books of the acquirer.


5.
Price paid P1,500,000
Less book value of identifiable net 900,000
assets Sisa
Excess 600,000
Allocation/adjustments of assets:
Inventories P50,000
Property and equipment (100,000) ( 50,000)
Goodwill P550,000

6.
NCI at fair value P 105,500
Price paid (parent) 395,000
Total 500,000
Less book value of identifiable 450,000
net assets Stop
Excess 50,000
Allocation/adjustments:
Inventories P(25,000)
Property and equipment (50,000) 75,000)
Gain on acquisition P (25,000)

No. 6 Continued

Since gain is to be recognized only by the acquirer (parent), the assessed fair value
of the NCI (PI00,000) is to be increased to P105,000 (20% of the fair value of the identifiable net
assets of Stop).

Total Fair Value Parent price(80%) NCI (20%)


Company fair value P500,000 P395,000 P105,000
Fair value of 525,000 420,000 105,000
identifiable net assets
Gain on acquisition P(25,000) P(25,000) P-

7.
Capital stock Papa P 4,000,000
APIC - Papa 3,000,000
Retained earnings Papa 6,840,000
Controlling interest 13,840,000
NCI (P1,952,000/80%) x 20% 488,000
Stockholders' equity P14,328,000

8.

NCI at fair value (1,000 shares x P 140) P140,000


Price paid (parent) 520,000
Total 660,000
Less book value of identifiable net assets 600,000
Sun
Goodwill P60,000
Assets Pop P 3,800,000
Assets Sun 850,000
Price paid (520,000)
Goodwill 60,000
Total assets P 4,190,000
Capital stock Pop P 1,500,000
Retained earnings Pop 950 000
Controlling interest 2,450,000
NCI 140,000
Stockholders' equity P 2,590,000

9.
Consolidated current assets P140,000
Current assets a Pit 106,000
Current assets elimination is Sam P40,000
Intercompany receivable eliminated 2,000
Current assets Sam P 42,000

10.
Fair value of net assets after P125,000
acquisition Sam
(P25,000/20%)
Less allocated excess:
Plant and equipment P12,500
Goodwill 7,500 20,000
Book value of identifiable net P 105,000
assets before acquisition

11.
Price paid (parent) P2,000,000
Divided by parent's interest 80%
Implied value of subsidiary P2,500,000
NCI share x20%
implied fair value of NCI P500,000

12.
NCI at implied fair value P 500,000
Price paid (parent) 2,000,000
Total 2,500,000
Less book value of identifiable 1,875,000
net assets Sure
Excess 625,000
Allocation/adjustments:
'inventories P(100,000)
adding (200,000) (300,000)
Goodwill P325,000

P 500,000
P(i00,000)
20a00 (300,000)
Pure

13.
Total comprehensive income -As Pure P 600,000
Dividend income (P100,000 x 80%) (80,000)
Total comprehensive income from own 520,000
operations
Total comprehensive income Sure P500,000
Amortization of excess to: (100,000)
Inventories (100%) (40,000) 360,000
Building (P200,000/5) 880,000
Consolidated total comprehensive 72,000
income
NCI net income (P360,000 x 20%) P808,000
Attributable to parent shareholders
14.
Net assets at book value (S/E, 1/1 - Sure P1,875,000
Increase in undistributed earnings (P500,000 - 400,000
P100,000)
Net assets at book value (S/E), 12/31- Sure P2,275,000
Unamortized excess (P625,000 - P140,000) 485,000
Net assets at fair value (S/E), 12/31 --- Sure P2,760,000
NCI proportionate share 20%
NCI P552,000

15.
NCI-date of acquisition, 1/1/013 P30,000
(P270,000/90%) x 10%
NCI Dividends paid by Seal (P10,000 x 10%) (1,000)
NCI total comprehensive income of Seal 2,000
(P20,000 x 10%)
NCI, 12/11/013 P31,000

16.
Total comprehensive income from own P120,000
operations Power
Total comprehensive income from own 50,000
operations ---Star
Consolidated total comprehensive income P170,000

17.
NCI, 1/1/013 (P140,000/70%) x 30% P 60,000
NCI dividends paid by Star (P5,000 x 30%) (1,500)
NCI net income (P50,000 x 30%) 15,000
NCI 12/31/11 P 73,500

I8.
2012: Percent interest acquired (1,200 shares/3,000
shares)
Cost per share (P294,000 / 1,200 shares)
2013: 2013: Parent's interest (1,200 - 300)/3,000
Balance of Investment in Associate account, 12/31/013:
2012: Price paid P 294,000
Dividends received (P63,000 x 40%) (44,100)
Share in subsidiary's net income (P84,000 x 40%) 33,600
2013: Share in Subsidiary's net income (P105,000/2) x 40% 21,000
Balance, June 30 304,500
Sale (300/1,200) x P304,500 ( 76,125)
Dividends received P(P94,500 x 30%) ( 28,350)
Share in subsidiary's net income(P105,000/2) x 30% 15,750
Balance, December 31, 2013 P520,275

19.
Retained earnings, 12/31/013 - Sotto P 51,000
Dividends paid 5,000
Retained earnings, I2/31/013 before dividends P 56,000
Retained earnings, January 1, 2013 36,000
Net income --- Sotto P 20,000
Multiply by x40%
Investment income P 80000

20.
Investment account balance, 12/31/013 P 131,000
Dividends received (P5,000 x 40%) 2,000
Investment income (8,000)
price paid, January 1, 2013 P 125 000

21. None are reported as intercompany receivables in the consolidated statement of financial
position, because all of the intercompany receivables, payables and advances are eliminated.

22.
Stockholders' equity, 1/1/013 Phil P16,000,000
Increase in earnings (P2,500,000 P900,000) 1,600,000
Consolidated stockholders' equity, 12131/013 P17,600,000

There is no non-controlling interest, because Phil acquires 100% of the stock of Sony.

23.
NCI at fair value (P207,000/75%) x 25% P 69,000
Price paid (parent) 207,000
Total P 276,000
Less book of identifiable net assets Sisa 250,000
Excess allocated to equipment P 26,000

24.
NCI, January 1, 2013 P 69,000
NCI in subsidiary dividends (2,000 (10,000)
shares x P20) 25%
NCI in adjusted total
comprehensive income --- Sisa:
Total comprehensive income P60,000
Amortization (P26,000/10) (2,600)
Adjusted total comprehensive P57,400
income
NCI 25% 14,350
NCI, December31, 2013 P 73,350

25.
Total comprehensive income Pinoy P 100,000
Dividend income (P40,000 x 75%) (30,000)
Total comprehensive income from own 70,000
operations Pinoy
Adjusted total comprehensive income --- Sisa 57,400
Consolidated total comprehensive income 127,490
NCI total comprehensive income 14,350
Attributable to parent P 113,050

26. Before answering the two questions, the two optics of measuring NCI must be computed
and compared as follows:
NCI at fair value (8,000 shares x P64)/80%) x 20%)
NCI at 20% of fair value of net assets
excluding goodwill:
Book value of assets excluding GW P700,000
Current liabilities (250,000)
Book value 450,000
Adjustments of assets:
Inventory 120,000
Property and equipment 100,000
Fair value of identifiable net assets Sun P670,000
NCI (8,000 shares/ 10,000 shares) 20% P134,000

Since the fair value of NCI cannot be less than the 20% of the identifiable net assets of Sun,
then the NCI is to be measured at P134,000.

Fair value analysis to compute and allocate goodwill (gain on acquisition) is pre-rented below:

Company Implied Parent Price NCI Value (20%)


Fair Value (80%)
Company fair value P 646,000 P512,000 P134,000*
Fair value of identifiable net 670,000 536,000 134,000
assets
Gain on acquisition P(24,000) P(24,000) P-
*must at least equal

Take note that the gain on acquisition is recognized only by the acquirer (parent).

27. P24,000 and P0 respectively

28.
Parent's interest:
January 1, 2008 (10 000 shares x 10%) 1,000 shares
January 1, 2013 7,000
Total shares acquired 8,000 shares
Parent's interest (8,000/10,000) 80%
NCI 20%

No. 28 - continued
Fair value of NCI:
Price paid P315,000
Fair value ofpreviouslyeheld interest [(P315 45,000
000/7,000) x 1,000]
Total P360,000
Fair value of NCI (P360,000/80%) x 20% P90 000

29. Goodwill is computed as follows:


Price paid, January 1, 2013 P315,000
Fair value of previously-held interest 45,000
(P315,000/7,000) x 1000]
Fair value of NCI (P360,000/80%) x 20% 90,000
Total P450,000
Less book value of identifiable net assets SS 340,000
Excess 110,000
Allocated to Equipment (50,000)
Goodwill P60,000

30.
Total comprehensive income - Pearl P108,000
Dividend income (18,000)
Realized gain Building 4,000
Total comprehensive income from own 94,000
operations
Total comprehensive income Serena P20,000
Unrealized gain on sale of machine - (10,000)-
Realized gain 2,000 12,000
Consolidated total comprehensive income P106,000

31.
Consolidated total comprehensive income P106,000
(No. 30)
NCI total comprehensive income (P12,000 x 1,200
10%)
Attributable to controlling interest P104,800

32.
Internally generated net income, 2012 Penny P520,000
Gain on sale of real estate, 1/1/012 (200,000)
Realized gain, 12/31/012 [(80% x 8,000
P200,000)120]
Adjusted internally generated net income P328,000
Internally generated net income, 2012 Sandy P250,000
Unrealized profit in ending inventory (40% x (6,000) 244,000
P15,000) (6,000)
Consolidated net income P572,000
NCI net income (20% x P244,000) 48,800
Attributable to controlling interest P523,200

33.
Internally generated net income, 2013 P 340,000
Puny
Realized gain 8,000
Adjusted internally generation net 348,000
income, 2013
Internally generated net income, 2013 P235,000
Sandy
Unrealized profit in ending inventory (8,000)
(40% x P20,000)
Realized profit in beginning inventory 6,000 233,000
Consolidated total comprehensive income 581,000
NCI net income (20% x P233,000) 46,600
Comprehensive income attributable to P534,000
controlling interest

34.
Total comprehensive income Primo P250,000
Dividend income (13,500)
Total comprehensive income from own 236,500
operations
Total comprehensive income Sofa 90,000
Consolidated total comprehensive income 326,500
NCI net income (25% x P90,000) 22,500
Comprehensive income attributable to parent P304,000

35.
Retained earnings, 1/1/013 Padre P1,000,000
Consolidated total comprehensive income
attributable to parent:
Consolidated total comprehensive income P400,000
NCI net income (20% x P80,000) (16,000) 384,000
Dividends declared Padre (100,000)
Consolidated retained earnings, 12/31/013 P1,284,000

36.
Total comprehensive income from own operations Peru P400,000
Total comprehensive income from own operations Syria 100,000
Amortization of excess book value over cost (P30,000/3) 10,000
Consolidated total comprehensive income P510,000

37.
Ending inventory (P100,000 /2) 50,000
Gross profit rate of the selling affiliate Spirit 40%
Unrealized intercompany profit P 20,000

38. The unrealized profit in ending inventory of 2012 will be realized in 2013, since the
inventory was sold to outsiders in 2013. The intercompany profit is treated as an adjustment to
the net income of the subsidiary since there was an upstream sale of merchandise. The
computation of total comprehensive income attributable to NCI therefore is:

No. 38 Continued

2012 2013
Steve Company net income P80,000 P 90,000
Intercompany profit in ending inventory ( 2,000) 4,000
Adjusted net income P78,000 P94,000
NCI 30% 30%
Total comprehensive income attributable to NCI P23,400 P 28,200
39.
Inventory acquired from PG P500,000
Cost of goods sold --- from PG 400,000
Inventory acquired from PG PI00,000
Gross profit rate of PG (P750/P2,500) 30%
Intercompany profit in ending inventory P30,000

40.
Intercompany sales from PP to ST:
Sales PP P200,000
Sales ST 140,000
Total sales P340,000
Consolidated sates 308,000
Intercompany sales P 32,000
Unsold to outsiders 37.5%
Ending inventory of ST acquired from PP P 12,000
Cost ratio of PP (PI 50,000/P200,000) 75%
Cost of inventory of ST acquired from PP P 9,000

41.
PM Company total comprehensive income P120,000
from own operations
SP Company total comprehensive income 90,000
from own operations
Total comprehensive attributable to NCI:
SP net income P90,000
Realized profit in inventory 2,000
Total P92,000
NCI 30% (27,600)
Consolidated total comprehensive income
attributable to parent P182,400

42.
PP's selling expenses P110,000
SS's selling expenses 40,000
Eliminate freight costs for intercompany sales (5,000)
consolidated selling expenses P145,000

43. Under the acquisition method, the consolidated financial statements should report the
combined operations of the parent and the subsidiary from the date of acquisition and
onwards. Income of the subsidiary before the acquisition is not to be recognized by the parent.
Unrealized profit in inventory should be eliminated from the combined total comprehensive
income.

The computation therefore of the consolidated total comprehensive income on December 31,
2013 is as follows:
PJ total comprehensive income from own operations P1,575,000
SG total comprehensive income from own operations
(6/30 to 12/31) 375,000
Unrealized profit in ending inventory (45,000)
Consolidated total comprehensive income, December P1,900,000
31, 2013

44.
PX's current assets P320,000
Eliminations:
Unrealized profit in ending
inventory:
Downstream Upstream
Ending inventory P 15,000 P60,000
Gross profit rate 33.33% 20%
Unrealized profit ( P12,000 (17,000)
Consolidated current P3O3,000
asset

45. When preparing the consolidated statement of comprehensive income, intercompany sales
and purchases are to be eliminated. As a result of the intercompany sales Pat has recorded
P250,000 sales and Sir has recorded P250,000 cost of sales which should be eliminated.
Therefore Pat should report P500,000 as cost of sales in the consolidated statement of
comprehensive income, computed as follows:
Pat's cost of sales P400,000
Sir's cost of sales 350,000
Intercompany sales and purchases ( 250,000)
Consolidated cost of sales P500,000

46. The inventory to be reported in the December 31, 2013 consolidated statement of financial
position should be at the original cost to the companies. The computation is shown below:

Inventory acquired from outsiders (P175,000 P425,000


P250,000)
Inventory acquired from S2, at cost:
P60,000 x 75% (P150,000 P200,000) 45,000
Consolidated inventory, at cost P470,000

47.
NCI on December 31, 2013 consolidated P 82,420
statement of financial position
NCI in unrealized profit on merchandise sold
To PPG (P22,000 x 25/125) x 20% 880
NCI in net assets of SVT as of December 31, P 83,300
2013
Divided by 20%
Net assets of SVT on December 31, 2013 P416,500

48. Consolidated net income is computed as follows:


Sales:
PQ P40,000
ST 28,000 P 68,000
Cost of sales:
PQ (P28,000 x 75%) P21,000
ST 19,600 40,600
Gross profit P 27,400
Unrealized profit in ending
inventory of PQ:
Ending inventory (P28,000 x P 7,000
25%)
Gross profit rate 30% (2,100)
(P8,400/P28,000)
Consolidated total P25,300
comprehensive income
Inventory balance is computed below:
Ending inventory ofPQ P 7,000
(P28,000 x 25%)
Unrealized inventory profit ( 2,100)
Inventory balance at cost P 4,900

49. Cost of goods sold in the consolidated of comprehensive income


Cost of goods sold per book:
PR P 30,000
SR (P48,000 - P 16,000) 32,000 P 62,000
Intercompany purchases ( 48,000)
Unrealized profit in ending inventory 6,000
(P16,000 x 37.5%*)
Consolidated cost of goods sold P20 000
Gross profit rate of PR (P18,000 / P48,000) 37.5%
Consolidated total comprehensive income:
Total sales (P48,000 + P67,000 P115,000
Cost of goods sold 62,000
Total comprehensive income P 53,000
Unrealized profit in ending inventory (6,000)
consolidated total comprehensive income P4 7,000

50.
PC's total comprehensive income from own operations:
Total comprehensive income per income P492,000
statement
Less: Income from SD 112,000
Salt's total comprehensive income from own
operations
Realized profit in beginning inventory of PC:
Inventory (P80,000 x 1/4) P 20,000
CPR (P30,000/P80,000) 37.5%
Unrealized profit in ending inventory of PC:
Inventory (P90,000 x 1/2) P45,000
CPR (P27,000 / P90,000) 30% ( 13,500)
Total C/ attributable to NCI (Schedule 1) ( 28,800)
Consolidated total comprehensive income P495,200
attributable to parent

Schedule 1: Attributable to NCI


SD's net income from own operations P150,000
Realized profit in beginning inventory 7,500
(upstream sale)
Unrealized profit in ending inventory (13,500)
(upstream sale)
SD's total comprehensive income from P144,000
outsiders
NCI 20%
Attributable to NCI P28,800

51.
Pan's total comprehensive income from P250,000
own operation -- 2013
Sols total comprehensive income from own operation 2013 120,000
Realized profit in beginning inventory 12,000
(P20,000 x 60%)
unrealized profit in ending inventory ( 15,000)
(P30,000 x 50%)
Comprehensive income attributable to
NCI:
Sol's total comprehensive income P120,000
Realized profit in beginning inventory 12,000
Unrealized profit in ending inventory ( 15,000)
Net income from outsiders P117,000
NCI % 20% ( 23,400)
Consolidated total comprehensive P343,600
income attributable to parent December
31,2013

52. Combined financial statements are prepared for companies that are owned by the same
parent company but are not consolidated. To determine the gross profit in Bee and Cee's
combined statement of comprehensive income, the intercompany profit resulting from Bee's
sales to Cee should be eliminated. Thus, the computation is:

Sales to unrelated companies by Cee P 91,000


Cost of sales to combined entity:
(P100,000 x P65,000/P130,000) ( 50,000)
Gross profit P41,000

53. The equipment is retained within the consolidated entity and should have the balance it
would have had if no sale had taken place. The consolidated balances are achieved through
elimination entries to account for the intercompany gain.

The following are the balances the company would have had:

Cost P100,000
Accumulated depreciation:
On date of acquisition P 25,000
For 1 year 5,000 P 30,000

54. When preparing consolidated financial statements, the objective is to restate the accounts
as if the intercompany transactions had not occurred. Therefore the 2013 gain on sale of
machine of P50,000 [P900,000 -- (P1,100,000 P250,000)] must be eliminated, since the
consolidated entity has not realized any gain. In, effect, the machine must be reflected on the
consolidated statement of financial position at 1/1/013 at Poe's cost of P1,100,000, and
accumulated depreciation of P250,000, instead of at a new "cost" of P900,000. For consolidated
statement purpose, 2013 depreciation is based on the original amounts RP 1, 1 00,000-
P100,000) x 1/20 = P50,000]. Therefore, in the 12/31/013 consolidated statement of financial
position, the machine is shown at a cost of P1,100,000 less accumulated depreciation of
P300,000 (P250,000 + P50,000).

55.
PMN Corp. total comprehensive income P 85,000
SST Company total comprehensive 45,000
income
Total 130,000
Unrealized gain on sale of equipment ( 15,000)
Realized gain (P15,000/3 yrs.) 5,000
Total comp. income attributable to NCI:
SST Co. total comprehensive income P 45,000
Unrealized gain ( 15,000)
Realized gain 5,000
Adjusted total comprehensive income 35,000
NCI 40% (14,000)
Consolidated total comprehensive P106,000
income attributable to parent

56. The depreciation expense to be recorded by the buying affiliate (PP Inc.) is based on the
selling price of the truck as computed below:
Gain on sale of truck P 12,000
Book value of truck, 1/1/013:
Cost P100,000
Accumulated dep'n (100,000/10) x6 60,000 40,000
Selling price of the truck P 52,000
Divide by the remaining life 4 years
Depreciation recorded by PP Inc P13,000

57.
Share in Sally's income (P262,500 x 80%) P210,000
Unrealized gain (P90,000 S P50,000) ( 40,000)
Realized gain, 12/31/011 (P40,000 5) x 9/12 6,000
Investment Income account balance, 12/311013 P176,000

58.
Peter total comprehensive income from own P 500,000
operations
Investment Income, 12/31/013 176,000
consolidated total comprehensive income attributable P 676,000
to parent
Alternative computations?
Peter total comprehensive income from own P 500,000
operations
Sally total comprehensive income from own operations 262,500
Unrealized gain (40,000)
Realized gain 6,000
Total comp. income attributable to NCI (P262,500 x (52,500)
20%)
Consolidated total comprehensive income attributable P676,000
to parent
59.
NCI at fair value (P1,000,000/80%) x 20% P250,000
Price paid (parent), 1,000,000
Total 1,250,000
Less book value of net assets Sally, 1/1/08 1,000,000
Goodwill P250,000

60.
Total comprehensive income from own operations Pedro P170,000
Unrealized profit in ending inventory [(25%/125%)xP18,000] (3,600)
Realized profit in beginning inventory (20% x 15,000) 3,000
Adjusted total comprehensive income 169,400
Total comprehensive income from own 103,000
operations - Sally
Unrealized gain on sale of machine (15,000)
Realized gain on sale of machine 3,000 91,000
Consolidated total comprehensive income 260,400
Attributable to NCI (20% c P91,000) 18,200
Attributable to controlling interest P242,200