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BUSINESS COMBINATION SUBSEQUENT TO DATE OF ACQUISITION (FULL PFRS AND SMEs)

Adjustments to Net Income – Subsidiary, Impairment or amortization of Goodwill, Eliminating Dividend Income excluding Intercompany Sale of Assets

PROBLEM I.
P Corporation acquired an 80% interest in S Company on January 1, 2020 for P425,000. On this date, the share capital
and retained earnings of two companies were as follows:
P Corporation S Company
Share Capital P530,000 P175,000
Retained Earnings 380,000 35,000
The assets and liabilities of S Company were stated at their fair values when P acquired its 80% interest and the fair
value method was used to initially measure the NCI. Net income and dividends for 2020 for the affiliated companies were:
P Corporation S Company
Net Income P105,000 P31,500
Dividends Declared 63,000 17,500
End of the year valuation indicates P2,400 impairment in goodwill (partial).
1. Consolidated retained earnings at December 31, 2020.
2. Goodwill in the consolidated balance sheet at December 31, 2020.

PROBLEM II.
P Company paid P3,600,000 for 80% interest in S Company on January 2, 2020. The book values and fair values of S
Company’s assets and liabilities on this date are as follows:
Book Value Fair Value
Current Assets P2,300,000 P2,500,000
Noncurrent Assets 3,600,000 3,800,000
Liabilities 2,000,000 2,100,000
The increase in the value of the current assets is attributable to inventories which were all sold in 2020 whereas the
increase in value of noncurrent assets is attributable to a depreciable asset with 5 years remaining useful life. The parent
opted to measure NCI proportionate to its share of subsidiary’s identifiable net assets.
1. If S reported net income of P450,000 and declared dividends of P320,000, compute for the NCINIS.
2. Using data in #1, compute for the NCINAS.

PROBLEM III.
On January 1, 2020, P Corporation purchase 80% of S Company’s ordinary share for P810,000. P37,500 of the excess is
attributable to goodwill and the balance to depreciable asset with economic life of ten years. NCI is measured at fair value
on the date of acquisition. On this date, shareholders’ equity of the two companies were as follows:
P Corporation S Company
Ordinary share P1,312,500 P300,000
Retained earnings 1,950,000 525,000
On December 31, 2020, S Company reported net income of P131,250 and paid dividends of P45,000 to Party. Party
reported earnings from its own operations of 356,250 and paid dividends of P172,500. Goodwill has been impaired and
should be reported at P7,500 on December 31, 2020.
1. Net income attributable to parent
2. NCINIS
3. NCINAS
4. Consolidated retained earnings
5. Consolidated Shareholders’ Equity