p2 - Guerrero Ch9

Chapter 9

Consolidated Financial Statement

(IFRS 10)

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 parent’s investment in each subsidiary and the parent’s 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 parent’s 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:

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 company’s book values and the subsidiary’s current fair values.

 Intercompany accounts (parent’s investment account and subsidiary’s 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 subsidiary’s identifiable net assets. On the other hand, of the consideration given is less than the fair value of the subsidiary’s identifiable net assets, gain on acquisition (closed to parent’s 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-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 interest’s proportionate share of the acquiree’s 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 acquiree’s identifiable net assets, since it results in the recognition of the non-controlling interest’s 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 parent’s 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 Company’s 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 Company’s identifiable net assets was P600,000. The fair value of P Company’s 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

assets fair valueNCI @

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 Company’s statement of financial position with the additional fair values is as follows: S Company’s 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.

 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

Fair Value Price (80%)Parent NCI Value(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

Fair Value Price (80%)Parent NCI Value(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

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

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.

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 period’s 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

Additional paid in capital 50,000

-Retained earnings 134,100 60,700

Total liabilities &

stockholders’ equity P494,500 P139,500

On May 1,2013 Pablo acquired 100% of Simon’s 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 Sisa’s 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 Sisa’s 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.

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 Sam’s 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 Pure’s 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 Company’s outstanding common stock. On that date, the carrying amount of Sotto’s 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 Company’s common stock. Immediately before this business combination, Phil’s stockholders’ equity was P16,000,000 and Sony’s stockholders’ equity was P8,000,000.

On January 1,2013 the fair market value of Phil’s stock was P20 per share, and the fair value of Sony’s net assets was P8,000,000.

Data from separate company’s 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, Sisa’s 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

par 50,000

Property and equipment 400,000 APIC 130,000

Goodwill 100,000 Retained earnings 370,000

Total assets P800,000 Total liabilities and

equity P800,000

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

par 100,000

Equipment (net) 100,000 Retained earnings 240,000

Total assets P405,000 Total Liabilities and

equity P405,000

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

Internally generated net income, 2013 3440,000 235,000 Intercompany merchandise sales, 2012 100,000 Intercompany merchandise sales, 2013 20,000 Intercompany inventory, December 31, 2012 15,000 Intercompany inventory, December 31', 2013 20,000

Cost of real estate sold on

January 1, 2012 600,000

Sales price of real estate on

January 1, 2012 800,000

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

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 Saint’s 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.

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

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

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.

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 Corp’s common stock and 80% of Cee Corp’s 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:

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

Bee Corp Cee Corp

Sales P130,000 P91,000

Cost of sales 100,000 65,000

Begini ning inventory None None

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 company’s 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

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

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 (parent’s 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

acquisition — Pablo P 494,500

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

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

assets Sisa 900,000

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

net assets — Stop 450,000

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

identifiable net assets

Gain on acquisition P(25,000) P(25,000)

P-7.

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 —

Sun 600,000 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 acquisition Sam

(P25,000/20%)

P125,000 Less allocated excess:

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

Plant and equipment P12,500

Goodwill 7,500 20,000

Book value of identifiable net

assets before acquisition P 105,000

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

net assets Sure 1,875,000

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

operations 520,000

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

income 72,000

NCI net income (P360,000 x 20%) P808,000

14.

Net assets at book value (S/E, 1/1 - Sure P1,875,000 Increase in undistributed earnings (P500,000

-P100,000) 400,000

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

(P270,000/90%) x 10% P30,000

NCI Dividends paid by Seal (P10,000 x 10%) (1,000) NCI total comprehensive income of Seal

(P20,000 x 10%) 2,000

NCI, 12/11/013 P31,000

16.

Total comprehensive income from own

operations Power P120,000

Total comprehensive income from own

operations ---Star 50,000

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)

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

shares x P20) 25% (10,000)

NCI in adjusted total

comprehensive income --- Sisa:

Amortization (P26,000/10) (2,600) Adjusted total comprehensive

income P57,400

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

operations Pinoy 70,000

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

Fair Value Parent Price(80%) NCI Value (20%)

Company fair value P 646,000 P512,000 P134,000*

Fair value of identifiable net

assets 670,000 536,000 134,000

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

000/7,000) x 1,000] 45,000

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

(P315,000/7,000) x 1000] 45,000

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

operations 94,000