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 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: 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 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 noncontrolling 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 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:
Fair value of consideration
NCI @ % of net assets P375,000
NCI @ fair value P375,000
Non-controlling interests Previously-held interest Total Fair value of identifiable net assets Goodwill
120,000 200,000 695,000 600,000 P95,000
140,000 200,000 615,000 600,000 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 noncontrolling 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 Cash and cash equivalents Accounts receivable Inventory Equipment (net) Total assets Liabilities and Equity Current liabilities Fair value of net assets (assets - liabilities)
Book Value P300,000 100,000 200,000 600,000 1,200,000
Fair Value P300,000 100,000 240,000 800,000 1,440,000
P200,000
P200,000 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
Fair value of subsidiary Less book value of interest acquired: Stockholders’ equity (net assets) Interest acquired Book value Excess Allocation/adjustment: Inventory Equipment (10 years) Goodwill
Company Implied Parent Fair Value Price (80%) P1,250,000 P1,000,000 P1,000,000 P250,000
NCI Value (20%)* P250,000
P1,000,000 P1,000,000 80% 20% P800,000 P200,000 P200,000 P50,000
(40,000) (200,000) 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 fair value Fair value of net assets (excluding goodwill) Goodwill
Company Implied Parent Fair Value Price (80%) P1,250,000 P1,000,000 1,240,000 992,000 P10,000 P8,000
NCI Value (20%) P250,000 248,000 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. 2. 3. 4. 5.
NCI in comprehensive income of subsidiary. NCI in net assets of subsidiary. Consolidated total comprehensive income attributable to parent shareholders. Consolidated retained earnings. 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:
Retained earnings, January 1
P Company 2012 2013 P500,000
S Company 2012 2013 P200,000
Total comprehensive income Dividends declared Amortization of allocated excess: Inventory Equipment (P200,000/10)
150,000 180,000 80,000 70,000 2012 2013 P40,000 20,000 20,000
100,000 60,000
90,000 40,000
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 Comprehensive income – P Company P150,000 Dividend income (80%) (48,000) Comprehensive income from own operation – P Company 102,000 Adjusted comprehensive income – S Company 40,000 Consolidated comprehensive income 142,000 NCI in comprehensive income of subsidiary (8,000) Attributable to parent shareholders P134,000 This is presented in the consolidated statement of comprehensive income. Consolidated retained earnings, December 31 2012 Retained earnings, January 1 – P Company P500,000 Consolidated comprehensive income attributable to parent 134,000 Dividends declared – P Company (80,000)
2013 P180,000 (32,000) 148,000 70,000 218,000 (14,000) P204,000 2013 P554,000 204,000 (70,000)
Consolidated retained earnings, December 31 Consolidated stockholders’ equity Common stock – P Company (assumed) APIC (assumed) Retained earnings Controlling interest NCI Stockholders’ equity
P554,000 P688,000 2012 2013 P900,000 P900,000 400,000 400,000 554,000 688,000 1,854,000 1,988,000 246,000 252,000 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 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 Retained earnings – sure Goodwill Investment in Sure
2,400,000 350,000 120,000
c. . capital stock – sure Retained earnings – sure Investment in Sure
2,400,000 350,000
d. capital stock – sure Retained earnings – sure Investment in Sure NCI
P3,000,000 437,500
2,870,000
2,750,000
2,750,000 687,500
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 Capital stock, P100 pa value
P110,400 200,000
P28,800 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 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-05. 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 -0Goodwill -07,500 Property & equipment (net) 270,000 359,900 Total Current liabilities NCI Capital stock Retained earnings total
P15,000 -0350,000 111,000 P476,000
P28,000 25,000 350,000 111,000 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) Dividends
P50,000 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 Cash dividend declared
P84,000 63,000
2013: Comprehensive income from operations Cash dividend declared
P10,500 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:
Investment in Sony (Equity) Other Assets Total
Pony 12/31/2013 12/31/2013 P131,000 138,000 P115,000 P269,000 P115,000
Common stock Additional paid in capital Retained earnings Total
P 50,000 80,250 138,750 P269,000
Sotto
P 20,000 44,000 51,000 P115,000
1/1/2013 P100,000 P100,000 P 20,000 44,000 36,000 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 P32,000 114,000 6,000
Current receivables due from Sony Co. Non-current receivables from Sony Co. Cash advance to Sure Corp. Cash advance from Stop Co. Inter-company payable to Stop Co.
Credit
P15,000 101,000
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 -022. 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:
Net income Dividends paid
Phil P2,500,000 900,000
Sony P600,000
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 Retained eranings
P200,000 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: a. b. c. d.
Parent P(24,000) P24,000 P(24,000) P30,000
NCI P(6,000) P6,000 -
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-forsale 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 Current assets Buildings (net)
P165,000 140,000
Equipment (net) Total assets
100,000 P405,000
Liabilities and Equity Liabilities Common stock, P10 par Retained earnings Total Liabilities and equity
P65,000 100,000 240,000 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 Internally generated net income, 2012
Penny P520,000
Sandy P250,000
Internally generated net income, 2013 Intercompany merchandise sales, 2012 Intercompany merchandise sales, 2013 Intercompany inventory, December 31, 2012 Intercompany inventory, December 31', 2013 Cost of real estate sold on January 1, 2012 Sales price of real estate on January 1, 2012 Depreciable life ofbuilding
3440,000
235,000 100,000 20,000 15,000 20,000
600,000 800,000 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 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 Company. 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 November 15, 2013
950,000
-
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
300,000
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: Sales Cost of sales Gross profit
Pat P1,000,000 400,000 P 600,000
Sir P700000 350,000 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 PP150,000 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 Inventory acquired from S2
P175,000 60,000
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 a. P25,300 b. P27,000 c. P29,000 d. P25,000
Inventory balance P4,900 P5,000 P7,000 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 a. P20,000 b. P30,000 c. P 52,00 d. P20,000
Consolidated net income P53,000 P40,000 P47,000 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. b. c. d.
P339,600 P346,000 P343,600 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 a. P1,100,000 b. P1,100,000 c. P900,000 d. P850,000
Accumulated depreciation P300,000 P290,000 P40,000 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 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:
Sales Cost of sales Begini ning inventory Ending inventory
Bee Corp P130,000 100,000 None None
Cee Corp P91,000 65,000 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. b. c. d.
P26,000 P41,000 P47,800 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. b. c. d.
P10,000 P13,000 P50,000 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 Sally Company
P500,000 262,500
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: Sales Other income Cost of goods sold Operating expenses
Pedro P600,000 40,000 320,000 150,000
Sally P300,000 15,000 180,000 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. 2. 3. 4. 5. 6. 7. 8. 9. 10.
A B C D B C B B C C
11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
A A C B B B C A C B
21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
D B C B C C C A A A
31. 32. 33. 34. 35. 36. 37. 38 39. 40.
A A A B B C B C B B
41 42. 43. 44. 45. 46. 47. 48. 49. 50.
B D B D C C B A D C
51. 52. 53. 54. 55. 56. 57. 58. 59. 60.
C B D A B B B B A A
SOLUTIONS AND EXPLANATIONS 1. implied fair value of NCI (P2,800,000/80%) x 20% Price paid (parent) Total Less book of identifiable net assets- Sure Goodwill
P70,000 2,800,000 3,500,000 3,437,500 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) Less book value of identifiable net assets – Simon Excess Allocated to plant assets Goodwill No 20 Continued Total assets at book value before acquisition — Pablo Pride paid at acquisition Acquisition-related costs Total assets after acquisition Pablo Total assets at fair value — Simon: Cash Accounts receivable
P150,000 110,500 39,500 (12,000) P27,500 P 494,500 (150,000) ( 32,700) P 311,800
P15,500 35,800
Inventory Plant assets Goodwill Consolidated assets
10,200 90,000
3. Capital stock Pablo APIC — Pablo Retained earnings (P134,100 P32,700) Stockholders' equity, May 1, 2013
151,500 27,500 P490,800 P 200,000 50,000 101,400 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 Price paid (parent) Total Less book value of identifiable net assets — Stop Excess Allocation/adjustments: Inventories Property and equipment Gain on acquisition
P 105,500 395,000 500,000 450,000 50,000 P(25,000) (50,000)
75,000) 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).
Company fair value Fair value of
Total Fair Value P500,000 525,000
Parent price(80%) P395,000 420,000
NCI (20%) P105,000 105,000
identifiable net assets Gain on acquisition
P(25,000)
P(25,000)
P-
7. Capital stock Papa APIC - Papa Retained earnings Papa Controlling interest NCI (P1,952,000/80%) x 20% Stockholders' equity
P 4,000,000 3,000,000 6,840,000 13,840,000 488,000 P14,328,000
8. NCI at fair value (1,000 shares x P 140) Price paid (parent) Total Less book value of identifiable net assets — Sun Goodwill Assets Pop Assets Sun Price paid Goodwill Total assets Capital stock Pop Retained earnings Pop Controlling interest NCI Stockholders' equity 9. Consolidated current assets Current assets a Pit Current assets elimination is Sam Intercompany receivable eliminated Current assets Sam 10. Fair value of net assets after acquisition Sam (P25,000/20%) Less allocated excess:
P140,000 520,000 660,000 600,000 P60,000 P 3,800,000 850,000 (520,000) 60,000 P 4,190,000 P 1,500,000 950 000 2,450,000 140,000 P 2,590,000 P140,000 106,000 P40,000 2,000 P 42,000 P125,000
Plant and equipment Goodwill Book value of identifiable net assets before acquisition
P12,500 7,500
20,000 P 105,000
11. Price paid (parent) Divided by parent's interest Implied value of subsidiary NCI share implied fair value of NCI 12. NCI at implied fair value Price paid (parent) Total Less book value of identifiable net assets Sure Excess Allocation/adjustments: 'inventories adding Goodwill
P2,000,000 ÷80% P2,500,000 x20% P500,000
P 500,000 2,000,000 2,500,000 1,875,000 625,000 P(100,000) (200,000)
(300,000) P325,000
P 500,000 P(i00,000) 20a00 (300,000) Pure 13. Total comprehensive income -As Pure Dividend income (P100,000 x 80%) Total comprehensive income from own operations Total comprehensive income Sure Amortization of excess to: Inventories (100%) Building (P200,000/5) Consolidated total comprehensive income NCI net income (P360,000 x 20%) Attributable to parent shareholders
P 600,000 (80,000) 520,000 P500,000 (100,000) (40,000)
360,000 880,000 72,000 P808,000
14. Net assets at book value (S/E, 1/1 - Sure Increase in undistributed earnings (P500,000 P100,000) Net assets at book value (S/E), 12/31- Sure Unamortized excess (P625,000 - P140,000) Net assets at fair value (S/E), 12/31 --- Sure NCI proportionate share NCI 15. NCI-date of acquisition, 1/1/013 (P270,000/90%) x 10% NCI Dividends paid by Seal (P10,000 x 10%) NCI total comprehensive income of Seal (P20,000 x 10%) NCI, 12/11/013 16. Total comprehensive income from own operations Power Total comprehensive income from own operations ---Star Consolidated total comprehensive income 17. NCI, 1/1/013 (P140,000/70%) x 30% NCI dividends paid by Star (P5,000 x 30%) NCI net income (P50,000 x 30%) NCI 12/31/11
P1,875,000 400,000 P2,275,000 485,000 P2,760,000 20% P552,000 P30,000 (1,000) 2,000 P31,000 P120,000 50,000 P170,000 P 60,000 (1,500) 15,000 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 Dividends received (P63,000 x 40%) Share in subsidiary's net income (P84,000 x 40%) 2013: Share in Subsidiary's net income (P105,000/2) x 40% Balance, June 30 Sale (300/1,200) x P304,500 Dividends received P(P94,500 x 30%)
P 294,000 (44,100) 33,600 21,000 304,500 ( 76,125) ( 28,350)
Share in subsidiary's net income(P105,000/2) x 30% Balance, December 31, 2013 19. Retained earnings, 12/31/013 - Sotto Dividends paid Retained earnings, I2/31/013 before dividends Retained earnings, January 1, 2013 Net income --- Sotto Multiply by Investment income
P 51,000 5,000 P 56,000 36,000 P 20,000 x40% P 80000
20. Investment account balance, 12/31/013 Dividends received (P5,000 x 40%) Investment income price paid, January 1, 2013
P 131,000 2,000 (8,000) P 125 000
15,750 P520,275
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 Increase in earnings (P2,500,000 P900,000) Consolidated stockholders' equity, 12131/013
P16,000,000 1,600,000 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% Price paid (parent) Total Less book of identifiable net assets Sisa Excess allocated to equipment 24. NCI, January 1, 2013 NCI in subsidiary dividends (2,000 shares x P20) 25% NCI in adjusted total comprehensive income --- Sisa: Total comprehensive income
P 69,000 207,000 P 276,000 250,000 P 26,000 P 69,000 (10,000)
P60,000
Amortization (P26,000/10) Adjusted total comprehensive income
(2,600) P57,400
NCI NCI, December31, 2013
25%
25. Total comprehensive income Pinoy Dividend income (P40,000 x 75%) Total comprehensive income from own operations Pinoy Adjusted total comprehensive income --- Sisa Consolidated total comprehensive income NCI total comprehensive income Attributable to parent
14,350 P 73,350 P 100,000 (30,000) 70,000 57,400 127,490 14,350 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 fair value Fair value of identifiable net assets Gain on acquisition
Company Implied Fair Value P 646,000 670,000
Parent Price (80%) P512,000 536,000
NCI Value (20%)
P(24,000)
P(24,000)
P-
P134,000* 134,000
*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%) January 1, 2013 Total shares acquired Parent's interest (8,000/10,000) NCI No. 28 - continued Fair value of NCI: Price paid Fair value ofpreviouslyeheld interest [(P315 000/7,000) x 1,000] Total Fair value of NCI (P360,000/80%) x 20% 29. Goodwill is computed as follows: Price paid, January 1, 2013 Fair value of previously-held interest (P315,000/7,000) x 1000] Fair value of NCI (P360,000/80%) x 20% Total Less book value of identifiable net assets SS Excess Allocated to Equipment Goodwill 30. Total comprehensive income - Pearl Dividend income Realized gain Building Total comprehensive income from own operations Total comprehensive income Serena
1,000 shares 7,000 8,000 shares 80% 20%
P315,000 45,000 P360,000 P90 000 P315,000 45,000 90,000 P450,000 340,000 110,000 (50,000) P60,000
P108,000 (18,000) 4,000 94,000 P20,000
Unrealized gain on sale of machine Realized gain Consolidated total comprehensive income
31. Consolidated total comprehensive income (No. 30) NCI total comprehensive income (P12,000 x 10%) Attributable to controlling interest 32. Internally generated net income, 2012 Penny Gain on sale of real estate, 1/1/012 Realized gain, 12/31/012 [(80% x P200,000)120] Adjusted internally generated net income Internally generated net income, 2012 Sandy Unrealized profit in ending inventory (40% x P15,000) (6,000) Consolidated net income NCI net income (20% x P244,000) Attributable to controlling interest
- (10,000)2,000
P106,000 1,200 P104,800 P520,000 (200,000) 8,000 P250,000 (6,000)
33. Internally generated net income, 2013 Puny Realized gain Adjusted internally generation net 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 Consolidated total comprehensive income NCI net income (20% x P233,000) Comprehensive income attributable to controlling interest 34.
12,000 P106,000
P328,000 244,000 P572,000 48,800 P523,200 P 340,000 8,000 348,000
233,000 581,000 46,600 P534,000
Total comprehensive income Primo Dividend income Total comprehensive income from own operations Total comprehensive income Sofa Consolidated total comprehensive income NCI net income (25% x P90,000) Comprehensive income attributable to parent 35. Retained earnings, 1/1/013 Padre Consolidated total comprehensive income attributable to parent: Consolidated total comprehensive income NCI net income (20% x P80,000) Dividends declared — Padre Consolidated retained earnings, 12/31/013
P250,000 (13,500) 236,500 90,000 326,500 22,500 P304,000 P1,000,000 P400,000 (16,000)
36. Total comprehensive income from own operations Peru Total comprehensive income from own operations Syria Amortization of excess book value over cost (P30,000/3) Consolidated total comprehensive income 37. Ending inventory (P100,000 /2) Gross profit rate of the selling affiliate Spirit Unrealized intercompany profit
384,000 (100,000) P1,284,000 P400,000 100,000 10,000 P510,000
50,000 40% 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 Steve Company net income Intercompany profit in ending inventory Adjusted net income NCI Total comprehensive income attributable to NCI
2012 P80,000 ( 2,000) P78,000 30% P23,400
2013 P 90,000 4,000 P94,000 30% P 28,200
39. Inventory acquired from PG Cost of goods sold --- from PG Inventory acquired from PG Gross profit rate of PG (P750/P2,500) Intercompany profit in ending inventory
P500,000 400,000 PI00,000 30% P30,000
40. Intercompany sales from PP to ST: Sales PP Sales ST Total sales Consolidated sates Intercompany sales Unsold to outsiders Ending inventory of ST acquired from PP Cost ratio of PP (PI 50,000/P200,000) Cost of inventory of ST acquired from PP
P200,000 140,000 P340,000 308,000 P 32,000 37.5% P 12,000 75% P 9,000
41. PM Company total comprehensive income from own operations SP Company total comprehensive income from own operations Total comprehensive attributable to NCI: SP net income Realized profit in inventory Total NCI Consolidated total comprehensive income attributable to parent
P120,000 90,000 P90,000 2,000 P92,000 30%
42. PP's selling expenses SS's selling expenses Eliminate freight costs for intercompany sales consolidated selling expenses
(27,600) P182,400
P110,000 40,000 (5,000) 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 Eliminations: Unrealized profit in ending inventory: Downstream Ending inventory P 15,000 Gross profit rate 33.33% Unrealized profit ( Consolidated current asset
P320,000
Upstream P60,000 20% P12,000
(17,000) P3O3,000
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 P250,000) Inventory acquired from S2, at cost: P60,000 x 75% (P150,000 P200,000) Consolidated inventory, at cost 47.
P425,000 45,000 P470,000
NCI on December 31, 2013 consolidated statement of financial position NCI in unrealized profit on merchandise sold To PPG (P22,000 x 25/125) x 20% NCI in net assets of SVT as of December 31, 2013 Divided by Net assets of SVT on December 31, 2013
P 82,420 880 P 83,300 20% P416,500
48. Consolidated net income is computed as follows: Sales: PQ P40,000 ST 28,000 Cost of sales: PQ (P28,000 x 75%) P21,000 ST 19,600 Gross profit Unrealized profit in ending inventory of PQ: Ending inventory (P28,000 x P 7,000 25%) Gross profit rate 30% (P8,400/P28,000) Consolidated total comprehensive income Inventory balance is computed below: Ending inventory ofPQ (P28,000 x 25%) Unrealized inventory profit Inventory balance at cost
P 68,000 40,600 P 27,400
(2,100) P25,300 P 7,000 ( 2,100) 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 Intercompany purchases Unrealized profit in ending inventory (P16,000 x 37.5%*) Consolidated cost of goods sold Gross profit rate of PR (P18,000 / P48,000) Consolidated total comprehensive income: Total sales (P48,000 + P67,000 Cost of goods sold Total comprehensive income
P 62,000 ( 48,000) 6,000 P20 000 37.5% P115,000 62,000 P 53,000
Unrealized profit in ending inventory consolidated total comprehensive income
(6,000) 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% Total C/ attributable to NCI (Schedule 1) Consolidated total comprehensive income attributable to parent Schedule 1: Attributable to NCI SD's net income from own operations Realized profit in beginning inventory (upstream sale) Unrealized profit in ending inventory (upstream sale) SD's total comprehensive income from outsiders NCI Attributable to NCI
( 13,500) ( 28,800) P495,200
P150,000 7,500 (13,500) P144,000 20% P28,800
51. Pan's total comprehensive income from own operation -- 2013 Sol’s total comprehensive income from own operation 2013 Realized profit in beginning inventory (P20,000 x 60%) unrealized profit in ending inventory (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)
P250,000 120,000 12,000 ( 15,000)
Net income from outsiders P117,000 NCI % 20% Consolidated total comprehensive income attributable to parent December 31,2013
( 23,400) P343,600
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 Cost of sales to combined entity: (P100,000 x P65,000/P130,000) Gross profit
P 91,000 ( 50,000) 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 Accumulated depreciation: On date of acquisition For 1 year
P100,000 P 25,000 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 00,000P100,000) 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 SST Company total comprehensive income Total Unrealized gain on sale of equipment
P 85,000 45,000 130,000 ( 15,000)
Realized gain (P15,000/3 yrs.) Total comp. income attributable to NCI: SST Co. total comprehensive income Unrealized gain Realized gain Adjusted total comprehensive income NCI Consolidated total comprehensive income attributable to parent
5,000 P 45,000 ( 15,000) 5,000 35,000 40%
(14,000) P106,000
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%) Unrealized gain (P90,000 S P50,000) Realized gain, 12/31/011 (P40,000 5) x 9/12 Investment Income account balance, 12/311013
P210,000 ( 40,000) 6,000 P176,000
58. Peter total comprehensive income from own operations Investment Income, 12/31/013 consolidated total comprehensive income attributable to parent Alternative computations? Peter total comprehensive income from own operations Sally total comprehensive income from own operations Unrealized gain Realized gain Total comp. income attributable to NCI (P262,500 x 20%) Consolidated total comprehensive income attributable to parent
P 500,000 176,000 P 676,000 P 500,000 262,500 (40,000) 6,000 (52,500) P676,000
59. NCI at fair value (P1,000,000/80%) x 20% Price paid (parent), Total Less book value of net assets – Sally, 1/1/08 Goodwill
P250,000 1,000,000 1,250,000 1,000,000 P250,000
60. Total comprehensive income from own operations – Pedro Unrealized profit in ending inventory [(25%/125%)xP18,000] Realized profit in beginning inventory (20% x 15,000) Adjusted total comprehensive income 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 Consolidated total comprehensive income Attributable to NCI (20% c P91,000) Attributable to controlling interest
P170,000 (3,600) 3,000 169,400
91,000 260,400 18,200 P242,200
