Chapter 9Consolidated Financial Statement

(IFRS 10)

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

Consolidated financial statementsThese 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 singleeconomic entity. Consolidated financial statements are prepared when an entity controls oneor more other entities.

Consolidation Procedures – Basic PrinciplesWhen preparing consolidated financial statements, an entity first combines the financialstatements of the parent and the subsidiaries on a “line-by-line” basis by adding together likeitems of assets, liabilities, equity, income, and expenses. So that the consolidated financialstatements 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’sportion of equity in each subsidiary are eliminated. Goodwill or gain on a bargainpurchase if any is recognized.

(b) Non-controlling interests in the profit or loss of consolidated subsidiaries for thereporting period are identified; and

(c) Non-controlling interests in the net assets of consolidated subsidiaries are identifiedseparately from the parent’s ownership interests in them. Non-controlling interests inthe net assets of the subsidiaries consists of:

I. The amount of those non-controlling interests at the date of the originalcombination; and

II. The non-controlling interests’ share of changes in equity since the date of thecombination

Non-controlling interest is defined as the equity in a subsidiary not attributable directly orindirectly, 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. Inventoriesb. Plant Assets

Preparation of Consolidated Statement of Financial Position at Date of Acquisition – WhollyOwned Subsidiary

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

The amounts of the consolidated assets and liabilities (except goodwill) are the parentcompany’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 netassets. On the other hand, of the consideration given is less than the fair value of thesubsidiary’s identifiable net assets, gain on acquisition (closed to parent’s retainedearnings) is recognized.

Preparation of Consolidated statement of financial position at Date of Acquisition – PartiallyOwned Subsidiary

the consolidation of a parent company and its partially owned subsidiary differs from theconsolidation of a wholly owned subsidiary in one major aspect – the recognition of non-controlling interest (formerly minority interest). Non-controlling interest (NCI) represents theclaims of the other stockholders other than the parent company (controlling interest) to thenet 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 anybusiness transaction or event of either the parent or the subsidiary and therefore not recordedin 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 aconsistent basis for similar types of business combinations and therefore, an entity has a freechoice between the two options for each transaction undertaken. However the fair valueoption is more appropriate than the non-controlling interests’ proportionate share of theacquiree’s identifiable net assets, since it results in the recognition of the non-controllinginterest’s share of goodwill [IFRS 3 (2008).]

For the purpose of measuring non-controlling interest at fair value, it may be possible todetermine the acquisition-date fair value on the basis of active market prices of the equityshares not held by the acquirer. When the market price is not available, the acquirer shouldestimate 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 thanthe NCI percentage of the fair value of the net assets of the subsidiary. If this is the case theNCI 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 themeasurement 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) theamount of NCI, and (iii) the fair value of the parent’s previously held interest in thesubsidiary; 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 P160,000when 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 ofP375,000. On the acquisition date, the fair value of S Company’s identifiable net assetswas P600,000. The fair value of P Company’s original 30% holding was P200,000 and thefair value of the 20% non-controlling interest is assessed as P140,000.

Using the two options, goodwill is calculated as follows:

NCI @ % of netassets

NCI @fair value

Fair value of consideration P375,000 P375,000

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

On the other hand, gain on acquisition (bargain purchase) is recognized when the fair value ofidentifiable 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 gainis 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 thecompany fair value with the recorded book value of the subsidiary. It also schedules theadjustments 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 Companyfor 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 ValuesJanuary 2, 2013

Assets Book Value Fair ValueCash and cash equivalents P300,000 P300,000Accounts receivable 100,000 100,000Inventory 200,000 240,000Equipment (net) 600,000 800,000Total assets 1,200,000 1,440,000

Liabilities and EquityCurrent liabilities P200,000 P200,000Fair value of net assets (assets - liabilities) P1,240,000

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

Note the following features of the D & A schedule for and 80% parent ownership interest:

The “fair value of subsidiary” line contains the implied value of the entire company, theparent price paid, and the implied value of the NCI.

The total stockholders’ equity of the subsidiary (the net assets of the subsidiary at bookvalue) is allocated 80/20 to the controlling interest and NCI.

The excess of fair value over book value is shown for the company, the controllinginterest, and the NCI, this line means that the entire adjustment of subsidiary net assetswill be P250,000. The controlling interest paid P200,000 more than the underlying bookvalue 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

CompanyImplied

Fair ValueParent

Price (80%)NCI Value

(20%)*Fair value of subsidiary P1,250,000 P1,000,000 P250,000Less book value of interest acquired:

Stockholders’ equity (net assets) P1,000,000 P1,000,000 P1,000,000Interest acquired 80% 20%Book value P800,000 P200,000

Excess P250,000 P200,000 P50,000Allocation/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 entiresubsidiary company is worth P1,250,000 (P1,000,000/80%). This is called the “implied value” ofthe subsidiary company. Assuming this to be true, the NCI is worth 20% of the total subsidiarycompany value (20% x P1,250,000 = 25,000). This technique assumes that the price the parentwould pay is directly proportional to the size of the interest purchased. This value should notbe 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 fairvalue of the identifiable net assets is prepared as follows:

CompanyImplied

Fair ValueParent

Price (80%)NCI Value

(20%)Company fair value P1,250,000 P1,000,000 P250,000Fair value of net assets (excluding goodwill) 1,240,000 992,000 248,000Goodwill P10,000 P8,000 P2,000

Preparation of Consolidated Financial Statement on a Date Subsequent to Acquisition. IFRS10 requires that all intercompany transactions must be eliminated before the preparation ofconsolidated financial statement.

The elimination procedures to prepare consolidated financial statements on a date subsequentto acquisitions are summarized below:

1. Eliminate dividends declared by the subsidiary against dividend income and NCIshare.

2. Eliminate subsidiary equity accounts against the investment account and the NCI asof the date of acquisition.

3. Allocate excess between the aggregate of NCI, price paid by the parent, andpreviously-held interest and the book value of the identifiable net assets of thesubsidiary. This is done by adjusting the book value of the net assets to their currentfair 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 Company2012 2013 2012 2013

Retained earnings, January 1 P500,000 P200,000

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

NCI in net income of subsidiary 2012 2013Net income – S Company P100,000 P90,000Amortization of allocated excess (60,000) (20,000)Adjusted net income – S Company 40,000 70,000NCI 20% 20%NCI in comprehensive income of subsidiary P8,000 P14,000This is presented in the consolidated statement of comprehensive income.NCI in net assets of subsidiary: 2012 2013Book value of net assets of S Company, January 2 P1,000,000 1,040,000Increase in earnings during the year:

Net income 100,000 90,000Dividends declared (60,000) (40,000)Increase in earnings 40,000 50,000

Book value of net assets, December 31 1,040,000 1,090,000Unamortized excess:

Excess 250,000 250,000Amortization (60,000) (80,000)Unamortized 190,000 170,000

Fair value of net assets of S Company, December 31 P1,230,000 P1,260,000NCI 20% 20%NCI in net assets of subsidiary P246,000 P252,000This is presented in the stockholders’ equity section of the consolidated statement of financialposition.

Consolidated comprehensive income attributable to parent 2012 2013Comprehensive income – P Company P150,000 P180,000Dividend income (80%) (48,000) (32,000)Comprehensive income from own operation – P Company 102,000 148,000Adjusted comprehensive income – S Company 40,000 70,000Consolidated comprehensive income 142,000 218,000NCI in comprehensive income of subsidiary (8,000) (14,000)Attributable to parent shareholders P134,000 P204,000This is presented in the consolidated statement of comprehensive income.Consolidated retained earnings, December 31 2012 2013Retained earnings, January 1 – P Company P500,000 P554,000Consolidated comprehensive income attributable to parent 134,000 204,000Dividends declared – P Company (80,000) (70,000)

Consolidated retained earnings, December 31 P554,000 P688,000Consolidated stockholders’ equity 2012 2013Common stock – P Company (assumed) P900,000 P900,000APIC (assumed) 400,000 400,000Retained earnings 554,000 688,000Controlling interest 1,854,000 1,988,000NCI 246,000 252,000Stockholders’ equity P2,100,000 P2,240,000

INTERCOMPANY PROFIT IN INVENTORY

Intercompany profit in inventory exists when there is intercompany sale of merchandisebetween affiliates. Downstream intercompany sales of merchandise are those from a parentcompany to its subsidiary. Upstream intercompany sales are those from subsidiary to theparent company. Intercompany profit in inventories is computed by simply multiplying theinventory 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 inventoryis sold to outside parties. In the following year, this unrealized profit in ending inventory will bethe realized profit in beginning inventory.

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

Intercompany merchandise sales are eliminated; only the purchase and sale tooutsiders should remain in the consolidated statements.

The profit must be eliminated from beginning inventory of the buying affiliate byreducing the cost of goods sold and the retained earnings.

The profit must be eliminated from the ending inventory of the buying affiliate bothby reducing the inventory and by increasing the cost of goods sold.

Unpaid intercompany trade payables/receivables resulting from intercompanymerchandise sales are eliminated.

In the computation of the NCI in total comprehensive income of subsidiary at the end of theyear, under upstream sale, the unrealized profit in ending inventory is subtracted from thesubsidiary net income while the realized profit in beginning inventory is added to arrive at theadjusted subsidiary income. The adjusted total comprehensive income is then multiplied by theNCI 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-ownedsubsidiary, there is no effect on the NCI net income, because the selling affiliate does not haveNCI.

In computing consolidated total comprehensive income, the intercompany profit in inventoryis 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 outsideparties or through use.

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

The gain on intercompany sale of non-depreciable fixed asset (land) cannot berecognized until (if ever) the land is sold to outside parties. The gain is deducted fromthe land account. In the year of intercompany sale, the gain is eliminated; in laterperiods, retained earnings in reduced for the amount of gain.

A gain on the intercompany sale of a depreciable fixed asset is eliminated in theperiod of sale and the net asset account restored to its book value as if no sales ismade. The gain is realized over the depreciable life of the asset as a reduction fromeach period’s depreciation expense.

To compute the comprehensive income applicable to NCI in the year of sale, under theupstream sale, the subsidiary net income is adjusted by subtracting the unrealized gain andadding 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 ofthe selling affiliate is adjusted for the unrealized gain on sale of plant assets.

PROBLEMS1. On May 1,2013, Pete Corporation acquires 80% of the outstanding common stock of SureCompany for P2,800,000. Professional fees paid to effect paid to effect the combinationamounts to P70,000. On the date of acquisition, the stockholders’ equity of Sure Company is asfollows:Capital Stock P3,000,000Retained earnings 437,500On May 1, the book value of the net assets of Sure is equal to their fair values. NCI is measuredat implied fair value.

In the preparation of consolidated statement of financial position on May 1,2013, what is theworking paper elimination entry?a. capital stock – sure P3,000,000

Retained earnings – sure 437,500Goodwill 62,500

Investment in Sure P2,800,000NCI 700,000

b. capital stock – sure 2,400,000Retained earnings – sure 350,000Goodwill 120,000

Investment in Sure 2,870,000

c. . capital stock – sure 2,400,000Retained earnings – sure 350,000

Investment in Sure 2,750,000

d. capital stock – sure P3,000,000Retained earnings – sure 437,500

Investment in Sure 2,750,000NCI 687,500

2. On May 1,2013, the separate statement of financial position of Pablo Corporation and SimonCompany are as follows:

Pablo SimonCash P145,700 P15,500Accounts receivable 120,500 35,800Inventories 42,500 10,200Plant assets 185,800 78,00Total assets P494,500 P139,500

Liabilities P110,400 P28,800Capital stock, P100 pa value 200,000 50,000

Additional paid in capital 50,000 -Retained earnings 134,100 60,700Total liabilities &stockholders’ equity

P494,500 P139,500

On May 1,2013 Pablo acquired 100% of Simon’s outstanding capital stock for P100,000. Pabloincurred additional P32,700 in acquisition-related costs. All the assets of Simon are failry valuedexcept 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 assetswill be reported?a. P646,000b. P490,000c. P523,300d. P634,000

3. Using the same data in No. 2, what amount of stockholders’ equity will be reported in theconsolidate statement of financial position on May 1,2013?a. P384,100b. P494,800c. P351,400d. 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 P300,000Accounts receivable 200,000 Long-term liabilities 500,000Inventories 500,000 Capital stock, P1 par value 100,000Property & equipment 900,000 Retained earnings 800,000Total assets P1,700,000 Total liabilities & equity P1,700,000On December 31,2013, Pluto Corporation purchases all of the outstanding stock of SisaCompany for P1,500,000 cash. On that date, the fair (market) value of Sisa’s inventories andproperty and equipment are P450,000 and P1,000,000 respectively. The fair values of all otherassets 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. P500,000b. P550,000c. P600,000d. P-0-

5. Using the same data in No. 4, the consolidated statement of financial position on December31,2013 of Pluto and Sisa should report a goodwill in the amount of:a. P500,000b. P550,000

c. P600,000d. P650,000

6. On December 31,2013, Parco Corporation purchased 80% of the outstanding common stockof Stop Company for P395,000 cash. The condensed statement of financial position of StopCompany as of the date of the purchase is shown below (in thousands):

Assets Liabilities and stockholders’ equityCash P150 Liabilities P400Inventories 250 Common stock, P1 par value 50Property & equipment (net) 450 Additional paid in capital 100

____ Retained earnings 300Total P850 Total P850On December 31,2013, the inventories and property and equipment of Stop had a fair values ofP275,000 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 offinancial position of Parco Corporation and its subsidiary Stop Company on December 31,2013?a. P(30,000)b. P30,000c. P(25,000)d. P25,000

7. On January 2,2013, Papa, Inc. acquired 80% of the outstanding shares of Son Company forP1,952,000 cash. At the time of the acquisition, the stockholders’ equity section of the twocompanies is shown below:

(in thousands)Papa Inc. Son Company

Common stock P4,000 P1,600Additional paid in capital 3,000 480Retained earnings 6,840 420total P13,840 P2,500Assuming NCI is measured at its implied fair value. What is the stockholders’ equity on theconsolidated of financial position on January 2,2013?a. P13,840,000b. P14,328,000c. P17,260,000d. P15,440,000

8. The condensed statement of financial position of Pop Corporation and Sun Company as ofOctober 31,2013 are presented below:

Pop Corp. Sun Co.Assets P3,800,000 P850,000

liabilities 1,350,000 250,000Common stock, P100 par 1,500,000 500,000Retained earnings 950,000 100,000total P3,800,000 P3,800,000On October 31,2013, Pop Corporation acquired 4,000 shares of Sun Company at P520,000. Themarket 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 thestockholders’ equity are to be reported at:

Total assets Stockholders’ equitya. P4,170,000 P2,570,000b. P4,190,000 P2,590,000c. P4,562,000 P2,450,000d. P4,562,000 P2,500,000

9. Pit Corporation acquired 80% of the outstanding stock of Sam Company. The separatestatement of financial position of Pit Corporation immediately after the acquisition and theconsolidated statement of financial position are as follows:

Pit Corp. ConsolidatedCurrent assets P106,000 P146,600Investment in Sam Company 100,000 -0-Goodwill -0- 7,500Property & equipment (net) 270,000 359,900Total

Current liabilities P15,000 P28,000NCI -0- 25,000Capital stock 350,000 350,000Retained earnings 111,000 111,000total P476,000 P514,000

P12,500 of the excess payment for the investment in Sam was ascribed to undervaluation of itsproperty and equipment; the balance of the excess payment was ascribed to goodwill. Currentassets 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 atthe time Pit acquired its 80% interest?a. P104,000b. P38,000c. P42,000d. P40,000

10. Using the same data in No. 9, what was the stockholders’ equity of Sam Company before Pitacquired its 80% interest?

a. P100,000b. P117,000c. P105,000d. 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 interestacquired 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 paiddividends of P100,000.

11. What is the fair value on NCI on January 1, 2013?a. P500,000b. P375,000c. P525,000d. P400,000

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

13. What is the consolidated total comprehensive income attributable to parent on December31,2013, if Pure’s net income for 2013 is P600,000?a. P860,000b. P888,000c. P808,000d. P948,000

14. What is the NCI in net assets of subsidiary on December 31,2013?a. P455,000b. P552,000c. P495,000d. P495,900

15. Pearl Company paid P270,000 for a 90% interest in Seal Company on January 1,2013. Thestockholders’ equity of Seal Company included paid in capital of P200,000 and retainedearnings of P100,000.

During 2013 the total comprehensive of Pearl Company was P60,000 and dividends paid wereP20,000.

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

What is the non-controlling interest (NCI) on December 31,2013?a. P30,000b. P31,000c. P70,000d. 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 P140,000when Star stockholders’ equity consisted P30,000 common stock, P100,000 additional paid incapital, and P20,000 retained earnings. Income and dividend data for Star are as follows:

Net Income (or loss) P50,000Dividends 5,000

NCI is measured at fair value.

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

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

17. What is the NCI at December 31, 2013?a. P149,600b. P148,000c. P 73,500d. P151,370

18. On January 1, 2013 Pat Corporation acquired 1,200 shares of the outstanding capital stockof 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. Theinvestment is accounted for by the equity method.On July 1,2013, Pat Corporation sold 300 shares of its investment of Sub Company stock forP45,000. Changes in the retained earnings account of Sub Company are as follows:

2012: Comprehensive income from operations P84,000Cash dividend declared 63,000

2013: Comprehensive income from operations P10,500Cash dividend declared 94,500

What is the balance of the investment in associate account on December 31,2013?a. P520,275b. P308,700c. P213,100d. P250,500

19. On January 1,2013, Pony Inc. purchased 40% of Sotto Company’s outstanding commonstock. On that date, the carrying amount of Sotto’s assets and liabilities approximated their fairvalues. During 2013, Sotto paid P5,000 cash diidends to its stockholders. Summarizedstatement of financial position for the two companies follows:

Pony Sotto12/31/2013 12/31/2013 1/1/2013

Investment in Sony (Equity) P131,000Other Assets 138,000 P115,000 P100,000Total P269,000 P115,000 P100,000

Common stock P 50,000 P 20,000 P 20,000Additional paid in capital 80,250 44,000 44,000Retained earnings 138,750 51,000 36,000Total P269,000 P115,000 P100,000

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

20. Using the same data in No. 19, what is the price paid by Pony on January 1,2013?a. P285,000b. P125,000c. P269,000d. P384,000

21. Panasonic Corporation has several subsidiaries that are included in its consolidated financialstatements. In its December 31,2013, trila balance, Panasonic had the following inter-company balancesbefore eliminations:

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

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

22. On January 1,2013, Phil. Inc. issued 400,000 additional shares of P10 par value common stock for allof 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’snet assets was P8,000,000.

Data from separate company’s 2013 operations follows:

Phil SonyNet income P2,500,000 P600,000Dividends paid 900,000

What is the consolidated stockholders’ equity at December 31,203?a. P19,320,000b. P17,600,000c. P26,200,000d. P18,200,000

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

Common stock, par P100 P200,000Retained eranings 50,000

The excess between the price paid and the book value of subsidiary net assets is allocated to equipmentwhich 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 ofP2of its common stock.

What is the excess allocated to equipment on January 1,203?a. P69,000b. P20,000c. P26,000d. P15,00024. Using the same data in No. 23, what is the NCI on December 3,2013?a. P45,000b. P73,350c. P42,500d. 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. P7145,000b. P143.000c. P7113,050d. 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 EquityCash and cash equivalents P 20,000 Current liabilities P250,000Inventory 280,000 Common stock, P5

par50,000

Property and equipment 400,000 APIC 130,000Goodwill 100,000 Retained earnings 370,000Total assets P800,000 Total liabilities and

equityP800,000

On the date of acquisition, Pluto believes that the inventory has a fair value of P400,000 andthat 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 theconsolidated statement of financial position?

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

d. P24,000

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

Parent NCIa. P(24,000) P(6,000)b. P24,000 P6,000c. 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 fromexisting stockholders for P315,000. This purchase increased PP's interest to 80%. SS Companyhad the following statement of financial position just prior to PP's second purchase:

Assets Liabilities and Equity

Assets Liabilities and EquityCurrent assets P165,000 Liabilities P65,000Buildings (net) 140,000 Common stock, P10

par100,000

Equipment (net) 100,000 Retained earnings 240,000Total assets P405,000 Total Liabilities and

equityP405,000

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

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

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

29. On January 1, 2013 consolidated statement of financial position, what is the amount ofgoodwill to be reported?

a. P60,000b. P15,000c. P25,000d. P40,000

30. The separate statements of comprehensive income of Pearl Company and its 90% ownedsubsidiary, Serena Company, for the year ended December 31,2013 below the following:

Pearl company Serena companyComprehensive income P108,000 P20,000Dividend income 18,000 -The following additional data apply:

On January 1,2013, Serena Company purchased a building, with a book value ofP100,000 and an estimated 20-year life, from Pearl Company for P180,000. The buildingwas 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 toPearl Company for P60,000. The machine had an expected life of 5 years and is beingdepreciated on a straight-line basis with no salvage value. Serena company is a dealerfor the machine.

On December 31,2013, what is the consolidated comprehensive income?a. P106,000b. 122,000c. 142,000d. 130,000

31. Using the same data in No. 30. On December 31,2013, what is the consolidatedcomprehensive income attributed to controlling interest?a. P104,000b. 122,000c. 120,000d. 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 sellsmerchandise to Penny, which then sold to outside parties. The gross profit on all such sales is40%. 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 SandyInternally generated netincome, 2012

P520,000 P250,000

Internally generated netincome, 2013

3440,000 235,000

Intercompany merchandisesales, 2012

100,000

Intercompany merchandisesales, 2013

20,000

Intercompany inventory,December 31, 2012

15,000

Intercompany inventory,December 31', 2013

20,000

Cost of real estate sold onJanuary 1, 2012

600,000

Sales price of real estate onJanuary 1, 2012

800,000

Depreciable life ofbuilding 20years

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

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

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

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

34. Primo Company acquired 75% in Sofa Company, which is recorded on a cost basis. For thefiscal 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 wasP90,000. There was intercompany interest on bonds of P10,000. Sofa company paid dividendsof P18,000.

What is the consolidated comprehensive income attributable to parent on June 30,2013?a. P295,450b. P304,000

c. P317,950d. P326,500

35. On January 1, 2013, Padre Company purchased an 80% investment in Saintpang. The price paid was equal to Padre's interest in Saint’s net assets at thatdate. On January 1, 2013, Padre and Saint had retained earnings of P1,000,000 andP200,000 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. P1,300,000b. P1,284,000c. P1,532,000d. P1,540,000

36. On January 1, 2013, Peru Company paid P900,000 for an 80% interest in SyriaCompany at a price of P30,000 less than the underlying book value. The excesswas 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 asfollows:Peru P400,000Syria 100,000

What is the consolidated comprehensive income on December 31, 2013?a. P476,000b. P490,000C. P510,000d. 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 ofthe merchandise remained in Pal's inventory. For 2013, gross profit percentageswere 30% for Pal and 40% for Spirit.

No. 37 Continued

What amount of unrealized intercompany profit in ending inventory at December31, 2013 should be eliminated in consolidation?

a, P40,000b. P20,000c. P16,000d. P15,000

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

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

Compute the NCI in Steve total comprehensive income for 2012 and 2013.2010 2011

a. P24,000 P27,000b. P23,400 P26,400c. P23,400 P28,200d. P24,600 P27,600

39. SB Company is a wholly owned subsidiary of PG Corporation. The following areexcerpts from the 2013 condensed statements of comprehensive income of thetwo companies:

(In thousands)PG Corp. SB Co.

Sales to SB P 500Sales to others 2,000 P1,500Total P2,500 P1,500Cost of goods sold

From PG P400From others P1,750 950

Total P1,750 P1,350Gross 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 beeliminated from SB's inventory is:

a. P150,000b. P 30,000c. P 45,000d. P120,000

40. Selected information from the separate and consolidated income statements of PPCorporation and its subsidiary, ST Company for the year ended December 31,2013 are as follows:

PP Corp. ST Co. ConsolidatedSales P200,000 P140,000 P308,000Cost of goods sold 150,000 110,000 231,000Gross profit P 50,000 P 30,000 P77,000

During 2013, PP Corporation sold goods to ST Company at the same markup oncost that P uses for all sales. At December 31, 2013, ST had not paid all of thesegoods 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. P12,000b. P 9,000c. P 3,000d. P 6,000

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

During 2012, SP sold merchandise to PM for P10,000 at a profit of P2,000. Themerchandise 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 onDecember 31, 2013?a. P210,000b. P182,400c. P183,000d. 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'sending 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 costsfor goods sold to SS.

What amount of selling expenses should be reported in PP's 2013 consolidatedstatement of comprehensive income?a. P150,000b. P148,000c. P 147,500d. P145,000

43. On June 30, 2013, PJ Corporation issued 150,000 shares of its P20 par commonstock for which it received all of SG company's common stock. The fair value ofthe common stock issued is equal to the book value of SG company's net assets.Both companies continued to operate as separate businesses, maintaining accountingrecords with years ending December 31. Net income from own operations anddividends paid were:

PJ Corp. SG Co.Net income:Six months ended 6130/013 P750,000 P225,000Six 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 onDecember 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. P1,650,000b. P1,905,000C. P1,950,000d. P2,130,000

44. PX Co. had the following transactions with two subsidiaries, S1 and S2 during2013:

Sales of P60,000 to S1, Inc., with P20,000 gross profit, S1 had P15,000 of thisinventory on hand at year end.

Purchases of raw materials totaling P240,000 from S2 Corp., a wholly-owned

subsidiary. S2's gross profit on the sale was P48,000. PX had P60,000 of thisinventory remaining on December 31, 2013.

Before eliminating entries, PX had combined current assets of P320,000, Whatamount should PX report in its December 31, 2013, consolidated statement offinancial position for current assets?

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

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

Pat SirSales P1,000,000 P700000Cost of sales 400,000 350,000Gross profit P 600,000 P350,000

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

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

46. Selected data for two subsidiaries of Fafa Corp. taken from December 31, 2013pre-closing trial balances are as follows:

S1 Co. S2 Co.Debit Credit

Shipments to S P- P150,000Shipments from S2 200,000 -Intercompany inventoryProfit on total shipments - 50,000Additional data relating to the December 31, 2013 inventory are as follows:

Inventory acquired from outside parties P175,000 P250,000Inventory acquired from S2 60,000

At December 31, 2013 the inventory reported on the combined statement of financial positionof the two subsidiaries should be:

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

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

On December 31, 2013, PPG company had in its inventories P22,000 of merchandise purchasedfrom SVT Company at 125% of cost; on the same date, SVT Company's inventories includedP15,000 of merchandise which were purchased from PPG Company at 120% of cost. The NCIreported on the consolidated statement of financial position at December 31, 2013 wasP82,420. For 2013, PPG Company reported income of P215,600 computed under the equitymethod. NCI net income was P26,180.

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

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

48. The PQ Corporation owns 60 percent of the voting shares of ST Companv. During2013, ST Company sold merchandise costing P19,600 to Corporation for P28,000. PQ receivedP40,000 when it resold 75 percent of the merchandise to outsiders before the end of 2013. Theremaining 25 percent was held as inventory by PQ on December 31, 2013. The companies hadno other transactions during 2013.

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

Consolidated comprehensive income Inventory balancea. P25,300 P4,900b. P27,000 P5,000c. P29,000 P7,000d. P25,000 P7,000

49. PR Corporation holds 80 percent of the stock of SR Company. During 2013 PRpurchased merchandise for P40,000 and resold P30,000 to SR for P48,000. SRCompany 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 transactionsin 2013.

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

Cost of goods sold Consolidated net incomea. P20,000 P53,000b. P30,000 P40,000c. P 52,00 P47,000d. P20,000 P47,000

50. PC Corporation purchased 80 percent interest in SD Company for P600,000 onJanuary 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 SDSales P1,000,0® P500,000Income from subsidiary SD 112,000Cost 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 andone-fourth of it remained in PC's December 31, 2013 inventory. During 2013 SD's sales to PCamounted to P90,000. This merchandise cost SD P63,000 and one-half of it remained in PC'sDecember 31, 2013 inventory.

What is the consolidated comprehensive income attributable to parent on Decem-ber 31,2013?

a. P492,600b. P492,000C. P495,200d. 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 P120,000Intercompany cost of sates 40,000 60,000Intercompany merchandise, in Pan's

inventory at December 31 at billed 20,000 30,000

pricesComprehensive income from its ownoperations:

Pan Company 200,000 250,000Sol Company 80, 000 120,000

At January 1, 2012 Pan owned 80 percent of the outstanding voting common stock of SolCompany, acquired several years ago at book value.

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

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

54. On January 1, 2013, Poe Corp. sold a machine for £900,000 to Sex Corp.. its wholly-ownedsubsidiary, Poe paid P1,100,000 for this machine, which had accumulated depreciation ofP250,000, Poe estimated a P100,000 salvage value and depreciated the machine on the straightline 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 andaccumulated depreciation as:

Cost Accumulated depreciationa. P1,100,000 P300,000b. P1,100,000 P290,000c. P900,000 P40,000d. P850,000 P42,500

55. On January 1, 2011 SST Company purchased a computer with an expected life of5 years. On January 1, 2013 $ST company sold the computer to PMN corporaitonand recorded the following entry:Cash P39,000Accumulated Depreciation 16,000

Computer Equipment 40,000Gain on sale of Equipment 15,000

PMN Corporation holds 60% of the voting shares of SST Company SST Company and PMNCorporation reported income from its own operations of P45,000 and P85,000 for 2013respectively. There is no change in the estimated life of the equipment as a result ofintercompany sale.

What is the consolidated total comprehensive income attributable to parent for2013.

a. P103,000

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

56. SS Corporation is 80 percent owned by PP Inc. On January 1, 2007, SS Corpora tion paidP100,000 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 consolidatedworking paper for 2013, the following workingPaper entry was made to eliminate the effects of the intercompany truck sale:Truck 48,000Gain on sale of truck 12,000

Depreciation expense 3,000Accumulated 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. Beesells exclusively from Bee, and Cee sells exclusively to unrelated companies. Selected 2013information for Bee and Cee follows:

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

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

53. On January 2, 2013, PG Corporation sold equipment costing P100,000 withaccumulated depreciation ofP25,000 to its wholly-owned subsidiary, SM Inc. Theselling price was P90,000. PG was depreciating the equipment on the straight-line sizemethod over twenty years with no salvage. SM continued this depreciation. Whatare the cost and accumulated depreciation, respectively, of this equipment in theDecember 31, 2013 consolidated statement of financial position?

a. P 75,000 and P 3,750b. P 90,000 and P 4,500c. P90,000 and P29,500d. P100,000 and P30,000

Bee Corp Cee CorpSales P130,000 P91,000Cost of sales 100,000 65,000Begini ning inventory None NoneEnding inventory None 65,000

No. 56 - ContinuedWhat amount of depreciation expense was recorded by PP Inc, during 2013?

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

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

On January 1, 2013, Peter Company purchases 80% percent of the outstandingstock of Sally Company at a cost of P800,000. On that date, Sally company’sstockholders' equity amounted to P800,000.

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

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

Peter Company P500,000Sally 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 PeterCompany?

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

58. What is the consolidated total comprehensive income attributable to parent onDecember 31, 2013?

a. PS78,000b. P676,000c. P271,000d. 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. Theequity balances of Sally at the time of the purchase were as follows:

Common stock P100,000Additional paid in capital 400,000Retained earnings 500,000Any excess of cost over book value is attributable to goodwill. No dividends were paid by eithercompany during 2013. The following income statement data were prepared for Pedro Companyand its subsidiary. Sally, Inc. on December 31 2013:

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

On January 1, 2013, Sally sold a machine to Pedro Company for P40,000. The machine cost SallyP50,000, and P25,000 of accumulated depreciation had been recorded as of the sale date. Themachine had a 5-year remaining life and no salvage value. Pedro Company is using straight-linedepreciation.

Since the purchase date, Pedro has sold merchandise for resale to Sally, Inc. at a mark-up oncost of 25%. Sales during 2013 were P150,000. The inventory of these goods held by Sally wasP15,000 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 consolidatedstatement of financial position, assuming goodwill is measured at fair value?

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

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

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

ANSWERS

1. A 11. A 21. D 31. A 41 B 51. C2. B 12. A 22. B 32. A 42. D 52. B3. C 13. C 23. C 33. A 43. B 53. D4. D 14. B 24. B 34. B 44. D 54. A5. B 15. B 25. C 35. B 45. C 55. B6. C 16. B 26. C 36. C 46. C 56. B7. B 17. C 27. C 37. B 47. B 57. B8. B 18. A 28. A 38 C 48. A 58. B9. C 19. C 29. A 39. B 49. D 59. A

10. C 20. B 30. A 40. B 50. C 60. A

SOLUTIONS AND EXPLANATIONS

1. implied fair value of NCI (P2,800,000/80%) x 20% P70,000Price paid (parent) 2,800,000Total 3,500,000Less book of identifiable net assets- Sure 3,437,500Goodwill 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’sinterest) and NCI. The excess is allocated to goodwill.

Therefore elimination entry (a) is correct.

2. consideration given (price paid) P150,000Less book value of identifiable net assets – Simon 110,500Excess 39,500Allocated to plant assets (12,000)Goodwill P27,500

No 20 ContinuedTotal assets at book value beforeacquisition — Pablo

P 494,500

Pride paid at acquisition (150,000)Acquisition-related costs ( 32,700)Total assets after acquisition Pablo P 311,800Total assets at fair value — Simon:Cash P15,500Accounts receivable 35,800

Inventory 10,200Plant assets 90,000 151,500Goodwill 27,500Consolidated assets P490,800

3.Capital stock Pablo P 200,000APIC — Pablo 50,000Retained earnings (P134,100 P32,700) 101,400Stockholders' 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 P1,500,000Less book value of identifiable netassets Sisa

900,000

Excess 600,000Allocation/adjustments of assets:Inventories P50,000Property and equipment (100,000) ( 50,000)Goodwill P550,000

6.NCI at fair value P 105,500Price paid (parent) 395,000Total 500,000Less book value of identifiablenet assets — Stop

450,000

Excess 50,000Allocation/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 valueof the NCI (PI00,000) is to be increased to P105,000 (20% of the fair value of the identifiable netassets of Stop).

Total Fair Value Parent price(80%) NCI (20%)Company fair value P500,000 P395,000 P105,000Fair value of 525,000 420,000 105,000

identifiable net assetsGain on acquisition P(25,000) P(25,000) P-

7.

8.

NCI at fair value (1,000 shares x P 140) P140,000Price paid (parent) 520,000Total 660,000Less book value of identifiable net assets —Sun

600,000

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

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

10.Fair value of net assets afteracquisition Sam(P25,000/20%)

P125,000

Less allocated excess:

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

Plant and equipment P12,500Goodwill 7,500 20,000Book value of identifiable netassets before acquisition

P 105,000

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

12.NCI at implied fair value P 500,000Price paid (parent) 2,000,000Total 2,500,000Less book value of identifiablenet assets Sure

1,875,000

Excess 625,000Allocation/adjustments:'inventories P(100,000)adding (200,000) (300,000)Goodwill P325,000

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

13.Total comprehensive income -As Pure P 600,000Dividend income (P100,000 x 80%) (80,000)Total comprehensive income from ownoperations

520,000

Total comprehensive income Sure P500,000Amortization of excess to: (100,000)Inventories (100%) (40,000) 360,000Building (P200,000/5) 880,000Consolidated total comprehensiveincome

72,000

NCI net income (P360,000 x 20%) P808,000Attributable to parent shareholders

14.Net assets at book value (S/E, 1/1 - Sure P1,875,000Increase in undistributed earnings (P500,000 -P100,000)

400,000

Net assets at book value (S/E), 12/31- Sure P2,275,000Unamortized excess (P625,000 - P140,000) 485,000Net assets at fair value (S/E), 12/31 --- Sure P2,760,000NCI 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 ownoperations Power

P120,000

Total comprehensive income from ownoperations ---Star

50,000

Consolidated total comprehensive income P170,000

17.NCI, 1/1/013 (P140,000/70%) x 30% P 60,000NCI dividends paid by Star (P5,000 x 30%) (1,500)NCI net income (P50,000 x 30%) 15,000NCI 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)/3,000Balance of Investment in Associate account, 12/31/013:

2012: Price paid P 294,000Dividends 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% 21,000Balance, June 30 304,500Sale (300/1,200) x P304,500 ( 76,125)Dividends received P(P94,500 x 30%) ( 28,350)

Share in subsidiary's net income(P105,000/2) x 30% 15,750Balance, December 31, 2013 P520,275

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

20.Investment account balance, 12/31/013 P 131,000

Dividends received (P5,000 x 40%) 2,000Investment income (8,000)price paid, January 1, 2013 P 125 000

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

22.Stockholders' equity, 1/1/013 —Phil P16,000,000Increase in earnings (P2,500,000 P900,000) 1,600,000Consolidated 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 69,000Price paid (parent) 207,000Total P 276,000Less book of identifiable net assets Sisa 250,000Excess allocated to equipment P 26,000

24.NCI, January 1, 2013 P 69,000NCI in subsidiary dividends (2,000shares x P20) 25%

(10,000)

NCI in adjusted totalcomprehensive income --- Sisa:Total comprehensive income P60,000

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

P57,400

NCI 25% 14,350NCI, December31, 2013 P 73,350

25.Total comprehensive income Pinoy P 100,000Dividend income (P40,000 x 75%) (30,000)Total comprehensive income from ownoperations Pinoy

70,000

Adjusted total comprehensive income --- Sisa 57,400Consolidated total comprehensive income 127,490NCI total comprehensive income 14,350Attributable to parent P 113,050

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

Parent Price(80%)

NCI Value (20%)

Company fair value P 646,000 P512,000 P134,000*Fair value of identifiable netassets

670,000 536,000 134,000

Gain on acquisition P(24,000) P(24,000) P-

*must at least equal

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

27. P24,000 and P0 respectively

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

No. 28 - continuedFair value of NCI:Price paid P315,000Fair value ofpreviouslyeheld interest [(P315000/7,000) x 1,000]

45,000

Total P360,000Fair value of NCI (P360,000/80%) x 20% P90 000

29. Goodwill is computed as follows:Price paid, January 1, 2013 P315,000Fair value of previously-held interest(P315,000/7,000) x 1000]

45,000

Fair value of NCI (P360,000/80%) x 20% 90,000Total P450,000Less book value of identifiable net assets SS 340,000Excess 110,000Allocated to Equipment (50,000)Goodwill P60,000

30.Total comprehensive income - Pearl P108,000Dividend income (18,000)Realized gain Building 4,000Total comprehensive income from ownoperations

94,000

Total comprehensive income Serena P20,000

Unrealized gain on sale of machine - (10,000)-Realized gain 2,000 12,000Consolidated total comprehensive income P106,000

31.Consolidated total comprehensive income(No. 30)

P106,000

NCI total comprehensive income (P12,000 x10%)

1,200

Attributable to controlling interest P104,800

32.Internally generated net income, 2012 Penny P520,000Gain on sale of real estate, 1/1/012 (200,000)Realized gain, 12/31/012 [(80% xP200,000)120]

8,000

Adjusted internally generated net income P328,000Internally generated net income, 2012 Sandy P250,000Unrealized profit in ending inventory (40% xP15,000) (6,000)

(6,000) 244,000

Consolidated net income P572,000NCI net income (20% x P244,000) 48,800Attributable to controlling interest P523,200

33.Internally generated net income, 2013Puny

P 340,000

Realized gain 8,000Adjusted internally generation netincome, 2013

348,000

Internally generated net income, 2013Sandy

P235,000

Unrealized profit in ending inventory(40% x P20,000)

(8,000)

Realized profit in beginning inventory 6,000 233,000Consolidated total comprehensive income 581,000NCI net income (20% x P233,000) 46,600Comprehensive income attributable tocontrolling interest

P534,000

34.

Total comprehensive income Primo P250,000Dividend income (13,500)Total comprehensive income from ownoperations

236,500

Total comprehensive income Sofa 90,000Consolidated total comprehensive income 326,500NCI net income (25% x P90,000) 22,500Comprehensive income attributable to parent P304,000

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

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

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

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

No. 38 – Continued

2012 2013Steve Company net income P80,000 P 90,000Intercompany profit in ending inventory ( 2,000) 4,000Adjusted net income P78,000 P94,000NCI 30% 30%Total comprehensive income attributable to NCI P23,400 P 28,200

39.Inventory acquired from PG P500,000Cost of goods sold --- from PG 400,000Inventory acquired from PG PI00,000Gross profit rate of PG (P750/P2,500) 30%Intercompany profit in ending inventory P30,000

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

41.PM Company total comprehensive incomefrom own operations

P120,000

SP Company total comprehensive incomefrom own operations

90,000

Total comprehensive attributable to NCI:SP net income P90,000Realized profit in inventory 2,000Total P92,000NCI 30% (27,600)Consolidated total comprehensive incomeattributable to parent P182,400

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

43. Under the acquisition method, the consolidated financial statements should report thecombined operations of the parent and the subsidiary from the date of acquisition andonwards. 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 comprehensiveincome.

The computation therefore of the consolidated total comprehensive income on December 31,2013 is as follows:PJ total comprehensive income from own operations P1,575,000SG total comprehensive income from own operations(6/30 to 12/31) 375,000Unrealized profit in ending inventory (45,000)Consolidated total comprehensive income, December31, 2013

P1,900,000

44.PX's current assets P320,000Eliminations:Unrealized profit in endinginventory:

Downstream UpstreamEnding inventory P 15,000 P60,000Gross profit rate 33.33% 20%Unrealized profit ( P12,000 (17,000)Consolidated currentasset

P3O3,000

45. When preparing the consolidated statement of comprehensive income, intercompany salesand purchases are to be eliminated. As a result of the intercompany sales Pat has recordedP250,000 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 ofcomprehensive income, computed as follows:Pat's cost of sales P400,000Sir's cost of sales 350,000Intercompany 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 financialposition should be at the original cost to the companies. The computation is shown below:

Inventory acquired from outsiders (P175,000P250,000)

P425,000

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

47.

NCI on December 31, 2013 consolidatedstatement of financial position

P 82,420

NCI in unrealized profit on merchandise soldTo PPG (P22,000 x 25/125) x 20% 880NCI in net assets of SVT as of December 31,2013

P 83,300

Divided by 20%Net assets of SVT on December 31, 2013 P416,500

48. Consolidated net income is computed as follows:Sales:PQ P40,000ST 28,000 P 68,000Cost of sales:PQ (P28,000 x 75%) P21,000ST 19,600 40,600Gross profit P 27,400Unrealized profit in endinginventory of PQ:Ending inventory (P28,000 x25%)

P 7,000

Gross profit rate(P8,400/P28,000)

30% (2,100)

Consolidated totalcomprehensive income

P25,300

Inventory balance is computed below:Ending inventory ofPQ(P28,000 x 25%)

P 7,000

Unrealized inventory profit ( 2,100)Inventory balance at cost P 4,900

49. Cost of goods sold in the consolidated of comprehensive incomeCost of goods sold per book:PR P 30,000SR (P48,000 - P 16,000) 32,000 P 62,000Intercompany purchases ( 48,000)Unrealized profit in ending inventory(P16,000 x 37.5%*)

6,000

Consolidated cost of goods sold P20 000Gross profit rate of PR (P18,000 / P48,000) 37.5%Consolidated total comprehensive income:Total sales (P48,000 + P67,000 P115,000Cost of goods sold 62,000Total comprehensive income P 53,000

Unrealized profit in ending inventory (6,000)consolidated total comprehensive income P4 7,000

50.PC's total comprehensive income from own operations:Total comprehensive income per incomestatement

P492,000

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

P495,200

Schedule 1: Attributable to NCISD's net income from own operations P150,000Realized profit in beginning inventory(upstream sale)

7,500

Unrealized profit in ending inventory(upstream sale)

(13,500)

SD's total comprehensive income fromoutsiders

P144,000

NCI 20%Attributable to NCI P28,800

51.Pan's total comprehensive income fromown operation -- 2013

P250,000

Sol’s total comprehensive income from own operation 2013 120,000Realized profit in beginning inventory(P20,000 x 60%)

12,000

unrealized profit in ending inventory(P30,000 x 50%)

( 15,000)

Comprehensive income attributable toNCI:Sol's total comprehensive income P120,000Realized profit in beginning inventory 12,000Unrealized profit in ending inventory ( 15,000)

Net income from outsiders P117,000NCI % 20% ( 23,400)Consolidated total comprehensiveincome attributable to parent December31,2013

P343,600

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

Sales to unrelated companies by Cee P 91,000Cost of sales to combined entity:(P100,000 x P65,000/P130,000) ( 50,000)Gross profit P41,000

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

The following are the balances the company would have had:

Cost P100,000Accumulated depreciation:

On date of acquisition P 25,000For 1 year 5,000 P 30,000

54. When preparing consolidated financial statements, the objective is to restate the accountsas if the intercompany transactions had not occurred. Therefore the 2013 gain on sale ofmachine of P50,000 [P900,000 -- (P1,100,000 –P250,000)] must be eliminated, since theconsolidated entity has not realized any gain. In, effect, the machine must be reflected on theconsolidated statement of financial position at 1/1/013 at Poe's cost of P1,100,000, andaccumulated depreciation of P250,000, instead of at a new "cost" of P900,000. For consolidatedstatement purpose, 2013 depreciation is based on the original amounts RP 1, 1 00,000-P100,000) x 1/20 = P50,000]. Therefore, in the 12/31/013 consolidated statement of financialposition, the machine is shown at a cost of P1,100,000 less accumulated depreciation ofP300,000 (P250,000 + P50,000).

55.PMN Corp. total comprehensive income P 85,000SST Company total comprehensiveincome

45,000

Total 130,000Unrealized gain on sale of equipment ( 15,000)

Realized gain (P15,000/3 yrs.) 5,000Total comp. income attributable to NCI:SST Co. total comprehensive income P 45,000Unrealized gain ( 15,000)Realized gain 5,000Adjusted total comprehensive income 35,000NCI 40% (14,000)Consolidated total comprehensiveincome attributable to parent

P106,000

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

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

58.Peter total comprehensive income from ownoperations

P 500,000

Investment Income, 12/31/013 176,000consolidated total comprehensive income attributableto parent

P 676,000

Alternative computations?Peter total comprehensive income from ownoperations

P 500,000

Sally total comprehensive income from own operations 262,500Unrealized gain (40,000)Realized gain 6,000Total comp. income attributable to NCI (P262,500 x20%)

(52,500)

Consolidated total comprehensive income attributableto parent

P676,000

59.NCI at fair value (P1,000,000/80%) x 20% P250,000Price paid (parent), 1,000,000Total 1,250,000Less book value of net assets – Sally, 1/1/08 1,000,000Goodwill P250,000

60.Total comprehensive income from own operations – Pedro P170,000Unrealized profit in ending inventory [(25%/125%)xP18,000] (3,600)Realized profit in beginning inventory (20% x 15,000) 3,000Adjusted total comprehensive income 169,400Total comprehensive income from ownoperations - Sally

103,000

Unrealized gain on sale of machine (15,000)Realized gain on sale of machine 3,000 91,000Consolidated total comprehensive income 260,400Attributable to NCI (20% c P91,000) 18,200Attributable to controlling interest P242,200