Soluti

Chapter 15Problem I

Investment in Shy Inc. [P2,500,000 + (15,000 P40)] 3,100,000Cash 2,500,000Common Stock 30,000Other Contributed Capital (P40 - P2) 15,000 570,000

Other Contributed Capital 30,000Acquisition Expense 67,000

Deferred Acquisition Charges 90,000Acquisition Costs Payable 7,000

Problem IICash: P74,000 = P44,000 + P30,000Accounts receivable: P155,000 = P110,000 + P45,000Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 – P70,000)]Land: P125,000 = [P80,000 + P25,000 + (P45,000 – P25,000)]Buildings and equipment: P900,000 = P500,000 + P400,000Accumulated depreciation: P388,000 = P223,000 + P165,000Goodwill (full-goodwill) = P40,000*Total Assets = P1,121,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000 –

P388,000 + P40,000, or:Total Assets of Power Corp. P 791,500 Less: Investment in Silk Corp. (150,500 )

P 641,000 Book value of assets of Silk Corp. 405,000 Book value reported by Power and Silk P1,046,000 Increase in inventory (P85,000 - P70,000)

15,000

Increase in land (P45,000 - P25,000) 20,000 Goodwill 40,000 Total assets reported (based on full- goodwill) P1,121,000

Accounts payable: P89,500 = P61,500 + P28,000Taxes payable P132,000 = P95,000 + P37,000Bonds payable: P480,000 = P280,000 + P200,000Total liabilities: P701,500 = P89,500 + P132,000 + P480,000Common stock: P150,000, parent onlyRetained earnings: P205,000, the amount reported by parentNon-controlling interest (full-goodwill): P64,500*Stockholders’ equity: P419,500

Consolidated SHE: Common stock P150,000 Retained Earnings 205,000 Parent’s SHE or Equity Attributable to Parent P355,000 NCI (full-goodwill) 64,500Consolidated SHE P419,500

Computation of Goodwill: Full-goodwill:

Fair value of Subsidiary: Consideration transferred P150,500 Add: FV of NCI **64,500 P215,000Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000Allocated excess P 75,000Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P70,000 – P85,000) x 100% P 15,000 Land (P25,000 – P45,000) x 100% 20,000 35,000Goodwill – full P 40,000

**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to P52,500 computed as follows :

FV of SHE of SS: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000

FV of SHE of SS P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

or, Partial Goodwill

Fair value of Subsidiary: Consideration transferred P150,500Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000Allocated excess P 52,500Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P15,000 x 70%) P

10,500 Land (P20,000 x 70%) 14,000 24,500Goodwill – partial P 28,000

If partial-goodwill:Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 +

P900,000 – P388,000 + P28,000, Non-controlling interest (partial-goodwill): P52,500 NCI

FV of SHE of SSD: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SSD P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

Stockholders’ equity: P419,500Consolidated SHE: Common stock P150,000 Retained Earnings 205,000 Parent’s SHE or Equity Attributable to Parent P355,000 NCI (partial-goodwill) 52,500Consolidated SHE P404,500

Problem III1. A. Investment in Sewell 675,000

Cash 675,000

B. Investment in Sewell 675,000 Cash 675,000

C. Investment in Sewell 318,000 Cash 318,000

2. A.

Fair value of Subsidiary: Consideration transferred P675,000Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%

705,000

Allocated excess P( 30,000)Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% (P10,000) Land (P50,000 – P70,000) x 100% __20,000 __10,000 Bargain Purchase Gain – full (P 40,000)

B. Partial Goodwill

Fair value of Subsidiary: Consideration transferred P675,000Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90%

634,500

Allocated excess P 40,500Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 90% (P9,000) Land (P50,000 – P70,000) x 90% __18,000 __9,000 Goodwill – partial P 31,500

Full-GoodwillFair value of Subsidiary:

Consideration transferred (P675,000/90%) P750,000Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%

705,000

Allocated excess P 45,000Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% (P10,000) Land (P50,000 – P70,000) x 100% __20,000 __10,000 Goodwill – full P 35,000

C. Partial Goodwill

Fair value of Subsidiary: Consideration transferred P318,000Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80%

624,000

Allocated excess (P306,000)Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 80% (P 8,000) Land (P50,000 – P70,000) x 80% __16,000 __8,000 Bargain Purchase Gain – partial (parent only) (P314,000)

Full-GoodwillFair value of Subsidiary: Consideration transferred P 318,000 FV of NCI* _158,000

P 476,000Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100%

780,000

Allocated excess (P304,000)Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% (P10,000) Land (P50,000 – P70,000) x 100% __20,000 _10,000 Bargain Purchase Gain – full (parent only) (P314,000)

*BV of SHE of S P780,000 Adjustments to reflect fair value 10,000 FV of SHE of S P790,000

x: NCI% 20% FV of NCI P158,000

3. A. Common Stock – Sewell 450,000

Other Contributed Capital – Sewell 180,000Retained Earnings – Sewell 75,000Land 20,000

Inventory 10,000Investment in Sewell 675,000Retained earnings (gain) – Parent (since

balance sheet accounts are being examined) 40,000 B. Partial-Goodwill (Proportionate Basis)

Common Stock – Sewell 450,000Other Contributed Capital – Sewell 180,000Retained Earnings – Sewell 75,000Land 20,000Goodwill 31,500

Inventory 10,000Investment in Sewell 675,000Non-controlling Interest 71,500

BV – SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000

Adjustments to reflect fair value 10,000 FV of SHE of Sewell P715,000

x: NCI% 10% FV of NCI (partial) P 71,500

Full-Goodwill (Fair Value Basis) Common Stock – Sewell 450,000

Other Contributed Capital – Sewell 180,000Retained Earnings – Sewell 75,000Land 20,000Goodwill 35,000

Inventory 10,000Investment in Sewell 675,000Non-controlling Interest 75,000



x: NCI% 10% FV of NCI (partial) P 71,500 NCI on Full-Goodwill

(P35,000 – P31,500) 3,500 FV of NCI (full) P 75,000

C. Partial-Goodwill (Proportionate Basis)

Common Stock – Sewell 620,000Other Contributed Capital – Sewell 140,000Retained Earnings – Sewell 20,000Land 20,000

Inventory 10,000Investment in Sewell 318,000Retained earnings (gain)–Parent (refer to 3A) 314,000Non-controlling Interest 158,000



x: NCI% 20% FV of NCI (partial) P158,000

Full-Goodwill (Fair Value Basis) Common Stock – Sewell 620,000Other Contributed Capital – Sewell 140,000Retained Earnings – Sewell 20,000Land 20,000

Inventory 10,000Investment in Sewell 318,000Retained earnings (gain)–Parent (refer to 3A) 314,000Non-controlling Interest 158,000



x: NCI% 20% FV of NCI (full) P158,000

Problem IV

1.January 1, 20x4

Investment in S Company…………………………………………… 408,000 Cash……………………………………………………………………..

408,000

2. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%) Consideration transferred……………………………….. P 408,000Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. P 240,000 Paid-in capital in excess of par (P24,000 x 24,000

100%)... Retained earnings (P96,000 x 100%)………………... 96,000 360,000 Allocated excess (excess of cost over book value)…… P 48,000Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. P 18,000 Increase in land (P72,000 x 100%)…………………… 72,000 Decrease in buildings and equipment (P12,000 x 100%)……………………………………... ( 12,000) Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000 Positive excess: Goodwill (excess of cost over fair value)…………………………………………………….. P 12,000

3. (E1) Common stock – S Co………………………………………………. 240,000 Additional paid-in capital – S Co…………………………………. 24,000 Retained earnings – S Co…………………………………………... 96.000 Investment in S Co………………………………………………… 360,000 Eliminate investment against stockholders’ equity of S Co.

(E2) Inventory………………………………………………………………….

18,000

Land………………………………………………………………………. 72,000 Goodwill…………………………………………………………………. 12,000 Buildings and equipment…………………………………………..

12,000

Premium on bonds payable………………………………………

42,000

Investment in S Co……………………………………………….. 48,000 Eliminate investment against allocated excess.

4. Eliminations

Assets P Co. S Co. Dr. Cr. Consolidated

Cash*………………………….P

12,000P

60,000 P 72,000Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 72,000 (2) 18,000 210,000Land……………………………. 210,000 48,000 (2) 72,000 330,000

Buildings and equipment (net) 480,000 360,000(2) 12,000 828,000

Goodwill…………………… (2) 12,000 12,000Investment in S Co…………. 408,000 (1) 360,000

(2) 48,000 -

Total AssetsP1,320,00

0P600,00

0 P1,602,000Liabilities and Stockholders’

Equity

Accounts payable…………… P 120,000P120,00

0 P 240,000Bonds payable………………… 240,000 120,000 360,000Premium on bonds payable (3) 42,000 42,000Common stock, P10 par……… 600,000 600,000

Common stock, P10 par……… 240,000(1)

240,000Paid in capital in excess of par. 60,000 60,000Paid in capital in excess of par. 24,000 (1) 24,000Retained earnings…………… 300,000 300,000

Retained earnings…………… _________ 96,00

0 (1) 96,000 __________ _________ Total Liabilities and Stockholders’ Equity

P1,320,000

P600,000

P 462,000

P 462,000 P1,602,000

(1) Eliminate investment against stockholders’ equity of S Co.(2) Eliminate investment against allocated excess.* P420,000 – P408,000 = P12,000.

5.

AssetsCash P 72,000Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment (net) 828,000Goodwill 12,000 Total Assets P1,602,000

Liabilities and Stockholders’ EquityLiabilities Accounts payable P 240,000 Bonds payable P 360,000 Premium on bonds payable 42,000 402,000 Total Liabilities P 642,000Stockholders’ Equity Common stock, P10 par P 600,000 Paid-in capital in excess of par 60,000 Retained earnings 300,000 Total Stockholders’ Equity P 960,000Total Liabilities and Stockholders’ Equity P1,602,000

Problem V1.

January 1, 20x4(1) Investment in S Company…………………………………………… 432,000 Cash……………………………………………………………………..

288,000

Common stock, P10 par……………………………………………..

120,000

Paid-in capital in excess of par…………………………………….

24,000

(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)……………………………………………………………

12,000

Cash…………………………………………………………………….

12,000

Acquisition- related costs.

(3) Paid-in capital in excess of par………………………………………..

8,400

Cash…………………………………………………………………….

8,400

Costs to issue and register stocks.

2. Schedule of Determination and Allocation of Excess

Date of Acquisition – January 1, 20x4Fair value of Subsidiary (100%) Consideration transferred Cash………………………………………………………. P 288,000 Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. P 240,000 Paid-in capital in excess of par (P96,000 x 100%).. 96,000 Retained earnings (P24,000 x 100%)………………... 24,000 360,000 Allocated excess (excess of cost over book value)…… P 72,000Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… 6,000 Adjusted allocated excess…………………………………. P 78,000Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. P 18,000 Increase in land (P72,000 x 100%)…………………… 72,000

Decrease in buildings and equipment (P12,000 x 100%)……………………………………... ( 12,000) Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000 Positive excess: Goodwill (excess of cost over fair value)…………………………………………………….. P 42,000

Alternatively, the unrecorded goodwill may also be computed by ignoring the existing goodwill in the books of the subsidiary, thus:

Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)Fair value of Subsidiary (100%) Consideration transferred……………………………………………………… P 432,000Less: Book value of stockholders’ equity of S……………………………….. 360,000 Allocated excess (excess of cost over book value)…………………………. P 72,000Less: Over/under valuation of assets and liabilities…………………………… 36,000 Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000Add: Existing Goodwill……………………………………………………………… 6,000 Positive excess: Goodwill (excess of cost over fair value)…………………………………………………………………………… P 42,000

3. Eliminations

Assets P Co. S Co. Dr. Cr. Consolidated

Cash*…………………………..P

111,600P

54,000 P 165,600Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 72,000 (2) 18,000 210,000Land……………………………. 210,000 48,000 (2) 72,000 330,000

Buildings and equipment (net) 480,000 360,000(2) 12,000 828,000

Goodwill…………………… 6,000 (2) 36,000 42,000Investment in S Co…………. 432,000 (4) 360,000

(5) 72,000 -


0P600,00

0 P1,725,600Liabilities and Stockholders’

Equity

Accounts payable…………… P 120,000P120,00

0 P 240,000Bonds payable………………… 240,000 120,000 360,000Premium on bonds payable (6) 42,000 42,000Common stock, P10 par**…..… 720,000 720,000


240,000Additional paid in capital*** 75,600 75,600Additional paid in capital…… 24,000 (1) 24,000Retained earnings**** 288,000 288,000

Retained earnings…………… _________ 96,00

0 (1) 96,000 __________ _________ Total Liabilities and Stockholders’ Equity

P1,443,600

P600,000 P 486,000

P 486,000 P1,725,600

(1) Eliminate investment against stockholders’ equity of Sky Co.(2) Eliminate investment against allocated excess.* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.*** P50,000 + P20,000 – P7,000 = P63,000. ****P300,000 – P12,000 = P288,000.

4. Assets

Cash P 165,600Accounts receivables 150,000Inventories 210,000

Land 330,000Buildings and equipment (net) 828,000Goodwill 42,000 Total Assets P1,725,600

Liabilities and Stockholders’ EquityLiabilities Accounts payable P 240,000 Bonds payable P 360,000 Premium on bonds payable 42,000 402,000 Total Liabilities P 642,000Stockholders’ Equity Common stock, P10 par P 720,000 Additional paid-in capital in excess of par 75,600 Retained earnings 288,000 Total Stockholders’ Equity P 1083,600Total Liabilities and Stockholders’ Equity P1,725,600

Problem VI1. Schedule of Determination and Allocation of Excess

Date of Acquisition – January 1, 20x4Fair value of Subsidiary (100%) Consideration transferred (P408,000 – P6,000)…….. P 402,000Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. P 240,000 Paid-in capital in excess of par (P96,000 x 100%)... 96,000 Retained earnings (P24,000 x 100%)………………... 24,000 360,000 Allocated excess (excess of cost over book value)…… P 42,000Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. P 18,000 Increase in land (P72,000 x 100%)…………………… 72,000 Decrease in buildings and equipment (P12,000 x 100%)……………………………………... ( 12,000) Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000 Positive excess: Goodwill (excess of cost over fair value)…………………………………………………….. P 6,000

2. Goodwill, P6,000

Problem VII1. Schedule of Determination and Allocation of Excess

Date of Acquisition – January 1, 20x4Fair value of Subsidiary (100%) Consideration transferred: Common stock: 24,000 shares x P14 per share P 336,000Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 100%)………………….. P 240,000 Paid-in capital in excess of par (P96,000 x 100%)... 96,000 Retained earnings (P24,000 x 100%)………………... 24,000 360,000 Allocated excess (excess of book value over cost)…… (P 24,000)Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. P 18,000 Increase in land (P72,000 x 100%)…………………… 72,000 Decrease in buildings and equipment ( 12,000)

(P12,000 x 100%)……………………………………... Increase in patent (P24,000 x 100%)………………... 24,000 Increase in contingent liability (P18,000 x 100%)…. ( 18,000) Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 42,000 Negative excess: Bargain Purchase Gain (excess of fair value over cost)…………………………………… (P 66,000)

2. Gain on acquisition, P66,000Problem VIIICase 1:Proportionate Basis (Partial-goodwill Approach)

Partial-goodwillFair value of subsidiary (80%):

Consideration transferred: Cash……………………….......P12,000,000 (80%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 80%................................. 5,760,000 (80%) Allocated excess.………………………………………………........P 6,240,000 (80%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 80%....................................... 1,920,000 (80%) Positive excess: Goodwill (partial)……………………………..... P 4,320,000 (80%)

Non-controlling interest Book Value of stockholders’ equity of subsidiary…………. P 7,200,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P9,600,000 – P7,200,000)….. 2,400,000

Fair value of stockholders’ equity of subsidiary…………… P 9,600,000 Multiplied by: Non-controlling interest percentage............ 20%

Non-controlling Interest (partial)……………………………….. P1,920,000Fair Value Basis (Full-goodwill Approach)

Full-goodwillFair value of subsidiary (100%):

Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 100%.............................. 7,200,000 (100%) Allocated excess.……………………………………………….. P 7,800,000 (100%) Less: Over/Undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%.................................... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%) The full – goodwill of P5,400,000 consists of two parts: Full-goodwill……………………………………………....... P 5,400,000 Less: Controlling interest on full-goodwill or partial-goodwill…………………………….….. 4,320,000 NCI on full-goodwill…………………………………….......P 1,080,000

Non-controlling interest Non-controlling interest (partial)……………………………….......P1,920,000

Add: Non-controlling interest on full -goodwill (P5,400,000 – P4,320,000 partial-goodwill) or (P5,400,000 x 20%)*…………………………………...... 1,080,000 Non-controlling interest (full)…………………………………........P3,000,000 * applicable only when the fair value of the non-controlling interest of subsidiary is not given.

Case 2:Proportionate Basis (Partial-goodwill Approach)


Consideration transferred: Cash……………………….....P 7,560,000 (60%) Less: Book value of stockholders’ equity (net assets) – S Company: P6,000,000 x 60%................................ 3,600,000 (60%) Allocated Excess.………………………………………………..... P 3,960,000 (60%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 60%...................................... 1,440,000 (60%) Positive excess: Goodwill (partial)…………………………….... P 2,520,000 (60%)

Non-controlling interest Book value of stockholders’ equity of subsidiary…………. P 6,000,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000

Fair value of stockholders’ equity of subsidiary…………….P 8,400,000 Multiplied by: Non-controlling Interest percentage............ 40%

Non-controlling interest (partial)……………………………….P 3,360,000

Fair Value Basis (Full-goodwill Approach) Full-goodwill

Fair value of subsidiary (100%): Consideration transferred: Cash ………………………...P 7,560,000 ( 60%) Fair value of NCI (given)………………………………….. 4,800,000 ( 40%) Fair value of subsidiary…………………………………………...P12,360,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P6,000,000 x 100%........................... 6,000,000 (100%) Allocated Excess.…………………………………………………..P 6,360,000 (100%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 100%.................................. 2,400,000 (100%) Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%)

The full – goodwill of P3,960,000 consists of two parts: Full-goodwill……………………………………………...P 3,960,000 Less: Controlling interest on full-goodwill or partial-goodwill……………………………. 2,520,000 NCI on full-goodwill……………………………………..P 1,440,000

Non-controlling interest Non-controlling interest (partial)………………………………P 3,360,000

Add: Non-controlling interest on full -goodwill (P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000 Non-controlling Interest (full)…………………………………..P 4,800,000

Case 3;Proportionate Basis (Partial-goodwill Approach)


Consideration transferred: Cash………………………..P 9,000,000 (75%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 75%.......................... 5,400,000 (75%) Allocated Excess.………………………………………………...P 3,600,000 (75%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 75%................................. 1,800,000 (75%) Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)

Non-controlling interest Book value of stockholders’ equity of subsidiary…………..P 7,200,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P9,600,000 – P7,200,000)…. 2,400,000

Fair value of stockholders’ equity of subsidiary……………P 9,600,000 Multiplied by: Non-controlling Interest percentage............ 25%

Non-controlling interest (partial)……………………………….P 2,400,000


Fair value of subsidiary…………………………………………. P 11,640,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 100%........................... 7,200,000 (100%) Allocated Excess.………………………………………………….P 4,440,000 (100%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%.................................. 2,400,000 (100%) Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)

The full – goodwill of P2,040,000 consists of two parts: Full-goodwill……………………………………………...P 2,040,000

Less: Controlling interest on full-goodwill or partial-goodwill…………………………….... 1,800,000 NCI on full-goodwill……………………………………. .P 240,000

Non-controlling interest Non-controlling interest (partial)………………………………P 2,400,000

Add: Non-controlling interest on full -goodwill (P2,040,000 – P1,800,000 partial-goodwill)…..……..... 240,000 Non-controlling Interest (full)…………………………………..P 2,640,000

Case 4:Proportionate Basis (Partial-goodwill Approach)


Consideration transferred: Cash………………………..P 2,592,000 (60%) Fair value of previously held equity interest in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%) Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%) Less: Book value of stockholders’ equity (net assets) – S Company: (P4,680,000 – P2,280,000) x 75%......... 1,800,000 (75%) Allocated Excess.………………………………………………....P 1,440,000 (75%) Less: Over/undervaluation of assets and liabilities: [(P6,120,000 – P2,280,000) – (P4,680,000 – P2,280,000)] x 75%................................ 1,080,000 (75%) Positive excess: Goodwill (partial)……………………………... P 360,000 (75%)

Non-controlling interest Book value of stockholders’ equity of subsidiary…………..P 2,400,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P3,840,000 – P2,400,000)…. 1,440,000

Fair value of stockholders’ equity of subsidiary……………P 3,840,000 Multiplied by: Non-controlling Interest percentage............ 25%

Non-controlling interest (partial)………………………………P 960,000


Fair value of subsidiary (100%): Consideration transferred: Cash………………………..P 2,592,000 (60%) Fair value of previously held equity interest in acquiree P2,592,000/60% = P4,320,000 x 15%...... 648,000 (15%) Fair value of NCI (given)…………………………………. 1,080,000 (25%) Fair value of subsidiary………………………………………….P 4,320,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P2,400,000 x 100%........................ 2,400,000 (100%) Allocated Excess.………………………………………………..P 1,920,000 (100%) Less: Over/undervaluation of assets and liabilities: (P3,840,000 – P2,400,000) x 100%................................ 1,440,000 (100%) Positive excess: Goodwill (full)………………………………...P 480,000 (100%)

The full – goodwill of P480,000 consists of two parts: Full-goodwill……………………………………………...P 480,000 Less: Controlling interest on full-goodwill or partial-goodwill…………………………….… 360,000 NCI on full-goodwill……………………………………..P 120,000

Non-controlling interest Non-controlling interest (partial)………………………………P 960,000

Add: Non-controlling interest on full -goodwill (P480,000 – P360,000 partial-goodwill)…..…………..... 120,000 Non-controlling Interest (full)……………………………………P 1,080,000

Problem IX Partial-goodwill (Proportionate Basis)

Fair value of subsidiary (75%): Consideration transferred: P270,000

Cash……………………….. (75%)Less: Book value of stockholders’ equity (net assets) – S Company: (P480,000 – P228,000) x 75%.......................................

189,000 (75%)

Allocated excess………………………………………………...

P 81,000 (75%)

Less: Over/undervaluation of assets and liabilities: [(P612,000 – P228,000) – (P480,000 – P228,000) x 75%

99,000 (75%)

Negative excess: Bargain purchase gain (to controlling interest or attributable to parent only)……………….

(P18,000) (75%)

Full-goodwill (Fair Value Basis)Fair value of subsidiary (100%): Consideration transferred: Cash………………………..

P270,000 ( 75%)

Fair value of non-controlling interest (given)…………

98,400 ( 25%)

Fair value of subsidiary …………………………………………

P368,400 (100%)

Less: Book value of stockholders’ equity (net assets) – S Company: (P480,000 – P228,000) x 100%.....................................

252,000 (100%)

Allocated excess………………………………………………...

P116,400 (100%)

Less: Over/undervaluation of assets and liabilities: [(P612,000 – P228,000) – (P480,000 – P228,000) x 100%

132,000 (100%)

Negative excess: Bargain purchase gain (to controlling interest or attributable to parent only)……………….

(P15,600) (100%)

Problem XPartial-goodwill ApproachSchedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%) Consideration transferred……………………………….. P 360,000Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 80%)……………………. P 192,000 Paid-in capital in excess of par (P96,000 x 80%).... 76,800 Retained earnings (P24,000 x 80%)……………….... 19,200 288,000 Allocated excess (excess of cost over book value)….. P 72,000Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 80%)……………… P 14,400 Increase in land (P72,000 x 80%)……………………. 57,600 Decrease in buildings and equipment (P12,000 x 80%)……………………………………..... ( 9,600) Increase in bonds payable (P42,000 x 80%)………. ( 33,600) 28,800 Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………... P 43,200

The over/under valuation of assets and liabilities are summarized as follows: Sky Co. Sky Co. Over/ Under

Book value

Fair value Valuation

Inventory………………….…………….. 72,000 90,000 18,000Land……………………………………… 48,000 120,000 72,000Buildings and equipment (net)......... 360,000 348,000 ( 12,000)Bonds payable………………………… (120,000) (162,000) 42,000Net……………………………………….. 360,000 396,000 36,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:Sky Co.

Book valueSky Co.

Fair value (Decrease)Buildings and equipment .................. 720,000 348,000 ( 372,000)Less: Accumulated depreciation….. 360,000 - ( 360,000)Net book value………………………... 360,000 348,000 ( 12,000)

The following entry on the date of acquisition in the books of Parent Company:January 1, 20x4(1) Investment in Sky Company……………………………………………

360,000

Cash……………………………………………………………………..

360,000

Acquisition of Sky Company.


14,400

Cash…………………………………………………………………….

14,400


The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4:(E1) Common stock – Sky Co……………………………………………….

240,000

Additional paid-in capital – Sky Co………………………………….

24,000

Retained earnings – Sky Co…………………………………………...

96,000

Investment in Sky Co…………………………………………………

288,000

Non-controlling interest (P300,000 x 20%)………………………..

72,000

Eliminate investment against stockholders’ equity of Sky Co.

(E2) Inventory………………………………………………………………….

18,000

Accumulated depreciation…………………………………………. 360,000 Land………………………………………………………………………. 72,000 Goodwill…………………………………………………………………. 43,200 Buildings and equipment…………………………………………..

372,000

Premium on bonds payable………………………………………

42,000


7,200

Investment in Sky Co………………………………………………..

72,000

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Partial-goodwill)

EliminationsAssets Peer Co. Sky Co. Dr. Cr. Consolidated

Cash*………………………….P

45,600P

60,000P

105,600Accounts receivable…….. 90,000 60,000 150,000

Inventory…………………. 120,000 72,000 (2) 18,000 210,000Land……………………………. 210,000 48,000 (2) 72,000 330,000

Buildings and equipment 960,000

720,000

(2) 372,000 1,308,000

Goodwill…………………… (2) 43,200 43,200Investment in Sky Co…………. 360,000 (1) 288,000

(2) 72,000 -


0P960,00

0 P 2,146,800Liabilities and Stockholders’

Equity

Accumulated depreciation P

480,000P360,00

0(2) 360,000 P 480,000

Accounts payable…………… 120,000 120,00

0 240,000Bonds payable………………… 240,000 120,000 360,000Premium on bonds payable (3) 42,000 42,000Common stock, P10 par……… 600,000 600,000


240,000Paid in capital in excess of par. 60,000 60,000Paid in capital in excess of par. 24,000 (1) 24,000Retained earnings**…………… 285,600 285,600

Retained earnings…………… 96,00

0 (1) 96,000Non-controlling interest…………

_________ _______ _________(1 ) 72,000 (2) 7,200 _79,200

Total Liabilities and Stockholders’ Equity

P1,785,600

P960,000 P 853,200

P 853,200 P2,146,800

(1) Eliminate investment against stockholders’ equity of Sky Co.(2) Eliminate investment against allocated excess.* P420,000 – P360,000 – P14,400 = P45,600.**P300,000 – P14,400 = P285,600.

Incidentally, the non-controlling interest on the date of acquisition is computed as follows:

Common stock – Sky company…………………………………… P 240,000Paid-in capital in excess of par – Sky co………………………… 24,000Retained earnings – Sky Co..………………………………………. 80,000 Book value of stockholders’ equity – Sky Co………..………….. P 360,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities)…………………………………………. 36,000 Fair value of stockholders’ equity of subsidiary………………… P 396,000Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial)………………………………….. P 79,200

The balance sheet:Peer Company and Subsidiary Consolidated Balance Sheet

January 1, 20x4Assets

Cash P 105,600Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment 1,308,000Accumulated depreciation ( 480,000)Goodwill 43,200 Total Assets P1,666,800

Liabilities and Stockholders’ EquityLiabilities Accounts payable P 240,000 Bonds payable P 360,000 Premium on bonds payable 42,000 402,000 Total Liabilities P 642,000Stockholders’ Equity Common stock, P10 par P 600,000 Paid-in capital in excess of par 60,000 Retained earnings 285,600 Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600Non-controlling interest 79,200 Total Stockholders’ Equity (Total Equity) P

1,024,800

Total Liabilities and Stockholders’ Equity P1,666,800

Full-goodwill ApproachSchedule of Determination and Allocation of Excess (Full-goodwill) Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%) Consideration transferred (P360,000 / 80%)………….. P 450,000Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 100%)…………………. P 240,000 Paid-in capital in excess of par (P96,000 x 100%).. 96,000 Retained earnings (P24,000 x 100%)…………….... 24,000 360,000 Allocated excess (excess of cost over book value)….. P 90,000Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………… P 18,000 Increase in land (P72,000 x 100%)…………………. 72,000 Decrease in buildings and equipment (P12,000 x 100%)…………………………………..... ( 12,000) Increase in bonds payable (P42,000 x 100%)……. ( 42,000) 36,000 Positive excess: Full -goodwill (excess of cost over fair value)………………………………………………... P 54,000

The following entry on the date of acquisition in the books of Parent Company:January 1, 20x4(1) Investment in Sky Company……………………………………………

360,000

Cash……………………………………………………………………..

360,000

Acquisition of Sky Company.


14,400

Cash…………………………………………………………………….

14,400


The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4:

(E1) Common stock – Sky Co……………………………………………….

240,000

Additional paid-in capital – Sky Co………………………………….

24,000

Retained earnings – Sky Co…………………………………………...

96,000

Investment in Sky Co…………………………………………………

288,000


72,000

Eliminate investment against stockholders’ equity of Sky Co.

(E2) Inventory………………………………………………………………….

18,000

Accumulated depreciation…………………………………………. 360,000 Land………………………………………………………………………. 72,000 Goodwill…………………………………………………………………. 54,000 Buildings and equipment…………………………………………..

372,000

Premium on bonds 42,000

payable……………………………………… Non-controlling interest [(P30,000 x 20%) + (P45,000 – P36,000)]…………………………………………….

18,000

Investment in Sky Co………………………………………………..

72,000

Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Full-goodwill)

EliminationsAssets Peer Co. Sky Co. Dr. Cr. Consolidated

Cash*………………………….P

45,600P

60,000P

105,600Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 72,000 (2) 18,000 210,000Land……………………………. 210,000 48,000 (2) 72,000 330,000

Buildings and equipment 960,000

720,000

(2) 372,000 1,308,000

Goodwill…………………… (2) 54,000 54,000Investment in Sky Co…………. 360,000 (1)

288,000(2) 72,000 -


0P960,00

0 P 2,157,600Liabilities and Stockholders’

Equity

Accumulated depreciation P

480,000P360,00

0(2) 360,000 P 480,000

Accounts payable…………… 120,000 120,00

0 240,000Bonds payable………………… 240,000 120,000 360,000Premium on bonds payable (2) 42,000 42,000Common stock, P10 par……… 600,000 600,000


240,000Paid in capital in excess of par. 60,000 60,000Paid in capital in excess of par. 24,000 (1) 24,000Retained earnings**…………… 285,600 285,600

Retained earnings…………… 96,00

0 (1) 96,000

Non-controlling interest…………_________ _______ _________

(1 ) 72,000 (2) 18,000 _90,000


P1,785,600

P960,000 P 864,000

P 864,000 P2,157,600

(1) Eliminate investment against stockholders’ equity of Sky Co.(2) Eliminate investment against allocated excess.* P420,000 – P360,000 – P14,400 = P45,600.**P300,000 – P14,400 = P285,600.


Non-controlling interest (partial)………………………………….. P 79,200Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800 Non-controlling interest (full)………………………………………. P 90,000

The balance sheet;Peer Company and SubsidiaryConsolidated Balance Sheet

January 1, 20x4Assets

Cash P 105,600Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment 1,308,000Accumulated depreciation ( 480,000)Goodwill 54,000 Total Assets P1,677,600

Liabilities and Stockholders’ EquityLiabilities Accounts payable P 240,000 Bonds payable P 360,000 Premium on bonds payable 42,000 402,000 Total Liabilities P 642,000Stockholders’ Equity Common stock, P10 par P 600,000 Paid-in capital in excess of par 60,000 Retained earnings 285,600 Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent

P 945,600

Non-controlling interest 90,000 Total Stockholders’ Equity (Total Equity) P

1,035,600Total Liabilities and Stockholders’ Equity P1,677,600

Problem XIPartial-goodwill Approach (Proportionate Basis)Schedule of Determination and Allocation of Excess (Proportionate Basis)) Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%) Consideration transferred: Common stock: 12,000 shares x P25 per share…... P 300,000Less: Book value of stockholders’ equity of S: Common stock (P12,000 x 80%)……………………. P 9,600 Paid-in capital in excess of par (P108,000 x 80%)... 86,400 Retained earnings (P72,000 x 80%)……………….... 57,600 153,600 Allocated excess (excess of cost over book value)…… P 146,400Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 80%)……………… P 4,800 Increase in land (P36,000 x 80%)……………………. 28,800 Increase in buildings and equipment (P150,000 x 80%)…………………………………...... 120,000 Increase in copyrights (P60,000 x 80%)…………….. 48,000 Increase in contingent liabilities – estimated liability for contingencies (P6,000 x 80%)……..... ( 4,800) 196,800 Negative excess: Bargain purchase gain to controlling interest or attributable to parent only)…………….. (P 50,400)

The over/under valuation of assets and liabilities are summarized as follows:

S Co. Book value

S Co.Fair value

Over/UnderValuation

Inventory………………….……………... P 60,000 P 66,000 P 6,000Land………………………………………. 48,000 84,000 36,000Buildings and equipment (net)......... 222,000 372,000 150,000Copyright……………………………….. -0- 60,000 60,000Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)Net undervaluation……………………. P 330,000 P 576,000 P246,000

The following entry on the date of acquisition in the books of Parent CompanyJanuary 1, 20x4(1) Investment in S Company…...…………………………………… 300,000 Common stock, P1 par………………………………………………

12,000

Paid-in capital in excess of par (P300,000 – P12,000 par) 288,000

…….. Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4:(E1) Common stock – S Co……………………………………………. 12,000 Additional paid-in capital – S Co………………………………. 108,000 Retained earnings – S Co………………………………………… 72,000 Investment in S Co……………………………………………… 153,600 Non-controlling interest (P192,000 x 20%)………………………..

38,400

Eliminate investment against stockholders’ equity of S Co

(E2) Inventory…………………………………………………………………..

6,000

Land………………………………………………………………………..

36,000

Buildings and equipment………………………………………………

150,000

Copyright………………………………………………………………....

60,000

Estimated liability for contingencies……………………………..

6,000

Investment in S Co……………………………………………... 146,400 Non-controlling interest (P246,000 x 20%)……………………….

49,200

Retained earnings (bargain purchase gain - closed to retained earnings since only balance sheets are being examined).............................................................................

50,400


Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Proportionate Basis)

EliminationsAssets P Co. S Co. Dr. Cr. Consolidated

Cash…………………P

334,800 P 334,800

Accounts receivable…….. 86,400P 24,000 110,400

Inventory…………………. 96,000 60,000 (2) 6,000 162,000Land………………………… 120,000 48,000 (2) 36,000 204,000

Buildings and equipment (net). 744,00

0 222,00

0 (2) 150,000 1,116,000Copyright……………………... (2) 60,000 60,000Investment in S Co…….. 300,000

__________ _________(1) 153,600(2) 146,400 -


0 354,000 P1,987,200 Liabilities and Stockholders’

Equity

Accounts payable………P

96,000 42,000 P 138,000Estimated liability for contingencies…

(2) 6,000 6,000

Bonds payable……… 240,000 120,000 360,000Common stock, P1 par*…..… 44,160 44,160Common stock, P1 par……… 12,000 (1) 12,000Paid-in capital in excess of par** 723,840 723,840

Paid-in capital in excess of par 108,000

(1) (1) 108,000

Retained earnings 577,200(2) 50,400 627,600

Retained earnings…………… 72,000 (1) 72,000Non-controlling interest…………

_________ _______ _________(1 ) 38,400 (2) 49,200 _87,600


P1,681,200

P354,000

P 444,000

P 444,000 P1,987,200

(1) Eliminate investment against stockholders’ equity of Scud Co.(2) Eliminate investment against allocated excess.* P32,160 + (12,000 shares xP1 par) = P44,160.**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.


Common stock – S Co……….………………………………… P 12,000Paid-in capital in excess of par – S Co…………………….. 108,000Retained earnings – S Co……………………………………… 72,000 Book value of stockholders’ equity – S Co…………………. P 192,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities)…………………………………………. 246,000 Fair value of stockholders’ equity of subsidiary………………… P 438,000Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial)………………………………….. P 87,600

The balance sheet:

AssetsCash P 334,800Accounts receivables 110,400Inventories 162,000Land 204,000Buildings and equipment (net) 1,116,000Copyright 60,000 Total Assets P1,987,200

Liabilities and Stockholders’ EquityLiabilities Accounts payable P 138,000 Estimated liability for contingencies 6,000 Bonds payable 360,000 Total Liabilities P 504,000Stockholders’ Equity Common stock, P1 par P 44,160 Paid-in capital in excess of par 723,840 Retained earnings 627,600 Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P1,395,600Non-controlling interest 87,600 Total Stockholders’ Equity (Total Equity) P1,483,200Total Liabilities and Stockholders’ Equity P1,987,200

Full-goodwill Approach (Fair Value Basis)Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis) Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%) Consideration transferred: Common stock: 12,000 x P25 (80%)……………… P 300,000 Fair value of NCI (given) (20%)………………………. 90,000 Fair value of subsidiary (100%)………………………. P 390,000Less: Book value of stockholders’ equity of S: Common stock (P12,000 x 100%)……………………. P 12,000 Paid-in capital in excess of par (P108,000 x 100%). 108,000 Retained earnings (P72,000 x 100%)………………... 72,000 192,000 Allocated excess (excess of cost over book value)…… P 198,000Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 100%)……………… P 6,000 Increase in land (P36,000 x 100%)…………………… 36,000 Increase in buildings and equipment (P150,000 x 100%)………………………………….... 150,000 Increase in copyrights (P60,000 x 100%)…………… 6,000 Increase in contingent liabilities – estimated liability for contingencies (P6,000 x 100%)…….. ( 6,000) 246,000

Negative excess: Bargain purchase gain to controlling interest or attributable to parent only)…………….. (P 48,000)

The following entry on the date of acquisition in the books of Parent Company:January 1, 20x4(1) Investment in S Company…...…………………………………… 300,000 Common stock, P1 par………………………………………………

12,000

Paid-in capital in excess of par (P300,000 – P12,000 par)……..

288,000

Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4:(E1) Common stock – S Co……………………………………………. 12,000 Additional paid-in capital – S Co………………………………. 108,000 Retained earnings – S Co………………………………………… 72,000 Investment in S Co……………………………………………… 153,600 Non-controlling interest (P192,000 x 20%)………………………..

38,400

Eliminate investment against stockholders’ equity of S Co

(E2) Inventory…………………………………………………………………..

6,000

Land………………………………………………………………………..

36,000

Buildings and equipment………………………………………………

150,000

Copyright………………………………………………………………....

60,000

Estimated liability for contingencies……………………………..

6,000

Investment in S Co……………………………………………... 146,400 Non-controlling interest (P90,000 given – P38,400)……………

51,600

Retained earnings (bargain purchase gain - closed to retained earnings since only balance sheets are being examined).............................................................................

48,000


Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Fair Value Basis)

EliminationsAssets P Co. S Co. Dr. Cr. Consolidated

Cash…………………P

334,800 P 334,800

Accounts receivable…….. 86,400P 24,000 110,400

Inventory…………………. 96,000 60,000 (2) 6,000 162,000Land………………………… 120,000 48,000 (2) 36,000 204,000

Buildings and equipment (net). 744,00

0 222,00

0 (2) 150,000 1,116,000Copyright……………………... (2) 60,000 60,000Investment in S Co…….. 300,000

__________ _________(1) 153,600(2) 146,400 -


0P354,00

0 P1,987,200 Liabilities and Stockholders’

Equity

Accounts payable………P

96,000 42,000 P 138,000Estimated liability for contingencies…

(2) 6,000 6,000

Bonds payable……… 240,000 120,000 360,000Common stock, P1 par*…..… 44,160 44,160Common stock, P1 par……… 12,000 (2) 12,000

Paid-in capital in excess of par** 723,840 723,840

Paid-in capital in excess of par 108,000

(2) (1) 108,000

Retained earnings 577,200(2) 48,000 625,200

Retained earnings…………… 72,000 (1) 72,000Non-controlling interest…………

_________ _______ _________(1 ) 38,400 (2) 51,600 _90,000


P1,681,200

P354,000

P 444,000

P 444,000 P1,987,200

(1) Eliminate investment against stockholders’ equity of Scud Co.(2) Eliminate investment against allocated excess.* P32,160 + (12,000 shares xP1 par) = P44,160.**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.

The balance sheet:

AssetsCash P 334,800Accounts receivables 110,400Inventories 162,000Land 204,000Buildings and equipment (net) 1,116,000Copyright 60,000 Total Assets P1,987,200

Liabilities and Stockholders’ EquityLiabilities Accounts payable P 138,000 Estimated liability for contingencies 6,000 Bonds payable 360,000 Total Liabilities P 504,000Stockholders’ Equity Common stock, P1 par P 44,160 Paid-in capital in excess of par 723,840 Retained earnings 652,200 Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P1,393,200Non-controlling interest 90,000 Total Stockholders’ Equity (Total Equity) P1,483,200Total Liabilities and Stockholders’ Equity P1,987,200

Problem XII1. Inventory P 140,000 2. Land P 60,000 3. Buildings and Equipment P 550,000 4. Goodwill

Fair value of consideration given P 576,000 Less; Book value of SHE 450,000Allocated excess: P126,000Increase / decrease in fair value (Fair value increment) for: Inventory P 20,000 Land (10,000) Buildings and equipment 70,000 80,000Goodwill P 46,000

5.

Investment in AA Corporation: Nothing would be reported; the balance in the

investment account is eliminated.

Problem XIII1. Inventories (P110,000 + P180,000 – P10,000) = P280,0002. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,0003. Investment in DD stock will be fully eliminated and will not appear in the consolidated

balance sheet

Fair value of Subsidiary: Consideration transferred P280,000

Less: BV of SHE of DD (P100,000 + P200,000 – P40,000)

260,000

Allocated excess P 20,000Less: Over/under valuation of A and L: Inc (Decrease) Inventory (P

10,000) Buildings and equipment (net) 25,000 15,000

P 5,000Add: Existing goodwill (to be eliminated 30,000Goodwill to be reported P 35,000

or, (Approach used in business combination – statutory merger/consolidation)Fair value of consideration given P280,000 Fair value of Decibel's net assets: Cash and receivables P 40,000 Inventory 170,000 Buildings and equipment (net) 375,000 Accounts payable (90,000) Notes payable (250,000)Fair value of net identifiable assets (245,000 )Goodwill to be reported P 35,000

Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the computation of Decibel's net identifiable assets at the date of acquisition.

5. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)6. Retained earnings, P`05,000 (parent only, SHE of subsidiary is eliminated)

Problem XIV1.

Inventory (P120,000 + P20,000) P140,000

2.

Land (P70,000 – P10,000) P 60,000

3.

Buildings and Equipment (P480,000 + P70,000) 550,000

4. Full-Goodwill, P57,500Fair value of Subsidiary: Consideration transferred P470,000 Add: FV of NCI 117,500 P587,500Less: BV of SHE of Slim (P250,000 + P200,000) 450,000Allocated excess P137,500Less: Over/under valuation of A and L: Inc. (Dec.) Inventory P 20,000 Land (10,000) Buildings and equipment (net) 70,000 80,000 Goodwill – full P 57,500

or,Fair value of consideration given by Ford P470,000 Fair value of noncontrolling interest 117,500 Total fair value P587,500 Book value of Slim’s net assets P450,000Fair value increment for: Inventory 20,000 Land (10,000) Buildings and equipment (net) 70,000 Fair value of identifiable net assets (530,000 )Goodwill - full P 57,500

Partial Goodwill, P46,000Fair value of Subsidiary: Consideration transferred P470,000Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000Allocated excess P110,000Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P20,000 x 80%) P 16,000

Land (P10,000 x 80%) ( 8,000) Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000Goodwill – partial P 46,000

5.

Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.

6.

Noncontrolling Interest (P587,500 x .20) P117,500

or, BV – SHE of SS P450,000

Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000 FV of SHE of SS P530,000 Multiplied by: NCI % 20% NCI – partial goodwill P106,000

Add: NCI on full-goodwill (P57,500 – P46,000) 11,500 NCI – full goodwill P117,500

Problem XV(Overview of the steps in applying the acquisition method when shares have been issued to create a combination No. 8 includes a bargain purchase.)

1. The fair value of the consideration includesFair value of stock issued P1,500,000Contingent performance obligation 30,000 Fair value of consideration transferred P1,530,000

2. Under the acquisition method, stock issue costs reduce additional paid-in capital. 3. The acquisition method records direct costs such as fees paid to investment banks

for arranging the combination as expenses.4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in

the Common Stock account. The P74 fair value in excess of par value (P75 – P1) is an increase to additional paid-in capital of P1,480,000 (P74 × 20,000 shares).

5. Fair value of consideration transferred (above) P1,530,000Receivables P 80,000Patented technology 700,000Customer relationships 500,000IPR&D 300,000Liabilities (400,000) 1,180,000Goodwill P 350,000

6. Revenues and expenses of the subsidiary from the period prior to the combination are omitted from the consolidated totals. Only the operational figures for the subsidiary after the purchase are applicable to the business combination. The previous owners earned any previous profits.

7. The subsidiary’s Common Stock and Additional Paid-in Capital accounts have no impact on the consolidated totals.

8. The fair value of the consideration transferred is now P1,030,000. This amount indicates a bargain purchase: Fair value of consideration transferred (above) P1,030,000 Receivables P 80,000 Patented technology 700,000 Customer relationships 500,000 IPR&D 300,000 Liabilities (400,000) 1,180,000 Gain on bargain purchase P 150,000

Problem XVIIn acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000 consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired.

1. Inventory = P670,000 (P's book value plus Sun's fair value)2. Land = P710,000 (P's book value plus Sun's fair value)3. Buildings and equipment = P930,000 (P's book value plus S's fair value)4. Franchise agreements = P440,000 P's book value plus S's fair value)

5. Goodwill = P80,000 (calculated above)6. Revenues = P960,000 (only parent company operational figures are reported at date of

acquisition)7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)8. Expenses = P940,000 (only parent company operational figures plus acquisition-related

costs are reported at date of acquisition)9. Retained Earnings, 1/1 = P390,000 (P's book value)

Problem XVII1. A total of P210,000 (P120,000 + P90,000) should be reported.2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of

SS. The amount paid was P30,000 greater than the book value of the net assets of SS and is reported as goodwill in the consolidated balance sheet at January 1, 20X5.

3. In determining the amount to be reported for land in the consolidated balance sheet, P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for P25,000 (P10,000 + P15,000).

4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the consolidated balance sheet. A total of P10,000 was deducted in determining the balance reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an intercompany receivable must be offset by the elimination of an intercompany payable.

5. The par value of B's stock outstanding is P100,000.

Problem XVIII1. P470,000 = P470,000 - P55,000 + P55,0002. P605,000 = (P470,000 - P55,000) + P190,0003. P405,000 = P270,000 + P135,0004. P200,000 (as reported by GG Corporation)

Problem XIX1. The investment balance reported by Roof will be P192,000.2. Total assets will increase by P310,000.3. Total liabilities will increase by P95,000.4. The amount of goodwill for the entity as a whole will be P25,000

[(P192,000 + P48,000) - (P310,000 - P95,000)].5. Non-controlling interest will be reported at P48,000 (P240,000 x .20).

Problem XX1. P57,000 = (P120,000 - P25,000) x .602. P81,000 = (P120,000 - P25,000) + P40,000 - P54,0003. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200

Problem XXI1. Investment in Craig Company............................................... 950,000

Cash.................................................................................. 950,000

2.Fair value of Subsidiary: Consideration transferred P950,000 Less: BV of SHE of Craig (P300,000 + P420,000) 720,000Allocated excess P 230,000Less: Over/under valuation of A and L: Inc (Decrease) Land (P250,000 fair – P200,000 book value P 50,000 Building (P700,000 fair – P600,000 book value) 100,000 Discount on bonds payable P280,000 fair – P300,000

book value)20,000

Deferred tax liability (P40,000 fair – P50,000 book value)

10,000

Buildings and equipment (net) 180,000Goodwill P 50,000

3. Adjustments on Craig books:Land...................................................................................... 50,000Building................................................................................. 100,000Discount on Bonds Payable................................................... 20,000Goodwill................................................................................ 50,000

Deferred Tax Liability............................................................ 10,000Retained Earnings................................................................. 420,000

Paid-In Capital in Excess of Par......................................... 650,000

4. Elimination entries:Common Stock...................................................................... 300,000Paid-In Capital in Excess of Par.............................................. 650,000

Investment in Craig Company........................................... 950,000Problem XXII Full-Goodwill

Fair value of Subsidiary: Consideration transferred (200 shares x P25) P 5,000Less: BV of SHE of Public (P200 + P800 + P1,000) _2,000Allocated excess P 3,000Less: Over/under valuation of A and L: Inc. (Dec.) Fixed assets (P3,000 fair – P2,000 book value) _1,000Goodwill – full P2,000

or,Fair value of Subsidiary: Consideration transferred (200 shares x P25) P 5,000Less: FV of SHE of Public (P1,0000 + P3,000 – P1,000) _3,000Goodwill – full P2,000

Note: The currently issued shares of Public Company and its fair value were used for the following reasons (refer to Illustration 15-15 for comparison):

Total number of shares for Public Company after acquisition – not given The fair value of share of Private Company – not given.

Public Company

Private Company

Fair value of net assets……………. P3,000 ?Fair value of common stock per share P25

Public PrivateCurrently issued 200 60%*

*? /

60%Additional shares issued 300 40% 100 /

40%500 ?

15,000 shares / 25,000 shares = 60%

Values are prior to acquisition (200 shares × P25 market value).Subsequent to acquisition, Private Company is the “parent” with 60% ownership; prior

to acquisition, Private Company has 0% ownership of Public Company.Prior to acquisition, this represents 100% ownership of Public Company; subsequent to

acquisition, these holders of 100 shares of Public Company become the 40% NCI. Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on

full-goodwill amounted to P800 (P2,000 – P1,200 or P2,000 x 40%). This approach to determine partial goodwill is acceptable as long as there is FV of NCI in the acquirer.

Problem XXIII (Assume the use of Full-Goodwill Method)Note: This solution assumes a difference between the basis of acquired assets for accounting and tax purposes for this stock acquisition.

1. Investment in Seely Company 570,000 Common Stock*** 95,000Additional Paid-in-Capital 475,000

***Note: Depending on the wording of this exercise, the credit may be cash instead of common stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.

2. Common Stock - Seely 80,000 Other Contributed Capital – Seely 132,000 Retained Earnings - Seely 160,000

Inventory 52,000 Land 25,000 Plant Assets 71,000 Discount on Bonds Payable 20,000

Goodwill** 127,200 Deferred Income Tax Liability* 67,200 Investment in Seely Company 570,000Non-controlling Interest [(P570,000/.95) x .05] 30,000 *(.40 x (P52,000 + P25,000 + P71,000 + P20,000))

Problem XXIV HB Country and HCO Media

Consolidation of a variable interest entity is required if a parent has a variable interest that will Absorb a majority of the entity's expected losses if they occur Receive a majority of the entity's expected residual returns if they occur

Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right to receive the residual benefits of the sales generated on the HCO Media internet site above P500,000, Hillsborough should consolidate HCO Media.

TPC (Nos. 1, 2 and 3 of the requirement are part of the information)a. The purpose of consolidated financial statements is to present the financial position

and results of operations of a group of businesses as if they were a single entity. They are designed to provide information useful for making business and economic decisions—especially assessing amounts, timing, and uncertainty of prospective cash flows. Consolidated statements also provide more complete information about the resources, obligations, risks, and opportunities of an enterprise than separate statements.

b. An entity qualifies as a VIE and is subject to consolidation if either of the following conditions exist. The total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. In most cases, if equity at risk is less than 10% of total assets, the risk is deemed insufficient. The equity investors in the VIE lack any one of the following three characteristics of a controlling financial interest.1. The direct or indirect ability to make decisions about an entity's activities

through voting rights or similar rights.2. The obligation to absorb the expected losses of the entity if they occur (e.g.,

another firm may guarantee a return to the equity investors)3. The right to receive the expected residual returns of the entity (e.g., the

investors' return may be capped by the entity's governing documents or other arrangements with variable interest holders).

Consolidation is required if a parent has a variable interest that will Absorb a majority of the entity's expected losses if they occur Receive a majority of the entity's expected residual returns if they occur Also, a direct or indirect ability to make decisions that significantly affect the results of the activities of a variable interest entity is a strong indication that an enterprise has one or both of the characteristics that would require consolidation of the variable interest entity.

c. Risks of the construction project that has TPC has effectively shifted to the owners of the VIE At the end of the 1st five-year lease term, if the parent opts to sell the facility, and the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up to 85% of the project's cost. Thus, a potential 15% risk. During construction 11.1% of project cost potential termination loss.

Risks that remain with TPC Guarantees of return to VIE investors at market rate, if facility does not perform as expected TPC is still obligated to pay market rates. If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of decline in market value of asset Debt guarantees

d. TPC possesses the following characteristics of a primary beneficiary Direct decision-making ability (end of five-year lease term)

Absorb a majority of the entity's expected losses if they occur (via debt guarantees and guaranteed lease payments and residual value) Receive a majority of the entity's expected residual returns if they occur (via use of the facility and potential increase in its market value).

Problem XXV1. Implied valuation and excess allocation for S.

Noncontrolling interest fair value P 60,000Consideration transferred by P. 20,000

Total business fair value 80,000Fair value of VIE net assets 100,000Excess net asset value fair value P20,000

The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase. All SoftPlus’ assets and liabilities are recognized at their individual fair values.

Cash P20,000Marketing software 160,000Computer equipment 40,000Long-term debt (120,000)Noncontrolling interest (60,000)Pantech equity interest (20,000)Gain on bargain purchase (20,000)

-0-

2. Implied valuation and excess valuation for Softplus.Noncontrolling interest fair value 60,000Consideration transferred by Pantech 20,000

Total business fair value 80,000Fair value of VIE net identifiable assets 60,000Goodwill P20,000

When the business fair value of a VIE (that is a business) is greater than assessed asset values, all identifiable assets and liabilities are reported at fair values (unless a previously held interest) and the difference is treated as a goodwill.

Cash P20,000Marketing software 120,000Computer equipment 40,000Goodwill (excess business fair value) 20,000Long-term debt (120,000)Noncontrolling interest (60,000)Pantech equity interest (20,000)

-0-Multiple Choice Problem1. c2. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]3. d Consideration transferred P300,000 Less: Book value of SHE of S (P100,000 + P115,000) 215,000 Allocated excess (excess of fair value or cost over book value) - sometimes termed as “Differential” P 85,000

4. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.5. d Consideration transferred P150,000 Less: Book value of SHE of S (P40,000 + P52,000) 92,000 Allocated excess (excess of fair value or cost over book value) - sometimes termed as “Differential” P 58,000

6. b – [P150,000 – (P173,000 – P40,000 – P5,000)]7. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,0008. b

Total Assets of P. P1,278,000 Less: Investment in Silk Corp. (440,000 )

P 838,000 Book value of assets of S Corp. 542,000

Book value reported by P and S P1,380,000

Increase in inventory (P60,000 – P38,000) 22,000 Increase in land (P60,000 – P32,000) 28,000 Increase in plant assets [P350,000 – (P300,000 – P60,000)]

110,000

Goodwill (full)* 26,667 Total assets reported P1,566,667 *(P440,000/75%) – (P702,000 – P142,000) = P26,667

If partial-goodwill:Total Assets of P. P1,278,000 Less: Investment in S Corp. (440,000 )

P 838,000 Book value of assets of S Corp. 542,000 Book value reported by P and S P1,380,00

0Increase in inventory (P60,000 – P38,000) 22,000 Increase in land (P60,000 – P32,000) 28,000 Increase in plant assets [P350,000 – (P300,000 – P60,000)]

110,000

Goodwill (partial)* 20,000 Total assets reported P1,540,000

*[P440,000 – (P702,000 – P142,000) x 75%] 9. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)10.

a

Partial GoodwillFair value of Subsidiary: Consideration transferred P150,500Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000Allocated excess P 52,500Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P15,000 x 70%) P

10,500 Land (P20,000 x 70%) 14,000 24,500Goodwill – partial P 28,000

11. c Full-goodwill:

Fair value of Subsidiary: Consideration transferred P150,500 Add: FV of NCI **64,500 P215,000Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000Allocated excess P 75,000Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P70,000 – P85,000) x 100% P 15,000 Land (P25,000 – P45,000) x 100% 20,000 35,000Goodwill – full P 40,000

**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to P52,500 computed as follows :

FV of SHE of SS: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SS P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

12. b Total Assets of Power Corp. P 791,500 Less: Investment in Silk Corp. (150,500 )

P 641,000 Book value of assets of Silk Corp. 405,000 Book value reported by Power and Silk P1,046,000 Increase in inventory (P85,000 - P70,000) 15,000 Increase in land (P45,000 - P25,000) 20,000

Goodwill (full) 40,000 Total assets reported P1,121,000

If partial-goodwill:Total Assets of Power Corp. P 791,500 Less: Investment in Silk Corp. (150,500 )

P 641,000 Book value of assets of Silk Corp. 405,000 Book value reported by Power and Silk P1,046,000 Increase in inventory (P85,000 - P70,000) 15,000 Increase in land (P45,000 - P25,000) 20,000 Goodwill (partial) 28,000 Total assets reported P1,109,000

13.

d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)

14. aNon-controlling interest (partial-goodwill): P52,500 NCI


15.

d

Non-controlling interest (partial-goodwill): P64,500 NCI


Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000 FV of NCI (full)…………………………………………………..P 64,500

16.

d P205,000 = The amount reported by Power Corporation

17.

c P419,500 = (P150,000 + P205,000) + P64,500

If partial-goodwill:Stockholders’ equity: P419,500

Consolidated SHE: Common stock P150,000 Retained Earnings 205,000 Parent’s SHE or Equity Attributable to Parent P355,000 NCI (partial-goodwill) 52,500Consolidated SHE P404,500

18. bConsideration transferred ....................................................................... P60,000Less: Strand's book value (P50,000 x 80%)............................................. (40,000 ) Fair value in excess of book value .......................................................... P20,000Excess assigned to inventory (60%) ..........................................P12,000

Excess assigned to goodwill (40%) ...........................P 8,000

19. cConsideration transferred (P60,000 ÷ 80%)............................................ P75,000Less: Strand's book value ....................................................................... (50,000)Fair value in excess of book value .......................................................... P25,000Excess assigned to inventory (60%) ..........................................P15,000

Excess assigned to goodwill (40%) ...........................P10,000

20. a Park current assets................................................................................. P 70,000 Strand current assets.............................................................................. 20,000 Excess inventory fair value..................................................................... 15,000 Consolidated current assets.................................................................... P105,000

21. c Park noncurrent assets.......................................................................... P 90,000 Strand noncurrent assets....................................................................... 40,000 Excess fair value to goodwill (partial).................................................... ___8,000 Consolidated noncurrent assets............................................................. P140,000

22. d Park noncurrent assets........................................................................... P 90,000 Strand noncurrent assets........................................................................ 40,000 Excess fair value to goodwill (full)........................................................... __10,000 Consolidated noncurrent assets.............................................................. P140,000

23. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken out by Park to acquire Strand.

24. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken out by Polk to acquire Strand.

25. b Park stockholders' equity....................................................................... P80,000 NCI (partial): BV of SHE – S ……………………………………………………………..P50,000 Adjustments to reflect fair value (inventory)………………………. 15,000

FV of SHE – S………………………………………………………………P65,000 x: Multiplied by: NCI%........................................................................ 20%

13,000 Total stockholders' equity..................................................................... P93,000 26. c Park stockholders' equity........................................................ …………. P80,000 NCI (full): BV of SHE – S ……………………………………………………………..P50,000 Adjustments to reflect fair value (inventory)………………………. 15,000

FV of SHE – S………………………………………………………………P65,000 x: Multiplied by: NCI%......................................................................... 20%

NCI (partial)………………………………………………………………P13,000 Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000 Non-controlling interest at fair value (20% × P75,000)………… 15,000 Total stockholders' equity P95,000 27. b28. a – P150,000 + P500,00029. a – at fair value30. d

(1) NCI measured at its share of net assets (Partial Goodwill) Fair value of Subsidiary:

Consideration transferred………………………………………………………P 100 million Less: Fair value of identifiable assets and liabilities of Loco (80% x P85 million)…………………………………………………….. 68 million Goodwill (partial)..…………………………………………………………………..P 32 million

(2) NCI is measured at its fair value (Full Goodwill) Fair value of Subsidiary:

Consideration transferred………………………………………………………P 100 million Fair value of NCI [(P100 million – P24 million = P76 million / 80% =

P95 million] x 20%.................................................................................... 19 million

Fair value of Subsidiary……………………………………………………………...P 119 million

Less: Fair value of identifiable assets and liabilities of Oak……………………. 85 million Goodwill (full)…………………………………………………………………………...P 34 million

Under PFRS3 par. 32, goodwill is measured at the consideration transferred plus the non-controlling interest (however measured) less net assets acquired. The non-controlling interest may be measured at its share of net assets or its fair value, per PFRS3 par. 19.

Note: Fair value is assumed to be the same with the carrying/book value.31. d Fair value of Subsidiary - Swan

Consideration transferred…………………………………………………P 1,420,000 Less: Fair value of identifiable assets and liabilities of Swan (70% x P1.2 million)…………………………………………………………. 840,000 Goodwill (partial)..………………………………………………………………..P 580,000

Goodwill is carried as an asset in the consolidated statement of financial position.

Fair value of Subsidiary - Homer Consideration transferred…………………………………………………P 300,000

Less: Fair value of identifiable assets and liabilities of Homer (65% x P640,000)……………………………………………………………... 416,000 Gain on bargain purchase………………………………………………………P ( 116,000)

Gain on a bargain purchase is recognized in profit or loss not on the statement of financial position.Notes:1. Moon measures non-controlling interests at the relevant share of the

identifiable net assets at the acquisition date; therefore partial goodwill is in effect.

2. Fair value is assumed to be the same with the carrying/book value.

32. a – See PFRS 3 par. 32. Fair value of Subsidiary:

Consideration transferred………………………………………………………………P1,960,000 Less: Fair value of identifiable assets and liabilities of Oak (P700,000 x 70%)……………………………………………………………………. 490,000 Goodwill (partial)………………………………………………………………………….. P1,470,000

Or, alternatively: Fair value of Subsidiary:

Consideration transferred………………………………………………………………P1,960,000 Less: Book value of SHE of Oak (P100,000 + P300,000 + P1,400,000) x 70%.......... 1,260.000 Allocated excess…………………………………………………………………………..P 700,000 Less: Over/under valuation of assets and liabilities

(P1,800,000 – P700,000) x 70%...................................................................... 770,000 Goodwill (partial)…………………………………………………………………………..P1,470,000

Note: Since the company elected to measure NCI at its share of the identifiable net assets instead of fair value, therefore the partial goodwill approach should be used.

33. d - P592,000 = P300,000 + P270,000 + P22,000

34. a – P26,667 Partial Goodwill

Fair value of Subsidiary: Consideration transferred P440,000Less: BV of SHE of S (P400,000 x 75%) __300,000Allocated excess P140,000Less: Over/under valuation of A and L: Inc. (Dec.) Current assets (P22,000 x 75%) P

16,500

Land, buildings and equipment (P138,000 x 75%) 103,500 120,000Goodwill – partial P 20,000

Full-goodwill:Fair value of Subsidiary: Consideration transferred (P440,000 / 75%) P586,667Less: BV of SHE of S (P400,000 x 100%) __400,000Allocated excess P186,667Less: Over/under valuation of A and L: Inc. (Dec.) Current assets (P22,000 x 100%) P

22,000 Land, buildings and equipment (P138,000 x 100%) 138,000 160,000Goodwill – full P 26,667

35. b Consolidated Total Assets:

Current assets (No. 32) P 592,000 Land, buildings and equipment

[P538,000 + P272,000 + P138,000 + P26,667, full-goodwill] 974,667 P 1,566,66736 c FV of SHE of SS:

Book value of SHE of S……………………………………….P 400,000 Adjustments to reflect fair value …………………………. 160,000 FV of SHE of S…………………………………………………..P 560,000 Multiplied by: NCI%.............................................................. 25% FV of NCI (partial)……………………………………………..P 140,000

Add: NCI on full-goo dwill (P26,667 – P20,000)………….... 6,667 FV of NCI (full-goodwill)……………………………………...P 146,667

37. d Consolidated Total Liabilities:

Liabilities: P Co. (P300,000 + P538,000 + P440,000 – P348,333)..P 929,667

S Co……………………………………………………….. 142,000 P1,071,667

38. d Consolidated Stockholders’ Equity

Parent’s stockholders’ equity………………………………………P 348,333 Add: NCI (full-goodwill) (No. 36)………………………………….. 146,667

P 495,000 39. b

FV, stocks issued………………………………………………… P 4,200,000

Less: Par value of stocks issued (500,000 shares x P5)……..

__2,500,000

APIC P 1,700,000

Add: APIC of P 7,500,000Less: Stock issuance cost ___100,000

P 9,100,000

40. c41. a42. No answer available 43. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,00044. a45. c46. a [P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000

increase + P100,000 in increase in PPE] = P100,00047. b P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in

PPE – P300,000 – P500,000) = P550,00048. a49. d (P1,000,000 + P250,000) = P1,250,000 P only.50. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,00051. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach

52. a P only53. d

Total Assets of P P 960,000 Less: Investment in S (330,000 )

P 630,000 Book value of assets of S 405,000 Book value reported by P and S P1,035,000 Increase in inventory (P45,000 – P26,000) 19,000 Increase in land (P45,000 - P24,000) 21,000 Increase in plant assets [P300,000 – (P225,000 – P45,000)]

120,000

Goodwill (full) _____0 Total assets reported P1,195,000

If partial-goodwill – same answer with full-goodwill approach, since there is no gain.

54. b – step-acquisition60% FV, stocks issued: 60,000 shares x P6, fair value P360,00030% FV of previously held equity interest: 30,000 shares x P5, fair value

150,000

10% FV of NCI (100,000 – 60,000 – 30,000) x P, fair value 40,000 100% Fair value of subsidiary P560,000Less: Fair value of net assets (SHE) of subsidiary 500,000

P 60,00055. b56. a57. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,00058. d Book value of Assets (P80,000 + P50,000 + P200,000) P330,000 Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000

P 65,00059. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary

(not in the worksheet or eliminating entries.60. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.61. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be

made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated subsidiary, so the P300,000 intercompany account will be eliminated.

62. d63. a64. c – In the combined financial statements (which normally used to described financial

statements in a “common control” situation), intercompany accounts are eliminated in full.

65. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it.

66. dThe acquisition method consolidates assets at fair value at acquisition date regardless of the parent’s percentage ownership.

67. d – refer to62In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it.

68. d – refer to No. 6169. c

An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life.Patent fair value at January 1, 2009........................................................ P45,000Amortization for 2 years (10 year life)..................................................... (9,000)Patent reported amount December 31, 2010.......................................... P36,000

70. a PP - building............................................................................................ P510,000

TT building acquisition-date fair value P300,000 Amortization for 3 years (10-year life) (90,000) 210,000

Consolidated buildings ............................................................................. P720,000 -OR-

PP - building..............................................................................................510,000

TT building 12/31/x4 P182,000 Excess acquisition-date fair value allocation 40,000

Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000 Consolidated buildings ............................................................................. P720,000

71. No answer available – P60,000AA, Inc. Fair value at January 1, 20x7:30% previously owned fair value (30,000 shares × P5) .......................... P150,000 60% new shares acquired (60,000 shares × P6).................................... 360,000 10% NCI fair value (10,000 shares × P5)................................................ 50,000 Acquisition-date fair value....................................................................... P560,000 Net assets' fair value............................................................................... 500,000 Goodwill ............................................................................................... P60,000

72. d Cost of Investment (40 shares* x P40)………………………………………………………P 1,600 Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%......................... 1,100 Allocated excess………………………………………………………………………………………P 500 Less: Over/Under valuation of Assets and Liabilities: Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%........ 140 Goodwill………………………………………………………………………………………………….P 360 (d)

100% * Pedro Ltd Santi Ltd Currently issued…………………… 150 60% ** 60 60% Additional shares issued……….. 100 40% 40 / 40%

Total shares………………………… 250 100

**150/250

Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 ½) for the 60 shares in Santi Ltd.

Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger and 150 new shares held bye former shareholders in Santi Ltd. In essence, the former shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.

Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent. The usual circumstance creating a reverse acquisition is where an entity (the legal parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of the exchange transaction, it issues enough voting equity as consideration for control of the combined entity to pass to the owners of the legal subsidiary.

The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the assets and liabilities of Santi Ltd to be valued at fair value.

73. cP60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.

Theories 1.

c 6. b 11. c 16. d 21. b 26. d 31 c 36. d

2.

a 7. b 12. c 17. c 22. a 27. c 32. d 37. d

3.

e 8. A 13. d 18. b 23. a 28. c 33. b 38. c

4.

e 9. D 14. d 19. c 24. b 29. d 34. d 39. b

5.

b 10, a 15, b 20. c 25. c 30. b 35. d 40. c

41.

c 46. b 51. c 56. d

42.

c 47. a 52. b 57.

43.

c 48. c 53. a 58.

44.

c 49. d 54. a 59.

45.

c 50, b 55, c 60.

Soluti

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