Solutionchapter 15

Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)]
Cash
Common Stock
Paid in capital in excess of par (P40 - P2) 15,000
Paid in capital in excess of par
Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable
3,100,000
2,500,000
30,000
570,000
30,000
67,000
90,000
7,000
Problem II
Cash consideration transferred
Contingent performance obligation
Fair value of Subsidiary
Less: Book value of SS Company (P90,000 + P100,000)
Allocated excess
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100%
Increase in customer list: P22,000 x 100%
Increase in R&D: P30,000 x 100%
Goodwill
Investment in SS Company
Cash
Estimated Liability on Contingent Consideration
Acquisition Expense
Cash
P 300,000
__15,000
P 315,000
190,000
P125,000
P 40,000
22,000
30,000__92,000
P 33,000
315,000
300,000
15,000
10,000
10,000
Not Required: The working paper eliminating entry on the date of acquisition,
6/30/20x4
would be:
Receivables
Inventory
Buildings
Equipment
Customer list
Capitalized R&D
Goodwill
Current liabilities
Long-term liabilities
Investment in SS Company
315,000
80,000
70,000
115,000
25,000
22,000
30,000
33,000
10,000
50,000
Problem III
1.
A.
Investment in Sewell
675,000
Cash
675,000
B.
675,000
Cash
675,000
C.
318,000
Cash
318,000
2.
A.
Fair value of Subsidiary:
Consideration transferred
P675,000
Less: BV of SHE of S (P450,000 + P180,000 +
705,000
P75,000)x100%
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
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)
x 90%
Allocated excess
Inventory (P30,000 P20,000) x 90%
Land (P50,000 P70,000) x 90%
Goodwill partial
Full-Goodwill
Consideration transferred (P675,000/90%)
Less: BV of SHE of S (P450,000 + P180,000 +
P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Goodwill full
P675,000
634,500
P 40,500
(P9,000)
__18,000
__9,000
P 31,500
P750,000
705,000
P 45,000
(P10,000)
__20,000
__10,000
P 35,000
C.
Partial Goodwill
x 80%
Allocated excess
Inventory (P30,000 P20,000) x 80%
Land (P50,000 P70,000) x 80%
Bargain Purchase Gain partial (parent only)
P318,000
624,000
(P306,000)
(P 8,000)
__16,000
__8,000
(P314,000)
Full-Goodwill
FV of NCI*
x 100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI
3.
P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
__20,000
_10,000
(P314,000)
P780,000
P790,000
20%
P158,000
10,000
A.
Common Stock Sewell
Paid in capital in excess of par Sewell
Retained Earnings Sewell
Land
Inventory
Retained earnings (gain) Parent (since
balance sheet accounts are being
examined)
450,000
180,000
75,000
20,000
10,000
675,000
40,000
B.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
450,000
180,000
75,000
Land
20,000
Goodwill
31,500
Inventory
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
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
180,000
75,000
Land
20,000
Goodwill
35,000
Inventory
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
10,000
FV of SHE of Sewell
P715,000
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
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
10,000
675,000
71,500
10,000
675,000
75,000
10,000
318,000
314,000
158,000
10,000
318,000
314,000
158,000
FV of SHE of Sewell
x: NCI%
FV of NCI (full)
P790,000
20%
P158,000
Problem IV
1.
January 1, 20x4
Investment in S Company
408,000
408,000
Cash..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 100%)
..
Paid-in capital in excess of par (P24,000 x
100%)...
Retained earnings (P96,000 x 100%)
...
Allocated excess (excess of cost over book value)

Increase in inventory (P18,000 x 100%)
..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment

(P12,000 x 100%)
...
Increase in bonds payable (P42,000 x 100%)
..
Positive excess: Goodwill (excess of cost over fair
value)
..
P 408,000
P 240,000
24,000
96,000
360,000
P
48,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 12,000
(E1) Common stock S Co

Additional paid-in capital S Co
Retained earnings S Co
Investment in S Co
Eliminate investment against stockholders equity
of S Co.
240,000
24,000
96.000
(E2)
Inventory.
Land
Goodwill.
Buildings and equipment
Premium on bonds
payable
Investment in S
Co
18,000
360,000
72,000
12,000
12,000
42,000
48,000
Eliminate investment against allocated excess.

4.
Eliminations
Assets
Cash*.
Accounts receivable..
P Co.
P
12,000
S Co.
P
60,000
Dr.
90,000
60,000
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Goodwill
480,000
Consolidated
P
Inventory.
Buildings and equipment (net)
Cr.
72,000
150,000
210,000
330,000
(2)
12,000
360,000
(2) 12,000
828,000
12,000
Investment in S Co.
408,000
P1,320,00
0
P600,00
0
P1,602,000
P 120,000
P120,00
0
P 240,000
240,000
120,000
Total Assets
Liabilities and Stockholders
Equity
Accounts payable
(1) 360,000
(2) 48,000
Bonds payable
360,000
Premium on bonds payable

Common stock, P10 par
(3)
600,000
240,000
(1)
240,000
24,000
(1) 24,000
60,000
Paid in capital in excess of par.

Retained earnings
42,000
600,000

42,000
60,000
300,000
96,00
Retained earnings
_________
0
Total Liabilities and Stockholders
P1,320,00
P600,00
Equity
0
0
(1) Eliminate investment against stockholders equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 P408,000 = P12,000.
300,000
(1) 96,000
P
462,000
__________
P
462,000
_________
P1,602,000
5.
Assets
Cash
Accounts receivables
Inventories
Land
Goodwill
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity
Problem V
1.
January 1, 20x4
72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000
P 240,000
P 360,000
42,000
(1) Investment in S Company
402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000
432,000
288,000
Cash..
Common stock, P10
par..
Paid-in capital in excess of
par.
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)
120,000
24,000
12,000
12,000
Cash.
Acquisition- related costs.
(3) Paid-in capital in excess of

par..
8,400
8,400
Cash.
Costs to issue and register stocks.
2.

Cash.
Common stock: 12,000 shares x P12 per
share..
..
100%)..
...
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)
Adjusted allocated excess.

..

(P12,000 x 100%)
...
..
value)
..
P 288,000
144,000
P 432,000
P 240,000
96,000
24,000
360,000
P
72,000
6,000
78,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
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)
Consideration
transferred
Less: Book value of stockholders equity of
S..
.
Less: Over/under valuation of assets and
liabilities
Positive excess: Goodwill (excess of cost over fair value)
...
Add: Existing
Goodwill
value)
P 432,000
360,000
P
72,000
36,000
36,000
6,000
42,000
3.
Eliminations
Assets
P Co.
P
111,600
S Co.
P
54,000
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Cash*..

Goodwill
Investment in S Co.
Total Assets
Equity
Accounts payable
480,000
Dr.
432,000
Consolidated
P 165,600
150,000
210,000
330,000
(2)
12,000
360,000
6,000
Cr.
(2) 36,000
828,000
42,000
(4) 360,000
(5) 72,000
P1,443,60
0
P600,00
0
P1,725,600
P 120,000
P120,00
0
P 240,000
Bonds payable
240,000
120,000
360,000

Common stock, P10 par**..
(6)

Additional paid in capital***
42,000
720,000
240,000
(1)
240,000
75,600
Additional paid in capital

Retained earnings****
42,000
720,000
75,600
24,000
(1) 24,000
288,000
96,00
Retained earnings
_________
0
P1,443,60
P600,00
Equity
0
0
(1) Eliminate investment against stockholders equity of Sky Co.
* 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.
288,000
(1) 96,000
P 486,000
__________
P
486,000
_________
P1,725,600
4.
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Additional paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600
Problem VI
1.


Consideration transferred (P408,000 P6,000)
..
..
100%)...
...

..

(P12,000 x 100%)
...
..
value)
..
P 402,000
P 240,000
96,000
24,000
360,000
P
42,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P
6,000
2. Goodwill, P6,000
Problem VII
1.

Consideration transferred:
Common stock: 24,000 shares x P14 per share
Less: Book value of stockholders equity of Sky:
..
100%)...
...
Allocated excess (excess of book value over cost)

..

(P12,000 x 100%)
...
Increase in patent (P24,000 x 100%)
...
Increase in contingent liability (P18,000 x
100%).
..
Negative excess: Bargain Purchase Gain (excess of
fair value over cost)
P 336,000
P 240,000
96,000
24,000
360,000
(P 24,000)
P 18,000
72,000
( 12,000)
24,000
( 18,000)
( 42,000)
42,000
(P 66,000)
2. Gain on acquisition, P66,000
Problem VIII
Case 1:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair 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).. P1,920,000
Fair Value Basis (Full-goodwill Approach)

Full-goodwill
Consideration transferred: Cash (P12,000,000 / 80%)..
P 15,000,000 (100%)
(100%)
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
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 (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:
Partial-goodwill
Consideration transferred: Cash.....P 7,560,000 (60%)
S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess..... P 3,960,000 (60%)
(P8,400,000 P6,000,000) x 60%......................................
1,440,000 (60%)
Positive excess: Goodwill (partial)....P 2,520,000 (60%)
Book value of stockholders equity of subsidiary. P 6,000,000
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

Full-goodwill
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%)
S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess...P 6,360,000 (100%)
(P8,400,000 P6,000,000) x 100%..................................
2,400,000 (100%)
Positive excess: Goodwill (full)......P 3,960,000 (100%)
Full-goodwill...P 3,960,000
or partial-goodwill.
2,520,000
NCI on full-goodwill..P 1,440,000
Non-controlling interest (partial)P 3,360,000
(P3,960,000 P2,520,000 partial-goodwill).. 1,440,000
Non-controlling Interest (full)..P 4,800,000
Case 3;
Partial-goodwill
Consideration transferred: Cash..P 9,000,000 (75%)
S Company: P7,200,000 x 75%.............................
5,400,000 (75%)
Allocated Excess....P 3,600,000 (75%)
(P9,600,000 P7,200,000) x 75%..................................... 1,800,000 (75%)
Positive excess: Goodwill (partial).P 1,800,000 (75%)
Book value of stockholders equity of subsidiary..P 7,200,000
Fair value of stockholders equity of subsidiaryP 9,600,000
Multiplied by: Non-controlling Interest percentage..............
25%
Non-controlling interest (partial).P 2,400,000

Full-goodwill
Fair value of subsidiary. P 11,640,000 (100%)
S Company: P7,200,000 x 100%...............................
7,200,000 (100%)
Allocated Excess..P 4,440,000 (100%)
(P9,600,000 P7,200,000) x 100%..................................
2,400,000 (100%)
Positive excess: Goodwill (full).....P 2,040,000 (100%)
Full-goodwill...P 2,040,000
or partial-goodwill.... 1,800,000
NCI on full-goodwill. .P 240,000
Non-controlling interest (partial)P 2,400,000
(P2,040,000 P1,800,000 partial-goodwill)...... . 240,000
Non-controlling Interest (full)..P 2,640,000
Case 4:
Partial-goodwill
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%)
S Company: (P4,680,000 P2,280,000) x 75%.......... 1,800,000 .(75%)
Allocated Excess.....P 1,440,000 (75%)
[(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%)
Book value of stockholders equity of subsidiary..P 2,400,000
Fair value of stockholders equity of subsidiaryP 3,840,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial)P 960,000

Full-goodwill

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%)
S Company: P2,400,000 x 100%.................................... 2,400,000 (100%)
Allocated Excess.P 1,920,000 (100%)
(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
or partial-goodwill.... 360,000
NCI on full-goodwill..P. 120,000
Non-controlling interest (partial)P
960,000
(P480,000 P360,000 partial-goodwill)......... 120,000
Non-controlling Interest (full)P 1,080,000
Problem IX
Partial-goodwill (Proportionate Basis)
Cash..
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x
75%.......................................
Allocated
excess...
[(P612,000 P228,000) (P480,000 P228,000)
x 75%
Negative excess: Bargain purchase gain (to
controlling
interest or attributable to parent only)
.
Full-goodwill (Fair Value Basis)

Cash..
Fair value of non-controlling interest (given)
Fair value of subsidiary
Less: Book value of stockholders equity

(net assets) S Company:
(P480,000 P228,000) x
100%.....................................
Allocated
excess...
[(P612,000 P228,000) (P480,000 P228,000)
x 100%
Negative excess: Bargain purchase gain (to
controlling
.
P270,000
(75%)
189,000
(75%)
P 81,000
(75%)
99,000
(75%)
(P18,000)
(75%)
P270,000
( 75%)
98,400
( 25%)
P368,400
(100%)
252,000
(100%)
P116,400
(100%)
132,000
(100%)
(P15,600)
(100%)
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration
transferred..
P 360,000

.
80%)....
....
..

.
(P12,000 x 80%)
.....
.
Positive excess: Partial-goodwill (excess of cost over
fair value)
...
P 192,000
76,800
19,200
288,000
P
72,000
P 14,400
57,600
(
9,600)
( 33,600)
28,800
P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sky Co.
Book
value
Inventory.
..
Sky Co.
Fair
value
Over/ Under
Valuation
72,000
90,000
18,000
48,000
120,000
72,000
360,000
348,000
( 12,000)
(120,000)
(162,000)
42,000
396,000
36,000
Land
(net).........
Bonds payable
Net..
360,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co.
Book value
Buildings and
equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Sky Co.
Fair value
(Decrease)
720,000
348,000
( 372,000)
360,000
( 360,000)
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
360,000
Cash..
Acquisition of Sky Company.
examined)
14,400
14,400
Cash.
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.
Additional paid-in capital Sky
Co.
Retained earnings Sky
240,000
24,000
96,000
Co...
Investment in Sky
Co
Non-controlling interest (P300,000 x 20%)
..
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2)
Inventory.
Accumulated depreciation.
Land.
Goodwill.
Buildings and
equipment..
Premium on bonds
payable
..
Investment in Sky
Co..
18,000
360,000
72,000
43,200
372,000
42,000
7,200
72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:

80%-Owned Subsidiary (Partial-goodwill)
Eliminations
Assets
Peer Co.
P
45,600
Sky Co.
P
60,000
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Cash*.

Goodwill
Investment in Sky Co.
960,000
Accounts payable
120,000
P360,00
0
120,00
0
Bonds payable
240,000
120,000
43,200
(2)
360,000
480,000
240,000
360,000
(3)
42,000
600,000
42,000
600,000
240,000
(1)
240,000
24,000
(1) 24,000
60,000
60,000
285,600
285,600
96,00
0
_________
_______
P1,785,60
P960,00
Equity
0
0
* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.
1,308,000
P 2,146,800
Retained earnings
330,000
(1) 288,000
(2) 72,000
P
480,000
Retained earnings**
210,000
(2)
372,000
360,000
Accumulated depreciation
Consolidated
P
105,600
(2) 43,200
P960,00
0
Cr.
150,000
720,000
P1,785,60
0
Total Assets
Equity
Dr.
(1) 96,000
_________
P 853,200
(1 ) 72,000
(2) 7,200
P
853,200
_79,200
P2,146,800
Incidentally, the non-controlling interest on the date of acquisition is computed as

follows:
Common stock Sky company
Paid-in capital in excess of par Sky co
Retained earnings Sky Co...
Book value of stockholders equity Sky Co....
of assets and liabilities).
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)..
P 240,000
24,000
80,000
P 360,000
36,000
P 396,000
20
P 79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Inventories
Land
Goodwill
Total Assets
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800

Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Total Stockholders Equity (Total Equity)
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P
1,024,800
P1,666,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Consideration transferred (P360,000 / 80%)
..
.
100%)..
....
..

.
(P12,000 x 100%)
.....
.
Positive excess: Full -goodwill (excess of cost over
fair value)
...
P 450,000
P 240,000
96,000
24,000
360,000
P
90,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 54,000
January 1, 20x4
(1) Investment in Sky
Company
360,000
360,000
Cash..
Acquisition of Sky Company.

examined)
14,400

14,400
Cash.
240,000
(E1) Common stock Sky

Co.
Additional paid-in capital Sky
Co.
Retained earnings Sky
Co...
Investment in Sky
Co
..
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2)
Inventory.
Accumulated depreciation.
Land.
Goodwill.
Buildings and
equipment..
Premium on bonds
payable
Non-controlling interest [(P30,000 x 20%) +
(P45,000 P36,000)]
.
Investment in Sky
Co..
18,000
360,000
72,000
54,000
372,000
42,000
18,000
72,000

80%-Owned Subsidiary (Full-goodwill)
Eliminations
Assets
Peer Co.
P
45,600
Sky Co.
P
60,000
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Cash*.

Goodwill
Investment in Sky Co.
960,000
Accounts payable
120,000
P360,00
0
120,00
0
Bonds payable
240,000
120,000
1,308,000
54,000
(2)
360,000
360,000
(2) 42,000
(1)
240,000
60,000
60,000
24,000
(1) 24,000
285,600
_________
42,000
600,000
240,000
480,000
240,000
600,000
P 2,157,600
Retained earnings
330,000
(1)
288,000
(2)
72,000
P
480,000
Retained earnings**
210,000
(2)
372,000
360,000
Consolidated
P
105,600
(2) 54,000
P960,00
0
Cr.
150,000
720,000
P1,785,60
0
Total Assets
Equity
Dr.
285,600
96,00
0
(1) 96,000
_______
_________
(1 )
72,000 (2)
_90,000
18,000
P1,785,60
P960,00
Equity
0
0
* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.
P
864,000
P 864,000
P2,157,600

follows:
Add: Non-controlling interest (P54,000, full P43,200, partial).
Non-controlling interest (full).
79,200
10,800
P 90,000
The balance sheet;

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P
1,035,600
P1,677,600
Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Common stock: 12,000 shares x P25 per
share...
.
80%)...
....


.
Increase in buildings and equipment
(P150,000 x 80%)
......
Increase in copyrights (P60,000 x 80%)
..
Increase in contingent liabilities estimated
P 300,000
9,600
86,400
57,600
153,600
P 146,400
4,800
28,800
120,000
48,000
4,800)
196,800
liability for contingencies (P6,000 x 80%)

.....
Negative excess: Bargain purchase gain to
controlling
..
(P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book value
Inventory.
...
Land
.
(net).........
Copyright..
Estimated liability for
contingencies..
Net
undervaluation.
S Co.
Fair value
60,000
Over/Under
Valuation
66,000
6,000
48,000
84,000
36,000
222,000
372,000
150,000
-0-
60,000
60,000
0
P 330,000
6,000)
P 576,000
6,000)
P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company...
Common stock, P1
par
Paid-in capital in excess of par (P300,000 P12,000 par)
..
300,000
12,000
288,000
Acquisition of S Company.
(E1) Common stock S Co.
Additional paid-in capital S Co.
Investment in S Co
..
12,000
108,000
72,000
153,600
38,400
Eliminate investment against stockholders equity of S Co
(E2)
Inventory..
6,000
36,000
Land..
Buildings and
equipment
150,000
60,000
Copyright....
contingencies..
Investment in S Co...
.
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are
being
6,000
146,400
49,200
50,400
examined).............................................................................

80%-Owned Subsidiary (Proportionate Basis)
Eliminations
Assets
Cash
P Co.
P
334,800
S Co.
Dr.
Cr.
Consolidated
P
P
24,000
334,800
86,400
Inventory.
96,000
60,000
(2)
6,000
162,000
120,000
48,000
(2) 36,000
204,000
Land
110,400
Buildings and equipment (net).

Copyright...
Investment in S Co..
Total Assets
Equity
Accounts payable
contingencies
Bonds payable
Common stock, P1 par*..
Paid-in capital in excess of
par**
744,00
0
222,00
0
(2) 150,000
300,000
__________ _________
P1,681,20
0
354,000
P
96,000
42,000
240,000
P1,987,200
P 138,000
6,000
120,000
360,000
44,160
44,160
12,000
(1) 12,000
723,840
723,840
108,000
108,00
0
(2)
50,400
577,200
72,000
_________
_______
P1,681,20
P354,00
Equity
0
0
(1) Eliminate investment against stockholders equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
(2)
6,000
Retained earnings
60,000
(1)
153,600
(2)
146,400
(1) (1)
Retained earnings
1,116,000
(2) 60,000
627,600
(1) 72,000
_________
P
444,000
(1 ) 38,400
(2) 49,200
P
444,000
_87,600
P1,987,200

follows:
Common stock S Co.
Paid-in capital in excess of par S Co..
Book value of stockholders equity S Co.
of assets and liabilities).
Multiplied by: Non-controlling Interest percentage...
P 12,000
108,000
72,000
P 192,000
246,000
P 438,000
20
P 87,600
The balance sheet:

Assets
Cash
Inventories
Land
Copyright
Total Assets
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
627,600
P1,395,600
87,600
P1,483,200
P1,987,200
Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
300,000
Common stock: 12,000 x P25 (80%)
Fair value of NCI (given) (20%)

.
Fair value of subsidiary (100%)
.
.
100%).
...

Increase in buildings and equipment

(P150,000 x 100%)
....
Increase in copyrights (P60,000 x 100%)
Increase in contingent liabilities estimated

liability for contingencies (P6,000 x 100%)
..
Negative excess: Bargain purchase gain to
controlling
..
90,000
P
390,000
P 12,000
108,000
72,000
192,000
P 198,000
6,000
36,000
150,000
6,000
6,000)
246,000
(P 48,000)
January 1, 20x4
(1) Investment in S Company...
Common stock, P1
par
Paid-in capital in excess of par (P300,000 P12,000 par)
..
Acquisition of S Company.
300,000
12,000
288,000
(E1) Common stock S Co.
Additional paid-in capital S Co.
Investment in S Co
..
Eliminate investment against stockholders equity of S Co
(E2)
Inventory..
12,000
108,000
72,000
153,600
38,400
6,000
36,000
Land..
Buildings and
equipment
150,000
60,000
Copyright....
contingencies..
Investment in S Co...
Non-controlling interest (P90,000 given P38,400)
Retained earnings (bargain purchase gain - closed to

retained earnings since only balance sheets are
being
examined).............................................................................
6,000
146,400
51,600
48,000

80%-Owned Subsidiary (Fair Value Basis)
Eliminations
Assets
P Co.
P
334,800
Cash
86,400
Inventory.
Land
Buildings and equipment (net).
Copyright...
Investment in S Co..
Total Assets
Equity
S Co.
Dr.
Cr.
Consolidated
P
P
24,000
110,400
96,000
60,000
(2)
6,000
162,000
120,000
744,00
0
48,000
222,00
0
(2) 36,000
204,000
(2) 150,000
1,116,000
(2) 60,000
300,000
__________ _________
P1,681,20
0
P354,00
0
P
96,000
42,000
Accounts payable
contingencies
Bonds payable
Common stock, P1 par*..
60,000
(1)
153,600
(2)
146,400
P1,987,200
P 138,000
(2)
6,000
240,000
6,000
120,000
360,000
44,160

Paid-in capital in excess of par**
334,800
44,160
12,000
(2) 12,000
723,840
723,840
(2) (1)

Retained earnings
Retained earnings
108,000
108,00
0
577,200
_________
72,000
(1) 72,000
_______
_________
Total Liabilities and

Stockholders
P1,681,20
P354,00
Equity
0
0
(1) Eliminate investment against stockholders equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
P
444,000
(2)
48,000
625,200
(1 ) 38,400
(2) 51,600
_90,000
P
444,000
P1,987,200
The balance sheet:

Assets
Cash
Inventories
Land
Copyright
Total Assets
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Problem XII
1. Inventory
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
652,200
P1,393,200
90,000
P1,483,200
P1,987,200
P 140,000
2.
3.
Land
Buildings and Equipment
4.
Goodwill
Fair value of consideration given
Less; Book value of SHE
Allocated excess:
Increase / decrease in fair value (Fair value
increment) for:
Inventory
Land
Goodwill
5
.
P 60,000
P 550,000
P 576,000
450,000
P126,000
P 20,000
(10,000)
70,000
80,000
P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the

investment account is eliminated.
Problem XIII
1 Inventory (P120,000 + P20,000)
.
2 Land (P70,000 P10,000)
.
3 Buildings and Equipment (P480,000 + P70,000)
.
4.
Full-Goodwill, P57,500
P140,000
P 60,000
550,000

Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Inventory
Land
Goodwill full
or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slims net assets
Fair value increment for:
Inventory
Land
Fair value of identifiable net assets
Goodwill full
P470,000
117,500
P 20,000
(10,000)
70,000
P450,000
20,000
(10,000)
70,000
(530,000)
P 57,500
P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000
64,000
P 46,000
Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)
6
.
80,000
P 57,500
P470,000
117,500
P587,500
Partial Goodwill, P46,000

Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Inventory (P20,000 x 80%)
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill partial
5
.
P587,500
450,000
P137,500
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 XIV
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XV
1. P57,000 = (P120,000 - P25,000) x .60
2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XVI
(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 includes
Fair value of stock issued
P1,500,000
Contingent 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 indirect costs 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)
P1,530,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Goodwill
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 subsidiarys 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 XVII (assuming that acquisition-related costs is treated as expenses)
In 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 SSs net assets
acquired.
1.
2.
3.
4.
5.
6.
Inventory = P670,000 (P's book value plus Sun's fair value)

Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
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 XVIII
1. P15,000
2. P65,000
3. SS: P24,000
4.
BB P70,000
Fair value of SS as a
whole:
P200,000
10,000
= (P115,000 + P46,000) - P146,000

= (P148,000 - P98,000) + P15,000
= P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
= P94,000 - P24,000
Book value of SS shares
Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
Differential assigned to buildings and
equipment
(P780,000 - P400,000 - P340,000)
Differential assigned to goodwill
Fair value of SS
40,000
9,000
P259,000
5.
6.
65 percent
Capital Stock
Retained Earnings
=
=
=
1.00 (P90,650 / P259,000)

P120,000
P115,000
Problem XVI
1. 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 XX
1. Investment in Craig Company...............................................
Cash..................................................................................
950,000
950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value
Building (P700,000 fair P600,000 book value)
Discount on bonds payable P280,000 fair
P300,000
book value)
Deferred tax liability (P40,000 fair P50,000 book
value)
Goodwill
3. Adjustments on Craig books:
Land......................................................................................
Building.................................................................................
Discount on Bonds Payable...................................................
Goodwill................................................................................
Deferred Tax Liability.............................................................
P950,000
720,000
P 230,000
P 50,000
100,000
20,000
10,000
180,000
P 50,000
50,000
100,000
20,000
50,000
10,000
Retained Earnings.................................................................
Paid-In Capital in Excess of Par..........................................
4.
Elimination entries:
Common Stock......................................................................
Paid-In Capital in Excess of Par..............................................
Investment in Craig Company...........................................
420,000
650,000
300,000
650,000
Problem XXI
Full-Goodwill
Consideration transferred (200 shares x P25)
Less: BV of SHE of Public (P200 + P800 + P1,000)
Allocated excess
Fixed assets (P3,000 fair P2,000 book value)
Goodwill full
950,000
P 5,000
_2,000
P 3,000
_1,000
P2,000
or,
Consideration transferred (200 shares x P25)
P 5,000
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000)
_3,000
Goodwill full
P2,000
Note: The currently issued shares of Public Company and its fair value were used for the
following reasons (refer to Illustration 15-14 for comparison):
Total number of shares for Public Company after acquisition not given
unlike Illustration 15-14.
The fair value of share of Private Company not given unlike Illustration
15-14
Fair value of net assets.

Fair value of common stock per share
Currently issued
Additional shares issued
15,000 shares / 25,000 shares = 60%
Public
Company
P3,000
P25
Public
200
300
500
Private
Company
?
Private
40%*
*
60%
?
100
/
40%
/
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 XXII (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
Common Stock***
Additional Paid-in-Capital
570,000
95,000
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
Other Contributed Capital Seely
Retained Earnings - Seely
Inventory
Land
80,000
132,000
160,000
52,000
25,000
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*
Investment in Seely Company
Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
71,000
20,000
127,200
67,200
570,000
30,000
Problem XXIII
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 Medias 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
decisionsespecially 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 decisionmaking 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 XXIV
1. Implied valuation and excess allocation for SP.
FV of VIE:
Consideration transferred by P.
P 20,000
Non-controlling interest fair value
__ 60,000
FV/Total business fair value of VIE
P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000)
+ P40,000 P120,000)
__100,000
Excess net asset value fair value/Bargain purchase gain
P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All
SP assets and liabilities are recognized at their individual fair values.
Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase
2.
P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
- 0-
Implied valuation and excess valuation for SP.

FV of VIE:
Consideration transferred by P.
P 20,000
Non-controlling interest fair value
__ 60,000
FV/Total business fair value of VIE
P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000)
+ P40,000 P120,000)
__60,000
Excess fair value over net assets/ Goodwill
P 20,000
Noncontrolling interest fair value

Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill
60,000
20,000
80,000
60,000
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
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
Noncontrolling interest
(60,000)
PT equity interest
(20,000)
-0Multiple Choice Problems
1. c at fair value
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]
3. d
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
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
6. b [P150,000 (P173,000 P40,000 P5,000)]
7. d - P600,000 - P15,000 - P255,000 = P330,000
8. c - P475,000 - P300,000 = P175,000 debit
9. b fair value
10. d fair value
11. d fair value
12. c Full-goodwill:
Add: FV of NCI
Less: BV of SHE of Silver (P100,000 + P180,000) x
100%
Allocated excess
Inventory (P65,000 P70,000) x 100%
Land (P100,000 P90,000) x 100%
Buildings and equipment (P300,000 P250,00) x
100%
Goodwill full
P300,000
100,000
P 58,000
P400,000
280,000
P120,000
P( 5,000
)
10,000
50,000
__55,000
P 65,000
If partial-goodwill, no answer available, computed as follows:

P300,000
_210,000
75%
Allocated excess
P 90,000
Inventory (P65,000 P70,000) x 75%
P( 3,75
0)
Land (P100,000 P90,000) x 75%
7,500
Buildings and equipment (P300,000 P250,00) x
37,500
__41,250
75%
Goodwill full
P 48,750
13. a Investment in Silver will be eliminated in the consolidated balance sheet
14. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)..P 280,000
55,000
FV of SHE of S P 335,000
Multiplied by: NCI%....................................................................
25%
FV of NCI (partial).P 83,750
Add: NCI on full goodwill (P65,000 P48,750)..
16,250
FV of NCI (full-goodwill)*P100,000
* same with the NCI given per problem
15. b P135,000 = P90,000 + P45,000

16. d
Full-goodwill:
Add: FV of NCI
100%
Allocated excess
Inventory (P45,000 P40,000) x 100%
Land (P60,000 P40,000) x 100%
Goodwill full
17. a
Total Assets of Gulliver (Jonathan)
P160,000
_40,000
P200,000
_160,000
P 40,000
P 5,000
20,000
25,000
P 15,000
P610,000
Less: Investment in Sea-Gull Corp.
(160,000)
P 450,000
230,000
P
680,000
5,000
20,000
15,000
P 720,000
Book value of assets of Sea Corp.

Book value reported by Gulliver/Jonathan and Sea
Increase in inventory (P45,000 P40,000)
Increase in land (P60,000 P40,000)
Goodwill (full)*
Total assets reported
18. c P100,000 + P95,000 + P30,000 + P40,000 = P265,000
19. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000).P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) (P40,000 + P40,000).
25,000
FV of SHE of S P 185,000
Multiplied by: NCI%....................................................................
20%
FV of NCI (partial).P 37,000
Add: NCI on full goodwill (P15,000 P12,000)..
3,000
FV of NCI (full-goodwill)* P 40,000
* same with the NCI given per problem
Partial Goodwill
Less: BV of SHE of S (P40,000 + P120,000) x
80%
Allocated excess
Land (P20,000 x 80%)
Goodwill partial
P160,000
_128,000
P 32,000
P 4,000
16,000
__20,000
P 12,000
20. a - The amount reported by Jonathan Corporation

21. a
Jonathan stockholders' equity(P200,000 + P205,000).. P405,000
NCI (full-goodwill) refer to No. 19..
40,000
Consolidated stockholders equity. P445,000
22. d [P132,000 + (P38,000 + {P60,000 P38,000}] or P132,000 + P60,000
23. b
Total Assets of P.
P1,278,000
Less: Investment in Swimmer 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
0
22,000
28,000
Increase in plant assets [P350,000 (P300,000
110,00
P60,000)]
0
Goodwill (full)*
26,667
P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
If partial-goodwill:
Total Assets of P.
Less: Investment in S Corp.
Book value of assets of S Corp.
P60,000)]
Goodwill (partial)*
P1,278,000
(440,000)
P 838,000
542,000
P1,380,00
0
22,000
28,000
110,00
0
20,000

*[P440,000 (P702,000 P142,000) x 75%]
24.
25.
P1,540,000
d
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
P
10,500
Land (P20,000 x 70%)
14,000
Goodwill partial
26.
P150,500
__98,000
P 52,500
24,500
P 28,000
c
Full-goodwill:
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full
P150,500
**64,500
P 15,000
20,000
P215,000
140,000
P 75,000
35,000
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
27. b
Total Assets of Power Corp.

Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (full)
Total Assets of Power Corp.
Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Goodwill (partial)
28
.
P701,500
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
28,000
P1,109,000
= (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
29.
a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
30
.
d
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
Add: NCI on full-goodwill (P40,000 P12,000)... 12,000
FV of NCI (full)..P 64,500
31
.
P205,000
= The amount reported by Power Corporation
32
.
P419,500
= (P150,000 + P205,000) + P64,500
Stockholders equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parents SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE
P150,000
205,000
P355,000
52,500
P404,500
33. b
34. c
Consideration transferred .......................................................................

Less: Strand's book value (P50,000 x 80%).............................................
Fair value in excess of book value ..........................................................
Excess assigned to inventory (60%) ..........................................P12,000
Excess assigned to goodwill (40%) ...........................................P 8,000
P60,000
(40,000)
P20,000
Consideration transferred (P60,000 80%)............................................

Less: Strand's book value .......................................................................
Fair value in excess of book value ..........................................................
Excess assigned to inventory (60%) ..........................................P15,000
Excess assigned to goodwill (40%) ...........................................P10,000
P75,000
(50,000)
P25,000
35. a
Park current assets.................................................................................
Strand current assets..............................................................................
Excess inventory fair value.....................................................................
Consolidated current assets....................................................................
P 70,000
20,000
15,000
P105,000
Park noncurrent assets...........................................................................

Strand noncurrent assets.......................................................................
Excess fair value to goodwill (partial)....................................................
Consolidated noncurrent assets.............................................................
P 90,000
40,000
___8,000
P140,000
36. c
37. d
Park noncurrent assets............................................................................
Strand noncurrent assets........................................................................
Excess fair value to goodwill (full)...........................................................
Consolidated noncurrent assets..............................................................
P 90,000
40,000
__10,000
P140,000
38. b Add the two book values and include 10% (the P6,000 current portion) of the loan
taken out by Park to acquire Strand.
39. b
Add the two book values and include 90% (the P54,000 noncurrent portion) of the
loan taken out by Polk to acquire Strand.
40. 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 SP65,000
x: Multiplied by: NCI%........................................................................
20%
13,000
41. c
Total stockholders' equity......................................................................
P93,000
Park stockholders' equity....................................................... . P80,000

NCI (full):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory). 15,000
FV of SHE SP65,000
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
42. b
43. a P150,000 + P500,000
44. a at fair value
45. b
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5)
..
APIC
Add: APIC of P
Less: Stock issuance cost
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
P
4,200,000
__2,500,00
0
P
1,700,000
7,500,000
___100,000
P
9,100,000
a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000

a at fair value
c
a
[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000
increase + P100,000 in increase in PPE] = P100,000
b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in
PPE P300,000 P500,000) = P550,000
a
d (P1,000,000 + P250,000) = P1,250,000 P only.
d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
a - P only
d
Total Assets of P
P 960,000
Less: Investment in S
(330,000)
P 630,000
Book value of assets of S

P45,000)]
Goodwill (full)
405,000
P1,035,000
19,000
21,000
120,000
_____0
P1,195,000
If partial-goodwill same answer with full-goodwill approach, since there is no gain.

57. b step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value
30% FV of previously held equity interest: 30,000 shares x P5, fair
value
10% FV of NCI (100,000 60,000 30,000) x P, fair value
100% Fair value of subsidiary
Less: Fair value of net assets (SHE) of subsidiary
58.
59.
60.
61.
P360,000
150,000
40,000
P560,000
500,000
P 60,000
b
a
a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)
P330,000
395,000
P 65,000
62. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary
(not in the worksheet or eliminating entries.
63. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of
Sirius.
64. c**/d*
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent
entity, does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or
indirect are considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related
costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property,
Plant and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of
investment in associate, joint venture or subsidiary but it is possible that the scope of the project might
be expanded in future. (IGAAP 2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually
recognized as expenses in the consolidated accounts.
Revised PAS 27 does not define what is meant by cost, but in the glossary to PFRS provides an overriding definition of cost as the amount of cash or cash equivalents paid or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or construction
As a general rule under PFRS, cost includes the purchase price and other costs directly attributable to the
acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other
transaction costs
* Answer d P1,600,000 (P1,500,000 + P100,000) Position of Ernst and Young (EY). Given that Revised PAS
27 does not separately define cost, it is appropriate to apply the general meaning of cost to separate
financial statements. Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate
financial statements includes any costs incurred even if such costs are expensed in the consolidated financial
statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to
Separate Financial Statements not consolidated statements; therefore PFRS 3 which is a standard for
business combination/consolidation will not be the basis for the definition of cost). Unlike before the
revision of PAS 27 and implementation of PFRS 10, the basis of the old PAS 27, which is Consolidated and
Separate Statements, is PFRS 3, wherein the definition of cost was clearly defined. That is why the general
rule in the definition of cost was applied. This view is also as suggest by the IASB since they
introduced the requirement to expense acquisition costs within PFRS 3, it only applies to financial
statements in which a business combination is accounted for under PFRS 3. It follows that this
requirement does not extend to the individual (or separate) financial statements of the investing or
parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and
PAS 38 (Intangible Assets) wherein the direct costs is capitalized in the books of parent entity and
eventually become expense through eliminating entry to prepare consolidated statements.
** Answer c P1,500,000; In Revised PAS 27 Separate Financial Statements in relation to PFRS 3
par. 33, which refers to any acquisition-related costs incurred by the acquirer in relation to the business
combination (for example legal costs, due diligence costs such as finders fee are expensed off and not
included in the consideration transferred. The key reasons given for this approach are provided in
paragraph BC366:
Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
They are separate transactions for which the buyer pays the fair value for the services received.
These amounts do not generally represent assets of the acquirer at acquisition date because the
benefits obtained are consumed as the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and
liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially
recorded at cost. The following items are worth noting to justify the use of this approach:
1.
2.
3.
This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7 th
Edition (2013) which is an IFRS based discussion, in the solution they presented in one of their end-ofchapter problems, they expensed the direct costs in recording the investment in subsidiary in the book
of parent company
Similar with No. 1 above, in the book Applying IFRS, 3 rd edition (2013), by Picker, et al (which is also
Ernst and Young book, which seems to contradict their position in the discussion above) in chapter 24
end-of-the chapter problems, the direct costs (or costs incurred in undertaking taking the acquisition
as the term used in the book) were not part of the investment in subsidiary as evidenced by the
amount in the eliminating entry.
One respected author in accounting even commented that, despite the above analysis capitalizing the
direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27
and PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it
may be a problem when there will be an impairment test which will reveal the costs are in fact
unrecoverable and thus that there must be an impairment charge at the parent level (in which the
direct costs is included as part the investment), which would have the effect of bringing the
parents accounting (with the impairment investment including the direct costs) in line
with what would later appear on the consolidated financial statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the
definition of costs in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the
direct costs will be part of the investment in the books of parent entity. But because of the three reasons
mentioned above, the author believes that the direct costs still be considered as expenses applying PFRS 3,
aside from the fact that in substance the ultimate objective is to consolidate, eventhough there was a
separation of standard between Revised PAS 27 and PFRS 10.
65. a
66. 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.
67. d
68. a
69. c In the combined financial statements (which normally used to described financial
statements in a common control situation), intercompany accounts are eliminated in
full.
70. 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.
71. d
The acquisition method consolidates assets at fair value at acquisition date regardless of
the parents percentage ownership.
72. c
73. c
An asset acquired in a business combination is initially valued at 100% acquisitiondate fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009........................................................
Amortization for 2 years (10 year life).....................................................
Patent reported amount December 31, 2010..........................................
P45,000
(9,000)
P36,000
74. a
PP - building............................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings .............................................................................
-ORPP - 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)
Consolidated buildings .............................................................................
75. d
P510,000
210,000
P720,000
210,000
P720,000
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
*
Currently issued
Additional shares issued..
Total shares
100%
Pedro Ltd
100 40%
150 60%**
250
Santi Ltd
40 40%
60 / 60%
100
**150/250
FV of net assets [P.5M + P1.5M P.7M)] P1.3M

BV of net assets (same with FV)..
1.1 M
Fv per share of stock P 16
P ?
?
P 40
Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi
Ltds shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150
shares (60 x 2 ) 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 by 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.
76.
d
Consideration transferred (4,000,000 shares* x P6)P24,000,000
Less: Book value of SHE Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)
0
Goodwill P 6,000,000
*
Man
(Public Co.)
Currently issued 10 M 40%
Additional shares issued..
15 M 60% **
Total shares 25 M
**15M/25M
FV of net assetsP 18 M
BV of net assets (same with FV). 18 M
Fv per share of stock.P 8
Mask
(Private Co.)
4 M 40%
6 M / 60%
10 M
P30 M
?
P 6
77. c
P60,000 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.
78. b
79.
Target not met: 100,000 shares x .75 share x P10 = P750,000

Target met: 100,000 shares x .8 x P10 = P800,000
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
80.
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000

The investment value does not change as a result of a change in the share prices.
Quiz- XV
1.
2.
P290,000 = P30,000 + P120,000 + P300,000 - P45,000 - P115,000

None, since there are no revenues and expenses of the acquire up to the date of
acquisition
P525,000
P80,000 = P250,000 - P170,000
P99,000 = (P10,000 + P80,000 + P350,000 - P110,000)(.30)
P21,000 = (P60,000 - P12,000 - P5,000 - P8,000 - P14,000)
P70,000 = P56,000/.8
P56,000 = (P220,000 - P120,000 - P44,000)
P700,000 = P490,000/.70
P180,000 = [(P490,000/.70) - (P30,000 + P140,000 + P460,000 - P110,000)]
P90,000 = P460,000 - P370,000
P160,000 = (P430,000 - P210,000 - P60,000)
P700,000 = P560,000/.80
P80,000 = [(P560,000/.80) - (P50,000 + P200,000 + P600,000 - P230,000)]
P70,000 = P600,000 - P530,000
P130,000 = ($60,000 + $210,000 + $630,000 - $250,000)(.20)
P50,000
P469,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.70)
P201,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.30)
P80,000 = (P700,000 - P620,000)
P90,000 credit (P260,000 - P350,000)
P110,000 debit
P120,000 credit (P300,000 - P420,000)
P180,000 debit
P50,000 debit (P300,000 - P250,000)
P56,000 debit
P150,000 debit (P600,000 - P450,000)
P260,000 debit
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29. c
30. 500,000 shares x 1.7 exchange ratio x P25 = P21,250,000. The investment value does
not change as a result of a change in the share prices.
31. Inventories (P110,000 + P180,000 P10,000) = P280,000
32. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
33. Investment in DD stock will be fully eliminated and will not appear in the consolidated
balance sheet
34. P35,000
P280,000
Less: BV of SHE of DD (P100,000 + P200,000
260,000
P40,000)
Allocated excess
P 20,000
Less: Over/under valuation of A and L: Inc
(Decrease)
Inventory
(P
10,000)
25,000
15,000
P 5,000
Add: Existing goodwill (to be eliminated
30,000
Goodwill 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
375,000
Accounts payable
Notes payable
Fair value of net identifiable
Assets
Goodwill to be reported
(90,000)
(250,000)
(245,000)
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.
35.
36.
37
.
38
.
39
.
40
.
41
.
Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)

Retained earnings, P105,000 (parent only, SHE of subsidiary is eliminated)
The investment balance reported by Roof will be P192,000.
Total assets will increase by P310,000.
Total liabilities will increase by P95,000.
The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
Non-controlling interest will be reported at P48,000 (P240,000 x .20).
Theories
1
.
2
.
3
.
4
.
5
.
41
.
42
.
43
.
44
.
45
.
6.
11.
16.
21.
26.
31
36.
7.
12.
17.
22.
27.
32.
37.
8.
13.
18.
23.
28.
33.
38.
9.
14.
19.
24.
29.
34.
39.
10,
15,
20.
25.
30.
35.
40.
46.
51.
56.
47.
52.
57.
48.
53.
49.
54.
50,
55,

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Chapter 15

Partial-Goodwill (Proportionate Basis)

Less: Over/under valuation of assets and liabilities:

Decrease in buildings and equipment

(E1) Common stock S Co

Eliminate investment against allocated excess.

Buildings and equipment (net)

Premium on bonds payable

Paid in capital in excess of par.

Common stock, P10 par

(1) Investment in S Company

(3) Paid-in capital in excess of

Date of Acquisition January 1, 20x4

Add: Existing Goodwill of Sky Co. (P6,000 x 100%)

Adjusted allocated excess.

Decrease in buildings and equipment

Buildings and equipment (net)

Premium on bonds payable

Common stock, P10 par

Additional paid in capital

Schedule of Determination and Allocation of Excess

Fair value of Subsidiary (100%)

Less: Over/under valuation of assets and liabilities:

Decrease in buildings and equipment

Fair value of Subsidiary (100%)

Less: Over/under valuation of assets and liabilities:

Decrease in buildings and equipment

2. Gain on acquisition, P66,000

Fair Value Basis (Full-goodwill Approach)

S Company: P7,200,000 x 100%..............................

Fair Value Basis (Full-goodwill Approach)

Fair Value Basis (Full-goodwill Approach)

Fair Value Basis (Full-goodwill Approach)

Fair value of subsidiary (100%):

Full-goodwill (Fair Value Basis)

Fair value of subsidiary

Less: Book value of stockholders equity

Less: Book value of stockholders equity of Sky:

Increase in land (P72,000 x 80%)

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

Eliminate investment against stockholders equity of Sky Co.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:

Buildings and equipment

Common stock, P10 par

Paid in capital in excess of par.

Premium on bonds payable

Paid in capital in excess of par.

Common stock, P10 par

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

The balance sheet:

Liabilities and Stockholders Equity

Total Liabilities and Stockholders Equity

Increase in land (P72,000 x 100%)

(2) Retained earnings (acquisition-related expense - close to

(E1) Common stock Sky

Eliminate investment against stockholders equity of Sky Co.

Eliminate investment against allocated excess.