Quiz 3

Problem 1
On January 1, 2020 Covid-19 Inc, acquired all the assets and assumed all of the
liabilities of Sars Inc. As of this date, the carrying amounts and fair values of
the assets and liabilities of Sars Inc. acquired by Covid-19 are shown below.

Assets Carrying Fair Values

Amounts
Cash in Bank 40,000 40,000
Receivables 800,000 480,000
Allowance for doubtful accounts (120,000) -
Inventory 2,080,000 1,400,000
Building-net 4,000,000 4,400,000
Goodwill 400,000 400,000

Liabilities
Payables 1,600,000 1,600,000

On the negotiation for the business combination, Covid-19 incurred transaction

costs amounting to P400,000 for legal, accounting and consultancy fees.

1. If Covid-19 Inc, paid P6,000,000 cash as consideration for the assets and
liabilities of Sars Inc. How much is the goodwill (gain on bargain purchase)
on the business combination?

2. If Covid-19 Inc, paid P4,000,000 cash as consideration for the assets and
liabilities of Sars Inc. How much is the goodwill (gain on bargain purchase)
on the business combination?

Problem 2
On January 1, 2020, Kanye Company acquired 80% of the equity interest of West
Company in exchange for cash. Because the former owners of West needed to dispose
their investments by a specified date, they did not have sufficient time to
market West to multiple potential buyers.

As of January 1, 2020, West’s identifiable assets and liabilities have fair

values of P4,800,000 and P1,600,000 respectively.

3. Kanye Company elects to measure non-controlling interest at fair value. An

independent consultant was engaged who determined that the fair value of the
20% non-controlling interest in West Inc is P620,000. If Kanye paid
P4,000,000 cash in the consideration for the 80% interest in West. How much
is the goodwill (gain on bargain purchase) on the business combination?

4. Kanye Company elects to measure non-controlling interest at fair value. An

independent consultant was engaged who determined that the fair value of the
20% non-controlling interest in West Inc is P620,000. If Kanye paid
P2,400,000 cash in the consideration for the 80% interest in West. How much
is the goodwill (gain on bargain purchase) on the business combination?

5. Kanye Company elects to measure non-controlling interest at fair value based

on the consideration transferred. If Kanye paid P4,000,000 cash in the
consideration for the 80% interest in West. How much is the goodwill (gain
on bargain purchase) on the business combination?
 6. Kanye Company elects to measure non-controlling interest at the NCI
proportionate share of West net identifiable assets. If Kanye paid
P4,000,000 cash in the consideration for the 80% interest in West. How much
is the goodwill (gain on bargain purchase) on the business combination?

Problem 3
On January 1, 2020, North acquired 30% ownership interest in South Inc for
P400,000. Because the investment gave North significant influence over South, the
investment was accounted under equity method in accordance with PAS 28.

Profit from January 1, 2020 to the end of 2023, North recognized the P200,000 net
share in the profits of the associate and P40,000 share in dividends. Therefore,
the carrying amount of the investment in associate account on January 1, 2020 is
P560,000.

On January 1, 2024 North acquired additional 60% ownership interest in South for
P3,200,00. As of this date, North has identified the following
A. The previously held interest has a fair value of P720,000.
B. West net identifiable assets have a fair value of P4,000,000.
C. North elected to measure non-controlling interest at the NCI
proportionate share of West’s net identifiable assets.

7. How much is the goodwill or gain?

8. How much is the gain on remeasurement of investment?

Problem 4
During 2020, the following intercompany inventory transactions occurred.
 Hana sold goods costing P12,000 to Bishi, at a mark up of 40% on selling
price. A quarter of these goods are held in the inventory of Bishi by year
end.
 Hana acquired inventory from Bishi for P12,000 uses normal markup of 25%
above its cost. Hana ending inventory included P4,000 of the inventory
acquired from Bishi.
 The ending inventory of Hana and Bishi is P75,000 and P10,400 respectively
 Hana Sales 330,000, Bishi Sales 150,750
 Hana Cost of Sales 185,000, Bishi Cost of Sales 96,600.

9. Compute the consolidated inventory

10. Compute the consolidate sales
11. Compute the consolidated cost of sales

Problem 5
On January 1, 2020, Asus Co. sells equipment with historical cost of P100,000 to
its 100% owned subsidiary, Apple for 80,000. At the time of the sale, the
equipment had been 50% depreciated (using straight line method and an assigned
life of 10 years. Apple continued depreciating the equipment by using the
straight-line method over remaining useful life of 5 years.

12. What are the cost and accumulated depreciation, respectively, of this
equipment in the consolidated balance sheet?
13. What is the amount of the intercompany profit or loss must be deferred at
12/31/2020?
14. what is the amount of adjustment to depreciation expense in preparing the
consolidation worksheet at 12/31/2020?
Problem 6

The following Statement of Financial Position were prepared for The Hound and
Brienne of Tarth Company on January 1, 2019 just before they entered into
business combination:

The Hound Brienne of Tarth

Book Value Fair Value Book Value Fair Value
Cash and Receivables 450,000 500,000 225,000 250,000
Inventory 900,000 1,000,000 150,000 250,000
Building and Equipment 1,687,500 1,500,000 450,000 525,000
Accounts Payable 225,000 200,000 60,000 45,000
Bonds Payable 675,000 450,000 75,000 105,000
Common Stocks
P 20 par value 1,200,000
P 10 par value 300,000
Additional Paid in Capital 225,000 75,000
Retained Earnings 712,500 315,000

The Hound acquired Brienne of Tarth by issuing 15,000 shares of common stocks and
paying cash amounting to P450,000. In additional, the following were incurred:
legal fees, cost of SEC registration, cost of issuing stock certificates and
general administrative costs were incurred and paid the The Hound of P37,500,
P37,500, P15,000 and P22,500 respectively.

If the market stock price of the The Hound and Brienne of Tarth are P25 and P14,
respectively at the time of acquisition.

15. How much is the goodwill or gain?

16. How much is the consolidated total assets?

17. How much is the consolidated equity?

Problem 7
Davos Seaworth Company holds 80% of the common stock of Tommen Baratheon, Inc, In
the current year, Davos Seaworth Company reports sales of P10,000,000 and cost of
goods sold of P7,500,000. For the same period, Tommen Baratheon has sales of
P200,000 and cost of goods sold of P160,000. During the year, Davos Seaworth
Company sold merchandise to Tommen Baratheon for P60,000 at a price based on the
normal mark up. At the end of the year, Tommen Baratheon still possesses 30% of
this inventory.

18. Compute Consolidated Sales

19. Compute consolidated cost of goods sold

20. Compute consolidated gross profit.