Problem 1

On January 1, 2020, Hashirama Company purchased 80% of the

outstanding shares of Madara Company. Immediately prior to the
acquisition, Hashirama reported P2,000,000 retained earnings. Madara
Company’s ordinary share capital and retained earnings on this date
amounted to P1,500,000 and P2,300,000, respectively. Also, on this
date, an equipment is undervalued by P500,000 with a remaining life of
ten years while a building is overvalued by P600,000 with a remaining
life of twenty years. Hashirama declared dividends of P50,000 and
P100,000 during 2020 and 2021. The following condensed statement of
profit or loss is provided for the years 2020 and 2021:

Sales Less: Cost of sales Less: Other expenses Dividend Income Net
Income

P1,000,000 600,000 200,000 8,000 P208,000

2021 P1,200,000 720,000 250,000 40,000 P270,000

P500,000 250,000 100,000

5,000 P155,000

2021 P700,000 350,000 200,000 2,000 P152,000

Hashirama 2020

Madara 2020

Case A: The price paid by Hashirama to acquire 80% of the outstanding

shares of Madara is P4,400,000 and that goodwill was impaired by
P500,000 during 2021.