Ramon Magsaysay Technological University

College of Accountancy and Business Administration

Iba, Zambales

Midterm Examination
Name: Date:

Encircle the correct answer.

1.Espana Branch was billed by Home Office for merchandise at 140% of cost, at the end of its first month,
Espana branch submitted among other things, the following data:
Merchandise from Home Office (at billed price) P98,000
Merchandise purchased locally by Branch P40,000
Inventory, December 31 of which P7,000 are of 28,000
local purchase
Net sales for month 180,000

The branch inventory at cost and the gross profit of the branch as far the home office is concerned are:

Gross Profit Ending Inventory of Branch at Cost

a. P22,000 P92,000
b. 92,000 22,000
c. 70,000 22,000
d. 90,000 20,000

2. The Manila branch of the Great Company is billed for merchandise by the home office at 20% above cost.
The branch in turn prices for sales purposes at 25% above billed price. On February 16 all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch accounts show the following
information:

Merchandise inventory, January 1 (at billed price) P26,400

Shipments from home office (Jan.1 – Feb.16) 20,000
Sales 15,000
Sales returns 2,000
Sales allowances 1,000

What was the cost of the merchandise destroyed by fire?

a. P36,000
b. 30,667
c. 36,800
d. 30,000

3. The home office bills its Aklan branch at 125% of cost. During the year 2011, goods costing P30,000 were
shipped to the branch. The account “allowance for overvaluation of branch inventory ”,after adjustment,
shows a balance of P14,000 at the end of the year.

Compute the amount of ending inventory at:

Cost Billed Price

a. P56,000 P56,000
b. 3000,000 375,000
c. 56,000 70,000
d. 70,000 56,000

4.Lacoste Philippines has two merchandise outlets, its main store in manila and its Cebu City branch. For
control purposes, all purchase are made by the main store, and shipments to the Cebu City branch are at the
cost plus 10% On January 1, 2011, the inventories of the main store and the Cebu City branch were P13,600
and P3,960, respectively. During 2011, the main store purchased merchandise costing P40,000 and shipped
40% of these to the Cebu City branch.
At December 31,2011, the following journal entry was made to prepare the Cebu Cty branch books for the
next accounting period:

Sales 32,000
Inventory 4,840
Inventory 3,960
Shipments from main store 17,600
Expenses 10,480
Main Store 4,800

(1) What was the actual branch income of 2011 on a cost basis, assuming the use of the provisions of the
PAS, and (2) If the main store has P11,200 worth of inventory on hand at the end of 2011, the total
inventory that should appear on the combined balance sheet at December 31, 2011.
a. (1) P4,800 ; (2) P15,600
b. (1) P6,320 ; (2) P15,160
c. (1) P6,320 ; (2) P15,600
d. (1) P6,480 ; (2) P16,040

5. The best Co. bills merchandise shipments in its Cavite City branch at 125% of cost. The branch, in turn, sells
the merchandise it receives from the home office at 25% above the billing price. On August 1, 2011, all of the
branch’s merchandise stock was destroyed by fire. The branch records that were recovered showed the
following:

Inventory, January 1, 2011 (at billed price) P 165,000

Shipments received from home office, January to P110,000
July (at billed price)
Purchases, at cost from outside sources, all re-sold P7,500
at a 20% mark-up
Sales P169,000
Sales returns and allowances P3,750

The best Co. will file an insurance claim. How much is the estimated cost of the merchandise destroyed by
the fire?

a. P120,000
b. P130,000
c. P140,000
d. P150,000

6. On August 31,2012, a fire destroyed totally the rented “bodega” or stockroom of Isabela Company. The
following are some of the data of the company:

Merchandise Inventory, Dec.31,2011 for the P110,000

period Jan.1 – Aug. 31,2012
Purchases P560,500
Freight in P5,600
Purchase returns P10,200
Sales P695,000
Sales returns and allowances P7,500

Using a 20% gross profit rate, the cost of the merchandise lost in the fire was:

a. P90,700
b. P115,900
c. P88,400
d. P63,200

7. Lobster Trading bills its Iloilo City branch for shipments of goods at 25% above cost. At the close of
business on October 31,2011, a fire gutted at the branch warehouse and destroyed 60%of the merchandise
stock stored therein. Thereafter, the following data were gathered:
January 1 inventory, at billed price P50,000
Shipments from home office to Oct.31 P130,000
Not sales to October 31 P225,000

If undamaged merchandise recovered are marked to sell for P30,000, the estimated cost of the merchandise
destroyed by the fire was:

a. P14,400
b. P21,600
c. P24,000
d. 27,500

8. Trial balances for the home office and the branch of the Tony Co. show the following accounts before
adjustments. On December 31, 2011. The home office policy of billing the branch for merchandise is 20%
above cost.

Home Office Branch

Unrealized intercompany P10,800
inventory profit
Shipments to branch P24,000
Purchase (Outsiders) P7,500
Shipments from home office P28,800
Merchandise inventory, P45,000
December 1, 2011

What part of the branch inventory ass of December 1, 2011 represent purchases from outsiders and what
part represents goods acquired from the home office?

Outsiders Home Office

a. P12,000 P33,000
b. P16,500 P28,500
c. P15,000 P30,000
d. 9,000 P36,000

9. Masaya Commercial Corp. maintains a branch in Iloilo City. Selected account balances taken from the
books of Masaya and its Iloilo branch as of December 31, 2011 are as follows:

Home Office Branch

Merchandise Inventory, Jan. 1, P12,000 P8,000
2011
Purchases P150,000 P30,000
Shipments from Home Office P93,750
Shipments to branch P75,000
Branch Inventory Allowance P19,750
Sales P115,000 P176,500
Merchandise Inventory Dec. 31, P14,000 P10,350
2011

10. Selected balances from the Legaspi Company’s Branch A and Branch B are as follows:

Branch A Branch B
Inventory, Jan. 1, 2011 P21,000 P19,000
Imprest Branch Fund P2,000 P1,500
Inventory Dec.31, 2011 P19,000 P12,000
A/ Receivable, Jan. 1, 2011 P55,000 P43,500
Merchandise from Home Office P61,000 P47,000
A/Receivable, Dec. 31, 2011 P70,000 P53,500
Cash Collections P85,000 P70,000
Sales P100,000 P80,000
Cash Expenses P21,000 P14,300
All sales, collections, anf expenses are handled at the branch. All cash received from sales and collections are
sent directly to the Home Office. Expenses are paid by the branch from the imprest funf immediately
reimbursed by the Home Office and credited to the Home Office account. All expenses paid by the branch are
recorded in the books of the branch.

Compute the balance of the Home Office account on January 1, 2011.

Branch A Books Branch B Books

a. P78,000 P67,000
b. 75,000 P64,000
c. P64,000 P78,000
d. 78,000 P64,000

11. The Dumaguete City branch Silliman Enterprises, Negros, was billed for merchandise shipments from
home office at cost plus 25% in 2011 and cost plus 20% in 2012. Other pertinent data for 2012 show:

Dumaguete Branch Home Office

Sales P63,000 P212,000
Inventory, beginning
At cost P23,000
At billed price P8,900
Purchases P164,000
Inventory transfers
To Dumaguete, at cost P42,000
From Negros, at billed price P50,400
Inventory, end
At cost P28,500
At billed price P11,700
Expenses P20,300 P76,400

Compute the (1) net income (loss) of Dumaguete City per branch books and (2) The combined net income
(loss) of Siliman Enterprises.

a. (1) P(4,900); (2) P18,740

b. (1) P(4,900); (2) P22,430
c. (1) P3,330; (2)P22,430
d. (1)P8,230; (2)P25,270

12. The Quezon City branch of Assers Enterprises, Manila, was billed for merchandise shipments from home
office at cost plus 25% in 2011 and cost plus 20% in 2012. Other pertinent data for 2012 show:

Quezon City Branch Home Office

Sales P63,000 P212,000
Inventory, beginning
At cost P23,000
At billed price P8,900
Purchases P164,000
Inventory transfers
To Quezon City, at cost P42,000
From Manila, at billed price P50,400
Inventory, end
At cost P28,500
At billed price P11,700
Expenses P20,300 P76,400

Compute the (1) realized inventory profit from branch sales(or overvaluation of cost of goods sold, and (2)
The ending inventory that should be presented in the combined income statement.

a. (1) P8,230; (2) P40,200

b. (1) P8,230; (2) P38,250
 c. (1)P7,933; (2) P38,250
d. (1)P9,520; (2) P 37,860

13. Selected accounts from the December 31, 2011 trial balances of Betty Star Co. and its branch follow:

5 - Star Branch
Inventory, Jan.1 P46,000 P23,100
Branch Current P116,600 -
Purchases P380,000 -
Shipments from home office - P209,000
Freight in - P10,450
Expenses P104,000 P58,100
Home Office Current - (P106,600)
Sales (P310,000) (280,000)
Shipments to branch (P200,000) -
Branch merchandise markup (P22,000) -

As of December 31, 2011, a shipment with a billing price P11,000 was in transit to the branch. Freight cost,
typically 5% of the billing price, is inventoriable. Merchandise on hand at year-end were: at home office,
P64,000 at cost; at branch. P33,000 at billing price.

Compute the (1) branch net income in so far as home office is concerned, and (2) the combined for 2011:

a. (1) P40,900; (2) P84,900

b. (1) P32,100; (2) P76,100
c. (1) P32,000; (2) P76,000
d. (1) P33,000; (2) P77,000

14. The Kester Store operates a branch in Cebu. Operating data for the home office and the branch for 2011
are as follows:

Home Office Branch

Sales P365,000 P174,500
Shipments to branch P90,000
Purchases from outsiders P220,000 P35,000
Advertising expenses P13,700 P2,500
Salaries & commission expense P35,000 P9,500
Rent Expense P10,000 P2,000
Miscellaneous expense P3,3000 P500
Shipment from home office P112,500
Inventories, Jan.:
Home Office P85,000
Branch:
Acquired from outsiders P9,500
Acquired from office at P42,000
billed price which is 20% above
cost
Inventories, Dec.31:
Home Office P65,000
Branch:
Acquired from outsider P6,500
Acquired from home office P30,000
at 2011 billed price

Compute the combined net income of Kester Store:

a. P111,000
b. P63,000
c. P250,500
d. P174,000
15. The Iloilo Co. operates a branch in Davao. There are shipments in transit from home office to the branch.
The home office ship merchandise to branch at 125% of cost in year 2011. Profit and loss data for the home
office and branch for 2011 follows:

Home Office Branch

Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to Home Office 30,000
Billing price to branch 32,500
Expenses 40,000 10,000
Inventories, Jan. 1, 2011
Home Office, acquired from 80,000
outsiders, at cost 7,500
Branch: acquired from
outsiders, at cost
Acquired from Home Office
at billing price, which averaged 24,000
205 above cost
Inventories, Dec. 31, 2011
Home Office, acquired from 55,000
outsiders cost
Branch: Acquired from Home 5,500
Office, at 2011 billed price 21,000
(physical count)

Compute the (1) amount of merchandise in transit, and (2) combined cost of goods sold.

a. (1) P5,000; (2) P241,200

b. (1) 5,000; (2) 240,000
c. (1) P3,500; (2) P242,400
d. (1) 3,500; (2) 245,200

16. Betzier Company branch in Malate began operations on January 01,2011. During the first year of
operations,the home office shipped merchandise to the Malate branch that cost P250,000 at a billed price of
P300,000. One-fourth of the merchandise remained unsold at the end of 2011. The home office records the
shipments to the branch at the P300,000 billed price at the time shipments are made.

Freight-inof P2,000 on the shipments from the home office was paid by the branch. The home office should
make an adjusting entry for freight-in as follows:

a. A year-end adjusting entry debiting the branch account for P2,500

b. A year-end adjusting entry debiting the branch account for P2,000
c. A year-end adjusting crediting the branch account for P500
d. No year-end adjusting entry for the freight charge

17.Tagum Supply Company is engaged in merchandising both at its Home Office in manila and at its Branch in
Davao City. Selected accounts taken from the trial balances of the Home office and the branch as of
December 31, 2011 follow:

Debits Manila Davao branch

Inventory, January 1, 2011 P23,000 P11,550
Davao branch P58,000 -
Purchases P190,000 P105,000
Freight in from Home Office P5,500
Sundry Expenses P52,000 P28,000
Credits
Home Office P- P53,300
Sales P155,000 P140,000
Sales to branch P110,000 -
Allowance for Overvaluation of -
branch inventory at Jan. 1, 2011 P1,000
Additional Information:

- The davao City branch gets all of its merchandise from the home office. The home office bills the
goods at cost plus a 10% mark up. At December 31, 2011 a shipment with a billed value of P5,000
was still in transit. Freight on its shipment was P250 and is to be treated as part of the inventory.
- Inventories on December 31, 2011, excluding the shipment in transit, follow:

Home office, at cost……………………………………P30,000

Branch, at billed price (excluding freight of P520) P10,400

Compute the (1) net income of the home office from own operations, and (2) the net income of the branch in
so far as home office is concerned.

a. (1) P30,470;(2) P 870

b. (1) 20,000;(2) 10, 470
c. (1) P20, 000;(2) P870
d. (1) 30,470; (2) 10,470

18. The Brazil Corporation operates a branch in Mactan, Cebu.Trial balance of the Home Office and Mactan
Branch at December 31, 2011 is reproduced below;

Brazil Corporation

Home Office and Branch

Trial Balance
December 31, 2011

Home Office Mactan Branch

Dr. Cr. Dr. Cr
Cash P 12,000 P 3,400
Accounts receivable 28,000 7,000
Branch current 16,000 5,000
Allowance for over-valuation 8,000
In branch merchandise.
Fixed assets (net) 89,800 P 2,800
Accounts payable 2,0000
Home Office, Current P1,400
Capital stock 100,000 8,000
Retained earnings 5,000
Sales 110,000 37,400
Purchases 80,000
Shipments from Home Office
Shipments to branch 24,000
Operating expences 10,000
P243,800 P243,800 P46,800 P46,800

Home Office inventory at December 31, 2011 was P20,000: while the composition of the Branch inventory
was:
From Home Office Outside Purchased Total
January 1, 2011 P4,400 P600 P5,000
December 31, 2011 3,960 540 4,500

Shipments to branch are billed at 10% mark-up.

The combined net income of the Home Office and branch for the year ended December 31,2011:
a. P55,940
b. 53,500
c. 53,140
d. 48,000
19. Swift Corporation, operates a number of branches in Metro Manila. On june 30, 2011, its Sn. Lorenzo
branch showed a Home Office Account balance of P27,350 and the home office books showed a Sn. Lorenzo
branch account balance of P25,550. The following information may help in reconciling both accounts:
1. A P12,000 shipment, charged by Home Office to Sn. Lorenzo branch, was actually sent to and retained by
Sto. Tomas branch
2. A P15,000 shipment, intended and charged to Sn. Jose branch was shipped to Sn. Lorenzo branch and
trained by the latter.
3. A P2,000 emergency cash transfer from Sto. Tomas branch was not taken up in the Home Office books.
4. Home office collect a Sn Lorenzo branch accounts receivable of P3,600 and fails notify the branch.
5. Home office was charged for P1,200 for merchandise returned by Sn. Lorenzo branch on June 28.The
merchandise is in transit.

Home office erroneously recorded Sn. Lorenzo’s net income for May ,2011 at P16,275. The Branch reported a
net income of P12,675.

What is the reconciled amount of the Home Office and Sn. Lorenzo branch reciprocal accounts?
a. P21,750
b. 23,750
c. 27,350
d. 20,150
20.On December 31, 2011, the Investment in Branch account on the home office’s books has a balance of
P102,00. In analyzing the activity in each of these accounts for December, you find the following differences:
1. A P12,000 branch remittance to the home office initiated on December 27, 2011, was
recorded on the home office books on January 3, 2012.
2. A home office inventory shipment to the branch on December 28, 2011, was recorded by the
branch on January 4,2012;the billing of P24,000 was at cost.
The home office incurred P14,400 of advertisement expenses and allocated P6,000 of this amount to
the branch on December 15,2011.The branch has not recorded this transaction.
3. A branch customer erroneously remitted P3,600 to the home office. The home office
recorded this cash collection on December 23,2011. Meanwhile, back at the branch, no entry
has been made yet.
4. Inventory costing P51,600 was sent to the branch by the home office on December 10, 2011.
The billing was at cost, but the branch recorded the transaction at P40,800.

Compute the balances as of December 31,2011:

Unadjusted Balance Adjusted

Of the Home Office Account Balance of the Reciprocal Account
a. P 76,800 P 114,00
b. 52,800 93,600
c. 151,200 139,200
d. 52,800 90,000

21. Lakers Trading Co. operates a branch in Dagupan City. At close of business on December 31, 2011,
Dagupan Branch account in the home office books showed a debit balance of P225,770. The interoffice
accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice
accounts, the following facts were ascertained:

1. An office equipment costing the home office P3,500 was picked up by the branch as P350.
2. Insurance premium of P675 charged by the home office was taken up twice by the branch.
3. Freight charge on merchandise made by the home office for P1,125 was recorded in the branch
books as P1,215.
4. Home office credit memo representing a discount on merchandise for P800 was not recorded by the
branch.
5. The branch failed to take up a P700 debit memo from the home office representing the share of the
branch in advertising.
6. The home office inadvertently recorded a remittance for P3,000 from its Cebu branch as a
remittance from its Dagupan branch.

Compute he balance as of December 31,2011.

Unadjusted Balance Adjusted Balance

Of the Home Office Account Of the reciprocal account
a. P226,485 P225,770
b. 228,485 228,770
 c. 225,770 226,485
d. 226,485 228,770

22. Company Z acquires 80% of Company Y for P10,000,000., carrying value of Company Y net assets at time
of acquisition being P6,000,000 and fair value of these net identifiable assets being P8,000,000.

Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:

a. P1,600,000
b. P2,000,000
c. P3,600,000
d. P4,500,000

23. Using the same information in No.1, the amount of non-controlling interest arising on consolidation is to
be valued on the proportionate basis or “Partial” Goodwill:

a. P1,200,000
b. P1,600,000
c. P2,500,000
d. P3,000,000

24. Using the same information in No. 1, the amount of goodwill arising on consolidation is to be valued on
the full (fair value) basis or “Full/Gross-up” Goodwill:

a. P1,600,000
b. P2,000,000
c. P3,600,000
d. P4,500,000

25.Using the same information in No.1, the amount of non-controlling interest arising on consolidation is to
be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:

a. P1,200,000
b. P1,600,000
c. P2,500,000
d. P3,000,000

26.Entity Subsidiary has 40% of its share publicly traded on an exchange. Entity Parent purchases the 60%
non publicly traded shares in one transactions paying P6,300,000. Based on the trading price of the shares of
Entity Subsidiary at the date of gaining control a value of P4,000,000 assigned to the 40% non-controlling
interest (or fair value of non-controlling interest), indicating that Entity Subsidiaryhas paid as control
premium of P300,000. The fair value of P5,000,000.

Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:

a. P2,000,000
b. P2,800,000
c. P4,000,000
d. P4,120,000

27. Using the same information in No.5, the amount of goodwill arising on consolidation is to be valued on
the full (fair value) basis or “Full/Gross-up” Goodwill:

a. P1,200,000
b. 2,100,000
c. P3,300,000
d. P4,120,000

28. Using the same information in No.5, the amount of non-controlling interest arising on consolidation is to
be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:

a. P2,000,000
b. P2,800,000
c. P4,000,000
d. P4,120,000
29. On September 1, 2011, Company P acquires 75% (750,000 ordinary shares) of Company S for P7,500,000
(P10 per share). In yhe period around the acquisition date,Company S’s shares are trading at about P8 per
share. Company P pays a premium over market because of the synergies it believes it will get. Its it therefore
reasonable to conclude that the fair value of Company S’s as a whole may not be P10,000. In fact, an
independent valuation shows that the value of Company S is P9,700 (fair value of Company S). Assuming that
the fair value of the net identifiable assets is P8,000,000 (carrying value is P6,000,000)

Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill;

a. P200,000
b. P1,500,000
c. P1,700,000
d. P2,000,000

30. Using the same information in No. 33, the amount of non-controlling interest arising on consolidation is
to be valued on the proportionate basis or “Partial” Goodwill

a. P1,500,000
b. P1,875,000
c. P2,000,000
d. P2,200,000

31. Using the same information in No. 33, the amount of goodwill arising on consolidation is to be valued on
the full (fair value) basis or “Full/Gross-Up” Goodwill;

a. P200,000
b. P1,500,000
c. P1,7000,000
d. P2,000,000

32. using the same information in No. 33, the amount f non-controlling interest arising on consolidation is to
be valued on the full(fair value) basis or “Full Gross-Up” Goodwill

a. P1,500,000
b. P1,875,000
c. P2,000,000
d. P2,200,000

33. All the issued and outstanding common stock of Manila Company were bought by Makati Company on
October 01,2011 for P700,000.The assets and liabilities of Manila Company are;

Cash P50,000
Accts. Receivable (net of P25,000 allowance for 250,000
doubtful accounts)
Inventory 150,000
Property and Equipment (net of P100,000 300,000
allowance for depreciation)
Accounts/Notes Payable 130,000
On October 01,2011 the fair value of the following assets were as follows:

Accts. Receivable (net) P235,000

Inventory 130,000
Property And equipment (net) 400,000

There is an unrecorded warranty liability on prior-product sales estimated P20,000 discounted cash flow
based on estimated future cash flows:

The amount of goodwill as a result of the business combination should be:

a. P -0-
b. 35,000
c. 65,000
d. 100,000
34. Using the same information in No. 37, the amont of goodwill recorded in the books of Makati Co. as a
result in the business combination should be:

a. P0
b. 35,000
c. 65,000
d. 100,000

35. On January 01,2011, Gold Rush Company acquires 80% ownership in California Corporation for P200,000.
The fair value of non-controlling interest at that time is determined to be P50,000. It reports net assets with a
bookvalue of P200,000 and fair value of P230,000. Gold Rush Company reports net assets with a book value
of P600,000 and a fair value of P650,000 at that time, excluding its investment in California. What will be the
amount of goodwill that would be reported immediately after the combination under current accounting
practice if the option of full-goodwill method is used?

a. P50,000
b. P40,000
c. P30,000
d. P20,000

36. The Lampara Company acquired a 70% interestin The Oak Company for P1,960,000 when the fair value
of Oak’s identifiable assets and liabilities was P700,000 and elected to measure the non-controlling interest
at it’s share of the identifiable net assets. Annual impairment reviews of goodwill have not resulted in any
impairment losses being recognized. Oak’s current statement of financial position shows share capital of
P100,000, a revaluation reserve of P300,000 and retained earnings of P1,400,000

Under PFRS 3 Business combinations, what figure in respect of goodwill should now be carried in Lampara’s
consolidated statement of financial position?

a. P1,470,000
b. 1,260,000
c. 700,000
d. 160,000

37. The Natural Company acquired 80% of The Loco Company for a consideration transferred of P100million.
The consideration was estimated to include a control premium of P24million. Loco’s net assets were P85
million at the acquisition date. Are the following statements true or false,according to PFRS 3 Business
combinations?

(1) Goodwill should be measured at P32million if the non-controlling interest is measured at its share of
Local’s net assets.

(2) Goodwill should be measured at P34million if the non-controlling interest is measured at fair value.

Statement (1) Statement (2) Statement (1) Statement (2)

a. false False c. True False
b. false True d. True true

38. The Moon Company acquired a 70% interest in The Swan Company for P1,420,000 when the fair value of
Swan’s identifiable assets and liabilities was P1,200,000. Moon acquired a 65% interest in The Homer
Company for P300,000 when the fair value of Homer’s identifiable assets and liabilities was P640,000. Moon
measures non-controlling interests at the relevant share of the identifiable net assets at the acquisition
date.Neither Swan nor Homer had any contingent liabilities at the acquisition date and the above fair values
were the same as the carrying amounts in their financial statements. Annual impairment reviews have not
resulted in any impairment losses being recognized.

Under PFRS 3 Business combinations, what figures in respect of goodwill and of gains on bargain purchases
should be included n Moon’s consolidated statement in financial position?

a. Goodwill: P580,000; Gains on the bargain purchases: P116,000

b. Goodwill: Nil or zero; Gains on the bargain purchases: P116,000
 c. Goodwill: Nil or zero; Gains on the bargain purchases: Nil or zero
d. Goodwill: P580,000; Gains on the bargain purchases: Nil or zero

39. On October 01,212 The Ting Company acquired 100% of The Green Company when the fair value of
Green’s net assets was P116million & their carrying amount was P120million. The consideration transferred
comprised P200million in cash transferred at the acquisition date, plus another P60million in cash to be
transferred 11 months after the acquisition date there was only a low probability of the profit target being
met, so the fair value of the additional consideration liability was P10million. In the event, the profit target
was met & the P60million cash was transferred.

a. P80 million
b. P84 million
c. P94 million
d. P144 million

40. 100% of the equity share capital of the Rau Company was acquired by The Swift Company on June
30,2012. Swift issued 500,000 new P1 ordinary shares which had a fair value of P8 each at the acquisition
date. In addition, the acquisition resulted in Swift incurring fees payable to external advisers of P200,000 &
share issue costs of P180,000.

In accordance with PFRS 3 Business combinations, goodwill at the acquisition date is measured by subtracting
the identifiable assets acquired and the liabilities assumed from:

a. P40 million
b. P4.18 million
c. P4.20 million
d. P4.39 million
1. Jane’s Corporation issues 45,000 shares of previously unissued of P10 per value common stock with a fair
market value of P32 per share for net assets of DunnCorporation. Jane’s pays the following costs and
expenses related to the business combination:

Registering and issuing securities P15,000

Accountants’ and legal fees 8,000
Salaries of Jones’s employees’ assigned to the 16,000
implementation of the merger
Cost of closing duplicate facilities 12,000
Cost of closing shareholders’ meeting to vote on 5,000
the merger
The expenses amounted to :

a. P21,000
b. 33,000
c. 41,000
d. 56,000

2. Parent Corporation issued 100,000 shares of P20 for common stock for all the outstanding stock of
Subsidiary Corporation in a business combination was consummated. Out-of-pocket costs of the business
combination were as follows:

Finder’s Fee P50,000

Accountant’s fee (advisory) 10,000
Legal fees (advisory) 20,000
Printing cost 5,000
SEC registration costs and fees 12,000
P79,000
The fair value of the consideration transferred accounting will be:

a. P3,097,000
b. 3,080,000
c. 3,017,000
d. 3,000,000
3. Padyak Company’s own’s 80,000 shares of Sirkulo Corporation’s 100,000 outstanding common shares,
acquired at book value. The December 31,2011, consolidated balance sheet represented by Padyak and
Sirkulo included net assets of Sirkulo in the amount of P600,000. On January 01,2012, Sirkulo issues 25,000
additional shares of common stock to unrelated parties for P175,000.

The amount to be credited to “additional paid-in capital/share premium” account:

a. Zero
b. P16,000
c. 55,000
d. 104,000
4.Baning Inc. buys 60% of the outstanding stock of Gra Inc. in an acquisition that resulted in the acquisition of
goodwill. Gra owns a piece of land that cost P200,000 but wwas worth P500,000 at the acquisition date.
What value should be attributed to this land in a consolidated balance sheet at the date of takeover?
a. P120,000
b. 300,000
c. 380,000
d. 500,000
5. Paro Company purchased 80% of the voting common stock of Sabon Company for P900,000. There are no
liabilities. The following book and fair are available for Sabon:
Book Value Fair Value
Current Assets P150,000 P300,000
Land & Building 280,000 280,000
Machinery 400,000 700,000
Bonds Payable (300,000) (250,000)
Goodwill 150,000 ?
The bonds payable will appear on the consolidated balance sheet:
a. At P300,000 (with no premium or discount shown)
b. At P300,000 less a discount of $50,000
c. At P0; assets are recorded net of iabilities
d. At P300,000 less a discount of P40,000

6. Chapel Hill Company had common stock of P350,000 and retained earnings of P490,000. Blue Town Inc.
had common stock of P700,000 and retained earnings of P980,000. On January 01,2011, Blue Town issued
34,000 shares ofcommon stock with a P12 per value and a P35 fair value for all of Chapel Hill Company’s
outstanding common stock. This combination was accounted for as an acquisition. Immediately after the
combination, what was the consolidated net asset?
a. P2,870,000
b. 2,520,000
c. 1,680,000
d. 1,190,000

7. Pangasinan Branch of Malate Company, at the end of its first quarter of operations, submitted the
following income statement:

Sales P300,000
Cost of Sales
Shipments from Home Offices P280,000
Local Purchase P 30,000
Total P310,000
Inventory at the end P 50,000 P260,000
Gross profit on sales P40,000
Expenses P35,000
Net Income P5,000

Shipments to the branch were billed at 140% of cost. The branch inventory at September 30 amounted to
P50,000 of which P6,600 was locally purchased. Markup on local purchases, 20% over cost. Branch expenses
incurred by Head Office amounted to P2,500 not yet recorded by the branch.

Compute the (1) branch ending inventory that should be presented in the combined income statement, and
(2) true branch net income.

a. (1) P37,600 ; (2) P70,100

b. (1) P37,600 ; (2) P2,500
c. (1) P50,000 ; (2) P70,100
d. (1) P50,000 ; (2) P2,500

8. The income statement submitted by the Pampanga Branch to the Home Office for the month of
December, 2011 is shown below. After effecting the necessary adjustments the true net income of the
Branch was ascertained to be P156,000.

Sales P600,000
Cost of sales
Inventory, December 1 P80,000
Shipments from Home Office P350,000
Local purchases P 30,000
Total available for sale P460,000
Inventory, December 31 P100,000 P360,000
Gross margin P240,000
Operating Expenses P180,000
Net income for December, 2011 P60,000
The Branch inventories were:

12/01/2011 12/31/2011
Merchandise from home offices P70,000 P84,000
Local purchases P10,000 P16,000
Total P80,000 P100,000

(1) The billing price based on cost imposed by the home office to the branch, and (2) The balance
allowance for overvaluation of branch December 31, 2011 after adjustment.
a. (1) 140% ; (2) P10,000
b. (1) 140% ; (2) P24,000
c. (1) 40% ; (2) P24,000
d. (1) 40% ; (2)P16,000

9. The following information are extracted from the books and records of Rona Company and it branch. Te
balances are at December 31, 2011 of the company’s operations.

Home Office Branch

Sales P260,000
Shipments to branch P78,000
Shipments from home office P104,000
Purchases P39,000
Expenses P78,000
Inventory, January 1, 2011 P26,000
Allowance for overvaluation of P31,200
branch inventory

However, no shipments in transit between the home office and the branch were made. Both shipments
accounts are properly recorded. He ending inventory includes merchandise acquired from the home office in
the amount of P26,000 and P7,800 acquired from outsiders for a total of P33,800.

Compute the (1) realized inventory profit of home sales made by the branch, and (2) the amount of branch
merchandise beginning inventory that was acquired from the home office?

a. (1) P24,700 ; (2) P15,600

b. (1) P31,200 ; (2) P20,800
c. (1)P22,533 ; (2)P15,600
d. (1)P24,700 ; (2)P20,800

10. Best Buy Ventures operates a branch in Cebu City. Selected accounts taken from the May 31, 2012
statements of Best Buy and its branch follows:

H/Office Branch
Sales P380,000 P353,000
Shipments to branch P150,000
Shipments to branch – loading P39,500
Inventory, June 1, 2011 P24,000 P16,000
Purchases P300,000 P60,000
Shipments from Home office P187,000
Inventory, May 31, 2012 P28,000 P20,700
The branch ending inventory included items costing P8,700 that were acquired from outside suppliers. The
realized markup on branch merchandise that would be recognized by the home office is:

a. P36,000
b. P36,700
c. P37,100
d. P37,500
11. The Bicol Corporation operates a branch in Naga City. The information from the December 31, 2011 trial
balance are as follows:

Home Office Naga Branch

Sales P840,000 P420,000
Shipments to branch P280,000
Purchases P490,000
Shipments from Home office P350,000
Inventory, January 1, 2011 P140,000 P56,000

Inventory at December 31, Home Office P42,000; Branch P84,000

Compute the realized inventory profit of home office from sales made by the branch (the overvaluation of
cost of goods sold?

a. P56,000
b. P120,000
c. P64,400
d. P80,000