PROBLEM 1: MULTIPLE CHOICE - THEORY

1. A 6. B
2. D 7. D
3. C 8. A
4. A 9. C
5. B 10. C
11. A

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. Solutions:
Requirement (a):
Goodwill is computed as follows:
Consideration transferred 300,000
NCI in the acquiree (380K – 80K) x 40% 120,000
Previously held equity interest in the acquire -
Total 420,000
Fair value of net identifiable assets acquired (300,000)
Goodwill 120,000

CJE #1: To eliminate investment in subsidiary and recognize goodwill

Jan. Land (250K – 200K) 50,000
1,
Share capital – Rainy 250,000
20x1
Ret. earnings – Rainy (Carrying amt.) 40,000
Goodwill 120,000
Inventory (120K – 80K) 40,000
Investment in subsidiary 300,000
Non-controlling interest 120,000
to adjust the subsidiary’s assets to
acquisition-date fair values, to eliminate
the investment in subsidiary and
subsidiary’s pre-combination equity, and
to recognize goodwill and non-controlling
interest in the consolidated financial
statements

1
 Sunny Group
Consolidation Worksheet

CJE Consolidation CJE

Sunny Co. Rainy Co. Consolidated
  ref. # adjustments ref. #
ASSETS Dr. Cr.
80,00 50,00 130,00
Cash
0 0 0
400,00 120,00 480,00
Inventory 1
0 0 40,000 0
300,00 300,00
Investment in subsidiary 1
0 - 0 -
600,00 200,00 50,00 850,00
Land 1
0 0 0 0
120,00
Goodwill - - 1 120,000
0
TOTAL ASSETS 1,380,000 370,000 1,580,000

LIABILITIES AND EQUITY

200,00 80,00 280,00
Accounts payable
0 0 0

Share capital 1,000,000 250,000 1 250,000     1,000,000

180,00 40,00 40,00 180,00
Retained earnings 1
0 0 0 0
120,00 120,00
Non-controlling interest - - 1
0 0
2
Total equity 1,180,000 290,000         1,300,000
TOTAL LIABILITES & 460,00
1,380,000 370,000 460,000 1,580,000
EQUITY   0  

3
2. Solutions:

Step 1: Analysis of effects of intercompany transaction

There were no intercompany transactions during the period.

Step 2: Analysis of net assets

Acquisition Consolidation Net
Axion, Inc. date date change
250,00
250,000
Share capital 0
Retained earnings 40,000 60,000
290,00
310,000
Totals at carrying amounts 0  
Fair value adjustments at acq’n. date 10,000 10,000
Subsequent depreciation of FVA NIL 30,000*
Unrealized profits (Upstream only) NIL -
300,00
Subsidiary's net assets at fair value 0 350,000 50,000

*The subsequent depreciation of fair value adjustments (FVA) is

determined as follows:
Fair value Divide by Subsequent
adjustment useful depreciatio
  s life n
Inventory (40,000) N/A 40,000
Building – net 50,000 5 (10,000)
Totals 10,000   30,000

Step 3: Goodwill computation

Formula #1: NCI is measured at NCI’s proportionate share
300,00
Consideration transferred 0
Non-controlling interest in the acquiree (300K x 40%) – 120,00
(Step 2) 0
Previously held equity interest in the acquiree -
420,00
Total 0
(300,000
Fair value of net identifiable assets acquired (Step 2) )
120,00
Goodwill at acquisition date 0
Accumulated impairment losses since acquisition date -
120,00
Goodwill, net – current year 0

Step 4: Non-controlling interest in net assets

Axion's net assets at fair value – Dec. 31, 20x1 (Step 2) 350,000
4
Multiply by: NCI percentage 40%
Total 140,000
Add: Goodwill to NCI net of accumulated impairment losses -*
Non-controlling interest in net assets – Dec. 31,
20x1 140,000

*No goodwill is attributed to NCI because NCI is measured at proportionate

share. Goodwill is attributed to NCI only if NCI is measured at fair value.

Step 5: Consolidated retained earnings

Joy's retained earnings – Dec. 31, 20x1   243,000
Consolidation adjustments:
Joy's share in the net change in Axion's net assets
(a)
30,000
Unrealized profits (Downstream only) -
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
Net consolidation adjustments 30,000
Consolidated retained earnings – Dec. 31,
20x1   273,000 

(a)

Net change in Axion’s net assets (Step 2)

50,000
Multiply by: Joy’s interest in Axion 60%
Joy’s share in the net change in Axion’s net
30,000
assets

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 63,000 20,000 83,000
Consolidation adjustments:
( -
Unrealized profits ) ( - ) ( - )
Dividend income from ( -
subsidiary ) N/A ( - )
Gain or loss on extinguishment ( -
of bonds ) ( - ) ( - )
Net consolidation ( -
adjustments ) ( - ) ( - )
63,00
Profits before FVA 0 20,000 83,000
Depreciation of FVA (b) 18,000 12,000 30,000
Impairment loss on goodwill ( - ( - ) ( - )

5
 )
Consolidated profit 81,000 32,000 113,000

(b)
The shares in the depreciation of fair value adjustments (FVA) are
computed as follows:
Total subsequent depreciation of fair value (Step 2) 30,000
Allocation:
Parent’s share in depreciation of fair value (30,000 x 60%) 18,000
NCI’s share in depreciation of fair value (30,000 x 40%) 12,000
As allocated 30,000

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
  of parent NCI dated
Joy's profit before FVA (Step 6) 63,000 N/A 63,000
Share in Axion’s profit before FVA (c) 12,000 8,000 20,000
Depreciation of FVA (Step 6) 18,000 12,000 30,000
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 93,000 20,000 113,000

(c)
The shares in Axion’s profit before FVA are computed as follows:
Profit of Axion before fair value adjustments (Step 6) 20,000
Allocation:
Joy’s share (20,000 x 60%) 12,000
NCI’s share (20,000 x 40%) 8,000
As allocated: 20,000

Joy Group
Consolidated statement of financial position
As of December 31, 20x1
   
ASSETS
Cash (143,000 + 60,000) 203,000
Inventory (440,000 + 160,000 – 40K FVA + 40K
600,000
depn)
Building – net (560K + 160K + 50K FVA – 10K
760,000
depn)
120,00
Goodwill (Step 3)
0
TOTAL ASSETS 1,683,000
   
LIABILITIES AND EQUITY  
Accounts payable (200,000 + 70,000) 270,000

Share capital (Parent only) 1,000,000

6
Retained earnings (Step 5) 273,000
Owners of parent 1,273,000
Non-controlling interest (Step 4) 140,000
1,413,00
Total equity
0
TOTAL LIABILITIES AND EQUITY 1,683,000
   

Joy Group
Statement of profit or loss
 
For the year ended December 31, 20x1  

Sales (300,000 + 120,000) 420,000

Cost of goods sold (165,000 + 72,000 – 40K depn of
FVAa) (197,000)
Gross profit 223,000
Depreciation expense (40,000 + 10,000 + 10K depn of
FVA) (60,000)
Distribution costs (32,000 + 18,000) (50,000)
Profit for the year 113,000
 

Profit attributable to:

Owners of the parent (Step 7) 93,000
Non-controlling interests (Step 7) 20,000
  113,000
   

a
This represents the depreciation of the fair value adjustment to the
inventory.

PROBLEM 3: EXERCISES

1. Solutions:
Requirement (a):
Goodwill is computed as follows:
Consideration transferred 360,000
NCI in the acquiree 240,000
Previously held equity interest in the acquire -
Total 600,000
Fair value of net identifiable assets acquired (310,000)
Goodwill 290,000

CJE #1: To eliminate investment in subsidiary and recognize goodwill

Jan. Land (250K – 240K) 10,000
1,
Share capital – Taxi 300,000
20x1
Ret. earnings – Taxi (Carrying amt.) 48,000
Goodwill 290,000

7
 Inventory (144K – 96K) 48,000
Investment in subsidiary 360,000
Non-controlling interest 240,000
to adjust the subsidiary’s assets to
acquisition-date fair values, to eliminate
the investment in subsidiary and
subsidiary’s pre-combination equity, and
to recognize goodwill and non-controlling
interest in the consolidated financial
statements

8
 Jeep Group
Consolidation Worksheet

CJE Consolidation CJE

Sunny Co. Rainy Co. Consolidated
  ref. # adjustments ref. #
ASSETS Dr. Cr.
96,00 60,00 156,00
Cash
0 0 0
480,00 144,00 576,00
Inventory 1
0 0 48,000 0
360,00 360,00
Investment in subsidiary 1
0 - 0 -
720,00 240,00 10,00 970,00
Land 1
0 0 0 0
290,00
Goodwill - - 1 290,000
0
TOTAL ASSETS 1,656,000 444,000 1,992,000

LIABILITIES AND EQUITY

240,00 96,00 336,00
Accounts payable
0 0 0
1,200,00 300,00 1,200,00
Share capital 1 300,000
0 0     0
216,00 48,00 48,00 216,00
Retained earnings 1
0 0 0 0
240,00 240,00
Non-controlling interest - - 1
0 0

9
Total equity 1,416,000 348,000         1,656,000
TOTAL LIABILITES & 648,00
1,656,000 444,000 648,000 1,992,000
EQUITY   0  

10
2. Solutions:

Step 1: Analysis of effects of intercompany transaction

There were no intercompany transactions during the period.

Step 2: Analysis of net assets

Acquisition Consolidation Net
Pirated, Inc. date date change
300,00
300,000
Share capital 0
Retained earnings 48,000 118,000
348,00
418,000
Totals at carrying amounts 0  
Fair value adjustments at acq’n. date (38,000) (38,000)
Subsequent depreciation of FVA NIL 46,750*
Unrealized profits (Upstream only) NIL -
310,00 116,75
Subsidiary's net assets at fair value 0 426,750 0

*The subsequent depreciation of fair value adjustments (FVA) is

determined as follows:
Fair value Divide by Subsequent
adjustment useful depreciatio
  s life n
Inventory (48,000) N/A 48,000
Building – net 10,000 8 (1,250)
Totals (38,000)   46,750

Step 3: Goodwill computation

Formula #2: NCI is measured at Fair Value

Consideration transferred (see given) 360,000

Previously held equity interest in the acquiree -
Total 360,000
Less: Parent's proportionate share in the net assets of (186,000
subsidiary (₱310,000 acquisition-date fair value x 60%) )
174,00
Goodwill attributable to owners of parent – Jan. 1, 20x1 0
Less: Parent’s share in goodwill impairment -
Goodwill attributable to owners of parent – Dec. 31, 174,00
20x1 0

Fair value of NCI (see given) 240,000

Less: NCI's proportionate share in the net assets of (124,000

11
subsidiary (₱310,000 acquisition-date fair value x 40%) )
116,00
Goodwill attributable to NCI – Jan. 1, 20x1 0
Less: NCI’s share goodwill impairment -
116,00
Goodwill attributable to NCI – Dec. 31, 20x1 0

290,00
Goodwill, net – Dec. 31, 20x1 0

Step 4: Non-controlling interest in net assets

Pirated's net assets at fair value – Dec. 31, 20x1 (Step 2) 426,750
Multiply by: NCI percentage 40%
Total 170,700
116,00
Add: Goodwill to NCI net of accumulated impairment losses 0
Non-controlling interest in net assets – Dec. 31,
20x1 286,700

Step 5: Consolidated retained earnings

Original's retained earnings – Dec. 31, 20x1   316,000
Consolidation adjustments:
Original's share in the net change in Pirated's net
assets (a) 70,050
Unrealized profits (Downstream only) -
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
Net consolidation adjustments 70,050
Consolidated retained earnings – Dec. 31,
20x1   386,050

(a)

Net change in Pirated’s net assets (Step 2)

116,750
Multiply by: Original’s interest in Pirated 60%
Original’s sh. in the net change in Pirated’s net assets 70,050

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 100,000 70,000 170,000
Consolidation adjustments:

12
 ( -
Unrealized profits ) ( - ) ( - )
Dividend income from ( -
subsidiary ) N/A ( - )
Gain or loss on extinguishment ( -
of bonds ) ( - ) ( - )
Net consolidation ( -
adjustments ) ( - ) ( - )
100,00
Profits before FVA 0 70,000 170,000
Depreciation of FVA (b) 28,050 18,700 46,750
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 128,050 88,700 216,750

(b)
The shares in the depreciation of fair value adjustments (FVA) are
computed as follows:
Total subsequent depreciation of fair value (Step 2) 46,750
Allocation:
Parent’s share in depreciation of fair value (46,750 x 60%) 28,050
NCI’s share in depreciation of fair value (46,750 x 40%) 18,700
As allocated 46,750

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
  of parent NCI dated
Original's profit before FVA (Step 6) 100,000 N/A 100,000
Sh. in Pirated’s profit before FVA (c) 42,000 28,000 70,000
Depreciation of FVA (Step 6) 28,050 18,700 46,750
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 170,050 46,700 216,750

(c)
The shares in Pirated’s profit before FVA are computed as follows:
Profit of Pirated before fair value adjustments (Step 6) 70,000
Allocation:
Original’s share (70,000 x 60%) 42,000
NCI’s share (70,000 x 40%) 28,000
As allocated: 70,000

Original Group
Consolidated statement of financial position
As of December 31, 20x1
   
ASSETS
Cash (120,000 + 160,000) 280,000

13
Inventory (440,000 + 180,000 – 48K FVA + 48K
620,000
depn)
Building – net (630K + 210K + 10K FVA – 1,250 depn) 848,750
290,00
Goodwill (Step 3)
0
TOTAL ASSETS 2,038,750
   
LIABILITIES AND EQUITY  
Accounts payable (34,000 + 132,000) 166,000

Share capital (Parent only) 1,200,000

Retained earnings (Step 5) 386,050
Owners of parent 1,586,050
Non-controlling interest (Step 4) 286,700
1,872,75
Total equity
0
TOTAL LIABILITIES AND EQUITY 2,038,750
   

Original Group
Statement of profit or loss
 
For the year ended December 31, 20x1  

Sales (300,000 + 120,000) 420,000

Cost of goods sold (165,000 + 72,000 – 40K depn of
FVAa) (197,000)
Gross profit 223,000
Depreciation expense (40,000 + 10,000 + 10K depn of
FVA) (60,000)
Distribution costs (32,000 + 18,000) (50,000)
Profit for the year 113,000
 

Profit attributable to:

Owners of the parent (Step 7) 93,000
Non-controlling interests (Step 7) 20,000
  113,000
   

a
This represents the depreciation of the fair value adjustment to the
inventory.

14
PROBLEM 4: MULTIPLE CHOICE: COMPUTATIONAL
1. A
Solution:
Consideration transferred (cost of investment) 430,000
80,00
NCI in the acquiree (400,000 x 20%) 0
Previously held equity interest in the acquire -
Total 510,000
Fair value of net identifiable assets acquired (400,000)*
Goodwill 110,000

* (310,000 + 40,000 + 50,000 fair value adjustment) = 400,000

2. B
Solution:
Total assets of parent 2,000,000
Total assets of subsidiary 750,000
Investment in subsidiary (430,000)
Fair value adjustments - net 50,000
Goodwill – net (See preceding question) 110,000
Effect of intercompany transactions -
Consolidated total assets 2,480,000

3. A
Solution:
Share capital of parent 1,000,000
Retained earnings or parent 250,000
Equity attributable to owners of the parent 1,250,000
Non-controlling interests (400,000 x 20%) 80,000
Consolidated total equity 1,330,000

4. C (See solution in preceding question)

5. A
Solution:
Consideration transferred 430,000
NCI in the acquiree -
Previously held equity interest in the acquire -
Total 430,000
Fair value of net identifiable assets acquired (400,000)*
Goodwill 30,000

* (310,000 + 40,000 + 50,000 fair value adjustment) = 400,000

15
6. D
Solution:
Total assets of parent 2,000,000
Total assets of subsidiary 750,000
Investment in subsidiary (430,000)
Fair value adjustments - net 50,000
Goodwill – net (See preceding question) 30,000
Effect of intercompany transactions -
Consolidated total assets 2,400,000

7. C
Solution:
Total liabilities of parent 750,000
Total liabilities of subsidiary 400,000
Fair value adjustments - net -
Effect of intercompany transactions -
Consolidated total liabilities 1,150,000

8. D
Solution:
Share capital of parent 1,000,000
Retained earnings or parent 250,000
Equity attributable to owners of the parent 1,250,000
Non-controlling interests -
Consolidated total equity 1,250,000

9. A
Solution:
Consideration transferred (investment in subsidiary) 300,000
Non-controlling interest in the acquiree (360K x 20%) 72,000
Previously held equity interest in the acquire -
Total 372,000
Fair value of net identifiable assets acquired (360,000)
Goodwill 12,000

10. C
Solution:
1,672,00
Total assets of parent 0
Total assets of subsidiary 496,000

16
Investment in subsidiary (300,000)
Fair value adjustments – net* 24,000
Goodwill – net** 12,000
Effect of intercompany transactions -
Consolidated total assets 1,904,000

* The FVA, net is computed as follows:

 Inventory (₱124,000 FV - ₱92,000 CA) = 32,000 excess fair value;
 Equipment (₱192,000 FV - ₱160,000) = 32,000 excess fair value
 Total FVA at acquisition date = 64,000

 64,000 – (32,000 dep’n. on inventory + (32,000 ÷ 4 yrs., dep’n. on

equipment) = 64,000 – (32,000 + 8,000) = 64,000 – 40,000 = 24,000

11. B
Solution:

Analysis of net assets

Consoli-
Acquisition Net
 Subsidiary date
dation
date change
Net assets at carrying amts. 296,000 376,000
FVA at acquisition 64,000 64,000
Subsequent depn. of FVA NIL (40,000)
Unrealized profits (Upstream
only)
NIL -
Net assets at fair value 360,000 400,000 40,000

NCI in net assets

Circle's net assets at fair value – Dec. 31, 20x1 400,000
Multiply by: NCI percentage 20%
Total 80,000
Add: Goodwill to NCI net of accumulated impairment
-
losses
Non-controlling interest in net assets – Dec. 31,
80,000
20x1

12. C
Solution:
Consolidated retained earnings
Square's retained earnings – Dec. 31, 20x1 440,000
Consolidation adjustments:
Square's share in the net change in Circle's 32,00
net assets (a) 0
Unrealized profits (Downstream only) -
17
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable
-
to parent
Net consolidation adjustments 32,000
Consolidated ret. earnings – Dec. 31,
  472,000
20x1
(a)
(40,000 net change in net assets x 80%) = 32,000

13. D
Solution:

Share capital of parent 940,000

Consolidated retained earnings – (see above) 472,000
1,412,00
Equity attributable to owners of the parent 0
Non-controlling interests - (see above) 80,000
Consolidated total equity 1,492,000

14. B
Solution:
Subsidiar
Parent y Consolidated
400,00
Profits before adjustments 0 80,000 480,000
Consolidation adjustments:
Unrealized profits ( - ) ( - ) ( - )
Dividend income from
subsidiary ( - ) N/A ( - )
Gain or loss on extinguishment
of bonds ( - ) ( - ) ( - )
Net consolidation
adjustments ( - ) ( - ) ( - )
400,00
Profits before FVA 0 80,000 480,000
(18,200
Depreciation of FVA* ) (7,800) (26,000)
Impairment loss on goodwill ( - ) ( - ) ( - )
381,80
Consolidated profit 0 72,200 454,000

*The subsequent depreciation of fair value adjustments (FVA) is

determined as follows:
 Inventory = ₱10,000 excess fair value;
 Building (₱80,000 FV ÷ 5 years) = 16,000

18
 Total FVA depreciation = 10,000 + 16,000 = 26,000
 Share of parent = 26,0000 x 70% = 18,200
 Share of NCI = 26,000 x 30% = 7,800

15. C
Solution:
Owners Consoli-
  of parent NCI dated
Parent's profit before FVA 400,000 N/A 400,000
Sh. in Sub.’s profit before FVA (c) 56,000 24,000 80,000
(7,800
Depreciation of FVA (18,200) ) (26,000)
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 437,800 16,200 454,000

(c)
The shares in Subsidiary’s profit before FVA are computed as
follows:
Profit of Subsidiary before fair value adjustments 80,000
Allocation:
Original’s share (80,000 x 70%) 56,000
NCI’s share (80,000 x 30%) 24,000
As allocated: 80,000

16. B (See solution in previous question)

17. A – same as the parent

19