CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN

CONSOLIDATION INTERCOMPANY SALE OF FIXED ASSETS

Part I: Theory of Accounts

1. Statement 1: A parent shall prepare consolidated financial statements using different accounting
policies for like transactions and other events in similar circumstances.

Statement 2: A parent shall present non-controlling interest in the consolidated statements of financial
position within equity together with the equity of the owners of the parent.
A. Statement 1 is TRUE and Statement 2 is FALSE
B. Statement 1 is FALSE and Statement 2 is TRUE
C. Both statements are TRUE
D. Both statements are FALSE

2. Statement 1: The loss on sale of land from intercompany sale, understates the consolidated loss on
sale, assuming the buying affiliate sells the land to unrelated parties during the year.

Statement 2: When the subsidiary sells merchandise or fixed assets to parent, it is called upstream
sale.
A. Statement 1 is TRUE and Statement 2 is FALSE
B. Statement 1 is FALSE and Statement 2 is TRUE
C. Both statements are TRUE
D. Both statements are FALSE

3. Statement 1: Unrealized gains and losses from intercompany sale of depreciable assets are realized
over the remaining life of the asset as it is used by the buying affiliate.

Statement 2: Parent owns 65% of the shares of stock of Subsidiary Co. and purchases an equipment
from Subsidiary Co., Subsidiary Co. recognizes a loss from the sale in his books, the loss recognized
by Subsidiary Co. must be eliminated from his separate books.
A. Statement 1 is TRUE and Statement 2 is FALSE
B. Statement 1 is FALSE and Statement 2 is TRUE
C. Both statements are TRUE
D. Both statements are FALSE

4. The following increases the consolidated net income attributable to controlling interest except
A. Downstream unrealized loss from the sale of land
B. Downstream realized gain from the sale of land
C. Upstream realized loss from the sale of equipment
D. Upstream unrealized loss from the sale of equipment

5. The gain on sale on land from a downstream intercompany sale will be realized in the consolidated
financial statements when
A. The parent sells the land to outsiders
B. The subsidiary sells the land to outsiders
C. The subsidiary sells the land back to the parent
D. The subsidiary did not sell the land to outsiders

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Part II: Problem Solving

Problem 1

AA Corporation bought sixty percent of the shares of stock at book value of ZZ Company on January 1,
2023 and on this date the retained earnings of ZZ Company was P875,000. On June 1, 2023 ZZ Company
sold land to AA Corporation for P680,000 and the land was carried in the books of ZZ Company in the
amount of P450,000. On November 1, 2024, AA Corporation sold the land to X Company for P880,000.
On May 30, 2023, ZZ Company purchased an equipment from AA Corporation for P545,000 and the
equipment carried in the books of AA Corporation had a cost of P678,000 and an accumulated
depreciation of P185,000. The said equipment had a remaining life of 4 years. AA Corporation acquired
furniture and fixtures from ZZ Company on November 30, 2023 for P68,000. The furniture and fixtures
were carried in the books of ZZ Company in the amount of P100,000 with a remaining life of 1 year.

Net income for AA Corporation and ZZ Company for the year end in 2023 were P860,000 (including
gain on sale of P268,000) and P655,000 (including a gain on sale of P256,500). Retained earnings at the
end of the year for AA Corporation and ZZ Company were P1,560,000 and P1,285,000 respectively.

1. What is the consolidated net income attributable to AA Corporation for the year ended
December 31, 2023?
A. 941,183
B. 1,088,183
C. 1,226,183
D. 923,583

2. What is the non-controlling interest net income for the year ended December 31, 2023?
A. 262,000
B. 273,733
C. 181,733
D. 342,267

3. What is the amount of the consolidated gain on sale for the year ended December 31, 2023?
A. 524,500
B. 480,083
C. 472,500
D. 242,500

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Problem 2

GG Corporation acquired 65% of the shares of stocks of HH Company. At that time HH Company’s book
values and fair values were equal. The following were the net incomes of GG and HH for 2023:

GG Corporation HH Company
Sales 700,000 600,000
Cost of sales 400,000 200,000
Operating expenses 120,000 100,000
Gain on sale 105,000 55,000
Loss on sale 24,500 275,000
Net income 260,500 80,000

On March 31, 2023 HH Company bought an equipment from GG Corporation for P560,000 and the
equipment carried in the books of GG Corporation had a cost of P800,000 which GG Corporation bought
on March 31, 2017. It had a useful life of 16 years. On August 1, 2023 GG Corporation bought building
from HH Company for P1,340,000 and the building carried in the books of HH Company had a carrying
amount of P1,600,000. The cost of the building when HH Company bought it on August 1, 2004 was
P3,500,000.

1. What is the consolidated net income attributable to GG Corporation for the year ended
December 31, 2023?
A. 203,401
B. 421,599
C. 411,250
D. 529,654

2. What is the non-controlling interest net income for the year ended December 31, 2023?
A. 116,630
B. 28,000
C. 90,205
D. 8,575

3. What is the amount of the consolidated operating expenses for the year ended December 31,
2023?
A. 220,000
B. 217,729
C. 222,271
D. 230,250

4. What is the amount of the consolidated equipment, net at December 31, 2023?
A. 500,000
B. 518,000
C. 462,500
D. 450,000

5. What is the amount of the consolidated building, net at December 31, 2023?
A. 1,256,250
B. 1,500,000
C. 1,305,104
D. 1,558,333

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Problem 3

On January 1, 2022, YYY Corp. acquired 80% of the outstanding shares of stocks of ZZZ Co. at book
value. ZZZ Co. sold an equipment from YYY Corp. with a carrying amount on June 1, 2022 in the
amount of P148,000 for P120,000 with a remaining life of 4 years. YYY Corp. used the equipment until
December 31, 2023 and it was sold to AAA Co. for P150,000.

The following were extracted from their respective separate books for the year 2023:
Net income of YYY Corp. and ZZZ Co. were P246,000 and P178,000 respectively. YYY Corp. and ZZZ
Co. declared dividends in the amount of P34,000 and P56,000 respectively.

1. What is the consolidated net income attributable to YYY Corporation for the year ended
December 31, 2023?
A. 369,266
B. 338,000
C. 324,466
D. 343,600

2. What is the non-controlling interest net income for the year ended December 31, 2023?
A. 34,200
B. 30,817
C. 35,600
D. 40,383

END

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