BSA E1

AFAR, Review
Activity | Consolidated Financial Statements (PFRS 10), Part 1
A.Y. 2021 – 2022

Name: ________________________________ Date: _________________

Instruction: Select the letter of the correct answer by highlighting it to yellow color.
Support your answer with computations.
Use the following information for the next five questions:
On January 1, 20x1, Bass Co. issued equity instruments in exchange for 75% interest in
Guitar Co. On acquisition date, Bass Co. elected to measure non-controlling interest at
fair value. Bass Co.’s management believes that the fair value of the consideration
transferred correlates to the fair value of the controlling interest acquired and that the
fair value of the controlling interest is proportionate to the fair value of the remaining
interest.
Guitar Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and
₱360,000, respectively. The difference is attributable to a building with a remaining
useful life of 6 years.
The December 31, 20x1 statements of financial position of Bass Co. and Guitar Co. are
summarized below:
Bass Co. Guitar Co.
ASSETS
Investment in subsidiary (at cost) 300,000 -
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000

LIABILITIES AND EQUITY

Trade and other payables 292,000 120,000
Share capital 940,000 200,000
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000

No dividends were declared by either entity during year. There were also no inter-
company transactions and impairment in goodwill.
1. What amount of goodwill is presented in the consolidated statement of financial
position on December 31, 20x1?
a. 40,000
b. 35,000
c. 20,000
d. 15,000
e. None of the choices

1. A
Solution:
Consideration transferred (cost of investment in sub.) 300,000
Previously held equity interest in the acquiree -
Total 300,000
Less: Parent's proportionate share in the net assets
of    (270,000)
           subsidiary (360,000 x 75%)
Goodwill attrib. to owners of parent - acquisition date 30,000
Less: Parent's share in goodwill impairment  -
Goodwill attrib. to owners of parent   30,000
Fair value of NCI [(300,000 ÷ 75%) x 25%] 100,000
Less: NCI's proportionate share in net assets 
(90,000)
         of subsidiary (360,000 x 25%)
Goodwill attributable to NCI - acquisition date 10,000
Less: NCI's share in goodwill impairment  -
Goodwill attributable to NCI – current year  10,000
Goodwill, net – current year  40,000

2. How much is the consolidated total assets as of December 31, 20x1?

a. 1,867,000
b. 1,907,000
c. 1,958,000
d. 1,974,000
e. None of the choices

1. C
Solution:
  
Total assets of parent  1,672,000 
Total assets of subsidiary 496,000  
Investment in subsidiary (300,000)
Fair value adjustments – net*    50,000 
Goodwill – net 40,000    
Effect of intercompany transactions           -   
Consolidated total assets 1,958,000 

*(360,000 – 300,000) = 60,000 – (60,000 ÷ 6) = 50,000

3. How much is the non-controlling interest in the net assets of the subsidiary on
December 31, 20x1?
a. 106,500 c. 136,500 e. None of the choices
b. 116,500 d. 146,500

c. Solution:
d. Analysis of net assets
Acquisition Consoli-dation Net
 Subsidiary
date date change
Net assets at carrying amts. 300,000 376,000
FVA at acquisition 60,000 60,000
Subsequent depn. of FVA NIL (10,000)
Unrealized profits (Upstream
NIL -
only)
Net assets at fair value 360,000 426,000 66,000
e.
f. NCI in net assets
Consolidated net assets at fair value – Dec. 31, 20x1  426,000
Multiply by: NCI percentage 25%
Total 106,500
Add: Goodwill to NCI net (see goodwill computation above) 10,000
NCI in net assets – Dec. 31, 20x1 116,50
 0

4. How much is the consolidated retained earnings on December 31, 20x1?

a. 489,500 c. 534,500 e. None of the choices
b. 498,500 d. 543,500

A
Solution:
Consolidated retained earnings
Parent's retained earnings – Dec. 31, 20x1 440,000
Consolidation adjustments:
Parent's share in the net change in Sub.'s net assets    
(a)
49,500 
Unrealized profits (Downstream only)             -   
Gain or loss on extinguishment of bonds             -   
Impairment loss on goodwill attributable 
            -   
     to parent
Net consolidation adjustments 49,500
489,50
Consolidated ret. earnings – Dec. 31, 20x1  
0
(a)
(66,000 net change in net assets x 75%) = 49,500

5. How much is the consolidated total equity on December 31, 20x1?

a. 1,546,000 c. 1,642,000 e. None of the choices
b. 1,564,000 d. 1,624,000

1. A
Solution:
Share capital of parent    940,000 
Consolidated retained earnings – (see
above)   489,500 
 
Equity attributable to owners of the parent 1,429,500 
Non-controlling interests - (see above) 116,500 
Consolidated total equity 1,546,000 

Use the following information for the next three questions:

On January 1, 20x1, Laughter Co. issued equity instruments in exchange for 75%
interest in Tears Co. Tears Co.’s net identifiable assets have carrying amount and fair
value of ₱300,000 and ₱360,000, respectively. The difference is attributable to a
building with a remaining useful life of 6 years.
The December 31, 20x1 statements of profit or loss of Laughter Co. and Tears Co. are
summarized below:
Statements of profit or loss
For the year ended December 31, 20x1
Laughter Co. Tears Co.
Revenues 1,200,000 480,000
Operating expenses (960,000) (400,000)
Profit for the year 240,000 80,000
6. How much is the consolidated profit in 20x1?
a. 301,000 c. 320,000 e. None of the choices
b. 310,000 d. 336,000

1. B
Solution:
Subsidiar Consolidate
Parent y d
Profits before adjustments  240,000 80,000 320,000
Consolidation adjustments: 
Unrealized profits  (  - ) (  - ) (  - )
Dividend income from
subsidiary  (  - )         N/A (  - )
Gain or loss on extinguishment 
   of bonds (  - ) (  - ) (  - )
Net consolidation adjustments  (  - ) (  - ) (  - )
240,00
Profits before FVA 0 80,000 320,000
Depreciation of FVA* (7,500) (2,500) (10,000)
Impairment loss on goodwill (  - ) (  - ) (  - )
Consolidated profit  232,500 77,500 310,000

*(360,000 – 300,000) = 60,000 ÷ 6) = 10,000

(10,000 x 75%) = 7,500; 
(10,000 x 25%) = 2,500

7. How much is the consolidated profit attributable to owners of the parent in 20x1?
a. 292,500 c. 320,000 e. None of the choices
b. 310,000 d. 232,500
Owners of Consolidate
c.   parent NCI d
Parent's profit before FVA  240,000 N/A 240,000
Sh. in Sub.’s profit before FVA (c)
60,000 20,000 80,000
Depreciation of FVA  (7,500) (2,500) (10,000)
Share in impairment loss on (  - 
goodwill (  - ) ) (  -  )
Totals 292,500 17,500 310,000

(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 75%)                     60,000
NCI’s share (80,000 x 25%)                      20,000
As allocated:                     80,000

8. How much is the consolidated profit attributable to non-controlling interest in 20x1?

a. 6,500 c. 57,500 e. None of the choices
b. 17,500 d. 77,500

B
Owners of Consolidate
  parent NCI d
Parent's profit before FVA  240,000 N/A 240,000
Sh. in Sub.’s profit before FVA (c)
60,000 20,000 80,000
Depreciation of FVA  (7,500) (2,500) (10,000)
Share in impairment loss on (  - ) (  -  (  -  )
 goodwill )
Totals 292,500 17,500 310,000

(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 75%)                     60,000
NCI’s share (80,000 x 25%)                      20,000
As allocated:                     80,000

Use the following information for the next three questions:

Rainy Afternoon Co. owns 80% interest in Sunny Morning Co. During 20x1, Rainy sold
inventories costing ₱200,000 to Sunny for ₱300,000. One-fourth of the inventories were
unsold as of December 31, 20x1 and were included in Sunny’s year-end statement of
financial position at the purchase price from Rainy. The individual financial statements
of Rainy and Sunny on December 31, 20x1 show the following information:
  Rainy Sunny
Inventory 1,260,000 380,000
Sales 6,700,000 2,700,000
Cost of sales (3,015,000) (1,755,000)
Gross profit 3,685,000 945,000

There are no fair value adjustments arising from the business combination date.
9. How much is the consolidated inventory on December 31, 20x1?
a. 1,615,000
b. 1,590,000
c. 1,665,000
d. 1,585,000
e. None of the choices
f. A Solution:
Ending inventory of Rainy 1,260,000
Ending inventory of Sunny 380,000
Less: Unrealized profit in ending inventory (300,000 – 200,000) x
1/4 (25,000)
1,615,00
Consolidated ending inventory 0

10. How much is the consolidated sales?

a. 9,400,000
b. 9,100,000
c. 9,375,000
d. 9,700,000
e. None of the choices

f. B Solution:
Sales by Rainy 6,700,000
Sales by Sunny 2,700,000
Less: Intercompany sales during 20x1
(300,000) (300,000)
9,100,00
Consolidated sales 0
11. How much is the consolidated cost of sales?
a. 4,695,000
b. 4,495,000
c. 4,565,000
d. 4,545,000
e. None of the choices
f. B Solution:
Cost of sales of Rainy 3,015,000
Cost of sales of Sunny 1,755,000
Less: Intercompany sales during 20x1  (300,000)
Add: Unrealized profit in ending
inventory  25,000
Less: Realized profit in beginning inventory -
Add: Depreciation of FVA on inventory -
4,495,00
Consolidated cost of sales 0

Use the following information for the next two questions:

On January 1, 20x1, Horse Co. acquired 80% interest in Colt Co. by issuing bonds with
fair value of ₱250,000. NCI is measured at proportionate share. The following
information was determined immediately before the acquisition:
  Horse Co. Colt Co. Colt Co.
  Carrying amount Carrying amount Fair value
Total assets 1,000,000 400,000 430,000
Total liabilities (600,000) (200,000) (200,000)
Net assets 400,000 200,000 230,000

Included in Colt’s liabilities is an account payable to Horse amounting to ₱20,000.

12. How much is the total assets in Horse’s separate financial statements immediately
after the combination?
a. 1,000,000
b. 1,400,000
c. 1,250,000
d. 1,430,000
e. None of the choices

1. C Solution: 
Total assets of Horse before the combination 1,000,000
Investment in subsidiary (fair value of bonds
250,000
issued)
1,250,00
Total assets of Horse after the combination
0

13. How much is the total assets in the consolidated financial statements?
a. 1,476,000
b. 1,580,000
c. 1,465,000
d. 1,528,000
e. None of the choices
f.
g. A Solution:
 Total assets of Horse after the combination (see above) 1,250,000 
Total assets of Colt (carrying amount) 400,000 
Investment in subsidiary (250,000)
FVA on assets (430K fair value – 400K carrying amount)   30,000 
Goodwill – net [250K + (230K x 20% NCI)] – 230     66,000 
Effect of intercompany transactions (intercompany
receivable) (20,000)   
Consolidated total assets 1,476,000 

Use the following information for the next two questions:

Lion Co. acquired 80% of Cub Co. on January 1, 20x1 for ₱100,000. The following
information was determined at acquisition date:
  Lion Co. Cub Co. Cub Co.
  Carrying amt. Carrying amt. Fair value
Equipment 1,000,000 500,000 400,000
Accumulated depreciation (200,000) (100,000) (80,000)
Net 800,000 400,000 320,000

Remaining useful life, 1/1/ x1 10 yrs. 5 yrs. 5 yrs.

14. How much is the consolidated “Equipment – net” in the December 31, 20x2 financial
statements?
a. 880,000
b. 846,000
c. 852,000
d. 832,000
e. None of the choices

1. D Solution:
Equipment, net – Lion Co. (800,000 x 8/10) 640,000
Equipment, net – Cub Co. (carrying amount) (400,000 x 3/5)  240,000
FVA on equipment, net - decrement [(320,000 – 400,000) x
3/5] (48,000)
Consolidated equipment, net – Dec. 31, 20x2 832,000

Alternative solution:
Equipment, net – Lion Co. (800,000 x 8/10) 640,000
Equipment, net – Cub Co. (fair value) (320,000 x
3/5)                 192,000
832,00
Consolidated equipment, net – Dec. 31, 20x2 0

15. The consolidation journal entry for the depreciation of the fair value adjustment on
December 31, 20x2 includes which of the following?
a. 16,000 debit to depreciation expense
b. 12,800 credit to retained earnings of Lion
c. 32,000 credit to accumulated depreciation
d. 16,000 credit to depreciation expense
e. None of the choices
f. D Solution:
Dec. 31, Accumulated depreciation (80,000 x 2/5) 32,00
 20x2         Depreciation expense (80,000 ÷ 5) 0 16,000
        Retained earnings – Lion Co.* 12,800
        Retained earnings – Cub Co.* 3,200

*These are the shares of Lion and Cub in the depreciation of the FVA in the prior year,
i.e., 20x1 (16,000 x 80% & 20%).  

16. On January 1, 20x1, Kangaroo Co. acquired 75% of Joey Co. At that time, Joey’s
equipment has a carrying amount of ₱100,000 and a fair value of ₱120,000. The
equipment has a remaining useful life of 10 years. On December 31, 20x2,
Kangaroo and Joey reported equipment with carrying amounts of ₱500,000 and
₱300,000, respectively. How much is the consolidated “equipment – net” in the
December 31, 20x2 financial statements?
a. 800,000
b. 816,000
c. 784,000
d. 826,000
e. None of the choices
f. B Solution: 
Equipment, net – Kangaroo  500,000
Equipment, net – Joey  300,000
FVA on equipment, net - increment [(120,000 – 100,000) x 8/10] 16,000
816,00
Consolidated equipment, net – Dec. 31, 20x2 0

17. On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000
shares with fair value of ₱15 per share. On this date, XYZ’s equity comprised of
₱50,000 share capital and ₱24,000 retained earnings. NCI was measured at its
proportionate share in XYZ’s net identifiable assets.
XYZ’s assets and liabilities on January 1, 20x1 approximate their fair values except for
the following:
Carrying Fair value
XYZ, Inc. amount Fair adjustment
s values s (FVA)
Inventory 23,000 31,000 8,000
Equipment (4 yrs. remaining life) 50,000 60,000 10,000
Accumulated depreciation (10,000) (12,000) (2,000)
Totals 63,000 79,000 16,000

XYZ, Inc. declared and paid dividends of ₱6,000 during 20x1. There was no impairment
in goodwill. The year-end individual statements of profit or loss are shown below:

Statements of profit or loss

For the year ended December 31, 20x1
ABC Co. XYZ, Inc.
Sales 300,000 120,000
Cost of goods sold (165,000) (72,000)
Gross profit 135,000 48,000
Depreciation expense (40,000) (10,000)
Distribution costs (32,000) (18,000)
Interest expense (3,000) -
Dividend income 4,800 -
 Profit for the year 64,800 20,000

How much is the profit attributable to

Owners of the parent NCI
a. 68,000 2,000
b. 64,800 5,200
c. 52,000 18,000
d. 57,200 12,800
e. None of the choices

1. A Solution:
Step 6: Consolidated profit or loss
Subsidiar Consolidate
Parent y d
Profits before adjustments  64,800 20,000 84,800
Consolidation adjustments: 
Unrealized profits  -     -      -
Dividend income from 
    subsidiary  (4,800)         N/A (4,800)
Gain or loss on 
    extinguishment of bonds -     -      -
Net consolidation
adjustments  (4,800)     - (4,800)
Profits before FVA 60,000 20,000 80,000
Depreciation of FVA (b)
(8,000) (2,000) (10,000)
Impairment loss on goodwill (  - ) (  - ) (  - )
Consolidated profit  52,000 18,000 70,000

₱8,000 dep’n. of FVA on inventory + ₱2,000 [(₱10,000 - ₱2,000)  ÷ 4 yrs.] dep’n. of

(b)

FVA on equipment  = ₱10,000 

Shares in the depreciation of FVA: (10,000 x 80%); (10,000 x 20%)
Step 7: Profit or loss attributable to owners of parent and NCI
Owners of Consoli-
  parent NCI dated
ABC's profit before FVA (Step 6) 60,000 N/A 60,000
Share in XYZ’s profit before FVA (c)
16,000 4,000 20,000
Depreciation of FVA (Step 6) (8,000) (2,000) (10,000)
Share in impairment loss on (  - 
goodwill (  - ) ) (     -      )
Totals 68,000 2,000 70,000

(c)
Shares in XYZ’s profit before FVA (Step 6) – (20,000 x 80%); (20,000 x 20%)

18. ABC Co. owns 80% interest in XYZ, Inc. The individual statements of financial
position of the entities as of December 31, 20x1 are shown below:
Statements of financial position
As at December 31, 20x1
ABC Co. XYZ, Inc.
ASSETS
Cash 23,000 44,000
Accounts receivable 75,000 22,000
Inventory 105,000 15,000
 Investment in subsidiary (at cost) 75,000 -
Investment in bonds - 13,000
Equipment 200,000 50,000
Accumulated depreciation (60,000) (20,000)
TOTAL ASSETS 418,000 124,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000
Bonds payable (at face amount) 30,000 -
Total liabilities 73,000 30,000
Share capital 170,000 50,000
Share premium 65,000 -
Retained earnings 110,000 44,000
Total equity 345,000 94,000
TOTAL LIABILITIES AND EQUITY 418,000 124,000

On December 31, 20x1, XYZ, Inc. purchased 50% of the outstanding bonds of ABC Co.
from the open market for ₱13,000. There were no other intercompany transactions
during the year.
The consolidation journal entry to eliminate the intercompany bond transaction includes
which of the following?
a. debit to bonds payable for ₱30,000
b. credit to gain on extinguishment of debt for ₱4,000
c. credit to investment in bonds for ₱15,000
d. credit to gain on extinguishment of debt for ₱2,000
e. None of the choices

1. D Solution:
Acquisition cost of bonds (assumed retirement price)                       13,000
Carrying amount of bonds payable (₱30,000 x 50%)             (15,000)
Gain on extinguishment of bonds                                   2,000
CJE #1: To recognize the gain on extinguishment of bonds.
Dec. 31, Bonds payable (30,000 x 50%) 15,000
20x1 13,000
         Investment in bonds
2,000
         Gain on extinguishment of
debt

Use the following information for the next two questions:

On April 1, 2022, POL Corporation acquired 80% of the outstanding stocks of SOL
Corporation for P2,500,000.

 SOL Corp.’s stockholder’s equity at the end of 2022 were as follows: Common
Stock, P80 par P2,000,000; Additional paid-in capital P500,000; and Retained
Earnings P750,000.
 The fair value of the non-controlling interest is P685,000.
 All the assets of SOL were fairly valued except for its inventories which are
overvalued by P90,000, Land which is undervalued by P50,000 and Patent which
 is undervalued by P125,000. The said patent has a remaining useful life of five
years.
 Both companies use the straight-line method for depreciation and amortization
 Shareholder’s equity of POL Corp. on December 31, 2022 is composed of:
Common Stock, P50 par P3,500,000; Additional paid-in capital P750,000; and
Retained Earnings P2,460,000.
 Goodwill, if any, should be decreased by P22,500 at year-end.
 No additional issuance of capital stocks occurred.

For the two years ended, December 31, 2022, and 2023, POL Corp. and SOL Corp.
reported the following:

POL Corp. SOL Corp.

2022 2023 2022 2023
Net Income from own P525,000 P550,000 P485,000 P520,000
operations (from date
of
acquisition
)
Dividends declared at year-end P50,000 P35,000 P35,000 P50,000

On December 31, 2022, compute for:

19. Non-controlling interest in the net assets of subsidiary
a. 781,150 c. 788,150 e. None of the choices
b. 701,320 d. 718,510

20. Using the same information above, what is the consolidated shareholder’s equity?
a. 7,491,150 c. 7,112,600 e. None of the choices
b. 7,893,750 d. 7,865,750

1. And 20. A, B
Cash consideration P2,500,000
NCINAS       685,000
Total   3,185,000
Book Value of Net Assets of Subs* (2,800,000)
Excess of Cost over BV       385,000
Allocation of Identifiable Net Assets Amortization
     Inventory         90,000 90,000
Land       (50,000)
Patent     (125,000)   /5 x 9/12 (18,750)
Goodwill     P300,000
Ordinary shares 2,000,000 + Share Premium 500,000 + RE 300,000**
Retained Earnings April 1, 2022 – Subs 300,000
Net Income 385,000
Dividend (35,000)
Retained Earnings December 31, 2022 – Subs 750,000

Distribution of Goodwill
Total Parent NCI (20%)
(80%)
Acquisition 3,185,000 2,500,000 685,000
Costs
FV of Net IA (2,885,000) (2,308,000) (577,000)
Goodwill 300,000 192,000 108,000
NCINAS date of acquisition P685,000
Amortization of Inventory (90k x 20%)     18,000
Amortization of Patent (18,750 x 20%)     (3,750)
Net Income of Subs (485k x 20%)       97,000
Dividend Subs (35k x 20%)       (7,000)
Less: Share of NCI in Impairment of GW
          (22,500 x 108/300)       (8,100)
Total NCINAS – December 31, 2022     781,150

Parent Net Income own operations 525,000

Subsidiary Net Income (485k x 80%) 388,000
Amortization of Inventory (90k x 80%) 72,000
Amortization of Patent (18.75k x 80%) (15,000)
Share of Parent in IL (22.5k x 192/300) (14,400)
CNI Attributable to Parent 955,600
Retained Earnings – beg – Parent* 1,957,000
Consolidated net income attributable to Parent   955,600
Dividend – Parent   (50,000)
Consolidated RE 2,862,600

Ordinary Share – Parent 3,500,000

Share Premium – Parent   750,000
Consolidated RE 2,862,600
NCINAS   781,150
Consolidated Stockholder’s Equity 7,893,750

*(2,460,000 RE end + 50,000 Dividend – 525,000 NI – share in dividend (35k x 80%))

***END***