If the company undergoing liquidation is insolvent, its shareholders will receive a cash settlement of their

interest in the corporation. TRUE

The current and non-current classification of assets as well as liabilities is still in place and is relevant for
companies undergoing corporate liquidation. FALSE
The realizable value of all the assets is equivalent to the estimated payment to all creditors whether
secured or unsecured. FALSE
In a corporate liquidation, the estimated deficiency to unsecured creditors can be computed even without
classifying the liabilities between secured and unsecured and the assets between the pledge and free.
FALSE
Estimated cash settlement for partially secured creditors will always be less than the amount distributed to
them. TRUE
The realizable amounts of assets pledge to fully secured liabilities are equal to the estimated payment to
those fully secured liabilities.
The total estimated payments to fully secured liabilities are equal to the fully secured liabilities
themselves.
A joint arrangement exists only if decisions on relevant activities require the unanimous consent of all the
participants to the arrangement. FALSE
An and. B enters into a contract to contribute cash to acquire a taxi, A and B will have joint control over
the operation of the taxi and will share equally in the revenues and expenses. A and B are referred to as
joint taxi ventures. FALSE

The venturers and operators account for their interest in a joint arrangement by recognizing the
Investment account and accounting for it using the Equity Method under IAS 28. FALSE

When two or more oil entities control and operate an oil pipeline and each party uses the pipeline to
transport its own product in return for which it bears an agreed proportion of the expenses of operating
the pipeline is an example of joint operation. TRUE

Under the equity method. Dividends received from the investee are treated as dividend income. FALSE

An and. B enters into a contract to contribute cash to acquire a taxi, A and B will have joint control over
the operation of the taxi and will share equally in the revenues and expenses. The taxi is referred to in
PFRS 11 as a separate vehicle. FALSE

An entity that acquires interest in a joint venture whose activity constitutes a business, shall account for
its share
a) Using the equity method.
b) At fair value.
c) As a business combination.
d) At cost.
Read Co. and Learn Co., national distributors of textbooks, enter into a contract to acquire a warehouse in
a particular region. Each party will use the warehouse to store its own inventories. The parties agree to
share in the costs of acquiring and maintaining the warehouse. Under PFRS 11. The arrangement between
Read and Learn is most likely a
a) joint operation
b) Jointly controlled asset.
c) None these.
d) Joint venture.
The reason/s why firms combine is/are:
a) All of the above
b) Growth
c) Management takeover
d) Costs savings
e) Synergy
If the fair value of the identifiable net assets exceeds the aggregate amount of consideration paid and non
– controlling interest, the result of the business combination is reported first in:
a) Retained earnings.
b) Profit or loss.
c) Total assets.
d) Other comprehensive income.
According to PAS 37, Provisions, Contingent Liabilities, and Contingent Assets, only liabilities that are
both probable and reliably measurable should be recognized. In this case, contingent consideration in a
business combination is
a) Recognized even if it is a departure from the standards because companies have the option to
depart as long as it is disclosed in the notes to financial statements.
b) Not recognized because contingent consideration is not probable and thus, not a provision. It is
used only to compute for goodwill or gain from a bargain purchase.
c) Recognized because PFRS 3 shall prevail over PAS 37.
d) Not recognized because it is a departure from the standards.
 
Which among the following would be classified as stock issuance costs?
a) Broker fees.
b) Allocated administrative expenses.
c) Professional and legal fees.
d) SEC Registration fees for new shareholders.

The result of business combination in the case of a stock acquisition is recorded in:
a) Separate books of the Parent Company.
b) Separate financial statements of the acquired.
 c) Consolidated financial statements.
d) Separate financial statements of the acquirer.
In both merger and acquisition of stocks, the shareholder’s equity of the acquired company is eliminated.
The journal entry to be recorded in the books of the Subsidiary that is related to the elimination of
shareholder’s equity of the latter is
a) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Investment in
subsidiary xx CR: Non – controlling interest xx. x
b) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Investment
in subsidiary xx
c) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Non – controlling
interest xx
d) DR: Ordinary shares xx DR: Share premium xx DR: Retained earnings xx CR: Goodwill xx
e) Some other answer

One form of business combination in which the two combined entities will be dissolved to create a
new company.
a) Consolidation
b) Acquisition of stocks
c) Merger
d) Acquisition of net assets
 Acquisition–related costs are first charged to:
a) Other comprehensive income.
b) Working papers.
c) Profit or loss of the acquirer.
d) Retained earnings of the acquirer. x
How is the non-controlling interest displayed in a consolidated statement of financial position?
a) By means of a note to conciliated financial statements
b) As a separate item in the stockholders’ equity section
c) As a separate item in the stockholders’ equity section
d) As a deduction from goodwill, if any
e) As a separate item between the liabilities and stockholders’ equity

The cost of registering equity securities issued as part of payment in a business combination should be
recorded as:
a) Deduction from additional paid in capital
b) An expense for the period
c) Part of the cost of the stock acquired
d) Income for the period
Under the acquisition method, the retained earnings of the acquirer right after the combination is equal to:
 a) The retained earnings of the acquirer only
b) The retained earnings of the acquirer plus any income from the acquisition
c) The sum of the retained earnings of the acquire and acquirer
d) The retained earnings of the acquirer less any amortization of goodwill
Which of the following is not included in the consideration paid in an acquisition-type business
combination?
a) Cash paid
b) Contingent consideration
c) Investment banker’s finder’s fee for the combination
d) Fair value of shares issued

In a business combination achieved in stages, the previously – acquired equity interest in the acquired
company should be measured at:
a) Its fair value on the date of business combination.
b) Cost.
c) Its fair value on the date when it was previously acquired.
d) Acquisition date fair value or book value, whichever is higher.

This pertains to the additional payments made to acquire the necessary percentage for a company to
obtain control over another company. This is included in the total consideration paid by the acquirer and
is excluded in estimating the value of the NCI.
a) Purchase price
b) Contingent consideration.
c) Step acquisition.
d) Control premium.

The following may be adjustments to Non-controlling interest in Net Income of Subsidiary except:
a) Impairment loss of goodwill
b) Intercompany dividend income
c) Realized profit from beginning inventory
d) Adjustment on depreciation related to fixed assets sold by Subsidiary Company to Parent
Company

Working paper elimination entries are entered in:

a) The parent company’s accounting records only
b) The subsidiary’s accounting records only
c) Neither the parent company’s nor the subsidiary’s accounting records
d) Both the parent company’s and subsidiary’s accounting records

Regardless of the method used in measuring non – controlling interest, the amount to be recognized
should be:
a) The fair value or relevant share, whichever is higher.
b) The fair value.
c) The relevant or proportionate share.
d) At least the relevant share.
The total assets of the acquirer are included in the consolidated financial statements in the amount equal
to:
a) Its historical cost.
b) Its appraised value.
c) Its fair value.
d) Its book value.

Due to some information that are not yet available on the date of acquisition, PFRS 3 allows companies to
measure the items beyond the acquisition date until:
a) No deadline is mandated by the standards.
b) One year from the acquisition date or the date when the missing information becomes
available, whichever is earlier?
c) One year from the acquisition date or the date when the missing information becomes available,
whichever is later?
d) The date when the missing information is obtained.
e) One year from the acquisition date.

Which of the following is not included in the consolidated shareholder’s equity?

a) All answers are included.
b) Ordinary share of Parent.
c) Non – controlling interest.
d) Retained earnings of Parent.

Peter Corp. acquired 70% of the outstanding shares of Simon Inc. on January 2, 2021 for P875, 000 cash.
The following are the financial statements as at and for the year ended December 31, 2021 of both
companies:
 
                                                  Peter Corp.                  Simon Inc.
                                                  December 31, 2021     December 31, 2021
Cash                                          P380, 000                      P180, 000
Accounts receivable               90,000                         50,000
Inventories                                 85,500                      95,000
Equipment, net                      326,000                       250,000
Land                                         898,000                       530,000
Investment in Subsidiary        875,000           
TOTAL ASSETS             P2, 654,500                 P1, 105,000
                       
Accounts payable                   P180, 000                       P95, 000
Notes payable                          367,500                         110,000
Common stock                        875,000                         700,000
Additional paid-in capital         425,000                         50,000
Retained earnings                    807,000                         150,000
TOTAL LIABILITIES AND SHE  P2, 654,500                   P1, 105,000
 
                                                Peter Corp.                  Simon Inc.
                                                December 31, 2021     December 31, 2021
Sales                                        P 520,000                     P 350,000
Less: Cost of Sales                   (312,000)                      (245,000)
Gross Profit                              P 208,000                     P 105,000
Less: Operating Expenses        (84,000)                        (65,000)
Other Income                         53,000                             30,000
NET INCOME                            P 177,000                     P 70,000
 
Additional information:

 ·       No additional issuances of stocks happened during the year for both entities.
 ·       Dividends declared in 2021 by Parent and Subsidiary amounted to P60, 000 and P40, 000,
respectively.
 ·       All fair values of Simon Inc. are equal to their book values except equipment, which was
overvalued by P200, 000, land which was undervalued by P35, 000 and inventory which fair
value exceeds its book value by P15, 000.
 ·       80% of the inventory of the subsidiary on hand on the date of acquisition were sold during
the year.
 ·       Any remaining excess was attributable to goodwill.
 ·       The remaining useful life of equipment on the date of acquisition was 4 years.
 ·       Goodwill, if any, was impaired by P10, 000 in 2021.

 
This problem contains six questions. Compute for the following:
1. Consolidated Shareholders’ Equity 2,540,000
2. Consolidated Net Income attributable to Non-Controlling Interest 29,400
3. Consolidated Cost of Goods Sold 569,000
4. Consolidated Operating Expenses 109,000
5. Consolidated Total Assets 3,292,500
6. Consolidated Net Income some other answer

On January 2, 2021, Peter Corporation acquired 80% of the outstanding shares of Simon Company for P4,
500,000 cash. The non-controlling interest is measured at fair value. The following are the account
balances from the respective financial statements of Peter and Simon Company on January 2, 2021:
 

Peter Corporation Simon Company

Assets
Cash ₱5,800,000 ₱1,834,000

Accounts Receivable                1,250,000              1,753,000

Merchandise Inventory                3,280,000              1,985,000

Equipment, net                4,750,000                 875,000

Building, net                2,430,000                 766,000

Land                1,500,000                 450,000

Patent, net                   840,000                 320,000

Investment in Subsidiary                4,500,000  

TOTAL ASSETS ₱24,350,000 ₱7,983,000

Liabilities

Accounts Payable ₱2,600,000 ₱745,000

Notes Payable - Trade                3,870,000                 853,000

Bonds Payable                4,560,000                 950,000

Total Liabilities ₱11,030,000 ₱2,548,000

Shareholders' Equity

Ordinary Shares ₱6,440,000 ₱3,280,000

Share Premium                1,230,000                 925,000

Retained Earnings                5,650,000              1,230,000

Total Shareholders' Equity ₱13,320,000 ₱5,435,000

TOTAL LIABILITIES & SHE ₱24,350,000 ₱7,983,000

 
Upon examination, book values of all assets and liabilities of Simon Company are equal to their fair
values except for the following:

 Merchandise inventory has a fair value of P1,650,000

 Equipment’s book value is overstated by P30,000
 Building’s fair value amounted to P948,000
 Land and patent’s book values are understated by P115,000 and P30,000, respectively
 Bonds payable’s book value exceeds its fair value by P60,000

Consolidated current assets 15,567,000

Consolidated non-current assets 12,396,000
Consolidated total liabilities 13,518,000
Consolidated shareholders’ equity 14,445,000
Goodwill attributable to non-controlling interest

TUV and DEF establish joint arrangements using a separate vehicle XYZ, but the legal form of the
separate vehicle does not confer separation between the parties and the separate vehicle itself.   That is,
TUV and DEF have rights to the assets and obligations for the liabilities of XYZ. Neither the contractual
terms nor the other facts and circumstances indicate otherwise.  Accordingly, TUV and DEF account for
their rights to assets and their obligations for liabilities relating to XYZ in accordance with IFRS 11.
 
TUV and DEF each own 50% of the outstanding shares of XYZ. However, the contractual terms of the
joint arrangement stated that TUV has the rights to all of the Equipment of XYZ and the obligation to pay
all the Loan Payable of XYZ.   It also stated that DEF has the rights to all of the Machinery of XYZ and
the obligation to pay all the Mortgage Payable and Long-term Notes Payable of XYZ.  TUV and DEF
have rights to all other assets of XYZ and obligations to all other liabilities of XYZ in proportion to their
equity interests. The following statement of financial position contains final balances as of December 31,
2022.

Statement of Financial Position

XYZ Co.

As of December 31, 2022

ASSETS LIABILITIES and EQUITY

Cash P  28,000,000 Current Liabilities P  50,000,000

Other Current Assets     90,000,000 Bonds Payable   127,000,000

Building   170,000,000 Loan Payable     60,000,000

Equipment     75,000,000 Mortgage Payable     31,000,000

Machinery     48,000,000 Long-term Notes Payable       2,000,000

Furniture     19,000,000 Equity   160,000,000

Total liabilities and

Total Assets   430,000,000   430,000,000
equity

 
Additional information related to the company’s operations follow:

 Sales revenue amounted to P12,250,000

 Non-cash operating expenses totaled P1,280,000
 Expenses paid amounted to P850,000
 Dividends declared during the year amount to P575,000

Total assets of TUV as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ. 228,500
 Total liabilities of TUV as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ. 148,500
Total assets of DEF as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ. 201,500
Total liabilities of DEF as shown in its own Statement of Financial Position to account for its rights and
obligations in XYZ. 121,500

Rocket Bunny Corp. is experiencing financial difficulty and is in the process of liquidation. In its
statement of financial position,
The mortgage payable of P110, 000 is secured by the land with carrying amount of P100, 000 and fair
market value of P105, 000.
Accrued expenses total P15, 000 of which P10, 000 represents salaries of employees and the remainder is
secured by the inventory with statement of financial position amounting to P132, 000. Estimated payment
to partial creditors is P108, 250. The amount of total assets is P135, 000.

In Jeremiah Corporation’s statement of affairs, reported was an estimated deficiency of 14,500. Total
assets and liabilities of the corporation were n185, 000 and 153,000, respectively. Loss on disposition of
assets was 68,000. Interest expense of 33,500 has not yet been accrued. Free assets were 80,000 while
unsecured liabilities without priority amounted to 115, 000.
How much was the net loss on disposition of assets? 43,000
How much was the gain on the disposition of assets? 25,000
FULLY SECURED LIABILITIES – always 100%
PARTIALLY SECURED LIABILITIES – always less than 100% but more than the estimated recovery
percentage for unsecured creditors.
UNSECURED WITH PRIORITY – normally 100%