Chapter 2 - MC

Multiple Choice Problems
1. c -
Cash consideration transferred P 300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P 315,000
Less: Book value of SS Company (P90,000 + P100,000) 190,000
Allocated excess P125,000
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100% P 40,000
Increase in customer list: P22,000 x 100% 22,000
Increase in R&D: P30,000 x 100% 30,000 __92,000
Goodwill P 33,000
Investment in SS Company 315,000
Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000
Cash 10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4 would be:
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
Capitalized R&D 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
Investment in SS Company 315,000
2. d - P600,000 - P15,000 - P255,000 = P330,000

3. c - P475,000 - P300,000 = P175,000 debit
4. d
Consideration transferred P150,000
Less: Book value of SHE of S (P40,000 + P52,000) 92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 58,000
5. b – [P150,000 – (P173,000 – P40,000 – P5,000)]
6. d
Book value of Assets (P80,000 + P50,000 + P200,000) P330,000
Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000
P 65,000
7. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in the worksheet or
eliminating entries.
8. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
9. c
10. a
[P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase + P100,000 in
increase in PPE] = P100,000
11. c – at fair value
12. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
13. d
Less: Book value of SHE of S (P100,000 + P115,000) 215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 85,000
14. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.
15. b
P’s acquisition entry is:
Investment in Silicon 2,500,000
Merger expenses 250,000
C/S (100,000@P1) 100,000
APIC [(100,000@P24) – P400,000] 2,000,000
Cash (P400,000 + P250,000) 650,000
Eliminating entries are:

Capital stock 560,000
Retained earnings 280,000
AOCI 195,000
Treasury stock 35,000
Customer lists 700,000

Goodwill 800,000
16. b – refer to No. 15

17. a – refer to No. 15
18. a – refer to No. 15
19. b – refer to No. 15
20. b
21. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000
22. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE – P300,000 –
P500,000) = P550,000
23. a
24. d (P1,000,000 + P250,000) = P1,250,000 P only.
25. d - A total of P210,000 (P120,000 + P90,000) should be reported.
26. a - As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The amount paid
was P30,000 greater than the book value of the net assets of SS and is reported as goodwill in the consolidated
balance sheet at January 1, 20X5.
27. c - In determining the amount to be reported for land in the consolidated balance sheet, P15,000 (P70,000 +
P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for P25,000 (P10,000 + P15,000).
28. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the consolidated balance
sheet. A total of P10,000 was deducted in determining the balance reported for accounts receivable (P90,000 +
P50,000 - P130,000). The elimination of an intercompany receivable must be offset by the elimination of an
intercompany payable.
29. c- P100,000, the par value of B's stock outstanding is P100,000
30. a
Fair value of subsidiary (100%):
Consideration transferred P 600,000
Less: Book value of stockholders’ equity
(net assets) – Son Company
(P180,000 + P165,000 + P90,000) x 80% __348,000
Allocated excess P 252,000
Less: Over/undervaluation of assets and liabilities:
Increase in land (P420,000 – P264,000) x 80% P124,800
Increase in building: P96,000 x 80% __76,800 __201,600
Positive excess: Goodwill P 50,400
31. b
FV of NCI 147,300
Control premium 27,600
P 774,900
(P180,000 + P165,000 + P90,000) x 100% __435,000
32. c
Less: Control premium 44,400
P555,600/80% P 694,500
Add: Control premium __44,400
P 738,900
(P180,000 + P165,000 + P90,000) x 100% __435,000
33. b
FV of S: CT - Acquisition cost P 13,000,000
Less: Book value (P20,000,000 + P36,000,000) 56,000,000
Allocated Excess of book value over cost P(43,000,000)
Add: Existing goodwill 40,000,000
Adjusted Allocated excess P( 3,000,000)
Less: Over/undervaluation of A & L __________-0-
Bargain purchase gain/Gain on acquisition P( 3,000,000)
34. b - Proportionate Basis (Partial-goodwill Approach)

 Partial-goodwill
Consideration transferred: Cash……………………….....P 7,560,000 (60%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P6,000,000 x 60%................................ 3,600,000 (60%)
Allocated Excess.……………………………………………….... P 3,960,000 (60%)
(P8,400,000 – P6,000,000) x 60%................................... 1,440,000 (60%)
Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
35. c - Fair Value Basis (Full-goodwill Approach)

 Full-goodwill
Consideration transferred: Cash ………………………...P 7,560,000 ( 60%)
Fair value of NCI (given)………………………………….. 4,800,000 ( 40%)
Fair value of subsidiary…………………………………………...P12,360,000 (100%)
– S Company: P6,000,000 x 100%........................... 6,000,000 (100%)
Allocated Excess.…………………………………………………..P 6,360,000 (100%)
(P8,400,000 – P6,000,000) x 100%................................ 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 3,960,000 (100%)
The full – goodwill of P3,960,000 consists of two parts:

Full-goodwill……………………………………………...P 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill (No. 34)………………. 2,520,000
NCI on full-goodwill……………………………………..P 1,440,000
36. b
 Non-controlling interest (refer to No. 34)
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary…………….P 8,400,000
Multiplied by: Non-controlling Interest percentage........... 40%
Non-controlling interest (partial)………………………………..P 3,360,000
37. c -
 Non-controlling interest
Non-controlling interest (partial) – refer to No. 36…………P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
38. d - Proportionate Basis (Partial-goodwill Approach)

Consideration transferred: Cash………………………..P 9,000,000 (75%)
– S Company: P7,200,000 x 75%............................... 5,400,000 (75%)
Allocated Excess.………………………………………………....P 3,600,000 (75%)
(P9,600,000 – P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)

 Full-goodwill
Fair value of subsidiary…………………………………………. P 11,640,000 (100%)
– S Company: P7,200,000 x 100%............................. 7,200,000 (100%)
Allocated Excess.………………………………………………….P 4,440,000 (100%)
(P9,600,000 – P7,200,000) x 100%.............................. 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)
The full – goodwill of P2,040,000 consists of two parts:

Full-goodwill……………………………………………...P 2,040,000
or partial-goodwill……………………………. 1,800,000
NCI on full-goodwill…………………………………….P 240,000
40. b -
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage........... 25%
Non-controlling interest (partial)……………………………….P 2,400,000
41. c -
Non-controlling interest (partial) – refer to No. 40…………P 2,400,000
(P2,040,000 – P1,800,000 partial-goodwill)………..... 240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
42. b - Proportionate Basis (Partial-goodwill Approach)

Consideration transferred: Cash………………………..P 2,592,000 ( 60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%..... 648,000 ( 15%)
Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%)
– S Company: (P4,680,000 – P2,280,000) x 75%......... 1,800,000 .(75%)
Allocated Excess.……………………………………………….....P1,440,000 (75%)
[(P6,120,000 – P2,280,000) –
(P4,680,000 – P2,280,000)] x 75%................................ 1,080,000 (75%)
Positive excess: Goodwill (partial)……………………………...P 360,000 (75%)

 Full-goodwill
Consideration transferred: Cash………………………..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%..... 648,000 (15%)
Fair value of NCI (given)………………………………… 1,080,000 (25%)
Fair value of subsidiary…………………………………………. P 4,320,000 (100%)
– S Company: P2,400,000 x 100%............................. 2,400,000 (100%)
Allocated Excess.…………………………………………………P 1,920,000 (100%)
(P3,840,000 – P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full)…………………………………..P 480,000 (100%)
The full – goodwill of P480,000 consists of two parts:

Full-goodwill……………………………………………...P 480,000
or partial-goodwill……………………………... 360,000
NCI on full-goodwill……………………………………..P. 120,000
44. b
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
Fair value of stockholders’ equity of subsidiary……………P 3,840,000
Multiplied by: Non-controlling Interest percentage............ 25%
Non-controlling interest (partial)………………………………P 960,000
45. c
Non-controlling interest (partial) –refer to No. 44.…………P 960,000
(P480,000 – P360,000 partial-goodwill)…………....... 120,000
Non-controlling Interest (full)……………………………………P 1,080,000
46. b – fair value

47. d – fair value
48. d – fair value
49. c -
Full-goodwill:
Fair value of Subsidiary:
Add: FV of NCI 100,000 P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000
Allocated excess P120,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P65,000 – P70,000) x 100% P( 5,000)
Land (P100,000 – P90,000) x 100% 10,000
Buildings and equipment (P300,000 – P250,00) x 100% 50,000 __55,000
Goodwill – full P 65,000
If partial-goodwill, no answer available, computed as follows:

Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000
Inventory (P65,000 – P70,000) x 75% P( 3,750)
Land (P100,000 – P90,000) x 75% 7,500
Buildings and equipment (P300,000 – P250,00) x 75% 37,500 __41,250
50. a – Investment in Silver will be eliminated in the consolidated balance sheet
51. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ……………………………… 55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%.................................................................... 25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P 100,000
* same with the NCI given per problem
52. b – P135,000 = P90,000 + P45,000

53. d
Full-goodwill:
Add: FV of NCI _40,000 P200,000
Less: BV of SHE of Silver (P40,000 + P120,000) x 100% _160,000
Inventory (P45,000 – P40,000) x 100% P 5,000
Land (P60,000 – P40,000) x 100% 20,000 25,000
54. a
Total Assets of Gulliver (Jonathan) P610,000
Less: Investment in Sea-Gull Corp. (160,000)
P 450,000
Book value of assets of Sea Corp. 230,000
Book value reported by Gulliver/Jonathan and Sea P 680,000
Increase in inventory (P45,000 – P40,000) 5,000
Increase in land (P60,000 – P40,000) 20,000
Goodwill (full)* 15,000
Total assets reported P 720,000
55. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
56. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) -
(P40,000 + P40,000)………….……………………………… 25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%.................................................................... 20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)……………….. 3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Less: BV of SHE of S (P40,000 + P120,000) x 80% _128,000
Inventory (P5,000 x 80%) P 4,000
Land (P20,000 x 80%) 16,000 __20,000
Goodwill – partial P 12,000
57. a - The amount reported by Jonathan Corporation

58. a
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19…………………………………….. 40,000
Consolidated stockholders’ equity……………………………………. P445,000
59. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
60. b
Total Assets of P. P1,278,000
Less: Investment in Swimmer Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (full)* 26,667
Total assets reported P1,566,667
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
If partial-goodwill:
Total Assets of P. P1,278,000
Less: Investment in S Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (partial)* 20,000
*[P440,000 – (P702,000 – P142,000) x 75%]
61. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)
62. a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
Goodwill – partial P 28,000
63. c
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)… 35,000
FV of SHE of SS……………………………………………… P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)……………………………………………..P 52,500
64. b
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (full) 40,000
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (partial) 28,000
65. D P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
66. a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
67. D
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000
FV of NCI (full)…………………………………………………..P 64,500
68. D P205,000 = The amount reported by Power Corporation
69. C P419,500 = (P150,000 + P205,000) + P64,500

Stockholders’ equity: P419,500
Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
70. b
Consideration transferred ...................................................................................................... P60,000
Less: Strand's book value (P50,000 x 80%).......................................................................... (40,000)
Fair value in excess of book value ........................................................................................ P20,000
Excess assigned to inventory (60%) ........................................................................P12,000
Excess assigned to goodwill (40%) ..........................................................................P 8,000
71. c
Consideration transferred (P60,000 ÷ 80%).......................................................................... P75,000
Less: Strand's book value ...................................................................................................... (50,000)
Fair value in excess of book value ........................................................................................ P25,000
Excess assigned to inventory (60%) ........................................................................P15,000
Excess assigned to goodwill (40%) ..........................................................................P10,000
72. a
Park current assets.................................................................................................................... P 70,000
Strand current assets................................................................................................................. 20,000
Excess inventory fair value...................................................................................................... 15,000
Consolidated current assets...................................................................................................... P105,000
73. c
Park noncurrent assets............................................................................................................. P 90,000
Strand noncurrent assets.......................................................................................................... 40,000
Excess fair value to goodwill (partial).................................................................................... ___8,000
Consolidated noncurrent assets............................................................................................... P140,000
74. d
Park noncurrent assets.............................................................................................................. P 90,000
Strand noncurrent assets........................................................................................................... 40,000
Excess fair value to goodwill (full).......................................................................................... __10,000
Consolidated noncurrent assets................................................................................................ P140,000
75. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken out by Park to
acquire Strand.
76. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken out by Polk
to acquire Strand.
77. b
Park stockholders' equity......................................................................................................... P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%........................................................................ 20% 13,000
Total stockholders' equity....................................................................................................... P93,000
78. c
Park stockholders' equity..................................................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%......................................................................... 20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)………… 15,000
Total stockholders' equity P95,000
79. d [P99,000 + P26,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000

80. a [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
81. a - P only
82. d – (P960,000 – P330,000) + P565,000 = P1,195,000
83. a - P15,000 = (P115,000 + P46,000) - P146,000
84. b - P65,000 = (P148,000 - P98,000) + P15,000
85. a. BB, P70,000; SS, P24,000,
SS: P24,000 = P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000 = P94,000 - P24,000
86. d - P259,000,
Fair value of SS as a
whole:
P200,000 Book value of SS shares
10,000 Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000 Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000 Differential assigned to goodwill
P259,000 Fair value of SS
87. c - 65 percent = 1.00 – (P90,650 / P259,000)

88. a
Capital Stock = P120,000
Retained Earnings = P115,000
89. b – full-goodwill
FV of S: P600,000/70%...........................................................................................P 857,143
Less: BV – SHE of Stork …………………………………………………………………. 640,000
Allocated excess………………………………………………………………………..P 217,143
Less: Increase in equipment………………………………………………………….. 40,000
+ Excess: Goodwill (full)………………………………………………………………...P 177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
90. a – P150,000 + P500,000

91. a – at fair value
92. b
FV, stocks issued………………………………………………… P 4,200,000
Less: Par value of stocks issued (500,000 shares x P5)…….. __2,500,000
APIC P 1,700,000
Add: APIC of P 7,500,000
Less: Stock issuance cost ___100,000
P 9,100,000
93. a – at fair value

94. c**/d* - Please read the discussion below
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity, does not affect the
computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant and Equipment and
Intangible Assets. The scope of those deliberations does not include the cost of investment in associate, joint venture or subsidiary but it is
possible that the scope of the project might be expanded in future. (IGAAP 2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as expenses in the
consolidated accounts.
Revised PAS 27 does not define what is meant by “cost”, but in the glossary to PFRS provides an over-riding definition of “cost” as “the
amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or
construction”
As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the acquisition or issuance of the
asset such as professional fees for legal services, transfer taxes and other transaction costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not separately
define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements. Therefore, in the opinion of EY, the
cost of investment in subsidiary in the separate financial statements includes any costs incurred even if such costs are expensed in the
consolidated financial statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate Financial Statements” not
consolidated statements; therefore PFRS 3 which is a standard for business combination/consolidation will not be the basis for the
definition of “cost”). Unlike before the revision of PAS 27 and implementation of PFRS 10, the basis of the old PAS 27, which is
“Consolidated and Separate Statements”, is PFRS 3, wherein the definition of “cost” was clearly defined. That is why the general rule in the
definition of “cost” was applied. This view is also as suggest by the IASB since they introduced the requirement to expense acquisition
costs within PFRS 3, it only applies to financial statements in which a business combination is accounted for under PFRS 3. It follows
that this requirement does not extend to the individual (or separate) financial statements of the investing or parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38 (Intangible Assets) wherein
the direct costs is capitalized in the books of parent entity and eventually become expense through eliminating entry to prepare
consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to any
acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal costs, due diligence costs – such
as finder’s fee are expensed off and not included in the consideration transferred. The key reasons given for this approach are provided in
paragraph BC366:
 Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
 They are separate transactions for which the buyer pays the fair value for the services received.
 These amounts do not generally represent assets of the acquirer at acquisition date because the benefits obtained are consumed as
the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and liabilities assumed at fair
value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at cost . The following items are worth noting to
justify the use of this approach:
1. This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7 th Edition (2013) which is
an IFRS based discussion, in the solution they presented in one of their end-of-chapter problems, they expensed the direct costs in
recording the investment in subsidiary in the book of parent company
2. Similar with No. 1 above, in the book Applying IFRS, 3 rd edition (2013), by Picker, et al (which is also Ernst and Young book,
which seems to contradict their position in the discussion above) in chapter 24 end-of-the chapter problems, the direct costs (or
“costs incurred in undertaking taking the acquisition” as the term used in the book) were not part of the investment in subsidiary
as evidenced by the amount in the eliminating entry.
3. One respected author in accounting even commented that, despite the above analysis capitalizing the direct costs seems to be
correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and PFRS 10, the problem is, if the parent records
the direct costs as part of Investment in subsidiary, it may be a problem when there will be an impairment test which will reveal
the costs are in fact unrecoverable and thus that there must be an impairment charge at the parent level (in which the direct costs
is included as part the investment), which would have the effect of bringing the parent’s accounting (with the impairment
investment including the direct costs) in line with what would later appear on the consolidated financial statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of “costs” in PAS 27 wherein
the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be part of the investment in the books of parent
entity. But because of the three reasons mentioned above, the author believes that the direct costs still be considered as expenses
applying PFRS 3, aside from the fact that in substance the ultimate objective is to consolidate, even though there was a separation of
standard between Revised PAS 27 and PFRS 10.
95. a
96. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made. Therefore, the
P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated subsidiary, so the
P300,000 intercompany account will be eliminated.
97. d
98. c – In the combined financial statements (which normally used to described financial statements in a “common
control” situation), intercompany accounts are eliminated in full.
99. a
100. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for
external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless
controls it.
101. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the parent’s percentage
ownership.
102. c
An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and
subsequently amortized its useful life.
Patent fair value at January 1, 2009....................................................................................... P45,000
Amortization for 2 years (10 year life).................................................................................. (9,000)
Patent reported amount December 31, 2010.......................................................................... P36,000
103. a
PP - building ..........................................................................................................P510,000
TT building acquisition-date fair value P300,000
Amortization for 3 years (10-year life) (90,000) 210,000
Consolidated buildings ............................................................................................................. P720,000
-OR-
PP - building .......................................................................................................................... 510,000
TT building 12/31/x4 P182,000
Excess acquisition-date fair value allocation 40,000
Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000
Consolidated buildings ............................................................................................................. P720,000
104. b
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
105. c
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
106. c
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.
107. d
Cost of Investment (40 shares* x P40)………………………………………………………P 1,600
Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%...................................... 1,100
Allocated excess………………………………………………………………………………P 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%..................... 140
Goodwill………………………………………………………………………………………….P 360
100%
* Pedro Ltd Santi Ltd
Currently issued…………………… 100 40% 40 40%
Additional shares issued……….. 150 60%** 60 / 60%
Total shares………………………… 250 100
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M P ?
BV of net assets (same with FV)……….. 1.1 M ?
Fv per share of stock……………………… P 16 P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s shareholders
exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 ½) for the 60 shares in Santi
Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in Pedro Ltd
shows that it consists of the 100 shares existing prior to the merger and 150 new shares held by former
shareholders in Santi Ltd. In essence, the former shareholders of Santi Ltd now control both entities Pedro Ltd
and Santi Ltd. The former Santi Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB
argues that there has been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent. The usual
circumstance creating a reverse acquisition is where an entity (the legal parent) obtains ownership of the equity
of another entity (the legal subsidiary) but, as part of the exchange transaction, it issues enough voting equity as
consideration for control of the combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of Pedro ltd
are to be valued at fair value. This is contrary to normal acquisition accounting, based on Pedro Ltd being the
legal parent of Santi Ltd, which would require the assets and liabilities of Santi Ltd to be valued at fair value.
108. b – building account in the books of subsidiary at fair value

109. e – building account in the books of subsidiary at book value
110. d – push-down accounting: equipment account in the books of subsidiary is at fair value
111. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from P330,000 to
P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1. c 6. B 11. c 16. d 21. b 26. D 31 c 36. d
2. a 7. b 12. c 17. c 22. a 27. C 32. d 37. d
3. e 8. A 13. d 18. b 23. a 28. C 33. b 38. c
4. e 9. D 14. d 19. c 24. b 29. D 34. d 39. b
5. b 10, a 15, b 20. c 25. c 30. B 35. d 40. c
41. c 46. b 51. c 56. c

42. c 47. a 52. b 57. d
43. c 48. c 53. a
44. c 49. d 54. a
45. c 50, b 55, b

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Multiple Choice Problems

2. d - P600,000 - P15,000 - P255,000 = P330,000

Eliminating entries are:

Customer lists 700,000

16. b – refer to No. 15

34. b - Proportionate Basis (Partial-goodwill Approach)

35. c - Fair Value Basis (Full-goodwill Approach)

The full – goodwill of P3,960,000 consists of two parts:

38. d - Proportionate Basis (Partial-goodwill Approach)

39. c - Fair Value Basis (Full-goodwill Approach)

The full – goodwill of P2,040,000 consists of two parts:

42. b - Proportionate Basis (Partial-goodwill Approach)

43. c - Fair Value Basis (Full-goodwill Approach)

The full – goodwill of P480,000 consists of two parts:

46. b – fair value

If partial-goodwill, no answer available, computed as follows:

52. b – P135,000 = P90,000 + P45,000

55. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000

57. a - The amount reported by Jonathan Corporation

68. D P205,000 = The amount reported by Power Corporation

69. C P419,500 = (P150,000 + P205,000) + P64,500

79. d [P99,000 + P26,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000

87. c - 65 percent = 1.00 – (P90,650 / P259,000)

If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000

90. a – P150,000 + P500,000

93. a – at fair value

108. b – building account in the books of subsidiary at fair value

41. c 46. b 51. c 56. c

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