Acct 108 Accounting for Business Combinations

Quiz 3 - Consolidated Financial Statements

NOTE: Use the Standard Form of Writing Numbers.

Example: (1 Million must be written as 1,000,000)

Lugaw Company acquired Blengblong Company on January 01, 2021 by acquiring 11,250 of its
P10 par ordinary shares. The par value of Lugaw shares is P20. The Statements of Financial
Position of Lugaw and Blengblong after acquisition are as follow:
Lugaw Blengblong

Cash 200,000 270,000

AR 1,300,000 380,000

Inventory 540,000 230,000

Building, net 1,800,000 1,000,000

Equipment, net 900,000 400,000

Land 3,000,000 800,000

Investment in Subsidiary 2,700,000 -

Goodwill - 20,000

Total Assets 10,440,000 3,100,000

Accounts Payable 200,000 -

Mortgage Payable 500,000 150,000

Total Liabilities 700,000 150,000

Ordinary Share Capital 1,000,000 125,000

Share Premium 2,240,000 675,000

Retained Earnings 6,500,000 2,150,000

Total Shareholder’s Equity 9,740,000 2,950,000

An independent appraiser was hired to estimate the market value of Blengblong's net assets.
The following accounts revealed a difference between the book value and market value as
indicated in the appraiser’s report.
Book Value Fair Value Remaining Life

Inventory 230,000 300,000 -

Building, net 1,000,000 800,000 20

Equipment, net 400,000 500,000 10

Goodwill 20,000 - -

Lugaw declared and paid dividends for the year amounting to 20,000. Blengblong also declared
and paid dividends to its shareholders. There were no additional merchandise purchased nor
assets acquired for the year 2021 for both companies. In preparation for the consolidation of
financial statements on December 31, 2021, Lugaw and Blengblong presented the following
Statements of Financial Position and Comprehensive Income as of year end:
Lugaw Blengblong

Cash 989,000 560,000

AR 1,000,000 380,000

Inventory 270,000 115,000

Building, net 1,740,000 950,000

Equipment, net 855,000 360,000

Land 3,000,000 800,000

Investment in Subsidiary 2,700,000 -

Goodwill - 20,000

Total Assets 10,554,000 3,185,000

Accounts Payable 200,000 -

Mortgage Payable 500,000 150,000

Total Liabilities 700,000 150,000

 Ordinary Share Capital 1,000,000 125,000

Share Premium 2,240,000 675,000

Retained Earnings 6,614,000 2,235,000

Total Shareholder’s Equity 9,854,000 3,035,000

Sales 500,000 300,000

Cost of Goods Sold 270,000 115,000

Operating Expense 105,000 90,000

Dividend Income 9,000 -

In 2022, the second year of operation after acquisition, Lugaw declared and paid dividends
amounting to 10,000 and received 4,500 cash dividends from Blengblong. There were no
additional merchandise purchased nor assets acquired for the year 2022 for both companies. In
preparation for the consolidation of financial statements on December 31, 2022, Lugaw and
Blengblong presented the following Statements of Financial Position and Comprehensive
Income as of year end:
Lugaw Blengblong

Cash 983,500 840,000

AR 1,200,000 380,000

Inventory 200,000 -

Building, net 1,680,000 900,000

Equipment, net 810,000 320,000

Land 3,000,000 800,000

Investment in Subsidiary 2,700,000 -

 Goodwill - 20,000

Total Assets 10,573,500 3,260,000

Accounts Payable 200,000 -

Mortgage Payable 500,000 150,000

Total Liabilities 700,000 150,000

Ordinary Share Capital 1,000,000 125,000

Share Premium 2,240,000 675,000

Retained Earnings 6,633,500 2,310,000

Total Shareholder’s Equity 9,873,500 3,110,000

Sales 200,000 285,000

Cost of Goods Sold 70,000 115,000

Operating Expense 105,000 90,000

CFS at Date of Acquisition

1. Goodwill
2. Assets
3. Retained Earnings
4. Non-controlling Interest
5. Shareholder’s Equity

CFS at the end of Year 1

6. Consolidated Income (Entity Approach)
7. Assets
8. Retained Earnings
9. Non-controlling Interest

CFS at the end of Year 2

 10. Consolidated Income (Parent Company Approach)
11. Assets
12. Retained Earnings
13. Non-controlling Interest

Share of Lugaw in the Net Increase of Blengblong’s Retained Earnings from DOA
14. At the end of Year 1
15. At the end of Year 2