UNIVERSITY OF NUEVA CACERES

City of Naga
COLLEGE OF BUSINESS AND ACCOUNTANCY
2020-2021
VARIAS, AIZEL ANN BELEN
BSA 3rd YEAR BLOCK –A FLEXI-KIT
2076 Accounting for Business Combinations

MODULE 2
CONSOLIDATED FINANCIAL STATEMENTS

TOPIC 2.2 Subsequent to the Date of Acquisition

LEARNING ACTIVITY 2.3
Concept-review

PROBLEM 1: TRUE OR FALSE page 167

1. FALSE – it should be control

2. FALSE – the consolidated profit includes only the profit of Entity B from November 1 to December
31, 20x1
3. FALSE – goodwill is measured at acquisition-date fair value less accumulated impairment losses
4. TRUE – 200 x 10% = 20
5. TRUE – Entity’s A retained earning balance of ₱1000 + ₱90 (share of Entity A from the net change
of Entity B’s net assets 200-100=100 x 90% = 90) = ₱1,090
6. FALSE
7. TRUE
8. TRUE
9. TRUE (200+100) = 300
10. TRUE (80% of 100) + 200 = 280

PROBLEM 5: MULTIPLE CHOICES – THEORY pages 180-183

1. A
2. C
3. B
4. D
5. D
6. A
7. B
8. D
9. B
10. A
TOPIC 2.2 Subsequent to the Date of Acquisition
LEARNING ACTIVITY 2.3
Concept-application

PROBLEM 2: FOR CLASSROOM DICUSSION pages 168-170

Consolidation at acquisition date

1. Solutions: Health Group
Consolidated Statement of Financial Position
As of January 1, 20x1

Cash (100K + 20K) 120,000

Accounts receivable (120K + 20K fair value) 140,000
Inventory (400K + 100K) 500,000
Investment in subsidiary (eliminated) -
Prepaid assets (30K + 10K) 40,000
Building, net (1.2M + 540K fair value) 1,740,000
Goodwill 140,000
Total Assets 2,680,000

Accounts payable (70K + 90K) 160,000

Share capital (Parent only) 1,000,000
Share premium (Parent only) 350,000
Retained earnings (Parent only) 990,000
NCI 180,000
Total Liabilities and Equity 2,680,000

Computation of Goodwill:
Consideration transferred (equal to investment in subsidiary 560,000
NCI (600K x 30%) 180,000
Previously held equity interest -
Total 740,000
Less: Fair value of net identifiable assets acquired (a) 600,000
Goodwill 140,000

Computation of fair value of net identifiable assets acquired:

Share capital 200,000
Share premium 50,000
Retained earnings 230,000
Net assets, at carrying amount 480,000
Fair value adjustment (20K + 540K - 40K - 400K) 120,000
Fair value of net identifiable assets acquired 600,000
Consolidation subsequent to acquisition date – ‘proportionate’
2. Step 1: Analysis of subidiary's net assets
Dec 31,
Floyd Co.
Jan 1, 20x1 20x1 Net Change
Net assets at carrying amount 480,000 568,000
Fair value adjustments (FVA) 120,000 88,000
Net assets at fair value 600,000 656,000 56,000

Net assets on Dec. 31,20x1:

200K share capital + 50K share premium +318K retained earnings = 568,000

FVA at acquisition-date (Jan 1,20x1)

Carrying
Fair Value FVA
Amount
Inventory 100,000 110,000 10,000
Building, net 400,000 510,000 110,000
Totals 500,000 620,000 120,000

FVA at acquisition date less subsequent depreciation

FVA,
FVA, 1/1/x1 Useful life Depreciation
12/31/x1
Inventory 10,000 N/A 10,000 -
Equipment 110,000 5 years 22,000 88,000
Totals 120,000 32,000 88,000

Step 2: Computation of Goodwill

Consideration transferred (equal to investment in subsidiary) 560,000
NCI (600K x 10%) 60,000
Previously held equity interest -
Total 620,000
Fair value of net identifiable assets acquired - 600,000
Goodwill 20,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value 656,000
Multiply by: NCI percentage 10%
Non-contolling interest in net assets - Dec. 31,20x1 65,600
Step 4: Consolidated retained earnings
Parent's retained earnings - Dec. 31, 20x1 1,260,000
Parent's share in the net change in subidiary's net assets (see below) 50,400
Consolidated retained earnings - Dec. 31,20x1 1,310,400

Net change in Floyd's net assets 56,000

Multiply by: Pink's interest in Floyd 90%
Pink's share in the net change in Floyd's net assets 50,400

Step 5: Consolidated profit or loss

Profits of Floyd and Pink (270K + 88K) 358,000
Depreciation of FVA (see computations above in Step 1) - 32,000
Consolidated profit 326,000

Owners of
NCI Consolidated
Parent
Parent's profit before FVA 270,000 N/A 270,000
Share in Floyd's profit before FVA (a) 79,200 8,800 88,000
Depreciation of FVA (b) - 28,800 - 3,200 - 32,000
Totals 320,400 5,600 326,000

(a) (88K x 90% = 79,200) ; (88K x 10% = 8,800)

(b) (32K x 90% = 28,000) ; (32K x 10% = 3,200)

Pink Group
Consolidated Statement of Financial Position
As of December 31,20x1
ASSETS
Cash (620K + 120K) 740,000
Accounts receivable (170K + 100K) 270,000
Inventory (200K + 80K + 0 FVA net, step 1) 280,000
Prepaid assets (10K + 8K) 18,000
Investment in subsidiary (Eliminated) -
Building, net (1.1M + 360K + 88K FVA net, step 1) 1,538,000
Goodwill (Step 2) 20,000
Total Assets 2,866,000
LIABILITIES AND EQUITY
Accounts payable (50K + 90K) 140,000
Total liabilities 140,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 350,000
Retained earnings (Parent only, see Step 4) 1,310,400
Owners of parent 2,660,400
Non-controlling interest, step 3 65,600
Total equity 2,726,000
Total Liabilities and Equity 2,866,000
 Owners of parent 2,660,400
Non-controlling interest, step 3 65,600
Total equity 2,726,000
Total Liabilities and Equity 2,866,000

Pink Group
Statement of profit or loss
For the year ended December 31,20x1

Sales (600K + 200K) 800,000

Cost of goods sold (200K+60K+10 dep'n. of FVA - inventory) - 270,000
Gross profit 530,000
Depreciation expense (100K+50K+22K dep'n. on FVA - bldg) - 172,000
Distribution costs (30K + 2K) - 32,000
Profit for the year 326,000
Profit attributable to:
Owners of the parent (see step 5) 320,400
Non-controlling interest (see step 5) 5,600
Profit for the year 326,000

Consolidation subsequent to acquisition-date – ‘fair value’

3. Step 1: Analysis of subidiary's net assets
Dec 31,
Floyd Co.
Jan 1, 20x1 20x1 Net Change
Net assets at carrying amount 480,000 568,000
Fair value adjustments (FVA) 120,000 88,000
Net assets at fair value 600,000 656,000 56,000

Net assets on Dec. 31,20x1:

200K share capital + 50K share premium +318K retained earnings = 568,000

FVA at acquisition-date (Jan 1,20x1)

Carrying
Fair Value FVA
Amount
Inventory 100,000 110,000 10,000
Building, net 400,000 510,000 110,000
Totals 500,000 620,000 120,000

FVA at acquisition date less subsequent depreciation

FVA,
FVA, 1/1/x1 Useful life Depreciation
12/31/x1
Inventory 10,000 N/A 10,000 -
Equipment 110,000 5 years 22,000 88,000
Totals 120,000 32,000 88,000
Step 2: Computation of Goodwill
Consideration transferred (equal to investment in subsidiary) 560,000
Previously held equity interest -
Total 560,000
Less: Parent's proportionate share in the net assets
of subsidiary (600K x 90%) - Step 1 - 540,000
Goodwill attributable to owners of the parent 20,000
Fair value of NCI 65,000
Less:NCI's proportionate share in the net assets of
subsidiary (600K X 10%) - Step 1 - 60,000
Goodwill attributable to NCI 5,000
Goodwill - Dec. 31,20x1 25,000

Reconciliation using regular formula

Consideration transferred (equal to investment in subsidiary) 560,000
Non-controlling interest 65,000
Previouly held equity interest -
Total 625,000
Fair value of net identifiable assets acquired - 600,000
Goodwill 25,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value - Dec. 31, 20x1 (Step 1) 656,000
Multiply by: NCI percentage 10%
Total 65,600
Add: Goodwill attributable to NCI (Step 2) 5,000
Non-controlling interest in net asset - Dec. 31,20x1 70,600

Step 4: Consolidated retained earnings

Parent's retained earnings - Dec. 31, 20x1 1,260,000
Parent's share in the net change in subsidiary's net assets (a) 50,400
Consolidated retained earnings - Dec. 31, 20x1 1,310,400

(a) Net Change in Floyd' net assets (see step 1) 56,000

Multiply by: Pink's interest on Floyd 90%
Pink's share in the net change in Floyd's net assets 50,400

Step 5: Consolidated profit or loss

Profits of Floyd and Pink (270K + 88K) 358,000
Depreciation of FVA (see computations above in Step 1) - 32,000
Consolidated profit 326,000
 Owners of
NCI Consolidated
Parent
Parent's profit before FVA 270,000 N/A 270,000
Share in Floyd's profit before FVA (a) 79,200 8,800 88,000
Depreciation of FVA (b) - 28,800 - 3,200 - 32,000
Totals 320,400 5,600 326,000
Pink Group
Consolidated Statement of Financial Position
As of December 31,20x1
ASSETS
Cash (620K + 120K) 740,000
Accounts receivable (170K + 100K) 270,000
Inventory (200K + 80K + 0 FVA net, step 1) 280,000
Prepaid assets (10K + 8K) 18,000
Investment in subsidiary (Eliminated) -
Building, net (1.1M + 360K + 88K FVA net, step 1) 1,538,000
Goodwill (Step 2) 25,000
Total Assets 2,871,000

LIABILITIES AND EQUITY

Accounts payable (50K + 90K) 140,000
Total liabilities 140,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 350,000
Retained earnings (Parent only, see Step 4) 1,310,400
Owners of parent 2,660,400
Non-controlling interest, step 3 70,600
Total equity 2,731,000
Total Liabilities and Equity 2,871,000
Pink Group
Statement of profit or loss
For the year ended December 31,20x1

Sales (600K + 200K) 800,000

Cost of goods sold (200K+60K+10 dep'n. of FVA - inventory) - 270,000
Gross profit 530,000
Depreciation expense (100K+50K+22K dep'n. on FVA - bldg) - 172,000
Distribution costs (30K + 2K) - 32,000
Profit for the year 326,000
Profit attributable to:
Owners of the parent (see step 5) 320,400
Non-controlling interest (see step 5) 5,600
Profit for the year 326,000
PROBLEM 3: EXERCISE pages 170-174
1. Solution:
Sunny Group
Consolidated Statement of Financial Position
As of January 1,20x1
ASSETS
Cash (80K + 50K) 130,000
Accounts receivable (400K + 80K fair value) 480,000
Investment in subsidiary (Eliminated) -
Land (600K + 250K fair value) 850,000
Goodwill (a) 120,000
Total Assets 1,580,000

LIABILITIES AND EQUITY

Accounts payable (200K + 80K) 280,000
Total liabilities 280,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 180,000
Owners of parent 1,180,000
Non-controlling interest (b) 120,000
Total equity 1,300,000
Total Liabilities and Equity 1,580,000

(a) Consideration transferred (equal to investment in subsidiary) 300,000

(b) NCI (300K x 40%) 120,000
Previously held equity interest -
Total 420,000
Fair value of net identifiable assets acquired (250K + 50K) - 300,000
Goodwill 120,000

2. Solution:
Hammer Group
Consolidated Statement of Financial Position
As of January 1,20x1
ASSETS
Cash (160K + 10K) 170,000
Accounts receivable (200K + 110K) 310,000
Inventory (400K + 100K fair value) 500,000
Investment in subsidiary (Eliminated) -
Building (1M + 400K fair value) 1,400,000
Goodwill (a) 40,000
Total Assets 2,420,000
LIABILITIES AND EQUITY
Accounts payable (100K + 20K) 120,000
Total liabilities 120,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 300,000
Retained earning (Parent only) 880,000
Owners of parent 2,180,000
Non-controlling interest (b) 120,000
Total equity 2,300,000
Total Liabilities and Equity 2,420,000

Consideration transferred (equal to investment in subsidiary) 520,000

(b) NCI (300K x 40%) 120,000
Previously held equity interest -
Total 640,000
Fair value of net identifiable assets acquired (250K + 50K) - 600,000
(a) Goodwill 40,000

Fair value of net identifiable assets:

(200K share capital + 100K share premium + 180K retained earnings + 20K
FVA on inventory + 100K FVA on building) = 600K

3. Solution

Step 1: Analysis of subidiary's net assets

Dec 31,
Walk Co.
Jan 1, 20x1 20x1 Net Change
Net assets at carrying amount 480,000 568,000
Fair value adjustments (FVA) 120,000 90,000
Net assets at fair value 600,000 658,000 58,000

Net assets, Dec. 31, 20x1

(200K share capital + 100K share premium + 268K retained earnings) = 568K

FVA at acquisition-date (Jan 1,20x1)

Carrying
Fair Value FVA
Amount
Inventory 80,000 100,000 20,000
Building, net 300,000 400,000 100,000
Totals 380,000 500,000 120,000
FVA at acquisition date less subsequent depreciation
FVA,
FVA, 1/1/x1 Useful life Depreciation
12/31/x1
Inventory 20,000 N/A 20,000 -
Equipment 100,000 10 years 10,000 90,000
Totals 120,000 30,000 90,000

Step 2: Computation of Goodwill

Consideration transferred (equal to investment in subsidiary) 520,000
NCI (600K x 20%) 120,000
Previously held equity interest -
Total 640,000
Fair value of net identifiable assets acquired - 600,000
Goodwill 40,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value - Dec. 31,20x1 658,000
Multiply by: NCI percentage 20%
Non-contolling interest in net assets - Dec. 31,20x1 131,600

Step 4: Consolidated retained earnings

Parent's retained earnings - Dec. 31, 20x1 1,300,000
Parent's share in the net change in subidiary's net assets (see below) 46,400
Consolidated retained earnings - Dec. 31,20x1 1,346,400

Net
Net change
change inin Walk's
Walk's net
net assets
assets 58,000
58,000
Multiply
Multiply by: Pink's interest ininFloyd
by: Runs's interest Walk 80%
80%
Run's
Pink's share
share in in the
the net
net change
change inin Walk's
Floyd's net
net assets
assets 46,400
46,400

Step
Step 5:
5: Consolidated
Consolidated profit
profit or
or loss
loss
Profits
Profits of
of Run
Run and
and Walk
Walk (420K
(420K + + 88K)
88K) 508,000
508,000
Depreciation
Depreciation of FVA (see computations above
of FVA (see computations above in
in Step
Step 1)
1) -- 30,000
30,000
Consolidated profit
Consolidated profit 478,000
478,000

Owners of
Owners of
NCI
NCI Consolidated
Consolidated
Parent
Parent
Parent's
Parent's profit
profit before
before FVA
FVA 420,000
420,000 N/A
N/A 420,000
420,000
Share
Share in Walks's profit before
in Walks's profit before FVA
FVA (a)
(a) 70,400
70,400 17,600
17,600 88,000
88,000
Depreciation of FVA
Depreciation of FVA (b) (b) -- 24,000
24,000 -- 6,000 --
6,000 30,000
30,000
Totals
Totals 466,400
466,400 11,600
11,600 478,000
478,000

(a)
(a) (88K
(88K xx 80%
80% =
= 70,400)
70,400) ;; (88K
(88K xx 20%
20% =
= 17,600)
17,600)
(b)
(b) (30K
(30K xx 80%
80% =
= 24,000)
24,000) ;; (30K
(30K xx 20%
20% =
= 6,000)
6,000)
 Run Group
Consolidated Statement of Financial Position
As of December 31, 20x1
ASSETS
Cash (750K + 258K) 1,008,000
Accounts receivable (260K + 50K) 310,000
Inventory (200K + 20K + 0 FVA net (see step 1) 220,000
Investment in subsidiary (Eliminated) -
Building, net (950K + 250K + 90K FVA net (see step 1) 1,290,000
Goodwill (Step 2) 40,000
Total Assets 2,868,000

LIABILITIES AND EQUITY

Accounts payable (80K + 10K) 90,000
Total liabilities 90,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 300,000
Retained earning (Parent only - See in Step 4) 1,346,400
Owners of parent 2,646,400
Non-controlling interest (Step 3) 131,600
Total equity 2,778,000
Total Liabilities and Equity 2,868,000

Run Group
Statement of profit or loss
For the year ended December 31,20x1

Sales (800K + 200K) 1,000,000

Cost of goods sold (200K+60K+20 dep'n. of FVA - inventory) - 280,000
Gross profit 720,000
Depreciation expense (50K+50K+10K dep'n. on FVA - bldg) - 110,000
Distribution costs (130K + 2K) - 132,000
Profit for the year 478,000
Profit attributable to:
Owners of the parent (see step 5) 466,400
Non-controlling interest (see step 5) 11,600
Profit for the year 478,000
4. Solution:
Step 1: Analysis of subidiary's net assets
Walk Co.
Jan 1, 20x1 Dec 31, 20x1 Net Change
Net assets at carrying amount 480,000 568,000
Fair value adjustments (FVA) 120,000 90,000
Net assets at fair value 600,000 658,000 58,000

Net assets, Dec. 31, 20x1

(200K share capital + 100K share premium + 268K retained earnings) = 568K

FVA at acquisition-date (Jan 1,20x1)

Carrying
Fair Value FVA
Amount
Inventory 80,000 100,000 20,000
Building, net 300,000 400,000 100,000
Totals 380,000 500,000 120,000

FVA at acquisition date less subsequent depreciation

FVA,
FVA, 1/1/x1 Useful life Depreciation
12/31/x1
Inventory 20,000 N/A 20,000 -
Equipment 100,000 10 years 10,000 90,000
Totals 120,000 30,000 90,000
Step 2: Computation of Goodwill
Consideration transferred (equal to investment in subsidiary) 520,000
Previously held equity interest -
Total 520,000
Less: Parent's proportionate share in the net assets of the
subsidiary (600K x 80%) - 480,000
Goodwill attributable to owners of the parent 40,000
Fair value of NCI 130,000
Less: NCI's proportionate share in the net assets
of the subsidiary (600K x 20%) - 120,000
Goodwill attributable to NCI 10,000
Goodwill 50,000

Reconciliation using regular formula

Consideration transferred (equal to investment in subsidiary) 520,000
Non-controlling interest 130,000
Previouly held equity interest -
Total 650,000
Fair value of net identifiable assets acquired - 600,000
Goodwill 50,000
Step 3: Non-controlling interest in net assets
Subsidiary's net assets at fair value - Dec. 31, 20x1 (Step 1) 658,000
Multiply by: NCI percentage 20%
Total 131,600
Add: Goodwill attributable to NCI (Step 2) 10,000
Non-controlling interest in net asset - Dec. 31,20x1 141,600

Step 4: Consolidated retained earnings

Parent's retained earnings - Dec. 31, 20x1 1,300,000
Parent's share in the net change in subsidiary's net assets (a) 46,400
Consolidated retained earnings - Dec. 31, 20x1 1,346,400

(a) Net Change in Walk's net assets (see step 1) 58,000

Multiply by: Run's interest in Walk 80%
Run's share in the net change in Walk's net assets 46,400

Step 5: Consolidated profit or loss

Profits of Run and Walk (420K + 88K) 508,000
Depreciation of FVA (see computations above in Step 1) - 30,000
Consolidated profit 478,000

Owners of
NCI Consolidated
Parent
Parent's profit before FVA 420,000 N/A 420,000
Share in Walk's profit before FVA (a) 70,400 17,600 88,000
Depreciation of FVA (b) - 24,000 - 6,000 - 30,000
Totals 466,400 11,600 478,000

(a) (88K x 80% = 70,400) ; (88K x 20% = 17,600)

(b) (30K x 80% = 24,000) ; (30K x 20% = 6,000)
 Run Group
Consolidated Statement of Financial Position
As of December 31, 20x1
ASSETS
Cash (750K + 258K) 1,008,000
Accounts receivable (260K + 50K) 310,000
Inventory (200K + 20K + 0 FVA net (see step 1) 220,000
Investment in subsidiary (Eliminated) -
Building, net (950K + 250K + 90K FVA net (see step 1) 1,290,000
Goodwill (Step 2) 50,000
Total Assets 2,878,000

LIABILITIES AND EQUITY

Accounts payable (80K + 10K) 90,000
Total liabilities 90,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 300,000
Retained earning (Parent only - See in Step 4) 1,346,400
Owners of parent 2,646,400
Non-controlling interest (Step 3) 141,600
Total equity 2,788,000
Total Liabilities and Equity 2,878,000

Run Group
Statement of profit or loss
For the year ended December 31,20x1

Sales (800K + 200K) 1,000,000

Cost of goods sold (200K+60K+20 dep'n. of FVA - inventory) - 280,000
Gross profit 720,000
Depreciation expense (50K+50K+10K dep'n. on FVA - bldg) - 110,000
Distribution costs (130K + 2K) - 132,000
Profit for the year 478,000
Profit attributable to:
Owners of the parent (see step 5) 466,400
Non-controlling interest (see step 5) 11,600
Profit for the year 478,000
5. Solution:
Step 1: Analysis of subidiary's net assets
Axion Co.
Jan 1, 20x1 Dec 31, 20x1 Net Change
Net assets at carrying amount 290,000 310,000
Fair value adjustments (FVA) 10,000 40,000
Net assets at fair value 300,000 350,000 50,000

Net assets, Jan. 1, 20x1

(250K share capital + 40K retained earnings)

FVA at acquisition-date (Jan 1,20x1)

Carrying
Fair Value FVA
Amount
Inventory 120,000 80,000 - 40,000
Building, net 200,000 250,000 50,000
Totals 320,000 330,000 10,000

FVA at acquisition date less subsequent depreciation

FVA,
FVA, 1/1/x1 Useful life Depreciation
12/31/x1
Inventory - 40,000 N/A - 40,000 -
Equipment 50,000 5 years 10,000 40,000
Totals 10,000 - 30,000 40,000

Step 2: Computation of Goodwill

Consideration transferred 300,000
Non-controlling interest (300K x 40%) 120,000
Previouly held equity interest -
Total 420,000
Fair value of net identifiable assets acquired (see step 1) - 300,000
Goodwill 120,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value - Dec. 31,20x1 350,000
Multiply by: NCI percentage 40%
Non-contolling interest in net assets - Dec. 31,20x1 140,000

Step 4: Consolidated retained earnings

Parent's retained earnings - Dec. 31, 20x1 243,000
Parent's share in the net change in subidiary's net assets (see below) 30,000
Consolidated retained earnings - Dec. 31,20x1 273,000

Net change in Axion's net assets 50,000

Multiply by: Runs's interest in Walk 60%
Joy's share in the net change in Axion's net assets 30,000
Net change in Axion's net assets 50,000
Multiply by: Joy's interest in Axion 60%
Joy's share in the net change in Axion's net assets 30,000

Step 5: Consolidated profit or loss

Profits of Joy and Axion (63K + 20K) 83,000
Depreciation of FVA (see computations above in Step 1) 30,000
Consolidated profit 113,000

Owners of
NCI Consolidated
Parent
Parent's profit before FVA 63,000 N/A 63,000
Share in Axion's profit before FVA (a) 12,000 8,000 20,000
Depreciation of FVA (b) 18,000 12,000 30,000
Totals 93,000 20,000 113,000

(a) (20K x 60% = 12,000) ; (20K x 40% = 8,000)

(b) (-30K x 60% = 18,000) ; (-30K x 40% = 12,000)

Joy Group
Consolidated Statement of Financial Position
As of December 31,20x1
ASSETS
Cash (143K + 60K) 203,000
Inventory (440K + 160K + 0 FVA net, step 1) 600,000
Investment in subsidiary (Eliminated) -
Building, net (560K + 160K + 40K FVA net, step 1) 760,000
Goodwill (Step 2) 120,000
Total Assets 1,683,000

LIABILITIES AND EQUITY

Accounts payable (200K + 70K) 270,000
Total liabilities 270,000
Share capital (Parent only) 1,000,000
Retained earnings (Parent only, see Step 4) 273,000
Owners of parent 1,273,000
Non-controlling interest, step 3 140,000
Total equity 1,413,000
Total Liabilities and Equity 1,683,000
 Joy Group
Statement of profit or loss
For the year ended December 31,20x1

Sales (300K + 120K) 420,000

Cost of goods sold (165K+72K+40K dep'n. of FVA - inventory) - 197,000
Gross profit 223,000
Depreciation expense (40K+10K+10K dep'n. on FVA - bldg) - 60,000
Distribution costs (32K + 18K) - 50,000
Profit for the year 113,000
Profit attributable to:
Owners of the parent (see step 5) 93,000
Non-controlling interest (see step 5) 20,000
Profit for the year 113,000

6. Solution:

Step 1: Analysis of subidiary's net assets

Axion Co.
Jan 1, 20x1 Dec 31, 20x1 Net Change
Net assets at carrying amount 290,000 310,000
Fair value adjustments (FVA) 10,000 40,000
Net assets at fair value 300,000 350,000 50,000

Net assets, Jan. 1, 20x1

(250K share capital + 40K retained earnings)

FVA at acquisition-date (Jan 1,20x1)

Carrying
Fair Value FVA
Amount
Inventory 120,000 80,000 - 40,000
Building, net 200,000 250,000 50,000
Totals 320,000 330,000 10,000

FVA at acquisition date less subsequent depreciation

FVA,
FVA, 1/1/x1 Useful life Depreciation
12/31/x1
Inventory - 40,000 N/A - 40,000 -
Equipment 50,000 5 years 10,000 40,000
Totals 10,000 - 30,000 40,000
Step 2: Computation of Goodwill
Consideration transferred (equal to investment in subsidiary) 300,000
Previously held equity interest -
Total 300,000
Less: Parent's proportionate share in the net assets of the
subsidiary (300K x 40%) - 180,000
Goodwill attributable to owners of the parent 120,000
Fair value of NCI 132,000
Less: NCI's proportionate share in the net assets
of the subsidiary (300K x 40%) - 120,000
Goodwill attributable to NCI 12,000
Goodwill 132,000

Reconciliation using regular formula:

Consideration transferred 300,000
Non-controlling interest 132,000
Previouly held equity interest -
Total 432,000
Fair value of net identifiable assets acquired (see step 1) - 300,000
Goodwill 132,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value - Dec. 31,20x1 350,000
Multiply by: NCI percentage 40%
Total 140,000
Add: Goodwill attributable to NCI (Step 2) 12,000
Non-contolling interest in net assets - Dec. 31,20x1 152,000

Step 4: Consolidated retained earnings

Parent's retained earnings - Dec. 31, 20x1 243,000
Parent's share in the net change in subidiary's net assets (see below) 30,000
Consolidated retained earnings - Dec. 31,20x1 273,000

Net change in Axion's net assets 50,000

Multiply by: Joy's interest in Axion 60%
Joy's share in the net change in Axion's net assets 30,000

Step 5: Consolidated profit or loss

Profits of Joy and Axion (63K + 20K) 83,000
Depreciation of FVA (see computations above in Step 1) 30,000
Consolidated profit 113,000

Owners of
NCI Consolidated
Parent
Parent's profit before FVA 63,000 N/A 63,000
 Owners of
NCI Consolidated
Parent
Parent's profit before FVA 63,000 N/A 63,000
Share in Axion's profit before FVA (a) 12,000 8,000 20,000
Depreciation of FVA (b) 18,000 12,000 30,000
Totals 93,000 20,000 113,000

(a) (20K x 60% = 12,000) ; (20K x 40% = 8,000)

(b) (-30K x 60% = 18,000) ; (-30K x 40% = 12,000)

Joy Group
Consolidated Statement of Financial Position
As of December 31,20x1
ASSETS
Cash (143K + 60K) 203,000
Inventory (440K + 160K + 0 FVA net, step 1) 600,000
Investment in subsidiary (Eliminated) -
Building, net (560K + 160K + 40K FVA net, step 1) 760,000
Goodwill (Step 2) 132,000
Total Assets 1,695,000

LIABILITIES AND EQUITY

Accounts payable (200K + 70K) 270,000
Total liabilities 270,000
Share capital (Parent only) 1,000,000
Retained earnings (Parent only, see Step 4) 273,000
Owners of parent 1,273,000
Non-controlling interest, step 3 152,000
Total equity 1,425,000
Total Liabilities and Equity 1,695,000
Joy Group
Statement of profit or loss
For the year ended December 31,20x1

Sales (300K + 120K) 420,000

Cost of goods sold (165K+72K+40K dep'n. of FVA - inventory) - 197,000
Gross profit 223,000
Depreciation expense (40K+10K+10K dep'n. on FVA - bldg) - 60,000
Distribution costs (32K + 18K) - 50,000
Profit for the year 113,000
Profit attributable to:
Owners of the parent (see step 5) 93,000
Non-controlling interest (see step 5) 20,000
Profit for the year 113,000
PROBLEM 4: MICROSOFT EXCEL

PROBLEM 6: MULTIPLE CHOICES – COMPUTATIONAL pages183-188

1. B
2. B
3. B
4. D
5. A
6. D
7. C
8. B
9. C
10. C
11. C
12. B
13. B
14. C
15. A
16. A
17. B
18. A
19. A
20. D