CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN

CONSOLIDATION SIBSEQUENT TO THE DATE OF ACQUISITION

Part I - Theory of Accounts

1. Statement 1: An investor, regardless of the nature of its involvement with an entity (the
investee), shall determine whether it is a parent by assessing whether it controls the investee.

Statement 2: An investor controls the investee when it is exposed or has rights to variable
returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee.
A. Both statements are TRUE
B. Both statement are FALSE
C. Statement 1 is TRUE and statement 2 is FALSE
D. Statement 1 is FALSE and statement 2 is TRUE

2. Statement 1: An investor that is an agent controls an investee when it exercises decision-

making rights delegated to it.

Statement 2: A parent shall prepare consolidated financial statements using uniform

accounting policies for like transactions and other events in similar circumstances.
A. Both statements are TRUE
B. Both statement are FALSE
C. Statement 1 is TRUE and statement 2 is FALSE
D. Statement 1 is FALSE and statement 2 is TRUE

3. Statement 1: A parent shall present non-controlling interests in the consolidated statement of

financial position within equity, combined with the equity of the owners of the parent.

Statement 2: An entity that controls one or more entities is called a subsidiary.

A. Both statements are TRUE
B. Both statement are FALSE
C. Statement 1 is TRUE and statement 2 is FALSE
D. Statement 1 is FALSE and statement 2 is TRUE

4. Which of the following will affect both the consolidated net income attributable to
controlling interest and non-controlling interest net income?
A. Amortization of excess of fair value over book value of a depreciable asset
B. Impairment loss and it is partial goodwill
C. Intercompany dividends
D. Gain on acquisition

5. Which of the following will increase the consolidated net income attributable to controlling
interest?
A. Amortization of excess of fair value over book value of a depreciable asset
B. Impairment loss and the non-controlling interest is measured at fair value
C. Intercompany dividends
D. Amortization of excess of book value over fair value of an inventory

9217
 Page 2
Part II: Problem Solving

PROBLEM 1
On January 1, 2023, Entity A acquired 70% of the outstanding shares of stocks of Entity B for
P1,500,000. The book value of the net assets of Entity A at the date of acquisition was
P3,000,000 of which the retained earnings amounted to P1,800,000. On the other hand, the book
value of the net assets of Entity B at the date of acquisition was P2,790,000. The non-controlling
interest is measured at the minimum.

The book value of the assets and liabilities of Entity B equal the fair values except: an inventory
which had an excess of fair over book value in the amount of P60,000; an equipment which had
an excess of book over fair value in the amount of P80,000

30% of the above inventory was sold in the current year and the rest was sold in 2024. The
equipment had a remaining life of 2 years. The following data were also ascertained:

2023 2024
Net income Entity A P500,000 P600,000
Net income Entity B P319,500 P279,500
Dividend declared Entity A P110,000 P150,000
Dividend declared Entity B P70,000 P60,000

1. What is the consolidated net income attributable to Entity A on December 31, 2023?
A. 1,143,050
B. 1,098,250
C. 1,129,050
D. 1,092,500

2. What is the non-controlling interest net income on December 31, 2023?

A. 96,000
B. 102,450
C. 89,550
D. 102,750

3. What is the non-controlling interest net asset on December 31, 2023?

A. 918,450
B. 912,450
C. 933,450
D. 912,750

4. What is the consolidated retained earnings on December 31, 2023?

A. 2,819,050
B. 2,833,050
C. 2,782,500
D. 2,788,250

5. What is the non-controlling interest net asset on December 31, 2024?

A. 983,700
B. 978,450
C. 979,200
D. 977,700

6. What is the consolidated retained earnings on December 31, 2024?

A. 3,421,300
B. 3,860,300
C. 3,424,800
D. 3,463,300

9217
 Page 3

PROBLEM 2

On January 1, 2023, Entity A acquired 60% of the outstanding shares of stocks of Entity B for
P3,000,000. The book value of the net assets of Entity A at the date of acquisition consisted of
Ordinary shares in the amount of P1,000,000; Additional paid in capital in the amount of
P2,500,000; retained earnings in the amount of P2,400,000. On the other hand, the book value of
the net assets of Entity B at the date of acquisition was P2,200,000 including a goodwill in the
amount of P250,000. The non-controlling interest is measured at fair value in the amount of
P1,300,000.

The book value of the assets and liabilities of Entity B equal the fair values except: an inventory
which was overstated in the amount of P45,000 and a machine which was understated by
P200,000.

The machine had a remaining life of 8 years. If the result of the business combination was
goodwill, it was impaired in the amount of P75,000 in the current year. The net income of Entity
A was P700,000 and the net income of Entity B was P430,000 at the end of the year. Dividends
declared by Entity A was P220,000, but only P200,000 was paid. On the other hand, dividends
declared by Entity B was P130,000, but only P100,000 was paid.

1. What is the consolidated net income attributable to Entity A on December 31, 2023?
A. 832,649
B. 808,649
C. 847,000
D. 910,649

2. What is the non-controlling interest net income on December 31, 2023?

A. 150,000
B. 148,351
C. 164,351
D. 134,000

3. What is the non-controlling interest net asset on December 31, 2023?

A. 1,398,000
B. 1,464,351
C. 1,395,351
D. 1,412,351

4. What is the consolidated retained earnings on December 31, 2023?

A. 3,027,000
B. 3,012,649
C. 3,032,649
D. 2,988,649

END

9217