Quiz 2

Chapter 2 Separate and Consolidated Financial Statements - Date of Acquisition

Chapter 3 Separate and Consolidated Financial Statements - Subsequent to Date Acquisition

Question 1

At the end of 2013, Poppilon Company’s shareholder’s equity includes ordinary share of P500,000 and share
premium of P300,000. Poppilon purchased a 70 percent interest in Shumberg Company on January 1, 2013,
when the non-controlling interest in Shumberg had a fair value of P90,000. No differential arose from the
business combination. During 2013, Shumberg reports net income of P20,000 and declares dividend of
P5,000. The 2013 consolidated statement of financial position includes retained earnings of P630,000
(controlling interest portion).

Determine the consolidated equity on December 31, 2013: P1,524,500

Question 2

Miguel Co. acquired all of the issued and outstanding shares of Gor Co. for a cash consideration of P 140,000.
Miguel and Gor’s condensed statement of financial position before acquisition show the following:

Miguel Gor

Current assets 9,240,000 4,480,000

Plant and equipment 4,480,000 2,520,000

Goodwill - 560,000

Total assets 13,720,000 7,560,000

Liabilities 5,040,000 3,360,000

Ordinary share capital 5,600,000 2,800,000

Share premium 1,680,000 840,000

Retained earnings 1,400,000 560,000

 Total equities 13,720,000 7,560,000

How should the difference between the consideration paid by Miguel and the book value of Gor’s stocks be
accounted for in the consolidation worksheet? (Show as increase (decrease) in Goodwill; Plant and
equipment; and Gain on Bargain purchase

(P 560,000); P0 ; P 3,500,000

Question 3

Control is presumed to exist when the parent company owns directly or indirectly through subsidiaries

more than 50 % of the voting power of an entity.

at least 50 % of the ordinary share of an entity

at least 50 % of the preference and ordinary shares of an entity

more than 50% of the equity of an entity

Question 4

A Co. and B Co. combined and immediately ceased to exist upon the setting up of a new corporation. This is
called:

combination

consolidation

merger

acquisition

Question 5

New Corporation, on January 1, 2012, acquired all the outstanding common shares of Old Co. by paying P
200,000 cash. On this day, the assets and liabilities of Old were as follows:
 Receivables P 30,000

Inventory 90,000

Fixed assets 160,000

Goodwill 50,000

Liabilities 60,000

Per appraisal, the inventory and fixed assets, respectively, have fair values of P 75,000 and P 190,000. How
much positive goodwill or gain on bargain purchase would be reported on the consolidated statement of
financial position?

P 15,000 positive

P0

P 35,000 gain on bargain purchase

P 55,000 positive

Question 6

X owns 50% of Y voting shares. The board of directors consists of six members. X appoints three of them and
Y appoints the other three. The casting of the vote at meetings always lies with the directors appointed by X.
Does X have control over Y?

Yes, X holds 50% of the voting power and has the casting vote at the board meetings in the event there is no
majority decision.

No, control is equally split between X and Y.

No, X owns only 50% of the entity’s shares and therefore does not have control.

No, control can be exercised only through voting power, not through vote.

Question 7
On October 1, 2012, Phoenix Co. acquired 80 % of the outstanding ordinary shares of Sacramento Co. in a
acquisition-type business combination. Total cost of investment, excluding direct out-of-pocket costs, was P
480,000. The working paper elimination entry for Phoenix and subsidiary on October 1, 2012 was as follows:

Ordinary share capital – Sacramento Co. P 100,000

Share premium – Sacramento Co. 120,000

Retained earnings – Sacramento Co. 180,000

Plant assets – Sacramento Co. 50,000

Goodwill (600,000 – 400,000 – 50,000) 150,000

Investment in Sacramento Co. P 480,000

Noncontrolling interests in net assets of Sasmuan Co. 120,000

If noncontrolling interest has been reflected at Sacramento’s shareholders’ equity on the date of acquisition,
rather than at fair value of net assets of the subsidiary, the noncontrolling interest to be presented in the
consolidated statement of financial position on October 1, 2012 would have been

P 80,000

Question 8

Entity P has 90% controlling interest in Entity S. On December 31, 2013, the carrying value of Entity S’s net
assets in Entity P’s consolidated financial statements is P100,000 and the carrying amount attributable to the
noncontrolling interest’s in Entity S (including the non-controlling interest’s share of accumulated other
comprehensive income) is P10,000. On January 1, 2014, Entity P sells 80% of the share in Entity S to a third
party for cash proceeds of P120,000. As a result of the sale, Entity P loses control of Entity S but retains a
10% non-controlling interest in Entity S. The fair value of the retained interest on that date is P12,000.

Determine the gain or loss on disposal (deconsolidation) should be:

P42,000 gain

Question 9
Which statement is incorrect concerning the preparation of consolidated financial statements?

When the reporting dates of the parent and a subsidiary are different, the differences shall be no more than
six months.

Intragroup balances, transactions, income and expenses shall be eliminated in full.

Consolidated financial statements shall be prepared using uniform accounting policies for like transactions
and other events in similar circumstances.

The financial statements of the parent and its subsidiaries shall be consolidated on a line-by-line basis by
adding together like assets, liabilities, equity, income and expenses.

Question 10

Even when more than one-half of the voting rights is not acquired, control may be evidenced by power:

I to appoint to remove the majority of the members of the board of directors

II to govern the financial and operating policies of the other enterprise under s statue or an agreement

I and II

Question 11

The underlying principle behind the preparation of consolidated financial statements of two legally distinct
companies is:

synergy

conservatism

legal entity

economic entity

Question 12

The Elko Co. acquired a 60% interest in the Piyaya Co. when Piyaya’s equity method comprised share capital
of P100,000 and retained earnings of P150,000.
Piyaya’s current statement of financial position shows share capital of P100,000, a revaluation reserve of
P75,000 and retained earnings of P300,000. Under PAS 27, Consolidated and Separate Financial Statements,
what amount in respect of the non-controlling interest should be included in Elko Co.’s consolidated statement
of financial position?

P190,000

Question 13

(Reverse Acquisition) Ortigas, a private limited company, has arranged for Concrete Aggregates Co.(CAC),
a public limited company, to acquire it as a means of obtaining a stock exchange listing. CAC issues 15
million shares to acquire the whole of the share capital of Ortigas (6 million shares). The fair value of the net
assets of Ortigas and CAC are P30 million and P18 million respectively. The fair value of each of the shares
of Ortigas is P6 and the quoted market price of CAC’s shares is P2. The share capital of CAC is 25 milliion
shares after acquisition. Calculate the value of goodwill in the above acquisition.

P6 million

Question 14

Prito Company acquires Inkalot Inc. on January 1, 2013. The consideration exceeds the fair value of Inkalot’s
net assets. On that date, Prito has a building with a book value of P1,200,000 and a fair value of P1,500,000.
Inkalot has a building with a book value of P400,000 and fair value of P500,000.

What amounts in the Building account appear on Inkalot’s separate statement of financial position and on the
consolidated statement of financial position immediately after acquisition?

Push Down Accounting No Push Down accounting

A P400,000 and P1,600,000 P500,000 and P2,000,000

B P500,000 and P1,700,000 P400,000 and P1,700,000

C P400,000 and P1,700,000 P500,000 and P1,700,000

D P500,000 and P2,000,000 P400,000 and P2,000,000

Question 15

A parent company need not present consolidated financial statements under which of the requisites?
I the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and
the other owners, including those not otherwise entitled to vote, have been informed about, and do not object
to, the parent not presenting consolidated financial statements

II the parent did not file, nor is it in the process of filing, its financial statements wit a securities
commission or other regulatory organization for the purpose of issuing any class of instruments in a public
securities market

both I and II

Question 16

Ordinarily, consolidated statements of cash flows are prepared:

using a consolidation working paper that fits the format of the statement of cash flows.

from the separate parent company and subsidiary financial statements rather than from the consolidated
income statements and consolidated balance sheets.

from the consolidated income statements and consolidated balance sheets rather than from the separate
parent company and subsidiary financial statements.

Question 17

Working paper entries normally:

are posted to the general ledger accounts only when the financial statement approach is used

are posted to the general ledger accounts only when the trial balance approach is used

do not affect the general ledger accounts of any of the affiliated companies

are posted to the general ledger accounts for one or more of the affiliated companies.

Question 18

What is the proper treatment of gain on bargain purchase?

offset with other positive goodwill accounts

debited to Share premium

credited to income immediately

credited to income but only after reassessing whether there are errors in the calculation of the valuation of
assets and liabilities

Question 19

(PAS 27) Assume there have been no intercompany transactions. Which of the following is an incorrect
statement concerning the financial statements of a parent and its 60 % owned subsidiary?

In the parent’s separate financial statements, the investment in subsidiary should be either carried at cost, or
accounted for in accordance with PAS 39.

The noncontrolling interests in net assets would not be shown on the consolidated statement of financial
position.

Net income of the parent would be the same whether or not consolidated statements were prepared.

Consolidated financial statements would include 100 % of the assets and liabilities of the subsidiary.

Question 20

Parent Co. purchased an 80 % interest in Subsidiary Co. for P 230,000 on January 1, 2012, when Subsidiary
had the following :

Assets Equities

Current assets P 100,000 Current liabilities P 50,000

Plant assets – net 200,000 Share Capital, P 10 par 100,000

Retained earnings 150,000

Total assets P 300,000 Total equities P 300,000

The applicable amortization of the excess of the price paid over the book value amounted to P 3,750.

The following trial balances of the two companies were prepared on December 31, 2012:

in Philippine Pesos

Parent Subsidiary

Current assets 80,000 130,000

Plant assets 400,000 200,000

Accu. dep’n. (106,000) (20,000)

Investment in Subsidiary Co. 230,000 -

Current liabilities ( 60,000) (40,000)

Common stock (par P 10) (300,000) (100,000)

Retained earnings, Jan. 1 (200,000) (150,000)

Sales (150,000) (100,000)

Costs and expenses 110,000 75,000

 Dividend income (4,000)

Dividends declared 5,000

Net amount 0 0

The consolidated net income attributable to parent equity holders for 2012 is:

P 57,000

Question 21

Which of the following items will be eliminated in the consolidated statements?

I Goodwill arising from the acquisition

II Investment in the subsidiary

III Inter-company receivable and payables

IV Equity accounts of the subsidiary

V Non-controlling interest in the net assets of the subsidiary

Correct!
II, III and IV

Question 22

According applicable PAS/PFRS, a subsidiary shall be excluded from consolidation when:

the Corporation Code so provides

control is intended to be temporary

its operations are different from parent activities

the shareholders are the same

Question 23

Double Co. purchased Simple Co. for P 450,000 on January 1, 2012. On that date, Simple’s identifiable net
assets had a fair value of P 390,000. The assets acquired in the purchase of Simple are considered to be a
separate reporting unit of Double. The carrying value of Double’s investment at December 31, 2012 is P
500,000.

What amount of goodwill impairment, if any, should be recognized at December 31, 2012, if the value of the
net assets (excluding goodwill) at that date is P 440,000 and the fair value of the reporting unit is determined
to be P 485,000?

P 15,000

Question 24

PAS 27, on Consolidated Financial Statements states that “… consolidated statements are more meaningful
than separate financial statements and are usually necessary for a fair presentation when one of the
companies in the group directly or indirectly has a:

Correct!
controlling financial interest in the other companies

significant influence in the other companies

controlling technical interest in the other companies

Question 25

. In the separate balance sheets of the affiliates, which of the following would ordinarily be shown?

gain on bargain purchase

goodwill

investment in subsidiary

noncontrolling interest in net assets of a subsidiary

Question 26

On January 1, 2013, Willingwili Corporation pays P388,000 for a 60% ownership in Kapatid Corporation.
Annual excess fair value amortization of P15,000 results from the acquisition. On December 31, 2014,
Kapatid reports revenues of P400,000 and expenses of P300,000 and Willingwili reports revenues of
P700,000 and expenses of P400,000. The parent figures contain no income from the subsidiary. What is the
consolidated income attributable to the controlling interest/ profit attributable to equity holders of parent?

Correct!
P351,000

Question 27

In the consolidated statement of financial position, which of the following would most likely be presented?

investment in subsidiary account

goodwill

inter-company receivable

inter-company payable

Question 28

On January 1, 2013, Head Inc, reports net assets of P480,000 although a building (with a 10 year life) having
a book value of P260,000 is now worth P300,000. Band Corporation pays P540,000 on that date for a 90
percent ownership interest in Head. On December 31, 2015, Head reports a Building account of P182,000
and Band reports a Building account of P510,000. What is the consolidated balance of the Building account?

P810,000

P780,000

P720,000

P724,000

Question 29
Which of the following is not a valid condition that will exempt an entity from preparing consolidated financial
statements?

The parent entity is a wholly owned subsidiary of another entity.

The ultimate parent entity produces consolidated financial statements available for public use that comply with
PFRS.

The parent entity’s debt or equity capital is not traded in the stock exchange.

The parent entity is in the process of filing its financial statements with a securities commission for the
purpose of issuing any class of instruments in a public market.

Question 30

(PAS 27) A parent company need not present consolidated financial statements under which of the requisites?

I the parent’s debt or equity instruments are not traded in a public securities market

II the parent’s operations is compatible with the operations of the subsidiary

III the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and
the other owners, including those not otherwise entitled to vote, have been informed about, and do not object
to, the parent not presenting consolidated financial statements

I and III

Question 31

PAS 27 Par 4, As defined by accounting standards, control is the power to govern the
___________________ of an enterprise so as to obtain benefits from its activities.

I financial policies II operating policies III managerial policies

I and II
Question 32

Consolidated financial statements are typically prepared when a company has:

accounted for its investment in another company by the cost method

accounted for its investment in another company by the equity method

significant influence over the operating and financial policies of another company

the controlling financial interest in another company

Question 33

PAS 27, Par 10, A parent company need not present consolidated financial statements under which of the
requisites?

I the parent’s debt or equity instruments are not traded in a public securities market

II the parent’s operations is compatible with the operations of the subsidiary

III the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and
the other owners, including those not otherwise entitled to vote, have been informed about, and do not object
to, the parent not presenting consolidated financial statements

Question 34

A parent company need not present consolidated financial statements under which of the requisites?

I the parent’s debt or equity instruments are not traded in a public securities market

II the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and the
other owners, including those not otherwise entitled to vote, have been informed about, and do not object to,
the parent not presenting consolidated financial statements

III. the ultimate or any intermediate parent of the parent produces consolidated financial statements available
for use that comply with PFRS
Question 35

When push-down accounting has been implemented:

The issuer and the combiner’s equity sections are merged.

Subsidiary records have been adjusted to reflect the market value increases resulting from the purchase by a
parent company.

Any debt incurred by the parent in acquiring the subsidiary is recorded at its market value by the subsidiary.

The non-controlling interest in the subsidiary is shown on its own line in the equity section of the subsidiary
only statement of financial position.

Question 36

Noncontrolling interest in the net assets of a subsidiary should be presented

in the consolidated statement of financial position within equity

between liabilities and equity

in the separate balance of the parent within equity

as a liability

Question 37

On January 1, 2013, Potter Inc. reports net assets of P880,000 although a patent (with a 10 year life) having a
book value of P330,000 is now worth P400,000. Solum Corporation pays P840,000 on that date for an 80
percent ownership of Solum. On December 31, 2014, Potter reports total expenses of P621,000 while Solum
reports expenses of P714,000. What is the consolidated total expense balance on December 31, 2014?You
Answered

P1,349,000

P1,197,800

P1,342,000

P1,335,000
Question 38

On January 1, 2012, Pie Co. pays P 64,000 cash and also issues 18,000 shares of P 10 par common stock
with a market value of P 216,000 for all the outstanding shares of Cutie Co. In addition, Pie pays P 30,000 for
registering and issuing the equity shares and P 70,000 for the other direct costs of the acquisition.

Summary balance sheet information for the companies immediately before the transaction is as follows:

Pie Cutie Cutie

Book Value Book Value Fair value

Cash 350,000 40,000 40,000

Inventories 120,000 80,000 100,000

Other noncurrent assets 30,000 20,000 20,000

Plant assets – net 260,000 180,000 280,000

Total assets 760,000 320,000 440,000

Current liabilities 160,000 30,000 30,000

Other liabilities 80,000 50,000 40,000

Common stock P 10 par 420,000 200,000

 Retained earnings 100,000 40,000

Total equities 760,000 320,000

===============================================

1. On January 1, 2012, the Share premium amounted to:

(a) P 6,000 (b) P 30,000 (c) P 36,000 (d) P 100,000

2. How much is the Goodwill or gain on bargain purchase?

(a) P 0 (c) P 90,000 Goodwill

(b) P 90,000 Gain on bargain purchase (d) P 80,000 Gain on bargain purchase

Question 39

On January 1, 2013, Parentis Company purchased 80%, of the ordinary shares of Sonsona Company for
P316,000. On this date, Sonsona Company had ordinary share, share premium and retained earnings of
P40,000, P120,000 and P190,000 respectively. Parentis Company’s ordinary share amounted to P500,000
and retained earnings of P200,000.

On January 1, 2013, the only tangible assets of Sonsona that were undervalued were inventory and building.
Inventory, for which FIFO is used, was worth P5,000 more than cost. The inventory was sold in 2013. Building,
which was worth P15,000 more than book value, has remaining life of 8 years, and straight-line depreciation
is used. Any remaining excess is full goodwill with an impairment for 2013 amounting to P3,000. Sonsona
Company reported net income of P50,000 and paid dividends of P10,000 in 2013 while the parent’s reported
net income amounted to P100,000 and paid dividends of P20,000.
1. Determine the consolidated net income attributable to controlling interest/ profit attributable to equity
holders of parent:

A. P142,000

B. P132,125

C. P126,500

D. P124,100

2. Compute the equity holders of Parentis – Retained earnings / Controlling interest in the Consolidated
Retained Earnings

A. P200,000

B. P324,100

C. P304,100

D. P342,125

Question 40

On October 1, 2013, separate statements of Goldie Co. and Bata Co. appear below:

Goldie Bata

Cash 59,700 7,500

Accounts receivable 136,000 23,900

 Inventories 57,300 9,250

Plant and equipment 286,300 13,600

Total assets 539,300 54,250

Liabilities 123,800 11,900

Share Capital 100,000 10,000

Share premium 25,000 -

Retained earnings 290,500 32,350

Total equities 539,300 54,250

Goldie acquired an 80 % interest in Bata Co. On the acquisition date, October 1, 2013, the fair values of
Bata’s assets were properly reflected in its accounts. P 40,000 was paid for this acquisition. The transaction
was treated as a purchase. Goldie recognized the non-controlling interest in Bata Co. at its
proportionate share of Bata’s identifiable net assets.

1. In the preparation of a consolidated statement of financial position, the elimination entry as to goodwill in
the consolidated working paper will be:
A. a credit to the investment account by P6,120

B. a credit to the investment account by P7,670

C. a debit to the investment account by P3,178

D. a credit to the plant and equipment account by P6,120

2. The working paper elimination entry pertaining to capital stocks and retained earnings of the subsidiary
company is

(a) Share Capital – Bata 10,000

Retained earnings – Bata 32,350

Investment in Bata 33,880

Non-controlling interest in net assets of subsidiary 8,470

(b) Share Capital – Bata 10,000

Retained earnings – Bata 32,350

Investment in Bata 42,350

(c) Share Capital – Bata 10,000

Retained earnings – Bata 32,350

 Goodwill 5,300

Investment in Bata 40,000

Non-controlling interest in net assets of subsidiary 7,650

d. Share Capital – Bata 100,000

Retained earnings – Bata 290,500

Goodwill 7,650

Investment in Bata 40,000

Unamortized excess 358,150

3. The non-controlling interest in the consolidated statement of financial position will be:

a. P8,470

b. P5,300

c. P7,650

d. P10,850

e. P6,470

Question 41
The statement of financial position of P Co. and S Co., affiliates, on the date of acquisition are as follows:

P Co. S Co.

Cash P 20,000 P 8,000

Accounts receivable 40,000 32,000

Inventory 50,000 20,000

Building – net 200,000 100,000

Equipment – net 80,000 50,000

Investment in S Co. 110,000

Total assets P 500,000 P 210,000

Accounts payable P 280,000 P 110,000

Ordinary share capital:

P Co. 100,000

S Co. 50,000

Share premium:
 P Co. 80,000

S Co. 30,000

Retained earnings:

P Co. 40,000

S Co. 20,000

Total equities P 500,000 P 210,000

P Co. acquired 100 % of the voting stocks of S Co. for P 110,000 cash on December 31, 2012.

1. The necessary elimination entry should be

(a) Ordinary share capital – S Co. P 50,000

Share premium – S Co. 30,000

Retained earnings – S Co. 20,000

Investment in S Co. P 100,000

(b) Ordinary share capital – S Co. P 50,000

Share premium – S Co. 30,000

 Retained earnings – S Co. 20,000

Goodwill 10,000

Investment in S Co. P 110,000

(c) Ordinary share capital – S Co. P 50,000

Share premium – S Co. 30,000

Retained earnings – S Co. 20,000

Goodwill 10,000

Cash P 110,000

(d) no entry

2. In the consolidated statement of financial position as of December 31, 2012, how much would be shown as
total assets?

(a) P 710,000

(b) P 500,000

(c) P 510,000

(d) P 610,000
3. In the statement of financial position of the parent as of December 31, 2012, how much would be shown as
Investment in S Co.?

(a) P 110,000 (b) P 100,000 (c) P 120,000 (d) P 0

Question 42

On January 3, 2013, Montiel Company acquired 80 percent of Donaire Corporation’s ordinary share for
P344,000 in cash. At the acquisition date, the book values and fair values of Donaire’s assets and liabilities
were equal, and the fair value of the non controlling interest was equal to 20% of the total book value of
Donaire. The shareholders’ equity accounts of the two companies at the acquisition date
are: Montiel Donaire

Ordinary share, P 5 par value P 500,000 P 200,000

Share premium 300,000 80,000

Retained earnings 350,000 150,000

Total Shareholder’s Equity P1,150,000 P430,000

Non-controlling interest was assigned income of P11,000 in Montiel’s consolidated income statement for 2013.

1. What will be the amount of net income reported by Donaire Corporation in 2013?

a. P44,000

b. P55,000

c. P66,000

d. P36,000

2. What amount will be assigned to the non-controlling interest on January 3, 2013 in the consolidated
statement of financial position?
a. P86,000

b. P44,000

c. P68,800

d. P50,000

3. What will be the total stockholders’ equity in the consolidated statement of financial position as of January 3,
2013?

a. P1,580,000

b. P1,064,000

c. P1,150,000

d. P1,236,000

Question 43

Wilkins, Inc acquires all of the outstanding stock of Premier Corp on January 1, 2013. At that date, Premier
owns only three assets and has no liabilities:

Book Value Fair Value

Inventory P 40,000 P 50,000

Equipment (10 year life) 80,000 75,000

Building (20 year life) 200,000 300,000

1. If Wilkins pays P450,000 in cash for Premier, what amount would be represented as the subsidiary’s
Building in a consolidation at December 31, 2015, assuming the book value at that date is still P200,000?

A. P200,000

B. P255,000

C. P285,000

D. P300,000

2. If Wilkins pays P400,000 in cash for Premier, what amount would be represented as the subsidiary’s
Building in a consolidation at December 31, 2015, assuming the book value at that date is still P200,000.

A. P200,000

B. P255,000

C. P285,000

D. P300,000

3. If Wilkins pays P450,000 in cash for Premier, what amount would be represented as the subsidiary’s
Equipment in a consolidation at December 31, 2015, assuming the book value at that date is still P80,000.

A. P70,000

B. P73,500

C. P76,500

D. P80,000
4. If Wilkins pays P450,000 in cash for Premier, what allocation should be assigned as the subsidiary’s
Equipment in a consolidation at December 31, 2015, assuming the book value at that date is still P80,000.

A. P3,500

B. P5,000

C. P75,000

D. P80,000

Question 44

Maglaya Company acquired 90 percent of Hangganan Company on January 1, 2013, for P234,000 cash.
Hangganan’s shareholders’ equity consisted of ordinary share capital of P160,000 and retained earnings of
P80,000. An analysis of Hangganan’s net assets revealed the following:

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life
of 5 years.

Book value Fair value

Building (10 year life) P10,000 P 8,000

Equipment (4 year life) 14,000 18,000

Land 5,000 12,000

1. In consolidation at January 1, 2013, what adjustment is necessary for Hangganan’s Building account?

A. P2,000 increase C. P1,800 increase

B. P2,000 decrease D. P1,800 decrease

2. In consolidation at December 31, 2013, what adjustment is necessary for Hangganan’s Buildings account?

A. P1,620 increase C. P1,800 increase

B. P1,620 decrease D. P1,800 decrease

3. In consolidation at January 1, 2013, what adjustment is necessary for Hangganan’s Land account?

A. P7,000 increase C. P6,300 increase

B. P7,000 decrease D. P6,300 decrease

4. In consolidation at December 31, 2013, what adjustment is necessary for Hangganan’s Land account?

A. P0

B. P7,000 decrease

C. P7,000 increase

D. P6,300 decrease

Question 45

Bola Company acquires 80% of Dumaghoy Company for P500,000 on January 1, 2013. Dumaghoy reported
ordinary share of P300,000 and retained earnings of P200,000 on that date. Equipment was undervalued by
P30,000 and buildings were undervalued by P40,000, each having a 10 year remaining life. Any excess
consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on the an
annual review of goodwill has not been impaired.

Dumaghoy earn income and pays dividends as follows:

2013 2014 2015

 Net income P 100,000 P 120,000 P 130,000

Dividends 40,000 50,000 60,000

Assume the initial value method (or cost method) as applied.

1. Compute Bola’s investment in Dumaghoy at December 31, 2013:

A. P500,000 B. P542,400 C. P574,400 D. P625,000

2. Compute Bola’s investment in Dumaghoy at December 31, 2015:

A. P676,000 B. P625,000 C. P592,400 D. P500,000

3. How much does Bola report as Income from Dumaghoy/ Dividend income for the year ended December 31,
2015?

A. P48,000 B. P50,400 C. P56,000 D. P98,400

4. Compute the non-controlling interest in the net income of Dumaghoy at December 31, 2014

A. P14,000 B. P18,400 C. P22,600 D. P24,000

5. Compute the non-controlling interest of Dumahoy using full-goodwill method at December 31, 2015:

A. P80,000 B. P107,800 C. P140,000 D. P160,800

Question 46

On January 1, 2012, Parent Co. acquired 90 % of Subsidiary Co. in exchange for 5,400 shares of P 10 par
ordinary share having a market value of P 120,600. Parent and Subsidiary condensed statement of financial
position (before combination) were as follows:

(in Philippine Pesos)

 Parent Subsidiary

Assets

Cash 30,900 37,400

Accounts receivable-net 34,200 9,100

Inventories 22,900 16,100

Equipment – net 179,000 40,000

Patents - 10,000

Total assets 267,000 112,600

Equities

Accounts payable 4,000 6,600

Bonds payable, 10 % 100,000 -

Share Capital, P 10 par 100,000 50,000

Share premium 15,000 15,000

Retained earnings 48,000 41,000

Total equities 267,000 112,600

At the date of acquisition, all assets and liabilities of Subsidiary have book value approximately equal to their
respective market values except the following as determined by appraisal as follows:
 Inventories (FIFO method) 17,100

Equipment (net – remaining life – 4 years) 48,000

Patents (remaining life 10 years) 13,000

1. How much is the amount of goodwill on January 1, 2012?

(a) P 12,000 (b) P 16,000 (c) P 14,400 (d) P 25,200

2. How much is the non-controlling interest in the subsidiary at fair values on January 1, 2012?

(a) P 10,600 (b) P 11,200 (c) P 11,800 (d) P 13,400

3. In addition, assuming that on December 31, 2012, the following results of operations were given:

Dividends paid Net income

Parent Co. P 15,000 P 30,200

Subsidiary Co. 4,000 9,400

Assume also that the entity prepares separate financial statements is using the cost method. How
much is the investment in subsidiary co. balance on December 31, 2012?

(a) P 0 (b) P 120,600 (c) P 122,160 (d) P 125,460

4. Compute the consolidated retained earnings on January 1, 2012.

(a) P 41,000 (b) P 48,000 (c) P 60,600 (d) P 89,000

5. Compute the net income attributable to non-controlling interest on December 31, 2012.

(a) P 940 (b) P 540 (c) P 610 (d) P 310

6. Compute the non-controlling interest at the end of 2012.

(a) P 13,940 (b) P 13,610 (c) P 12,010 (d) P 14,710

7. Compute the consolidated net income attributable to parent equity holders for 2012.

(a) P 26,600 (b) P 31,760 (c) P 32,090 (d) P 39,390 (e) 44,100

8. Compute the consolidated retained earnings on December 31, 2012.

(a) P 63,200 (b) P 74,990 (c) P 65,090 (d) P 68,600

9. Compute the consolidated shareholders’ equity on December 31, 2012.

(a) P 300,690 (b) P 314,300 (c) P 312,700 (d) P 317,410