UNIVERSITY OF CALOOCAN CITY

BACHELOR OF SCIENCE IN ACCOUNTANCY

Name: Date:
Year & Section:

Consolidation Subsequent to Acquisition Date

Problem No. 1
On January 1, 2022, 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 P2,800,000. 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; and a note payable bearing an interest of 5% which was understated by P10,000.

30% of the above inventory was sold in the current year and the rest was sold in 2023. The equipment had a
remaining life of 2 years. The note payable was issued on January 1, 2020 and it had a remaining term of 5
years. The following data were also ascertained:

2022 2023
Net income Entity A P500,000 P600,000
Net income Entity B P320,000 P280,000
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, 2022?
a. 1,143,050 c. 1,129,050
b. 1,098,250 d. 1,092,500

2. What is the non-controlling interest net income on December 31, 2022?

a. 96,000 c. 89,550
b. 102,450 d. 102,750

3. What is the non-controlling interest net asset on December 31, 2022?

a. 918,450 c. 933,450
b. 912,450 d. 912,750

4. What is the consolidated retained earnings on December 31, 2022?

a. 2,819,050 c. 2,782,500
b. 2,833,050 d. 2,788,250

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

a. 983,700 c. 979,200
b. 978,450 d. 977,700
6. What is the consolidated retained earnings on December 31, 2023?
a. 3,421,300 c. 3,424,800
b. 3,860,300 d. 3,463,300

Problem No. 2

On January 1, 2022, 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, 2022?
a. 832,649 c. 847,000
b. 808,649 d. 910,649

2. What is the non-controlling interest net income on December 31, 2022?

a. 150,000 c. 164,351
b. 148,351 d. 134,000

3. What is the non-controlling interest net asset on December 31, 2022?

a. 1,398,000 c. 1,395,351
b. 1,464,351 d. 1,412,351

4. What is the consolidated retained earnings on December 31, 2022?

a. 3,027,000 c. 3,032,649
b. 3,012,649 d. 2,988,649

Intercompany Transactions

Problem No. 3

On January 1, 2020, Entity QRS acquired 60% of outstanding ordinary shares of Entity LMN at a gain from a
bargain purchase of P320,000. For the year ended December 31, 2021, Entity QRS and Entity LMN reported
sales revenue of P16,000,000 and P8,000,000 in their respective separate Statement of Comprehensive
Income. In the same year, Entity QRS and Entity LMN reported the cost of goods sold of P9,600,000 and
P5,600,000 in their respective separate Statement of Comprehensive Income.

During 2020, there was a downstream sale of merchandise on account at a selling price of P2,240,000 with a
gross profit rate of 40% based on cost. On the other hand, there was an upstream sale of merchandise on
account at a selling price of P3,200,000 with a gross profit rate of 30% based on sales during 2021. On
December 31, 2020, 25% of the goods coming from the selling affiliate remained in the buying affiliate’s
inventory but all were eventually sold to third persons during 2021. As of December 31, 2021, 40% of the
goods coming from Entity LMN were sold to third persons.

For the year ended December 31, 2021, the acquirer reported net income of P4,480,000 while the acquired
company reported net income of P1,600,000 and distributed dividends of P400,000. Entity QRS accounted for
its investment in Entity LMN using cost method in its separate financial statements.

1. Compute the consolidated sales revenue for the year ended December 31, 2021?
a. 20,800,000 c. 18,560,000
b. 21,760,000 d. 24,000,000

2. Compute the consolidated gross profit for the year ended December 31, 2021?
a. 8,960,000 c. 8,384,000
b. 9,216,000 d. 8,224,000

3. Compute the non-controlling interest in net income for the year ended December 31, 2021?
a. 806,400 c. 473,600
b. 704,000 d. 409,600

4. Compute the consolidated net income attributable to parent’s shareholders for the year ended December
31, 2021?
a. 4,854,400 c. 5,014,400
b. 6,134,400 d. 4,774,400

Problem No. 4

JKL Corporation owns 75% of the outstanding stocks of TUV Company when the book values are equal to fair
values, thus no goodwill, no excess at the date of acquisition.

Selected information from separate accounts of both entities for 2020 and 2021 follow:

JKL Corporation TUV Company

2020 2021 2020 2021
Sales P 800,000 P 900,000 P 400,000 P 500,000
Cost of goods sold 480,000 540,000 248,000 310,000
Operating expenses 80,000 90,000 40,000 45,000
Ending Inventories 120,000 180,000 80,000 100,000

• In 2020, TUV Company sold merchandise to JKL Corp. for P50,000 at a profit of P16,000. 30% of these
merchandise remained at the account balance of JKL Corp. at the end of 2020. In the same year, JKL Corp.
sold its own merchandise costing P50,000 to TUV Comp. at a gross profit of 20%. P15,000 at cost remained
in the ending inventories of TUV Comp. at the end of 2020.

• In 2021, TUV Comp. sold merchandise again to JKL Corp. for P60,000 at a profit of P19,200. P20,000 of
these merchandise at billed price remained in the inventory balance of JKL Corp. at the end of 2021. At the
same time, JKL Corp. sold merchandise for P85,000 to TUV Comp. at a gross profit of 15%. P15,000 worth
of merchandise at billed price remained in the ending inventories of TUV Comp. at the end of 2021.

• There were no dividends declared, or revenues recorded by JKL nor TUV Co. during 2020-2021
1. Consolidated cost of goods sold in 2021?
a. 704,900 c. 624,050
b. 463,450 d. 705,100

2. Consolidated net income in 2021?

a. 414,900 c. 316,500
b. 343,450 d. 379,050

3. Non-controlling interest in the net income of TUV Comp in 2020?

a. 22,400 c. 35,850
b. 26,800 d. 29,000

4. Consolidated ending inventories in 2020?

a. 200,000 c. 280,000
b. 191,450 d. 271,350

Problem No. 5

On January 1, 2021, PJE Incorporated purchased 60% of the outstanding voting shares of Butterfly Corporation
for P11,000,000. The shareholders’ equity of Butterfly Corporation on the date of business combination was
composed of P12,000,000 share capital, P1,000,000 share premium, and P3,000,000 retained earnings. The
fair value of the non-controlling interest on this day is P7,000,000. An examination of Butterfly’s net assets
revealed that book values were equal to their fair values except for inventory which was overstated by P500,000
and machinery which was understated by P1,000,000.

The inventories of the subsidiary on the date of acquisition were all sold by the end of the calendar year 2021,
while the machinery has an estimated remaining useful life of 5 years from the date of business combination.
Goodwill arising from business combination was impaired by P150,000 at the end of 2021.

On July 1, 2021, PJE Incorporated sold its machinery to Butterfly Corporation for P5,000,000 when it had a
carrying value of P3,000,000. The machinery has an estimated remaining useful life of 4 years from the date of
intercompany sale. On September 1, 2021, Butterfly Corporation sold a portion of its land with carrying value of
P2,000,000 to PJE Inc for a loss of P1,000,000.

No dividends were declared by the affiliates for 2021. The separate financial statements of PJE Inc. and Butterfly
Corp on December 31, 2021 are as follows:
PJE Incorporated Butterfly Corporation
Cash 10,000,000 1,000,000
Receivables 1,500,000 2,000,000
Investment in subsidiary 11,000,000
Inventory 5,500,000 3,000,000
Machinery 14,000,000 5,000,000
Land 20,000,000 10,000,000
Building 20,000,000 7,000,000
TOTAL 82,000,000 28,000,000
Liabilities 44,000,000 10,000,000
Share capital 21,000,000 12,000,000
Share premium 5,000,000 1,000,000
Retained earnings 12,000,000 5,000,000
TOTAL 82,000,000 28,000,000
 PJE Incorporated Butterfly Corporation
Sales revenue 12,000,000 5,000,000
(Cost of goods sold) (3,000,000) (1,000,000)
Gross profit 9,000,000 4,000,000
(Depreciation expense) (4,000,000) (600,000)
(Other expenses) (1,000,000) (400,000)
Gain/loss on sale of machinery 2,000,000 -
Gain/loss on sale of land - (1,000,000)
Net income 6,000,000 2,000,000

1. How much is the consolidated net income for the year ended December 31, 2021?
a. 6,120,000 c. 7,400,000
b. 6,370,000 d. 7,650,000

2. How much is the carrying value of machinery in the consolidated statement of financial position as of
December 31, 2021?
a. 17,060,000 c. 18,300,000
b. 18,050,000 d. 19,800,000

3. How much is the consolidated depreciation expense for the year ended December 31, 2021?
a. 4,550,000 c. 4,650,000
b. 4,600,000 d. 4,800,000

Problem No. 6

The separate statements of profits and losses of YDH Incorporated and its 80% owned subsidiary Potato
Corporation for the year ended December 31, 2021 are as follows:

YDH Incorporated Potato Corporation

2021 2022 2021 2022
Sales revenue 6,500,000 7,000,000 4,000,000 5,000,000
(Cost of goods sold) (3,200,000) (3,600,000) (1,000,000) (1,200,000)
Gross profit 3,300,000 3,400,000 3,000,000 3,800,000
(Depreciation expense) (1,000,000) (1,200,000) (900,000) (1,100,000)
(Other expenses) (100,000) (200,000) (50,000) (150,000)
Gain/loss on sale of land 300,000 - - -
Gain/loss on sale of equipment (400,000) - - -
Net income 2,100,000 2,000,000 2,050,000 2,550,000

During the previous year, Potato Corp sold a piece of land with carrying value of P5,000,000 to YDH Inc for
P5,200,000 cash. This exact piece of land was sold by YDH Inc to Nabi Enterprises for P5,500,000 on August
1, 2021.

On April 1, 2021, YDH Inc sold a set of equipment with carrying value of P3,400,000 to Potato Corp for
P3,000,000 cash. At the time of intercompany sale, the remaining useful life of the set of equipment was 4 years.

1. How much is the depreciation expense to be presented in the consolidated statement of profits and losses
for the year ended December 31, 2021?
a. 1,975,000 c. 1,575,000
b. 1,900,000 d. 1,375,000
2. How much is the consolidated net income attributable to controlling interest for the year ended December
31, 2022?
a. 3,980,000 c. 3,960,000
b. 3,965,000 d. 3,940,000

3. Assuming that the equipment in the downstream transaction was sold by Potato Corp to a third party on
January 1, 2022 at book value, how much is the gain or loss on sale of equipment to be presented in the
consolidated statement of profits and losses for the year 2022?
a. (400,000) c. (225,000)
b. (325,000) d. 0