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Chapter 15

Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)]
Cash
Common Stock
Paid in capital in excess of par (P40 - P2) 15,000

3,100,000

Paid in capital in excess of par


Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable

30,000
67,000

2,500,000
30,000
570,000

90,000
7,000

Problem II
Cash consideration transferred
Contingent performance obligation
Fair value of Subsidiary
Less: Book value of SS Company (P90,000 + P100,000)
Allocated excess
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100%
Increase in customer list: P22,000 x 100%
Increase in R&D: P30,000 x 100%
Goodwill

P 300,000
__15,000
P 315,000
190,000
P125,000
P 40,000
22,000
30,000

Investment in SS Company
Cash
Estimated Liability on Contingent Consideration
Acquisition Expense
Cash

__92,000
P 33,000

315,000

10,000

300,000
15,000
10,000

Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4
be:
Receivables
Inventory
Buildings
Equipment
Customer list
Capitalized R&D
Goodwill
Current liabilities
Long-term liabilities
Investment in SS Company
Problem III
1.
A.
Investment in Sewell
675,000
Cash
B.
Investment in Sewell
675,000
Cash
C.
Investment in Sewell
318,000
Cash
2.
A.
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%

80,000
70,000
115,000
25,000
22,000
30,000
33,000

would

10,000
50,000
315,000

675,000
675,000
318,000

P675,000
705,000
P( 30,000)
(P10,000)
__20,000

__10,000

Bargain Purchase Gain full


B.

C.

(P 40,000)

Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 90%
Land (P50,000 P70,000) x 90%
Goodwill partial
Full-Goodwill
Fair value of Subsidiary:
Consideration transferred (P675,000/90%)
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Goodwill full
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 80%
Land (P50,000 P70,000) x 80%
Bargain Purchase Gain partial (parent only)

P675,000
634,500
P 40,500
(P9,000)
__18,000

P750,000
705,000
P 45,000
(P10,000)
__20,000

3.

A.

B.

Common Stock Sewell


Paid in capital in excess of par Sewell
Retained Earnings Sewell
Land
Inventory
Investment in Sewell
Retained earnings (gain) Parent (since
balance sheet accounts are being
examined)
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
Paid in capital in excess of par Sewell

450,000
180,000
75,000
20,000

__10,000
P 35,000

P318,000
624,000
(P306,000)
(P 8,000)
__16,000

Full-Goodwill
Fair value of Subsidiary:
Consideration transferred
FV of NCI*
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI

__9,000
P 31,500

__8,000
(P314,000)

P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
__20,000
P780,000
10,000
P790,000
20%
P158,000

_10,000
(P314,000)

10,000
675,000
40,000

450,000
180,000

C.

Retained Earnings Sewell


75,000
Land
20,000
Goodwill
31,500
Inventory
Investment in Sewell
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
450,000
Paid in capital in excess of par Sewell
180,000
Retained Earnings Sewell
75,000
Land
20,000
Goodwill
35,000
Inventory
Investment in Sewell
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
NCI on Full-Goodwill
(P35,000 P31,500)
3,500
FV of NCI (full)
P 75,000
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
620,000
Paid in capital in excess of par Sewell
140,000
Retained Earnings Sewell
20,000
Land
20,000
Inventory
Investment in Sewell
Retained earnings (gain)Parent (refer to 3A)
Non-controlling Interest
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
620,000
Paid in capital in excess of par Sewell
140,000
Retained Earnings Sewell
20,000
Land
20,000
Inventory
Investment in Sewell
Retained earnings (gain)Parent (refer to 3A)
Non-controlling Interest
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (full)
P158,000

Problem IV

10,000
675,000
71,500

10,000
675,000
75,000

10,000
318,000
314,000
158,000

10,000
318,000
314,000
158,000

1.

January 1, 20x4

Investment in S Company
Cash..

2.

408,000

Schedule of Determination and Allocation of Excess


Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 100%)..
Paid-in capital in excess of par (P24,000 x 100%)...
Retained earnings (P96,000 x 100%)...
Allocated excess (excess of cost over book value)
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment
(P12,000 x 100%)...
Increase in bonds payable (P42,000 x 100%)..
Positive excess: Goodwill (excess of cost over fair
value)..

3.

408,000

P 408,000
P 240,000
24,000
96,000

360,000
48,000

P 18,000
72,000
( 12,000)
( 42,000)

36,000
P 12,000

(E1) Common stock S Co.


Additional paid-in capital S Co.
Retained earnings S Co...
Investment in S Co

240,000
24,000
96.000

360,000

Eliminate investment against stockholders equity of S Co.

(E2) Inventory.
Land.
Goodwill.
Buildings and equipment..
Premium on bonds payable
Investment in S Co..

18,000
72,000
12,000

12,000
42,000
48,000

Eliminate investment against allocated excess.

4.
Eliminations
Assets
Cash*.

S Co.

Dr.

Cr.

Consolidated

12,000

P 60,000

90,000

60,000

Inventory.

120,000

72,000

(2) 18,000

210,000

Land.

210,000

48,000

(2) 72,000

330,000

Buildings and equipment (net)

480,000

360,000

Accounts receivable..

Goodwill
Investment in S Co.
Total Assets

P Co.

(2)
(2) 12,000

408,000

72,000
150,000

12,000

(1) 360,000
(2) 48,000

828,000
12,000
-

P1,320,000

P600,000

P1,602,000

Accounts payable

P 120,000

P120,000

P 240,000

Bonds payable

240,000

120,000

Liabilities and Stockholders Equity


360,000

Premium on bonds payable


Common stock, P10 par

(3)
600,000

Common stock, P10 par


Paid in capital in excess of par.

42,000

600,000
240,000

(1) 240,000

60,000

Paid in capital in excess of par.

42,000

60,000
24,000

(1) 24,000

Retained earnings
_________
96,000
Total Liabilities and Stockholders
Equity
P1,320,000
P600,000
(1) Eliminate investment against stockholders equity of S Co.

(1) 96,000

__________

_________

P 462,000

P 462,000

P1,602,000

Retained earnings

300,000

300,000

(2) Eliminate investment against allocated excess.


* P420,000 P408,000 = P12,000.

5.

Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Goodwill
Total Assets

72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000

Liabilities and Stockholders Equity


Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

P 360,000
42,000

P 240,000
402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000

Problem V
1.
January 1, 20x4

(1) Investment in S Company


Cash..
Common stock, P10 par..
Paid-in capital in excess of par.

432,000

(2) Retained earnings (acquisition-related expense - close to


retained earnings since only balance sheets are being
examined)
Cash.

288,000
120,000
24,000

12,000

12,000

Acquisition- related costs.

(3) Paid-in capital in excess of par..


Cash.

8,400

8,400

Costs to issue and register stocks.

2.

Schedule of Determination and Allocation of Excess


Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred
Cash.
Common stock: 12,000 shares x P12 per share..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 100%)..
Paid-in capital in excess of par (P96,000 x 100%)..
Retained earnings (P24,000 x 100%)...
Allocated excess (excess of cost over book value)
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)
Adjusted allocated excess.
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment
(P12,000 x 100%)...
Increase in bonds payable (P42,000 x 100%)..
Positive excess: Goodwill (excess of cost over fair
value)..

P 288,000
144,000
P 240,000
96,000
24,000

P 432,000

360,000
72,000
6,000
P 78,000
P

P 18,000
72,000
( 12,000)
( 42,000)

36,000
P 42,000

Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:

Date of Acquisition January 1, 20x4 (refer to previous table for details of computation)
Fair value of Subsidiary (100%)
Consideration transferred
Less: Book value of stockholders equity of S..
Allocated excess (excess of cost over book value).
Less: Over/under valuation of assets and liabilities
Positive excess: Goodwill (excess of cost over fair value)...
Add: Existing Goodwill
Positive excess: Goodwill (excess of cost over fair
value)

P 432,000
360,000
P 72,000
36,000
P 36,000
6,000
P

42,000

3.
Eliminations
Assets
Cash*..
Accounts receivable..

P Co.

S Co.

111,600

P 54,000

Dr.

Cr.

Consolidated
P 165,600

90,000

60,000

Inventory.

120,000

72,000

(2) 18,000

210,000

Land.

210,000

48,000

(2) 72,000

330,000

Buildings and equipment (net)

480,000

360,000

Goodwill
Investment in S Co.
Total Assets

432,000

6,000

150,000

(2)
(2) 36,000

12,000

828,000
42,000

(4) 360,000
(5) 72,000

P1,443,600

P600,000

P1,725,600

Accounts payable

P 120,000

P120,000

P 240,000

Bonds payable

240,000

120,000

360,000

Liabilities and Stockholders Equity

Premium on bonds payable


Common stock, P10 par**..

(6)

Common stock, P10 par


Additional paid in capital***

240,000

(1) 240,000
75,600

24,000

(1) 24,000

288,000

Retained earnings
_________
96,000
Total Liabilities and Stockholders
Equity
P1,443,600
P600,000
(1) Eliminate investment against stockholders equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 P288,000 P12,000 P8,400 = P111,600.
* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
*** P50,000 + P20,000 P7,000 = P63,000.
****P300,000 P12,000 = P288,000.

4.

42,000
720,000

75,600

Additional paid in capital


Retained earnings****

42,000

720,000

288,000
(1) 96,000

__________

_________

P 486,000

P 486,000

P1,725,600

Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Goodwill
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Additional paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600

P 360,000
42,000

P 240,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600

Problem VI
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred (P408,000 P6,000)..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 100%)..
Paid-in capital in excess of par (P96,000 x 100%)...
Retained earnings (P24,000 x 100%)...
Allocated excess (excess of cost over book value)
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment
(P12,000 x 100%)...
Increase in bonds payable (P42,000 x 100%)..
Positive excess: Goodwill (excess of cost over fair
value)..

P 402,000
P 240,000
96,000
24,000

360,000
42,000

P 18,000
72,000
( 12,000)
( 42,000)

36,000
P

6,000

2. Goodwill, P6,000
Problem VII
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred:
Common stock: 24,000 shares x P14 per share
Less: Book value of stockholders equity of Sky:
Common stock (P240,000 x 100%)..
Paid-in capital in excess of par (P96,000 x 100%)...
Retained earnings (P24,000 x 100%)...
Allocated excess (excess of book value over cost)
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment
(P12,000 x 100%)...
Increase in patent (P24,000 x 100%)...
Increase in contingent liability (P18,000 x 100%).
Increase in bonds payable (P42,000 x 100%)..
Negative excess: Bargain Purchase Gain (excess of
fair value over cost)

P 336,000
P 240,000
96,000
24,000

360,000
(P 24,000)

P 18,000
72,000
( 12,000)
24,000
( 18,000)
( 42,000)

42,000
(P 66,000)

2. Gain on acquisition, P66,000


Problem VIII
Case 1:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash.......P12,000,000 (80%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 80%.................................
5,760,000 (80%)
Allocated excess.........P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 80%....................................... 1,920,000 (80%)
Positive excess: Goodwill (partial)..... P 4,320,000 (80%)

Non-controlling interest
Book Value of stockholders equity of subsidiary.
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000)..
Fair value of stockholders equity of subsidiary
Multiplied by: Non-controlling interest percentage............

P 7,200,000
2,400,000
P 9,600,000
20%

Non-controlling Interest (partial)..

P1,920,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 100%..............................
7,200,000 (100%)
Allocated excess...
P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 100%.................................... 2,400,000 (100%)
Positive excess: Goodwill (full)........P 5,400,000 (100%)
The full goodwill of P5,400,000 consists of two parts:
Full-goodwill....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill... 4,320,000
NCI on full-goodwill.......P 1,080,000

Non-controlling interest
Non-controlling interest (partial).......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)*...... 1,080,000
Non-controlling interest (full)........P3,000,000

* applicable only when the fair value of the non-controlling interest of subsidiary is not given.

Case 2:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (60%):
Consideration transferred: Cash.....P 7,560,000 (60%)
Less: Book value of stockholders equity (net assets)
S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess...... P 3,960,000 (60%)
Less: Over/undervaluation of assets and liabilities:
(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial).... P 2,520,000 (60%)

Non-controlling interest
Book value of stockholders equity of subsidiary. P 6,000,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P8,400,000 P6,000,000). 2,400,000
Fair value of stockholders equity of subsidiary.P 8,400,000
Multiplied by: Non-controlling Interest percentage............
40%
Non-controlling interest (partial).P 3,360,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash ...P 7,560,000 ( 60%)
Fair value of NCI (given).. 4,800,000 ( 40%)
Fair value of subsidiary...P12,360,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess...P 6,360,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)......P 3,960,000 (100%)
The full goodwill of P3,960,000 consists of two parts:
Full-goodwill...P 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill. 2,520,000
NCI on full-goodwill..P 1,440,000

Non-controlling interest
Non-controlling interest (partial)P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 P2,520,000 partial-goodwill).. 1,440,000
Non-controlling Interest (full)..P 4,800,000

Case 3;
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (75%):
Consideration transferred: Cash..P 9,000,000 (75%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 75%..........................
5,400,000 (75%)
Allocated Excess....P 3,600,000 (75%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial).P 1,800,000 (75%)

Non-controlling interest
Book value of stockholders equity of subsidiary..P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000). 2,400,000
Fair value of stockholders equity of subsidiaryP 9,600,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial).P 2,400,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary. P 11,640,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 100%...........................
7,200,000 (100%)
Allocated Excess..P 4,440,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full).....P 2,040,000 (100%)
The full goodwill of P2,040,000 consists of two parts:
Full-goodwill...P 2,040,000
Less: Controlling interest on full-goodwill
or partial-goodwill.... 1,800,000
NCI on full-goodwill. .P 240,000

Non-controlling interest
Non-controlling interest (partial)P 2,400,000
Add: Non-controlling interest on full -goodwill
(P2,040,000 P1,800,000 partial-goodwill)....... 240,000
Non-controlling Interest (full)..P 2,640,000

Case 4:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (75%):
Consideration transferred: Cash..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%)
Fair value of Subsidiary ... P 3,240,000 (75%)
Less: Book value of stockholders equity (net assets)
S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%)
Allocated Excess.....P 1,440,000 (75%)
Less: Over/undervaluation of assets and liabilities:
[(P6,120,000 P2,280,000)
(P4,680,000 P2,280,000)] x 75%................................ 1,080,000 (75%)
Positive excess: Goodwill (partial)... P 360,000 (75%)

Non-controlling interest
Book value of stockholders equity of subsidiary..P 2,400,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P3,840,000 P2,400,000). 1,440,000
Fair value of stockholders equity of subsidiaryP 3,840,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial)P 960,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......
648,000 (15%)
Fair value of NCI (given). 1,080,000 (25%)
Fair value of subsidiary.P 4,320,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P2,400,000 x 100%........................ 2,400,000 (100%)
Allocated Excess...P 1,920,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P3,840,000 P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full)...P 480,000 (100%)
The full goodwill of P480,000 consists of two parts:
Full-goodwill...P 480,000
Less: Controlling interest on full-goodwill
or partial-goodwill. 360,000
NCI on full-goodwill..P 120,000

Non-controlling interest
Non-controlling interest (partial)P 960,000
Add: Non-controlling interest on full -goodwill
(P480,000 P360,000 partial-goodwill)....... 120,000
Non-controlling Interest (full)P 1,080,000

Problem IX
Partial-goodwill (Proportionate Basis)
Fair value of subsidiary (75%):
Consideration transferred: Cash..
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x 75%.......................................
Allocated excess...
Less: Over/undervaluation of assets and liabilities:
[(P612,000 P228,000) (P480,000 P228,000) x 75%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only).

Full-goodwill (Fair Value Basis)


Fair value of subsidiary (100%):
Consideration transferred: Cash..
Fair value of non-controlling interest (given)
Fair value of subsidiary
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x 100%.....................................
Allocated excess...
Less: Over/undervaluation of assets and liabilities:
[(P612,000 P228,000) (P480,000 P228,000) x 100%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only).

P270,000 (75%)
189,000 (75%)
P 81,000 (75%)
99,000 (75%)
(P18,000) (75%)

P270,000 ( 75%)
98,400 ( 25%)
P368,400 (100%)
252,000 (100%)
P116,400 (100%)
132,000 (100%)
(P15,600) (100%)

Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred..

P 360,000

Less: Book value of stockholders equity of Sky:


Common stock (P240,000 x 80%).

P 192,000

Paid-in capital in excess of par (P96,000 x 80%)....

76,800

Retained earnings (P24,000 x 80%)....

19,200

288,000

Allocated excess (excess of cost over book value)..

72,000

Less: Over/under valuation of assets and liabilities:


Increase in inventory (P18,000 x 80%)

P 14,400

Increase in land (P72,000 x 80%).


Decrease in buildings and equipment
(P12,000 x 80%).....

57,600

Increase in bonds payable (P42,000 x 80%).


Positive excess: Partial-goodwill (excess of cost over
fair value)...

9,600)

( 33,600)

28,800
P 43,200

The over/under valuation of assets and liabilities are summarized as follows:


Sky Co.
Book value

Sky Co.
Fair value

Over/ Under
Valuation

Inventory...

72,000

90,000

18,000

Land

48,000

120,000

72,000

Buildings and equipment (net).........

360,000

348,000

( 12,000)

Bonds payable

(120,000)

(162,000)

42,000

Net..

360,000

396,000

36,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co.
Book value

Buildings and equipment ..................

720,000

Less: Accumulated depreciation..


Net book value...

Sky Co.
Fair value

(Decrease)

348,000

( 372,000)

360,000

( 360,000)

360,000

348,000

12,000)

The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company
Cash..
Acquisition of Sky Company.

(2) Retained earnings (acquisition-related expense - close to


retained earnings since only balance sheets are being
examined)
Cash.

360,000

14,400

Acquisition- related costs.

360,000

14,400

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock Sky Co.
Additional paid-in capital Sky Co.
Retained earnings Sky Co...
Investment in Sky Co
Non-controlling interest (P300,000 x 20%)..

240,000
24,000
96,000

(E2) Inventory.
Accumulated depreciation.
Land.
Goodwill.
Buildings and equipment..
Premium on bonds payable
Non-controlling interest (P30,000 x 20%)..

18,000
360,000
72,000
43,200

Eliminate investment against stockholders equity of Sky Co.

288,000
72,000

372,000
42,000
7,200

Investment in Sky Co..

72,000

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets
Cash*.

Peer Co.

Sky Co.

Dr.

Cr.

Consolidated

45,600

P 60,000

90,000

60,000

Inventory.

120,000

72,000

(2) 18,000

210,000

Land.

210,000

48,000

(2) 72,000

330,000

Buildings and equipment

960,000

720,000

Accounts receivable..

Goodwill
Investment in Sky Co.

P1,785,600

P960,000

105,600
150,000

(2) 372,000
(2) 43,200

360,000

Total Assets

1,308,000
43,200

(1) 288,000
(2) 72,000

P 2,146,800

Liabilities and Stockholders Equity


Accumulated depreciation

P 480,000

P360,000

Accounts payable

120,000

120,000

Bonds payable

240,000

120,000

(2) 360,000

360,000
(3)

Common stock, P10 par

42,000

42,000

600,000

Common stock, P10 par

600,000
240,000

Paid in capital in excess of par.

(1) 240,000

60,000

Paid in capital in excess of par.


Retained earnings**

60,000
24,000

(1) 24,000

96,000

(1) 96,000

285,600

Retained earnings
Non-controlling interest

_________

480,000
240,000

Premium on bonds payable

285,600

_______

Total Liabilities and Stockholders


Equity
P1,785,600
P960,000
(1) Eliminate investment against stockholders equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.

_________
P 853,200

(1 ) 72,000
(2) 7,200

_79,200

P 853,200

P2,146,800

Incidentally, the non-controlling interest on the date of acquisition is computed as


follows:
Common stock Sky company
Paid-in capital in excess of par Sky co
Retained earnings Sky Co...
Book value of stockholders equity Sky Co....
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities).
Fair value of stockholders equity of subsidiary
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)..

The balance sheet:

Cash
Accounts receivables
Inventories
Land
Buildings and equipment
Accumulated depreciation
Goodwill
Total Assets

P 240,000
24,000
80,000
P 360,000

36,000
P 396,000
20
P 79,200

Peer Company and Subsidiary


Consolidated Balance Sheet
January 1, 20x4

Assets

Liabilities and Stockholders Equity


Liabilities
Accounts payable
Bonds payable
Premium on bonds payable

105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800

P 360,000
42,000

P 240,000
402,000

Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P 1,024,800
P1,666,800

Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred (P360,000 / 80%)..
Less: Book value of stockholders equity of Sky:
Common stock (P240,000 x 100%).
Paid-in capital in excess of par (P96,000 x 100%)..
Retained earnings (P24,000 x 100%)....
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)
Increase in land (P72,000 x 100%).
Decrease in buildings and equipment
(P12,000 x 100%).....
Increase in bonds payable (P42,000 x 100%).
Positive excess: Full -goodwill (excess of cost over
fair value)...

P 450,000
P 240,000
96,000
24,000

360,000
90,000

P 18,000
72,000
( 12,000)
( 42,000)

36,000
P 54,000

The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company
Cash..

360,000

Acquisition of Sky Company.

(2) Retained earnings (acquisition-related expense - close to


retained earnings since only balance sheets are being
examined)
Cash.

14,400

Acquisition- related costs.

360,000

14,400

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock Sky Co.
Additional paid-in capital Sky Co.
Retained earnings Sky Co...
Investment in Sky Co
Non-controlling interest (P300,000 x 20%)..

240,000
24,000
96,000

Eliminate investment against stockholders equity of Sky Co.

(E2) Inventory.
Accumulated depreciation.
Land.
Goodwill.
Buildings and equipment..
Premium on bonds payable
Non-controlling interest [(P30,000 x 20%) +
(P45,000 P36,000)].
Investment in Sky Co..

18,000
360,000
72,000
54,000

288,000
72,000

372,000
42,000
18,000
72,000

Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Full-goodwill)
Eliminations

Assets

Cash*.

Accounts receivable..

Peer Co.

Sky Co.

45,600

P 60,000

Dr.

Cr.

Consolidated
P

105,600

90,000

60,000

Inventory.

120,000

72,000

(2) 18,000

210,000

Land.

210,000

48,000

(2) 72,000

330,000

Buildings and equipment

960,000

720,000

Goodwill
Investment in Sky Co.

360,000

Total Assets

150,000

(2) 372,000
(2) 54,000

1,308,000
54,000

(1) 288,000
(2) 72,000

P1,785,600

P960,000

P 2,157,600

P 480,000

P360,000

Accounts payable

120,000

120,000

240,000

Bonds payable

240,000

120,000

360,000

Liabilities and Stockholders Equity


Accumulated depreciation

(2) 360,000

Premium on bonds payable

480,000

(2) 42,000

42,000

600,000

Common stock, P10 par


Common stock, P10 par

600,000
240,000

(1) 240,000

60,000

Paid in capital in excess of par.


Paid in capital in excess of par.

60,000
24,000

(1) 24,000

285,600

Retained earnings**
Retained earnings

285,600
96,000

Non-controlling interest

_________

_______

Total Liabilities and Stockholders


Equity
P1,785,600
P960,000
(1) Eliminate investment against stockholders equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.

(1) 96,000

_________
P 864,000

(1 ) 72,000
(2) 18,000

_90,000

P 864,000

P2,157,600

Incidentally, the non-controlling interest on the date of acquisition is computed as


follows:
Non-controlling interest (partial)..
Add: Non-controlling interest (P54,000, full P43,200, partial).
Non-controlling interest (full).

The balance sheet;

Cash
Accounts receivables
Inventories
Land
Buildings and equipment
Accumulated depreciation
Goodwill
Total Assets

79,200
10,800
P 90,000

Peer Company and Subsidiary


Consolidated Balance Sheet
January 1, 20x4

Assets

Liabilities and Stockholders Equity


Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

Problem XI

105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600

P 360,000
42,000

P 240,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P 1,035,600
P1,677,600

Partial-goodwill Approach (Proportionate Basis)


Schedule of Determination and Allocation of Excess (Proportionate Basis))
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred:
Common stock: 12,000 shares x P25 per share...

P 300,000

Less: Book value of stockholders equity of S:


Common stock (P12,000 x 80%).

9,600

Paid-in capital in excess of par (P108,000 x 80%)...

86,400

Retained earnings (P72,000 x 80%)....

57,600

153,600

Allocated excess (excess of cost over book value)

P 146,400

Less: Over/under valuation of assets and liabilities:


Increase in inventory (P6,000 x 80%)

Increase in land (P36,000 x 80%).


Increase in buildings and equipment
(P150,000 x 80%)......

4,800
28,800
120,000

Increase in copyrights (P60,000 x 80%)..


Increase in contingent liabilities estimated
liability for contingencies (P6,000 x 80%).....
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)..

48,000
(

4,800)

196,800
(P 50,400)

The over/under valuation of assets and liabilities are summarized as follows:


S Co.
Book value
Inventory....
Land.

S Co.
Fair value

60,000

Over/Under
Valuation

66,000

6,000

48,000

84,000

36,000

Buildings and equipment (net).........

222,000

372,000

150,000

Copyright..

-0-

Estimated liability for contingencies..

Net undervaluation.

P 330,000

60,000
(

60,000

6,000)

P 576,000

6,000)
P246,000

The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company...
Common stock, P1 par
Paid-in capital in excess of par (P300,000 P12,000 par)..

300,000

Acquisition of S Company.

12,000
288,000

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock S Co.
Additional paid-in capital S Co.
Retained earnings S Co
Investment in S Co
Non-controlling interest (P192,000 x 20%)..

12,000
108,000
72,000

(E2) Inventory..
Land..
Buildings and equipment
Copyright....
Estimated liability for contingencies..
Investment in S Co...
Non-controlling interest (P246,000 x 20%).
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are being
examined).............................................................................

6,000
36,000
150,000
60,000

Eliminate investment against stockholders equity of S Co

153,600
38,400

6,000
146,400
49,200
50,400

Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Proportionate Basis)
Eliminations

Assets
Cash

P Co.

S Co.

Dr.

Cr.

Consolidated

P 334,800

334,800

Accounts receivable..

86,400

P 24,000

Inventory.

96,000

60,000

(2)

6,000

162,000

Land

120,000

48,000

(2) 36,000

204,000

Buildings and equipment (net).

744,000

222,000

(2) 150,000

1,116,000

Copyright...
Investment in S Co..
Total Assets

110,400

(2) 60,000

60,000

300,000
__________

(1) 153,600
(2) 146,400

_________

P1,681,200

354,000

P1,987,200

42,000

P 138,000

Liabilities and Stockholders Equity


Accounts payable
Estimated liability for
contingencies
Bonds payable
Common stock, P1 par*..
Common stock, P1 par
Paid-in capital in excess of
par**

96,000

(2)
240,000

Retained earnings
Non-controlling interest

120,000

360,000
44,160

12,000

(1) 12,000

723,840

723,840
108,000(1) (1) 108,000

577,200

_________

72,000

(1) 72,000

_______

_________

Total Liabilities and Stockholders


Equity
P1,681,200
P354,000
(1) Eliminate investment against stockholders equity of Scud Co.
(2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.

6,000

44,160

Paid-in capital in excess of par


Retained earnings

6,000

P 444,000

(2) 50,400

627,600

(1 ) 38,400
(2) 49,200

_87,600

P 444,000

P1,987,200

Incidentally, the non-controlling interest on the date of acquisition is computed as


follows:
Common stock S Co.
Paid-in capital in excess of par S Co..
Retained earnings S Co
Book value of stockholders equity S Co.
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities).
Fair value of stockholders equity of subsidiary
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)..

P 12,000
108,000
72,000
P 192,000

246,000
P 438,000
20
P 87,600

The balance sheet:


Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Copyright
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Common stock, P1 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

P 138,000
6,000
360,000
P 504,000
P

44,160
723,840
627,600

P1,395,600
87,600
P1,483,200
P1,987,200

Full-goodwill Approach (Fair Value Basis)


Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Common stock: 12,000 x P25 (80%)
Fair value of NCI (given) (20%).
Fair value of subsidiary (100%).
Less: Book value of stockholders equity of S:
Common stock (P12,000 x 100%).
Paid-in capital in excess of par (P108,000 x 100%).
Retained earnings (P72,000 x 100%)...
Allocated excess (excess of cost over book value)
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
Increase in land (P36,000 x 100%)
Increase in buildings and equipment
(P150,000 x 100%)....
Increase in copyrights (P60,000 x 100%)
Increase in contingent liabilities estimated
liability for contingencies (P6,000 x 100%)..
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)..

300,000
90,000
390,000

P
P 12,000
108,000
72,000
P

192,000
P 198,000

6,000
36,000
150,000
6,000

6,000)

246,000
(P 48,000)

The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in S Company...
Common stock, P1 par
Paid-in capital in excess of par (P300,000 P12,000 par)..
Acquisition of S Company.

300,000

12,000
288,000

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock S Co.
Additional paid-in capital S Co.
Retained earnings S Co
Investment in S Co
Non-controlling interest (P192,000 x 20%)..
Eliminate investment against stockholders equity of S Co

12,000
108,000
72,000

(E2) Inventory..
Land..
Buildings and equipment
Copyright....
Estimated liability for contingencies..
Investment in S Co...
Non-controlling interest (P90,000 given P38,400)
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are being
examined).............................................................................
Eliminate investment against allocated excess.

6,000
36,000
150,000
60,000

153,600
38,400

6,000
146,400
51,600
48,000

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Fair Value Basis)
Eliminations
Assets
Cash
Accounts receivable..
Inventory.

P Co.

S Co.

Dr.

Cr.

P 334,800

Consolidated
P

86,400

P 24,000

334,800
110,400

96,000

60,000

(2)

6,000

162,000

Land

120,000

48,000

(2) 36,000

204,000

Buildings and equipment (net).

744,000

222,000

(2) 150,000

1,116,000

Copyright...
Investment in S Co..
Total Assets
Liabilities and Stockholders Equity

(2) 60,000

300,000
__________

_________

P1,681,200

P354,000

(1) 153,600
(2) 146,400

60,000
P1,987,200

Accounts payable
Estimated liability for
contingencies

Bonds payable
Common stock, P1 par*..

96,000

42,000

240,000

120,000

(2)

Retained earnings
Non-controlling interest

6,000
360,000
44,160

12,000

(2) 12,000

723,840

Paid-in capital in excess of par


Retained earnings

6,000

44,160

Common stock, P1 par


Paid-in capital in excess of par**

P 138,000

723,840
108,000(2) (1) 108,000

577,200

_________

72,000

(1) 72,000

_______

_________

Total Liabilities and Stockholders


Equity
P1,681,200
P354,000
(1) Eliminate investment against stockholders equity of Scud Co.
(2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.

P 444,000

(2) 48,000

625,200

(1 ) 38,400
(2) 51,600

_90,000

P 444,000

P1,987,200

The balance sheet:


Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Copyright
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Common stock, P1 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

Problem XII
1. Inventory
2. Land
3. Buildings and Equipment
4. Goodwill

5.

334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

P 138,000
6,000
360,000
P 504,000
P

44,160
723,840
652,200

P1,393,200
90,000
P1,483,200
P1,987,200

P 140,000
P 60,000
P 550,000

Fair value of consideration given


P 576,000
Less; Book value of SHE
450,000
Allocated excess:
P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory
P 20,000
Land
(10,000)
Buildings and equipment
70,000
80,000
Goodwill
P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the
investment account is eliminated.

Problem XIII
1. Inventory (P120,000 + P20,000)
2. Land (P70,000 P10,000)
3. Buildings and Equipment (P480,000 + P70,000)

P140,000
P 60,000
550,000

4.

Full-Goodwill, P57,500
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory
Land
Buildings and equipment (net)
Goodwill full
or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slims net assets
Fair value increment for:
Inventory
Land
Buildings and equipment (net)
Fair value of identifiable net assets
Goodwill - full
Partial Goodwill, P46,000
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P20,000 x 80%)
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill partial

5.

6.

Investment in Slim Corporation: None would be reported;


the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)
or,

P470,000
117,500

P 20,000
(10,000)
70,000

P450,000
20,000
(10,000)
70,000

P587,500
450,000
P137,500

80,000
P 57,500
P470,000
117,500
P587,500

(530,000)
P 57,500

P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000

64,000
P 46,000

P117,500

BV SHE of SS
P450,000
Adjustments to reflect fair value (P20,000 P10,000 +P 70,000)
80,000
FV of SHE of SS
P530,000
Multiplied by: NCI %
20%
NCI partial goodwill
P106,000
Add: NCI on full-goodwill (P57,500 P46,000)
11,500
NCI full goodwill
P117,500

Problem XIV
(Overview of the steps in applying the acquisition method when shares have been issued to
create a combination No. 8 includes a bargain purchase.)
1. The fair value of the consideration includes
Fair value of stock issued
P1,500,000
Contingent performance obligation
30,000
Fair value of consideration transferred
P1,530,000
2. Under the acquisition method, stock issue costs reduce additional paid-in capital.
3. The acquisition method records direct costs such as fees paid to investment banks for
arranging the combination as expenses.
4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in the
Common Stock account. The P74 fair value in excess of par value (P75 P1) is an
increase to additional paid-in capital of P1,480,000 (P74 20,000 shares).
5. Fair value of consideration transferred (above)
P1,530,000
Receivables
P 80,000

Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Goodwill
P 350,000
6. Revenues and expenses of the subsidiary from the period prior to the combination are
omitted from the consolidated totals. Only the operational figures for the subsidiary after
the purchase are applicable to the business combination. The previous owners earned
any previous profits.
7. The subsidiarys Common Stock and Additional Paid-in Capital accounts have no
impact on the consolidated totals.
8. The fair value of the consideration transferred is now P1,030,000. This amount indicates a
bargain purchase:
Fair value of consideration transferred (above)
P1,030,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Gain on bargain purchase
P 150,000
Problem XV
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are
a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SSs net assets acquired.
1.
2.
3.
4.
5.
6.

Inventory = P670,000 (P's book value plus Sun's fair value)


Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem XVI
1. A total of P210,000 (P120,000 + P90,000) should be reported.
2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The
amount paid was P30,000 greater than the book value of the net assets of SS and is reported
as goodwill in the consolidated balance sheet at January 1, 20X5.
3. In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for
P25,000 (P10,000 + P15,000).
4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
5. The par value of B's stock outstanding is P100,000.
Problem XVII refer also to Multiple Choice; Nos. 24-32
Cash: P74,000 = P44,000 + P30,000
Accounts receivable: P155,000 = P110,000 + P45,000
Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 P70,000)]
Land: P125,000 = [P80,000 + P25,000 + (P45,000 P25,000)]
Buildings and equipment: P900,000 = P500,000 + P400,000
Accumulated depreciation: P388,000 = P223,000 + P165,000
Goodwill (full-goodwill) = P40,000*
Total Assets = P1,121,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000
P388,000 + P40,000, or:
Total Assets of Power Corp.
P 791,500
Less: Investment in Silk Corp.
(150,500)

Book value of assets of Silk Corp.


Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill
Total assets reported (based on fullgoodwill)

P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000

Accounts payable: P89,500 = P61,500 + P28,000


Taxes payable P132,000 = P95,000 + P37,000
Bonds payable: P480,000 = P280,000 + P200,000
Total liabilities: P701,500 = P89,500 + P132,000 + P480,000
Common stock: P150,000, parent only
Retained earnings: P205,000, the amount reported by parent
Non-controlling interest (full-goodwill): P64,500*
Stockholders equity: P419,500
Consolidated SHE:
Common stock
P150,000
Retained Earnings
205,000
Parents SHE or Equity Attributable to Parent
P355,000
NCI (full-goodwill)
64,500
Consolidated SHE
P419,500
Computation of Goodwill:
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full

P150,500
**64,500

P 15,000
20,000

P215,000
140,000
P 75,000
35,000
P 40,000

**given amount, but it should not be lower than the fair value of SHE subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SS
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500

or,
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
Land (P20,000 x 70%)
Goodwill partial

P150,500
__98,000
P 52,500
P 10,500
14,000

24,500
P 28,000

If partial-goodwill:
Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000
P388,000 + P28,000,
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SSD
P 175,000

Multiplied by: NCI%..........................................................


30%
FV of NCI (partial)..P 52,500

Stockholders equity: P419,500


Consolidated SHE:
Common stock
Retained Earnings
Parents SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE

P150,000
205,000
P 355,000
52,500
P404,500

Problem XVIII
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XIX
1.
P57,000 = (P120,000 - P25,000) x .60
2.
P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3.
P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XX
1. Investment in Craig Company...........................................................
Cash ...................................................................................................
2.

Fair value of Subsidiary:


Consideration transferred
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value
Building (P700,000 fair P600,000 book value)
Discount on bonds payable P280,000 fair P300,000
book value)
Deferred tax liability (P40,000 fair P50,000 book value)
Buildings and equipment (net)
Goodwill

3. Adjustments on Craig books:


Land.........................................................................................................
Building....................................................................................................
Discount on Bonds Payable................................................................
Goodwill..................................................................................................
Deferred Tax Liability ............................................................................
Retained Earnings.................................................................................
Paid-In Capital in Excess of Par.....................................................
4.

Elimination entries:
Common Stock .....................................................................................
Paid-In Capital in Excess of Par ..........................................................
Investment in Craig Company......................................................

Problem XXI
Full-Goodwill
Fair value of Subsidiary:
Consideration transferred (200 shares x P25)
Less: BV of SHE of Public (P200 + P800 + P1,000)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Fixed assets (P3,000 fair P2,000 book value)
Goodwill full
or,

950,000

950,000

P950,000
720,000
P 230,000
P 50,000
100,000
20,000
10,000

180,000
P 50,000

50,000
100,000
20,000
50,000
10,000
420,000

650,000

300,000
650,000

950,000

P 5,000
_2,000
P 3,000
_1,000
P2,000

Fair value of Subsidiary:


Consideration transferred (200 shares x P25)
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000)
Goodwill full

P 5,000
_3,000
P2,000

Note: The currently issued shares of Public Company and its fair value were used for the following
reasons (refer to Illustration 15-15 for comparison):
Total number of shares for Public Company after acquisition not given
The fair value of share of Private Company not given.

Fair value of net assets.


Fair value of common stock per share
Currently issued
Additional shares issued
15,000 shares / 25,000 shares = 60%

Public
Company
P3,000
P25
Public
200
300
500

Private
Company
?

40%**
60%

Private

?
100

/40%
/60%

Values are prior to acquisition (200 shares P25 market value).


Subsequent to acquisition, Private Company is the parent with 60% ownership; prior to
acquisition, Private Company has 0% ownership of Public Company.
Prior to acquisition, this represents 100% ownership of Public Company; subsequent to
acquisition, these holders of 100 shares of Public Company become the 40% NCI.
Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on fullgoodwill amounted to P800 (P2,000 P1,200 or P2,000 x 40%). This approach to determine
partial goodwill is acceptable as long as there is FV of NCI in the acquirer.

Problem XXII (Assume the use of Full-Goodwill Method)


Note: This solution assumes a difference between the basis of acquired assets for accounting
and tax purposes for this stock acquisition.
1. Investment in Seely Company
Common Stock***
Additional Paid-in-Capital

570,000

95,000
475,000

***Note: Depending on the wording of this exercise, the credit may be cash instead of common
stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely
Other Contributed Capital Seely
Retained Earnings - Seely
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*
Investment in Seely Company
Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))

80,000
132,000
160,000
52,000
25,000
71,000
20,000
127,200

67,200
570,000
30,000

Problem XXIII
HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Medias losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.

TPC (Nos. 1, 2 and 3 of the requirement are part of the information)


a. The purpose of consolidated financial statements is to present the financial position
and results of operations of a group of businesses as if they were a single entity. They
are designed to provide information useful for making business and economic
decisionsespecially assessing amounts, timing, and uncertainty of prospective cash
flows. Consolidated statements also provide more complete information about the
resources, obligations, risks, and opportunities of an enterprise than separate
statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
The equity investors in the VIE lack any one of the following three characteristics of
a controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g.,
another firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has
one or both of the characteristics that would require consolidation of the variable
interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
to 85% of the project's cost. Thus, a potential 15% risk.
During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
If lease is not renewed, TPC must either purchase the facility or sell it on behalf of
the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decisionmaking ability (end of five-year lease term)
Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).

Problem XXIV
1. Implied valuation and excess allocation for S.
Non-controlling interest fair value
Consideration transferred by P.
Total business fair value
Fair value of VIE net assets
Excess net asset value fair value

P 60,000
20,000
80,000
100,000
P20,000

The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase.
All SoftPlus assets and liabilities are recognized at their individual fair values.

Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase
2.

Implied valuation and excess valuation for Softplus.


Noncontrolling interest fair value
Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill

P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
-060,000
20,000
80,000
60,000
P20,000

When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
Noncontrolling interest
(60,000)
Pantech equity interest
(20,000)
-0Multiple Choice Problems
1. c at fair value
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]
3. d
Consideration transferred
P300,000
Less: Book value of SHE of S (P100,000 + P115,000)
215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 85,000
4. a Investment in subsidiary in the consolidated statements is eliminated in its entirety.
5. d
Consideration transferred
P150,000
Less: Book value of SHE of S (P40,000 + P52,000)
92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 58,000
6. b [P150,000 (P173,000 P40,000 P5,000)]
7. d - P600,000 - P15,000 - P255,000 = P330,000
8. c - P475,000 - P300,000 = P175,000 debit
9. b fair value
10. d fair value
11. d fair value
12. c Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
P300,000
Add: FV of NCI
100,000
P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100%
280,000
Allocated excess
P120,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P65,000 P70,000) x 100%
P( 5,000)
Land (P100,000 P90,000) x 100%
10,000
Buildings and equipment (P300,000 P250,00) x 100%
50,000
__55,000
Goodwill full
P 65,000
If partial-goodwill, no answer available, computed as follows:
Fair value of Subsidiary:
Consideration transferred

P300,000

Less: BV of SHE of Silver (P100,000 + P180,000) x 75%


Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P65,000 P70,000) x 75%
Land (P100,000 P90,000) x 75%
Buildings and equipment (P300,000 P250,00) x 75%
Goodwill full

_210,000
P 90,000
P( 3,750)
7,500
37,500

__41,250
P 48,750

13. a Investment in Silver will be eliminated in the consolidated balance sheet


14. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)..P 280,000
Adjustments to reflect fair value
55,000
FV of SHE of S P 335,000
Multiplied by: NCI%....................................................................
25%
FV of NCI (partial).P 83,750
Add: NCI on full goodwill (P65,000 P48,750).. 16,250
FV of NCI (full-goodwill)*P100,000
* same with the NCI given per problem

15. b P135,000 = P90,000 + P45,000


16. d
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Silver (P40,000 + P120,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P45,000 P40,000) x 100%
Land (P60,000 P40,000) x 100%
Goodwill full
17. a

Total Assets of Gulliver (Jonathan)


Less: Investment in Sea-Gull Corp.
Book value of assets of Sea Corp.
Book value reported by Gulliver/Jonathan and Sea
Increase in inventory (P45,000 P40,000)
Increase in land (P60,000 P40,000)
Goodwill (full)*
Total assets reported

P160,000
_40,000

P 5,000
20,000

P200,000
_160,000
P 40,000
25,000
P 15,000
P610,000
(160,000)
P 450,000
230,000
P 680,000
5,000
20,000
15,000
P 720,000

18. c P100,000 + P95,000 + P30,000 + P40,000 = P265,000


19. c

FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000).P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) (P40,000 + P40,000).
25,000
FV of SHE of S P 185,000
Multiplied by: NCI%....................................................................
20%
FV of NCI (partial).P 37,000
Add: NCI on full goodwill (P15,000 P12,000)..
3,000
FV of NCI (full-goodwill)* P 40,000
* same with the NCI given per problem

Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P40,000 + P120,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)

P160,000
_128,000
P 32,000

Inventory (P5,000 x 80%)


Land (P20,000 x 80%)
Goodwill partial

P 4,000
16,000

__20,000
P 12,000

20. a - The amount reported by Jonathan Corporation


21. a
Jonathan stockholders' equity(P200,000 + P205,000).. P405,000
NCI (full-goodwill) refer to No. 19..
40,000
Consolidated stockholders equity. P445,000
22. d [P132,000 + (P38,000 + {P60,000 P38,000}] or P132,000 + P60,000
23. b
Total Assets of P.
P1,278,000
Less: Investment in Swimmer Corp.
(440,000)
P 838,000
Book value of assets of S Corp.
542,000
Book value reported by P and S
P1,380,000
Increase in inventory (P60,000 P38,000)
22,000
Increase in land (P60,000 P32,000)
28,000
Increase in plant assets [P350,000 (P300,000 P60,000)]
110,000
Goodwill (full)*
26,667
Total assets reported
P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
If partial-goodwill:
Total Assets of P.
Less: Investment in S Corp.
Book value of assets of S Corp.
Book value reported by P and S
Increase in inventory (P60,000 P38,000)
Increase in land (P60,000 P32,000)
Increase in plant assets [P350,000 (P300,000 P60,000)]
Goodwill (partial)*
Total assets reported
*[P440,000 (P702,000 P142,000) x 75%]
24.
25.

26.

P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000

d
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
a
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
P 10,500
Land (P20,000 x 70%)
14,000
Goodwill partial

P150,500
__98,000
P 52,500

c
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full

P215,000
140,000
P 75,000

P150,500
**64,500

P 15,000
20,000

24,500
P 28,000

35,000
P 40,000

**given amount, but it should not be lower than the fair value of SHE subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000

FV of SHE of SS
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500

27. b

Total Assets of Power Corp.


Less: Investment in Silk Corp.

P 791,500
(150,500)
P 641,000
405,000

Book value of assets of Silk Corp.


Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (full)
Total assets reported

P1,046,000
15,000
20,000
40,000
P1,121,000

If partial-goodwill:
Total Assets of Power Corp.
Less: Investment in Silk Corp.

P 791,500
(150,500)
P 641,000
405,000

Book value of assets of Silk Corp.


Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (partial)
Total assets reported
28.

29.

P701,500

P1,046,000
15,000
20,000
28,000
P1,109,000

(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000


+ P200,000)

Non-controlling interest (partial-goodwill): P52,500


NCI

FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500

30.

Non-controlling interest (fulll-goodwill): P64,500


NCI

FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
Add: NCI on full-goodwill (P40,000 P12,000)... 12,000
FV of NCI (full)..P 64,500

31.

32.

c
P419,500
= (P150,000 + P205,000) + P64,500
If partial-goodwill:
Stockholders equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parents SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE

33. b

P205,000

The amount reported by Power Corporation

P150,000
205,000
P355,000
52,500
P404,500

34. c

35. a

36. c

37. d

Consideration transferred ........................................................................................


Less: Strand's book value (P50,000 x 80%) ..............................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ........................................................... P 8,000

P60,000
(40,000)
P20,000

Consideration transferred (P60,000 80%) ............................................................


Less: Strand's book value ..........................................................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ........................................................... P10,000

P75,000
(50,000)
P25,000

Park current assets .......................................................................................................


Strand current assets ...................................................................................................
Excess inventory fair value .........................................................................................
Consolidated current assets......................................................................................

P 70,000
20,000
15,000
P105,000

Park noncurrent assets...............................................................................................


Strand noncurrent assets...........................................................................................
Excess fair value to goodwill (partial) .....................................................................
Consolidated noncurrent assets..............................................................................

P 90,000
40,000
___8,000
P140,000

Park noncurrent assets................................................................................................


Strand noncurrent assets ............................................................................................
Excess fair value to goodwill (full).............................................................................
Consolidated noncurrent assets...............................................................................

P 90,000
40,000
__10,000
P140,000

38. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
39. b
40. b

41. c

42.
43.
44.
45.

Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
Park stockholders' equity...........................................................................................
NCI (partial):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory). 15,000
FV of SHE SP65,000
x: Multiplied by: NCI%........................................................................
20%
Total stockholders' equity.........................................................................................

P80,000

13,000
P93,000

Park stockholders' equity.......................................................................... . P80,000


NCI (full):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory). 15,000
FV of SHE SP65,000
x: Multiplied by: NCI%.........................................................................
20%
NCI (partial)P13,000
Add: NCI on full-goodwill (P10,,000 P8,000) 2,000
Non-controlling interest at fair value (20% P75,000)
15,000
Total stockholders' equity
P95,000

b
a P150,000 + P500,000
a at fair value
b
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5)..
APIC
Add: APIC of P

P 4,200,000
__2,500,000
P 1,700,000
7,500,000

Less: Stock issuance cost

___100,000
P 9,100,000

46. a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000


47. a at fair value
48. c
49. a
[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
50. b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in PPE
P300,000 P500,000) = P550,000
51. a
52. d (P1,000,000 + P250,000) = P1,250,000 P only.
53. d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
54. b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
55. a - P only
56. d
Total Assets of P
P 960,000
Less: Investment in S
(330,000)
P 630,000
Book value of assets of S
405,000
Book value reported by P and S
P1,035,000
Increase in inventory (P45,000 P26,000)
19,000
Increase in land (P45,000 - P24,000)
21,000
Increase in plant assets [P300,000 (P225,000 P45,000)]
120,000
Goodwill (full)
_____0
Total assets reported
P1,195,000
If partial-goodwill same answer with full-goodwill approach, since there is no gain.
57. b step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value
30% FV of previously held equity interest: 30,000 shares x P5, fair value
10% FV of NCI (100,000 60,000 30,000) x P, fair value
100% Fair value of subsidiary
Less: Fair value of net assets (SHE) of subsidiary
58. b
59. a
60. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
61. d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)

P360,000
150,000
40,000
P560,000
500,000
P 60,000

P330,000
395,000
P 65,000
62. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
63. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
64. c
65. a
66. d Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be
made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
67. d
68. a
69. c In the combined financial statements (which normally used to described financial
statements in a common control situation), intercompany accounts are eliminated in full.
70. d In consolidating the subsidiary's figures, all intercompany balances must be eliminated in
their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
71. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parents percentage ownership.

72. c
73. c

74. a

An asset acquired in a business combination is initially valued at 100% acquisition-date


fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 .......................................................................
Amortization for 2 years (10 year life) .....................................................................
Patent reported amount December 31, 2010 ......................................................
PP - building ..................................................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ...............................................................................................
-ORPP - building ...................................................................................................................
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000)
Consolidated buildings ...............................................................................................

P45,000
(9,000)
P36,000
P510,000
210,000
P720,000
510,000
210,000
P720,000

75. d
Cost of Investment (40 shares* x P40)P 1,600
Less: Book value of SHE Pedro Ltd (P300 + P800) x 100%............................................ 1,100
Allocated excessP 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 P1,300) x 100% x 70%......................... 140
GoodwillP 360
*

100%
Pedro Ltd
Santi Ltd
Currently issued 150 60% **
60 60%
Additional shares issued.. 100 40%
40 / 40%
Total shares 250
100

**150/250

Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltds
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger
and 150 new shares held by former shareholders in Santi Ltd. In essence, the former
shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi
Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there
has been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal
parent. The usual circumstance creating a reverse acquisition is where an entity (the legal
parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of
the exchange transaction, it issues enough voting equity as consideration for control of the
combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the
assets and liabilities of Santi Ltd to be valued at fair value.
76. d
Consideration transferred (4,000,000 shares* x P6)P24,000,000
Less: Book value of SHE Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)
0
Goodwill P 6,000,000
100%

Man
Currently issued 15 M 60% **
Additional shares issued.. 10 M 40%
Total shares 25 M

Mask
6 M 60%
4 M / 40%
10 M

**15M/25M

77. c

78. b
79.

80.

P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance


from P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.

Quiz- XV
1.
2.

P290,000
None, since there are no revenues and expenses of the acquire up to the date of
acquisition
P525,000
P80,000 = P250,000 - P170,000
P99,000 = (P10,000 + P80,000 + P350,000 - P110,000)(.30)
P21,000 = (P60,000 - P12,000 - P5,000 - P8,000 - P14,000)
P70,000 = P56,000/.8
P56,000 = (P220,000 - P120,000 - P44,000)
P700,000 = P490,000/.70
P180,000 = [(P490,000/.70) - (P30,000 + P140,000 + P460,000 - P110,000)]
P90,000 = P460,000 - P370,000
P160,000 = (P430,000 - P210,000 - P60,000)
P700,000 = P560,000/.80
P80,000 = [(P560,000/.80) - (P50,000 + P200,000 + P600,000 - P230,000)]
P70,000 = P600,000 - P530,000
P130,000 = ($60,000 + $210,000 + $630,000 - $250,000)(.20)
P50,000
P420,000
P201,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.30)
P80,000 = (P700,000 - P620,000)
P90,000 credit (P260,000 - P350,000)
P110,000 debit
P120,000 credit (P300,000 - P420,000)
P180,000 debit
P50,000 debit (P300,000 - P250,000)
P56,000 debit
P150,000 debit (P600,000 - P450,000)
P260,000 debit

3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29. c
30. 500,000 shares x 1.7 exchange ratio x P25 = P21,250,000. The investment value does not
change as a result of a change in the share prices.
31. Inventories (P110,000 + P180,000 P10,000) = P280,000
32. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
33. Investment in DD stock will be fully eliminated and will not appear in the consolidated
balance sheet
34. P35,000
Fair value of Subsidiary:
Consideration transferred
P280,000
Less: BV of SHE of DD (P100,000 + P200,000 P40,000)
260,000
Allocated excess
P 20,000
Less: Over/under valuation of A and L: Inc (Decrease)

Inventory
Buildings and equipment (net)

(P 10,000)
25,000

15,000
P 5,000
30,000
P 35,000

Add: Existing goodwill (to be eliminated


Goodwill to be reported

or, (Approach used in business combination statutory merger/consolidation)


Fair value of consideration given
P280,000
Fair value of Decibel's net assets:
Cash and receivables
P 40,000
Inventory
170,000
Buildings and equipment (net)
375,000
Accounts payable
(90,000)
Notes payable
(250,000)
Fair value of net identifiable
Assets
(245,000)
Goodwill to be reported
P 35,000

Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the
computation of Decibel's net identifiable assets at the date of acquisition.

35. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)


36. Retained earnings, P105,000 (parent only, SHE of subsidiary is eliminated)
37. The investment balance reported by Roof will be P192,000.
38. Total assets will increase by P310,000.
39. Total liabilities will increase by P95,000.
40. The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
41. Non-controlling interest will be reported at P48,000 (P240,000 x .20).

Theories
1.
2.
3.
4.
5.
41.
42.
43.
44.
45.

c
a
e
e
b
c
c
c
c
c

6.
7.
8.
9.
10,
46.
47.
48.
49.
50,

B
b
A
D
a
b
a
c
d
b

11.
12.
13.
14.
15,
51.
52.
53.
54.
55,

c
c
d
d
b
c
b
a
a
b

16.
17.
18.
19.
20.
56.
57.

d
c
b
c
c
c
d

21.
22.
23.
24.
25.

b
a
a
b
c

26.
27.
28.
29.
30.

d
c
c
d
b

31
32.
33.
34.
35.

c
d
b
d
d

36.
37.
38.
39.
40.

d
d
c
b
c