Chapter 17 Consolidated Financial Statements (Part 2)

Multiple Choice Computational

Answers at a glance:
1. D
6.
2. A
7.
3. C
8.
4. A
9.
5. D
10.

C
C
A
B
A

11.
12.
13.
14.
15.

B
D
B
B
D

16.
17.
18.
19.
20.

Solution:
1. D
Solution:
Equipment, net Lion Co. (800,000 x 8/10)
Equipment, net Cub Co. (fair value) (1,280,000 x 3/5)
Consolidated equipment, net Dec. 31, 20x2
2. A
Solution:
Dec.
Accumulated depreciation (320K x 2/5)
31,
Depreciation expense (320K 5)
20x2
Retained earnings Lion Co.*
Retained earnings Cub Co.*

D
A
A
B
D

2,560,000
768,000
3,328,000

128,000
64,000
51,200
12,800

*These are the shares of Lion and Cub in the depreciation of the FVA in the prior
year, i.e., 20x1 (64,000 x 80% & 20%).

3. C
Solution:
Equipment, net Kangaroo
Equipment, net Joey
FVA on equipment, net - increment [(480,000 400,000) x 8/10]
Consolidated equipment, net Dec. 31, 20x2

2,000,000
1,200,000
64,000
3,264,000

4. A
Solution:
Analysis of net assets
Acquisition Consolidation Net
date
change
date
Share capital
400,000
400,000
Retained earnings (1.12M 800K)
320,000 1,120,000
Totals at carrying amounts
720,000 1,520,000
Fair value adjustments at acquisition date
-

Owlet Co.

56

Subsequent depreciation of FVA

Unrealized profits (Upstream only)
Subsidiary's net assets at fair value

NIL
NIL
720,000

1,520,000

800,000

The fair value of NCI at acquisition date is computed as follows:

(The solution below is based on a portion of Goodwill computation Formula #2.)

Fair value of NCI

220,000 (squeeze)

NCI's proportionate share in net assets of subsidiary (180,000)

Goodwill attributable to NCI - acquisition date (given)
40,000
a

(start)

(720,000 see above x 25%) = 180,000

5. D
Solution:
Consideration transferred (given)
Less: Previously held equity interest in the acquiree
Total
Less: Parent's proportionate share in the net assets of
subsidiary (720,000 acquisition-date fair value x 75%)
Goodwill attributable to owners of parent acquisition date

600,000
600,000

(540,000)
60,000
Less: Parents share in goodwill impairment (32K x 75%) (24,000)
36,000
Goodwill attributable to owners of parent current year
Fair value of NCI (see Requirement a)
Less: NCI's proportionate share in the net assets of
subsidiary (720,000 acquisition-date fair value x 25%)
Goodwill attributable to NCI acquisition date
Less: NCIs share in goodwill impairment (32,000 x 25%)

Goodwill attributable to NCI current year

Goodwill, net current year

220,000
(180,000)
40,000
(8,000)
32,000
68,000

6. C
Solution:
Subsidiarys net assets at fair value (see above)

Multiply by: NCI percentage

Total
Add: Goodwill attributable to NCI (see above)

NCI in net assets current year

57

1,520,000
25%
380,000
32,000
412,000

7. C
Solution:
Parent's retained earnings current year
Consolidation adjustments:
Parent's share in the net change in
subsidiary's net assets (a)

Parents share in goodwill impairment

Net consolidation adjustments
Consolidated retained earnings

2,000,000
600,000
(24,000)
576,000
2,576,000

(a)

Net change in subsidiarys net assets (see above) 800,000 x 75% =

600,000.

8. A
Solution:
Total assets of Parent
Total assets of Subsidiary
Investment in subsidiary (consideration transferred)
Fair value adjustments - net
Goodwill net
Effect of intercompany transactions
Consolidated total assets

4,000,000
2,000,000
(600,000)
68,000
5,468,000

9. B
Solution:
Share capital of Parent
Share premium of Parent
Consolidated retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Consolidated total equity

1,200,000
2,576,000
3,776,000
412,000
4,188,000

10. A
Solution:
Sales by Rooster Co.
Sales by Cockerel Co.
Less: Intercompany sales during the current period
Consolidated sales

4,000,000
2,800,000
(600,000)
6,200,000

11. B
Solution:
The unrealized profit in ending inventory is computed as follows:
Sale price of intercompany sale
600,000
Cost of intercompany sale
(480,000)
58

Profit from intercompany sale

Multiply by: Unsold portion as of yr.-end
Unrealized gross profit in ending inventory

120,000
1/4
30,000

Cost of sales of Rooster Co.

Cost of sales of Cockerel Co.
Less: Intercompany sales during the current period
Add: Unrealized gross profit in ending inventory
Less: Realized profit in beginning inventory
Add: Depreciation of FVA on inventory
Consolidated cost of sales

1,600,000
1,200,000
(600,000)
30,000
2,230,000

12. D
Solution:
Profits before adjustments
Consolidation adjustments:
Unrealized profit (Reqmt.a)
Dividend income (given)
Net consol. adjustments

Profits before FVA

Depreciation of FVA
(b)
Sh. in goodwill impairment
Consolidated profit
OCI
Comprehensive income
(b)

Rooster
936,000

Cockerel
700,000

Consolidated
1,636,000

(30,000)
(40,000)
(70,000)
866,000
(24,000)
842,000
296,000
1,138,000

N/A
700,000
(8,000)
692,000
100,000
792,000

(30,000)
(40,000)
(70,000)
1,566,000
(32,000)
1,534,000
396,000
1,930,000

Share in goodwill impairment: (32,000 x 75%); (32,000 x 25%)

13. B (See solution above)

14. B
Solution:
Owners
of parent
Rooster's profit before FVA
(see above)

Sh. in Cockerels profit before FVA

Sh. in goodwill impairment (see above)

Profit attributable to
(d)

Sh. in Cockerels OCI

Comprehensive inc. attributable to
(c)

Consolidated

866,000

N/A

866,000

(24,000)
1,367,000
296,000
75,000
1,738,000

(8,000)
167,000
N/A
25,000
192,000

(32,000)
1,534,000
296,000
100,000
1,930,000

(c)

Depreciation of FVA
Rooster's OCI

NCI

Share in Cockerels profit before FVA: (700,000 x 75%); (700,000 x 25%)

59

(d)

Share in Cockerels OCI: (100,000 x 75%); (100,000 x 25%)

15. D (See solution above)

16. D
Solution:
The consolidated sales and cost of sales are computed as follows:
Consolidated sales
Sales of Pig Co.
4,000,000
Sales of Piglet Co. from Sept. 1 to Dec. 31 only (2.88M x4/12) 960,000
Less: Intercompany sales during the year
(324,000)
Consolidated sales
4,636,000
17. A
Solution:
The unrealized profit in ending inventory is computed as follows:
Sale price of intercompany sale
324,000
Cost of intercompany sale (324,000 150%)
(216,000)
Profit from intercompany sale
108,000
Multiply by: Unsold portion as of year-end
1/3
36,000
Unrealized gross profit
Cost of sales of Pig Co.
COS of Piglet Co. from Sept. 1 to Dec. 31 only (1.2M x 4/12)

Less: Intercompany sales during the year

Add: Unrealized gross profit in ending inventory
Less: Realized profit in beginning inventory
Add: Depreciation of FVA on inventory
Consolidated cost of sales

1,600,000
400,000
(324,000)
36,000
1,712,000

18. A
Solution:
Parent Subsidiary Consolidated
Profits before adjustments
Consolidation adjustments:
Unrealized profit - (see above)
Net consolidation adjustments

Profits before FVA

Depreciation of FVA
Consolidated profit
a

896,000

240,000

1,136,000

( - )
( - )
896,000
( - )
896,000

(36,000)
(36,000)
204,000
( - )
204,000

(36,000)
(36,000)
1,100,000
( - )
1,100,000

(720,000 x 4/12 = 240,000)

19. B
Solution:
60

Pig's profit before FVA (see above)

Share in Piglets profit before FVA

(c)

Owners
of parent
896,000
153,000

Depreciation of FVA

(
(

Share in goodwill impairment

Totals
(c)

- )
- )

1,049,000

NCI
N/A
51,000
(
(

- )
- )

51,000

Consolidated
896,000
204,000
(
(

- )
- )

1,100,000

Shares in Piglets profit before FVA (see above): (204K x 75%); (204K x

25%)

20. D
Solution:
Profit or loss attributable to owners of parent and NCI
Owners
Consoliof parent
NCI
dated
936,000
N/A
936,000
Bear's profit before FVA (given)
(a)

Share in Cubs profit before FVA

Profit attributable to preference
(b)
shareholders of Cub

Depreciation of FVA
Share in impairment loss on goodwill

Totals

489,000

163,000

652,000

N/A

48,000

48,000

1,424,960

211,000

1,636,000

(a)

The shares in Cubs profit are computed as follows:

Profit of Cub. Co.

700,000

One-year dividends on cumulative preference sh. (400K x 12%) (48,000)

Profit of Cub Co. attributable to ordinary shareholders

Allocation:
Bear's share (652,000 x 75%)
NCI's share (652,000 x 25%)
As allocated:
NOTE: Answer choice is rounded-off.

61

(b)

652,000
489,000
163,000
652,000