Pacque Company is a pyrotechnic company situated in General Santos City which

offers professional fireworks, pyrotechnic displays, celebration firecrackers and

other pyrotechnic products for all types of events. Products offered are best for
outdoor, close proximity, indoor and special effects.
Ganerne Corporation, meanwhile, owns various theme parks in the country.
Planning to expand its ventures and to make its daily fireworks display events
easier, it acquired a significant interest in Pacque Company.
On April 1, 2010, Ganerne was able to acquire a 32.5% ownership of Pacque
Companys stocks at 70 per share from a previous investor. The following
information pertains to the financial position of Pacque Company as of January 1,
2010:
Cash
Accounts Receivable
Allowance for Bad Debts
Investment in HTM
Patent
Land
Machinery
Building, net (in General Santos
City)
Total Assets
Accounts Payable
Bonds Payable
Common Stock (P10 par, 100,000
outstanding shares)
Additional Paid-in Capital

P 2,625,000.00
750,000.00
(58,000.00)
7,691,130.60
200,000.00
500,000.00
600,000
1,900,000
14,208,130.60
750,000.00
8,831,041.31

1,000,000.00
1,100,000.00
2,527,089.29

Retained Earnings

Further details as per books of Pacque are the following:

Investment in HTM, acquired on Dec. 31, 2009, has a face value of P8,000,000. It
has a remaining tenor of 5 years. It pays 9% coupon semi-annually every June 30
and December 31.
Patent on reusable fireworks was acquired last December 1, 2004. It is being
amortized throughout its useful life of 10 years using the straight-line method with
no salvage value.
Building in General Santos City has a remaining useful life of 18 years, as of yearend 2009. It is being depreciated using straight-line depreciation, with a salvage
value of P100,000.
Machinery has a remaining useful life of 5 years, being depreciated uniformly over
its useful life.

10-year 10-Million face value bonds payable, with 8% coupon, were issued last Dec.
31, 2008 at a yield of 10%. Payment of interest is required every June 30 and Dec.
31. P50,000 issuance costs were incurred. The accountant, however, erroneously
charged this to profit or loss and noticed this error only upon the most recent
acquisition of Ganerne.
The valuation of Ganerne as of acquisition date compared to Pacques were the
same except for the following:
Patent is deemed to have a remaining useful life of 5 years, to be amortized using
straight line. Fair value is the same with the carrying amount as of that date.
Building in General Santos has a remaining useful life of 19 years. It is to be
depreciated using SYD using a salvage value of P60,000. Valuation as per Ganerne
of the building amounts to P3,800,000.
HTM investment is valued using a market yield of 9%, and Bonds Payable is valued
using a market yield of 10%.
Appraisers are gathering data for the determination of the FV of Land. Ganerne
provided a provisional amount of P750,000.
Records of Pacque provide the following information:
2010
Jan 2

June 5
July 1

Oct. 28
Nov. 8
Dec. 31

2011
Jan 1
Apr 15

Pacque acquired a building in Polomolok on a 10% loan for

P20,000,000. The building has an estimated useful life of 6 years and a
residual value of P2,000,000.
Ganerne acquired all of Pacques land for P1,000,000.
Pacque acquired Ganernes building in Alabel for P8,000,000. The book
value, as of the beginning of the year, of the warehouse in Ganernes
books is P2,500,000. Ganernes engineers estimated the remaining life
of the warehouse at 10 years that time.
Ganerne sold to Pacque inventory worth P750,000 for P1,000,000.
Pacque sold 75% of its inventory to Achieve Company for P1,250,000.
Pacque reported a net income of 5,000,000 in its income statement for
the year. All revenues were earned during the second half of the year.

Building acquired by Pacque from Ganerne was sold to Kenshin

Company for P10,000,000.
Appraisers determined that the value of land was P800,000.

May 5

Purchased inventory costing P400,000 on account from Ina Corporation.

Jun 30

Purchased office supplies for P50,000 cash.

July 8

Sold merchandise costing P125,000 (acquired from Ina) on account for

P2,000,000 to Dunphy Corporation.

Aug. 28
Oct. 1

Declared a cash dividend totaling P100,000.

Purchased a machine for P850,000 cash. It is to be depreciated using
SYD throughout its useful life of 5 years.

Dec. 31

Office supplies at hand were worth P10,000.

Dec. 31

Due to significant changes in the technological environment where

Pacque Company operates, its share price became 60 per share.

However, on Jan 1, 2012, Ganernes management decided to put its 20% ownership
as held for sale in accordance with IFRS 5 because of the uncertainty brought by the
impending change in the administration, which is forecasted to bring adverse
effects to the pyrotechnic industry. On December 31, it disposed of the all of the
NCA-HFS at 60 per share. The remaining shares were accounted for as available for
sale.
Other transactions for the year are as follows:
Jan 3 Ganerne sold P500,000 worth of inventory to Pacque for 600,000 cash.
It was sold by Pacque to a third party for 800,000 at the beginning of
next year.
March Pacque bought a brand new machine for P 1,000,000 with a salvage
26 value of 50,000. The company used the double declining balance
method for depreciation for this special machine. It has a useful life of 5
years.
Dec 28 Pacque declared and paid dividends of 2.60 per share.
Dec 31 Pacque reported net income of 1,500,000, earned evenly per month.
Dec 31 The value of the remaining shares were 65 per share.
(1) Determine the amount of Share from Pacques net income to be reported in
the 2010, 2011 and 2012 income statement of Ganerne Corporation.
(2) Determine the carrying value of Investment in Pacque Company to be reported
in the 2010, 2011 and 2012 balance sheet.
(3) Reconcile Investment in Pacque Company and Ganernes proportionate share
in Pacques shareholders equity as of December 31, 2010 and 2011.