Business Combi and Conso FS

BUSINESS COMBINATIONS & CONSOLIDATED F/S
THEORY & COMPUTATIONAL
1. A business combination may be legally structured as a merger, a consolidation, an investment in

stock, or a direct acquisition of assets. Which of the following best describes a business combination
that is legally structured as a merger?
a. The surviving company is one of the two combining companies
b. The surviving company is neither of the two combining companies
c. An investor-investee relationship is established
d. A parent-subsidiary relationship is established
2. Business combinations may be accomplished either through a direct acquisition of assets and
liabilities by a surviving corporation or by stock investment in one or more companies. In accordance
with the PFRSs, a parent-subsidiary relationship always arise
a. When more that 50% interest is acquired in the acquiree
b. When a consideration is transferred in the combination
c. From a vertical or horizontal combination
d. When control is obtained by one of the combining constituents
3. Company J acquired all of the outstanding common stock of Company K in exchange for cash. The
acquisition price exceeds the fair value of net assets acquired. How should Company J determine the
amounts to be reported for the plant and equipment and long-term debt acquired from Company K?
Plants and equipment Long-term debt
a. K’s carrying amount K’s carrying amount

b. K’s carrying amount Fair value
c. Fair value K’s carrying amount
d. Fair value Fair value
4. Light Co. acquired Dark Co. in a business combination. Light Co. has been leasing out a building to
Dark years before the business combination. If the terms of the operating lease relative to market
terms is favourable, Light Co. shall
a. Recognize an intangible asset
b. Recognize a liability
c. Recognize an asset
d. Not recognize anything
5. Penn Corp. paid Php300,000 for the outstanding common stock of Star Co. At that time, Star had
the following condensed balance sheet:
Carrying amounts
Current assets Php40,000
Plant and equipment, net 380,000
Liabilities 200,000
Stockholders’ equity 220,000
The fair value of the plant and equipment was Php600,000 more than its recorded carrying amount. The
fair values and carrying amounts were equal for all other assets and liabilities. What amount of goodwill,
related to Star’s acquisition, should Penn report in its consolidated balance sheet?
a. Php20,000
b. Php40,000
c. Php60,000
d. Php80,000
6. On September 29, 1995, Wall Co. paid Php860,000 for all the issued and outstanding common stock
of Hart Corp. on that date, the carrying amounts of Hart’s recorded assets and liabilities were
Php800,000 and Php180,000, respectively. Hart’s recorded assets and liabilities had fair values of
Php840,000 and Php140,000, respectively. In Wall’s September 30, 1995, balance sheet, what
amount should be reported as goodwill?
a. Php20,000
b. Php160,000
c. Php180,000
d. Php240,000
7. On November 30, 1992, Parlor, Inc. purchased for cash at Php15 per share all Php250,000 shares of
the outstanding common stock of Shaw Co. at November 30, 1992, Shaw’s balance sheet showed a
carrying amount of net assets of Php3,000,000. At that date, the fair value of Shaw’s property, plant
and equipment exceeded its carrying amount by Php400,000. In its November 30, 1992,
consolidated balance sheet, what amount should Parlor report as goodwill?
a. Php750,000
b. Php400,000
c. Php350,000
d. Php0
8. During 20x8, Poppy Inc. acquired 100% of Seed Inc. by issuing 250,000 shares of its common stock.
The acquisition was announced on March 31, 20x8, when Poppy’s common stock was selling for
Php45 per share, and finalized on October 15, 20x8, when the market price of Poppy’s common
stock was Php50 per share. On October 15, 20x8, Seed’s net assets had a book value of
Php10,750,000. Book value equalled fair value for all recognized assets and liabilities, except land,
which had a fair value of Php500,000 higher than book value. Seed also had unpatented technology
with a fair value of Php225,000 and in-process research and development with a fair value of
php365,000. What is the goodwill to be reported on Poppy Inc.’s December 31, 20x8 balance sheet?
a. Php500,000
b. Php660,000
c. Php1,250,000
d. Php1,750,000
9. On January 1, 20x9, Pacific Corporation acquired 75% of Sand Corporation’s 200,000 outstanding
common shares for Php2,850,000. The remaining shares traded at Php18.50 per share on the
acquisition date. On January 1, the book value of Sand’s net assets was Php3,000,000. Book value
equalled fair value for all of Sand’s assets and liabilities except land, which had a fair value
Php200,000 greater that book value, and equipment, which had a fair value Php150,000 greater that
book value. Non-controlling interest is measured at fair value. on January 1, 20x9, Sand had a non-
compete agreement with a fair value of Php300,000. What is the goodwill to be reported on Pacific
Corporation’s December 31, 20x9 balance sheet?
a. Php125,000
b. Php287,500
c. Php337,500
d. Php425,000
10. On October 1, 20x8, Pepper Inc. acquired 100% of Salt Inc. for php275,000. On that date, the
carrying values of Salt Inc.’s assets and liabilities were Php450,000 and Php200,000, respectively.
The fair values of Salt’s assets and liabilities were Php550,000 and Php200,000, respectively.
Additionally, Salt had identifiable intangible assets at the time of acquisition with a fair value of
Php60,000. What is the gain to be reported on Pepper’s December 31, 20x8 consolidated income
statement?
a. Php0
b. Php25,000
c. Php75,000
d. Php135,000
Use the following information for the next two questions:

Tree Co. acquired all the assets and assumed all the liabilities of Plant Co. for Php2,000,000. On
acquisition date, Plant’s net identifiable assets have carrying amount and fair value of Php2,800,000 and
Php1,600,000, respectively.
11. How much is recognized by Tree Co. on the business combination?

a. Goodwill of Php400,000.
b. Gain on bargain purchase of Php400,000.
c. Goodwill of Php800,000.
d. Gain bargain purchase of Php800,000.
12. How much is recognized by Plant Co. on the transaction above?

a. Negative goodwill of Php1,200,000.
b. Gain on disposal of Php1,200,000.
c. Loss on disposal of Php800,000.
d. Gain on disposal of Php400,000.

Wolf Co. acquired all the assets and assumed all the liabilities of Kitty Co. for Php1,000,000. Information
on Kitty’s net identifiable assets on acquisition date follows:
Carrying amount Fair value
Assets 2,100,000 2,520,000
Liabilities (800,000) (1,620,000)
Net 1,300,000 900,000
13. How should Wolf Co. account for the difference between the consideration transferred and the fair
value of the net identifiable assets?
a. Goodwill of Php100,000
b. Gain on bargain purchase of Php300,000
c. As an allocated adjustment to the assets and liabilities recognized on the business combination.
d. As gain or loss in the income statement in the year of business combination.
14. How should Wolf Co. account for the difference between the consideration transferred and the
carrying amount of the net identifiable assets?
a. Gain on bargain purchase of Php300,000
b. As net decrease in net assets for Php400,000
c. As an allocated adjustment to the assets and liabilities recognized on the business combination.
d. Wolf Co. may ignore this difference and instead recognize the assets acquired and liabilities
assumed at their acquisition-date fair values.
15. ASININE STUPID Company acquired a 30% equity interest in OBTUSE TORPID Company many
years ago. In the current accounting period it acquired a further 40% equity interest in OBTUSE.
Are the following statements true or false, according to PFRS 3 Business Combinations?
I. ASININE’s pre-existing 30% equity interest in OBTUSE should be re-measured at fair value at the
acquisition date.
II. ASININE’s net assets should be re-measured at fair value at the acquisition date.
a. False, False b. False, True c. True, False d. True, True
16. On September 1, 20x1, TEPID Co. acquired LUKEWARM Co. in a business combination that
resulted to goodwill. On acquisition date, the fair values of some of the identifiable assets
acquired from LUKEWARM Co. cannot be reliably measured. When applying the ‘measurement
period’ principle under PFRS 3, TEPID should
a. Complete the measurement before the end of December 31, 20x1.
b. Complete the measurement before the end of December 31, 20x2.
c. Complete the measurement before the end of November 31, 20x1.
d. Complete the measurement before the end of September 1, 20x2.

Burns Co. issued 20,000 ordinary shares in exchange for all the assets and liabilities of Sighing, Inc. On
acquisition date, Sighing’s net identifiable assets have a carrying amount of Php4,000,000 and a fair
value of Php2,000,000. The transaction increased Burns’ share premium by Php400,000. However, no
goodwill resulted from the business combination.
17. How much is acquisition- date fair value per share of the ordinary shares transferred by Burns?
a. 20
b. 40
c. 80
d. 100
18. How much is acquisition- date fair value per share of the ordinary shares transferred by Burns?
a. 20
b. 40
c. 80
d. 100
19. Run Co. issued ordinary shares in exchange for all the outstanding shares of Finger Co. in a business
combination that have not resulted to any goodwill. The share exchange ratio was 2:1. Finger’s
ordinary share capital with par value per share of Php4 has a carrying amount of php40,000. Points
ordinary shares have par value per share of Php10. Finger’s net identifiable assets have a carrying
amount of Php400,000 and a fair value of Php800,000. How much is the acquisition-date fair value
per share of Run’s ordinary shares?
a. 20
b. 40
c. 80
d. 100
Use the following information for the next three questions:

Fact pattern
On September 30,20x1, INNOCUOUS Co. acquired all of the identifiable assets and assumed all of the
liabilities of HARMLESS, Inc. by paying cash of Php4,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of Php6,400,000 and Php3,600,000, respectively.
20. INNOCUOUS engaged an independent valuer to appraise a building acquired from HARMLESS.
However, the valuation report was not received by the time INNOCUOUS authorized for issue its
financial statements for the year ended December 31, 20x1. As such, the building was assigned a
provisional amount of Php2,800,000. Also, the building was tentatively assigned an estimated useful
life of 10 years from acquisition date. INNOCUOUS uses the straight line method of depreciation and
recognized three months’ depreciation on the building for 20x1.
On July 1, 20x2, INNOCUOUS finally received the valuation report from the independent valuer which
shows that the fair value of the building as of September 30, 20x1 is Php2,000,000 and remaining useful
from that date is 5 years.
How should INNOCUOUS account for the new information obtained?

a. As a retrospective adjustment to the provisional amount of the building resulting to increase in
goodwill by Php800,000.
b. As a retrospective adjustment to the provisional amount of the building resulting to decrease in
goodwill by Php800,000.
c. As a retrospective restatement to the provisional amount of the building resulting to increase in
goodwill by Php800,000. The adjustment is treated as a correction of a prior period error.
d. The new information obtained is ignored. No adjustment to goodwill is necessary.
21. On July 1, 20x2, INNOCUOUS obtained new information that HARMLESS has an unrecorded patent
which was not identified on September 30, 20x1. It was believed that the unrecorded patent had a
fair value of Php400,000 and a remaining useful life of 4 years as of September 30, 20x1.

a. As a retrospective adjustment to record the previously unrecorded patent resulting to increase
in goodwill by Php400,000.
b. As a retrospective adjustment to record the previously unrecorded patent resulting to decrease
c. As a retrospective restatement to record the previously unrecorded patent resulting to decrease
in goodwill by Php400,000. The adjustment is treated as a correction of a prior period error.
22. On November 1, 20x2, the internal auditors of INNOCUOUS discovered an error on the recorded
identifiable assets acquired from HARMLESS on the business combination. A patent with a fair value
of Php400,000 and a remaining useful life of 4 years as of September 30, 20x1 was omitted from the
valuation listing.

a. As a retrospective adjustment to record the previously unrecorded patent resulting to increase
b. As a retrospective adjustment to record the previously unrecorded patent resulting to decrease
c. As a retrospective restatement to record the previously unrecorded patent resulting to decrease
in goodwill by Php400,000. The adjustment is treated as a correction of a prior period error.
23. On September 30,20x1, RIBALD Co. acquired all of the identifiable assets and assumed all of the
liabilities of OFFENSIVE, Inc. by issuing 10,000 shares with par value of Php20 per share.
On this date, RIBALD’s shares were assigned a provisional value of Php400 per share. Also, because
some identifiable assets acquired and liabilities assumed have a fair values that were not readily
available, a provisional amount of Php2,800,000 was assigned to OFFENSIVE’s net identifiable assets.
On April 1, 20x2, after RIBALD’s 20x1 financial statements were issued, new information was obtained
by confirming that the fair value of RIBALD’s shares on September 30, 20x1 is Php440 per share and that
the fair value of OFFENSIVE’s net identifiable assets as of September 30, 20x1 is Php3,600,000.
On July 1, 20x2, two competitors of RIBALD have also merged which led to RIBALD believing that the
merger with OFFENSIVE is not as profitable as expected. RIBALD now wants to decrease the amount
assigned to the consideration transferred to OFFENSIVE on September 30, 20x1 to Php360 per share and
the value of OFFENSIVE’s net identifiable assets to Php1,600,000.
How should RIBALD account for the new information obtained on July 1, 20x2?
a. As a retrospective adjustment resulting to increase in goodwill by Php400,000.
b. As a retrospective adjustment resulting to decrease in goodwill by Php400,000.
c. As a retrospective restatement resulting to decrease in goodwill by Php400,000. The adjustment
is treated as a correction of a prior period error.
24. On January 1, 20x1, DIAPHANOUS Co. acquired all of the identifiable assets and assumed all of the
liabilities of TRANSPARENT, Inc. by paying cash f Php4,000,000. On this date, the identifiable assets
acquired and liabilities assumed have fair values of Php6,400,000 and Php3,600,000, respectively.
Additional information:
In addition to the business combination transaction, the following have also transcribed during the
negotiation period:
a. After the business combination, TRANSPARENT will enter into liquidation and DIAPHANOUS agreed
to reimburse TRANSPARENT for liquidation costs estimated at Php80,000.
b. DIAPHANOUS agreed to reimburse TRANSPARENT for the appraisal fee of a building included in the
identifiable assets acquired. The agreed reimbursement is Php40,000.
c. DIAPHANOUS entered into an agreement to retain the top management of TRANSPARENT for
continuing employment. On acquisition date, DIAPHANOUS agreed to pay the key employees signing
bonuses totalling Php400,000.
d. To persuade, Mr. Five-six Numerix, the previous major shareholder of TRANSPARENT, to sell his
major holdings to DIAPHANOUS agreed to pay an additional Php200,000 directly to Mr. Numerix.
e. Included in the valuation of identifiable assets are inventories with fair value of Php360,000. Ms.
Vital Statistix, a former major shareholder of TRANSPARENT, shall acquire title to the goods.
How much is the goodwill (gain on bargain purchase)?
a. 1,680,000 b. 1,640,000 c. 1,760,000 d. 1,240,000
25. On January 1, 20x1, THRALL Co. acquired all of the identifiable assets and assumed all of the
liabilities of SLAVE, Inc. by paying cash of Php4,000,000. On this date, SLAVE’s identifiable assets and
liabilities have fair values of Php6,400,000 and Php3,600,000, respectively.
Prior to business combination, THRALL has sold a license to SLAVE. The licensing agreement granted
SLAVE the right to use THRALL’s patented technology for a period of 5 years. THRALL received
Php400,000 for license on grant date and royalty fees based on SLAVE’s sales.
THRALL recognized the license fee as deferred liability and amortized it over 5 years. The carrying
amount of the deferred liability on January 1, 20x1 is Php240,000.
On the other hand, SLAVE recognized the license fee paid to THRALL as pre-payment and amortized it
based on the number of products sold. The carrying amount of the pre-payment on January 1, 20x1 is
Php200,000.
On January 1, 20x1, THRALL has determined that the fair value of the license agreement is Php480,000.
The fair value determined consists of Php160,000 “at-market” (based on market participants’ estimates)
and Php320,000 “off-market” (based on the excess of fair value derived from cash flow estimates over
at-market values; Php480,000 – Php160,000) components. The off-market component is favourable to
SLAVE and unfavourable to THRALL, as royalty rates have increased considerably in comparable markets
since the initiation of the contract. The contract does not have any cancellation clause or any minimum
royalty payment requirements.

a. 1,200,000 b. 840,000 c. 980,000 d. 920,000
26. MULIEBRITY Co. purchases raw materials from FEMINITY, Inc. under five-year supply contract at
fixed rates. Currently, the fixed rates are higher than the rates at which MULIEBRITY could purchase
similar raw materials from another supplier. MULIEBRITY is allowed under the supply agreement to
terminate the contract before the end of the five-year term, but only by paying a Php400,000
penalty.
On January 1, 20x1, with three years remaining under the supply contract, MULIEBRITY Co. acquired all
of the identifiable assets and assumed all of the liabilities of FEMINITY, Inc. by paying cash of
Php4,000,000. On this date, FEMINITY’s identifiable assets and liabilities have fair values of
Php6,400,000 and Php3,600,000, respectively.
Included in the total fair value of FEMINITY is Php640,000 related to the fair value of the supply contract
with MULIEBRITY. The Php640,000 represents a Php280,000 component that is “at market” because the
pricing is comparable to pricing for current market transactions for the same or similar items (selling
effort, customer relationships, and so on) and a Php360,000 component for pricing that is unfavorable
to MULIEBRITY because it exceeds the price of current market transactions for similar items. There are
no other assets or liabilities related to the contract in either MULIEBRITY’s or FEMINITY’s books as of
acquisition date.
a.840,000 b.1,200,000 c.920,000 d.980,000
27. On January 1, 20x1, DEMULCENT Co. acquired all of the identifiable assets and assumed all of the
liabilities of EMBARRASSING’s inc. by paying cash of Php4,000,000 on this date, EMBARRASSING’s
identifiable assets and liabilities have fair values of Php6,400,000 and Php3,600,000 respectively.
As of January 1, 20x1, there is a pending patent infringement suit filed by EMBARRASSING Inc. against
DEMULCENT Co. DEMULCENT recognized a probable loss on the lawsuit amounting the Php520,000. The
patent in question shall be transferred to DEMULCENT’s legal advisers determined that the fair value of
the settlement of the pending lawsuit is Php400,000. How much is the goodwill (gain on bargain
purchase)?
a.840,000 b.800,000 c.280,000 d.920,0000
28. On January 1, 20x1, VERITY FIRMNESS Co. acquired all of the identifiable assets and assumed all of
the liabilities of FIRMNESS, Inc by paying cash of Php4,000,000. On this date, FIRMNESS’s identifiable
assets and liabilities have fair values of Php6,400,000 and 3,600,000 respectively.
VERITY agrees to pay an additional amount equal to 10% of the 20x1 year-end profit that exceeds
Php1,600,000. FIRMNESS historically has reported profits of Php1,200,000 to 1,600,000 each year.
After assessing the expected level of profits for the year based on forecasts and plans, as well as industry
trends, VERITY estimated that the fair value of the contingent consideration is Php40,000.
How much is the goodwill (gain or bargain purchase)?

a.1,180,000 b. 1,200,000 c.1,240,000 d.980,000
29. Case#1: (refer to previous problem) the actual profit for the year is Php2,200,000. The contingent
consideration will be settled on January 15, 20x2. The entry on December 31, 20x1 includes a
a. Debit o loss of Php20,000 to be recognized in profit or loss
b. Credit to gain of Php20.000 to be recognized in profit or loss
c. Debit to loss of Php20,000 to be recognized in OCI
d. Credit to gain if Php20,000 to be recognized in OCI
30. Case #2: (refer to previous problem) The actual profit for the year is Php1,200,000. The entry on
December 31,20x1 includes a
a. Debit to loss of php40,000 to be recognized in profit or loss
b. Credit to gain of Php40,000 to be recognized in profit or loss
c. Debit to loss o f Php40,000 to be recognized in OCI
d. Credit to gain of Php40,000 to be recognized in OCI
31. On January 1, 20x1 PRECIPITOUS Co. acquired all of the identifiable assets and assumed all of the
liabilities of STEEP Inc. by issuing 10,000 of its own shares with par value of Php40 per share. On this
date STEEP’s identifiable assets and liabilities have fair values of Php6,400,000 and Php3,600,000,
respectively, while PRECIPITOUS’s shares have fair value of Php400 per share.
In addition, PRECIPITOUS agrees to issue additional 1,000 shares to the former owner of STEEP if the
market price per share of PRECIPITOUS’s shares increases to php480 per share as of December 31, 20x1.
After consideration for the vesting conditions, PRECIPITOUS’s estimated that the fair value of the
contingent consideration on January 1, 20x1 is php360,000.
How much is the goodwill (gain or bargain purchase)?
a.1,200,000 b. 840,000 c.1,560,000 d.980,000
32. Case #1: (refer to previous problem) The actual market price of PRECIPITOUS’s shares on December
31, 20x1 is Php480. The contingent consideration will be settled on January 15,20x2. The entry on
December 31, 20x1 includes
a. Debit to loss of php120,000 in profit or loss
b. Credit gain of php120,000 in profit or loss
c. Debit to loss of php120,000 in OCI
d. No entry is required
33. Case #2 : The actual market price of PRECIPITOUS’s shares on December 31, 20x1 is php 360. The
entry on December 31, 20x1 includes
a. Debit to loss of php120,000 in profit or loss
b. Credit gain of php20,000 in OCI
c. A reclassification within equity
d. No entry is required
34. On January 1,20x1, MACABRE Co. acquired 90% of the identifiable assets and assumed all of the
liabilities of HORRIBLE, Inc. by paying cash of php4,000,000. On this date, HORRIBLE’s identifiable
assets and liabilities have fair values of php6,400,000 and php3,600,000, respectively. Non-
controlling interest has a fair value of php320,000.
Five years ago, HORRIBLE appointed Mr. Boss as the CEO under a ten-year contract. The contract
required HORRIBLE to pay the CEO php400,000 if HORRIBLE is acquired before the contract expires. On
January 1, 20x1, Mr. Boss was still employed and MACAMBRE assures the obligation of paying Mr. Boss
the amount. How much is the goodwill (gain or bargain purchase)?
a.1,200,000 b.1,920,000 c.1,520,000 d.1,120,000
35. Negative goodwill arises when the ___________ of the net assets acquired is higher than the
purchase price of the assets.
a. Useful life
b. Carrying value
c. Fair market value
d. Excess earnings
36. Purchased goodwill should

a. Be written off as soon as possible against retained earnings.
b. Be written off as soon as possible as an extraordinary item.
c. Be written off by systematic charges as a regular operating expense over the period benefited.
d. Not be amortized.
37. In accordance with PAS 36 Impairment of Assets, which of the following costs of goodwill should be
amortized over their estimated useful lives?
Costs of goodwill from a Costs of developing
business combination goodwill internally
a. No No
b. No Yes
c. Yes Yes
d. Yes No
38. King Co. and Kong Co. agreed to combine their businesses. A new entity named Ape Corporation
will be created to acquire King and Kong. The entities agree on the following:
 The industry normal earnings shall be computed as 10% of net assets.
 Goodwill shall be determined by capitalizing excess earnings by 20%.
King Co. Kong Co.

Fair value of net identifiable assets 600,000 800,000
Average annual earnings 100,000 160,000
Ape Corporation shall issue a total of 40,000 shares which shall be divided between King and Kong based
on their expected total contributions, including goodwill.
What are (1) the amount of goodwill attributed to King Co. (2) the total contribution of Kong Co. (net
assets plus goodwill) and (3) the number of shares to be issued to King Co.?
a. (1) 200,000; (2) 1,200,000; (3) 21,800
b. (1) 600,000; (2) 2,000,000; (3) 40,000
c. (1) 400,000; (2) 800,000; (3) 18,200
d. (1) 200,000; (2) 800,000; (3) 21,800
39. Da Co.; De Co. and Di Co. agreed to combine their businesses. A new entity named Dodu
Corporation will be created to acquire the combining constituents. The entities have the following
information:
Da Co. De Co. Di Co.
Fair value of net identifiable assets 320,000 480,000 800,000
Average annual earnings 48,000 48,000 64,000
Earnings in excess of 6% are to be capitalized at 20% in determining goodwill contributions of the

combining entities. Dodu Corporation shall issue shares to the combining entities base on their
respective total contributions, including goodwill.
What is the distribution ratio between the combining entities?

a. 24.17%; 30.00%; 45.83%
b. 25.00%; 31.00%; 44.00%
c. 24.00%; 30.00%; 45.00%
d. 23.17%; 29.83%; 47.00%

Gamer Co. and Player Co. agreed to combine their businesses. A new entity named App Corporation will
be created to acquire Gamer and Player. App Corporation shall issue preference shares with par value of
Php20 for the entities’ net asset contributions, and ordinary shares with par value of Php10 for the
difference between the total shares to be issued and the preference shares to be issued. The total
shares to be issued shall be the equal to average annual earnings capitalized at 5%. Relevant data
follows:
Gamer Co. Player Co.

40. How many preference shares shall be issued to Gamer and Player, respectively?
a. 30,000; 40,000
b. 25,000; 20,000
c. 25,000; 19,000
d. 19,000; 25,000
41. How many ordinary shares shall be issued to Gamer and Player, respectively.
a. 30,000; 40,000
b. 25,000; 20,000
c. 25,000; 19,000
d. 19,000; 25,000
42. How much is the total goodwill arising from the business combination?
a. 700,000
b. 300,000
c. 400,000
d. 500,000
43. In the application of the acquisition method, which of the combining constituents is most likely to be
deemed as the acquirer in the business combination?
a. Gamer Co.
b. Player Co.
c. App Corporation
d. None of these
44. On January 1, 20x1, ZYX, Inc., an unlisted company, acquires CBA Co., a publicly listed entity, through
an exchange of equity instruments. CBA Co. issues 5 shares in exchange for each ordinary share of
ZYX, Inc. All of ZYX’s shareholders exchange their shares in CBA Co. Therefore, CBA Co. issues 40,000
ordinary shares in exchange for all 8,000 ordinary shares of ZYX, Inc.
The fair value of each ordinary share of ZYX at January 1, 20x1 is Php800. The quoted market price of
CBA’s ordinary shares at that date is Php160.
The statements of financial position of the combining entities immediately before combination are
shown below:
CBA Co. ZYX Co.
(legal parent, (legal subsidiary,
accounting accounting
acquiree) acquirer)
Identifiable assets 6,400,000 9,600,000
Total assets 6,400,000 9,600,000
Liabilities 5,200,000 2,800,000

Share capital:
10,000 ordinary shares, Php20 par 400,000
8,000 ordinary shares, Php200 par 3,200,000
Retained earnings 800,000 3,600,000
Total liabilities and equity 6,400,000 9,600,000
The fair value of CBA’s identifiable assets and liabilities at January 1, 20x1 are the same as their carrying
amounts. How much is the goodwill (gain on bargain purchase)?
a. (880,000) b. 400,000 c. 540,000 d. 600,000
Questions 45 to 48 are based on the following data:
Strings Corp. acquired 80% of Wind Corp.’s outstanding shares. The statements of financial position of
both entities immediately after the acquisition are shown below:
Strings Co. Wind Co.

Investment in subsidiary (at cost) 430,000
Other assets 1,570,000 750,000
Assets 2,000,000 750,000
Liabilities 750,000 400,000

Ordinary share capital 1,000,000 310,000
Retained earnings 250,000 40,000
Liabilities and stockholders’ equity 2,000,000 750,000
At date of purchase, the fair value of Wind’s assets was Php50,000 more that the aggregate carrying
amounts. Non-controlling interest is measured under the proportionate share method.
45. How much is the goodwill in the consolidated balance sheet prepared immediately after the
acquisition?
a. 110,000
b. 120,000
c. 140,000
d. 160,000
46. In the consolidated balance sheet prepared immediately after the acquisition, the consolidated
total assets should amount to:
a. 2,910,000
b. 2,480,000
c. 2,430,000
d. 2,370,000
47. In the consolidated balance sheet prepared immediately after the acquisition, the equity
attribute to owners of the parent should amount to:
a. 1,250,000
b. 1,280,000
c. 1,330,000
d. 1,630,000
stockholders’ equity should amount to:
a. 1,250,00
b. 1,280,000
c. 1,330,000
d. 1,630,000
Questions 49 to 52 use the following information:

Beni Corp. purchased 100% of Carr Corp.’s outstanding capital stock for Php430,000 cash. Immediately
before the acquisition, the balance sheets of both corporations reported the following:
Beni Carr
Assets 2,000,000 750,000

Common stock 1,000,000 310,000
Liabilities and stockholders’ equity 2,000,000 750,000
At the date of purchase, the fair value of Carr’s assets wa Php50,000 more than the aggregate carrying
amounts.
49. How much is the goodwill in the consolidated balance sheet prepared immediately after the
acquisition?
a. 30,000
b. 40,000
c. 60,000
d. None of these
total assets should amount to:
a. 1,970,000
b. 2,350,000
c. 2,370,000
d. 2,400,000
total liabilities should amount to:
a. 750,000
b. 800,000
c. 1,150,000
d. 1,200,000
stockholders’ equity should amount to:
a. 1,680,000
b. 1,650,000
c. 1,600,000
d. 1,250,000
Questions 53 to 57 are based on the data below:

On January 1, 20x1, Square Co. acquired 80% interest in Circle Co. On acquisition date, Circle’s net
identifiable assets have a carrying amount of Php296,000. Circle’s identifiable assets approximated their
fair values except for inventory with carrying amount of Php92,000 and fair value of Php124,000 and
equipment with carrying amount of Php160,000 and fair value of Php192,000. The remaining useful life
of the equipment is 4 years. Non-controlling interest was measured using the proportionate share
method.
The statements of financial position of the entities of December 31, 20x1 are as follows:
Square Co. Circle Co.

ASSETS
Cash 392,000 316,000
Inventory 420,000 60,000
Investment subsidiary (at cost) 300,000 -
Equipment, net 560,000 120,000
TOTAL ASSETS 1,672,000 496,000
LIABILITIES AND EQUITY

Trade and the payables 292,000 120,000
Share capital 940,000 200,000
Total equity 1,380,000 376,000
TOTAL LIABILITIE AND EQUITY 1,672,000 496,000
No dividends were declared by either entity during 20x1. There were also no inter-company transactions
and impairment in goodwill.
53. What amount of goodwill is presented in the consolidated statement of financial position on
December 31, 20x1?
a. 12,000
b. 42,000
c. 48,000
d. 84,000
54. How much is the consolidated total assets on December 31, 20x1?
a. 1,867,000
b. 1,894,000
c. 1,904,000
d. 1,907,000
55. How much is the non-controlling interest in the net assets of the subsidiary on December 31,
20x1?
a. 40,000
b. 80,000
c. 120,000
d. 160,000
56. How much is the consolidated retained earnings on December 31, 20x1?
a. 378,000
b. 392,000
c. 472,000
d. 522,000
57. How much is the consolidated total equity as of December 31, 20x1?
a. 1,380,000
b. 1,412,000
c. 1,415,000
d. 1,492,000
At the beginning of the year, Fast Co. acquired 70% interest in Slow Co. On acquisition date, Circle’s
identifiable assets approximated their fair values except for an inventory whose fair value exceeded, its
carrying amount by Php10,000 and a building whose fair value exceed its carrying amount by Php80,000.
The building has a remaining useful life of 5 years.
At the end of the year, Fast Co. and Slow Co. reported profits of Php400,000 and Php80,000,
respectively.
No dividends were declared by either entity during year. There were also no inter-company transactions
58. How much is the consolidated profit in 20x1?

a. 496,000
b. 454,000
c. 448,000
d. 388,000
59. How much is the consolidated profit attributable to owners of the parent in 20x1?
a. 381,800
b. 396,800
c. 437,800
d. 448,800
60. How much is the consolidated profit attributable to non-controlling interest in 20x1?
a. 6,200
b. 16,200
c. 57,000
d. 72,200
61. On January 1, 1991, Dallas, Inc. acquired 100% of Style, Inc.’s outstanding common stock for
Php132,000. On that date, the carrying amounts of Style’s assets and liabilities approximated
their fair values. Summarized balance sheet information for the two companies immediately
after the acquisition follows:
Dallas Style
Investment in Style 132,000 -

Other assets 138,000 115,000
Assets 270,000 115,000
Liabilities - -
Common stock 50,000 ` 20,000
Share premium in excess of par 80,250 44,000
Liabilities and stockholders’ equity 270,000 115,000
What amount of total stockholders’ equity should be reported in Dallas’ January 1,1991, consolidated
balance sheet?
a. Php270,000
b. Php286,000
c. Php362,000
d. Php385,000

On January 1, 20x1, Bass Co. issued equity instruments in exchange for 75% interest in Guitar Co. On
acquisition date, Bass Co. elected to measure non-controlling interest at fair value. Bass Co.’s
management believes that the fair value of the consideration transferred correlates to the fair value of
the controlling interest acquired and that the fair value of the controlling interest is proportionate to th
fair value of the remaining interest.
Guitar Co.’s net identifiable assets have carrying amount and fair value of Php300,000 and Php360,000,
respectively. The difference is attributable to a building withg a remaining useful life of 6 years.
The December 31, 20x1 statements of financial position of Bass Co. and Guitar Co. are summarized
below:
Bass Co. Guitar Co.
ASSETS
Investment in subsidiary (at cost) 300,000 -
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000

Trade and other payables 292,000 120,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000
No dividends were declared by either entity during year. There were also no inter-company transactions
62. What amount of goodwill is presented in the consolidated statement of financial position on
December 31, 20x1?
a. 40,000
b. 35,000
c. 20,000
d. 15,000
63. How much is the consolidated total assets as of December 31, 20x1?
a. 1,867,000
b. 1,907,000
c. 1,958,000
d. 1,974,000
64. How much is the non-controlling interest in the net assets of the subsidiary on December 31,
20x1?
a. 106,500
b. 116,500
c. 136,500
d. 146,500
65. How much is the consolidated retained earnings on December 31, 20x1?
a. 489,500
b. 498,000
c. 534,500
d. 543,500
66. How much is the consolidated total equity on December 31, 20x1?
a. 1,546,000
b. 1,564,000
c. 1,642,000
d. 1,624,000

On January 1, 20x1, Laughter Co. issued equity instruments in exchange for 75% interest in Tears Co.
Tears Co.’s net identifiable assets have carrying amount and fair value of Php300,000 and Php360,000,
respectively. The difference is attributable to a building with a remaining useful life of 6 years.
The December 31, 20x1 statements of profit or loss of Laughter Co. and Tears Co. are summarized
below:
Statements of profit or loss

For the year ended December 31, 20x1
Laughter Co. Tears Co.
Revenues 1,200,000 480,000
Operating expenses (960,000) (400,000)
Profit for the year 240,000 80,000
67. How much is the consolidated profit in 20x1?

a. 301,000
b. 310,000
c. 320,000
d. 336,000
68. How much is the consolidated profit attributable to owners of the parent in 20x1?
a. 292,500
b. 310,000
c. 320,000
d. 232,500
69. How much is the consolidated profit attributable to non-controlling interest in 20x1?
a. 6,500
b. 17,500
c. 57,500
d. 77,500

Selected information from the separate and consolidated balance sheets and income statements of
Pare, Inc. and its subsidiary, Shel Co., as of December 31, 1994, and for the year then ended is as
follows:
Pare Shel Consolidated
Balance sheet accounts:
Accounts receivable 52,000 38,000 78,000
Inventory 60,000 50,000 104,000
Income statement accounts:

Revenues 400,000 280,000 616,000
Cost of goods sold 300,000 220,000 462,000
Gross profit 100,000 60,000 154,000
During 1994, Pare sold goods to Shel at the same mark up on cost that Pare uses for all sales.
70. What was the amount of intercompany sales from Pare to Shel during 1994?
a. 6,000
b. 12,000
c. 58,000
d. 64,000
71. In the consolidation worksheet, what amount of unrealized intercompany profit was
eliminated?
a. 6,000
b. 12,000
c. 58,000
d. 64,000
72. Parker Corp. Owns 80% of Smith Inc.’s common stock. During 1991, Parker sold Smith
Php250,000 of inventory on the same terms as sales made to third parties. Smith sold all of the
inventory purchased from Parker in 1991. The following information pertains to Smith and
Parker’s sales for 1991:
Parker Smith
Sales 1,000,000 700,000

Cost of sales 400,000 350,000
Gross profit 600,000 350,000
What amount should Parker report as cost of sales in its 1991 consolidated income statement?
a. 750,000
b. 680,000
c. 500,000
d. 430,000
73. Selected data for two subsidiaries of Dunn Corp. Taken from December 31, 1988 pre-closing trial
balances are as follows:
Banks Co. Lamm Co.
Debit Credit
Shipments to Banks - 150,000
Shipments from Lamm 200,000 -
Intercompany inventory profit on total shipments - 50,000
Additional data relating to December 31, 1988 inventory are as follows:

Banks Co. Lamm Co.
Inventory acquired from outside parties 175,000 250,000
Inventory acquired from Lamm 60,000 -
The inventory to be included in the December 31, 1988 consolidated financial statements is:
a. Php425,000
b. Php435,000
c. Php470,000
d. Php485,000

On January 2, 1994, Pare Co. acquired 75% of Kidd Co.’s outstanding common stock. On the acquisition
date, the book value of Kidd’s assets and liabilities equalled their fair values. Non-controlling interest
was measured using the proportionate share method. Selected balance sheet data at December 31,
1994, is as follows:
Pare Kidd
Total assets 420,000 180,000

Common stock 100,000 50,000
Total liabilities and equity 420,000 180,000
During 1994, Pare and Kidd paid cash dividends of Php25,000 and Php5,000, respectively, to their
shareholders. There were no other intercompany transactions.
74. In the December 31, 1994 consolidated balance sheet, what amount should be reported as non-
controlling interest in net assets?
a. 0
b. 30,000
c. 45,000
d. 105,000
75. In the December 31, 1994 consolidated balance sheet, what amount should be reported as
common stock?
a. 50,000
b. 100,000
c. 137,000
d. 150,000
76. In the December 31, 1994 consolidated statement of retained earnings, what amount shuld be
reported as dividends paid?
a. 5,000
b. 25,000
c. 26,250
d. 30,000
77. On January 1, 20x9, Paul Corporation acquired 80% of Saul Corporation’s 200,000 shares of the
outstanding common stock of for Php5,000,000: Paul did not pay a control premium in the
acquisition. On the date of acquisition, the Php6,000,000 book value of Saul’s net assets
equalled fair value. Non-controlling interest was measured at fair value. During 20x9, Saul
reported net income of Php550,000 and paid dividends of Php165,000. What is the non-
controlling interest that will be reported on Paul Corporation’s December 31,20x9 consolidated
balance sheet?
a. 1,200,000
b. 1,250,000
c. 1,277,000
d. 1,327,000
78. Clark Co. had the following transactions with affiliated parties during 1992:
 Sales of Php60,000 to Dean, Inc., with Php20,000 gross profit. Dean had ph15,000 of
inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert
significant influence.
 Purchases of raw materials totalling Php240,000 from Kent Corp., a wholly-owned
subsidiary. Kent’s gross profit on the sale was php48,000. Clark had Php60,000 of this
inventory remaining on December 31, 1992.
Before eliminating entries, Clark had consolidated current assets of Php320,000. What amount
should Clark report in its December 31, 1992, consolidated balance sheet for current assets?
a. 320,000
b. 317,000
c. 308,000
d. 303,000
79. Wagner, a holder of a Php1,000,000 Palmer, Inc. bond, collected the interest due on March 31,
1992, and then sold the bond to Seal, Inc. for Php975,000. On that date, Palmer, a 75% owner of
Seal, had a Php1,075,000 carrying amount for this bond. What was the effect of Seal’s purchase
of Palmer’s bond on the retained earnings and non-controlling interest amounts reported in
Palmer’s March 31,1992, consolidated balance sheet?
Retained earnings Non-controlling interest

a. Php100,000 increase Php0
b. Php75,000 increase Php25,000 increase
c. Php0 Php25,000 increase
d. Php0 Php100,000 increase
80. On January 1, 1990, Poe Corp. sold a machine for Php900,000 to Saxe Corp. its wholly-owned
subsidiary. Poe paid Php1,000,000 for this machine, which had accumulated depreciation of
Php250,000. Poe estimated a Php100,000 salvage value and depreciated the machine on the
straight-line method over 20 years, a policy which Saxe continued. In Poe’s December 31, 1990,
consolidated balance sheet, this machine should be included in cost and accumulated
depreciation as:
Cost Accumulated depreciation
a. 1,000,000 300,000
b. 1,100,000 290,000
c. 900,000 40,000
d. 850,000 42,500
81. Zest Co. owns 100% of Cinn, Inc. On January 2, 1999, Zest sold equipment with an original cost
of Php80,000 and a carrying amount of Php48,000 to Cinn for Php72,000. Zest had been
depreciating the equipment over a five-year period using straight-line depreciation with no
residual value. Cinn is using straight-line depreciation over three years with on residual value. In
Zest’s December 21, 1999, consolidating worksheet, by what amount should depreciation
expense be decreased?
a. Php0
b. Php8,000
c. Php16,000
d. Php24,000
82. On January 1, 20x1, Bright Co. acquired 75% interest in Dull Co. for Php180,000. On this date,
the carrying amount of Dull’s net identifiable assets was Php160,000, equal to fair value. Non-
controlling interest was measured at a fair value of Php60,000.
The financial statements of the entities on December 31, 20x1 show the following information:
Bright Co. Dull Co.
ASSETS
Other assets 600,000 235,000
TOTAL ASSETS 780,000 235,000

Total equity 710,000 210,000
TOTAL LIABILITIES AND EQUITY 780,000 235,000
Bright Co. Dull Co.

Revenues 300,000 80,000
 No dividends were declared by either entity during 20x1 and there were no inter-company
transactions.
 However, it was determined by year-end that goodwill was impaired by Php10,000.
Requirement: Prepare a draft of the December 31, 20x1 consolidated statements of financial position
and consolidated statement of profit or loss.
Use the following information for the next five questions:

Rubber Co. owns 75% interest in Plastic, Inc. The statements of financial position of the entities on
January 1, 20x1 are shown below:
Rubber Co. Plastic, Inc. Consolidated
Investment in subsidiary 112,500 - -
Other assets 514,500 186,000 709,500
Goodwill - - 12,000
TOTAL ASSETS 627,000 186,000 721,500
Accounts payable 109,500 45,000 154,500
Share capital 352,500 75,000 352,500

Retained earnings 165,000 66,000 177,000
Equity attributable to owners of parent 529,500
Non-controlling interest 37,500
Total equity 517,500 141,000 567,000
TOTAL LIABILITIES & EQUITY 627,000 186,000 721,500
83. On January 1, 20x2, Rubber Co. acquired the remaining 25% interest in Plastic, Inc. for Php80,000.
How much is the gain or loss on the acquisition to be recognized in the consolidated financial
statements?
a. 42,500
b. (42,500)
c. (17,500)
d. 0
84. On January 1, 20x2, Rubber Co. acquired the remaining 25% interest for Php100,000. Non-
controlling interest were measured using the proportionate share method. How much is non-
controlling interest in the net assets of the acquiree in the consolidated financial statements
prepared immediately after the acquisition?
a. 42,500
b. 37,500
c. 25,000
d. 0
85. On January 1, 20x2, Rubber Co. acquired additional 20% interest for Php100,000. Non-controlling
interest were measured using the proportionate share method. How much is non-controlling
interest in the net assets of the acquiree in the consolidated financial statements prepared
immediately after the acquisition?
a. 37,500
b. 30,000
c. 7,500
d. 0
86. On January 1, 20x2, Rubber Co. acquired additional 20% interest for Php100,000. Non-controlling
interest were measured using the proportionate share method. How much is consolidated retained
earnings immediately after the acquisition?
a. 70,000
b. 107,000
c. 130,000
d. 137,500
87. On January 1, 20x2, Rubber Co. sold 60% out of its 75% interest in Plastic, Inc. for Php120,000. The
sale resulted to loss of control. The remaining interest is classified as held for trading. How much is
the gain or loss on the sale?
a. 25,500
b. 37,500
c. 48,500
d. 137,500
88. Selected information from the separate and consolidated balance sheets and income
statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31,1994, and for the year
then ended is as follows:
Pare Shel Consolidated

Accounts receivable 52,000 38,000 78,000
Inventory 60,000 50,000 104,000

Revenues 400,000 280,000 616,000
Cost of goods sold 300,000 220,000 462,000
Gross profit 100,000 60,000 154,000
During 1994, Pare sold goods to Shel at the same mark up on cost that Pare uses for all sales.
At December 31, 1994, what was the amount of Shel’s payable to Pare for intercompany sales?
a. 6,000
b. 12,000
c. 58,000
d. 64,000
89. Wright Corp. has several subsidiaries that are included in its consolidated financial statements.
In its December 31, 1992, trial balance, Wright had the following intercompany balances before
eliminations:
Debit Credit
Current receivable due from Main Co. Php32,000
Non-current receivable from Main 114,000
Cash advance to Corn Corp. 6,000
Cash advance to King Co. Php15,000
Intercompany payable to King 101,000
In its December 31, 1992, consolidated balance sheet, what amount should Wright report as
intercompany receivables?
a. 152,000
b. 146,000
c. 36,000
d. 0
90. At December 31, 1989, Grey, Inc. owned 90% of Winn Corp., a consolidated subsidiary, and 20%
of Carr Corp., an investee in which Grey cannot exercise significant influence. On the same date,
Grey had receivables of Php300,000 from Winn and Php200,000 from Carr. In its December 31,
1989 consolidated balance sheet, Grey should report accounts receivable from affiliates of:
a. 500,000
b. 340,000
c. 230,000
d. 200,000
91. Cord Co. owns four corporations. Consolidated financial statements are being prepared for
these corporations, which have intercompany loans of Php200,000 and intercompany profits of
Php500,000. What amount of these intercompany loans and profits should be included in the
consolidated financial statements?
Intercompany Loans Intercompany Profits
a. 200,000 0
b. 200,000 500,000
c. 0 0
d. 0 500,000
92. Sun, Inc. is a wholly owned subsidiary of Patton, Inc. On June 1, 1993, Patton declared and paid a
Php1 per share cash dividend to stockholders of record on May 15, 1993, Sun bought 10,000
shares of Patton’s common stock for Php700,000 on the open market, when the book value per
share was Php30. What amount of gain should Patton report from this transaction in its
consolidated income statement for the year ended December 31, 1993?
a. 0
b. 390,000
c. 400,000
d. 410,000
Use the following information for the next five questions:

Oblong Co. owns 80% interest in Round, Inc. The statements of financial position of the entities on
January 1, 20x1 are shown below:
Oblong Co. Round, Inc. Consolidated
Other assets 823,200 297,600 1,135,200
Goodwill - - 7,200
TOTAL ASSETS 1,003,200 297,600 1,142,400
Share capital 564,000 120,000 564,000

Equity attributable to owners of parent 847,200
Non-controlling interest 48,000
Total equity 828,000 225,600 895,200
TOTAL LIABILITIES & EQUITY 1,003,200 297,600 1,142,400
93. On January 1, 20x2, Oblong Co. acquired the remaining 20% interest in Round, Inc. for
Php80,000. How much is the gain or loss on the acquisition to be recognized in the consolidated
financial statements?
a. 12,500
b. (12,500)
c. (37,500)
d. 0
94. On January 1, 20x2, Oblong Co. acquired the remaining 20% interest for Php100,000. Non-
controlling interest were measured using the proportionate share method. How much is non-
controlling interest in the net assets of the acquiree in the consolidated financial statements
prepared immediately after the acquisition?
a. 12,500
b. 37,500
c. 25,000
d. 0
95. On January 1, 20x2, Oblong Co. acquired additional 10% interest for Php100,000. Non-controlling
interest were measured using the proportionate share method. How much is non-controlling
interest in the net assets of the acquiree in the consolidated financial statements prepared
immediately after the acquisition?
a. 24,000
b. 30,000
c. 37,500
d. 0
96. On January 1, 20x2, Oblong Co. acquired additional 10% interest for Php100,000. Non-controlling
interest were measured using the proportionate share method. How much is consolidated retained
earnings immediately after the acquisition?
a. 78,200
b. 107,200
c. 207,200
d. 237,500
97. On January 1, 20x2, Oblong Co. sold 60% out of its 80% interest in Round, Inc. for Php120,000. The
sale resulted to loss of control. The remaining interest is classified as held for trading. How much is
the gain or loss on the sale?
a. 39,200
b. (39,200)
c. (49,200)
d. 49,200
98. On January 1, 1993, Owen Corp. acquired all of Sharp Corp’s common stock for Php1,200,000.
On that date, the fair values of Sharp’s assets and liabilities equalled their carrying amounts of
Php1,320,000 and Php320,000, respectively. During 1993, Sharp paid cash dividends of
Php20,000. Selected information from the separate balance sheets and income statements of
Owen and Sharp as of December 31, 1993, and for the year then end follows:
Owen Sharp
Investment in subsidiary (equity method) 1,300,000 -
Retained earnings 1,240,000 540,000
Total equity 2,620,000 1,100,000

Operating income 420,000 200,000
Equity in earnings of Sharp 120,000 -
Net income 400,000 120,000
In Owen’s December 31, 1993, consolidated balance sheet, what amount should be reported as total
retained earnings?
a. 1,240,000
b. 1,360,000
c. 1,380,000
d. 1,800,000
Use the following information for the next seven questions:

On January 1, 1991, Dallas Co. acquired 80% of Style, Inc.’s outstanding common stock. On that date, the
carrying amount of Style’s assets and liabilities approximated their fair values. Non-controlling interest
was measured using t he proportionate share method.
During 1991, Style paid Php5,000 cash dividends to its stockholders. Summarized balance sheet
information for the two companies follows:
Dallas Style
12/31/1991 12/31/1991 1/1/1991
Investment in Style (equity method) 132,000
Other assets 138,000 115,000 100,000
Totals 270,000 115,000 100,000
Common stock 50,000 20,000 20,000
Additional paid-in-capital 80,250 44,000 44,000
Totals 270,000 115,000 100,000
99. What amount should Dallas report as earnings from subsidiary, in its 1991 income statement?
a. 12,000
b. 15,000
c. 16,000
d. 20,000
100. How much is the acquisition cost of the investment on January 1, 1991?
a. 120,000
b. 132,000
c. 150,000
d. 160,000
101. How much is the goodwill on the business combination?

a. 20,000
b. 22,000
c. 32,000
d. 40,000
102. How much is the non-controlling interest in the net assets of Style on December 31, 1991?
a. 20,000
b. 23,000
c. 26,000
d. None of these
103. How much is the consolidated retained earnings on December 31, 1991?
a. 190,750
b. 139,750
c. 51,000
d. 36,000
104. How much is the total assets in the consolidated statement of financial position as of December
31, 1991?
a. 293,000
b. 280,000
c. 270,000
d. 253,000
105. What amount of equity attributable to the owners of the parent should be reported in Dallas’
December 31, 1991, consolidated balance sheet?
a. 270,000
b. 286,000
c. 293,000
d. 385,000
106. Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell, Inc., an
investment company. Sell owns 60% of the common stock of Vane, Inc., an insurance company.
In Penn’s consolidated financial statements, should consolidation accounting or equity method
accounting be used for Sell and Vane?
a. Consolidation used for Sell and equity method used for Vane.
b. Consolidation used for both Sell and Vane.
c. Equity method used for Sell and consolidation used for Vane.
d. Equity method used for both Sell and Vane.
Acquisition date – Vertical group

Scenario #1:
107. On January 1, 20x1, S1 acquires 60% interest in S2. On January 1, 20x3, P acquires 80% interest
in S1. What is the acquisition date?
a. January 1, 20x1 for S1 only
b. January 1, 20x3 for S2 only
c. January 1, 20x1 for both S1 and S2
d. January 1, 20x3 for both S1 and S2
e. a and b
108. When is goodwill computed?

e. a and b
Scenario #2:
109. On January 1, 20x1, P acquires 80% interest in S1. On January 1, 20x3, S1 acquires 60% interest
in S2. What is the acquisition date?
e. a and b
Acquisition date – D-shaped group
Scenario #1:
110. P acquires 80% interest in S1 on January 1, 20x1. P acquires 25% interest in S2 on January 1,
20x2. S1 acquires 30% interest in S2 on January 1, 20x3. What is the acquisition date?
c. January 1, 20x2 for S2
d. a and c
e. a and b
Scenario #2:
111. S1 acquires 30% interest in S2 on January 1, 20x1. P acquires 25% interest in S2 on
January 1, 20x2. P acquires 80% interest in S1 on January 1, 20x4.
d. a and c
e. a and b
Consolidation of a vertical group – Same acquisitions date

The following transactions occurred on January 1, 20x1:
 P acquired 80% interest in S1 for Php400,000 when the retained earnings of S1 were Php120,000.
NCI in S1 has a fair value of Php100,000.
 S1 acquired 60% interest in S2 for Php200,000 when the retained earnings of S2 were Php40,000.
NCI in S2 (direct and indirect) has a fair value of Php160,000.
The carrying amounts of the net identifiable assets of S1 and S2 approximate their fair values on January
1, 20x1. The group determined on December 31, 20x1 that goodwill has been impaired by 20%. There
have been no charges in the share capitals of S1 and S2 during the year.
A summary of the individual financial statements of the entities is shown below:
Statements of financial Position

As at December 31,20x1
P S1 S2
Investment in Subsidiary 400,000 200,000
Other assets 800,000 480,000 320,000
Total assets 1,200,000 680,000 320,000
Liabilities 120,000 152,000 8,000

Share capital 480,000 320,000 200,000
Total liabilities and equity 1,200,000 680,000 320,000

Revenues 720,000 408,000 192,000
Expenses (400,000) (320,000) (120,000)
Profit 320,000 88,000 72,000
112. How much is the goodwill as of December 31, 20x1?

a.144,000 b.132,600 c.112,000 d.128,000
113. How much is the total NCI in net assets as of December 31, 20x1?
a.305,620 b.264,320 c.265,220 d.236,220
114. How much is the consolidated retained earnings as of December 31, 20x1?
a.687,680 b.667,280 c.698,020 d.688,420
115. How much is the consolidated profit or loss in 20x1?

a.480,320 b.446,000 c.484,000 d.452,000
116. How much is the profit attributable to owners of parent and to NCI respectively?
Owners of the parent NCI in S1 NCI in S2
a.406,730 15,480 38,110
b.407,680 15,200 29,120
c.407,930 15,380 22,690
d.408,840 15,120 60,040
117. How much is the consolidated total assets of December 31, 20x1?
a.1,712,000 b.1,680,000 c.1,340,000 d.1,722,000
a.1,060,000 b.1,432,000 c.1,442,000 d.1,400,000
Consolidation of a vertical group – Different acquisition dates

The following transactions occurred during 20x1:
 On January 1, 20x1, P acquired 80% interest in S1 for Php400,000.
 On December 31, 20x1, S1 required 60% interest in S2 for Php200,000
The following information has been determined

Released earnings S1 S2
January 1, 20x1 120,000 40,000
December 31, 20x1 208,000 112,000
Fair value of NCI S1 S2

January 1, 20x1 100,000 192,000
December 31, 20x1 112,000 168,000
A summary of the individual statement of financial position of the entities as of December 31, 20x1 is
shown below:
P S1 S2
Investment in Subsidiary 400,000 200,000 -
Other assets 800,000 480,000 320,000
Total assets 1,200,000 680,000 320,000
Liabilities 120,000 152,000 8,000

Share capital 480,000 320,000 200,000
Statement of profit or loss

Revenues 720,000 408,000 192,000
Expenses (400,000) (320,000) (120,000)
Profit 320,000 88,000 72,000
The carrying amounts of the net identifiable assets of S1 and S2 approximate their fair values at their
acquisition dates. The group determined that the goodwill to S1 has been impaired by Php40,000 as at
December 31, 20x1. There have been no changes in the share capitals of S1 and S2 during the year:
119. How much is the total goodwill as of December 31, 20x1?

a.28,000 b.18,240 c.34,000 d.36,000
120. How mch is the total NCI in net assets as of December 31, 20x1?
a.229,600 b.237,600 c.237,065 d.232,680
a. 638,400 b.640,000 c.637,780 d.639,880
a.368,400 b.356,600 c.446,000 d.452,000
123. How much are the profit attributable to owners of parent and to the NCI’s
Parent NCI in S1 NCI in S2
a) 348,200 8,400 0
b) 358,400 9,600 0
c) 407,680 15,200 29,120
d) 407,930 15,380 22,690
a.1,680,000 b.1,712,000 c.1,636,000 d.1,722,000
a.1,356,000 b.1,432,000 c.1,400,000 d.1,442,000
Consolidation of a D-shaped (mixed) group

 P acquired 64,000 shares in S1 for Php400,000 and 12,500 shares in S2 for Php160,000
 S1 acquired 15,000 shares in S2 for Php200,000
Additional information
S1 S2
Retained earnings – January 1, 20x1 120,000 40,000
Fair value of NCI – January 1, 20x1 100,000 160,000
The carrying amounts of the net identifiable assets of S1 and S2 approximate their fair values on January
1, 20x1. The group determined on December 31, 20x1 that there is no impairment of goodwill. There
have been no changes in the share capitals of S1 and S2 during the year.
A summary of the individual financial statements of the entities on December 31, 20x1 is shown below:
Statements of financial position

As at December 31, 20x1
P S1 S2
Investment of Subsidiary 560,000 200,000 -
Other assets 800,000 480,000 320,000
Total assets 1,360,000 680,000 320,000
Liabilities 280,000 152,000 8,000

Share capital (Php4 per value) 480,000 320,000 200,000

Revenues 720,000 408,000 192,000
Expenses (400,000) (320,000) (120,000)
Profit 320,000 88,000 72,000
the profits above do not include inter-company investment income.

a.280,000 b.300,000 c.320,000 d.360,000
a.232,680 b.237,600 c.274,320 d.229,600
a.638,400 b.705,680 c.637,780 d.698,480

a.368,000 b.356,600 c.480,000 d.452,000
130. How much is the profit attributable to owners of parent and to the NCI’s?
Parent NCI in S1 NCI in S2
a) 324,800 15,600 27,600
b) 358,400 9,600 0
c) 425,680 17,600 36,720
d) 366,480 17,680 67,840
a.1,900,000 b.1,712,000 c.1,636,000 d.1,722,000
a.1,356,000 b.1,282,000 c.1,460,000 d.1,272,000
Complex group structure with associate

Use the following information for the next eight questions:
 A acquired 80% interest in B for Php400,000
 A acquired 25% interest in C for Php160,000
 B acquired 30% interest in C for Php200,000
 B acquired 20% interest in E for Php240,000
 C acquired 40% interest in D for Php320,000
B C D E
Retained earnings – Jan 1, 20x1 120,000 40,000 8,000 32,000
Fair value of NCI – Jan 1, 20x1 100,000 160,000 72,000 192,000
The carrying amounts of the net identifiable assets of each of the investees approximate their fair values
on January 1, 20x1. The group determined on December 31, 20x1 that there is no impairment in
goodwill. There have been no changes in the share capitals of S1 and S2 during the year.
A summary of the individual financial statements of the entities on December 31, 20x1 is shown below:

A B C D E
Investments 560,000 440,000 320,000 - -
Other assets 800,000 480,000 320,000 240,000 280,000
Total assets 1,360,000 920,000 640,000 240,000 280,000
Liabilities 280,000 392,000 328,000 120,000 40,000

Share capital 480,000 320,000 200,000 80,000 160,000
Retained earnings 600,000 208,000 112,000 40,000 80,000
TOTAL LIABILITIES 1,360,000 920,000 640,000 240,000 280,000
AND EQUITY
The investment accounts pertain solely to the investment transactions described earlier and are not
adjusted for any investment income from investees.
Statements of profits or loss
For the year-ended December 31, 20x1
A B C D E
Revenues 720,000 408,000 192,000 256,000 128,000
Expenses (400,000) (320,000) (120,000) (224,000) (80,000)
Profit 320,000 88,000 72,000 32,000 48,000
Profits do not include income from investments.
133. Assuming the existence of control is based solely on shareholdings, which of the entities
above are considered subsidiaries of A. Co?
a. B and C b. B, C and D c. B only d. A, B, C, D and E

a. 280,000 b. 300,000 c. 320,000 d. 360,000
a. 282,768 b. 237,600 c. 274,320 d. 229,600
a. 638,400 b. 705,680 c. 719,632 d. 698,480

a. 500,560 b. 502,400 ` c. 489,420 d. 399,272
138. How much are the profit attributable to owners of parent and to the NCIs?
Parent NCI in B NCI in C NCI in D NCI in E
a. 439,632 19,520 43,248 0 0
b. 358,400 9,600 0 31,272 0
c. 425,680 17,600 36,720 6,890 2,530
d. 443,932 18,768 37,860 0 0
a. 1,900,000 b. 2,482,400 c. 1,636,000 d. 1,317,600
a. 1,356,000 b. 1,482,400 c. 1,460,000 d. 1,282,000
STRAIGHT PROBLEMS
PROBLEM 1
Key Corporation acquired all the assets and assumed all the liabilities of Tool Beck Co. for
Php12,000,000. The acquisition qualifies as a business combination. The carrying amounts and fair
values of Tool Beck’s assets and liabilities on a acquisition date are shown below:

Accounts receivable 100,000 82,000
Inventory 650,000 500,000
Property, plant and equipment 9,000,000 11,000,000
Goodwill 10,000 2,000
Accounts payable (60,000) (84,000)
Total 9,700,000 11,500,000
Tool Beck Co. paid Php50,000 for legal and accounting fees related to the acquisition.
Requirement: Compute for the goodwill (negative goodwill) arising from the business combination.
PROBLEM 2
Cold Co. acquired 80% interest in the voting rights of Hot Co. for Php80,000. The carrying amounts and
fair values of Hot’s assets and liabilities on acquisition date are shown below:

Cash 74,000 74,000
Inventory 480,000 500,000
Equipment 2,000,000 500,000
Goodwill 50,000 4,000
Accounts payable (58,000) (58,000)
Total 2,546,000 1,020,000
Hot Co. incurred acquisition-related costs of Php50,000.
Requirement: Compute for the goodwill (negative goodwill) arising from the business combination under
the following assumptions:
a. NCI is measured at fair value. An independent consultant determined that the NCI’s fair value at
acquisition date is Php202,000.
b. NCI is measured at fair value. No consultant was engaged to value the NCI. However, Cold’s
management strongly believes that the NCI’s fair value correlates with the consideration transferred
on the business combination.
c. NCI is measured at its proportionate share in the acquiree’s assets.
PROBLEM 3
Night Co. acquired Day Co. in a business combination. Nigh Co. incurred the following transaction costs
on the acquisition:
 Finder’s fees 10,000
 Professional fees of consultants 50,000
 General administrative costs 30,000
 Registration cost of the debt and equity securities issued 60,000
Requirement: How much of the acquisition-related costs listed above will be expensed outright?
PROBLEM 4
Happy Co. acquired Sad Co. in a business combination. The following has been determined:
 Included in Sad Co.’s recorded assets are the following:
a. Publishing title with carrying amount of Php100,000. However, the fair value on acquisition
date is only Php2,000.
b. Internally generated computer software with carrying amount of Php1,000,000. The
acquisition-date fair value of the software cannot be determined reliably because the
software is deemed obsolete.
 Sad Co. has ongoing research and development projects. Research and development costs of
Php.80,000 were charged to expense.
 Sad Co. has an unrecorded patent with fair value of Php50,000 However, Happy Co. does not
intend to use this patent.
Requirement: How much of the items listed above will be included in the net identifiable assets acquired
on the business combination?
PROBLEM 5
Walk Co. acquired 100% interest in Talk Co. for Php1,000,000. The acquisition-date fair value of Talk’s
net identifiable assets is Php800,000. Walk Co. estimates that it will incur employee termination and
other liquidation costs of Php120,000 following the business combination.
Requirement: How much is the goodwill arising from the business combination?
PROBLEM 6
Head Co. acquired 100% interest in Feet Co. for Php1,000,000. The acquisition-date fair value of Feet’s
net identifiable assets is Php800,000. On acquisition date, Feet has an unrecognized contingent liability
related to a pending lawsuit. No provision was recognized because Feet’s legal counsel believed that
they will win the lawsuit. The contingent liability has a fair value of php100,000 on acquisition date.
Requirement: How much is the goodwill arising from the business combination?
PROBLEM 7
On January 1, 20x1, Sit Co. acquired 75% controlling interest in Stand Co. for Php1,000,000. On this date,
the fair value of Stand’s net identifiable assets is Php800,000. Sit Co. incurred transaction costs of
Php100,000 on the acquisition.
Requirements: Compute for the goodwill under each of the following scenarios:
a. Sit Co. uses the full PFRSs. Sit Co. opts to measure NCI at its proportionate share in the acquiree’s
net identifiable assets.
b. Sit Co. uses the PFRS for SMEs.
PROBLEM 8
1. DEF Co. acquired 95% of GHI Co. on 30 June 20x7 for consideration made up as follows:
 Cash of Php250,000
 10,000 equity shares (with a fair value of Php2 on the acquisition date)
At the acquisition date, the following information is relevant to GHI:

 Net assets totalled Php205,000
 The fair value of the non-controlling interest had been established asPhp11,500
Requirement: Calculate the amount of goodwill arising on the acquisition of GHI Co.:
a. Valuing the NCI at its proportionate share in the acquiree’s net assets.
b. Valuing the NCI at fair value.
PROBLEM 9
1. Ronnie Co. acquired all the assets and assumed all the liabilities of Metallica Inc. by using its shares
with par value per share of Php80 and fair value per share of Php100. On acquisition date,
Metallica’s net identifiable assets have a carrying amount of Php4,000,000 and a fair value of
Php2,000,000.
Requirements:
a. Compute for the number of shares to be issued by Ronnie Co. so that no goodwill shall arise from
the business combination.
b. Compute for the amount of share premium that Ronnie will recognize form the transaction.
2. Point Co. issued ordinary shares in exchange for all outstanding shares of Finger Co. Finger’s
ordinary share capital account has a balance of Php40,000 (the par value per share of Php4). Point’s
ordinary shares have a par value per share of Php10 and fair value per share of Php40. Finger’s net
identifiable assets have a carrying amount of Php400,000 and a fair value of Php800,000. No
goodwill resulted from the business combination.
Requirements: Compute for the ratio of the share exchange between Point and Finger.
PROBLEM 10
On January 1, 20x1, Over Co. acquired 10,000 shares out of the 100,000 outstanding shares of Seas Co.
for Php30,000. Transaction costs on the acquisition amounted to Php2,000. Over Co. classified the
shares as held for trading. The shares were trading at Php5 on December 31, 20x1.
On July 1, 20x2, Over Co. acquired additional 50,000 shares of Seas Co. at Php7 per share, the quoted
price on that date. The outstanding shares of Seas Co. remain at 100,000 shares. Information on Seas
Co.’s financial position as of this date follows:
Assets 1,300,000 1,415,000
Liabilities (750,000) (750,000)
Net 550,000 665,000
Over Co. elected to measure non-controlling interests using the proportionate share method.
Requirements:
a. Compute for the goodwill arising from the acquisition on July 1, 20x2.
b. Provide all the journal entries on July 1, 20x2.
PROBLEM 11
On January 1, 20x1, Rooster Co. and Chick Co. signed an agreement wherein control over Chick is
relinquished to Rooster. No consideration is transferred on the transaction. The fair value of the net
identifiable assets of Chick, Inc. on January 1, 20x1 is Php200,000. Non-controlling interest is measured
using the proportionate share method.
Requirement: Compute for goodwill.
PROBLEM 12
On July 1, 20x1, SUV Co. acquired all of the identifiable assets and assumed all of the liabilities of Pickup,
Inc. for Php800,000. On this date, Pickup’s identifiable assets and liabilities have fair values of
Php1,200,000 and Php300,000. On acquisition date, it was discovered that Pickup has an intangible
asset for secret processes that was unrecorded. Since the intangible asset’s fair value cannot be
measured reliably, SUV Co. assigned provisional amount of Php200,000. This amount was included in
the fair value measurement of Pickup’s identifiable assets. The intangible asset is estimated to have a
useful life of 10 years. SUV records amortization expense every year-end.
On February 1, 20x2, an independent consultant engaged to value the intangible asset concluded
that the fair value of the asset on acquisition-date should have been Php20,000, and that the useful
life should have been 4 years.
Requirement:
a. Compute for the goodwill (negative goodwill) arising from the business combination on July 1, 20x1.
b. Compute for the adjusted goodwill on February 1, 20x2.
c. Provide the journal entries on February 1, 20x2.
PROBLEM 13
On January 1, 20x1, Sky Co. acquired all of the identifiable assets and assumed all of the liabilities of
Star, Inc. for Php800,000. On this date, Star’s identifiable assets and liabilities have fair values of
Php1,200,000 and Php700,000, respectively.
In addition, Sky and Star agree on the following:

a. Star Co. shall engage an independent consultant to value an intangible asset related to its secret
processes. Sky shall reimburse Star for the professional fee of the independent consultant. An
estimated amount of Php300,000 for consultant’s fee is included in the measurement of
consideration transferred to Star.
b. Sky Co. agrees to transfer a patent to Star, Inc. The patent has a carrying amount of Php40,000 and
a fair value of Php50,000. The patent will be retained by Star, Inc. and will be available for use by the
group after the business combination. The patent’s fair value is included in the measurement of the
consideration transferred to Star.
Requirement: Compute for the goodwill arising from the business combination.
PROBLEM 14
Mega, Inc. was organized to consolidate the resources of Lone Co. and Small Co. in a business
combination accounted for by the acquisition method. Mega issued 31,000 shares of its php10 par
voting stock with affair value of php15 per share, in exchange for all the outstanding capital stock of lone
and small. The equity accounts of L:one and Small on the date of the exchange were:
Lone Small Total
Common stock, at par php100,000 php200,000 php300,000

Additional paid-in capital 12,500 17,500 30,000
What is the balance in Mega’s additional paid-in capital account immediately after the business
combination?
PROBLEM 15
On January 1,20x8, Parker, Inc. acquired 30% of Smith’s Inc.’s outstanding common stock for
php400,000. During 20x8, Smith had net income of php100,000 and paid dividends of php30,000. On
January 1, 20x9. Parker acquired an additional 45% interest on Smith for php1,012,000. The fair value of
Smith on January 1, 20x9 was php2,250,000. What amount of gain from this transaction will parker
record in 20x9?
PROBLEM 16
On January 1, 20x1 Row Co. acquired 10,000 shares out of the 100,000outstanding shares of Boat Co. for
php30,000. Transaction costs on the acquisition amounted to php2,000. Row Co. classified the shares as
financial asset measured at fair value through profit or loss. The shares were trading at php5 on
December 31,20x1.
On July 1,20x2, Row Co. acquired additional 80,000 shares of Boat Co. at php8 per share, the quoted
price on that date. The outstanding shares of Boat Co. remained at 100,000 shares. Information on Boat
Co’s financial position as of this date follows:

Assets 1,300,000 1,415,000
Liabilities (750,000) (750,000)
Net 550,000 665,000
Row Co. elected to measure non-controlling interests using the proportionate share method.
Requirements:
a. Compute for the goodwill arising from the acquisition on July 1, 20x2.
b. Provide all the journal entries on July 1, 20x2.
PROBLEM 17
Gamer Co. and Player Co. agreed to combine their businesses. A new entity named App Corporation will
be created to acquire Gamer and Player. The entities agree on the following:
 The industry normal earnings shall be computed as 5% of net assets.
 Goodwill shall be determined by capitalizing excess earnings by 20%.
Gamer Co. Player Co.

App Corporation shall issue a total of 100,000 shares which shall be divided between Gamer and Player
based on their expected total contributions, including goodwill.
1. How much is the total goodwill expected to arise from the business combination?
2. Compute for the number of shares to be distributed to each of Gamer Co. and Player Co.?
3. Which of the entities is most likely the acquirer in the business combination?
4. On January 1, 20x1, ZYX, Inc., an unlisted company, acquires CBA Co., a publicly listed entity, through
an exchange of equity instruments. CBA Co. issues 5 shares in exchange for each ordinary share of
ZYX, Inc. All of ZYX’s shareholders exchange their shares in CBA Co. Therefore, CBA Co. issues 40,000
ordinary shares in exchange for all 8,000 ordinary shares of ZYX, Inc.
The fair value of each ordinary share of ZYX at January 1, 20x1 is Php400. The quoted market price of
CBA’s ordinary shares at that date is Php80.
The statements of financial position of the combining entities immediately before combination are
shown below:
CBA Co. ZYX Co.
(legal parent, (legal subsidiary,
accounting accounting
acquiree) acquirer)
Identifiable assets 3,200,000 4,800,000
Total assets 3,200,000 4,800,000
Liabilities 2,600,000 1,400,000

Share capital:
10,000 ordinary shares, Php20 par 200,000
8,000 ordinary shares, Php200 par 1,600,000
Retained earnings 400,000 1,800,000
Total liabilities and equity 3,200,000 4,800,000
The fair value of CBA’s identifiable assets and liabilities at January 1, 20x1 are the same as their carrying
amounts.
Requirement: Compute for goodwill (gain or bargain purchase).

PROBLEM 18
On January 1, 20x1, Sunny Co. acquired 60% interest in Rainy Co. for Php300,000. The financial
statements of Sunny Co. And Rainy Co. right after the business combination follows:
Sunny Co. Rainy Co. Rainy Co.

Carrying amt. Carrying amt. Carrying amt.
Cash 80,000 50,000 50,000
Inventory 400,000 120,000 80,000
Land 600,000 200,000 250,000
Total assets 1,380,000 370,000 380,000

Share capital 1,000,000 250,000 250,000
Total liabilities & equity 1,380,000 370,000 380,000
Non-controlling interest is measured under the proportionate share method.
Requirements:
a. Prepare the consolidation journal entry on January 1, 20x1.
b. Determine the following by preparing the consolidated financial statements:
i. Consolidated total assets on January 1, 20x1
ii. Consolidated total liabilities on January 1, 20x1
iii. Consolidated total equity on January 1, 20x1
PROBLEM 19
On January 1, 20x1, Joy Co. acquired 60% interest in Axion , Inc. for Php300,000. Information on Axion’s
financial position on this date follows:
 The identifiable assets and liabilities approximated their fair values except for inventories
with carrying amounts of Php120,000 and fair value of Php80,000 and building with carrying
amount of Php200,000 and fair value of Php250,000. The building has remaining useful life
of 5 years.
 Axion’s equity comprises only share capital and retained earnings with carrying amounts of
Php250,000 an Php40,000, respectively.
 Non-controlling interest is measured using the proportionate share method.
All the inventories on January 1, 20x1 were sold during 20x1. No dividends were declared by either
entity during 20x1. There were also no intercompany transactions. There is also no impairment of
goodwill.
The individual financial statements of the entities on December 31, 20x1 are shown below:
As of December 31, 20x1
Joy Co. Axion Co.
ASSETS
Cash 143,000 60,000
Inventory 440,000 160,000
Building – net 560,000 160,000
TOTAL ASSETS 1,443,000 380,000

Accounts payable 200,000 80,000
Share capital 1,000,000 250,000
Total equity 1,243,000 310,000
TOTAL LIABILITIES & EQUITY 1,443,000 380,000
Statements of profit loss

Joy Co. Axion Co.
Sales 300,000 120,000
Cost of goods sold (165,000) (72,000)
Gross profit 135,000 48,000
Depreciation expense (40,000) (10,000)
Distribution costs (32,000) (18,000)
Requirement: prepare the consolidated financial statements as at December 31, 20x1.
PROBLEM 20
On January 1, 20x1, Jeep Co. acquired 60% interest in Taxi Co. for Php300,000. The financial statements
of Sunny Co. and Rainy Co. right after the business combination follows:
Jeep Co. Taxi Co. Taxi Co.

Carrying amt. Carrying amt. Carrying amt.
Cash 96,000 60,000 60,000
Inventory 480,000 144,000 96,000
Land 720,000 240,000 250,000
Total assets 1,656,000 444,000 406,000
Share capital 1,200,000 300,000 300,000
Total liabilities & equity 1,656,000 444,000 406,000
Non-controlling interest is measured at a fair value of Php240,000.
Requirements:
a. Prepare the consolidation journal entry on January 1, 20x1.
b. Prepare the consolidation worksheet on January 1, 20x1.
PROBLEM 21
On January 1, 20x1, Original Co. acquired 60% interest in Pirated, Inc. for Php360,000. Information on
Pirated’s financial position on acquisition date follows:
 The identifiable assets and liabilities approximated their fair values except for inventories
with carrying amounts of Php144,000 and fair value of Php96,000 and building with carrying
amount of Php240,000 and fair value of Php250,000. The building has remaining useful life
of 8 years.
 Pirated’s retained earnings was Php48,000.
 Non-controlling interest is measured at a fair value of Php240,000.
 Pirated Co. did not issue additional shares during the year.
 All the inventories on January 1, 20x1 were sold during 20x1.
 No dividends were declared by either entity during 20x1.
 There were no intercompany transactions during 20x1.
 Goodwill is not impaired.
The individual financial statements of the entities on December 31, 20x1 are shown below:

ASSETS Original Co. Pirated Co.

Cash 120,000 160,000
Inventory 440,000 180,000
Building – net 630,000 210,000
TOTAL ASSETS 1,550,000 550,000

Share capital 1,200,000 300,000
Total equity 1,516,000 418,000
TOTAL LIABILITIES & EQUITY 1,550,000 550,000
Statements of profit loss

Original Co. Pirated Co.
Sales 400,000 200,000
Cost of goods sold (220,000) (80,000)
Gross profit 180,000 120,000
Distribution costs (40,000) (20,000)
Requirement: prepare the consolidated financial statements as at December 31, 20x1.
PROBLEM 22
Dream Co. owns 75% interest in Theater Co. The following transactions occurred during the year:
a. Dream Co. sold goods costing Php20,000 to Theater Co. for Php38,000. Theater Co. held
Php9,500 of these goods in its ending inventory.
b. Theater Co. sold goods to Dream Co. for Php40,000. The goods were marked-up at 20% on
selling price. Dream Co. sold one-fourth of the goods to unrelated parties during the year.
The individual statements of profit or loss of the entities during the year show the following information:
Dream Co. Theater Co.
Sales 1,000,000 700,000
Cost of sales (400,000) (350,000)
Gross profit 600,000 350,000
The entities held the following inventories at year-end:

Dream Co. Theater Co.
Ending inventory 300,000 80,000
Requirements: Compute for the following:

a. Consolidated sales
b. Consolidated cost of sales
c. Consolidated ending inventory
PROBLEM 23
On January 1, 20x1, Bright Co. acquired 75% interest in Dull Co. for Php180,000. On this date, the
carrying amount of Dull’s net identifiable assets was Php160,000, equal to fair value. Non-controlling
interest was measured using the proportionate share method.
The financial statements of the entities on December 31, 20x1show the following information:
Bright Co. Dull Co.
ASSETS
Equipment – net 400,000 190,000
Other assets 200,000 45,000
TOTAL ASSETS 780,000 235,000

Total equity 710,000 210,000
Bright Co. Dull Co.

Revenues 300,000 80,000
Other expenses (32,000) (18,000)
Gain on sale of equipment 12,000 -
 No dividends were declared by either entity during 20x1. There is also no impairment of goodwill.
 However, on January 1, 20x1, right after the business combination, Bright Co. sold equipment with
historical cost of Php120,000 and accumulated depreciation of Php72,000 to Dull Co. for Php60,000.
Bright Co has been depreciating this equipment over a useful life of 10 years using the straight-line
method. Dull Co. decided to continue this accounting policy and depreciate the equipment over its
remaining useful life of 4 years.
Requirement:
a. What is the carrying amount of the equipment sold by Bright Co. t Dull Co. in the consolidated
b. How much is the consolidated “Equipment – net’?
c. How much is the consolidated ‘Depreciation expense’?
d. Prepare a draft of the December 31, 20x1 consolidated statements of financial position and
consolidated statement of profit or loss.
PROBLEM 24
Ice Co. owns 75% interest in Fire Co. On acquisition date , the carrying amount of Fire Co.’s net
identifiable assets was Php240,000, equal to fair value. Non-controlling interest was measured using the
proportionate share method.
In 20x1, Fire Co. declared Php100,000 dividends. Selected information on the entities on December 31,
20x1 is shown below:
Ice Co. Fire Co.
Statement of financial position accounts:
Total equity 1,080,000 320,000
Ice Co. Fire Co.

Statement of profit or loss accounts
Revenues 640,000 260,000
Expenses (240,000) (128,000)
Dividends income 75,000 -
Profit or loss 475,000 132,000

a. Non-controlling interest in the net assets of the subsidiary as of year-end.
b. Consolidated retained earnings at year-end
c. Consolidated profit for the year broken down into amounts attributable to the owners of the parent
and attributable to non-controlling interests.
PROBLEM 25
On January 1, 20x1, Sing Co. acquired 75% interest in Dance Co. On this date, Sing Co.’s net identifiable
assets have a carrying amount of Php200,000, equal to fair value. Non-controlling interest was
measured using the proportionate share method.
On December 31, 20x1, Dance, Inc. purchased all of the outstanding bonds of Sing Co. from the open
market for Php250,000. There were no other intercompany transactions during the year. The year-end
individual financial statements show the following information:
Sing Co. Dance Co.

ASSETS
Investment in bonds - 250,000
TOTAL ASSETS 680,000 300,000

Bonds payable (at face amount) 300,000 -
Total liabilities 340,000 30,000
Total equity 340,000 270,000
Sing Co. Dance Co.

Revenues 300,000 120,000
Interest expense (3,000) -
Requirements:
a. Compute for the gain (loss) on extinguishment of bonds to be recognized in the 20x1 consolidated
statement of profit or loss.
b. Compute for the consolidated total bonds payable.
c. Prepare a draft of the 20x1 consolidated statement of financial position and statement of profit or
loss.
PROBLEM 26
Orion Co. owns 75% interest in Sanitarium Co. The following transactions occurred during the year:
a. Orion Co. sold goods costing Php12,000 to Sanitarium Co. The goods were marked-up at
25% on selling price Sanitarium Co. held half of these goods in its ending inventory.
b. Sanitarium Co. sold goods to Orion Co. for Php60,000. The goods were marked-up at 20%
on cost. Orion Co. sold three-fourths of the goods to unrelated parties during the year.
The individual statements of profit or loss of the entities during the year show the following information:
Orion Co. Sanitarium Co.
Sales 1,000,000 700,000
Cost of sales (400,000) (350,000)
Gross profit 600,000 350,000
The entities held the following inventories at year-end:

Orion Co. Sanitarium Co.
Ending inventory 300,000 80,000

d. Consolidated sales
e. Consolidated cost of sales
f. Consolidated ending inventory
PROBLEM 27
On January 1, 20x1, Day Co. acquired 75% interest in Night Co. for Php216,000. On this date, the
carrying amount of Night’s net identifiable assets was Php192,000, equal to fair value. Non-controlling
interest was measured using the proportionate share method.
Day Co. Night Co.
ASSETS
Equipment – net 480,000 228,000
TOTAL ASSETS 936,000 282,000

Total equity 852000 252,000
Day Co. Night Co.

Revenues 360,000 96,000
Other expenses (38,400) (21,600)
Gain on sale of equipment 14,400 -
 No dividends were declared by either entity during 20x1. There is also no impairment of goodwill.
 However, on January 1, 20x1, right after the business combination, Day Co. sold equipment with
historical cost of Php144,000 and accumulated depreciation of Php86,400 to Night Co. for
Php72,000. Day Co. has been depreciating this equipment over a useful life of 10 years using the
straight-line method. Night Co. decided to continue this accounting policy and depreciate the
equipment over its remaining useful life of 4 years.
Requirement:
e. What is the carrying amount of the equipment sold by Day Co. Night Co. in the consolidated
f. How much is the consolidated “Equipment – net’?
g. How much is the consolidated ‘Depreciation expense’?
h. Prepare a draft of the December 31, 20x1 consolidated statements of financial position and
consolidated statement of profit or loss.
PROBLEM 28
Loud Co. owns 75% interest in Soft Co. On acquisition date, the carrying amount of Soft Co.’s net
identifiable assets was Php240,000, equal to fair value. Non-controlling interest was measured using the
proportionate share method.
In 20x1, Soft Co. declared Php150,000 dividends. Selected information on the entities on December 31,
20x1 is shown below:
Loud Co. Soft Co.
Statement of financial position accounts:
Total equity 1,620,000 480,000
Loud Co. Soft Co.

Statement of profit or loss accounts
Revenues 960,000 260,000
Expenses (360,000) (128,000)
Dividends income 112,500 -
Profit or loss 712,500 198,000

d. Non-controlling interest in the net assets of the subsidiary as of year-end.
e. Consolidated retained earnings at year-end
f. Consolidated profit for the year broken down into amounts attributable to the owners of the parent
and attributable to non-controlling interests.
PROBLEM 29
On January 1, 20x1, Walk Co. acquired 75% interest in Run Co. On this date, Walk Co.’s net identifiable
assets have a carrying amount of Php208,000, equal to fair value. Non-controlling interest was
measured using the proportionate share method.
On December 31, 20x1, Run, Inc. purchased all of the outstanding bonds of Walk Co. from the open
market for Php320,000. There were no other intercompany transactions during the year. The year-end
individual financial statements show the following information:
Walk Co. Run Co.
ASSETS
Investment in bonds - 320,000
TOTAL ASSETS 884,000 384,000

Bonds payable (at face amount) 300,000 -
Total liabilities 352,000 150,000
Total equity 532,000 234,000
Walk Co. Run Co.

Revenues 390,000 156,000
Interest expense (3,000) -
Requirements:
a. Compute for the gain (loss) on extinguishment of bonds to be recognized in the 20x1 consolidated
statement of profit or loss.
b. Compute for the consolidated total bonds payable.
c. Prepare a draft of the 20x1 consolidated statement of financial position and statement of profit or
loss.
PROBLEM 30
On January 1, 20x1, Day Co. acquired 75% interest in Night Co. for Php216,000. On this date, the
carrying amount of Night’s net identifiable assets was Php192,000, equal to fair value. Non-controlling
interest was measured at a fair value of Php72,000.
Day Co. Night Co.
ASSETS
Other assets 720,000 282,000
TOTAL ASSETS 936,000 282,000

Total equity 852,000 252,000
Day Co. Night Co.

Revenues 360,000 96,000
 No dividends were declared by either entity during 20x1. There were no inter-company transactions
during the period.
 However, it was determined at year-end that goodwill is impaired by Php8,000.
Requirement: Prepare a draft of the December 31, 20x1 consolidated statements of financial position
and consolidated statement of profit or loss.

Business Combi and Conso FS

Uploaded by

Copyright:

Available Formats

Business Combi and Conso FS

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Combi and Conso FS

Uploaded by

Copyright:

Available Formats

BUSINESS COMBINATIONS & CONSOLIDATED F/S

THEORY & COMPUTATIONAL

1. A business combination may be legally structured as a merger, a consolidation, an investment in

a. K’s carrying amount K’s carrying amount

Use the following information for the next two questions:

11. How much is recognized by Tree Co. on the business combination?

12. How much is recognized by Plant Co. on the transaction above?

Use the following information for the next two questions:

Use the following information for the next two questions:

Use the following information for the next three questions:

How should INNOCUOUS account for the new information obtained?

How should INNOCUOUS account for the new information obtained?

How should INNOCUOUS account for the new information obtained?

How much is the goodwill (gain on bargain purchase)?

How much is the goodwill (gain on bargain purchase)?

a.840,000 b.1,200,000 c.920,000 d.980,000

a.840,000 b.800,000 c.280,000 d.920,0000

How much is the goodwill (gain or bargain purchase)?

How much is the goodwill (gain or bargain purchase)?

a.1,200,000 b. 840,000 c.1,560,000 d.980,000

a.1,200,000 b.1,920,000 c.1,520,000 d.1,120,000

36. Purchased goodwill should

King Co. Kong Co.

Earnings in excess of 6% are to be capitalized at 20% in determining goodwill contributions of the

What is the distribution ratio between the combining entities?

Use the following information for the next three questions:

Gamer Co. Player Co.

Liabilities 5,200,000 2,800,000

Questions 45 to 48 are based on the following data:

Strings Co. Wind Co.

Liabilities 750,000 400,000

Questions 49 to 52 use the following information:

Liabilities 750,000 400,000

Questions 53 to 57 are based on the data below:

Square Co. Circle Co.

LIABILITIES AND EQUITY

Questions 58 to 60 are based on the following data:

58. How much is the consolidated profit in 20x1?

Investment in Style 132,000 -

Questions 62 to 66 are based on the following data:

LIABILITIES AND EQUITY

TOTAL LIABILITIES AND EQUITY 1,672,000 496,000

Questions 67 to 69 are based on the following data:

Statements of profit or loss

Profit for the year 240,000 80,000

67. How much is the consolidated profit in 20x1?

Use the following information for the next two questions:

Income statement accounts:

Sales 1,000,000 700,000

Additional data relating to December 31, 1988 inventory are as follows:

Use the following information for the next three questions:

Liabilities 120,000 60,000

Retained earnings Non-controlling interest

LIABILITIES AND EQUITY

Bright Co. Dull Co.

Use the following information for the next five questions:

Accounts payable 109,500 45,000 154,500

Share capital 352,500 75,000 352,500

TOTAL LIABILITIES & EQUITY 627,000 186,000 721,500