THEORIES

1. Statement 1: If the parent's and its subsidiary's reporting period do not coincide, the subsidiary shall prepare
financial statements that coincide with the parent's reporting period before consolidation.
Statement 2: If the subsidiary uses different accounting policies, it's financial statements need to be adjusted to
conform to the parent's accounting policies before they are consolidated.
a. Both statements are true
b. Both statements are false
c. Only statement 1 is true
d. Only statement 2 is true

2. Statement 1: Consolidation begins from the date the investor loses control of the investee and ceases when the
investor obtains control of the investee.
Statement 2: Income and expenses of the subsidiary are based on the amounts of the assets and liabilities
recognized in the consolidated financial statements at the subsequent date.
a. Both statements are true
b. Both statements are false
c. Only statement 1 is true
d. Only statement 2 is true

3. Investments in subsidiaries are accounted for in the parent's separate financial statements
a. at cost
b. in accordance with PFRS 9
c. using the equity method
d. Either a, b, or c

4. NCI in the net assets of the subsidiary is presented in the

a. Statement of financial position
b. Statement of cash flows
c. Statement of liquidation
d. Statement of retained earnings

5. Statement 1: the subsidiary's pre-combination equity accounts are transferred to the consolidated financial
statements of combining entities.
Statement 2: The consolidation involves the steps of eliminating the investment in subsidiary account and adding
line by line, similar items of assets and liabilities of combining entities.
a. Both statements are true
b. Both statements are false
c. Only statement 1 is true
d. Only statement 2 is true
PROBLEMS

Use the following information for the next four questions:

On January 1, 2021, Hades Co. acquired 80% interest in Riguel Co. On acquisition date, Riguel’s net identifiable assets
have a carrying amount of P356,000. Riguel’s identifiable assets approximated their fair values except for inventory with
carrying amount of P102,000 and fair value of P134,000 and equipment with carrying amount of P180,000 and fair value
of P340,000. The remaining useful life of the equipment is 4 years. Non-controlling interest was measured using the
proportionate share method. Information on December 31, 2021 is as follows:

Hades Riguel

ASSETS
Cash P 492,000 P 416,000
Inventory 520,000 70,000
Investment in subsidiary (at cost) 700,000 -
Equipment, net 660,000 320,000
TOTAL ASSETS 2,372,000 806,000

LIABILITIES AND EQUITY

Trade and other payables P 492,000 P 220,000
Share capital 1,040,000 300,000
Retained earnings 840,000 286,000
TOTAL LIABILITIES AND EQUITY 2,372,000 806,000

Income P 2,000,000 P 400,000

Expenses (400,000) (120,000)
PROFIT FOR THE YEAR 1,600,000 280,000

No dividends were declared by either entity during 2021. There were also no intercompany transactions and no
impairment of goodwill.

6. What amount of goodwill is reported in the December 31, 2021 consolidated financial statements?
7. How much is the non-controlling interest in the net assets of the subsidiary on December 31, 2021?
8. How is the consolidated profit attributed to the owners of the parent and NCI?
9. How much is the consolidated total assets on December 31, 2021?

Use the following information for the next four questions:

On January 1, 2021, Sweet Co. acquired 80% interest in Solace Co. for P125,000.

Information on acquisition date:

  Solace net identifiable assets have a carrying amount of P47,000 and fair value of P90,000. The difference is due
to a piece of equipment with a carrying amount of P50,000 and fair value of P76,000. The equipment's remaining
useful life is 4 years.
 Sweet measured the NCI at a fair value of P20,000.

Information on subsequent reporting date (Dec. 31, 20x1):

SWEET CO. SOLACE CO.

Other assets P 278,000 P 54,000

Investment in subsidiary (at cost) 90,000
Equipment, net 165,000 90,000
TOTAL ASSETS 533,000 144,000

Total liabilities 245,000 35,000

Share capital 134,000 62,000
Retained earnings 154,000 47,000
Total equity 288.000 109,000
TOTAL LIABILITIES AND EQUITY 533,000 144,000

Income 300,000 130,000

Expenses 240,000 100,000
PROFIT FOR THE YEAR 60,000 30,000

10. What amount of goodwill is reported in the December 31, 2021 consolidated financial statements?
11. How much is the non-controlling interest in the net assets of the subsidiary on December 31, 2021?
12. How is the consolidated profit attributed to the owners of the parent and NCI?
13. How much is the consolidated total assets on December 31, 2021?

14. Diane Inc. acquires all of the outstanding stock of Betina Corp. on January 1, 2021. At that date, Betina owns only
three assets and has no liabilities:
Book Value Fair Value
Inventory P 50,000 P 60,000
Equipment (10-year life) 90,000 85,000
Building (20-year life) 300,000 400,000

If Diane pays P550,000 in cash for Betina, what amount would be represented as the subsidiary’s building in a
consolidation at December 31, 2023, assuming the book value at that date is still P300,000.
 15. On January 1, 2021, Harry Co. reports net assets of P860,000 although (equipment with a four-year life) having a
book value of P450,000 is worth P510,000 and unrecorded patent is valued at P63,000. Potter Corp. pays
P684,000 on that date for an 80 percent ownership in Harry. If the patent is to be written-off over a 10-year period,
at what amount should it be reported on consolidated statement at December 31, 2022?

ANSWER KEYS – Theories

1. Answer: A. Because the financial statements of the parent and its subsidiaries used in preparing consolidated
financial statements shall have the same reporting period and uniform accounting policies.

2. Answer: B. Consolidation begins from the date the investor obtain control over the acquiree and ceases the moment it
loses this control. Consequently, the income and expenses of the subsidiary are based on the amounts of the assets
and liabilities recognized in the consolidated financial statements at the acquisition date not on subsequent date.

3. Answer D. Investment in subsidiary is accounted for in the parent's separate financial statements either at cost, in
accordance with PFRS 9 or using the equity method.

4. Answer: A. NCI in the net assets of the subsidiary is presented in the statement of financial position within equity,
separately from the equity of the owners of the parent.

5. Answer: D. The subsidiary's pre-combination equity accounts are eliminated in full and replaced with the non-
controlling interest account.
ANSWER KEYS – Problems

Item 6-9
Step 1: Analysis of the sub sidiary's net assets

Carrying Amount Fair Value Fair Value Adjustment

Inventory 102,000 134,000 32,000
Equipment 180,000 340,000 160,000
Totals 282,000 474,000 192,000

FVA, 1/1/2021 Useful life Depreciation FVA, 12/31/2021

Inventories 32,000 N/A 32,000 -
Equipment 160,000 4 years 40,000 120,000
Totals 192,000 72,000 120,000

January 1, 2021 December 31, 2021 Net Change

Net assets at carrying amount 356,000 586,000
Fair value adjustments 192,000 120,000
Net assets at fair value 548,000 706,000 158,000

Step 2: Goodwill computation

Consideration transferred 700,000

Non-controlling interest (548,000 x 20%) 109,600
Totals 809,600
Fair value of net identifiable assets acquired 548,000
Goodwill - Jan. 1, 2021 261,600
Less: Accumulated impairment loss -
Goodwill - Dec. 31, 2021 261,600 (6)

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value, Dec. 31, 2021 706,000

Multiply by: NCI percentage 20%
Non-controlling interest in net assets, Dec. 31, 2021 141,200 (7)

Step 4: Consolidated retained earnings

Parent's retained earnings, Dec. 31, 2021 840,000

Parent's share in net change in subsidiary's net assets (158,000 x 80%) 126,400
Consolidated retained earnings, Dec. 31, 2021 966,400

Step 5: Consolidated profit or loss

Profits of Hades and Riguel (2,000,000 + 400,000) 2,400,000

Depreciation of FVA 72,000
Consolidated profit 2,328,000

The consolidated profit is attributed to the owners of the parent and NCI as follows:

Hade s Rigue l Consolidated

Parent's profit before FVA 2,000,000 N/A 2,000,000
Subsidiary's profit before FVA 320,000 80,000 400,000
Depreciation 57,600 14,400 72,000
Totals 2,262,400 65,600 '(8) 2,328,000

Depreciation (72,000 x 80% = 57,600 share of Hades); (72,000 x 20% = 14,400 share of Riguel)
Subsidiary's profit b efore FVA (400,000 x 80% = 320,000 share of Hades); (400,000 x 20% = 80,000 share of Riguel)

HADES Group
Consolidated Statement of Financial Position
As of December 31, 2021

ASSETS
Cash (492,000 + 416,000) 908,000
Inventory (520,000 + 70,000 + 0FVA net, step 1) 590,000
Investment in subsidiary (eliminated) -
Equipment (660,000 + 320,000 + 120,000) 1,100,000
Goodwill (step 2) 261,600
TOTAL ASSETS 2,859,600 (9)

LIABILITIES AND EQUITY

Trade and other payables (492,000 + 220,000) 712,000
TOTAL LIABILITIES 712,000
Share capital (parent only) 1,040,000
Retained earnings (parent only, step 4) 966,400
Owners of Parent 2,006,400
Non-controlling interest (Step 3) 141,200
TOTAL EQUITY 2,147,600
TOTAL LIABILITIES AND EQUITY 2,859,600
Item 10-13
Step 1: Analysis of the subsidiary's net assets

FVA, 1/1/2021 Useful life Depreciation FVA, 12/31/2021

Equipment 26,000 4 years 6,500 19,500
Totals 26,000 6,500 19,500

January 1, 2021 December 31, 2021 Net Change

Net assets at carrying amount 47,000 109,000
Fair value adjustments 43,000 19,500
Net assets at fair value 90,000 128,500 38,500

Step 2: Goodwill computation

Consideration transferred 90,000

Less: Parent's proportionate share in the net assets of the subsidiary (90,000 x 80%) 72,000
Goodwill attributable to the owners of the parent 18,000
Fair value of NCI 20,000
Less: NCI's proportionate share in the net assets of the subsidiary (90,000 x 20%) 18,000
Goodwill attributable to NCI 2,000
Goodwill - Dec. 31, 2021 (18,000+2,000) 20,000 (10)

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value, Dec. 31, 2021 128,500

Multiply by: NCI percentage 20%
Total 25,700
Add: Goodwill attributable to NCI 2,000
Non-controlling interest in net assets, Dec. 31, 2021 27,700 (11)

Step 4: Consolidated retained earnings

Parent's retained earnings, Dec. 31, 2021 154,000

Parent's share in net change in subsidiary's net assets (38,500 x 80%) 30,800
Consolidated retained earnings, Dec. 31, 2021 184,800

Step 5: Consolidated profit or loss

Profits of Sweet and Solace (300,000 + 130,000) 430,000

Depreciation of FVA 6,500
Consolidated profit 423,500

The consolidated profit is attributed to the owners of the parent and NCI as follows:

Sweet Solace Consolidated

Parent's profit before FVA 300,000 N/A 300,000
Subsidiary's profit before FVA 104,000 26,000 130,000
Depreciation 5,200 1,300 6,500
Totals 398,800 24,700 (12) 423,500

Depreciation (6,500 x 80% = 5,200 share of Sweet); (6,500 x 20% = 1,300 share of Solace)
Subsidiary's profit before FVA (130,000 x 80% = 104,000 share of Sweet); (130,000 x 20% = 26,000 share of Solace)

Sweet Group
Consolidated Statement of Financial Position
As of December 31, 2021

ASSETS
Cash (278,000 + 54,000) 332,000
Investment in subsidiary (eliminated) -
Equipment (165,000 + 90,000 + 19,500) 274,500
Goodwill (step 2) 20,000
TOTAL ASSETS 626,500 (13)

LIABILITIES AND EQUITY

Trade and other payables (245,000 + 35,000) 280,000
TOTAL LIABILITIES 280,000
Share capital (parent only) 134,000
Retained earnings (parent only, step 4) 184,800
Owners of Parent 318,800
Non-controlling interest (Step 3) 27,700
TOTAL EQUITY 346,500
TOTAL LIABILITIES AND EQUITY 626,500
Item 14

Building, book value 300,000

Increase in fair value (400,000 - 300,000) 100,000
Less: Amortization of allocated excess (P100,000/20 x 3 years) 15,000
Consolidated building, Dec. 31, 2023 385,000

Item 15

Patent fair value at January 1, 2021 63,000

Less: Amortization for 2 years (63,000/10 x 2 years) 12,600
Consolidated building, Dec. 31, 2022 50,400