Problem 1
On January 1, 2021, Crinkles Incorporated purchased 60% of the outstanding voting shares of Canton
Corporation for P11,000,000. The shareholders’ equity of Canton Corporation on the date of business
combination was composed of P12,000,000 share capital, P1,000,000 share premium, and P3,000,000
retained earnings. The fair value of the non-controlling interest on this day is P7,000,000. An
examination of Canton’s net assets revealed that book values were equal to their fair values except for
inventory which was overstated by P500,000 and machinery which was understated by P1,000,000.
The inventories of the subsidiary on the date of acquisition were all sold by the end of the calendar year
2021, while the machinery has an estimated remaining useful life of 5 years from the date of business
combination. Goodwill arising from business combination was impaired by P150,000 at the end of 2021.
On July 1, 2021, Crinkles Incorporated sold its machinery to Canton Corporation for P5,000,000 when it
had a carrying value of P3,000,000. The machinery has an estimated remaining useful life of 4 years
from the date of intercompany sale. On September 1, 2021, Canton Corporation sold a portion of its
land with carrying value of P2,000,000 to Crinkles Inc for a loss of P1,000,000.
No dividends were declared by the affiliates for 2021. The separate financial statements of Crinkles Inc.
and Canton Corp on December 31, 2021 are as follows:
Crinkles Incorporated Canton Corporation
Cash 10,000,000 1,000,000
Receivables 1,500,000 2,000,000
Investment in subsidiary 11,000,000
Inventory 5,500,000 3,000,000
Machinery 14,000,000 5,000,000
Land 20,000,000 10,000,000
Building 20,000,000 7,000,000
TOTAL 82,000,000 28,000,000
Liabilities 44,000,000 10,000,000
Share capital 21,000,000 12,000,000
Share premium 5,000,000 1,000,000
Retained earnings 12,000,000 5,000,000
TOTAL 82,000,000 28,000,000
Crinkles Incorporated Canton Corporation
Sales revenue 12,000,000 5,000,000
(Cost of goods sold) (3,000,000) (1,000,000)
Gross profit 9,000,000 4,000,000
(Depreciation expense) (4,000,000) (600,000)
(Other expenses) (1,000,000) (400,000)
Gain/loss on sale of machinery 2,000,000 -
Gain/loss on sale of land - (1,000,000)
Net income 6,000,000 2,000,000
1. How much is the consolidated net income for the year ended December 31, 2021?
A. 6,120,000
B. 6,370,000
C. 7,400,000
D. 7,650,000
2. How much is the carrying value of machinery in the consolidated statement of financial position
as of December 31, 2021?
A. 17,060,000
B. 18,050,000
C. 18,300,000
D. 19,800,000
3. How much is the consolidated depreciation expense for the year ended December 31, 2021?
A. 4,550,000
B. 4,600,000
C. 4,650,000
D. 4,800,000
Problem 2
The separate statements of profits and losses of MFH Incorporated and its 80% owned subsidiary Bahbi
Corporation for the year ended December 31, 2021 are as follows:
MFH Incorporated Bahbi Corporation
2021 2022 2021 2022
Sales revenue 6,500,000 7,000,000 4,000,000 5,000,000
(Cost of goods sold) (3,200,000) (3,600,000) (1,000,000) (1,200,000)
Gross profit 3,300,000 3,400,000 3,000,000 3,800,000
(Depreciation expense) (1,000,000) (1,200,000) (900,000) (1,100,000)
(Other expenses) (100,000) (200,000) (50,000) (150,000)
Gain/loss on sale of land 300,000 - - -
Gain/loss on sale of equipment (400,000) - - -
Net income 2,100,000 2,000,000 2,050,000 2,550,000
During the previous year, Bahbi Corp sold a piece of land with carrying value of P5,000,000 to MFH Inc
for P5,200,000 cash. This exact piece of land was sold by MFH Inc to Nabi Enterprises for P5,500,000 on
August 1, 2021.
On April 1, 2021, MFH Inc sold a set of equipment with carrying value of P3,400,000 to Bahbi Corp for
P3,000,000 cash. At the time of intercompany sale, the remaining useful life of the set of equipment
was 4 years.
1. How much is the depreciation expense to be presented in the consolidated statement of
profits and losses for the year ended December 31, 2021?
A. 1,975,000
B. 1,900,000
C. 1,575,000
D. 1,375,000
2. How much is the consolidated net income attributable to controlling interest for the year
ended December 31, 2022?
A. 3,980,000
B. 3,965,000
C. 3,960,000
D. 3,940,000
3. Assuming that the equipment in the downstream transaction was sold by Bahbi Corp to a third
party on January 1, 2022 at book value, how much is the gain or loss on sale of equipment to be
presented in the consolidated statement of profits and losses for the year 2022?
A. (400,000)
B. (325,000)
C. (225,000)
D. 0
