CONSOLIDATED FINANCIAL STATEMENT

NAME:_______________________________________ GRADE:_________________

International and local business is moving at a great rate toward business combination as a
game plan for expansion and marketability. Multinational firms can be more streamlined in
delivering goods and providing services resulting in a competitive advantage and other cost
savings to the group. With the avoidance of equivalent efforts, a single economic entity
becomes more profitable than the separate legal entities in the past.

Acquiring control over an extensive web of various businesses to take advantage of operating
synergies has been the strategy utilized by one of the leaders in the industry PAPA
Corporation.

With an aim to produce vast, immensely profitable organizations, PAPA Corporation acquired
200,000 ordinary shares MAMA Company in the open market for P19,200,000 on January 1,
2021. Excluded in this amount is a control premium which was also transferred when the
acquirer obtained control of the acquiree. Also, the company has incurred acquisition related
costs, both direct and indirect amounting to P240,000. On the date of acquisition, the following
information was available on selected accounts of MAMA with fair value differentials as follows:

MAMA Company
Book Value Fair Value
Merchandise Inventory P3,000,000 P2,800,000
Land 3,200,000 4,000,000
Machinery, net 4,800,000 4,500,000
Building, net 9,600,000 9,100,000
Intangible assets 2,800,000 3,150,000

All the liabilities of the group has no fair value adjustments on the date of acquisition.
PAPA’s retained earnings immediately before the acquisition amount to P13,540,000. It is the
policy of the dominant company to reorganize the non-controlling interest at fair value. Based
on a reliable valuation technique, the fair value of the non-controlling interest on the date
control was acquired to P3,200,000. It was measured using the acquisition-date fair value on
the basis of active market prices of the equity shares not held by the acquirer.
One-fourth of the inventories of the acquired company on the date of the acquisition were sold
during the year 2021. Both companies follow the straight line method of depreciation and
amortization. Upon testing, the recoverable amount of goodwill was determined to be
P6,300,000.
On the date of acquisition, PAPA’s notes payable is due to be paid in full on December 31, 2025
whereas their bond payable were issued at face value and are due on January 1, 2025. MAMA’s
notes payable is due in six annual instalment starting December 31, 2023 whereas their bonds
payable were also issued at face value and are due in five years after the acquisition.
During 2021, PAPA reported sales of P20,000,000, cost of sales of P12,800,000 and operating
expenses of P1,840,000 excluding acquisition related cost, which is accounted as other expense

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and not operating expense. MAMA Company reported sales, cost of sales and expenses of
P10,000,000, P5,200,000 and P1,600,000, respectively.
For 2021, the controlling entity declared and paid dividends of P3,200,000, while the acquire
declared dividends and paid P1,400,000 to the acquirer. No issuance of new shares were made
during the year for both entities. Dividend income found in the statement of comprehensive
income PAPA Corporation amounted to P1,800,000. Dividend income found in statement of
comprehensive income in MAMA Company amounted to P400,000. The investment in
subsidiary account was accounted for using the cost method in books of the acquirer.
For the year 2022, PAPA Corporation reported sales, cost of sales and operating expenses of
P25,000,000, P16,400,000 and P3,600,000 respectively. The acquired company reported sales
of P10,800,000, cost of sales of P6,000,000 and incurred expenses during the current year.
The remaining inventories of MAMA on the date of acquisition that were not sold in 2021 were
sold during the year 2022. Both companies continue to use the straight line method of
depreciation and amortization with no change in the useful life of the assets. After testing,
goodwill was found to be impaired and should be written down by P500,000.
For 2022, PAPA Corporation and MAMA Company both declared and paid dividends. The
records of the acquirer reveal that the only dividends received in the current year is from the
acquired company in an amount equal to P1,680,000. Dividend income found in the statement
of comprehensive income of MAMA Company amounted to P600,000.
The controllers have prepared the statement of financial position of the two legal entities as of
December 31, 2021 and 2022:

PAPA MAMA
2021
Corporation Company
Cash P1,900,000 P1,200,000
Receivables, net 3,960,000 1,600,000
Merchandise Inventory 2,800,000 1,800,000
Land 4,000,000 3,200,000
Machinery 8,000,000 6,000,000
Accumulated depreciation (2,000,000) (1,600,000)
Buildings 20,000,000 12,000,000
Accumulated depreciation (4,000,000) (3,000,000)
Intangible assets 3,200,000 2,400,000
Investment in MAMA Co. 19,800,000
Total assets P57,660,000 P23,600,000

Accounts payable P2,600,000 P600,000

Accrued expenses 600,000 200,000
Notes payable (long term) 2,000,000 1,200,000
Bonds payable 8,000,000 4,000,000
Ordinary Shares (P16 par) 20,000,000 4,000,000
Share premium 7,200,000 3,200,000
Retained earnings 17,260,000 10,400,000
Total equities P57,660,000 P23,600,000

PAPA MAMA
2022
Corporation Company

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 Cash P3,900,000 P2,620,000
Receivables, net 4,400,000 2,480,000
Merchandise Inventory 4,540,000 1,700,000
Land 4,000,000 3,200,000
Machinery 8,000,000 6,000,000
Accumulated depreciation (2,400,000) (2,000,000)
Buildings 20,000,000 12,000,000
Accumulated depreciation (4,500,000) (3,600,000)
Intangible assets 2,880,000 2,000,000
Investment in MAMA Co. 19,800,000
Total assets P60,620,000 P24,400,000

Accounts payable P1,680,000 P800,000

Accrued expenses 400,000 400,000
Notes payable (long term) 2,000,000 1,200,000
Bonds payable 8,000,000 4,000,000
Ordinary Shares (P16 par) 20,000,000 4,000,000
Share premium 7,200,000 3,200,000
Retained earnings 21,340,000 10,800,000
Total equities P60,620,000 P24,400,000

The acquirer prepared the appropriate working paper entries on December 31, 2021 and 2022
needed to facilitate the preparation of the consolidated statement of comprehensive income,
statement of retained earnings and statement of financial position.

Compute for the following items on the date of acquisition:

1. Consolidated shareholders’ equity

2. Goodwill in Statement of Financial Position of PAPA Corporation as a separate legal
entity
3. Investment in MAMA Company in the Statement of Financial Position of the group

Compute for the following items in the Consolidated Financial Statements as of (for the year)
Decemebr 31, 2021:

4. Cost of sales
5. Gross profit
6. Dividend revenue
7. Operating expenses
8. Net income attributable
9. Non-controlling interest in net income
10. Current assets
11. Property, plant and equipment, net
12. Noncurrent liabilities
13. Current liabilities
14. Noncurrent liabilities
15. Dividends declared
16. Retained earnings
17. Shareholders’ equity
18. Non-controlling interest in net assets

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Compute for the following items in the Consolidated Financial Statements as of (for the year)
December 31, 2022:

19. Sales
20. Cost of sales
21. Operating expenses
22. Net income
23. Non-controlling interest in net income
24. Current assets
25. Property, plant and equipment, net
26. Noncurrent liabilities
27. Dividends declared
28. Retained earnings
29. Shareholders’ equity
30. Non-controlling interest in net assets
31. Goodwill

In the preparation of the Working Paper Entries, compute the following : (indicate whether
debit or credit)

32. The amount of Investment in MAMA Company account (debited/credited) in

eliminating the shareholders’ equity of the acquired company.
33. The amount of Non-controlling Interest account (debited/credited) in recognizing the
acquisition date fair value differentials in the identifiable assets of the acquired
company. (net debit/net credit)
34. The total amount (debited/credited) to Merchandise Inventory account in amortizing
its fair value differential in the 2022 working paper.
35. The amount (debited/credited) to Retained Earnings account on December 31, 2021
regarding the impairment of goodwill.
36. The amount of Non-controlling Interest account (debited/credited) in eliminating the
intercompany dividends on the second year.
37. The amount (debited/credited) to Operating expense account in amortizing the fair
value differential of intangible asset in 2022.
38. The amount (debited/credited) to Cost of Goods Sold account in amortizing the fair
value differential of an asset of the acquiree on first year.
39. The amount (debited/credited) to Operating Expense account in amortizing the fair
value differential of the property, plant and equipment in 2022.
40. The amount (debited/credited) to Retained Earnings account on December 31, 2022 to
assign to the non-controlling shareholders their share of the increase in the acquired
company’s adjusted and undistributed earnings that occurred between the acquisition
date and the beginning of the current period.

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