Afar 09

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 45  May 2023 CPA Licensure Examination

AFAR-09
ADVANCED FINANCIAL ACCOUNTING & REPORTING (AFAR) A. DAYAG  A. CRUZ
SEPARATE & CONSOLIDATED FINANCIAL STATEMENTS

Objectives:
PAS 27 (Separate FS) objective of setting the standard to be applied:
• in accounting for investments in subsidiaries, jointly controlled entities, and associates when an
entity elects, or is required by local regulations, to present separate (non-consolidated) financial
statements.
PFRS 10 (Consolidated FS) objective of setting the standard to be applied:
• in the preparation and presentation of consolidated financial statements for a group of entities
under the control of a parent; and
The Concept of Control
Consolidation is the process of combining the assets, liabilities, earnings and cash flows of a parent and its
subsidiaries as if they were one economic entity. Since an economic and not legal perspective is adopted,
transactions between companies within this economic entity and their resultant balances must be
eliminated. A parent is an entity that controls one or more subsidiaries. A group is a parent and all its
subsidiaries.
Control as the Criterion for Consolidation
A subsidiary is defined as an entity that is controlled by another entity, the parent. The criterion for
identifying a parent-subsidiary relationship, and hence the basis for consolidation is control. The
determination of whether one entity controls another is then crucial to the determination of which entities
should prepare consolidated financial statements.
PFRS 10 Guidance on Control
An investor determines whether it is a parent by assessing whether it controls one or more investees. An
investor considers all relevant facts and circumstances when assessing whether it controls an investee. An
investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee.
PFRS 10 uses control as the single basis for consolidation. An investor controls an investee if and only if the
investor has all of the following three elements of control:
• Power over the investee. Power is the ability to direct those activities which significantly affect the
investee’s returns. It arises from rights, which may be straightforward (e.g. through voting rights) or
complex (e.g. through one or more contractual arrangements).
• Exposure, or rights, to variable returns from involvement with the investee returns must have the
potential to vary as a result of the investee’s performance and can be positive, negative or both.
• The ability to use power over the investee to affect the amount of the investor’s returns.
Separate Financial Statements of the Parent or Investor in an Associate or Jointly Controlled Entity
In the parent's/investor's individual financial statements, investments in subsidiaries, associates, and jointly
controlled entities should be accounted for either:
• at cost; or
• in accordance with PFRS 9 (fair value model)
• Using equity method as described in PAS 28
Such investments may not be accounted for by the equity method in the parent's/investor's separate
statements.
The IASB issued amendments to IAS (PAS) 27 relating to the cost of investment in a subsidiary, jointly
controlled entity or associate. These amendments:
• deleted the definition of the cost method from PAS 27

• inserted paragraph 38A into PAS 27. Paragraph 38A states that:
“An entity shall recognize a dividend from a subsidiary, jointly controlled entity, or associate in profit
or loss in its separate financial statements when its right to receive the dividends is established”.
The effect of these changes is that all dividends paid or payable by a subsidiary to a parent are to be
recognized as revenue by the parent. As noted in paragraph BC66H of the Basis of Conclusions to the
amendments, ‘the requirement to separate the retained earnings of an entity into pre-acquisition and
posts-acquisition components as a method for assessing whether a dividend is a recovery of its associated
investment’ has been removed from IFRSs’ (PFRSs’)
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
SEPARATE & CONSOLIDATED FINANCIAL STATEMENTS AFAR-09
PAS 27 does not define what is meant by ‘cost’ except in the specific set of circumstances of certain types
of group reorganization and in first-time transition to PFRS. PAS 8 – Accounting Policies, Changes in Estimates
and Errors – requires that in the absence of a specific guidance on IFRS (PFRS), management should first
refer to the requirements and guidance in IFRS (PFRS) dealing with similar and related issues.
Another point of reference might be PAS 32 – Financial Instruments: Presentation – and PFRS 9. Investments
in subsidiaries, associates and joint ventures, while outside the scope of PAS 32 and PFRS 9, are clearly
financial assets (and therefore financial instruments) as defined in those standards.
Instead of the now deleted definition of cost method, entities are now obliged to apply a two-stage process.
Once recognized, all dividends are taken to income and the parent must now determine whether or not
the investment has been impaired as a result. This list of indicators of impairment in PAS 36 as amended
includes the receipt of a dividend from a subsidiary, jointly controlled entity or associate where there is
evidence that:
1. the dividend exceeds the total comprehensive income of the subsidiary, jointly controlled entity or
associate in the period dividend is declared; or
2. the carrying amount of the investment in the separate financial statements exceeds the carrying
amounts in the consolidated financial statements of the investee’s net assets, including associated
goodwill.
Presentation of Consolidated Financial Statements
A parent is required to present consolidated financial statements in which it consolidates its investments in
subsidiaries – except in one circumstance: A parent need not present consolidated financial statements if
and only if all of the following four conditions are met:
1. The parent is itself a wholly-owned subsidiary, or is a partially? owned subsidiary of another entity
and its other owners, including those not otherwise entitled to vote, have been informed about,
and do not object to, the parent not presenting consolidated financial statements;
2. The parent's debt or equity instruments are not traded in a public market;
3. The parent did not file, nor is it in the process of filing, its financial statements with a securities
commission or other regulatory organization for the purpose of issuing any class of instruments in a
public market; and
4. The ultimate or any intermediate parent of the parent produces consolidated financial statements
available for public use that comply with International Financial Reporting Standards.
Once an investment ceases to fall within the definition of a subsidiary, it should be accounted for as an
associate under PAS 28, as a joint venture under PFRS 11 or as an investment under PFRS 9, as appropriate.
Furthermore, investments in subsidiaries, jointly controlled entities and associates that are accounted for in
accordance with PFRS 9 in the consolidated financial statements are to be accounted for in the same way
in the investor’s separate financial statements and in the financial statements of a parent that need not
present consolidated financial statements.
For the foregoing reason, the following disclosures have to be made in the investor’s separate financial
statements and in the financial statements of a parent that need not present consolidated financial
statements:
1. The reasons why separate financial statements are prepared;

2. The name of the immediate or ultimate parent and a reference to the consolidated financial
statements and/or the financial statements in which associates and jointly controlled entities are
accounted for under the equity method or proportionate consolidation method in accordance
with PAS 28 and PFRS 11, respectively; and
3. A description of the method used to account for investments in subsidiaries, associates and jointly
controlled entities.
In addition to the foregoing elective option to not present consolidated financial statements, PAS 27
essentially continues the earlier standard’s prohibition based on absence of control over a subsidiary.
Consolidated financial statements are to consolidate a parent and all of its subsidiaries, foreign and
domestic, when those entities are controlled by the parent. For this determination, control is presumed to
exist when the parent owns, directly or indirectly through subsidiaries, more than one-half of the voting
power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such
ownership does not constitute control.

Consolidation Procedures
Worksheet entries at the acquisition date
The consolidation process does not result in any entries being made in the actual records of either the
parent or the subsidiary. The adjustment entries are made in the consolidation worksheet prepared, and
these entries change over time. In the rest of this section, the adjustment entries that would be passed in a
consolidation worksheet prepared immediately after the acquisition date are analyzed.
Pre-acquisition entries
As noted in paragraph 15 of PAS 27, the pre-acquisition are required to eliminate the carrying amount of
\
the parent’s investment in the subsidiary and the parent’s portion of pre-acquisition equity. The pre-
acquisition entries then involve three areas:
• The investment account, shares in subsidiary, as shown in the financial statements of the parent.
• The equity of the subsidiary at the acquisition date (the pre-acquisition equity). The pre-acquisition
equity is not just the equity recorded by the subsidiary but includes the business combination
valuation reserve recognized on consolidation via the valuation entries. Because the accounts
containing pre-acquisition equity may change over time as a result of dividends and reserve
transfer, more than one pre-acquisition entry may be required in a particular year.
• Recognition of goodwill. Note that, as stated in paragraph 21 of PAS 12 Income Taxes, there is no
recognition of a deferred tax liability in relation to goodwill because goodwill is a residual, and the
recognition of a deferred tax liability would increase its carrying amount.
Calculating the NCI share of equity
Non-controlling interest in the net assets (NCI) consists of:
i. the amount of those non-controlling interests at the date of the original combination calculated in
accordance with PFRS 3 Revised; and
ii. the non-controlling’s share of changes in equity since the date of the combination.
In relation to part (ii), changes in equity since the acquisition date must be taken into account. Note that
these changes are not only in the recorded equity of the subsidiary, but they also relate to other changes
in consolidated equity.
As noted earlier in this chapter, the NCI is entitled to share consolidated equity under the entity concept of
consolidation. This requires taking into account adjustments for profits and losses are not recognized by the
group. The calculation of the NCI is therefore done in two stages:
1. the NCI share of recorded equity is determined, and
2. this share is adjusted for the effects of intragroup transactions.
Non-controlling share of recorded equity of the subsidiary

The equity of the subsidiary consists of the equity contained in the actual records of the subsidiary as well
as any business combination valuation reserves created on consolidation at the acquisition date, where
the identifiable assets and liabilities of the subsidiary are recorded at amounts different from their fair values.
The NCI is entitled to a share of subsidiary equity at balance date, which consists of the equity on hand at
acquisition date plus any changes in that equity between acquisition date and reporting date. The
calculation of the NCI share of equity at a point in time is done in three steps:
1. Determine the NCI share of equity of the subsidiary at acquisition date.
2. Determine the NCI share of the change in subsidiary equity between the acquisition date and the
beginning of the current period for which the consolidated financial statements are being
prepared.
3. Determine the NCI share of the changes in subsidiary equity in the current period. The calculation
could be represented diagrammatically, as shown below:
Calculating the NCI share of equity
Step 1 Step 2 Step 3

Share of equity recorded at Share of change in Share of change in
acquisition date equity from acquisition equity in current period
date to beginning of
current period
Time Acquisition Beginning of End of

date current period current period

Note that, in calculating the NCI share of equity at the end of the current period, the information relating
to the NCI share from steps 1 and 2 should be available from the precious period’s consolidation worksheet.
Intragroup balances, transactions, income, and expenses should be eliminated in full. Intragroup losses
may indicate that an impairment loss on the related asset should be recognized.
When an acquirer obtains a majority interest, but not 100% ownership, in another entity, the process of
recording the transaction is potentially more complicated. The portion of the acquired operation not
owned by the acquirer, but claimed (in an economic sense) by outside interests, is referred to as non-
controlling interest. Not all standard setters agree whether, in a situation in which goodwill or negative
goodwill will be reported, to value it with reference only to the price paid by the new (majority) owner, or
whether to gross up the balance sheet for the minority’s share as well. PAS 22 (old standard) had allowed
both approaches, but PFRS 3 specifies that assets and liabilities are valued entirely at fair value, and the
non-controlling interest is correspondingly adjusted to reflect the relevant proportion of the net assets.
Under PFRS 3 all identifiable (i.e., excluding goodwill) assets and liabilities are recognized at their respective
fair values, including those corresponding to the non-controlling’s ownership interest. This means that there
is a step-up in value to equal the valuation being placed on the enterprise indirectly by the new majority
owner.
Under this approach, the non-controlling interest shown in a consolidated balance sheet will be the non-
controlling percentage times the net assets of the subsidiary as reported in the parent’s consolidated
balance sheet. Goodwill will be reported, as under partial goodwill or full-goodwill method depending on
the option use by the acquiring company.
Non-controlling interests should be presented in the consolidated balance sheet within equity, but separate
from the parent's shareholders' equity. Non-controlling interests in the profit or loss of the group should also
be separately presented.
PAS 27 states that income attributable to non-controlling interest be separately presented in the statement
of earnings or operations. Generally, this is accomplished by presenting net income before non-controlling
interest, followed by the allocation to the non-controlling, and then followed by net income.
Date of Acquisition
I – No Fair Value of NCI given
Company Z acquires 80% of Company Y for P10,000,000, carrying value of Company Y net assets at time
of acquisition being P6,000,000 and fair value of these net identifiable assets being P8,000,000.
Determine the following:
1. Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
a. P1,600,000 c. P3,600,000
b. P2,000,000 d. P4,500,000
2. Non-controlling interest arising on consolidation is to be valued on the proportionate basis or “Partial”
Goodwill:
a. P1,200,000 c. P2,500,000
b. P1,600,000 d. P3,000,000
3. Goodwill arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
a. P1,600,000 c. P3,600,000
b. P2,000,000 d. P4,500,000
4. Non-controlling interest arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-
up” Goodwill:
a. P1,200,000 c. P2,500,000
b. P1,600,000 d. P3,000,000
Control Premium /Control Discount
A control premium is an amount that a buyer is usually willing to pay over the current market price of a
publicly traded company. This premium is usually justified by the expected synergies, such as the expected
increase in cash flow resulting from cost savings and revenue enhancements achievable in the merger or
consolidation. If the consideration transferred is proportionally more than the fair value of non-controlling
interests, there is a control premium. In the opposite situation, a control discount (which often arises in a fire
sale) or discount for lack of control (sometimes called a non-controlling interest discount) arises.
II – With Fair Value of NCI given and Control Premium
Entity Subsidiary has 40% of its share publicly traded on an exchange. Entity Parent purchases the 60% non-
publicly traded shares in one transaction, paying P6,300,000. Based on the trading price of the shares of
Entity Subsidiary at the date of gaining control a value of P4,000,000 assigned to the 40% non-controlling
interest (or fair value of non-controlling interest), indicating that Entity Subsidiary has paid a control premium
of P300,000. The fair value of Entity Subsidiary’s identifiable net assets is P7,000,000 and a carrying value of
P5,000,000.

Determine the following:
1. Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
a. P1,200,000 c. P3,300,000
b. P2,100,000 d. P4,120,000
Goodwill:
a. P2,000,000 c. P4,000,000
b. P2,800,000 d. P4,120,000
a. P1,200,000 c. P3,300,000
b. P2,100,000 d. P4,120,000
up” Goodwill:
a. P2,000,000 c. P4,000,000
b. P2,800,000 d. P4,120,000
5. Fair Value Basis (Full-goodwill Approach). Assuming the price paid amounted to P6,294,000 which
includes control premium of P294,000 with no fair value of non-controlling interest given. Goodwill arising
on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
a. P2,100,000 c. P3,294,000
b. P3,300,000 d. P4,120,000
III - Step Acquisition: With FV of NCI &
FV previously held equity interest in the acquiree/subsidiary.
Pares Company acquires 15 percent of Serap Company’s common stock for P500,000 cash and carries
the investment as a financial asset. A few months later, Pares purchases another 60 percent of Serap
Company’s stock for P2,160,000. At that date, Serap Company reports identifiable assets with a book value
of P3,900,000 and a fair value of P5,100,000, and it has liabilities with a book value and fair value of
P1,900,000. The fair value of the 25% non-controlling interest in Serap Company is P900,000.
1. Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill
a. P 84,000 c. P300,000
b. P100,000 d. P400,000
Goodwill:
a. P300,000 c. P800,000
b. P500,000 d. P900,000
a. P 84,000 c. P300,000
b. P100,000 d. P400,000
up” Goodwill:
a. P300,000 c. P800,000
b. P500,000 d. P900,000
5. The remeasurement gain or loss to be recognized to profit and loss account if the 15% ownership is a
FVTPL (fair value through profit and loss)when the additional shares are acquired:
a. Zero c. P40,000 loss
b. P40,000 gain d. P68,000 loss
6. The remeasurement gain or loss to be recognized to profit or loss account if the 15% ownership is a
FVTOCI (fair value through other comprehensive income)when the additional shares are acquired:
b. P40,000 gain d. P68,000 loss
IV - Bargain Purchase Computation-
Attributable entirely to the Acquirer (or Parent)
Parlor Company acquires 75 percent of Saloon Company’s common stock for P225,000 cash. At that date,
the non-controlling interest in Saloon has a book value of P52,500 and a fair value of P82,000. Also on that
date, Saloon reports identifiable assets with a book value of P400,000 and a fair value of P510,000, and it
has liabilities with a book value and fair value of P190,000.
1. Gain on bargain purchase arising on consolidation if fair value of net identifiable assets is to be valued
on the proportionate basis:
a. Zero c. P15,000
b. P13,000 d. P17,333

2. Gain on bargain purchase arising on consolidation if fair value of net identifiable assets is to be valued
on the full (fair value) basis.
a. Zero c. P15,000
b. P13,000 d. P17,333
Sale of Subsidiary - Loss of Control of a Subsidiary or “Deconsolidation”
Control of a subsidiary may be lost as the result of a parent’s decision to sell its controlling interest in the subsidiary to
another party or as result of a subsidiary issuing its shares to others. Control may be lost, with or without a change in
absolute or relative ownership levels, as a result of a contractual arrangement or if the subsidiary becomes subject to
the control of government, court, administrator, or regulator (e.g. through legal reorganization or bankruptcy).
Consistent with the approach taken for step acquisitions (refer to Problem III), when control of a subsidiary is lost, and
an interest is retained, that interest is measured at fair value, and this is factored into the calculation of the gain or loss
on disposal. It should be noted that this change applies also to situations in which an entity loses joint control of, or
significant influence over, another entity.
V - Deconsolidation
Pedro Company owns 80,000 shares of Santa Corporation’s 100,000 outstanding common shares, acquired
at book value. The December 31, 2020, consolidated balance sheet presented by Pedro and Santa
included net assets of Santa in the amount of P600,000. On January 1, 2021, Pedro sells 70,000 shares of
Santa for P490,000. The fair value of Pedro’s remaining 10% interest in Santa is P70,000. What amount of gain
or loss, if any, should be recognized on the sale of Pedro’s shares resulting in deconsolidation, and how
much of that should be attributed to Pedro? Determine the gain or loss on disposal (or deconsolidation)
should be:
a. P40,000 loss c. P10,000 gain
b. P80,000 loss d. P80,000 gain
VI - Sale of Subsidiary: Not Resulting in Loss of Control, No Additional Shares Issued.
Padyak Company owns 80,000 shares of Sirkulo Corporation’s 100,000 outstanding common shares,
acquired at book value. The December 31, 2020, consolidated balance sheet presented by Padyak and
Sirkulo included net assets of Sirkulo in the amount of P600,000. On January 1, 2021, Padyak sells 10,000
shares (10%) of its Sirkulo stock to unrelated parties for P70,000. Determine the gain or loss on disposal of
shares to be recognized in the profit or loss statement:
b. P10,000 gain d. P5,000 loss
VII - Sale of Subsidiary: Not Resulting in Loss of Control, Additional Shares Issued.
Padyak Company owns 80,000 shares of Sirkulo Corporation’s 100,000 outstanding common shares,
acquired at book value. The December 31, 2020, consolidated balance sheet presented by Padyak and
Sirkulo included net assets of Sirkulo in the amount of P600,000. On January 1, 2021, Sirkulo issues 25,000
additional shares of common stock to unrelated parties for P175,000. The amount to be credited to
“additional paid-in capital/share premium” account:
a. Zero c. P 55,000
b. P16,000 d. P104,000
VIII - Wholly-owned
The financial statements for Goodwin, Inc. and Corr Company for the year ended December 31, 20x9, prior
to Goodwin's business combination transaction regarding Corr, follow (in thousands):
Goodwin Corr
Revenues P 2,700 P 600
Expenses 1,980 400
Net Income P 720 P 200
Retained earnings, 1/1 P 2,400 P 400

Net income 720 200
Dividends ( 270) ( 0)
Retained earnings, 12/31 P 2,850 P 600
Cash P 240 P 220

Receivables and inventory 1,200 340
Buildings (net) 2,700 600
Equipment (net) 2,100 1,200
Total assets P 6,240 P 2,360
Liabilities P 1,500 P 820

Common stock 1,080 400
Additional paid-in capital 810 540
Retained earnings 2,850 600
Total liabilities and stockholders’ equity P 6,240 P 2,360

On December 31, 20x9, Goodwin issued P600 in debt and 30 shares of its P10 par value common stock to
the owners of Corr to purchase all of the outstanding shares of that company. Goodwin shares had a fair
value of P40 per share. Goodwin paid P25 to a broker for arranging the transaction. Goodwin paid P35 in
stock issuance costs. Corr's equipment was actually worth P1,400 but its buildings were only valued at P560.
1. If the combination is accounted for as an acquisition, at what amount is the investment recorded on
Goodwin's books?
A. P1,540 C. P1,825
B. P1,800 D. P1,860
2. Compute the consolidated revenues for 20x9:
A. P3,300 C. P1,540
B. P2,700 D. P 720
3. Assuming the combination is accounted for as an acquisition; compute the consolidated expenses for
20x9:
A. P1,980 C. P2,015
B. P2,005 D. P2,040
4. Compute the consolidated cash account at December 31, 20x9:
A. P 460 C. P425
B. P435 D. P400
5. Compute the consolidated buildings (net) account at December 31,20x9
A. P2,700 C. P3,260
B. P3,370 D. P3,300
6. Compute the consolidated equipment (net) account at December 31, 20x9:
A. P2,100 C. P3,300
B. P3,200 D. P3,500
7. Assuming the combination is accounted for as an acquisition, compute the consolidated goodwill
account at December 31, 20x9.
A. P 0 C. P125
B. P100 D. P160
8. Compute the consolidated common stock account at December 31, 20x9:
A. P1,080 C. P1,480
B. P1,380 D. P2,280
9. Compute the consolidated additional paid-in capital at December 31, 20x9.
A. P 810 C.P1,675
B. P1,350 D.P1,910
10. Assuming the combination is accounted for as an acquisition; compute the consolidated retained
earnings at December 31, 20x9:
A. P2,800 C. P2,850
B. P2,825 D. P3,425
IX – Partially-owned
Power Corporation acquired 70 percent of Silk Corporation’s common stock on December 31, 20x9. After
the date of the business combination, the book values of Silk’s net assets and liabilities approximated their
fair value except for inventory, which had a fair value of P85,000, and land, which had a fair value of
P45,000. The fair value of the non-controlling interest was P64,500 on December 31, 20x9.
Balance sheet data for the two companies immediately following acquisition follow:
Item Power Silk
Cash P 44,000 P 30,000
Accounts receivable 110,000 45,000
Inventory 130,000 70,000
Land 80,000 25,000
Buildings and equipment 500,000 400,000
Less: Accumulated depreciation (223,000) (165,000)
Investment in Silk Corporation stock 150,500 _______
Total Assets P 791,500 P 405,000
Accounts payable P 61,500 P 28,000

Taxes payable 95,000 37,000
Bonds payable 280,000 200,000
Common stock 150,000 50,000
Retained earnings __205,000 ____90,000
Total Liabilities and Stockholders’ Equity P 791,500 P 405,000

For each of the question below, indicate the appropriate total that should appear in the consolidated
balance sheet immediately after the business combination on the basis of full-goodwill approach:
1. What amount of inventory will be reported?
A. P179,000 C. P210,500
B. P200,000 D. P215,000
2. What amount of goodwill will be reported?
A. P 0 C. P40,000
B. P28,000 D. P52,000
3. What amount of total assets will be reported?
A. P1,081,000 C. P1,196,500
B. P1,121,000 D. P1,231,500
4. What amount of Investment in Silk will be reported?
A. P 0 C. P150,500
B. P140,000 D. P215,000
5. What total of liabilities will be reported?
A. P265,000 C. P622,000
B. P436,500 D. P701,500
6. What amount will be reported as non-controlling interest?
A. P42,000 C. P60,900
B. P52,500 D. P64,500
7. What amount of parent’s share or controlling interest in retained earnings be reported?
A. P295,000 C. P232,000
B. P268,000 D. P205,000
8. What amount of consolidated retained earnings will be reported?
A. P295,000 C. P232,000
B. P268,000 D. P205,000
9. What amount of stockholders’ equity will be reported?
A. P355,000 C. P419,500
B. P397,000 D. P495,000
X – Push-down Accounting (Business Combination: Statutory Merger and Consolidation Approach)
versus No push-down accounting (Stock Acquisition Approach)
Prince Company acquires Duchess, Inc. on January 1, 2021. The consideration transferred exceeds the fair value
of Duchess' net assets. On that date, Prince has a building with a book value of P1,200,000 and a fair value of
P1,500,000. Duchess has a building with a book value of P400,000 and fair value of P500,000.
1. If push-down accounting is used, what amounts in the Building account appear on Duchess' separate
balance sheet and on the consolidated balance sheet immediately after acquisition?
a. P400,000 and P1,600,000 c. P400,000 and P1,700,000
b. P500,000 and P1,700,000 d. P500,000 and P2,000,000
2. If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate
balance sheet and on the consolidated balance sheet immediately after acquisition?
a. P400,000 and P1,600,000 c. P400,000 and P1,700,000
b. P500,000 and P1,700,000 d. P500,000 and P2,000,000
XI
Par Company owns 60% of Sub Corp.’s outstanding capital stock. On May 1, 2019, Par advanced Sub P70,000 in
cash, which was still outstanding at December 31, 2019. What portion of this advance should be eliminated in
the preparation of the December 31, 2019 consolidated balance sheet?
a. P70,000 b. P42,000 c. P28,000 d. Zero
XII
Dean, Inc. owns 100% of Roy Corporation, a consolidated subsidiary, and 80% of Wall, Inc., an unconsolidated
subsidiary at December 31. On the same date, Dean has receivables of P200,000 from Roy and P175,000 from
Wall. In its December 31 consolidated balance sheet, Dean should report accounts receivable from investees
at:
a. P 0 b. P35,000 c. P175,000 d. P235,000
XIII
Cobb Company’s current receivables from affiliated companies at December 31, 2019 are: (1) a P75,000 cash
advance to Hill Corporation (Cobb owns 30% of the voting stock of Hill and accounts for the investment by the
equity method), (2) a receivable of P260,000 from Vick Corporation for administrative and selling services (Vick
is 100% owned by Cobb and included in Cobb’s consolidated financial statements), and (3) a receivable of
P200,000 from Ward Corporation for merchandise sales on credit (Ward is 90%-owned unconsolidated subsidiary
of Cobb accounted for the equity method). In the current assets section of its December 31, 2019 consolidated
balance sheet, Cobb should report accounts receivable from investees in the amount of:
a. P180,000 c. P275,000
b. P255,000 d. P535,000

Reverse Acquisition (Takeovers)
A reverse acquisition occurs when an enterprise obtains ownership of the shares of another enterprise but,
as part of the transaction, issues enough voting shares as consideration that control of the combined
enterprise passes to the shareholders of the acquired enterprise. Although, legally, the enterprise that issues
the shares is regarded as the parent or continuing enterprise, the enterprise whose former shareholders
now control the combined enterprise is treated as the acquirer for reporting purposes. As a result, the
issuing enterprise (the legal parent) is deemed to be the acquiree and the company being acquired in
appearance (the legal subsidiary) is deemed to have acquired control of the assets and business of the
issuing enterprise (the legal parent is effectively the acquiree while the legal subsidiary is effectively the
acquirer, although the legal parent is the entity that issues shares to acquire a legal subsidiary, a reverse
acquisition is often initiated by the legal subsidiary)
While not a common event, this form of business combination is often used by active non-public companies
as a means to obtain a stock exchange listing without having to go through the listing procedures
established by the exchange. A takeover of a public company that has a stock exchange listing is
arranged in such a way that the public company emerges as the legal parent, but the former shareholders
of the non-public company have control of the public company.
Are there Non-controlling Interests in a Reverse Acquisition?
Non-controlling interest is zero, if all of legal subsidiary’s (the acquirer) stockholders accept the offer to
exchange their shares in the legal parent (the acquiree). If not all of legal subsidiary’s (the acquirer)
stockholders agree to the exchange of shares, the legal subsidiary’s (the acquirer will have non-controlling
profits but not consolidated net income.
Structure Entities or Variable Interest Entities (VIEs)
A second type of controlled enterprise is a structured entity, also known as variable interest entity or a
special purpose entity. PFRS 10 provides guidance on when a structured entity (SE) should be consolidated.
An SE is set up the reporting enterprise (or “sponsor”) to perform a very specific and narrow function. The
difference between a subsidiary and an SE is that an SE is not controlled through voting power. Indeed, an
SE may not even be a corporation but could instead be a partnership. An SE also can be created simply
by delegating specific powers to certain individuals to act on behalf of the “sponsoring” corporation – in
effect, by creating sort of “agency” relationship with individuals instead of corporate entities.
XIV
Mask, a private limited company, has arranged for Man, a public limited company, to acquire it as a
means of obtaining a stock exchange listing. Man issues 15 million shares to acquire the whole of the share
capital of Mask (6 million shares). The fair value of the net assets of Mask and Man are P30 million and P18
million respectively. The fair value of each of the shares of Mask is P6 and the quoted market price of Man’s
shares is P2. The share capital of Man is 25 million shares after the acquisition. Calculate the value of
goodwill in the above acquisition.
a. P16 million b. P12 million c. P10 million d. P6 million
Subsequent to Date of Acquisition

XV –Cost Model/Method versus Equity Method
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20x4, for P500,000.
On that date, the stockholders' equity of Sanburn Company was P380,000. On the purchase date, inventory
of Sanburn Company, which was sold during 20x4, was understated by P20,000. Any remaining excess of
cost over book value is attributable to building with a 20-year life. The reported income and dividends paid
by Sanburn Company were as follows:
20x4 20x5
Net income . . . . . . . . . . . . . . P80,000 P90,000
Dividends paid . . . . . . . . . . . . 10,000 10,000
1. Using the cost model (method), which of the following amounts are correct?
Investment Income Investment Account Balance
20x4 December 31, 20x4
a. P10,000 P500,000
b. P70,000 P570,000
c. P70,000 P550,000
d. P10,000 P550,000

2. Using the cost model (method0, which of the following amounts are correct?
a. P10,000 P500,000
b. P70,000 P570,000
c. P70,000 P550,000
d. P10,000 P550,000
3. Using sophisticated (full) equity method, which of the following amounts are correct?
a. P55,000 P555,000
b. P55,000 P545,000
c. P90,000 P565,000
d. P80,000 P570,000
4. Using sophisticated (full) equity method, which of the following amounts are correct?
a. P55,000 P 54,000
b. P55,000 P555,000
c. P85,000 P620,000
d. P90,000 P570,000
XVI – CNI under Entity Concept (PFRS 10)
For 20x6, Pyna reported P500,000 of net income from its own separate operations. This amount excludes
income relating to Syna, its 80%-owned created subsidiary, which reported P100,000 of net income and
declared P55,000 of dividends in 20x6. What is the consolidated net income under the economic unit/entity
concept?
a. P536,000 c. P580,000 e. P644,000
b. P544,000 d. P600,000
XVII – CNI under Parent Company Concept
For 20x6, Pyna reported P500,000 of net income from its own separate operations. This amount excludes
income relating to Syna, its 80%-owned created subsidiary, which reported P100,000 of net income and
declared P55,000 of dividends in 20x6. What is the consolidated net income under the parent company
concept?
a. P536,000 c. P580,000 e. P644,000
b. P544,000 d. P600,000
XVIII
Parrett Corp. bought one hundred percent of Jones Inc. on January 1, 20x4, at a price in excess of the
subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of P360,000 but a
fair value of P480,000. Jones had equipment (ten-year life) with a book value of P240,000 and a fair value
of P350,000. Parrett used the cost model to record its investment in Jones. On December 31, 20x6, Parrett
had equipment with a book value of P250,000 and a fair value of P400,000. Jones had equipment with a
book value of P170,000 and a fair value of P320,000. What is the consolidated balance for the equipment
account as of December 31, 20x6?
a. P710,000 c. P475,000
b. P580,000 d. P497,000
XIX
On January 1, 20x4, BB, Inc., reports net assets of P760,000 although equipment (with a 4- year life) having
a book value of P440,000 is worth P500,000 and an unrecorded patent is valued at P45,000. HH Corporation
pays P692,000 on that date for art 80 percent ownership in BB. If the patent is to be written off over a 10-
year period, at what amount should it be reported on consolidated statements at December 31, 20x5?
a. P28,800 c. P36,000
b. P32,400 d. P40,500
XX
January 1, 20x9, Payne Corp. purchased 70% of Shayne Corp.'s P10 par common stock for P900,000. On
this date, the carrying amount of Shayne's net assets was P1,000,000. The fair values of Shayne's identifiable
assets and liabilities were the same as their carrying amounts except for plant assets (net), which were
P200,000 in excess of the carrying amount. For the year ended December 31, 20x9, Shayne had net income
of P150,000 and paid cash dividends totalling P90,000. Excess attributable to plant assets is amortized over
10 years. In the December 31, 20x9, consolidated balance sheet, non-controlling interest should be
reported at:

a. P282,714 c. P397,714
b. P300,500 d. P345,500
XXI
Photoplasm Corporation acquired 70 percent of Spectrum Company on January 1, 20x9 for P420,000. At
that date Spectrum had inventory and plant assets with market values greater than book values in the
amount of P50,000 and P90,000 respectively. The inventory and plant assets were assigned a remaining life
of six months and five years respectively. Assuming that Spectrum has 20x9 income and dividends of
P160,000 and P60,000, respectively and 20y0 income and dividends of P210,000 and P80,000, respectively,
what is the balance in the non-controlling interest account at December 31, 20y0?
A. P169,200 C. P136,800
B. P276,000 D. P223,200
XXII
On April 1, 20x9, PP, Inc., exchanges P430,000 fair-value consideration for 70 percent of the outstanding
stock of RR Corporation. The remaining 30 percent of the outstanding shares Continued to trade at a
collective fair value of P165,000. RR’s identifiable assets and liabilities each had book values that equalled
their fair values on April 1, 20x9 for a net total of P500,000. RR generates revenues of P600,000 and expenses
of P360,000 and paid no dividends. On a December 31, 20x9, consolidated balance sheet, what amount
should be reported as non-controlling interest?
A. P219,000 C. P234,000
B. P237,000 D. P250,500
XXIII
On January 1, 20x9, PP Company acquired an 80 percent investment in SS Company. The acquisition cost
was equal to PP’s equity in SS’s net assets at that date. On January 1, 20x9, PP and SS had retained earnings
of P500,000 and P100,000, respectively. During 20x9, PP had net income of P200,000, which included its
equity in SS’s earnings, and declared dividends of P50,000; SS had net income of P40,000 and declared
dividends of P20,000. There were no other intercompany transactions between the parent and subsidiary.
On December 31, 20x9, what should the consolidated retained earnings be?
A. P650,000 C. P766,000
B. P666,000 D. P770,000
*Faith may be defined briefly as an illogical belief in the occurrence of the impossible.*
*The secret of life is not just to live, but to have something worthwhile to live for.*
***The secret of life is not just to live, but to have something worthwhile to live for.***
***Truth is the heart of life in a community with others, and truth, is of course, dishonored by a lie. A lie is an assertion, in a
context in which genuine communication is reasonably expected, of something
which one considers to be false.***
"Every accomplishment starts with the decision to try."
"It is the sizes of one’s will which determines success."
"PERSIST, because with an idea, determination, and the right tools,
You can do great things."
"Keep your dreams alive. Understand to achieve anything requires faith and belief in yourself, vision, hard work,
determination, and dedication. Remember all things are possible for those who believe." Gail Devers
*No one knows what he can do until he tries*
*Not knowing when the dawn will come, I open every door*
*The great thing in the world is not so much where you are but in what direction you are going*
*There are only two things in the world to worry over; the things you can control,
and the things you can’t control. Fix the first forget the second.*
There are storms to be considered, problems to be reckoned with, crisis to be encountered, high seas to contend with, unfateful
events that should be hurdled and they are phenomenon to be shunned with great faith and courage.
GOD’s LOVE is like a river that keeps on flowing…
GOD bless as always
Solution to Problem I
1. Proportionate Basis (Partial-goodwill Approach)
Fair value of subsidiary (80%):
Consideration transferred: Cash………………………..P10,000,000 (80%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P6,000,000 x 80%................................ 4,800,000 (80%)
Allocated excess.………………………………………………...P 5,200,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P8,000,000 – P6,000,000) x 80%.................................. 1,600,000 (80%)
Positive excess: Goodwill (partial)……………………………. P 3,600,000 (80%)
CI – 3,600,000 (80%) NCI – 0 (20%)

3. Fair Value Basis (Full-goodwill Approach)
Consideration transferred: Cash (P10,000,000 / 80%)..P12,500,000 (100%)
– S Company: P6,000,000 x 100%.............................. 6,000,000 (100%)
Allocated excess.……………………………………………….. P 6,500,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P8,000,000 – P6,000,000) x 100%................................ 2,000,000 (100%)
Positive excess: Goodwill (full)………………………………...P 4,500,000 (100%)
CI – 3,600,000 (80%) NCI – 900,000 (20%)
Non-controlling interest
Book Value of stockholders’ equity of subsidiary………….P 6,000,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P8,000,000 – P6,000,000)…. 2,000,000
Fair value of stockholders’ equity of subsidiary…………… P 8,000,000
Multiplied by: Non-controlling interest percentage............ 20%
FV - Non-controlling interest (partial)………………………… P1,600,000 (2)
Add: Non-controlling interest on full -goodwill
(P4,500,000 – P3,600,000 partial-goodwill) or
(P4,500,000 x 20%)*…………………………………... 900,000
FV - Non-controlling interest (full)……………………………... P2,500,000 (4)
* applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Solution to Problem II
Consideration transferred: Cash……………………….. P 6,300,000 (60%)
– S Company: P5,000,000 x 60%................................ 3,000,000 (60%)
Allocated Excess.………………………………………………….P 3,300,000 (60%)
(P7,000,000 – P5,000,000) x 60%.................................... 1,200,000 (60%)
Positive excess: Goodwill (partial)……………………………. P 2,100,000 (60%)
CI – 2,100,000 (60%) NCI – 0 (40%)

Consideration transferred: Cash ………………………..P 6,300,000 ( 60%)
Fair value of NCI (given)………………………………… 4,000,000 ( 40%)
Fair value of subsidiary………………………………………….P10,300,000 (100%)
– S Company: P5,000,000 x 100%................................ 5,000,000 (100%)
Allocated Excess.………………………………………………..P 5,300,000 (100%)
(P7,000,000 – P5,000,000) x 100%................................. 2,000,000 (100%)
Positive excess: Goodwill (full)………………………………...P 3,300,000 (100%)
CI – 2,100,000 (60%) NCI – 1,200,000(40%)
Book value of stockholders’ equity of subsidiary………….P 5,000,000
Fair value of stockholders’ equity of subsidiary……………P 7,000,000
Multiplied by: Non-controlling Interest percentage.......... 40%
FV – Non-controlling interest (partial)………………………..P 2,800,000 (2)
(P3,300,000 – P2,100,000 partial-goodwill)………….. 1,200,000
FV - Non-controlling Interest (full)……………………………...P 4,000,000 (4)

Consideration transferred (P6,294,000 – P294,000)/60% P 10,000,000 ( 100%)
Add: Control premium. . . . . . . . . . . . . . . . . . . . . . . . . . . . _ 294,000
Fair value of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 10,294,000 (100%)
Less: Book value of stockholders’ equity (net assets) –
Sun Company: P5,000,000 x 100% . . . . . . . . . . . . . . . . . . . . 5,000,000 (100%)
Allocated Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 5,294,000 (100%)
(P7,000,000 – P5,000,000) x 100% . . . . . . . . . . . . . . . . . . 2,000,000 (100%)
Positive excess: Goodwill (full) . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,294,000 (100%)
Solution to Problem III

• Partial-goodwill
Consideration transferred: Cash………………………..P 2,160,000 (60%)
Fair value of previously held equity interest
in acquiree P2,160,000/60% = P3,600,000 x 15%..... 540,000 (15%)
Fair value of Subsidiary ..……………………………………… P 2,700,000 (75%)
– Serap Company: (P3,900,000 – P1,900,000) x 75%. 1,500,000 (75%)
Allocated Excess.………………………………………………...P 1,200,000 (75%)
[(P5,100,000 – P1,900,000) –
(P3,900,000 – P1,900,000)] x 75%................................ 900,000 (75%)
Positive excess: Goodwill (partial)……………………………P 300,000 (75%)
CI – 300,000 (75%) NCI – 0 (25%)

Consideration transferred: Cash………………………..P 2,160,000 (60%)
Fair value of previously held equity interest
in acquiree P2,160,000/60% = P3,600,000 x 15%..... 540,000 (15%)
Fair value of NCI (given)………………………………… 900,000 (25%)
Fair value of subsidiary………………………………………….P 3,600,000 (100%)
– Serap Company: P2,000,000 x 100%........................ 2,000,000 (100%)
Allocated Excess.………………………………………………..P 1,600,000 (100%)
(P3,200,000 – P2,000,000) x 100%................................. 1,200,000 (100%)
Positive excess: Goodwill (full)………………………………...P 400,000 (100%)
CI – 300,000 (75%) NCI – 100,000 (25%)
Book value of stockholders’ equity of subsidiary…………..P 2,000,000
Fair value of stockholders’ equity of subsidiary…………….P. 3,200,000
Multiplied by: Non-controlling Interest percentage............ 25%
FV - Non-controlling interest (partial)………………………….P 800,000 (2)
(P400,000 – P300,000 partial-goodwill)…..…………… 100,000
FV - Non-controlling Interest (full)………………………………P 900,000 (4)
No. 5 – (b); No. 6 – (a):

An equity interest previously held and qualified as a financial asset under PFRS 9 is being remeasured to its-acquisition-
date fair value and any difference is recognize in profit or loss if *FVTPL or OCI if the financial assets is a *FVTOCI . The
gain or loss is computed as follows:
Fair value on previously held equity interest in acquiree
P2,160,000 / 60% = P3,600,000 x 15%............................. P 540,000
Less: Carrying / book value at the point control is
achieved (cost model)………………………………… 500,000
*Gain on remeasurement to fair value (deemed sale) P 40,000

Solution to Problem IV
Proportionate Basis (Partial Goodwill Approach)
Consideration transferred: Cash . . . . . . . . . . . . . . . . . . . P 225,000 (75%)
Less: Book value of stockholders’ equity
(net assets) – Saloon Company:
(P400,000 – P190,000) x 75% . . . . . . . . . . . . . . . . . . . . . 157,500 (75%)
Allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 67,500 (75%)
[(P510,000 – P190,000) – (P400,000 – P190,000) x 75% _ 82,500 (75%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) . . . . . . . . . . . . (P 15,000) (75%)
Fair Value Basis (Full-goodwill Approach)
Consideration transferred: Cash . . . . . . . . . . . . . . . . . . . P 225,000 (75%)
Fair value of non-controlling interest (given)* . . . . . . . . 82,000 (25%)
Fair value of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 307,000 (100%)
Less: Book value of stockholders’ equity
(net assets) – Saloon Company:
(P400,000 – P190,000) x 100% . . . . . . . . . . . . . . . . . . . . 210,000 (100%)
Allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 97,000 (100%)
[(P510,000 – P190,000) – (P400,000 – P190,000) x 100% 110,000 (100%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) . . . . . . . . . . . . (P 13,000) (100%)
*This amount should not be lower compared to fair value of NCI of Stockholders’ equity of subsidiary
[i.e.,(P510,000 – P190,000 = P320,000) x 25% = P80,000). Otherwise, the higher amount should be used.
Solution to Problem V – (D)
Cash proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 490,000 70%
Fair value of retained non-controlling interest equity investment. . .. . . . 70,000 10%
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary)
[P600,000 x 20% (20,000/100,000)]. . . . . . . . . . . . . . . . . . . ... . . 120,000 20%
Fair value of 100% of Parent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 680,000 100%
Less: Carrying value of Subsidiary’s net assets . . . . . . . . . . . . . . . . . . . . . 600,000 100%
Gain on deemed sale of Parent (disposal or deconsolidation). . . . . . . . P 80,000 100%
Solution to Problem VI – (A)
Cash proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 70,000
Less: Carrying value of non-controlling interest (P600,000* x 10%) . . . . . . __ 60,000
“Gain” – transfer within equity in “Additional paid-in capital” account P 10,000
*the P600,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Solution to Problem VII – (B)
Cash proceeds from issuance of additional shares ….. P 175,000
Less: Carrying Value of non-controlling from issuance of additional shares:
Non-controlling interest prior to issuance of additional shares:
Book value of SHE before issuance………… P600,000
x: Non-controlling interest………………….. 20%* P120,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before issuance………. P600,000
Additional issuance…………………..……… 175,000
BV of SHE after issuance……………………. P775,000
x: Non-controlling interest…………….......... 36%** 279,000 159,000
“Gain” – transfer within equity in Additional paid-in capital” account P 16,000
*(100,000 – 80,000) / 100,000 = 20% ownership before additional issuance of shares.
** [(20,000 + 25,000) / (100.000 + 25,000)] = 36% ownership after additional issuance of shares
Or, alternatively:
Carrying value of 80% ownership before issuance
of additional shares:
Stockholders’ equity of Sare Co. . . . . . . . . . . . . . . . . . . . . . . . . .. P600,000
X: Ownership interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____80% P 480,000
Carrying value of 64% ownership after issuance
of additional shares:
Stockholders’ equity of Sare Co. (P600,000 + P175,000). . . . . . . P775,000
X: Ownership interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____64% _496,000
Additional paid-in capital.. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 16,000
Within the hearts men, loyalty and consideration are esteemed greater than success. - -Bryant H. McGill
GOD bless as ALWAYS.

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPA Licensure Examination

SEPARATE & CONSOLIDATED FINANCIAL STATEMENTS

• deleted the definition of the cost method from PAS 27

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1. The reasons why separate financial statements are prepared;

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Non-controlling share of recorded equity of the subsidiary

Step 1 Step 2 Step 3

Time Acquisition Beginning of End of

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Retained earnings, 1/1 P 2,400 P 400

Cash P 240 P 220

Liabilities P 1,500 P 820

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Accounts payable P 61,500 P 28,000

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Subsequent to Date of Acquisition

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CI – 3,600,000 (80%) NCI – 0 (20%)

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CI – 3,600,000 (80%) NCI – 900,000 (20%)

CI – 2,100,000 (60%) NCI – 0 (40%)

3. Fair Value Basis (Full-goodwill Approach)

CI – 2,100,000 (60%) NCI – 1,200,000(40%)

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Solution to Problem III

CI – 300,000 (75%) NCI – 0 (25%)

CI – 300,000 (75%) NCI – 100,000 (25%)

No. 5 – (b); No. 6 – (a):

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