Solution Chapter 15

Chapter 15 Problem I Investment in Shy Inc. [P2,500,000 + (15,000  P40)] Cash Common Stock Other Contributed Capital (P40 - P2)  15,000 Other Contributed Capital Acquisition Expense Deferred Acquisition Charges Acquisition Costs Payable

3,100,000 2,500,000 30,000 570,000 30,000 67,000 90,000 7,000

Problem II Cash: P74,000 = P44,000 + P30,000 Accounts receivable: P155,000 = P110,000 + P45,000 Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 – P70,000)] Land: P125,000 = [P80,000 + P25,000 + (P45,000 – P25,000)] Buildings and equipment: P900,000 = P500,000 + P400,000 Accumulated depreciation: P388,000 = P223,000 + P165,000 Goodwill (full-goodwill) = P40,000* Total Assets = P1,121,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000 – P388,000 + P40,000, or: Total Assets of Power Corp. P 791,500 Less: Investment in Silk Corp. (150,500) P 641,000 Book value of assets of Silk Corp. 405,000 Book value reported by Power and Silk P1,046,000 Increase in inventory (P85,000 - P70,000) 15,000 Increase in land (P45,000 - P25,000) 20,000 Goodwill 40,000 Total assets reported (based on fullgoodwill) P1,121,000 Accounts payable: P89,500 = P61,500 + P28,000 Taxes payable P132,000 = P95,000 + P37,000 Bonds payable: P480,000 = P280,000 + P200,000 Total liabilities: P701,500 = P89,500 + P132,000 + P480,000 Common stock: P150,000, parent only Retained earnings: P205,000, the amount reported by parent Non-controlling interest (full-goodwill): P64,500* Stockholders’ equity: P419,500 Consolidated SHE: Common stock P150,000 Retained Earnings 205,000 Parent’s SHE or Equity Attributable to Parent P355,000 NCI (full-goodwill) 64,500 Consolidated SHE P419,500 Computation of Goodwill: Full-goodwill: Fair value of Subsidiary: Consideration transferred Add: FV of NCI Less: BV of SHE of SS (P50,000 + P90,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P70,000 – P85,000) x 100% Land (P25,000 – P45,000) x 100% Goodwill – full

P150,500 **64,500

P 15,000 20,000

P215,000 140,000 P 75,000

35,000 P 40,000

**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to P52,500 computed as follows : FV of SHE of SS:

Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SS P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

or, Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of SSD (P50,000 + P90,000) x 70% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P15,000 x 70%) Land (P20,000 x 70%) Goodwill – partial

P150,500 __98,000 P 52,500 P 10,500 14,000

24,500 P 28,000

If partial-goodwill: Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000 – P388,000 + P28,000, Non-controlling interest (partial-goodwill): P52,500 NCI FV of SHE of SSD: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SSD P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

Stockholders’ equity: P419,500 Consolidated SHE: Common stock Retained Earnings Parent’s SHE or Equity Attributable to Parent NCI (partial-goodwill) Consolidated SHE Problem III 1. A. Investment in Sewell Cash B. C.

P150,000 205,000 P355,000 52,500 P404,500

675,000 675,000

Investment in Sewell Cash

675,000

Investment in Sewell Cash

318,000

675,000 318,000

2. A. Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% Land (P50,000 – P70,000) x 100% Bargain Purchase Gain – full

P675,000 705,000 P( 30,000) (P10,000) __20,000

__10,000 (P 40,000)

B. Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 90% Land (P50,000 – P70,000) x 90% Goodwill – partial

P675,000 634,500 P 40,500 (P9,000) __18,000

__9,000 P 31,500

Full-Goodwill Fair value of Subsidiary: Consideration transferred (P675,000/90%) Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% Land (P50,000 – P70,000) x 100% Goodwill – full

P750,000 705,000 P 45,000 (P10,000) __20,000

__10,000 P 35,000

C. Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 80% Land (P50,000 – P70,000) x 80% Bargain Purchase Gain – partial (parent only)

P318,000 624,000 (P306,000) (P 8,000) __16,000

Full-Goodwill Fair value of Subsidiary: Consideration transferred FV of NCI* Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% Land (P50,000 – P70,000) x 100% Bargain Purchase Gain – full (parent only) *BV of SHE of S Adjustments to reflect fair value FV of SHE of S x: NCI% FV of NCI

__8,000 (P314,000)

P 318,000 _158,000 P 476,000 780,000 (P304,000) (P10,000) __20,000

_10,000 (P314,000)

P780,000 10,000 P790,000 20% P158,000

3. A. Common Stock – Sewell Other Contributed Capital – Sewell Retained Earnings – Sewell Land Inventory Investment in Sewell Retained earnings (gain) – Parent (since balance sheet accounts are being examined)

450,000 180,000 75,000 20,000 10,000 675,000 40,000

B. Partial-Goodwill (Proportionate Basis) Common Stock – Sewell 450,000 Other Contributed Capital – Sewell 180,000 Retained Earnings – Sewell 75,000 Land 20,000 Goodwill 31,500 Inventory Investment in Sewell Non-controlling Interest BV – SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P715,000 x: NCI% 10% FV of NCI (partial) P 71,500

10,000 675,000 71,500

Full-Goodwill (Fair Value Basis) Common Stock – Sewell Other Contributed Capital – Sewell Retained Earnings – Sewell Land Goodwill Inventory Investment in Sewell Non-controlling Interest BV – SHE of Sewell (P450,000 + P180,000 + P75,000) Adjustments to reflect fair value FV of SHE of Sewell x: NCI% FV of NCI (partial) NCI on Full-Goodwill (P35,000 – P31,500) FV of NCI (full)

450,000 180,000 75,000 20,000 35,000 10,000 675,000 75,000 P705,000 10,000 P715,000 10% P 71,500 3,500 P 75,000

C. Partial-Goodwill (Proportionate Basis) Common Stock – Sewell 620,000 Other Contributed Capital – Sewell 140,000 Retained Earnings – Sewell 20,000 Land 20,000 Inventory Investment in Sewell Retained earnings (gain)–Parent (refer to 3A) Non-controlling Interest BV – SHE of Sewell (P620,000 + P140,000 + P20,000) P780,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P790,000 x: NCI% 20% FV of NCI (partial) P158,000

10,000 318,000 314,000 158,000

Full-Goodwill (Fair Value Basis) Common Stock – Sewell 620,000 Other Contributed Capital – Sewell 140,000 Retained Earnings – Sewell 20,000 Land 20,000 Inventory Investment in Sewell Retained earnings (gain)–Parent (refer to 3A) Non-controlling Interest BV – SHE of Sewell (P620,000 + P140,000 + P20,000) P780,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P790,000 x: NCI% 20% FV of NCI (full) P158,000

10,000 318,000 314,000 158,000

Problem IV 1. January 1, 20x4

Investment in S Company…………………………………………… Cash……………………………………………………………………..

2. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%)

408,000 408,000

Consideration transferred……………………………….. Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P24,000 x 100%)... Retained earnings (P96,000 x 100%)………………... Allocated excess (excess of cost over book value)…… Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and equipment (P12,000 x 100%)……………………………………... Increase in bonds payable (P42,000 x 100%)…….. Positive excess: Goodwill (excess of cost over fair value)……………………………………………………..

3.

P 408,000 P 240,000 24,000 96,000 P

360,000 48,000

P 18,000 72,000 ( 12,000) ( 42,000)

36,000 P 12,000

(E1) Common stock – S Co………………………………………………. Additional paid-in capital – S Co…………………………………. Retained earnings – S Co…………………………………………... Investment in S Co…………………………………………………

240,000 24,000 96.000 360,000

Eliminate investment against stockholders’ equity of S Co.

(E2) Inventory…………………………………………………………………. Land………………………………………………………………………. Goodwill…………………………………………………………………. Buildings and equipment………………………………………….. Premium on bonds payable……………………………………… Investment in S Co………………………………………………..

18,000 72,000 12,000 12,000 42,000 48,000

Eliminate investment against allocated excess.

4. Eliminations Assets Cash*…………………………. Accounts receivable……..

P

P Co.

S Co.

12,000

P 60,000

Dr.

Consolidated P

90,000

60,000

Inventory………………….

120,000

72,000

(2) 18,000

Land…………………………….

210,000

48,000

(2) 72,000

Buildings and equipment (net)

480,000

360,000

Goodwill…………………… Investment in S Co………….

408,000

Total Assets

Cr.

72,000 150,000 210,000 330,000

(2)

12,000

828,000

(2) 12,000

12,000 (1) 360,000 (2) 48,000

-

P1,320,000

P600,000

P1,602,000

Accounts payable……………

P 120,000

P120,000

P 240,000

Bonds payable…………………

240,000

120,000

Liabilities and Stockholders’ Equity 360,000

Premium on bonds payable Common stock, P10 par………

(3)

600,000 240,000

(1) 240,000

60,000

Paid in capital in excess of par. Retained earnings……………

42,000

600,000

Common stock, P10 par……… Paid in capital in excess of par.

42,000

60,000 24,000

(1) 24,000

300,000

Retained earnings…………… _________ 96,000 Total Liabilities and Stockholders’ Equity P1,320,000 P600,000 (1) Eliminate investment against stockholders’ equity of S Co. (2) Eliminate investment against allocated excess. * P420,000 – P408,000 = P12,000.

300,000 (1) 96,000

__________

_________

P 462,000

P 462,000

P1,602,000

5. Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Goodwill Total Assets

P

72,000 150,000 210,000 330,000 828,000 12,000 P1,602,000

Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Paid-in capital in excess of par Retained earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity

P 240,000 P 360,000 42,000

402,000 P 642,000 P 600,000 60,000 300,000 P 960,000 P1,602,000

Problem V 1. January 1, 20x4

(1) Investment in S Company…………………………………………… Cash…………………………………………………………………….. Common stock, P10 par…………………………………………….. Paid-in capital in excess of par…………………………………….

432,000

(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)…………………………………………………………… Cash…………………………………………………………………….

288,000 120,000 24,000

12,000 12,000

Acquisition- related costs.

(3) Paid-in capital in excess of par……………………………………….. Cash…………………………………………………………………….

8,400 8,400

Costs to issue and register stocks.

2. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred Cash………………………………………………………. Common stock: 12,000 shares x P12 per share….. Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P96,000 x 100%).. Retained earnings (P24,000 x 100%)………………... Allocated excess (excess of cost over book value)…… Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… Adjusted allocated excess…………………………………. Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and equipment (P12,000 x 100%)……………………………………... Increase in bonds payable (P42,000 x 100%)…….. Positive excess: Goodwill (excess of cost over fair value)……………………………………………………..

P 288,000 144,000 P 240,000 96,000 24,000

P 432,000

360,000 72,000 6,000 P 78,000 P

P 18,000 72,000 ( 12,000) ( 42,000)

36,000 P 42,000

Alternatively, the unrecorded goodwill may also be computed by ignoring the existing goodwill in the books of the subsidiary, thus: Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation) Fair value of Subsidiary (100%) Consideration transferred……………………………………………………… Less: Book value of stockholders’ equity of S……………………………….. Allocated excess (excess of cost over book value)…………………………. Less: Over/under valuation of assets and liabilities…………………………… Positive excess: Goodwill (excess of cost over fair value)…………………... Add: Existing Goodwill……………………………………………………………… Positive excess: Goodwill (excess of cost over fair value)……………………………………………………………………………

P 432,000 360,000 P 72,000 36,000 P 36,000 6,000 P

42,000

3. Eliminations Assets

P Co.

S Co.

111,600

P 54,000

P 165,600

90,000

60,000

150,000

Inventory………………….

120,000

72,000

(2) 18,000

210,000

Land…………………………….

210,000

48,000

(2) 72,000

330,000

Buildings and equipment (net)

480,000

360,000

Cash*…………………………..

P

Accounts receivable……..

Goodwill…………………… Investment in S Co…………. Total Assets

6,000

Dr.

Cr.

(2)

Consolidated

12,000

828,000

(2) 36,000

432,000

42,000 (4) 360,000 (5) 72,000

-

P1,443,600

P600,000

P1,725,600

Accounts payable……………

P 120,000

P120,000

P 240,000

Bonds payable…………………

240,000

120,000

360,000

Liabilities and Stockholders’ Equity

Premium on bonds payable Common stock, P10 par**…..…

(6)

42,000

720,000

Common stock, P10 par……… Additional paid in capital***

42,000

720,000 240,000

(1) 240,000

75,600

Additional paid in capital……

75,600 24,000

(1) 24,000

Retained earnings…………… _________ 96,000 Total Liabilities and Stockholders’ Equity P1,443,600 P600,000 (1) Eliminate investment against stockholders’ equity of Sky Co. (2) Eliminate investment against allocated excess. * P420,000 – P288,000 – P12,000 – P8,400 = P111,600. * *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000. *** P50,000 + P20,000 – P7,000 = P63,000. ****P300,000 – P12,000 = P288,000.

(1) 96,000

__________

_________

P 486,000

P 486,000

P1,725,600

Retained earnings****

288,000

288,000

4. Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Goodwill Total Assets Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Additional paid-in capital in excess of par Retained earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity

P

165,600 150,000 210,000 330,000 828,000 42,000 P1,725,600

P 240,000 P 360,000 42,000

402,000 P 642,000 P 720,000 75,600 288,000 P 1083,600 P1,725,600

Problem VI 1. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%) Consideration transferred (P408,000 – P6,000)…….. Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P96,000 x 100%)... Retained earnings (P24,000 x 100%)………………... Allocated excess (excess of cost over book value)……

P 402,000 P 240,000 96,000 24,000 P

360,000 42,000

Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and equipment (P12,000 x 100%)……………………………………... Increase in bonds payable (P42,000 x 100%)…….. Positive excess: Goodwill (excess of cost over fair value)……………………………………………………..

P 18,000 72,000 ( 12,000) ( 42,000)

36,000 P

6,000

2. Goodwill, P6,000 Problem VII 1. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%) Consideration transferred: Common stock: 24,000 shares x P14 per share Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P96,000 x 100%)... Retained earnings (P24,000 x 100%)………………... Allocated excess (excess of book value over cost)…… Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and equipment (P12,000 x 100%)……………………………………... Increase in patent (P24,000 x 100%)………………... Increase in contingent liability (P18,000 x 100%)…. Increase in bonds payable (P42,000 x 100%)…….. Negative excess: Bargain Purchase Gain (excess of fair value over cost)……………………………………

P 336,000 P 240,000 96,000 24,000

360,000 (P 24,000)

P 18,000 72,000 ( 12,000) 24,000 ( 18,000) ( 42,000)

42,000 (P 66,000)

2. Gain on acquisition, P66,000 Problem VIII Case 1: Proportionate Basis (Partial-goodwill Approach)  Partial-goodwill Fair value of subsidiary (80%): Consideration transferred: Cash……………………….......P12,000,000 (80%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 80%................................. 5,760,000 (80%) Allocated excess.………………………………………………........P 6,240,000 (80%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 80%....................................... 1,920,000 (80%) Positive excess: Goodwill (partial)……………………………..... P 4,320,000 (80%) 

Non-controlling interest Book Value of stockholders’ equity of subsidiary…………. P 7,200,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P9,600,000 – P7,200,000)….. 2,400,000 Fair value of stockholders’ equity of subsidiary…………… P 9,600,000 Multiplied by: Non-controlling interest percentage............ 20% Non-controlling Interest (partial)……………………………….. P1,920,000

Fair Value Basis (Full-goodwill Approach)  Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 100%.............................. 7,200,000 (100%) Allocated excess.……………………………………………….. P 7,800,000 (100%) Less: Over/Undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%.................................... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%)

The full – goodwill of P5,400,000 consists of two parts: Full-goodwill……………………………………………....... P 5,400,000 Less: Controlling interest on full-goodwill or partial-goodwill…………………………….….. 4,320,000 NCI on full-goodwill…………………………………….......P 1,080,000 

Non-controlling interest Non-controlling interest (partial)……………………………….......P1,920,000 Add: Non-controlling interest on full -goodwill (P5,400,000 – P4,320,000 partial-goodwill) or (P5,400,000 x 20%)*…………………………………...... 1,080,000 Non-controlling interest (full)…………………………………........P3,000,000

* applicable only when the fair value of the non-controlling interest of subsidiary is not given.

Case 2: Proportionate Basis (Partial-goodwill Approach)  Partial-goodwill Fair value of subsidiary (60%): Consideration transferred: Cash……………………….....P 7,560,000 (60%) Less: Book value of stockholders’ equity (net assets) – S Company: P6,000,000 x 60%................................ 3,600,000 (60%) Allocated Excess.………………………………………………..... P 3,960,000 (60%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 60%...................................... 1,440,000 (60%) Positive excess: Goodwill (partial)…………………………….... P 2,520,000 (60%) 

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): (P8,400,000 – P6,000,000)…. 2,400,000 Fair value of stockholders’ equity of subsidiary…………….P 8,400,000 Multiplied by: Non-controlling Interest percentage............ 40% Non-controlling interest (partial)……………………………….P 3,360,000

Fair Value Basis (Full-goodwill Approach)  Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash ………………………...P 7,560,000 ( 60%) Fair value of NCI (given)………………………………….. 4,800,000 ( 40%) Fair value of subsidiary…………………………………………...P12,360,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P6,000,000 x 100%........................... 6,000,000 (100%) Allocated Excess.…………………………………………………..P 6,360,000 (100%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 100%.................................. 2,400,000 (100%) Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%) The full – goodwill of P3,960,000 consists of two parts: Full-goodwill……………………………………………...P 3,960,000 Less: Controlling interest on full-goodwill or partial-goodwill……………………………. 2,520,000 NCI on full-goodwill……………………………………..P 1,440,000 

Non-controlling interest Non-controlling interest (partial)………………………………P 3,360,000 Add: Non-controlling interest on full -goodwill (P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000 Non-controlling Interest (full)…………………………………..P 4,800,000

Case 3; Proportionate Basis (Partial-goodwill Approach)  Partial-goodwill Fair value of subsidiary (75%):

Consideration transferred: Cash………………………..P 9,000,000 (75%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 75%.......................... 5,400,000 (75%) Allocated Excess.………………………………………………...P 3,600,000 (75%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 75%................................. 1,800,000 (75%) Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%) 

Non-controlling interest Book value of stockholders’ equity of subsidiary…………..P 7,200,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P9,600,000 – P7,200,000)…. 2,400,000 Fair value of stockholders’ equity of subsidiary……………P 9,600,000 Multiplied by: Non-controlling Interest percentage............ 25% Non-controlling interest (partial)……………………………….P 2,400,000

Fair Value Basis (Full-goodwill Approach)  Full-goodwill Fair value of subsidiary…………………………………………. P 11,640,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P7,200,000 x 100%........................... 7,200,000 (100%) Allocated Excess.………………………………………………….P 4,440,000 (100%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%.................................. 2,400,000 (100%) Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%) The full – goodwill of P2,040,000 consists of two parts: Full-goodwill……………………………………………...P 2,040,000 Less: Controlling interest on full-goodwill or partial-goodwill…………………………….... 1,800,000 NCI on full-goodwill……………………………………. .P 240,000 

Non-controlling interest Non-controlling interest (partial)………………………………P 2,400,000 Add: Non-controlling interest on full -goodwill (P2,040,000 – P1,800,000 partial-goodwill)…..……..... 240,000 Non-controlling Interest (full)…………………………………..P 2,640,000

Case 4: Proportionate Basis (Partial-goodwill Approach)  Partial-goodwill Fair value of subsidiary (75%): Consideration transferred: Cash………………………..P 2,592,000 (60%) Fair value of previously held equity interest in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%) Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%) Less: Book value of stockholders’ equity (net assets) – S Company: (P4,680,000 – P2,280,000) x 75%......... 1,800,000 (75%) Allocated Excess.………………………………………………....P 1,440,000 (75%) Less: Over/undervaluation of assets and liabilities: [(P6,120,000 – P2,280,000) – (P4,680,000 – P2,280,000)] x 75%................................ 1,080,000 (75%) Positive excess: Goodwill (partial)……………………………... P 360,000 (75%) 

Non-controlling interest Book value of stockholders’ equity of subsidiary…………..P 2,400,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P3,840,000 – P2,400,000)…. 1,440,000 Fair value of stockholders’ equity of subsidiary……………P 3,840,000 Multiplied by: Non-controlling Interest percentage............ 25% Non-controlling interest (partial)………………………………P 960,000

Fair Value Basis (Full-goodwill Approach)  Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash………………………..P 2,592,000 (60%) Fair value of previously held equity interest in acquiree P2,592,000/60% = P4,320,000 x 15%...... 648,000 (15%) Fair value of NCI (given)…………………………………. 1,080,000 (25%) Fair value of subsidiary………………………………………….P 4,320,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P2,400,000 x 100%........................ 2,400,000 (100%) Allocated Excess.………………………………………………..P 1,920,000 (100%) Less: Over/undervaluation of assets and liabilities: (P3,840,000 – P2,400,000) x 100%................................ 1,440,000 (100%) Positive excess: Goodwill (full)………………………………...P 480,000 (100%) The full – goodwill of P480,000 consists of two parts: Full-goodwill……………………………………………...P 480,000 Less: Controlling interest on full-goodwill or partial-goodwill…………………………….… 360,000 NCI on full-goodwill……………………………………..P 120,000 

Non-controlling interest Non-controlling interest (partial)………………………………P 960,000 Add: Non-controlling interest on full -goodwill (P480,000 – P360,000 partial-goodwill)…..…………..... 120,000 Non-controlling Interest (full)……………………………………P 1,080,000

Problem IX  Partial-goodwill (Proportionate Basis) Fair value of subsidiary (75%): Consideration transferred: Cash……………………….. Less: Book value of stockholders’ equity (net assets) – S Company: (P480,000 – P228,000) x 75%....................................... Allocated excess………………………………………………... Less: Over/undervaluation of assets and liabilities: [(P612,000 – P228,000) – (P480,000 – P228,000) x 75% Negative excess: Bargain purchase gain (to controlling interest or attributable to parent only)………………. 

Full-goodwill (Fair Value Basis) Fair value of subsidiary (100%): Consideration transferred: Cash……………………….. Fair value of non-controlling interest (given)………… Fair value of subsidiary ………………………………………… Less: Book value of stockholders’ equity (net assets) – S Company: (P480,000 – P228,000) x 100%..................................... Allocated excess………………………………………………... Less: Over/undervaluation of assets and liabilities: [(P612,000 – P228,000) – (P480,000 – P228,000) x 100% Negative excess: Bargain purchase gain (to controlling interest or attributable to parent only)……………….

P270,000 (75%)

189,000 (75%) P 81,000 (75%) 99,000 (75%) (P18,000) (75%)

P270,000 ( 75%) 98,400 ( 25%) P368,400 (100%)

252,000 (100%) P116,400 (100%) 132,000 (100%) (P15,600) (100%)

Problem X Partial-goodwill Approach Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred………………………………..

P 360,000

Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 80%)……………………. Paid-in capital in excess of par (P96,000 x 80%)....

P 192,000 76,800

Retained earnings (P24,000 x 80%)………………....

19,200

288,000

Allocated excess (excess of cost over book value)…..

P

72,000

Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 80%)………………

P 14,400

Increase in land (P72,000 x 80%)……………………. Decrease in buildings and equipment (P12,000 x 80%)…………………………………….....

57,600

Increase in bonds payable (P42,000 x 80%)………. Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………...

(

9,600)

( 33,600)

28,800 P 43,200

The over/under valuation of assets and liabilities are summarized as follows: Sky Co. Book value

Sky Co. Fair value

Over/ Under Valuation

72,000

90,000

18,000

Land………………………………………

48,000

120,000

72,000

Buildings and equipment (net).........

360,000

348,000

( 12,000)

Bonds payable…………………………

(120,000)

(162,000)

42,000

Net………………………………………..

360,000

396,000

36,000

Inventory………………….……………..

The buildings and equipment will be further analyzed for consolidation purposes as follows: Sky Co. Book value

Sky Co. Fair value

Buildings and equipment ..................

720,000

Less: Accumulated depreciation….. Net book value………………………...

(Decrease)

348,000

( 372,000)

360,000

-

( 360,000)

360,000

348,000

(

12,000)

The following entry on the date of acquisition in the books of Parent Company: January 1, 20x4 (1) Investment in Sky Company…………………………………………… Cash…………………………………………………………………….. Acquisition of Sky Company.

360,000

(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)…………………………………………………………… Cash…………………………………………………………………….

360,000

14,400 14,400

Acquisition- related costs.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – Sky Co………………………………………………. Additional paid-in capital – Sky Co…………………………………. Retained earnings – Sky Co…………………………………………... Investment in Sky Co………………………………………………… Non-controlling interest (P300,000 x 20%)………………………..

240,000 24,000 96,000

288,000 72,000

Eliminate investment against stockholders’ equity of Sky Co.

(E2) Inventory…………………………………………………………………. Accumulated depreciation…………………………………………. Land………………………………………………………………………. Goodwill…………………………………………………………………. Buildings and equipment………………………………………….. Premium on bonds payable……………………………………… Non-controlling interest (P30,000 x 20%)……………………….. Investment in Sky Co………………………………………………..

18,000 360,000 72,000 43,200 372,000 42,000 7,200 72,000

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Partial-goodwill) Eliminations Assets Cash*…………………………. Accounts receivable……..

P

Peer Co.

Sky Co.

45,600

P 60,000

Dr.

Cr.

Consolidated P

105,600

90,000

60,000

Inventory………………….

120,000

72,000

(2) 18,000

150,000 210,000

Land…………………………….

210,000

48,000

(2) 72,000

330,000

Buildings and equipment

960,000

Goodwill…………………… Investment in Sky Co………….

360,000

720,000

(2) 372,000

1,308,000

(2) 43,200

Total Assets

43,200 (1) 288,000 (2) 72,000

P1,785,600

P960,000

P 2,146,800

Liabilities and Stockholders’ Equity Accumulated depreciation

P 480,000

P360,000

Accounts payable……………

120,000

120,000

Bonds payable…………………

240,000

120,000

(2) 360,000

360,000 (3)

Common stock, P10 par………

42,000

42,000

600,000

Common stock, P10 par………

600,000 240,000

Paid in capital in excess of par.

(1) 240,000

60,000

Paid in capital in excess of par. Retained earnings**……………

60,000 24,000

(1) 24,000

96,000

(1) 96,000

285,600

Retained earnings…………… Non-controlling interest…………

480,000 240,000

Premium on bonds payable

_________

285,600

_______

Total Liabilities and Stockholders’ Equity P1,785,600 P960,000 (1) Eliminate investment against stockholders’ equity of Sky Co. (2) Eliminate investment against allocated excess. * P420,000 – P360,000 – P14,400 = P45,600. **P300,000 – P14,400 = P285,600.



P

_________ P 853,200

(1 ) 72,000 (2) 7,200 P 853,200

_79,200 P2,146,800

Incidentally, the non-controlling interest on the date of acquisition is computed as follows: Common stock – Sky company…………………………………… Paid-in capital in excess of par – Sky co………………………… Retained earnings – Sky Co..………………………………………. Book value of stockholders’ equity – Sky Co………..………….. Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)…………………………………………. Fair value of stockholders’ equity of subsidiary………………… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial)…………………………………..

P 240,000 24,000 80,000 P 360,000

36,000 P 396,000 20 P 79,200

The balance sheet: Peer Company and Subsidiary Consolidated Balance Sheet January 1, 20x4 Assets Cash Accounts receivables Inventories Land Buildings and equipment Accumulated depreciation Goodwill Total Assets Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity

P

105,600 150,000 210,000 330,000 1,308,000 ( 480,000) 43,200 P1,666,800

P 240,000 P 360,000 42,000

402,000 P 642,000 P 600,000 60,000 285,600 P 945,600 79,200 P 1,024,800 P1,666,800

Full-goodwill Approach Schedule of Determination and Allocation of Excess (Full-goodwill) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred (P360,000 / 80%)………….. Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 100%)…………………. Paid-in capital in excess of par (P96,000 x 100%).. Retained earnings (P24,000 x 100%)…………….... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………… Increase in land (P72,000 x 100%)…………………. Decrease in buildings and equipment (P12,000 x 100%)…………………………………..... Increase in bonds payable (P42,000 x 100%)……. Positive excess: Full -goodwill (excess of cost over fair value)………………………………………………...

P 450,000 P 240,000 96,000 24,000 P

360,000 90,000

P 18,000 72,000 ( 12,000) ( 42,000)

36,000 P 54,000

The following entry on the date of acquisition in the books of Parent Company: January 1, 20x4 (1) Investment in Sky Company…………………………………………… Cash……………………………………………………………………..

360,000

360,000

Acquisition of Sky Company.

(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)…………………………………………………………… Cash…………………………………………………………………….

14,400 14,400

Acquisition- related costs.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: 240,000

(E1) Common stock – Sky Co………………………………………………. Additional paid-in capital – Sky Co…………………………………. Retained earnings – Sky Co…………………………………………... Investment in Sky Co………………………………………………… Non-controlling interest (P300,000 x 20%)………………………..

24,000 96,000 288,000 72,000

Eliminate investment against stockholders’ equity of Sky Co.

(E2) Inventory…………………………………………………………………. Accumulated depreciation…………………………………………. Land………………………………………………………………………. Goodwill…………………………………………………………………. Buildings and equipment………………………………………….. Premium on bonds payable……………………………………… Non-controlling interest [(P30,000 x 20%) + (P45,000 – P36,000)]……………………………………………. Investment in Sky Co………………………………………………..

18,000 360,000 72,000 54,000 372,000 42,000 18,000 72,000

Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Full-goodwill) Eliminations Assets

Cash*………………………….

Sky Co.

Dr.

Cr.

Consolidated

45,600

P 60,000

90,000

60,000

Inventory………………….

120,000

72,000

(2) 18,000

210,000

Land…………………………….

210,000

48,000

(2) 72,000

330,000

Buildings and equipment

960,000

720,000

Goodwill…………………… Investment in Sky Co………….

360,000

Accounts receivable……..

Total Assets

P

Peer Co.

P

(2) 372,000 (2) 54,000

P1,785,600

1,308,000 54,000

(1) 288,000 (2) 72,000 P960,000

105,600 150,000

P 2,157,600

Liabilities and Stockholders’ Equity Accumulated depreciation

P 480,000

P360,000

(2) 360,000

Accounts payable……………

120,000

120,000

240,000

Bonds payable…………………

240,000

120,000

360,000

Premium on bonds payable

480,000

(2) 42,000

42,000

600,000

Common stock, P10 par……… Common stock, P10 par………

600,000 240,000

(1) 240,000

60,000

Paid in capital in excess of par. Paid in capital in excess of par.

60,000 24,000

(1) 24,000

285,600

Retained earnings**…………… Retained earnings……………

285,600 96,000

Non-controlling interest…………

_________

_______

Total Liabilities and Stockholders’ Equity P1,785,600 P960,000 (1) Eliminate investment against stockholders’ equity of Sky Co. (2) Eliminate investment against allocated excess. * P420,000 – P360,000 – P14,400 = P45,600. **P300,000 – P14,400 = P285,600.



P

(1) 96,000

_________ P 864,000

(1 ) 72,000 (2) 18,000

_90,000

P 864,000

P2,157,600

Incidentally, the non-controlling interest on the date of acquisition is computed as follows: Non-controlling interest (partial)………………………………….. Add: Non-controlling interest (P54,000, full – P43,200, partial). Non-controlling interest (full)……………………………………….

P

79,200 10,800 P 90,000

The balance sheet; Peer Company and Subsidiary Consolidated Balance Sheet January 1, 20x4 Assets Cash Accounts receivables Inventories Land Buildings and equipment Accumulated depreciation Goodwill Total Assets Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity

P

105,600 150,000 210,000 330,000 1,308,000 ( 480,000) 54,000 P1,677,600

P 240,000 P 360,000 42,000

402,000 P 642,000 P 600,000 60,000 285,600 P 945,600 90,000 P 1,035,600 P1,677,600

Problem XI Partial-goodwill Approach (Proportionate Basis) Schedule of Determination and Allocation of Excess (Proportionate Basis)) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred: Common stock: 12,000 shares x P25 per share…...

P 300,000

Less: Book value of stockholders’ equity of S: Common stock (P12,000 x 80%)…………………….

P

9,600

Paid-in capital in excess of par (P108,000 x 80%)...

86,400

Retained earnings (P72,000 x 80%)………………....

57,600

Allocated excess (excess of cost over book value)……

153,600 P 146,400

Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 80%)………………

P

Increase in land (P36,000 x 80%)……………………. Increase in buildings and equipment (P150,000 x 80%)…………………………………......

4,800 28,800 120,000

Increase in copyrights (P60,000 x 80%)…………….. Increase in contingent liabilities – estimated liability for contingencies (P6,000 x 80%)……..... Negative excess: Bargain purchase gain to controlling interest or attributable to parent only)……………..

48,000 (

4,800)

196,800 (P 50,400)

The over/under valuation of assets and liabilities are summarized as follows: S Co. Book value Inventory………………….……………...

P

S Co. Fair value

60,000

Land……………………………………….

P

Over/Under Valuation

66,000

P

6,000

48,000

84,000

36,000

Buildings and equipment (net).........

222,000

372,000

150,000

Copyright………………………………..

-0-

60,000

60,000

Estimated liability for contingencies..

0

Net undervaluation…………………….

P 330,000

(

6,000)

(

P 576,000

6,000) P246,000

The following entry on the date of acquisition in the books of Parent Company January 1, 20x4 (1) Investment in S Company…...…………………………………… Common stock, P1 par……………………………………………… Paid-in capital in excess of par (P300,000 – P12,000 par)……..

300,000

12,000 288,000

Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – S Co……………………………………………. Additional paid-in capital – S Co………………………………. Retained earnings – S Co………………………………………… Investment in S Co……………………………………………… Non-controlling interest (P192,000 x 20%)………………………..

12,000 108,000 72,000

153,600 38,400

Eliminate investment against stockholders’ equity of S Co

(E2) Inventory………………………………………………………………….. Land……………………………………………………………………….. Buildings and equipment……………………………………………… Copyright……………………………………………………………….... Estimated liability for contingencies…………………………….. Investment in S Co……………………………………………... Non-controlling interest (P246,000 x 20%)………………………. Retained earnings (bargain purchase gain - closed to retained earnings since only balance sheets are being examined).............................................................................

6,000 36,000 150,000 60,000 6,000 146,400 49,200 50,400

Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Proportionate Basis) Eliminations Assets Cash………………… Accounts receivable…….. Inventory………………….

P Co.

S Co.

Dr.

Cr.

P 334,800

Consolidated P

86,400

P 24,000

334,800 110,400

96,000

60,000

(2)

6,000

162,000

Land…………………………

120,000

48,000

(2) 36,000

204,000

Buildings and equipment (net).

744,000

222,000

(2) 150,000

1,116,000

Copyright……………………... Investment in S Co…….. Total Assets Liabilities and Stockholders’ Equity

(2) 60,000 300,000 __________

_________

P1,681,200

354,000

60,000 (1) 153,600 (2) 146,400

P1,987,200

Accounts payable……… Estimated liability for contingencies… Bonds payable……… Common stock, P1 par*…..… Common stock, P1 par……… Paid-in capital in excess of par**

P

96,000

42,000

240,000

120,000

(2)

6,000 360,000 44,160

12,000

(1) 12,000

723,840

723,840 108,000(1) (1) 108,000

577,200

Retained earnings…………… Non-controlling interest………… _________

72,000

(1) 72,000

_______

_________

Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 (1) Eliminate investment against stockholders’ equity of Scud Co. (2) Eliminate investment against allocated excess. * P32,160 + (12,000 shares xP1 par) = P44,160. **P435,840 + [12,000 shares x (P25 – P1)] = P723,840.



6,000

44,160

Paid-in capital in excess of par Retained earnings

P 138,000

P 444,000

(2) 50,400

627,600

(1 ) 38,400 (2) 49,200

_87,600

P 444,000

P1,987,200

Incidentally, the non-controlling interest on the date of acquisition is computed as follows: Common stock – S Co……….………………………………… Paid-in capital in excess of par – S Co…………………….. Retained earnings – S Co……………………………………… Book value of stockholders’ equity – S Co…………………. Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)…………………………………………. Fair value of stockholders’ equity of subsidiary………………… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial)…………………………………..

P 12,000 108,000 72,000 P 192,000 246,000 P 438,000 20 P 87,600

The balance sheet: Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Copyright Total Assets

P

334,800 110,400 162,000 204,000 1,116,000 60,000 P1,987,200

Liabilities and Stockholders’ Equity Liabilities Accounts payable Estimated liability for contingencies Bonds payable Total Liabilities Stockholders’ Equity Common stock, P1 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity

P 138,000 6,000 360,000 P 504,000 P

44,160 723,840 627,600

P1,395,600 87,600 P1,483,200 P1,987,200

Full-goodwill Approach (Fair Value Basis) Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred: Common stock: 12,000 x P25 (80%)……………… Fair value of NCI (given) (20%)………………………. Fair value of subsidiary (100%)………………………. Less: Book value of stockholders’ equity of S: Common stock (P12,000 x 100%)……………………. Paid-in capital in excess of par (P108,000 x 100%). Retained earnings (P72,000 x 100%)………………... Allocated excess (excess of cost over book value)……

P P P 12,000 108,000 72,000

300,000 90,000 390,000

192,000 P 198,000

Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 100%)……………… Increase in land (P36,000 x 100%)…………………… Increase in buildings and equipment (P150,000 x 100%)………………………………….... Increase in copyrights (P60,000 x 100%)…………… Increase in contingent liabilities – estimated liability for contingencies (P6,000 x 100%)…….. Negative excess: Bargain purchase gain to controlling interest or attributable to parent only)……………..

P

6,000 36,000 150,000 6,000

(

6,000)

246,000 (P 48,000)

The following entry on the date of acquisition in the books of Parent Company: January 1, 20x4 (1) Investment in S Company…...…………………………………… Common stock, P1 par……………………………………………… Paid-in capital in excess of par (P300,000 – P12,000 par)…….. Acquisition of S Company.

300,000

12,000 288,000

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – S Co……………………………………………. Additional paid-in capital – S Co………………………………. Retained earnings – S Co………………………………………… Investment in S Co……………………………………………… Non-controlling interest (P192,000 x 20%)……………………….. Eliminate investment against stockholders’ equity of S Co

12,000 108,000 72,000

(E2) Inventory………………………………………………………………….. Land……………………………………………………………………….. Buildings and equipment……………………………………………… Copyright……………………………………………………………….... Estimated liability for contingencies…………………………….. Investment in S Co……………………………………………... Non-controlling interest (P90,000 given – P38,400)…………… Retained earnings (bargain purchase gain - closed to retained earnings since only balance sheets are being examined)............................................................................. Eliminate investment against allocated excess.

6,000 36,000 150,000 60,000

153,600 38,400

6,000 146,400 51,600 48,000

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Fair Value Basis) Eliminations Assets Cash…………………

P Co.

S Co.

Dr.

Cr.

P 334,800

Accounts receivable…….. Inventory………………….

Consolidated P

86,400

P 24,000

334,800 110,400

96,000

60,000

(2)

6,000

162,000

Land…………………………

120,000

48,000

(2) 36,000

204,000

Buildings and equipment (net).

744,000

222,000

(2) 150,000

1,116,000

Copyright……………………... Investment in S Co…….. Total Assets

(2) 60,000

60,000

300,000 __________

(1) 153,600 (2) 146,400

_________

P1,681,200

P354,000

P1,987,200

42,000

P 138,000

-

Liabilities and Stockholders’ Equity Accounts payable……… Estimated liability for contingencies… Bonds payable……… Common stock, P1 par*…..…

P

96,000

(2) 240,000

44,160 12,000

(2) 12,000 723,840

108,000(2) (1) 108,000 577,200

Retained earnings…………… Non-controlling interest…………

6,000 360,000

723,840

Paid-in capital in excess of par Retained earnings

120,000

44,160

Common stock, P1 par……… Paid-in capital in excess of par**

6,000

_________

72,000

(1) 72,000

_______

_________

(2) 48,000

625,200

(1 ) 38,400

_90,000

(2) 51,600 Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 (1) Eliminate investment against stockholders’ equity of Scud Co. (2) Eliminate investment against allocated excess. * P32,160 + (12,000 shares xP1 par) = P44,160. **P435,840 + [12,000 shares x (P25 – P1)] = P723,840.

P 444,000

P 444,000

P1,987,200

The balance sheet: Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Copyright Total Assets

P

334,800 110,400 162,000 204,000 1,116,000 60,000 P1,987,200

Liabilities and Stockholders’ Equity Liabilities Accounts payable Estimated liability for contingencies Bonds payable Total Liabilities Stockholders’ Equity Common stock, P1 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity

P 138,000 6,000 360,000 P 504,000 P

P1,393,200 90,000 P1,483,200 P1,987,200

Problem XII 1. Inventory 2. Land 3. Buildings and Equipment 4. Goodwill

5.

44,160 723,840 652,200

P 140,000 P 60,000 P 550,000

Fair value of consideration given P 576,000 Less; Book value of SHE 450,000 Allocated excess: P126,000 Increase / decrease in fair value (Fair value increment) for: Inventory P 20,000 Land (10,000) Buildings and equipment 70,000 80,000 Goodwill P 46,000 Investment in AA Corporation: Nothing would be reported; the balance in the investment account is eliminated.

Problem XIII 1. Inventories (P110,000 + P180,000 – P10,000) = P280,000 2. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000 3. Investment in DD stock will be fully eliminated and will not appear in the consolidated balance sheet

Fair value of Subsidiary: Consideration transferred Less: BV of SHE of DD (P100,000 + P200,000 – P40,000) Allocated excess Less: Over/under valuation of A and L: Inc (Decrease) Inventory Buildings and equipment (net)

P280,000 260,000 P 20,000 (P 10,000) 25,000

15,000

P

5,000 30,000 P 35,000

Add: Existing goodwill (to be eliminated Goodwill to be reported

or, (Approach used in business combination – statutory merger/consolidation) Fair value of consideration given P280,000 Fair value of Decibel's net assets: Cash and receivables P 40,000 Inventory 170,000 Buildings and equipment (net) 375,000 Accounts payable (90,000) Notes payable (250,000) Fair value of net identifiable assets (245,000) Goodwill to be reported P 35,000 Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the computation of Decibel's net identifiable assets at the date of acquisition.

5. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated) 6. Retained earnings, P`05,000 (parent only, SHE of subsidiary is eliminated) Problem XIV 1. Inventory (P120,000 + P20,000) 2. Land (P70,000 – P10,000) 3. Buildings and Equipment (P480,000 + P70,000) 4. Full-Goodwill, P57,500 Fair value of Subsidiary: Consideration transferred Add: FV of NCI Less: BV of SHE of Slim (P250,000 + P200,000) Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory Land Buildings and equipment (net) Goodwill – full or, Fair value of consideration given by Ford Fair value of noncontrolling interest Total fair value Book value of Slim’s net assets Fair value increment for: Inventory Land Buildings and equipment (net) Fair value of identifiable net assets Goodwill - full Partial Goodwill, P46,000 Fair value of Subsidiary: Consideration transferred Less: BV of SHE of Slim (P250,000 + P200,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P20,000 x 80%) Land (P10,000 x 80%) Buildings and equipment (net) (P70,000 x 80%) Goodwill – partial 5.

Investment in Slim Corporation: None would be reported; the balance in the investment account is eliminated. Noncontrolling Interest (P587,500 x .20)

P140,000 P 60,000 550,000

P470,000 117,500

P 20,000 (10,000) 70,000

P450,000 20,000 (10,000) 70,000

P587,500 450,000 P137,500

80,000 P 57,500 P470,000 117,500 P587,500

(530,000) P 57,500

P470,000 360,000 P110,000 P 16,000 ( 8,000) 56,000

64,000 P 46,000

P117,500

6. or, BV – SHE of SS P450,000 Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000 FV of SHE of SS P530,000 Multiplied by: NCI % 20% NCI – partial goodwill P106,000 Add: NCI on full-goodwill (P57,500 – P46,000) 11,500 NCI – full goodwill P117,500 Problem XV (Overview of the steps in applying the acquisition method when shares have been issued to create a combination No. 8 includes a bargain purchase.) 1. The fair value of the consideration includes Fair value of stock issued P1,500,000 Contingent performance obligation 30,000 Fair value of consideration transferred P1,530,000 2. Under the acquisition method, stock issue costs reduce additional paid-in capital. 3. The acquisition method records direct costs such as fees paid to investment banks for arranging the combination as expenses. 4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in the Common Stock account. The P74 fair value in excess of par value (P75 – P1) is an increase to additional paid-in capital of P1,480,000 (P74 × 20,000 shares). 5. Fair value of consideration transferred (above) P1,530,000 Receivables P 80,000 Patented technology 700,000 Customer relationships 500,000 IPR&D 300,000 Liabilities (400,000) 1,180,000 Goodwill P 350,000 6. Revenues and expenses of the subsidiary from the period prior to the combination are omitted from the consolidated totals. Only the operational figures for the subsidiary after the purchase are applicable to the business combination. The previous owners earned any previous profits. 7. The subsidiary’s Common Stock and Additional Paid-in Capital accounts have no impact on the consolidated totals. 8. The fair value of the consideration transferred is now P1,030,000. This amount indicates a bargain purchase: Fair value of consideration transferred (above) P1,030,000 Receivables P 80,000 Patented technology 700,000 Customer relationships 500,000 IPR&D 300,000 Liabilities (400,000) 1,180,000 Gain on bargain purchase P 150,000 Problem XVI In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000 consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired. 1. 2. 3. 4. 5. 6.

Inventory = P670,000 (P's book value plus Sun's fair value) Land = P710,000 (P's book value plus Sun's fair value) Buildings and equipment = P930,000 (P's book value plus S's fair value) Franchise agreements = P440,000 P's book value plus S's fair value) Goodwill = P80,000 (calculated above) Revenues = P960,000 (only parent company operational figures are reported at date of acquisition) 7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs) 8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs are reported at date of acquisition) 9. Retained Earnings, 1/1 = P390,000 (P's book value)

Problem XVII 1. A total of P210,000 (P120,000 + P90,000) should be reported. 2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The amount paid was P30,000 greater than the book value of the net assets of SS and is reported as goodwill in the consolidated balance sheet at January 1, 20X5. 3. In determining the amount to be reported for land in the consolidated balance sheet, P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for P25,000 (P10,000 + P15,000). 4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the consolidated balance sheet. A total of P10,000 was deducted in determining the balance reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an intercompany receivable must be offset by the elimination of an intercompany payable. 5. The par value of B's stock outstanding is P100,000. Problem XVIII 1. P470,000 = P470,000 - P55,000 + P55,000 2. P605,000 = (P470,000 - P55,000) + P190,000 3. P405,000 = P270,000 + P135,000 4. P200,000 (as reported by GG Corporation) Problem XIX 1. The investment balance reported by Roof will be P192,000. 2. Total assets will increase by P310,000. 3. Total liabilities will increase by P95,000. 4. The amount of goodwill for the entity as a whole will be P25,000 [(P192,000 + P48,000) - (P310,000 - P95,000)]. 5. Non-controlling interest will be reported at P48,000 (P240,000 x .20). Problem XX 1. P57,000 = (P120,000 - P25,000) x .60 2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000 3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200 Problem XXI 1. Investment in Craig Company ........................................................... Cash ...................................................................................................

950,000 950,000

2. Fair value of Subsidiary: Consideration transferred Less: BV of SHE of Craig (P300,000 + P420,000) Allocated excess Less: Over/under valuation of A and L: Inc (Decrease) Land (P250,000 fair – P200,000 book value Building (P700,000 fair – P600,000 book value) Discount on bonds payable P280,000 fair – P300,000 book value) Deferred tax liability (P40,000 fair – P50,000 book value) Buildings and equipment (net) Goodwill 3. Adjustments on Craig books: Land......................................................................................................... Building.................................................................................................... Discount on Bonds Payable ................................................................ Goodwill.................................................................................................. Deferred Tax Liability ............................................................................ Retained Earnings ................................................................................. Paid-In Capital in Excess of Par ..................................................... 4.

Elimination entries: Common Stock ..................................................................................... Paid-In Capital in Excess of Par .......................................................... Investment in Craig Company......................................................

P950,000 720,000 P 230,000 P 50,000 100,000 20,000 10,000 180,000 P 50,000

50,000 100,000 20,000 50,000 10,000 420,000 650,000 300,000 650,000 950,000

Problem XXII Full-Goodwill Fair value of Subsidiary: Consideration transferred (200 shares x P25) Less: BV of SHE of Public (P200 + P800 + P1,000) Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Fixed assets (P3,000 fair – P2,000 book value) Goodwill – full

P 5,000 _2,000 P 3,000 _1,000 P2,000

or, Fair value of Subsidiary: Consideration transferred (200 shares x P25) Less: FV of SHE of Public (P1,0000 + P3,000 – P1,000) Goodwill – full

P 5,000 _3,000 P2,000

Note: The currently issued shares of Public Company and its fair value were used for the following reasons (refer to Illustration 15-15 for comparison):  Total number of shares for Public Company after acquisition – not given  The fair value of share of Private Company – not given.

Fair value of net assets……………. Fair value of common stock per share Currently issued Additional shares issued

Public Company P3,000 P25 Public 200 300 500

Private Company ? Private 60%** 40%

? 100

?

/60% /40%

15,000 shares / 25,000 shares = 60%

   

Values are prior to acquisition (200 shares × P25 market value). Subsequent to acquisition, Private Company is the ―parent‖ with 60% ownership; prior to acquisition, Private Company has 0% ownership of Public Company. Prior to acquisition, this represents 100% ownership of Public Company; subsequent to acquisition, these holders of 100 shares of Public Company become the 40% NCI. Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on fullgoodwill amounted to P800 (P2,000 – P1,200 or P2,000 x 40%). This approach to determine partial goodwill is acceptable as long as there is FV of NCI in the acquirer.

Problem XXIII (Assume the use of Full-Goodwill Method) Note: This solution assumes a difference between the basis of acquired assets for accounting and tax purposes for this stock acquisition. 1. Investment in Seely Company Common Stock*** Additional Paid-in-Capital

570,000 95,000 475,000

***Note: Depending on the wording of this exercise, the credit may be cash instead of common stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000. 2. Common Stock - Seely Other Contributed Capital – Seely Retained Earnings - Seely Inventory Land Plant Assets Discount on Bonds Payable Goodwill** Deferred Income Tax Liability* Investment in Seely Company Non-controlling Interest [(P570,000/.95) x .05] *(.40 x (P52,000 + P25,000 + P71,000 + P20,000))

80,000 132,000 160,000 52,000 25,000 71,000 20,000 127,200 67,200 570,000 30,000

Problem XXIV  HB Country and HCO Media Consolidation of a variable interest entity is required if a parent has a variable interest that will  Absorb a majority of the entity's expected losses if they occur  Receive a majority of the entity's expected residual returns if they occur Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right to receive the residual benefits of the sales generated on the HCO Media internet site above P500,000, Hillsborough should consolidate HCO Media. 

TPC (Nos. 1, 2 and 3 of the requirement are part of the information) a. The purpose of consolidated financial statements is to present the financial position and results of operations of a group of businesses as if they were a single entity. They are designed to provide information useful for making business and economic decisions—especially assessing amounts, timing, and uncertainty of prospective cash flows. Consolidated statements also provide more complete information about the resources, obligations, risks, and opportunities of an enterprise than separate statements. b. An entity qualifies as a VIE and is subject to consolidation if either of the following conditions exist.  The total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. In most cases, if equity at risk is less than 10% of total assets, the risk is deemed insufficient.  The equity investors in the VIE lack any one of the following three characteristics of a controlling financial interest. 1. The direct or indirect ability to make decisions about an entity's activities through voting rights or similar rights. 2. The obligation to absorb the expected losses of the entity if they occur (e.g., another firm may guarantee a return to the equity investors) 3. The right to receive the expected residual returns of the entity (e.g., the investors' return may be capped by the entity's governing documents or other arrangements with variable interest holders). Consolidation is required if a parent has a variable interest that will  Absorb a majority of the entity's expected losses if they occur  Receive a majority of the entity's expected residual returns if they occur Also, a direct or indirect ability to make decisions that significantly affect the results of the activities of a variable interest entity is a strong indication that an enterprise has one or both of the characteristics that would require consolidation of the variable interest entity. c. Risks of the construction project that has TPC has effectively shifted to the owners of the VIE  At the end of the 1st five-year lease term, if the parent opts to sell the facility, and the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up to 85% of the project's cost. Thus, a potential 15% risk.  During construction 11.1% of project cost potential termination loss. Risks that remain with TPC  Guarantees of return to VIE investors at market rate, if facility does not perform as expected TPC is still obligated to pay market rates.  If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of decline in market value of asset  Debt guarantees d. TPC possesses the following characteristics of a primary beneficiary Direct decisionmaking ability (end of five-year lease term)  Absorb a majority of the entity's expected losses if they occur (via debt guarantees and guaranteed lease payments and residual value)  Receive a majority of the entity's expected residual returns if they occur (via use of the facility and potential increase in its market value).

Problem XXV 1. Implied valuation and excess allocation for S. Noncontrolling interest fair value Consideration transferred by P. Total business fair value Fair value of VIE net assets Excess net asset value fair value

P 60,000 20,000 80,000 100,000 P20,000

The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase. All SoftPlus’ assets and liabilities are recognized at their individual fair values. Cash Marketing software Computer equipment Long-term debt Noncontrolling interest Pantech equity interest Gain on bargain purchase 2.

Implied valuation and excess valuation for Softplus. Noncontrolling interest fair value Consideration transferred by Pantech Total business fair value Fair value of VIE net identifiable assets Goodwill

P20,000 160,000 40,000 (120,000) (60,000) (20,000) (20,000) -060,000 20,000 80,000 60,000 P20,000

When the business fair value of a VIE (that is a business) is greater than assessed asset values, all identifiable assets and liabilities are reported at fair values (unless a previously held interest) and the difference is treated as a goodwill. Cash P20,000 Marketing software 120,000 Computer equipment 40,000 Goodwill (excess business fair value) 20,000 Long-term debt (120,000) Noncontrolling interest (60,000) Pantech equity interest (20,000) -0Multiple Choice Problem 1. c 2. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)] 3. d Consideration transferred P300,000 Less: Book value of SHE of S (P100,000 + P115,000) 215,000 Allocated excess (excess of fair value or cost over book value) - sometimes termed as ―Differential‖ P 85,000 4. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety. 5. d Consideration transferred P150,000 Less: Book value of SHE of S (P40,000 + P52,000) 92,000 Allocated excess (excess of fair value or cost over book value) - sometimes termed as ―Differential‖ P 58,000 6. b – [P150,000 – (P173,000 – P40,000 – P5,000)] 7. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000 8. b Total Assets of P. P1,278,000 Less: Investment in Silk Corp. (440,000) P 838,000 Book value of assets of S Corp. 542,000 Book value reported by P and S P1,380,000 Increase in inventory (P60,000 – P38,000) 22,000 Increase in land (P60,000 – P32,000) 28,000 Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000 Goodwill (full)* 26,667

Total assets reported *(P440,000/75%) – (P702,000 – P142,000) = P26,667

P1,566,667

If partial-goodwill: Total Assets of P. Less: Investment in S Corp.

9. 10.

Book value of assets of S Corp. Book value reported by P and S Increase in inventory (P60,000 – P38,000) Increase in land (P60,000 – P32,000) Increase in plant assets [P350,000 – (P300,000 – P60,000)] Goodwill (partial)* Total assets reported *[P440,000 – (P702,000 – P142,000) x 75%] P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)

d a Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of SSD (P50,000 + P90,000) x 70% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P15,000 x 70%) Land (P20,000 x 70%) Goodwill – partial

11.

c Full-goodwill: Fair value of Subsidiary: Consideration transferred Add: FV of NCI Less: BV of SHE of SS (P50,000 + P90,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P70,000 – P85,000) x 100% Land (P25,000 – P45,000) x 100% Goodwill – full

P1,278,000 (440,000) P 838,000 542,000 P1,380,000 22,000 28,000 110,000 20,000 P1,540,000

P150,500 __98,000 P 52,500 P 10,500 14,000

P150,500 **64,500

P 15,000 20,000

24,500 P 28,000

P215,000 140,000 P 75,000

35,000 P 40,000

**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to P52,500 computed as follows : FV of SHE of SS: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SS P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

12. b Total Assets of Power Corp. Less: Investment in Silk Corp. Book value of assets of Silk Corp. Book value reported by Power and Silk Increase in inventory (P85,000 - P70,000) Increase in land (P45,000 - P25,000) Goodwill (full) Total assets reported If partial-goodwill: Total Assets of Power Corp. Less: Investment in Silk Corp. Book value of assets of Silk Corp.

P 791,500 (150,500) P 641,000 405,000 P1,046,000 15,000 20,000 40,000 P1,121,000 P 791,500 (150,500) P 641,000 405,000

Book value reported by Power and Silk Increase in inventory (P85,000 - P70,000) Increase in land (P45,000 - P25,000) Goodwill (partial) Total assets reported 13.

d

14.

a

P701,500

=

P1,046,000 15,000 20,000 28,000 P1,109,000

(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000 + P200,000)

Non-controlling interest (partial-goodwill): P52,500 NCI

FV of SHE of SSD: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SSD P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500

15.

d Non-controlling interest (partial-goodwill): P64,500 NCI

FV of SHE of SSD: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SSD P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500 Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000 FV of NCI (full)…………………………………………………..P 64,500

16.

d

P205,000

=

The amount reported by Power Corporation

17.

c P419,500 = (P150,000 + P205,000) + P64,500 If partial-goodwill: Stockholders’ equity: P419,500 Consolidated SHE: Common stock Retained Earnings Parent’s SHE or Equity Attributable to Parent NCI (partial-goodwill) Consolidated SHE

P150,000 205,000 P355,000 52,500 P404,500

18. b Consideration transferred ........................................................................................ Less: Strand's book value (P50,000 x 80%) .............................................................. Fair value in excess of book value ......................................................................... Excess assigned to inventory (60%) .......................................................... P12,000 Excess assigned to goodwill (40%) ....................................... P 8,000

P60,000 (40,000) P20,000

Consideration transferred (P60,000 ÷ 80%) ............................................................ Less: Strand's book value .......................................................................................... Fair value in excess of book value ......................................................................... Excess assigned to inventory (60%) .......................................................... P15,000 Excess assigned to goodwill (40%) ....................................... P10,000

P75,000 (50,000) P25,000

19. c

20. a Park current assets ....................................................................................................... Strand current assets ................................................................................................... Excess inventory fair value ......................................................................................... Consolidated current assets ......................................................................................

P 70,000 20,000 15,000 P105,000

21. c Park noncurrent assets ............................................................................................... Strand noncurrent assets ........................................................................................... Excess fair value to goodwill (partial) ..................................................................... Consolidated noncurrent assets ..............................................................................

P 90,000 40,000 ___8,000 P140,000

Park noncurrent assets ................................................................................................ Strand noncurrent assets ............................................................................................ Excess fair value to goodwill (full) ............................................................................. Consolidated noncurrent assets ...............................................................................

P 90,000 40,000 __10,000 P140,000

22. d

23. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken out by Park to acquire Strand. 24. b

Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken out by Polk to acquire Strand.

25. b Park stockholders' equity ........................................................................................... NCI (partial): BV of SHE – S ……………………………………………………………..P50,000 Adjustments to reflect fair value (inventory)………………………. 15,000 FV of SHE – S………………………………………………………………P65,000 x: Multiplied by: NCI%........................................................................ 20% Total stockholders' equity .........................................................................................

P80,000

13,000 P93,000

26. c Park stockholders' equity .......................................................................... …………. P80,000 NCI (full): BV of SHE – S ……………………………………………………………..P50,000 Adjustments to reflect fair value (inventory)………………………. 15,000 FV of SHE – S………………………………………………………………P65,000 x: Multiplied by: NCI%......................................................................... 20% NCI (partial)………………………………………………………………P13,000 Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000 Non-controlling interest at fair value (20% × P75,000)………… 15,000 Total stockholders' equity P95,000 27. b 28. a – P150,000 + P500,000 29. a – at fair value 30. d (1) NCI measured at its share of net assets (Partial Goodwill) Fair value of Subsidiary: Consideration transferred………………………………………………………P 100 million Less: Fair value of identifiable assets and liabilities of Loco (80% x P85 million)…………………………………………………….. 68 million Goodwill (partial)..…………………………………………………………………..P 32 million (2) NCI is measured at its fair value (Full Goodwill) Fair value of Subsidiary: Consideration transferred………………………………………………………P 100 million Fair value of NCI [(P100 million – P24 million = P76 million / 80% = P95 million] x 20%.................................................................................... 19 million Fair value of Subsidiary……………………………………………………………...P 119 million Less: Fair value of identifiable assets and liabilities of Oak……………………. 85 million Goodwill (full)…………………………………………………………………………...P 34 million Under PFRS3 par. 32, goodwill is measured at the consideration transferred plus the non-controlling interest (however measured) less net assets acquired. The non-controlling interest may be measured at its share of net assets or its fair value, per PFRS3 par. 19. Note: Fair value is assumed to be the same with the carrying/book value. 31.

d

Fair value of Subsidiary - Swan Consideration transferred…………………………………………………P 1,420,000 Less: Fair value of identifiable assets and liabilities of Swan (70% x P1.2 million)…………………………………………………………. 840,000 Goodwill (partial)..………………………………………………………………..P 580,000 Goodwill is carried as an asset in the consolidated statement of financial position. Fair value of Subsidiary - Homer Consideration transferred…………………………………………………P 300,000 Less: Fair value of identifiable assets and liabilities of Homer (65% x P640,000)……………………………………………………………... 416,000 Gain on bargain purchase………………………………………………………P ( 116,000) Gain on a bargain purchase is recognized in profit or loss not on the statement of financial position. Notes: 1. Moon measures non-controlling interests at the relevant share of the identifiable net assets at the acquisition date; therefore partial goodwill is in effect. 2. Fair value is assumed to be the same with the carrying/book value. 32.

a – See PFRS 3 par. 32. Fair value of Subsidiary: Consideration transferred………………………………………………………………P1,960,000 Less: Fair value of identifiable assets and liabilities of Oak (P700,000 x 70%)……………………………………………………………………. 490,000 Goodwill (partial)………………………………………………………………………….. P1,470,000 Or, alternatively: Fair value of Subsidiary: Consideration transferred………………………………………………………………P1,960,000 Less: Book value of SHE of Oak (P100,000 + P300,000 + P1,400,000) x 70%.......... 1,260.000 Allocated excess…………………………………………………………………………..P 700,000 Less: Over/under valuation of assets and liabilities (P1,800,000 – P700,000) x 70%...................................................................... 770,000 Goodwill (partial)…………………………………………………………………………..P1,470,000 Note: Since the company elected to measure NCI at its share of the identifiable net assets instead of fair value, therefore the partial goodwill approach should be used.

33.

d - P592,000 = P300,000 + P270,000 + P22,000

34.

a – P26,667 Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P400,000 x 75%) Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Current assets (P22,000 x 75%) Land, buildings and equipment (P138,000 x 75%) Goodwill – partial Full-goodwill: Fair value of Subsidiary: Consideration transferred (P440,000 / 75%) Less: BV of SHE of S (P400,000 x 100%) Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Current assets (P22,000 x 100%) Land, buildings and equipment (P138,000 x 100%) Goodwill – full

P440,000 __300,000 P140,000 P 16,500 103,500

120,000 P 20,000

P586,667 __400,000 P186,667 P 22,000 138,000

160,000 P 26,667

35. b Consolidated Total Assets: Current assets (No. 32) Land, buildings and equipment [P538,000 + P272,000 + P138,000 + P26,667, full-goodwill]

P

592,000

974,667 P 1,566,667

36 c FV of SHE of SS: Book value of SHE of S……………………………………….P 400,000 Adjustments to reflect fair value …………………………. 160,000 FV of SHE of S…………………………………………………..P 560,000 Multiplied by: NCI%.............................................................. 25% FV of NCI (partial)……………………………………………..P 140,000 Add: NCI on full-goo dwill (P26,667 – P20,000)………….... 6,667 FV of NCI (full-goodwill)……………………………………...P 146,667 37. d Consolidated Total Liabilities: Liabilities: P Co. (P300,000 + P538,000 + P440,000 – P348,333)..P 929,667 S Co……………………………………………………….. 142,000 P1,071,667 38. d Consolidated Stockholders’ Equity Parent’s stockholders’ equity………………………………………P 348,333 Add: NCI (full-goodwill) (No. 36)………………………………….. 146,667 P 495,000 39. b FV, stocks issued………………………………………………… Less: Par value of stocks issued (500,000 shares x P5)…….. APIC Add: APIC of P Less: Stock issuance cost

P 4,200,000 __2,500,000 P 1,700,000 7,500,000 ___100,000 P 9,100,000

40. c 41. a 42. No answer available 43. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000 44. a 45. c 46. a [P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase + P100,000 in increase in PPE] = P100,000 47. b P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE – P300,000 – P500,000) = P550,000 48. a 49. d (P1,000,000 + P250,000) = P1,250,000 P only. 50. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000 51. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach 52. a P only 53. d Total Assets of P P 960,000 Less: Investment in S (330,000) P 630,000 Book value of assets of S 405,000 Book value reported by P and S P1,035,000 Increase in inventory (P45,000 – P26,000) 19,000 Increase in land (P45,000 - P24,000) 21,000 Increase in plant assets [P300,000 – (P225,000 – P45,000)] 120,000 Goodwill (full) _____0 Total assets reported P1,195,000 If partial-goodwill – same answer with full-goodwill approach, since there is no gain.

54. b – step-acquisition 60% FV, stocks issued: 60,000 shares x P6, fair value 30% FV of previously held equity interest: 30,000 shares x P5, fair value 10% FV of NCI (100,000 – 60,000 – 30,000) x P, fair value 100% Fair value of subsidiary Less: Fair value of net assets (SHE) of subsidiary

P360,000 150,000 40,000 P560,000 500,000 P 60,000

55. b 56. a 57. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000 58. d Book value of Assets (P80,000 + P50,000 + P200,000) Fair value of Assets (P85,000 + P60,000 + P250,000)

P330,000 395,000 P 65,000 59. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in the worksheet or eliminating entries. 60. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius. 61. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated subsidiary, so the P300,000 intercompany account will be eliminated. 62. d 63. a 64. c – In the combined financial statements (which normally used to described financial statements in a ―common control‖ situation), intercompany accounts are eliminated in full. 65. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it. 66. d The acquisition method consolidates assets at fair value at acquisition date regardless of the parent’s percentage ownership. 67. d – refer to62 In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it. 68. d – refer to No. 61 69. c An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life. Patent fair value at January 1, 2009 ....................................................................... Amortization for 2 years (10 year life) ..................................................................... Patent reported amount December 31, 2010 ......................................................

P45,000 (9,000) P36,000

70. a PP - building .................................................................................................................. TT building acquisition-date fair value P300,000 Amortization for 3 years (10-year life) (90,000) Consolidated buildings ............................................................................................... -ORPP - building ................................................................................................................... TT building 12/31/x4 P182,000 Excess acquisition-date fair value allocation 40,000 Excess amortization for (P40,000/ 10 x 3 years) (12,000) Consolidated buildings ...............................................................................................

P510,000 210,000 P720,000 510,000 210,000 P720,000

71. No answer available – P60,000 AA, Inc. Fair value at January 1, 20x7: 30% previously owned fair value (30,000 shares × P5) ........................................ 60% new shares acquired (60,000 shares × P6) .................................................... 10% NCI fair value (10,000 shares × P5) .................................................................. Acquisition-date fair value ....................................................................................... Net assets' fair value................................................................................................... Goodwill ...................................................................................................................

P150,000 360,000 50,000 P560,000 500,000 P60,000

72. d Cost of Investment (40 shares* x P40)………………………………………………………P 1,600 Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%......................... 1,100 Allocated excess………………………………………………………………………………………P 500 Less: Over/Under valuation of Assets and Liabilities: Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%........ 140 Goodwill………………………………………………………………………………………………….P 360 (d) *

100% Pedro Ltd Currently issued…………………… 150 60% ** Additional shares issued……….. 100 40% Total shares………………………… 250

Santi Ltd 60 60% 40 / 40% 100

**150/250

Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 ½) for the 60 shares in Santi Ltd. Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger and 150 new shares held bye former shareholders in Santi Ltd. In essence, the former shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd. Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent. The usual circumstance creating a reverse acquisition is where an entity (the legal parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of the exchange transaction, it issues enough voting equity as consideration for control of the combined entity to pass to the owners of the legal subsidiary. The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the assets and liabilities of Santi Ltd to be valued at fair value. 73. c P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.

Theories 1. 2. 3. 4. 5. 41. 42. 43. 44. 45.

c a e e b c c c c c

6. 7. 8. 9. 10, 46. 47. 48. 49. 50,

b b A D a b a c d b

11. 12. 13. 14. 15, 51. 52. 53. 54. 55,

c c d d b c b a a c

16. 17. 18. 19. 20. 56. 57. 58. 59. 60.

d c b c c d

21. 22. 23. 24. 25.

b a a b c

26. 27. 28. 29. 30.

d c c d b

31 32. 33. 34. 35.

c d b d d

36. 37. 38. 39. 40.

d d c b c