Since 1977

AFAR DE LEON/DE LEON/DE LEON/TAN

2906-CONSOSOLIDATED STATEMENTS OCTOBER 2020

LECTURE NOTES

Consolidated financial statements- are the financial * Under revised provisions of IFRS3 (and also IFRS 10),
statements of a group presented as those of a single the non-controlling interest may be measured at either:
economic entity. Group is a parent and all of its (1) full fair value or (2) as a proportionate share in the fair
subsidiaries. value of identifiable net assets at the date of acquisition.
These allowed alternatives result in goodwill being
Separate financial statements – are those presented by a computed in two different amounts.
parent, an investor in an associate, or a venturer in a
jointly controlled entity, in which the investments are 1. Example: NCI measured at fair value. (Adapted from
accounted for on the basis of the direct equity interest Wiley)
rather than on the basis of the reported credits, and the Konin Corporation (KC) acquires a 75% interest in
net assets of the investee. Danube Corporation (DC), in exchange for cash of
P350,000. DC has 25% of its shares traded on an
PRESENTATION OF CONSOLIDATED FINANCIAL exchange. KC acquired the 60,000 non-publicly traded
STATEMENTS shares outstanding. The fair value of DC’s identifiable
A parent shall present consolidated financial statements, net assets is P300,000; the shares of BC at the
except when acquisition date are traded at P5 per share. The
• The parent is itself a wholly-owned subsidiary, or is a consideration transferred indicates that KC has paid a
partially-owned subsidiary of another entity control premium of P50,000 (P350,000 – [P5 x
• The parent’s debt or equity instruments are not traded 60,000])
in a public market
• The parent did not file, nor is in the process of filing, Under the full fair value approach, the NCI is
its financial statements with a securities commission measured based on the trading price of the shares of
for the purpose of issuing any class of instruments in a entity BC at the date control is obtained by KC (P5 per
public market share) and a value of P100,000 is assigned to the 25%
• The ultimate parent produces consolidated financial NCI. Goodwill is recognized at P150,000 [(P350,000 +
statements available for public use P100,000) – P300,000]. The amount of goodwill
accruing to the controlling interest is P125,000
Summary of Critical Points: (P350,000 – [P300,000 x 75%]) and the amount of
1. Consolidated statements are prepared from the goodwill accruing to the NCI is P25,000 (P100,000 –
separate statements of the acquiring company and [P300,000 x 25%]).
acquired company(ies) from the standpoint of a single
economic entity. 2. Example: NCI measured at its proportionate share of
2. Consolidation procedures are necessary whenever a acquiree’s identifiable net assets (Adapted from
parent and a subsidiary relationship existed, except if Wiley).
the parent is exempted under PAS 27 to present Under this alternative method, NCI will be assigned a
consolidated financial statements. value of P75,000 (P300,000 x 25%) and the goodwill
3. The acquiring company, generally, is a parent if it recognized is P125,000 [(P350,000 + P75,000) –
owns, directly and indirectly, more than 50% of the P300,000]. This amount represents only the acquirer’s
outstanding voting shares of the acquired company. If share, which is (P350,000 – [P300,000 x 75]). No
the controlling interest is not 100%, the remainder goodwill is assigned to the NCI.
would represent the non-controlling interest.
4. The following steps summarize the consolidation Bargain Purchases (negative goodwill) occurs when the
worksheet procedures. value of net assets acquired is in excess of the
a. Prepare a schedule of excess to determine if there acquisition-date fair value of the consideration transferred
is either goodwill, or, income froreserves 9BCVR- plus the amount of any non-controlling interest and plus
.m acquisition. This will also be the basis in fair value of the acquirer’s previously held equity interest.
formulating the working paper elimination entries. When this occurs, and after a complete review of the
b. If the working paper is intended to prepare post computations involved, a gain on acquisition is recognized
acquisition consolidated statements, computations in the profit or loss at the acquisition date, as part of
must show the amortization for business income from continuing operations.
combination valuation reserves (BCVR). BCVR is
the difference between book values and fair values 1. Example (Adapted from Wiley)- NCI is assigned full
of the net assets of the acquired company at at FV.
the date of acquisition (DOA). On January 1, 2019, Konin Corporation (KC) acquires
75% of the equity interests of Laska Corporation (LC),
DETERMINATION OF GOODWILL a private entity, in exchange for cash of P250,000.
An important aspect of accounting for business The former owners of LC were forced to sell their
combination, especially when control is less than 100%, is investments within short period of time and unable to
the computation of goodwill or excess in combination. market LC to multiple potential buyers in the
marketplace. The management of KC initially
GOODWILL = Fair value of consideration transferred + measures at the acquisition date the separately
Amount of non-controlling interest (NCI)* + Fair value of recognizable identifiable assets acquired at P500,000
previously-held equity interest LESS the FV of net and liabilities of P100,000. KC engages an
identifiable assets of the acquiree independent valuation specialist who determines that
the fair value of the 25% NCI in LC is P110,000. KC
7
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 EXCEL PROFESSIONAL SERVICES, INC.

concludes after a review that the procedures and controlling interest. Such re-measurement and
resulting measures are correct. amortization later will affect both the controlling
interest and the non-controlling interests. The same
The acquirer (KC) recognizes the gain on its treatment is done for grossed-up goodwill, re-
acquisition of the 75% interest as follows: measurement and amortization, if any, will all be in
Identifiable net assets acquired at Fair Value P400,000 the ownership ratios between the parent and the NCIs.
Less FV of payment for 75% interest P250,000
FV assigned to NCI at DOA 110,000 360,000 6. Working paper elimination entries orchestrate the
Gain on bargain purchase P 40,000 items and balances that must comprise the
consolidated statements. Their two basic objectives
2. NCI measured at proportionate share of identifiable are (1) to eliminate intercompany balances and (2) to
net assets at DOA. Since the amount of NCI to be make adjustments to or set-up some items in order to
assigned would be P100,000 (P400,000 x 25%), the conform with purchase principles.
gain on bargain purchase would be P50,000 (P400,000
– [P250,000 + P100,000]). 7. In purchase combination, for example, working paper
elimination entries aim to accomplish the following:
Other relevant considerations follow: a. Eliminate inter-company balances
FULL PROP. SHARE IN FAIR b. Make adjustments for acquired assets and
PARTICULARS FAIR VALUE VALUE OF NET ASSETS assumed liabilities to comply with fair value
GW (for N-SMEs) Grossed-up Not grossed-up considerations.
GW (for SMEs) Not assigned Not grossed-up c. Set up goodwill or income from acquisition into
the consolidated statements.
IFA (N-SMEs/SMEs) *** *** d. Amortize increase/decrease in value of net assets
*** Either method could be used but the different and measure their effects in the consolidated
computed amount of income from combination would financial statements,
accrue only to the acquirer. e. Make adjustments to consolidated amounts as a
result of inter-company transactions.
For non-SMEs, in a goodwill situation, the full fair value f. And for a variety of other consolidation
method is preferred over the other method if the problem requirements.
is silent. The NCI’s FV is deemed proportionate with that
of the parent’s if the former is not available. 8. Two working paper methods may actually be used to
consolidate the financial statements for the group, the
In a bargain purchase situation, if the problem is silent, direct method and the working paper entry method.
assign to NCI its proportionate share in identifiable net The former uses business combination valuation
assets at DOA. reserve balances (BCVR for short), while the latter
deals with working paper elimination entries (WPEE for
Subsequent accounting for goodwill arising from the short). Basically, in the working papers, similar items
acquisition is as follows: from the parent’s records and from the subsidiary’s
Non-SMEs SMEs records are simply combined, plus/minus any working
Amortization No Yes* paper adjustments (BCVRs or WPEEs) affecting such
Impairment loss Yes Yes items. To illustrate the consolidation concept and
* Use 10 years to amortize if period is not given. process, the two methods are both used over relevant
5. Increase/decrease to fair value of net asset items are illustrative cases
recognized in full regardless of the extent of the non-

ILLUSTRATIVE CASES
3. Prepare WPEE for the consolidated balance sheet at
Case 1. Working Paper Elimination Entries (WPEEs) January 1, 2020 (DOA).
at Date of Acquisition.
On January 1, 2020, PULLET COMPANY (a non-SME)
purchased interest in HENNY ENTERPRISES. On this date, Case 2. Alternative amounts assigned to NCI and
HENNY has 80,000 outstanding shares with a fair value per goodwill/income from acquisition at date of acquisition.
share of P55. The book values and the fair values of
HENNY’s net assets were as follows: ALBANY COMPANY acquired 80% of the issued share
Book Values Fair Values Difference capital of BUTCHER ENTERPRISES on December 31, 2020
Cash P 368,640 P 368,640 -- for a total consideration of P1,440,000 (at P17.60 per
Accounts receivable 221,184 221,184 - share plus control premium). At this date, the identifiable
Inventory 884,736 1,105,920 221,184 net assets of BUTCHER ENTERPRISES which were carried in
Buildings, net 2,285,568 2,359,296 73,728 its books at P1,200,000, were deemed to have a fair value
Equipment, net 737,280 589,824 (147,456) of P1,600,000. Share capital of BUTCHER ENTERPRISES
LTI 1,474,560 2,138,112 663,552 comprised 100,000 shares, which were traded at the stock
P 5,971,968 P6,782,976 exchange on 31 December 2020 at P17.60 per share.
Current liabilities P 737,280 P 737,280 -
Bonds payable 1,548,288 1,908,928 (360,640) Required: Determine the allowed alternative amounts that
Ordinary shares 1,474,560 may be assigned to NCI at date of acquisition.
Retained profit 2,211,840 4,136,768 450,368 a. Based on fair value of shares acquired, and
P 5,971,968 P 6,782,976 b. Based on fair value of identifiable net assets of the
subsidiary.
Assume PULLET COMPANY acquires an 100% interest in
c. Determine goodwill or income from acquisition over
DOME ENTERPRISES for P5,570,000.
each of the alternative assumptions.
Required:
1. Calculate the control premium paid by PULLET.
2. Calculate the goodwill from the acquisition.

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EXCEL PROFESSIONAL SERVICES, INC.

Case 3. Using the data in Case 1 for the PULLET Inventories P 40,000 P 70,000
COMPANY and HENNY ENTERPRISES, assume PULLET Land 150,000 200,000
acquires an 80% interest in HENNY for P3,560,000. Buildings 200,000 270,000
Equipment 450,000 470,000
Required: Patent - 40,000
a. How much is the control premium paid by PULLET? P 840,000 P1,050,000
b. Prepare WPEE at the date of acquisition under each
of the alternative amounts that can be assigned to All other assets and liabilities had carrying values
NCI. Show supporting computations in good form. approximately equal to their respective fair values. On
January 1, 2019, the building had a remaining useful life of
Case 4. Simple Consolidation Process at Date of 20 years. Equipment and the patent had remaining useful
Acquisition lives of 10 years each.
PURE LEMON CORPORATION acquired 100% of the issued
share capital of DOME COMPANY for P1,600,000. Their Looking farther ahead, assume that goodwill was impaired
balance sheets at the acquisition date, January 1, 2020, by P5,000 in 2019 and by P8,000 in 2020.
are as follows. Requirements:
Pure Lemon Dome 1. Prepare preliminary computations for the following:
Land P3,200,000 P1,200,000 a. Percentage of control
Invest. in Seabed 1,600,000
b. Non-controlling interest (under each of 2 methods
Accounts receivable 800,000 160,000
Cash 480,000 240,000 of measuring NCI) at date of acquisition (DOA)
P6,0800,000 P1,600,000 c. Goodwill or gain from bargain purchase under each
of 2 methods of measuring the NCI.
Share capital P4,000,000 P 800,000 2. Prepare working paper elimination entries (WPEEs) at
Retained profit 1,280,000 560,000 January 1, 2019 (DOA)
Accounts payable 800,000 240,000
3. Prepare working papers for the consolidated balance
P76,080,000 P1,600,000
sheet at DOA, using WPEEs.
The net asset items of DOME are fairly valued. 4. Prepare a schedule of amortization of EXCESS:
business combination valuation reserves (BCVR) for
On the date of the above acquisition, the parties have years 2019 and 2020. Include impairment losses on
agreed to include DOME’s pending lawsuit as part of the goodwill.
acquisition. The lawyer advised that there was a 40% 5. Prepare a schedule of unamortized EXCESS as of
chance that the company would lose the case and would
January 1, 2019, December 31, 2019, and December
then have to pay P80,000.
Required: 31, 2020.
1. Prepare a complete analysis of the fair value of the 6. Prepare a consolidated balance sheet on January 1,
investment cost in determining goodwill/negative 2019, using BCVR balances as of that date.
goodwill.
Case 6. Consolidated Financial Statements
2. Prepare working paper elimination journal entries.
subsequent to date of acquisition.
3. Prepare a consolidation worksheet in preparing the PARENT accounts for its investment under the COST
consolidated balance sheet at January 1, 2020. method.
Continuing with Case 5, financial data for the two
Case 5. Consolidated FS at the date of Acquisition.
companies under the cost method for the years ended
On January 1, 2019, PARENT COMPANY purchased 24,000
December 31, 2019 and 2020 are as follows.
shares of SUBSIDIARY, INC. in the open market for 2019 2020
P756,000. The balance sheets of PARENT and SUBSIDIARY Comprehensive P S P S
as at this date are presented below: Income COMPANY COMPANY COMPANY COMPANY
Sales 1,200,000 700,000 1,500,000 900,000
PARENT SUBSIDIARY Dividend 48,000 92,000
Cash P 109,000 P 15,000 income
Accounts receivable 300,000 35,000 Cost of sales (500,000) (250,000) (600,000) (315,000)
Expenses (400,000) (252,000) (480,000) (300,000)
Inventories 140,000 40,000
Net income P 348,000 P198,000 P 512,000 P285,000
Retained Earnings
Land - 150,000 R. E. , Jan 1 780,000 400,000 978,000 538,000
Buildings - 200,000 Dividend paid (150,000) (60,000) (210,000) 115,000)
Equipment 250,000 450,000 Net income 348,000 198,000 512,000 285,000
Investment in 756,000 R. E., Dec 31 P 978,000 P538,000 P1,280,000 P708,000
Subsidiary
Totals P 1,555,000 P 890,000 Balance sheet
Cash P 233,600 P 48,000 P 224,400 P 98,000
Accounts 240,000 70,000 300,000 160,000
Accounts payable P 175,000 P 190,000 receivable
Share capital, P50 par 200,000 Inventories 150,000 80,000 180,000 150,000
Share capital, P10 par 300,000
Share premium 400,000 Land 150,000 150,000
Retained earnings, 780,000 400,000 Buildings 190,000 180,000
January 1 Equipment 349,000 405,000 500,000 360,000
Totals P 1,555,000 P 890,000 Investment in 756,000 756,000
Subsidiary
Totals P1,728,600 P943,000 P1,960,400 1,098,000
At the acquisition date, the following net asset items of Accounts P 150,600 P105,000 P 80,400 90,000
SUBSIDIARY, INC. had carrying values that were different payable
from their respective fair values: Share capital,
Carrying Fair Values P50 par 200,000 200,000
Amount Share capital,

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EXCEL PROFESSIONAL SERVICES, INC.
P10 par 300,000 300,000 1. Calculate Prime Company’s investment income from
Share Spear Company in 2018, 2019, and 2020.
premium 400,000 400,000 2. Determine non-controlling interest in the net income of
the subsidiary in 2018, 2019 and 2020.
Retained
earnings, Dec. 3. Show the consolidated net income for 2018, 2019 &
31 978,000 538,000 1,280,000 708,000 2020. Allocate each to Controlling and non-controlling
Totals P1,728,600 P943,000 P1,960,400 1,098,000 interests.
Requirements for Years 2019 and 2020 4. Elimination entries for 2018, 2019, and 2020.
1. Calculate the parent’s investment income Case 10. (Upstream depreciable asset transfer)
2. Calculate the NCI’s share in the consolidated net On January 1, 2019, Satellite, INC. a 90% owned
subsidiary of PORT COMPANY transferred equipment to its
income.
parent in exchange for P115,200 cash. At the date of
3. Calculate the
transfer, the subsidiary’s record carried the equipment at a
a. Consolidated net income cost of P162,816 less accumulated depreciation of
b. Consolidated net income attributable to owners of P69,120. The equipment has an estimated remaining life
Parent Company. of 7 years. The subsidiary reported net income for 2019
c. Non-controlling interest in consolidated net income and 2020 of P 202,752 and P302,592, respectively. The
4. Prepare consolidated financial statements for 2019 and parent company reported income of P 337,920 (including
dividend income of P 69,120) and P453,120 (including
2020 using WPEEs.
dividend income of 69,120) for 2019 and 2020,
5. Prepare consolidated financial statements for 2019 and respectively.
2020 using BCVR balances.
6. Prepare analytical check on the NCI amount in the Requirements
consolidated balance sheet for 2019 and 2020. 1 Calculate Port Company’s investment income from
Satellite Company in 2019 and in 2020.
Case 7. Separate FS of the parent company under the 2. Determine non-controlling interest in the net income of
the subsidiary for 2019 and for 2020.
equity method.
3. Show the consolidated net income for 2019 and 2020.
Allocate each to Controlling and Non-controlling
Using the cost method FS in Case 6 above, recalculate the interests.
following balances for 2019 and 2020 (in the separate FS 4. Elimination entries for 2019 and for 2020.
of PARENT COMPANY) if the parent used the equity method
in accounting for the investment account: Case 11. (Intercompany Transactions)
a. Net income On January 1, 2019, PRIMARY COMPANY acquired 75% of
the outstanding shares of SECONDARY, INC. at a fair value
b. Investment in Subsidiary
differential of P25,600 represented by understated plant
c. Retained earnings. assets with a 10-year remaining life. During 2020,
PRIMARY COMPANY purchased merchandise from
Case 8 (Upstream Merchandise Transfer) secondary, inc. in the amount of P 204,800 at billed prices.
STAREX, INC., a 75% owned subsidiary of PUREHATCH SECONDARY, INC. shipped the merchandise at 40% above
COMPANY, sold merchandise during 2020 to its parent its cost, and this pricing policy was also used for shipments
company for P 288,000. The merchandise cost STAREX, made in 2019 to PRIMARY COMPANY. The inventories of
INC. P 201,600, 25% of the transferred merchandise PRIMARY COMPANY included merchandise at billed prices
remained in PUREHATCH COMPANY’s ending inventory. from SECONDARY, INC. as follows:
STAREX’s gross profit has been the same rate over the
past three (3) years. On January 1, 2020, PUREHATCH has January 1, 2020 57,344
P9,600 worth of merchandise purchased from STAREX in December 31, 2020 43,008
2019. For the year 2020, STAREX, INC. reported a net
income of P 288,000 and PUREHATCH COMPANY reported Also, in 2019 PRIMARY COMPANY sold land to SECONDARY,
net income (including dividend income of P 115,200) of P INC. for P102,400. The cost of the land to PRIMARY was
528,000. P76,800. SECONDARY sold the land to an outsider for
P117,760 in 2020.
Requirements:
1. Calculate Purehatch Company’s investment income Furthermore, on January 1, 2020 SECONDARY, INC. sold
from Starbucks, Inc. in 2020. equipment to PRIMARY COMPANY for P38,400 cash. At the
2. Determine non-controlling interests in the net income date of the transfer, the equipment is carried at a cost of
of the subsidiary for 2020. P54,272 less accumulated depreciation of P23,040. The
3. Show consolidated net income for 2020, and allocate to equipment has an estimated remaining life of 7 years.
Controlling interests and to Non-controlling interests.
4. Working paper elimination entries for 2020. Income statements for the two companies for the year
2020 are as follows:
Case 9 (Downstream Land Transfer) PRIMARY SECONDARY
During 2018 PRIME COMPANY sold land with a cost of Sales P1,024,000 P512,000
P230,400 to its 80% owned subsidiary, SPEAR, INC., for P Cost of sales 409,600 256,000
307,200. The subsidiary sold the land in 2020 to an Gross profit 614,400 256,000
outsider for P430,080. The subsidiary and the parent Operating expenses 368,640 163,840
reported net income as follows: Operating income 245,760 92,160
PRIME CO SPEAR, INC Gain on sale of land 15,360
2018 P539,136 236,544 Gain on sale of equipment _________ 7,168
2019 514,560 228,864 Net income P 245,760 P 114,688
2020 606,720 253,440
Requirements:
The reported income of the parent company includes 1. Calculate the non-controlling interests in the
P78,336 of dividend income each year. consolidated net income in 2020.
Requirements:

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EXCEL PROFESSIONAL SERVICES, INC.

2. Calculate the controlling interest in the consolidated

net income in 2020. - end –
3. Prepare working paper elimination entries for the
above information at December 31, 2020.
4. Prepare a consolidated income statement for the year
ended December 31, 2020.
MULTIPLE CHOICE

English Dom Corporation owns 100% of Purebreed Accum. Depreciation (96,000) (24,000)
Enterprises. On July 1, 2020, English Dom sold Purebreed Invesment in Squidballl 156,800 _______-
delivery equipment at a gain. English Dom had owned the Total Assets 492,000 216,800
equipment for two years and used a five-year straight-line Accounts Payable 82,400 56,800
depreciation rate with no residual value. Purebreed is using a Capital Stock 320,000 120,000
three-year straight-line depreciation rate with no residual Retained Earnings 89,600 40,000
value for the equipment. Total Equities. 492,000 216,800
1. In the consolidated income statement, Purebreed’s At the date of combination the book values of Squidball’s net
recorded depreciation expense on the equipment for 2020 assets was equal to the fair value of the net assets except for
will be decreased by: Squidball’s inventory which has a fair value of P24,000.
a. 16.67% of the gain on sale 5. What amount of goodwill will be reported?
b. 33.33% of the gain on sale a. P12,534 c. P48,800
c. 50% of the gain on sale b. P30,200 d. P40,267
d. 100% of the gain on sale
6. What amount of total liability will be reported?
Parker Corporation sells equipment with a book value of a. P139,200 c. P170,400
P64,000 to Sheaffer Enterprises, its 75%-owned subsidiary, b. P227,466 d. P 72,534
for P80,000 on January 1, 2020. Sheaffer determines that the
remaining useful life of the equipment is four years and that 7. What is the amount of total assets?
straight-line depreciation is appropriate. The December 31, a. P 501.334 c. P 601,066
2020 separate company financial statements of Parker and b. P 548,800 d. P 591,000
Sheaffer show equipment-net of P400,000 and P240,000,
respectively. On January 1, 2020, Pelican Company purchased 90% of the
2. The consolidated equipment-net will be: common stock of Bryan Company for P51,840 over the book
a. P 640,000 c. P624,000 value of the shares acquired. All of the differential was related
b. P 628,000 d P520,000 to land held by Bryan. On May 1, 2020, Bryan sold the land
at a gain of P92,800. For the year 2020, Bryan reported net
Balance sheet data for P Corporation and S Company on income of P211,840 and paid dividends of P51,200. Pelican
December 31, 2020, are given below: reported income from its own separate operations of
P Corporation S Company P421,760 and paid no dividends.
Cash P 56,000 P 72,000 8. Consolidated net income for 2020 was
Merchandise a. P 527,360 c. P 643,456
Inventory 80,000 48,000 b. P 560,576 d. P 576,000
Property and
equipment (net) 400,000 200,000 On January 1, 2020 the Parent Corporation sold equipment to
Investment in S its wholly-owned subsidiary, Subsidiart Enterprises, for
Company 208,000 ________ P1,152,000. The equipment cost Parent
Total assets P 744,000 P320,000 CompanyP1,280,000; accumulated depreciation at the time
of the sale of P320,000. The parent was depreciating the
Current liabilities P144,000 P 48,000 equipment on the straight-line-method over twenty years
Long term liabilities 160,000 72,000 with no salvage value, a procedure that the subsidiary
Common stock 240,000 80,000 continued.
Retained earnings 200,000 120,000 9. On the consolidated balance sheet at December 31, 2020
Total liabilities & SE P 744,000 P320,000 the cost and accumulated depreciation, respectively,
should be:
P Corporation purchased 80% interest in S Company on a. P 960,000 and P384,000
December 31, 2020 for P208,000. S Company’s property and b. P1,152,000 and P 64,000
equipment had a fair value of P40,000 more than the book c. P1,152,000 and P320,000
value shown above. All other book values approximated fair d. P1,280,000 and P384,000
value. In the consolidated balance sheet on December 31,
2020. P Company acquired a 65% interest in S company in 2017.
3. The amount of total stockholders’ equity to be reported will For years ended December 31, 2019 and 2020, S reported
be net income of P208,000 and P249,600, respectively. During
a. P 440,000 c. P 600,000 2019, S sold merchandise to P for P44,800 at a cost of
b. P 488,000 d. P 492,000 P34,560. Two-fifths of the merchandise was later resold by P
to outsiders for P24,320 during 2020. In 2020, P sold
4. The amount of non-controlling interest will be merchandise to S for P62,720 at a profit of P15,360. One-
a. P 40,000 c. P 88,000 fourth of the merchandise was resold by S to outsiders for
b. P 48,000 d. P 52,000 P19,200 during 2020.
10. Non-controlling- interest net income in 2019 is
On January 1, 2020. SHELLFISH CORPORATION purchased a. P 73,664 c. P 71,366
75% of the common stock of SQUIDBALL COMPANY. Separate b. P 96,710 d. P 70,726
balance sheet data for the companies at the combination date 11. Non-controlling- interest net income in 2020 is
are given below: a. P 88,794 c. P 86,259
Shellfish Squidball b. b. 92,077 d. P 88,218
Cash 9,600 82,400
Accounts Receivables 57,600 10,400 CORN Corporation sells equipment with a book value of
Inventory 52,800 15,200 P128,000 to BEANS Company, its 75% owned subsidiary for
Land 31,200 12,800 P102,400 on April 1, 2020. BEANS determines that the
Plant Assets 280,000 120,000 remaining useful life of the equipment is four years and that

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EXCEL PROFESSIONAL SERVICES, INC.
the straight-line depreciation is appropriate. The December
31, 2020 separate financial statements of CORN and BEANS
show equipment-net of P 640,000 and P384,000,
respectively.
12. Consolidated equipment-net will be
a. P 791,360 c. P1,044,800
b. P 848,960 d. P 975,040
CLASSROOM DRILL

1. Stain Corporation is an 80%-owned subsidiary of Paint Substantial portion of S Company’s inventories came
Corporation. During 2019 Stain sold merchandise that from P Company. Summary of inter-company
cost P96,000 to Paint for P128,000. Paint's ending shipments are given below:
inventory at December 31, 2019 contained unrealized Jan. 1 Merchandise costing P420,000 are shipped at 25%
profit of P6,400 from the intercompany sales. During gross profit based on cost.
2020 Stain sold merchandise that cost P112,000 to May 1 Merchandise costing P660,000 are shipped at the
Paint for P152,000. One-half of this remained unsold same gross profit rate used on Jan.1
by Paint at December 31, 2020 For 2020 Paint's Nov. 1 Merchandise costing P209,600 are shipped at the
separate income was P200,000 and Stain's reported same gross profit rate used on Jan.1 of which 1/5
net income was P152,000. is on hand at December 31, 2020.

The consolidated net income for 2020 will be: 5. The amount of inter-company sales to be eliminated
a. P302,000 c. P310,720 a. P 1,289,600 c. P 2,257,500
b. P338,400 d. P274,500 b. P 1,612,500 d. P 1,612,000

2. P Company acquired a 90% interest in S Company in P Corporation acquired 70% of the voting common
2018 at a time when S Company's book values and stock of S Company at a time when S Company’s book
fair values were equal to one another. On January 1, values and fair values were equal. Separate incomes
2020, S sold a machine with a P24,000 book value to of P Corporation and S Company for 2020 are as
P Company for P48,000. P depreciates the machine follows:
over 10 years using the straight line method. Separate P Corporation S Company
incomes for P and S for 2020 are as follows: Sales 633,600 350,400
P Co. S. Co. Cost of Goods Sold 384,000 192,000
Sales P960,000 P560,000 Operating expenses 115,200 96,000
Gain on sale of 24,000 Separate income from
machinery own operations 134,400 62,400
Cost of goods sold (400,000) (152,000)
Depreciation expense (240, 000) (72,000) Intercompany sales from P to S for 2019 and 2020 are
Other expenses (96,000) (240,000) summarized as follows:
Separate incomes P224,000 P120,000 Cost Selling Unsold
Price at year-
The consolidated net income for 2020 is: end
a. P344,000 c. P310,400 Intercompany sales
b. P322,400 d. P312,560 – 2019 240,000 374,400 30%
Intercompany sales
3. On January 1, 2018, Subsidiary Company purchased a – 2020 168,000 264,000 40%
delivery truck with an expected useful life of 5 years
and scrap value of P6,400. On January 1, 2020, 6. The 2020 consolidated income statement will show
Subsidiary Company sold the truck to Parent Company cost of goods sold of
and recorded the following entry: a. P 310,080 c. P 384,000
Debit Credit b. P 576,000 d. P 192,000
Cash 40,000
Accumulated depreciation 14,400 On January 1, 2020. P Corporation purchased 75% of the
Truck 42,400 common stock of S Company. Separate balance sheet
Gain on sale of truck 12,000 data for the companies at the combination date are given
below:
Parent holds 60% of Subsidiary's voting shares. P S
Subsidiary reported net income of P44,000, and Corporation Company
Parent reported separate net income of P78,400 for Cash P9,600 P82,400
2020. Accounts receivable 57,600 10,400
In preparing the consolidated financial statements for Inventory 52,800 15,200
2020, depreciation expense will be: Land 31,200 12,800
a. debited for P12,000 in the elimination entries Plant assets 280,000 120,000
b. credited for P12,000 in the elimination entries Accumulated (96,000) (24,000)
c. debited for P4,000 in the elimination entries depreciation
d. credited for P4,000 in the elimination entries. Investment in S co. 156,800 ________
Total assets P492,000 P216,800
4. The consolidated net income for 2020 will be: Accounts payable P82,400 P56,800
a. P122,400 c. P100,000 Capital stock 320,000 120,000
b. P114,400 d. P 94,240 Retained earnings 89,600 40,000
Total equities P492,000 P216,800
On January 1, 2020, P Company purchased 80% of S
Company’s outstanding stock for P2,000,000, an At the date of combination the book values of S
amount equal to the book value of interest acquired. Company’s net assets was equal to the fair value of the
Appraisal of S Company’s net assets revealed that net assets except for S Company’s inventory which has a
land is undervalued by P80,000 while Plant Assets with fair value of P24,000. Indicate in each of the questions
remaining life of 5 years is overvalued by P200,000. what the consolidated balance would be for the requested

Page 6 of 6 www.prtc.com.ph AFAR 2906

EXCEL PROFESSIONAL SERVICES, INC.

account, assuming the amount assigned to NCI is the

proportionate share in the fair value of net assets.

7. What amount of inventory will be reported

a. P52,800 c. P74,600
b. P68,000 d. P 76,800

8. What is the amount of the non-controlling interest?

a. P 40,000 c. P 52,267
b. P 42,200 d. P 120,000

Page 7 of 7 www.prtc.com.ph AFAR 2706