Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

UNIVERSITY OF MINDANAO
College of Accounting Education
Program: BSA, BSMA, BSIA, BSAIS
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
Course/Subject: ACP 312 – Accounting for Business

Combinations
Name of Teacher: __________________

Name of Author: MARK GLENN G. PARPAN
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

FOR REPRODUCTION AND DISTRIBUTION OUTSIDE OF
ITS INTENDED USE. THIS IS INTENDED ONLY FOR THE
USE OF THE STUDENTS WHO ARE OFFICIALLY
ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
THIS IS NOT FOR COMMERCIAL USE

3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)305-0645 Local 137
TABLE OF CONTENTS
Page No.
Course Outline iv
Course Outline Policy iv
Course Information viii
Big Picture: Unit Learning Outcomes (Week 1-3)

Big Picture in Focus: Unit Learning Outcome 1, 2, 3, 4 1
Metalanguage 1
Essential Knowledge 2
Self-Help 6
Let’s Check 6
Let’s Analyze 7
In A Nutshell 8
QA List 8
Keywords Index 9
Big Picture in Focus: Unit Learning Outcome 5, 6 10

Metalanguage 10
Self-Help 12
Let’s Check 12
Let’s Analyze 13
In A Nutshell 14
QA List 16
Keywords Index 16
Course Schedule 17
Big Picture: Unit Learning Outcomes 18

Big Picture in Focus: Unit Learning Outcome 1 18
Metalanguage 18
Self-Help 25
Let’s Check 25
Let’s Analyze 25
In A Nutshell 27
QA List 28
Keywords Index 28

Metalanguage 29
Self-Help 31
Let’s Check 31
Let’s Analyze 32
In A Nutshell 33
QA List 34
Keywords Index 34
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Metalanguage 35
Self-Help 38
Let’s Check 38
Let’s Analyze 38
In A Nutshell 39
QA List 40
Keywords Index 40

Metalanguage 41
Self-Help 43
Let’s Check 43
Let’s Analyze 43
In A Nutshell 44
QA List 45
Keywords Index 45
Course Schedule 46

Big Picture in Focus: Unit Learning Outcome 1, 2, 3 47
Metalanguage 47
Self-Help 52
Let’s Check 53
Let’s Analyze 54
In A Nutshell 55
QA List 56
Keywords Index 56

Metalanguage 57
Self-Help 69
Let’s Check 66
Let’s Analyze 66
In A Nutshell 67
QA List 68
Keywords Index 68

Metalanguage 69
Self-Help 71
Let’s Check 71
Let’s Analyze 71
In A Nutshell 72
QA List 73
Keywords Index 73

Metalanguage 74
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Self-Help 77
Let’s Check 77
Let’s Analyze 77
In A Nutshell 78
QA List 79
Keywords Index 79
Course Schedule 80

Big Picture in Focus: Unit Learning Outcome 1, 2, 3 81
Metalanguage 81
Self-Help 87
Let’s Check 87
Let’s Analyze 87
In A Nutshell 88
QA List 89
Keywords Index 89
Course Schedule 90
Online Code of Conduct 91
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Matina, Davao City
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Course Outline: ACP 312 – Accounting for Business Combinations
Course Coordinator: Mark Glenn G. Parpan

Email: [email protected]
Student Consultation: By appointment
Phone: None
Effectivity Date: June 2020
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: ACC 221 - Intermediate Accounting 3
Credit: 3
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face to face sessions.
Course Outline Policy
Areas of Concern Details

Contact and Non-contact This 3-unit course self-instructional manual is designed for
Hours blended learning mode of instructional delivery with
scheduled face to face or virtual sessions. The expected
number of hours will be 54 including the face to face or
virtual sessions. The face to face sessions shall include the
summative assessment tasks (exams) since this course is
crucial in the Licensure Examination for Certified Public
Accountants.
Assessment Task Submission of assessment tasks shall be on 3rd, 5th, 7th and
Submission 9th week of the term. The assessment paper shall be
attached with a cover page indicating the title of the
assessment task (if the task is performance), the name
of the course coordinator, date of submission and name of
the student. The document should be emailed to the
course coordinator. It is also expected that you already
paid your tuition and other fees before the submission of
the assessment task.
If the assessment task is done in real time through the

features in the Blackboard Learning Management System,
the schedule shall be arranged ahead of time by the
course coordinator.
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Since this course is included in the Licensure Examination

for Certified Public Accountants, you will be required to take
the Multiple Choice Question exam inside the University.
This should be scheduled ahead of time by your course
coordinator. This is non-negotiable for all licensure-based
programs.
Turnitin To ensure honesty and authenticity, all assessment tasks
Submission are required to be submitted through Turnitin with a
(if necessary) maximum similarity index of 30% allowed. This means that
if your paper goes beyond 30%, the students will either opt
to redo her/his paper or explain in writing addressed to the
course coordinator the reasons for the similarity. In addition,
if the paper has reached more than 30% similarity index,
the student may be called for a disciplinary action in
accordance with the University’s OPM on Intellectual and
Academic Honesty.
Please note that academic dishonesty such as cheating

and commissioning other students or people to complete
the task for you have severe punishments (reprimand,
warning, expulsion).
Penalties for Late The score for an assessment item submitted after the
Assignments/Assessme designated time on the due date, without an approved
nts extension of time, will be reduced by 5% of the possible
maximum score for that assessment item for each day or
part day that the assessment item is late.
However, if the late submission of assessment paper has a

valid reason, a letter of explanation should be submitted
and approved by the course coordinator. If necessary, you
will also be required to present/attach evidences.
Return of Assignments/ Assessment tasks will be returned to you two (2) weeks
Assessments after the submission. This will be returned by email or via
Blackboard portal.
For group assessment tasks, the course coordinator will

require some or few of the students for online or virtual
sessions to ask clarificatory questions to validate the
originality of the assessment task submitted and to ensure
that all the group members are involved.
Assignment You should request in writing addressed to the course
Resubmission coordinator his/her intention to resubmit an assessment
task. The resubmission is premised on the student’s failure
to comply with the similarity index and other reasonable
grounds such as academic literacy standards or other
reasonable circumstances e.g.
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illness, accidents financial constraints.
Re-marking of You should request in writing addressed to the program

Assessment Papers and coordinator your intention to appeal or contest the score
Appeal given to an assessment task. The letter should explicitly
explain the reasons/points to contest the grade. The
program coordinator shall communicate with the students
on the approval and disapproval of the request.
If disapproved by the course coordinator, you can elevate

your case to the program head or the dean with the original
letter of request. The final decision will come from the dean
of the college.
Grading System All culled from BlackBoard sessions and traditional contact
Course discussions/exercises – 30%
1 formative assessment – 10%
st
2nd formative assessment – 10%

3rd formative assessment – 10%
All culled from on-campus/onsite sessions (TBA):

Final exam – 40%
Submission of the final grades shall follow the usual

University system and procedures.
Preferred Referencing APA 6th- American Psychological Association 6th edition

Style
Student Communication You are required to create a umindanao email account

which is a requirement to access the BlackBoard portal.
Then, the course coordinator shall enroll the students to
have access to the materials and resources of the course.
All communication formats: chat, submission of assessment
tasks, requests etc. shall be through the portal and other
university recognized platforms.
You can also meet the course coordinator in person through

the scheduled face to face sessions to raise your issues
and concerns.
For students who have not created their student email,

please contact the course coordinator or program head.
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Contact Details of the Lord Eddie I. Aguilar, MBA, CPA

Dean Email: [email protected]
Phone: +63-082-305-0640 loc. 137
Contact Details of the Mary Grace S. Sombilon, MSA, CPA
Assist. Dean and Asst. Dean
Program Heads Email:
[email protected]
Phone: +63-082-305-0640 loc. 137
Jade Solaňa, CPA, MBA

Program Head: BSA, BSMA
Email:
Phone: +63-082-305-0640 loc. 137
Students with Special Students with special needs shall communicate with the
Needs course coordinator about the nature of his or her special
needs. Depending on the nature of the need, the course
coordinator with the approval of the program coordinator
may provide alternative assessment tasks or extension of
the deadline of submission of assessment tasks. However,
the alternative assessment tasks should still be in the
service of achieving the desired course learning outcomes.
Online Tutorial Through LMS or PM Chats
Library and Information Brigida E. Bacani

Center (LIC) Resource Email: [email protected]
09513766681
for inquiries, you can email

at [email protected], raphael_digal@umindan
ao.edu.ph or chat with us
here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-Learning-
and-Information-Center-Davao-City-962331877193048/
Well-Being Welfare Ronadora E. Deala

Support Help Desk Email: [email protected]
09212122846
GSTC Facilitator
Zerdszen P. Rañises
Emai: [email protected]
09058924090
GSTC Facebook Page:
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https://facebook.com/UM-GSTC-Main-CAE-
111901303784349/?modal=admin_todo_tour
Library and Information Brigida E. Bacani

Center (LIC) Resource Email: [email protected]
09513766681
for inquiries, you can email

at [email protected], raphael_digal@umindan
ao.edu.ph or
chat with us here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-Learning-
and-Information-Center-Davao-City-962331877193048/
Course Information – see/download course syllabus in the Black Board LMS
CC’s Voice: Hello prospective CPA! Welcome to this course ACP 312 – Advanced
Accounting and Reporting, Part 2. By now, I am confident that you really
wanted to become a CPA and that you have visualized yourself already
being in the front and center of helping organizations communicate their
financial information effectively.
CO: Before becoming a Certified Public Accountant, you have to master all
facets and areas of accounting and this include the ability to explain and
apply concepts on home office and branch accounting, accounting
for business combinations; preparation of separate and
consolidated financial statements; accounting for intercompany
transactions; and accounting corporations in financial distress,
which are the course outcomes (CO) of this subject.
Let us begin!
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Big Picture
Week 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to
a. Journalize transactions of an agency and determine results of

operations.
b. Journalize branch and home office transactions including
intercompany transactions.
c. Prepare working paper for the combined financial statements of the
home office and branch.
d. Prepare financial statements of home office and branch as
combined.
e. Journalize shipments of merchandise billed at above cost and make
corresponding adjustments at year end.
f. Prepare working papers for combined and individual income
statements of home office and branch and the combined balance
sheet.
Big Picture in Focus: ULO

Journalize transactions of an agency and determine
results of operations.
Journalize branch and home office transactions
including intercompany transactions.
Prepare working paper for the combined financial
statements of the home office and branch.
Prepare financial statements of home office and
branch as combined.
Metalanguage
In this area, the most basic terms pertinent to the study of financial
accounting in government and to demonstrate ULOa, ULOB, ULOc, and ULOd
will be operationally defined to establish a common frame of reference as to how
the texts work in these specific topics. You will encounter these terms as we go
through the study of accounting for government.
Branch- a unit of a business enterprise located some distance from the home
office. A branch generally caries a stock of merchandise obtained from the
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home office, makes sales, approves customers’ credit, and makes collections
on trade accounts receivable.
Essential Knowledge
ACCOUNTING FOR AGENCY
Agencies and branches are established to decentralize operations or to expand into

new markets. Agencies are simple extensions of the home office; branches, generally,
are with regulated autonomy to operate as an independent entity.
Because agencies do not maintain its own set of accounting records, all its
transactions are recorded in the books of the home office. If the home office would like
to determine viabilities of the agencies, real and nominal accounts for the agency are
identified in the home office books to facilitate such determination. Otherwise, the
agency items are merged without identification with those of the home office.
ILLUSTRATIVE ENTRIES
TRANSACTION HOME OFFICE BOOKS
Working fund- agency 10,000

A working fund of P10,000 is
established. Cash 10,000
Shipped merchandise to an Samples Inventory-Agency 3,000

agency for use as samples,
P3,000. Shipments to Agency 3,000
Accounts Receivable 100,000

Fill ales orders from Agency,
P100,000 Sales-Agency 100,000
Cost of goods sold Cost of Sales-Agency 70,000
attributable to Agency sales
Shipments to Agency 70,000
P70,000
Sales- Agency 100,000
Close revenue and expense Cost of Sales- Agency 70,000
accounts of agency
Agency Income 30,000
Close Agency income to Agency Income 30,000
Income Summary account Income Summary 30,000
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ACCOUNTING FOR BRANCH
The branch has its own complete set of accounting records, therefore all its
transactions, including those with the home office, are recorded in its books. It also
presents its own set of financial statements: the income statement, the balance sheet,
and the statement of cash flows.
But because the branch is but a part of the home office, therefore, these set of financial
statements are not acceptable for general purposes. And since the home office is just
also a part of the whole organization, its own set of financial statements: the income
statement, the balance sheet and the statement of cash flows are also not acceptable
for general purposes. These two different sets of financial statements are internal to
each of the reporting entities, combined financial statements must be prepared for the
combined entities (taken as one and the same) to meet the requirements of general-
purpose statements.
A branch and its home office represent two accounting systems but just one
accounting and reporting entity. All entries in the accounting records of the branch are
also entered, at least in summary form, in the accounting records of the home office.
The records of the home office and the branch are linked by two reciprocal accounts;
the Home Office Equity account in the books of the Branch and the Investment in
Branch account in the books of the Home Office.
Because they are reciprocal, it means that the two accounts always have the same
balance although the Investment in Branch is a debit account (as an asset in the books
of the Home Office) and the Home Office is a credit account (as an equity item in the
books of the branch). The two accounts frequently show different balances on a
temporary basis due to errors and items in transit. A very important aspect of the study
of home office and branches is the reconciliation of the reciprocal balances.
An illustration of journal entries recorded for interoffice transactions follow:
Transactions Home Office Books Branch Books

Transfer of cash from the Investment in branch x Cash x
home office Cash x Home office equity x
Transfer of cash from the Cash x Home Office Equity x

branch Investment in branch x Cash x
Transfer of merchandise Investment in branch x Shipment from HO x

from HO at cost Shipment to branch x HO Equity x
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Payment by HO of Investment in branch x Expenses x

branch expenses Cash x HO Equity x
Allocation of prev. paid Investment in branch x Expenses x

branch exp Expenses x HO Equity x
Transfer of Fixed asset Memo entry Memo entry

from home office to
Branch
(Note: There will be no entry if all fixed assets are accounted in
the books of the home office); otherwise:
Investment in branch x Fixed Assets x

Accumulated depn x Acc Depn x
Fixed Assets x HO Equity x
To take-up branch Investment in branch x Income Summary x

Profit/(loss) Branch Income x HO Equity x
Branch loss x HO Equity x
Investment in branch x Income Summary x
ILLUSTRATIVE JOURNAL ENTRIES
Assume that Rebecca Company bills merchandise to Beccie Branch at home office
cost and that Beccie Branch maintains complete accounting records and prepares
financial statements. Both the home office and the branch use the perpetual inventory
system. Equipment used at the branch is carried in the home office accounting
records. Certain expenses, such as advertising and insurance, incurred by the home
office on behalf of the branch, are billed to the branch. Transactions and events during
the first year of operations of Beccie Branch are summarized below (start-up costs
are disregarded):
1. Cash of P1,000 was forwarded by the home office to Beccie Branch.

2. Merchandise with a home office cost of P60,000 was shipped by the home
office to Beccie Branch.
3. Equipment was acquired by Beccie Branch for P500, to be carried in the
home office accounting records. (Other plant assets for Beccie Branch
generally are acquired by the home office.)
4. Credit sales by Beccie Branch amounted to P80,000; the branch’s cost of
the merchandise sold was P45,000.
5. Collections of trade accounts receivable by Beccie Branch amounted to
P62,000.
6. Payments for operating expenses by Beccie Branch totaled P20,000.
7. Cash of P37,500 was remitted by Beccie Branch to the home office.
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8. Operating expenses incurred by the home office and charged to Beccie

Branch totaled P3,000.
HOME OFFICE BOOKS BRANCH BOOKS

(1) Investment in
1,000 Cash` 1,000
Branch
Cash 1,000 Home office 1,000
(2) Investment in
60,000 Inventories 60,000
Branch
Inventories 60,000 Home Office 60,000
(3) Equipment-
500 Home office 500
Branch
Inv. In Branch 500 Cash 500
(4) Accounts
None 80,000
receivable
Cost of goods
45,000
sold
Sales 80,000
Inventories 45,000
(5) None Cash 62,000
Accounts
62,000
Rec.
(6) Operating
None 20,000
Expense
Cash 20,000
(7) Cash 37,500 Home office 37,500
Inv. In Branch 37,500 Cash 37,500
(8) Operating
Inv. In Branch 3,000 3,000
expense
Operating
3,000 Home office 3,000
expense
A combined balance sheet for home office and branch shows the financial position of
the business enterprise as a single entity. In the working paper for combined financial
statements, the assets and liabilities of the branch are substituted for the Investment
in Branch ledger account included in the adjusted trial balance of the home office. This
is accomplished by elimination of the balances of the Home Office and Investment in
Branch reciprocal ledger accounts.
At the end of an accounting period, the balance of the Investment in Branch ledger
account may not agree with the balance of the Home Office account. In such cases
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the reciprocal ledger accounts must be reconciled and brought up to date before
combined financial statements are prepared.
Self-Help: You can also refer to the sources below to help you further
understand the lesson:
Guerrero et al. (2019). Advanced Accounting Principles and Procedural

Application, Volume 2
Let’s Check
Fill in the necessary words or amounts to complete the following statements.
1. A ____________________ is a unit of a business enterprise that sells

merchandise at a location some distance from the
___________________________. A branch generally is operated as a
____________________ of the home office; however, a
____________________ may be organized as a subsidiary corporation.
2. The Home Office ledger account and the Investment in Branch ledger account
are _______________ ledger accounts whose balances must be
_______________ when _______________ financial statements for the home
office and branch are prepared.
3. If a home office bills merchandise to branches at a price above home office

cost, the markup on the unsold merchandise is not ____________________
and is eliminated for combined financial statements for the home office and its
branches.
4. If the Dorco Branch remits cash to the home office of Shave Company and a
decentralized accounting system is used, the Dorco Branch debits the
__________ __________ ledger account and credits Cash; the home office
debits Cash and credits the ____________________ _______
____________________ account.
5. Some operating expenses incurred by the home office relate to branch

operations and are _______________ to the branch by a debit to the
____________________ ___________________________ ledger account
and a credit to the ________________________________________ account
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in the accounting records of the home office.
Let’s Analyze
Franco Company, which prepares financial reports at the end of the calendar year,
established a branch on July 1, 2019. The following transactions occurred during the
formation of the branch and its first six months of operations, ending December 31,
2019.
1. The Home Office sent P35,000 cash to the branch to begin operations.
2. The Home Office shipped inventory to the branch. Intracompany billings

totaled P75,000, which was the Home Office's cost. (Both the Home Office and
the Branch use a periodic inventory system.)
3. The branch acquired merchandise display equipment which cost P15,000 on

July 1, 2009. (Assume that branch fixed assets are carried on the home office
books).
4. The branch purchased inventory costing P53,750 from outside vendors on

account.
5. The branch had credit sales of P106,250 and cash sales of P43,750.
6. The branch collected P55,000 of its accounts receivable.
7. The branch paid outside vendors P35,000.
8. The branch incurred selling expenses of P18,750 and general and

administrative expenses of P15,000. These expenses were paid in cash when
they were incurred and include the expense of leasing the branch's facilities.
9. The home office charged the branch P2,500 for its share of insurance.
10. Depreciation expense on the display equipment acquired by the branch is

P1,250 for the six-month period. (Depreciation expense is classified as a
selling expense.)
11. The branch remitted P12,500 cash to the home office.
12. The branch's physical inventory on December 31, 2009 is P41,250, of which
P31,250 was acquired from the home office (there was no beginning
inventory).
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Requirement: Prepare journal entries in the books of the home office and in the books
of the branch office for the above transactions.
In a Nutshell
Explain the use of reciprocal ledger accounts in home office and branch accounting
systems.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Q&A LIST.
Do you have any questions for clarification?
Questions/Issues Answer
1.
2.
3.
4.
5.
KEYWORDS INDEX
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Agency Branch Home office Reciprocal accounts
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Journalize shipments of merchandise billed at above
cost and make corresponding adjustments at year end.
Prepare working papers for combined and individual
income statements of home office and branch and the
combined balance sheet.
Metalanguage
accounting in government and to demonstrate ULOe, and ULOf will be
operationally defined to establish a common frame of reference as to how the
texts work in these specific topics. You will encounter these terms as we go
through the study of accounting for government. Please proceed to Essential
Language because it contains definitions to help understand the topic.
Essential Knowledge
Merchandise shipped by a home office to branches may be billed at home office

cost, at home office cost plus a markup, or at branch retail selling price. A shipment
of merchandise to a branch is not a sale. Billing at home office cost attributes the
entire gross profit on merchandise sold by a branch to the branch. When
merchandise is billed at a price above home office cost (or at branch retail selling
price), the valuation assigned to branch inventory at the end of the accounting period
must be reduced to cost when combined financial statements are prepared.
If merchandise is billed to a branch at a price above home office cost and the
perpetual inventory system is used, the home office debits Investment in Branch for
the billed price of the merchandise, credits Inventories for the cost of the
merchandise, and credits Allowance for Overvaluation of Inventories: Branch for the
excess of the billed price over cost. The branch debits Inventories and credits Home
Office at billed prices of merchandise; sales by the branch are debited to Cost of
Goods Sold and credited to Inventories at billed prices.
There are two pricing methods generally used by the home office in billing the branch
for merchandise transfers:
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1. Billed at cost – the merchandise is transferred at cost, thus when the branch sells
the merchandise, the entire gross margin is included in the branch net income.
2. Billed at cost plus markup – the merchandise is transferred at an amount
between cost and the selling price. This intermediate pricing method allocates part
of the gross margin to the branch and the remainder to the home office.
SAMPLE ENTRIES
Transfer of merchandise from Investment in branch x Shipment from HO x

HO at cost Shipment to branch x HO Equity x
Transfer of merchandise from Investment in Branch x Shipment from HO x

HO at above cost Allowance for OV x HO Equity x
Shipment to branch x
ILLUSTRATIVE PROBLEM
Assume that on 2020, Mark Company shipped inventory to its branch for at 30%
above cost. The cost of inventory is P100,000. Therefore, the billed price is
P130,000 which is P100,000 + 30% mark-up.
HOME OFFICE BOOKS BRANCH BOOKS
Investment in Branch (Billed Shipments to Home

130,000 130,000
Price) Office
Shipments to Branch (Cost) 100,000 Home office 130,000
Allowance for
30,000
Overvaluation
The allowance for Overvaluation, also called as Unrealized Profit in Branch

Inventory, is a peso amount above the home office’s cost that is billed to the branch.
The amount remains in this account until the shipment is reshipped or sold by the
branch to outsider.
Assume further that half of the goods are sold to outsider. Thus, half of P30,000
allowance for overvaluation will be deemed realized. Another approach for
computing the realized profit is through formula.
Balance of Allowance for Overvaluation of Branch Inventory

P30,000
(unrealized profit)
Less: Overvaluation of branch inventory
Billed price P65,000
Cost (65,000/130%) 50,000 15,000
Realized profit 15,000
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INTERBRANCH TRANSFER
The transfer of merchandise from one branch to another does not justify increasing
the carrying amount of inventories by the additional freight costs incurred because of
the indirect routing. Excess freight costs incurred as a result of such transfers are
recognized as operating expenses of the home office because the home office makes
the decision to transfer the merchandise.

Let’s Check
For each of the following statements, indicate whether the statement is true or false.
1. In a separate balance sheet for a home office, the balance of the Allowance
for Overvaluation of Inventories: Branch ledger account is deducted from the
balance of the Investment in Branch ledger account.
2. The beginning inventories of a branch are reduced to home office cost in the
working paper for combined financial statements by a debit to Allowance for
Overvaluation of Inventories: Branch and a credit to beginning inventories
when the periodic inventory system is used.
3. The perpetual inventory system is impractical for a home office with many
branches.
4. If a remittance of cash by a branch has not been recorded by the home office,
the balance of the branch’s Home Office ledger account exceeds the balance
of the home office’s Investment in Branch account.
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5. Freight costs on merchandise shipments from Cody Branch to Dana Branch in

excess of normal freight costs from the home office to Dana Branch should be
recognized as operating expenses of Dana Branch.
Let’s Analyze
ACTIVITY 1
The following transactions pertain to a branch's first month's operations:
1. The home office sent P11,250 cash to the branch.
2. The home office shipped inventory costing P50,000 to the branch; the
intracompany billing was for P62,500.
3. Branch inventory purchases from outside vendors totalled P37,500.
4. Branch sales on account were P100,000.
5. The home office allocated P2,500 in advertising expense to the branch.
6. Branch collections on accounts receivable were P56,250.
7. Branch operating expenses of P17,500 were incurred, none of which were paid at
month-end.
8. The branch remitted P21,250 to the home office.
9. The branch's ending inventory (as reported in its balance sheet) is composed of:
Acquired from outside vendors............….. .P15,000
Acquired from home office (at billing price). 25,000
Total .........................................………...... 40,000
Requirement: Prepare the home office and branch journal entries for these
transactions, assuming a periodic inventory system is used.
ACTIVITY 2
On December 31, the Inv. in Branch account on the home books shows a balance of
P150,000. The following facts are ascertained:
1. Merchandise billed at P5,000 is in transit on December 31, from the home office to the
branch.
2. The branch collected a home account receivable for P2,000. The branch did not
notify the home office of cash collection.
3. On December 30, the home office mailed a check of P10,000 to the branch but the
bookkeeper charged the check to General Expenses; the branch has not received
the check as of December 31.
4. Branch profit for December was recorded by the home office at P8,900 instead of
P9,800.
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5. Branch returned supplies of P1,000 to the home office but the home office has not
yet recorded the receipt of the supplies.
Required:
a) Compute the balance of the Home Office account on the branch book as of
December 31 before its adjustment.
b) Prepare a reconciliation statement to compute the adjusted balances on
December 31.
In A Nutshell
ACTIVITY 1
Explain the use of and journal entries for a home office’s Allowance for
Overvaluation of Inventories: Branch ledger account.
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ACTIVITY 2
The reciprocal ledger account balances of Meadow Company’s branch and home
office are not in agreement at year-end. What factors might have caused this?
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Q&A LIST.
1.
2.
3.
4.
5.
KEYWORDS INDEX
Allowance for
Interbranch transfer Reconciliation Realized profit
overvaluation
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PART 3: COURSE SCHEDULE
ACTIVITY DATE WHERE TO SUBMIT

Week 1-3
Big Picture A, B, C, D: Let’s Check Activities BB’s assignment feature
Big Picture A, B, C, D: Let’s Analyze Activities BB’s assignment feature
Big Picture A, B, C, D: In a Nutshell Activities BB’s forum feature
Big Picture A, B, C, D: Q&A List BB’s discussion feature
Big Picture E, F: Let’s Check Activities BB’s assignment feature
Big Picture E, F: Let’s Analyze Activities BB’s assignment feature
Big Picture E, F: In a Nutshell Activities BB’s forum feature
Big Picture E, F: Q&A List BB’s discussion feature

FIRST EXAM Apr. 1 BB’s quiz feature
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Big Picture
expected to
a. Demonstrate sound knowledge on the methods and procedures in accounting for

business combination whether acquisition of assets or stock acquisition, may it
be wholly or partially, whether at book value, less than book value and more than
book value.
b. Exhibit deep understanding on the measurement of goodwill and non-controlling
interest.
c. Account contingent consideration on the date of acquisition and subsequent
increase or decrease of its amount, whether cash contingency or stock
contingency.
d. Compute the changes in value of identifiable assets during the measurement
period and preparation of financial statements after business combination.
Big Picture in Focus: ULOa. Demonstrate sound knowledge on the

methods and procedures in accounting for business combination
whether acquisition of assets or stock acquisition, may it be
wholly or partially, whether at book value, less than book value
and more than book value.
Metalanguage
Metalanguage is the essential term relevant to the topic. This is the operational
definition to establish a common frame of reference on how to use the term.
Business Combination – is a transaction or other event in which an acquirer

obtains control of one or more businesses. Transactions sometimes
referred to as “true mergers” or “merger of equals” are also business
combinations as that term used in PFRS 3.
PFRS 3 – defines a business combination as a transaction or other event in

which an acquirer obtains control of one or more businesses (the
acquiree).
Business – an integrated set of activities and assets that is capable of being

conducted and managed for the purpose of providing a return in the form
of dividends, lower costs or other economic benefits directly to investors
or other owners, members or particular.
Control – may be achieved by either acquiring the assets of the target company
or acquiring a controlling interest (usually over 50%) in the target
company’s voting common stock.
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Acquirer – is the entity that obtains control of the acquire.
Acquiree – is the business or businesses that the acquirer obtains control of in

a business combination.
Owners – include holders of equity interest of investor-owned entities and

owners, members or participants in mutual entities.
Please proceed immediately to the “Essential Knowledge” part since the first lesson is
also definition of essential terms.
Essential Knowledge
Essential knowledge is a detailed discussion of the topic or concept.
Nature
A business combination is a transaction or other event in which an acquirer obtains

control of one or more businesses. Transactions sometimes referred to as “true
mergers” or “merger of equals” are also business combinations as that term used in
PFRS 3.
PFRS 3 does not apply to the following:

a. Formation of a joint venture
b. Acquisition of an asset or a group of assets not constituting a business
c. A combination of entities or businesses under common control
An acquirer might obtain control of acquire through the following:

a. By transferring cash, cash equivalents or other assets, including net assets
that constitute a business
b. By incurring liabilities
c. By issuing equity interests
d. By providing more than one type of consideration
e. By contract alone, even without consideration
Examples of business combinations:

a. One or more businesses become subsidiaries of an acquirer
b. One entity transfers its net assets to another entity
c. All combining entities transfer their net assets to a newly formed entity,
sometimes referred to as “roll-up” or “put-together” transaction
d. A group of former owners of one of the combining entities obtains control of
the combined entity
Business combinations may be achieved legally either by:

1. Statutory consolidation – combining of two or more existing legal entities into one
new legal entity.
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2. Statutory merger – absorption of one or more existing legal entities by another

existing company that continues as the sole surviving legal entity.
Methods of Business Combination
Prior to the issuance of IFRS 3 (PFRS 3 as adopted in the Philippines), two methods
were used to account for business combinations.
1. Purchase method or acquisition method

2. Pooling of interest method
Under purchase method, all assets and liabilities of the acquired company are usually
recorded at fair value. The purchase method was the primary method in use.
However, in some circumstance, the pooling of interest method was allowed. IFRS 3
eliminated the use of pooling of interest method. Hence, for the discussion, only
purchase method will be discussed and illustrated.
An entity shall account for each business combination by applying the acquisition
method. The application of the acquisition method requires the following:
a. Identifying the acquirer
b. Determining the acquisition date
c. Recognizing and measuring the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquire
d. Recognizing and measuring goodwill or gain from bargain purchase
Factors in Identifying the Acquirer

1. The acquirer is usually the entity that transfers the cash or other assets, or incurs
the liabilities
2. The acquirer is usually the entity that issues its equity interests
3. The acquirer is usually the combining entity whose relative size measured in terms
of assets, revenue or profit is significantly greater than that of the other combining
entity or entities
4. In a business combination involving more than two entities, determining the
acquirer shall include a consideration of which of the combining entities initiated
the combination as well as the relative size of the entities
5. If a new entity is formed to issue equity interests to effect a business combination,
one of the combining entities that existed before the combination shall be identified
as the acquirer
The following may be of help in identifying the acquirer:

a. The combining entity whose owners as a group receive the largest proportion of
the voting rights in the combined entity is likely the acquirer
b. Where there is a large minority interest in the combined entity and no other owner
has a significant voting interest, the holder of the large minority interest is likely
the acquirer
c. Where one entity has the ability to select the management team or the majority of
the members of the governing body of the combined entity, such entity is likely the
acquirer
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Acquisition Date
The acquisition date is the date on which an acquirer obtains control over the acquiree.
The acquisition date is normally the date on which the acquirer legally transfers the
consideration, acquires the assets and assumes the liabilities of the acquiree. This is
also known as the “closing date.” However, it is possible for control to pass to the
acquirer before or after the closing date. Where several dates are key to a business
combination, it is the date on which control passes that determines the acquisition
date. For example, the acquisition date precedes the closing date if a written
agreement provides that the acquirer obtains control of the acquiree on a date before
the closing date.
Recognition Principle
As of acquisition date, the acquirer shall recognize, separately from goodwill, the
identifiable assets acquired, the liabilities assumed and any non-controlling interest in
the acquiree. To qualify for recognition, the identifiable assets and liabilities must meet
the definition of assets and liabilities in the Conceptual Framework for Financial
Reporting. However, as an exception, an acquirer shall recognize at acquisition date
a contingent liability assumed in a business combination if it is a present obligation
that arises from a past event and its amount can be measured reliably. This means
that the acquirer shall recognize a contingent liability assumed in a business
combination even if it is not probable that an outflow of economic benefits will be
required to settle the obligation.
Measurement Principle
The acquirer shall measure the identifiable assets acquired and the liabilities assumed
at their acquisition-date fair value.
For each business combination, the acquirer shall measure any non-controlling
interest in the acquiree either at:
a. Fair value
b. The non-controlling interest’s proportionate share of the acquiree’s identifiable
net assets
Consideration Transferred
The consideration transferred in a business combination shall be measured at fair
value, which shall be measured at fair value, which shall be calculated as the sum of
the acquisition-date fair values of the following:
a. The assets transferred by the acquirer.
b. The liabilities incurred by the acquirer to the former owners of the acquiree.
c. The equity interests issued by the acquirer.
Acquisition Related Costs

Acquisition-related costs are costs incurred by the acquirer to effect a business
combination. Acquisition-related costs include:
a. Finders fees
b. Advisory, legal, accounting, valuation and other professional or consulting fees
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c. General administrative costs, including costs of maintaining and internal

acquisition department
d. Costs of registering and issuing debt and equity securities
The acquirer shall account for acquisition-related costs as expenses in the period in
which the costs are incurred, except the costs of issuing debt and equity securities.
The cost of issuing debt securities shall be included in the measurement of the
financial liability. The cost of issuing equity securities shall be deducted from any share
premium from the issue and any excess is recognized as expense.
Price paid exceeds the fair values assigned to net assets

The excess of the price paid over the values assigned to net assets is “new” goodwill.
The goodwill recorded is not amortized, but is subject to impairment.
Price paid is less than fair values assigned to net assets

Price paid is actually less than the fair value assigned to the net assets, a “bargain
purchase” has occurred. The excess of the fair value assigned to the net assets over
the price is recorded as a “gain” on the acquisition by the acquirer.
Valuation of Identifiable Assets and Liabilities

As a general rule, assets and liabilities acquired are recorded at their individually
determined values. The preferred method is quoted market value, where an active
market for the item exists. Where there is no active market, independent appraisals,
discounted cash flow analysis, and other types of analysis are used to estimate fair
values.
Illustration (ADAPTED – GUERRERO, 2017)
Let us assume that the company to be acquired by GTG Corporation has the following
Statement of Financial position on June 30, 2019
Jenessa Jao Corporation

Statement of Financial Position
June 30, 2019
Cash ₱200,000 Current Liabilities ₱125,000

Marketable
Securities 300,000 Bonds Payable 500,000
Inventory 500,000 Common Stock (P1 par) 50,000
Land 150,000 Additional paid-in capital 700,000
Building (net) 750,000 Retained Earnings 925,000
Equipment (net) 400,000
₱2,300,00 ₱2,300,00
Total Assets 0 Total Liabilites & Equity 0
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Fair values for all accounts have been measured as of June 30, 2019 as follows:
Cash ₱200,000
Marketable securities 330,000
Inventory 550,000
Land 360,000
Building 900,000
Equipment 700,000
Unrecognized
receivables 225,000 ₱3,265,000
Current liabilities ₱125,000

Bonds payable 500,000
Premium on bonds
payable 20,000 645,000
Fair value of net identifiable
assets ₱2,620,000
Price paid exceeds the fair value of net identifiable assets acquired:
GTG Corporation issues 80,000 shares of its ₱10 par value common stock with a
market value of ₱40 each for Jenessa Jao Corporation’s net assets. GTG pays
professional fees of ₱50,000 to accomplish the acquisition and stock issuance costs
of ₱30,000.
Analysis:
Price paid (consideration given), 80,000 shares x ₱40 ₱3,200,00
market value 0
Fair value of identifiable assets acquired from Jenessa
Jao 2,620,000
Goodwill ₱580,000
Entries recorded by GTG (acquirer) are as follows:
1. To record the net assets acquired including the new goodwill.
Cash 200,000
Inventory 550,000
Land 360,000
Building 900,000
Equipment 700,000
Receivables - Trade 225,000
Goodwill 580,000
Current liabilities 125,000
Premium on bonds
payable 20,000
Common Stock (₱10 par, 80,000 800,000
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shares issued)
Additional paid-in capital (₱30 x 80,000 2,400,00
shares) 0
2. To record acquisition-related costs:

50,00
Acquisition expense 0
30,00
Additional paid in capital 0
Cash 80,000
Price paid is less than the fair value of net identifiable assets acquired:
GTG Corporation issues 20,000 shares of its ₱115 par value common stock with a
market value of ₱120 each for Jenessa Jao Corporation’s net assets. GTG pays
professional fees of ₱50,000 to accomplish the acquisition and stock issuance costs
of ₱130,000.
Analysis:
Price paid (consideration given), 20,000 shares x ₱120 ₱2,400,00
market value 0
Fair value of identifiable assets acquired from Jenessa
Jao 2,620,000
Gain on acquisition (Bargain purchase) (₱220,000)
Entries recorded by GTG (acquirer) are as follows:
1. To record the net assets acquired including the new goodwill.
Cash ₱200,000
Inventory 550,000
Land 360,000
Building 900,000
Equipment 700,000
Receivables - Trade 225,000
Premium on bonds ayable 20,000
Common Stock (₱10 par,
80,000 shares issued) 2,300,000
Additional paid-in capital (₱30 x 80,000 shares) 100,000
Gain on acquisition 220,000
2. To record acquisition-related costs:
Acquisition expenses ₱50,000

Additional paid-in capital 130,000
Cash ₱180,000
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Self-Help: You can also refer to the sources below to help you
further understand the lesson:
Guerrero, Pedro P., Peralta, Jose F., (2017). Advance Accounting.

Principles and Procedural Applications.
Let’s Check
1. Two methods of arranging business combinations:
a. Merger and consolidation
b. Merger and acquisition of stock
c. Acquisition and uniting of interests
d. Consolidation and acquisition of stock
2. A business combination must be accounted for as:
a. An acquisition
b. A pooling
c. A merger
d. A consolidation
3. The cost of registering equity securities in a business combination should be recorded
as:
a. An income of the period
b. An expense of the period
c. Deduction from additional paid in capital
d. Part of the cost of the stock acquired
4. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
b. has influence over a majority of the subsidiary's assets.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's outstanding
bonds and debentures.
5. Shares issued as consideration in an acquisition are recorded at:
a. Their fair value as at the date when the acquirer obtains control over the net
assets and operations on the acquiree
b. At cost
c. At cost or fair value whichever is lower
d. At cost or fair value whichever is higher
Let’s Analyze
1. Nessa Company issued common stock with a par value of ₱450,000 and a market
value of ₱700,000 to acquire the net assets Patrick Corporation in a business
combination. Nessa reported assets of ₱2 million and liabilities of ₱542,000
immediately before the business combination. Patrick Corporation’s assets and
liabilities had book values of ₱460,000 and 187,000, respectively. The fair values of
Patrick’s assets and liabilities were ₱600,000 and ₱188,000, respectively.
What amount should be reported as total assets of the combined entity immediately
following the business combination?
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2. On August 1, 2016, JPJ Company acquired the net assets of PGTG Company for a
price of ₱32 million. At the acquisition date, the carrying value and fair value of PGTG’s
net assets amounted ₱20 million and ₱27 million, respectively.
What amount should JPJ Company present as goodwill in its statement of financial
position at December 31, 2017?
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In a Nutshell
Activity
After learning the principles and concepts of business combination, when or how can
you say that businesses should consolidate or merge (10 sentences)?
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Q&A LIST
Questions/Issues Answers
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
This section lists down the keywords that help you for recall the discussions.
Business Combination Control Acquirer

Acquiree Owners PFRS 3
Statutory Consolidation Statutory Mergers Consideration
Fair Value Purchase Method Acquisition Date
Goodwill Acquisition Costs
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Big Picture in Focus: ULOb. Exhibit deep understanding on the

measurement of goodwill and non-controlling interest
Metalanguage
Please proceed immediately to the “Essential Knowledge” part since the first
lesson is also definition of essential terms.
Essential Knowledge
Measurement of Goodwill in a Business Combination
Goodwill
● Is measured as the excess of the total of the consideration transferred, the

amount of non-controlling interest in the acquiree and the acquisition-date fair
value of the acquirer’s previously held interest in the acquiree, over the net
amount of the identifiable assets acquired and liabilities assumed.
● If the resulting amount in the computation is negative, the acquirer shall
recognize a gain on bargain purchase in profit or loss.
PFRS 3 prescribes that the acquirer shall recognize goodwill as of the acquisition
date measured as the excess of (a) over (b) below:
a. The aggregate of:

I. The consideration transferred measured in accordance with PFRS 3,
which generally requires acquisition-date fair value;
II. The amount of any non-controlling interest in the acquire measured in
accordance with this PFRS (which is either based on fair value or
proportionate share of net assets); and
III. In a business combination achieved in stages (step acquisition), the
acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree.
b. The net of the acquisition-date amounts of the identifiable assets acquired and
liabilities assumed measured in accordance with this PFRS.
The revised PFRS 3 presents a significant change as follows:

a. It requires that any previously held equity interest, including investment
previously treated as an associate, shall be measured at acquisition-date
fair value with the change in value recognized in profit or loss; and
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b. It allows non-controlling interest to be measured at acquisition-date fair

value, which would result in goodwill being recognized in totality rather than
based on the acquirer’s share.
If the acquisition is not 100%, a non-controlling interest may exist. Non-controlling

interest is the residual interest after the controlling interest. May also be called minority
interest.
Hence, if non-controlling interest exist, the goodwill that arise from the business
combination must also be allocated to the controlling interest and non-controlling
interest.
Illustration
On June 1, 2016, Nessa Company acquired 80% (800,000 shares) of Gee Corporation
for
₱8,400,000. A control premium of ₱400,000 is included in the consideration paid by
Nessa. The carrying and fair value of the identifiable assets of Gee amounted to
₱8,000,000 and ₱9,500,000, respectively.
Analysis:
Non-
controlling
Implied Parent Interest
Value (80%) (20%)
₱10,500,000 ₱8,400,00
Company fair value * 0 ₱2,100,000**
Fair value of net assets
excluding goodwill 9,500,000 7,600,000 1,900,000
Goodwill ₱1,000,000 ₱800,000 ₱200,000
*Implied value is the grossed up amount of the consideration given by the acquirer
₱8,400,000/80% = ₱10,500,000
**Non-controlling interest is the difference of the implied value and the consideration
given ₱10,500,000 - ₱8,400,000 = ₱2,100,000
Based on the illustration above, the total goodwill amounted to ₱1 million, in which,
₱800,000 is attributable to parent and the remaining ₱200,000 to the non-controlling
interest.
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Let’s Check
Jenessa Jao Company acquired PGTG Company on December 31, 2019.
The financial statement of PGTG Company as of December 31, 2019 is shown

below:
Assets: Liabilities and Equity:

Marketable
Securities 600,000 Bonds Payable 1,000,000
Inventory 1,000,000
Land 300,000 Common Stock 100,000
Building (net) 1,500,000 Addition Paid-in Capital 1,400,000
Equipment 800,000 Retained Earnings 1,850,000
₱4,600,00 ₱4,600,00
Total Assets 0 Total Liabilities and Equity 0
Fair value for all accounts have been measured as of December 31, 2019 as follows:
Assets: Liabilities and Equity:

Marketable
Inventory 1,100,000
Land 420,000 Common Stock 100,000
Building (net) 1,800,000 Addition Paid-in Capital 1,400,000
Equipment 1,400,000 Retained Earnings 1,850,000
₱5,780,00 ₱5,780,00
Total Assets 0 Total Liabilities and Equity 0
On December 31, 2019, Jenessa Jao acquired 75% of PGTG Company issuing share
capital of 100,000 shares with par value and market value of ₱25 and ₱30 per share,
respectively. How much should be recognized as non-controlling interest as a result
of the combination?
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Let’s Analyze
With reference to the problem above, how much should be recognized as non-
controlling interest if Jenessa Jao issued 100,000 shares with par value and market
value of ₱20 and ₱24 per share, respectively.
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In a Nutshell
On the day of acquisition, Glimada Company and GTG Company had the following
assets and liabilities:
Glimada
Company GTG Company
Book Fair Book Fair
Value Value Value Value
Current
Assets 280,000 280,000 20,000 20,000
Plant Assets
(net) 440,000 680,000 260,000 360,000
Liabilities (200,000) (200,000) (100,000) (100,000)
Net Assets 520,000 760,000 180,000 280,000
Glimada Company paid 280,000 in cash for 80% of the outstanding stock of GTG
Company. At what amount should the non-controlling interest be recorded?
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Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Goodwill Non-controlling Interest Gain on Bargain Purchase

Residual Interest Controlling Interest Allocate
Excess
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Big Picture in Focus: ULOc. Account contingent consideration on

the date of acquisition and subsequent increase or decrease of its
amount, whether cash contingency or stock contingency.
Metalanguage
Contingent Consideration - is the amount of consideration to be paid by an

acquirer to the acquiree in a business combination which is dependent
on some future event such as financial performance of the acquiree. It
is recognized as either as an equity or a liability
Essential Knowledge
Contingent Consideration
Under PFRS 3, contingent consideration is defined as “usually, an obligation of the

acquirer to transfer additional assets or equity interests to the former owners of an
acquiree as part of the exchange for control of the acquiree if specified future events
occur or considerations are met”. Examples of future events or considerations may be
in the form of projected or target earnings, price per share or any consideration as
stipulated by the parties involved.
Under PAS 32 (Financial Instruments), the acquirer shall classify an obligation to pay
contingent consideration as a liability or as equity on the basis of the definitions of an
equity instrument and a financial liability. For example, if the consideration is in the
form of cash payable, it shall be classified as a financial liability.
If the contingent consideration requires issuance of additional equity instrument, it
shall be classified as an equity instrument.
Illustration
Let us assume that the company to be acquired by GTG Corporation has the following
Statement of Financial position on June 30, 2019
Jenessa Jao Corporation

June 30, 2019
Marketable
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Common Stock (P1

Inventory 1,000,000 par) 100,000
Additional paid-in
Land 300,000 capital 1,400,000
Building (net) 1,500,000 Retained Earnings 1,850,000
Equipment (net) 800,000
₱4,600,00 Total Liabilites & ₱4,600,00

Total Assets 0 Equity 0
Fair values for all accounts have been measured as of June 30, 2019 as follows:
₱400,000
1,100,00
Inventory 0
Land 720,000
1,800,00
Building 0
1,400,00
Equipment 0
Unrecognized ₱6,530,00
receivables 450,000 0

1,000,00
Bonds payable 0
Premium on bonds
payable 40,000 1,290,000
Fair value of net identifiable ₱5,240,00

assets 0
Using the data above, assume the Jenessa Jao Corporation issued 160,000 shares
with a market value of 6,400.000. In addition, the latter agreed to pay an additional
₱400,000 on July 1, 2021 if the average income for the 2-year period ending June 30,
2021 exceeds ₱320,000. It is estimated that the value of the contingent consideration
to be ₱200,000 based on the 50% probability of achieving the target average income.
How much goodwill should recognized due to the business combination?
Solution:
Total consideration paid/payable

₱6,400,00
Stock issued at market value 0
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Estimated value of contingent ₱6,600,00

consideration 200,000 0
Fair value of net assets acquired from PGTG
Company 5,240,000
Goodwil ₱1,360,00
l 0
Below is the journal entry to record the acquisition of net assets:

Cash ₱400,000
Inventory 1,100,000
Land 720,000
Building 1,800,000
Equipment 1,400,000
Receivables - trade 450,000
Goodwill 1,360,000
1,000,00
Bonds payable 0
Premium on bonds payable 40,000
Contingent consideration
payable 200,000
Common Stock* 160,000
6,240,00
Additional paid in capital** 0
*Common Stock: 160,000 shares issued x ₱1 par value

**Additional paid in capital: Excess of market value over par value of the shares issued
Changes in Contingent Consideration

Changes that resulted from obtaining additional information about facts and
circumstances that may affect the estimated contingent consideration (may be a
maximum of one year, as the case may be) are recognized as adjustments against
the original accounting for the acquisition. Mostly, affected accounts are the
accounted excess during the combination, which may be goodwill or gain from
acquisition.
Let’s say for example, within the measurement period, based on additional
information, the contingent consideration was revalued to ₱320,000. An adjustment
should be made which affects the estimated liability and goodwill recorded at the date
of acquisition.
Goodwill ₱120,000
₱120,00
Contingent consideration payable 0
371
Matina, Davao City
Phone No.: (082)305-0645 Local 137
As a result of the adjusting entry above, the goodwill and liability recorded will increase
by ₱120,000.
However, if the estimate is revised after the measurement period (may be a maximum
of one year, as the case may be), the adjustment will be included as part of profit or
loss. Hence, not affecting the goodwill or gain from acquisition originally recorded at
the date of acquisition.
For example, the estimate is revised to ₱400,000 with reference to the example
above. The journal entry is as follows:
Loss on contingent consideration payable ₱80,000

₱80,00
Contingent consideration payable 0

Let’s Check
1. Which of the following is included as part of the consideration given?
a. Contingent considerations
b. All expenses and liabilities relating to the acquisition
c. Direct and indirect acquisition costs attributable to the acquisition
d. Indirect costs and contingent consideration
2. An obligation of the acquirer to transfer additional assets or equity interests to

the former owners of an acquire as part of the exchange for control of the letter
if specified conditions are met:
a. Goodwill
b. Gain from acquisition
c. Acquisition expense
d. Contingent liability
Let’s Analyze
JJ Company acquired the net assets of GTG Company on January 1, 2019. Below
are the account balances of GTG Company as of January 1, 2019:
Current assets ₱400,000

Equipment 600,000
381
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Land 200,000
Building 1,200,000
Liabilities (320,000)
₱2,080,00
Net assets 0
JJ Company paid 2.4 million for the net assets of GTG Company. In addition, additional
cash payment would be made on January 1, 2021 if the average earnings of GTG
Company exceed 100,000 per year. Net income was 200,000 in 2019 and 240,000 in
2020. Assume that the liabilities recorded on January 1, 2019 include an estimated
contingent liability recorded at ₱160,000.
On December 21, 2019, it was noted that GTG Company may generate revenue more
than what is expected, hence, the estimated contingent liability was increased to
₱200,000.
How much goodwill should be recorded as of December 31, 2019?
In a Nutshell
How will the changes estimate of contingent consideration affect the goodwill (gain
from acquisition) recorded considering the measurement period as discussed
above?
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391
Matina, Davao City
Phone No.: (082)305-0645 Local 137
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401
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Contingent Consideration Equity Liability

Future Conditions Equity Instrument
Financial Liability Cash Payable
411
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Big Picture in Focus: ULOd. Compute the changes in value of

identifiable assets during the measurement period and preparation
of financial statements after business combination.
Metalanguage
Essential Knowledge
Provisional Value of Net Assets

Values assigned to the net assets which is basically based on fair value are considered
as provisional value if not deemed final. The same concept with the changes in
contingent consideration, measurement period ends when the improved information
which is highly relevant to the acquisition and value of the net assets are available. In
no case can the measurement period be more than 1 year from the date of acquisition.
Example:
On August 1, 2016, JPJ Company acquired the net assets of PGTG Company for a
price of ₱32 million. At the acquisition date, the carrying value and provisional fair
value of PGTG’s net assets were ₱20 million and ₱24 million, respectively. An
additional valuation received on June 30, 2017 increased the provisional value to ₱27
million and on August 31, 2017, this fair value was finalized at ₱28 million.
What amount should JPJ Company present as goodwill in its statement of financial
position at December 31, 2017?
Solution:
August 1, 2016
₱32,000,00
Consideration paid 0
Provisional value 24,000,000
Goodwill ₱8,000,000
June 30, 2017

₱32,000,00
Consideration paid 0
Provisional value 27,000,000
Goodwill ₱5,000,000
421
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Based on the solution above, the goodwill decreased by 3 million due to the
revaluation of net assets.
Analysis:
At the date of acquisition, goodwill to be recognized amounted to ₱8 million which is

based on the difference between the consideration paid and the provisional value.
However, on June 30, 2017, it was determined that the value of the net assets
amounted to ₱27 million. Hence, an adjustment should be made to properly record the
transaction and the movement of the goodwill account.
Let’s say below is the journal entry made at the date of acquisition
Net Assets ₱24,000,000

Goodwill 8,000,000
₱32,000,00
Cash 0
Below is the adjusting entry to be made on the revaluation of the net asset:
Net Assets ₱3,000,000

₱3,000,00
Goodwill 0
431
Matina, Davao City
Phone No.: (082)305-0645 Local 137

Let’s Check
On July 1, 2011, JPJ Company acquired 100% of the PGTG Company for a
consideration transferred of P160 million. At the acquisition date the carrying amount
of PGTG’s assets was P100 million. At the acquisition date, a provisional fair value of
P120 million was attributed to the net assets. An additional valuation received on May
31, 2012 increase this provisional fair value to P135 million and on July 30, 2012, the
fair value was finalized at 140 million. What amount should JPJ present for goodwill in
its statement of financial position on December 31, 2012, according the PFRS 3?
Let’s Analyze
Chik Company is acquiring the net assets of Team Company for an agreed-upon price
of ₱900,000 on July 1, 2017. The value was tentatively assigned as follows:
Current assets ₱100,000
Land 50,000
Equipment (5-year life) 200,000
Building (20-year life) 500,000
Current liabilities (150,000)
Goodwill 200,000
Values were subject to change during the measurement period. The measurement
period expired on July 1, 2018, at which time the fair values of the equipment and
building as of the acquisition date were revised to ₱180,000 and ₱550,000,
respectively.
441
Matina, Davao City
Phone No.: (082)305-0645 Local 137
How much total depreciation expense should be recorded in 2017 and 2018?
In a Nutshell
How will the changes in provisional value affect the assets and liabilities of the acquirer
or new entity considering the measurement period as discussed above?
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451
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Provisional Value Measurement Period Goodwill
461
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Big Picture A: Let’s Check Activities BB’s assignment feature
Big Picture A: Let’s Analyze Activities BB’s assignment feature
Big Picture A: In a Nutshell Activities BB’s forum feature
Big Picture A: Q&A List BB’s discussion feature
Big Picture B, C: Let’s Check Activities BB’s assignment feature
Big Picture B, C: Let’s Analyze Activities BB’s assignment feature
Big Picture B, C: In a Nutshell Activities BB’s forum feature
Big Picture B, C: Q&A List BB’s discussion feature
Big Picture D: Let’s Check Activities BB’s assignment feature
Big Picture D: Let’s Analyze Activities BB’s assignment feature
Big Picture D: In a Nutshell Activities BB’s forum feature
Big Picture D: Q&A List BB’s discussion feature

Second Exam Apr 15 BB’s quiz feature
471
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Big Picture
expected to
a. Journalize transactions working paper elimination entries

b. Determine account balances for investment in subsidiary, consolidated net income,
consolidated net income attributable to parent, non-controlling interest in net income
of subsidiary and non-controlling interest
c. Prepare financial statements at the date of business combination
d. Prepare financial statements subsequent to date of business combination
e. Journalize intercompany sale transactions
f. Determine account balances for unrealized profit in ending inventory (UPEI) and
realized profit in beginning inventory (RPBI), consolidated net income, consolidated
net income attributable to parent and non-controlling interest in net income of
subsidiary
g. Journalize intercompany sale of plant assets
h. Determine account balances for Unrealized gain/loss, realized gain/loss,
depreciation, accumulated depreciation, Consolidated Net Income, Consolidated net
income attributable to parent and Non-controlling interest in net income of subsidiary

a. Journalize transactions working paper elimination entries
b. Determine account balances for investment in subsidiary,
consolidated net income, consolidated net income attributable to
parent, non-controlling interest in net income of subsidiary and
non-controlling interest
c. Prepare financial statements at the date of business
combination
Metalanguage
481
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Essential Knowledge
Under Appendix A of PFRS 10, consolidated financial statements are defined as “the
financial statements of a group in which the assets, liabilities, equity, expenses and cash flows
of the parent and its subsidiaries are presented as those of a single economic unit”.
PROCEDURES FOR PREPARING CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements of the parent and its subsidiaries are combined on a line by line
basis by adding together like items of assets, liabilities, equity, income and expenses.
2. Intragroup balances, transactions, income and expenses shall be eliminated in full.
3. The financial statements of the parent and its subsidiaries used in the preparation of
consolidated financial statements shall be prepared as of the same reporting date.
4. When the reporting dates of the parent and a subsidiary are different, the subsidiary shall
prepare for consolidation purposes additional financial statements as of the parent unless
it is impracticable to do so. In any case, the difference between reporting dates shall be
no more than three months.
5. Consolidated financial statements shall be prepared using uniform accounting policies for
like transactions and other events in similar circumstances.
PRESENTATION OF NONCONTROLLING INTERESTS IN THE CONSOLIDATED

STATEMENT OF FINANCIAL POSITION
● PFRS 10, paragraph 22, provides that controlling interests shall be presented in the
consolidated statement of financial position within equity, separately from the equity
of the owners of the parent.
● Profit or loss and each component of other comprehensive income shall be attributed
to the owners of the parent and to the noncontrolling interests.
● Total comprehensive income is also attributed to the owners of the parent and to the
noncontrolling interests even if this results in the noncontrolling interests having a
deficit balance.
● If a subsidiary has outstanding cumulative preference shares that are classified as
equity and are held by noncontrolling interest and classified as equity, the parent
computes its share of profits or losses after adjusting for the subsidiary’s preference
dividends, whether dividends have been declared.
ILLUSTRATIVE PROBLEM 1 (Wholly Owned Subsidiary—100%)
Parent Company acquires 100% of Subsidiary Company’s common stock for P110,000 in
cash on December 1, 2020. The net asset of Subsidiary Company is as follows:
Common Stock P50,000
Share Premium 30,000
Retained Earnings 20,000
Net Asset/Equity P100,000
491
Matina, Davao City
Phone No.: (082)305-0645 Local 137
The entry to record the acquisition of stock on its books is:
Investment in Subsidiary Company 110,000

Cash 110,000
The computation for goodwill is as follows:
Consideration 110,000
Net Asset 100,000
Goodwill 10,000
Working Paper Elimination Entries
Common stock-Subsidiary Co. 50,000

Share premium- Subsidiary Co. 30,000
Retained earnings- Subsidiary Co. 20,000
Goodwill 10,000
Investment in Subsidiary Co. 110,000
Consolidation Working Paper
Eliminations
Parent Subsidiary Consolidated
Debit Credit
Cash 120,000 0 120,000
Accounts Rec. 40,000 32,000 72,000
Inventory 50,000 20,000 70,000
PPE 180,000 158,000 338,000
Goodwill 10,000 10,000
Investment in
110,000 110,000
Subsidiary
Total Assets 500,000 210,000 610,000
Accounts Pay. 280,000 110,000 390,000

Common stock
Parent 100,000 100,000
Subsidiary 50,000 50,000
Share premium
Parent 80,000 80,000
Retained earnings
Parent 40,000 40,000
Total L & Equity 500,000 210,000 610,000
501
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Conclusion:
1. Investment in Subsidiary Account is eliminated.
2. The equity portion of Subsidiary is eliminated.
3. Goodwill is recorded.
4. Other assets and liabilities of Subsidiary are combined/consolidated with Parent.
5. Only Parent’s equity portion are extended to the consolidated column.
ILLUSTRATIVE PROBLEM 2 (Partially Owned Subsidiary—80%)
Parent Company issued 16,000 shares of its P10 par value common stock for 80% of the
outstanding shares of Subsidiary company. The fair value of Parent’s stock is P50 and the
fair value of 20% non-controlling interest is P170,000. Parent also paid P50,000 professional
fees to accomplish the acquisition.
The entry to record the transactions above are:
Investment in Subsidiary Company 800,000

Common stock 160,000
Share premium 640,000
Retained earnings- Parent (Acquisition

50,000
Expense)
Cash 50,000
The computation for goodwill is as follows:
Consideration 800,000
Non-controlling interest (fair value) 170,000
Total 970,000
Less: Fair value of net assets acquired (refer to
620,000
the subsidiary financial statement below)
Goodwill 350,000
Subsidiary Company
December 2020
Book value Fair value

Accounts receivable 40,000 40,000
Inventory 100,000 110,000
Land 80,000 130,000
Buildings 300,000 500,000
Equipment 80,000 120,000
Total Assets 600,000 900,000
Accounts payable 80,000 80,000

Bonds payable 200,000 200,000
511
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Total Liabilities 280,000 280,000
Common stock, P1 par 20,000

Share premium 180,000
Retained earnings 120,000
Total Equity/Net Asset 320,000 620,000
ALLOCATION SCHEDULE
Parent
Fair value NCI (20%)
(80%)
Fair value of subsidiary 970,000 800,000 ***170,000
Less: Book value of interest acquired 320,000 *256,000 **64,000
Excess 650,000 544,000 106,000
Less: Adjustments to fair value
Inventory (110,000-100,000) (10,000)
Land (130,000-80,000) (50,000)
Buildings (200,000)
Equipment (40,000)
Goodwill 350,000
*320,000 times 80%

**320,000 times 20%
***This is the value of NCI.
Working Paper Elimination Entries
To eliminate Subsidiary equity against investment account and NCI:

Common stock-Subsidiary Co. 20,000
Share premium- Subsidiary Co. 180,000
Retained earnings- Subsidiary Co. 120,000
NCI 64,000
To allocate the excess by adjusting the net assets to its fair values:
Inventory 10,000
Land 50,000
Buildings 200,000
Equipment 40,000
Goodwill 350,000
NCI 106,000
521
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Consolidation Working Paper
Eliminations
Parent Subsidiary Consolidated
Debit Credit
Cash 168,000 0 168,000
Accounts Rec. 144,000 40,000 184,000
Inventory 160,000 100,000 10,000 270,000
Land 200,000 80,000 50,000 330,000
Building 840,000 300,000 200,000 1,340,000
Equipment 400,000 80,000 40,000 520,000
Investment in 256,000
800,000 0
Subsidiary 544,000
Goodwill 350,000 350,000
Total Assets 2,712,000 600,000 3,162,000
Accounts Pay. 160,000 80,000 240,000

Bonds payable 400,000 200,000 600,000
Common stock
Parent 560,000 560,000
Share premium
Parent 1,140,000 1,140,000
Subsidiary 180,000 180,000
Retained earnings
Parent 452,000 452,000
Subsidiary 120,000 120,000
NCI 64,000
170,000
106,000
Total L & Equity 2,712,000 600,000 3,162,000

531
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Let’s Check
PARPAN Company acquires 100% of SOMBILON Company’s common stock for P165,000 in
cash on December 1, 2020. The net asset of SOMBILON Company is as follows:
Common Stock P75,000
Share Premium 45,000
Net Asset/Equity P150,000
CONDENSED FINANCIAL STATEMENT
Parent Subsidiary
Cash 180,00
0
0
Accounts Rec. 60,000 48,000
Inventory 75,000 30,000
PPE 270,00
237,000
0
Goodwill
Investment in Subsidiary 165,00
0
Total Assets 750,00
315,000
0
Accounts Pay. 420,00

165,000
0
Common stock
Parent 150,00
0
Subsidiary 75,000
Share premium
Parent 120,00
0
Subsidiary 45,000
Retained earnings
Parent 60,000
Subsidiary 30,000
Total L & Equity 750,00
315,000
0
541
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Prepare the following:

1. Entry to record the acquisition.
2. Working paper elimination entries
3. Consolidated working paper
Let’s Analyze
The balance sheets of Palisade Company and Salisbury Corporation were as follows on
December 31, 2010:
Palisade Salisbury
Current Assets P260,000 P120,000
551
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Equipment-net 440,000 480,000

Buildings-net 600,000 200,000
Land 100,000 200,000
Total Assets P1,400,000 P1,000,000
Current Liabilities 100,000 120,000

Common Stock, P5 par 1,000,000 400,000
Additional paid-in Capital 100,000 280,000
Retained Earnings 200,000 200,000
Total Liabilities and
Stockholders' equity P1,400,000 P1,000,000
On January 1, 2011 Palisade issued 30,000 of its shares with a market value of P40 per
share in exchange for all of Salisbury's shares, and Salisbury was dissolved. Palisade paid
P20,000 to register and issue the new common shares. It cost Palisade P50,000 in direct
combination costs. Book values equal market values except that Salisbury's land is worth
P250,000.
Required:
Prepare a Palisade balance sheet after the business combination on January 1, 2011.
In a Nutshell
Using the statement of financial position that appear in “Let’s Analyze”, assume that only 80
percent of the outstanding stock of Salisbury was acquired.
Required: Prepare allocation schedule assuming that the NCI is measured at fair value of
P480,000.
561
Matina, Davao City
Phone No.: (082)305-0645 Local 137
571
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Elimination entries Allocation schedule
581
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Big Picture in Focus: ULOd. Prepare financial statements

subsequent to date of business combination
Metalanguage
Essential Knowledge
CONSOLIDATION: WHOLLY OWNED SUBSIDIARY
First Year
On January 1, 2019, P Corporation acquires all the common stock of S Company for
P300,000. At that time, S Company has P200,000 of common stock outstanding and
retained earnings of P100,000.
Analysis:
Price paid P300,000

Less: book value of stock acquired
Common stock P200,000
Retained earnings 100,000 300,000
Excess 0
On December 31, 2019, S Company reported the following results of its operations:
Net income P50,000
Dividends paid 30,000
JOURNAL ENTRY ON THE FIRST YEAR (PARENT’S BOOKS)
Investment in S Company 300,000

Cash 300,000
Cash 30,000
Dividend income 30,000
WORKING PAPER ELIMINATION ENTRIES
591
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Dividends declared- S Company 30,000
Common stock- S Company 200,000

Retained earnings- S Company 100,000
WORKING PAPER FOR CONSOLIDATED FINANCIAL STATEMENTS
Elimination Conso-
P Corp. S Corp.
Debit Credit lidated
Statement of CI
Sales 400,000 200,000 600,000
Dividend income 30,000 30,000 0
Total revenue 430,000 200,000 600,000
Cost of goods sold 170,000 115,000 285,000

Operating exp. 50,000 20,000 70,000
Other expenses 40,000 15,000 55,000
Total expenses 260,000 150,000 410,000
Comprehensive Inc. 170,000 50,000 190,000
Statement of RE
R.E., beginning 300,000 100,000 100,000 300,000
Total 470,000 150,000 490,000
Dividends declared 60,000 30,000 30,000 60,000

R.E., ending 410,000 120,000 430,000
Balance sheet
Cash 210,000 75,000 285,000
Accounts receivable 75,000 50,000 125,000
Inventory 100,000 75,000 175,000
PPE 525,000 320,000 845,000
Investment in S Co. 300,000 300,000
Total asset 1,210,000 520,000 1,430,000
Accounts payable 100,000 100,000 200,000

Bonds payable 200,000 100,000 300,000
Common stock 500,000 200,000 200,000 500,000
RE, ending 410,000 120,000 430,000
Total L&E 1,210,000 520,000 1,430,000
601
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Consolidated CI
P Company CI 170,000
S Company CI 50,000
Dividend Income (30,000)
Consolidated CI 190,000
Consolidated RE
R.E of P Company, ending 410,000
Add: P’s share of net increase in S’ retained
20,000
earnings (50,000-30,000) *100%
Consolidated Retained Earnings 430,000
SECOND YEAR
On December 31, 2020, Sake Company reports net income of P75,000 and pays
dividends of P40,000.
JOURNAL ENTRY ON THE SECOND YEAR (PARENT’S BOOKS)
Cash 40,000

Dividends declared- S Company 40,000
Common stock- S Company 200,000

Retained earnings- S Company 100,000
Elimination Conso-
P Corp. S Corp.
Statement of CI
Sales 450,000 300,000 750,000
Dividend income 40,000 40,000
Total revenue 490,000 300,000 750,000
611
Matina, Davao City
Phone No.: (082)305-0645 Local 137

Operating exp. 50,000 20,000 70,000
Other expenses 60,000 45,000 105,000
Total expenses 290,000 225,000 515,000
Statement of RE
R.E., beginning 430,000 120,000 100,000 450,000
Total 630,000 195,000 685,000

R.E., ending 570,000 155,000 625,000
Balance sheet
Cash 265,000 85,000 350,000
Inventory 180,000 90,000 270,000
PPE 475,000 300,000 775,000
Total asset 1,370,000 555,555 1,625,000

Bonds payable 200,000 100,000 300,000
Common stock 500,000 200,000 200,000 500,000
RE, ending 570,000 155,000 625,000
Total L&E 1,370,000 555,000 1,625,000
CONSOLIDATION: PARTIALLY OWNED SUBSIDIARY
On January 2, 2013, Pete Corporation purchases 80% of the common stock of Sake
Company for P300,000. Assume that the inventory is understated by P5,000 and the
property and equipment is understated by P60,000. The following allocations
schedule was prepared on the date of acquisition:
FIRST YEAR
Total Parent (80%) NCI (20%)

Fair value of subsidiary P375,000 P300,000 P75,000
Less: Book value of interest acquired
Common Stock- Subsidiary 200,000
Retained Earnings- Subsidiary 100,000
621
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Total 300,000
Book value share 240,000 60,000
Excess 75,000 60,000 15,000
Allocation
Inventory (5,000)
Property and equipment (60,000)
Goodwill P10,000
All of the inventory on January 2, 2013 to which the difference relates are sold during
2013. The property and equipment have a remaining life of 10 years. For the first year
after the date of acquisition, Sake Company reported comprehensive income of
P50,000 and dividends paid of P30,000.
Parent Company Entries
Investment in Sake Com. 300,000

Cash 300,000
Cash 24,000
Dividend Income 24,000
Amortization of Allocated Excess
Amortization
Allocated Excess
2013 2014 onwards
Inventory P5,000 P5,000 P -
Property and equipment 60,000 6,000 6,000
Goodwill 10,000 - -
Total P75,000 P11,000 P6,000

NCI 6,000
Dividends declared- Sake 30,000
Common Stock- Sake 200,000

Retained earnings- Sake 100,000
NCI 60,000
Inventory 5,000
Property and equipment 60,000
Goodwill 10,000
Investment in Sake Company 60,000
NCI 15,000
631
Matina, Davao City
Phone No.: (082)305-0645 Local 137
COGS 5,000
Operating expense 6,000
Inventory 5,000
NCI in CI of Subsidiary 7,800

NCI 7,800
CI of Subsidiary P50,000
COGS (5,000)
Operating expense (6,000)
Adjusted in CI of Subsidiary P39,000
NCI share (P39,000 x 20%) P7,800
641
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Elimination Conso-
P Corp. S Corp.
Statement of CI
Sales 400,000 200,000 600,000
Total revenue 424,000 200,000 600,000
Cost of goods sold 170,000 115,000 5,000 290,000

Operating exp. 50,000 20,000 6,000 76,800
Other expenses 40,000 15,000 55,000
Total expenses 260,000 150,000 421,000

NCI in CI of Sake 7,800 (7,800)
CI to RE 164,000 50,000 171,200
Statement of RE
R.E., beginning 300,000 100,000 100,000 300,000
Total 464,000 150,000 471,200

R.E., ending 404,000 120,000 411,200
Balance sheet
Cash 204,000 75,000 279,000
Inventory 100,000 75,000 5,000 5,000 175,000
PPE 525,000 320,000 60,000 6,000 899,000
Goodwill 10,000 10,000
Total asset 1,204,000 520,000 1,625,000

Bonds payable 200,000 100,000 300,000
Common stock 500,000 200,000 200,000 500,000
RE, ending 404,000 120,000 411,200
NCI 6,000 82,800 76,800
Total L&E 1,204,000 520,000 1,625,000
SECOND YEAR
During the second year, Sake Company declared comprehensive income of P75,000
and dividends of P40,000.
Parent Company Entries
651
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Cash 32,000
Dividend Income 32,000

NCI 8,000
Dividends declared- Sake 40,000
Common Stock- Sake 200,000

Retained earnings- Sake 100,000
NCI 60,000
Inventory 5,000
Goodwill 10,000
Investment in Sake Company 60,000
NCI 15,000
Retained Earnings- Sake Jan 1 1,800

NCI 1,800
(To assign to the NCI their share of the
increase in the subsidiary’s adjusted
undistributed earnings)
Computation:
R.E Jan 2014 P120,000
R.E Jan 2013 100,000
Increase in Retained earnings 20,000
Amortization of allocated excess (11,000)
Adjusted undistributed earnings P9,000
Share of NCI (P9,000 x 20%) P1,800

Operating expense 6,000
Inventory 5,000
NCI in CI of Subsidiary 13,800

NCI 13,800
(P75,000- P6,000) x 20%
P Corp. S Corp. Elimination
661
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Conso-
Debit Credit
lidated
Statement of CI
Sales 450,000 300,000 750,000
Total revenue 482,000 300,000 750,000

Operating exp. 50,000 20,000 6,000 76,000
Other expenses 60,000 45,000 105,000
Total expenses 290,000 225,000 521,000

NCI in CI of Sake 13,800 (13,800)
CI to RE 192,000 75,000 215,200
Statement of RE
R.E., beginning 404,000 120,000 112,800 411,200
Total 596,000 195,000 626,400

R.E., ending 536,000 155,000 566,400
Balance sheet
Cash 231,000 85,000 316,000
Inventory 180,000 90,000 5,000 5,000 270,000
PPE 475,000 300,000 60,000 12,000 823,000
Goodwill 10,000 10,000
Total asset 1,336,000 555,000 1,649,000

Bonds payable 200,000 100,000 300,000
Common stock 500,000 200,000 200,000 500,000
RE, ending 536,000 155,000 566,400
NCI 8,000 90,600 82,600
Total L&E 1,204,000 520,000 1,649,000

671
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Let’s Check
On January 1, 2019, P Corporation acquires all the common stock of S Company for
P300,000. At that time, S Company has P200,000 of common stock outstanding and retained
earnings of P100,000.
On December 31, 2019, S Company reported the following results of its operations:
Net income P50,000
Dividends paid 30,000
Required:
1. Prepare journal entries to record the transactions.
2. Prepare working paper elimination entries.
3. Prepare working paper for consolidated financial statements.
Let’s Analyze
On January 2, 2020, Popol corporation purchase 80% of Seed Company’s common stock for
P216,000. P10,000 of the excess is attributed to goodwill and the balance to a depreciable
asset with an economic life of 10 years. On the date of acquisition, Seed reported common
stock outstanding of P80,000 and retained earnings of P140,000, and Popol reported
common stock outstanding of P350,000 and retained earnings of P520,000.
On December 31, 2020, Seed reported a comprehensive income of P35,000 and paid
dividends of P15,000. Popol reported CI from separate operations of P95,000 and paid
dividends of P46,000. Goodwill had been impaired and should be reported at P2,000 on
December 31, 2013.
1. What is the consolidated CI on December 2020?

2. What is the consolidated retained earnings on December 2020?
3. How much is the NCI on CI of the subsidiary on December 2020?
4. What is the balance of NCI on December 31, 2013?
5. What is the consolidated CI attributable to parent on December 31, 2013?
681
Matina, Davao City
Phone No.: (082)305-0645 Local 137
In a Nutshell
On January 2, 2012, D Corporation purchased 80% of the outstanding shares of C Company
for P4,750,000. At that date, C had P4,000,000 of ordinary shares outstanding and retained
earnings of P1,600,000.
● C’s equipment with a remaining life of 5 years had a book value of P2,250,000 and a
fair value of P2,630,000. C’s remaining assets had book values equal to their fair
values.
● All intangibles except goodwill are expected to have remaining lives of 8 years.
● The income and dividend figures for both D and C are as follows: Net income of D in
2012 is P900,000; 2013 is P1,100,000. Net income of C in 2012 is P340,000; 2013 is
P510,000.
● Dividends of D in 2012 is P220,000; 2013 is P390,000. Dividends of C in 2012 is
P70,000; 2013 is P130,000.
● D’s retained earnings balance at the date of acquisition was P3,450,000.
Questions:
1. How much is the consolidated retained earnings attributable to controlling interest in
2013?
2. How much is the consolidated profit in 2013?
3. How much is the non-controlling interest in net assets in 2013?
691
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Consolidated financial statement Elimination entries
701
Matina, Davao City
Phone No.: (082)305-0645 Local 137

e. Journalize intercompany sale transactions
f. Determine account balances for unrealized profit in ending
inventory (UPEI) and realized profit in beginning inventory (RPBI),
consolidated net income, consolidated net income attributable to
parent and non-controlling interest in net income of subsidiary
Metalanguage
Essential Knowledge
INTERCOMPANY INVENTORY / MERCHANDISE TRANSACTIONS
It is common for affiliated companies to sell inventory/merchandise to one another. Often this
inventory/merchandise is sold at a profit. The total amount of this intercompany sale and
cost of goods sold should be eliminated prior to preparing consolidated financial statements.
In addition, the intercompany profit must be eliminated from the ending inventory and the
cost of goods sold of the purchasing affiliate. The profit to be eliminated is based upon the
gross profit (markup on selling price) recognized by the selling affiliate. 100% of the profit
should be eliminated even if the parent's ownership interest is less than 100%. The
intercompany profit in beginning inventory that was recognized by the selling affiliate in the
previous year must be eliminated by an adjustment (debit) to retained earnings.
WORKPAPER ELIMINATION ENTRY FOR INTERCOMPANY MERCHANDISE

TRANSACTIONS
Intercompany sales XX
Retained earnings (profit in beginning inventory) XX
Intercompany cost of goods sold XX
Cost of goods sold (intercompany profit included
XX
in cost of goods sold of the purchasing affiliate)
Ending inventory (intercompany profit in the
XX
inventory remaining)
711
Matina, Davao City
Phone No.: (082)305-0645 Local 137
ILLUSTRATION
Potato Company owns 80% of the common stock of Soup Company. Potato sells
merchandise to Soup at 10% above its cost. Such sales amounted to P1,100,000 during
Year 1. The Year 1 ending inventory of Soup included goods purchased from Potato for
P660,000. Potato reported P1,586,000 in net income from its independent operations in
Year 1. Soup reported net income of P855,000 in Year 1 and did not declare dividends.
There were no intercompany sales prior to Year 1.
WORKING PAPER ELIMINATION ENTRY
Intercompany sales – P 1,100,000

Intercompany cost of goods sold – P *1,000,000
Cost of goods sold – S **40,000
Inventory – S ***60,000
*COGS=1,100,000/ 100%
** Purchases 1,100,000
Ending inventory 660,000
Cost of goods sold 440,000
Divide by: 110%
Cost of goods sold without profit 400,000
Multiply by: 10%
Intercompany profit in Soup's cost of goods
40,000
sold
*** Ending inventory 660,000

Divide by: 110%
Cost of goods sold without profit 600,000
Multiply by: 10%
Intercompany profit in Soup's
60,000
cost of goods sold
721
Matina, Davao City
Phone No.: (082)305-0645 Local 137

Let’s Check
Papa Corporation owns 75% of the outstanding stock of San Company, acquired at book
value during 2018. Selected information from the accounts of Papa and San for 2020 are as
follows:
Papa San
Sales 900,000 500,000
Cost of goods sold 490,000 190,000
During 2020, Papa sold merchandise to San for P50,000 at a gross profit of P20,000. Half of
this merchandise remained in San’s inventory at December 31, 2020. San’s December 31,
2019 inventory included unrealized profit of P4,000 on goods acquired from Papa. What is
the consolidated sales and cost of sales for 2020?
Let’s Analyze
Polo Company purchased 60% of Star Company’s voting stocks for P252,000 on January 1,
2017. Star reported a total equity of P400,000 at the time of acquisition. The excess is
allocated to equipment with an expected life of 10 years from acquisition date.
During 2020, Polo purchased inventory for P20,000 and sold the full amount to Star
Company for P30,000. On December 31, 2020, Star’s ending inventory included P6,000 of
items purchased from Polo. Also in 2020, Star purchased inventory for P50,000 and sold the
units to Polo for P80,000. Polo included P20,000 of its purchase from Star in ending
inventory on December 2020.
731
Matina, Davao City
Phone No.: (082)305-0645 Local 137
The comprehensive income of two companies revealed the following:
Polo Star
Sales 400,000 200,000
Dividend income 25,000 0
Total income 425,000 200,000
Cost of goods sold 250,000 120,000

Other expenses 70,000 35,000
Total expenses 320,000 155,000
Comprehensive income 105,000 45,000
1. What is the amount of consolidated sales in 2020?

2. What is the amount of consolidated cost of goods sold for 2020?
In a Nutshell
Using the givens above, compute for the consolidated comprehensive income to be
assigned to parent? To the NCI?
741
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Intercompany sales Intercompany cost of Unrealized profit

goods sold
751
Matina, Davao City
Phone No.: (082)305-0645 Local 137

g. Journalize intercompany sale of plant assets
h. Determine account balnces for Unrealized gain/loss, realized
gain/loss, depreciation, accumulated depreciation, Consolidated
Net Income, Consolidated net income attributable to parent and
Non-controlling interest in net income of subsidiary
Metalanguage
Essential Knowledge
INTERCOMPANY SALE OF LAND
The intercompany gain/loss on the sale of land remains unrealized until the land is sold to an
outsider. A workpaper elimination entry in the period of sale eliminates the intercompany
gain/loss and adjusts the land to its original cost.
ILLUSTRATION
On January 1, Year 1, Parent Company sold land to Subsidiary Company for P200,000. The
initial cost of the land to Parent was P175,000.
To record the sale by Parent on their books

Cash 200,000
Land 175,000
Gain on sale of land 25,000
To record the purchase by Sub on their books

Land 200,000
Cash 200,000
Workpaper Elimination Entry:

Elimination of the intercompany gain and adjustment of land to its original cost
Gain on sale of land 25,000
Land 25,000
In the subsequent year and every year thereafter until the land is sold to a third party,
761
Matina, Davao City
Phone No.: (082)305-0645 Local 137
retained earnings (Parent) would be debited and land would be credited to eliminate the
intercompany profit. Retained earnings is debited in subsequent years since the gain would
have been closed to this account. Since Parent was the seller of the land and Sub was the
purchaser, there is no need to divide the intercompany gain between retained earnings and
minority interest.
INTERCOMPANY PROFIT ON SALE OF DEPRECIABLE FIXED ASSETS
The gain or loss on the intercompany sale of a depreciable asset is unrealized from a
consolidated financial statement perspective until the asset is sold to an outsider. A working
paper elimination entry in the period of sale eliminates the intercompany gain/loss and
adjusts the asset and accumulated depreciation to their original balance on the date of sale.
ILLUSTRATION
Sub Company, a partially owned (90%) subsidiary of Parent Company, sold equipment on
Jan.1, 20X1 to Parent for P100,000. The equipment had a net book value of P70,000 (cost
of P90,000 and accumulated depreciation of P20,000), and a remaining life of ten years.
To record the sale by Sub on their books

Cash 100,000
Accu. Depreciation 20,000
Machinery 90,000
Gain on sale of machinery 30,000
To record the purchase by Parent on their books

Machinery 100,000
Cash 100,000
To record depreciation by Parent on their books

Depreciation expense 10,000
Accumulated depreciation 10,000
Workpaper Elimination Entry:

Elimination of intercompany gain and adjustment of the machine and accumulated depreciation
accounts to their original balance.
Gain on sale of machinery 30,000
Machinery 10,000
Workpaper Elimination Entry: Elimination of excess depreciation

(30,000/ 10years)
771
Matina, Davao City
Phone No.: (082)305-0645 Local 137
SUBSEQUENT YEAR WORK PAPER ELIMINATION JOURNAL ENTRY
In the subsequent years the intercompany gain/loss on the sale of the asset and the excess
depreciation have been closed to Retained Earnings. The elimination entries in subsequent
years therefore adjusts Retained Earnings, and if appropriate, Minority Interest for the
original gain or loss less the excess depreciation previously recorded (Unrealized gain/loss
at the beginning of the year). Continuing with the previous example, in Year 2 the workpaper
elimination entries would be:
Journal Entry: Adjust fixed asset

Retained Earnings *24,300
NCI **2,700
Machinery 10,000
Accumulated depreciation ***17,000
Journal Entry: Adjust depreciation

*Original gain - Excess depreciation previously recorded = Unrealized gain

at the beginning of the year. P30,000 - P3,000 = P27,000 x 90% (Parent's
ownership percentage) = P24,300
**P27,000 x 10% (Minority shareholder's ownership percentage) = P2,700
***Original accumulated depreciation difference of P20,000 less excess
depreciation of P3,000 previously recorded.

781
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Let’s Check
Susan Company, a partially owned (90%) subsidiary of Peter Company, sold equipment on
Jan.1, 20X1 to Peter for P200,000. The equipment had a net book value of P140,000 (cost
of P180,000 and accumulated depreciation of P40,000), and a remaining life of ten years.
Required:
1. Prepare journal entry to record the transactions on both Peter and Susan books.
2. Prepare working paper elimination entries.
Let’s Analyze
On January 1, 2020, P Company purchased 80% of the outstanding shares of S Company at
a cost of P700,000. On that date, S Company had P300,000 of capital stock and P500,000
of retained earnings.
For 2020, P Company had CI of P300,000 from its own operations and paid dividends of
P50,000. For 2020, S Company reported CI of P150,000 and paid dividends of P50,000. All
of the assets and liabilities of S Company had a book value approximately equal to fair
values.
On April 1, 2020, S Company sold equipment with a book value of P30,000 to P for P60,000.
The gain on sale is included in the CI of S Company indicated above. The equipment is
expected to have a useful life of 5 years from the date of the sale.
Required: Compute consolidated CI attributable to parent for 2020.
791
Matina, Davao City
Phone No.: (082)305-0645 Local 137
In a Nutshell
On January 1, 2012, P Corporation purchased 80% of S Company’s outstanding stock for
P620,000. At that date, all of S Company’s assets and liabilities had market values
approximately equal to their book values and no goodwill was included in the purchase price.
The following information was available for 2012: Income from own operations of P
Corporation, P150,000; Operating loss of S Company, P20,000. Dividends paid in 2012 by P
Corporation, P75,000; by S Company to P Corporation, P12,000.
On July 1, 2012, there was a downstream sale of equipment at a gain of P25,000. The
equipment is expected to have a remaining useful life of 10 years from the date of sale. Also,
on January 1, 2012, there was an upstream sale of furniture at a loss of P7,500. The
furniture is expected to have a useful life of five years from the date of sale. Non-controlling
interest is measured at fair market value.
Question: How much is the consolidated net income attributable to parent shareholders’
equity?
801
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Plant assets Intercompany Unrealized profit

transactions
811
Matina, Davao City
Phone No.: (082)305-0645 Local 137

Week 6-7
Big Picture A, B, C: Let’s Check Activities BB’s assignment feature
Big Picture A, B, C: Let’s Analyze Activities BB’s assignment feature
Big Picture A, B, C: In a Nutshell Activities BB’s forum feature
Big Picture A, B, C: Q&A List BB’s discussion feature
Big Picture D: Let’s Check Activities BB’s assignment feature
Big Picture D: Let’s Analyze Activities BB’s assignment feature
Big Picture D: In a Nutshell Activities BB’s forum feature
Big Picture D: Q&A List BB’s discussion feature
Big Picture E, F: Let’s Check Activities BB’s assignment feature
Big Picture E, F: Let’s Analyze Activities BB’s assignment feature
Big Picture E, F: In a Nutshell Activities BB’s forum feature
Big Picture E, F: Q&A List BB’s discussion feature
Big Picture G, H: Let’s Check Activities BB’s assignment feature
Big Picture G, H: Let’s Analyze Activities BB’s assignment feature
Big Picture G, H In a Nutshell Activities BB’s forum feature
Big Picture G, H Q&A List BB’s discussion feature

Third Exam Apr. 29 BB’s quiz feature
821
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Big Picture
expected to
a. Prepare statement of affairs and Statement of Deficiency

b. Prepare statement of realization and liquidation

Prepare statement of affairs and Statement of Deficiency
Prepare statement of realization and liquidation
Metalanguage
accounting in government and to demonstrate ULOa, and ULOb will be
operationally defined to establish a common frame of reference as to how the
texts work in these specific topics. You will encounter these terms as we go
through the study of accounting for government. Please proceed to Essential
Language because it contains definitions to help understand the topic.
Essential Knowledge
Insolvency is the inability of an individual or a business to meet its obligations. It

commonly arises because of losses from operations, the inability to collect from
credit customers, or excessive investments in inventories or in plant, property and
equipment.
With insolvency and the possibility of loss to creditors, the group may organize and
assume control and management of the insolvent’s assets in order to protect its
interest. The insolvent’s financial position and the status of its creditors is shown and
analyzed in a Statement of Affairs.
The statement required to be prepared by corporations that face insolvency is the

Statement of Affairs. The assets and liabilities are presented in their order of priority
for liquidation at their estimated realizable values and they are classified in the
following order:
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Matina, Davao City
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Assets
Assets classifications are related to the opposite side of the statement.
1. Assets pledged with fully secured creditors- assets that have been pledged
and that are expected to realize an amount equal to or in excess of the claims
on which they have been pledged.
2. Assets pledged with partially secured creditors- assets that have been
pledged but that are expected to be realized at less than the amount of the
claims on which they have been pledged.
3. Free or unpledged assets- assets that have not been pledged and are not
related to individual liability terms.
Liabilities and Equity in the Statement of Affairs

Liabilities are classified according to their legal priority and secured status and are
followed by capital items. Liability and capital are normally classified in groups and
in the following order:
1. Preferred creditors- claims that, by law, must be provided in full before anything
may be paid to remaining unsecured claims.
2. Fully secured creditors- claims that have been pledged certain assets that are
expected to realize as much as or more than the number of claims.
3. Partially secured creditors- claims that have been pledged certain assets that
are expected to be realized less than the amount of claim.
4. Unsecured creditors- claims that carries no legal priority and on which there is
no asset pledged.
5. Contingent liabilities- any contingent liability which are expected to develop into
an actual liability.
6. Capital- balances summarizing the interests of owners of the business.
A solvent enterprise may prepare a Statement of Affairs to accompany an

application for a loan or a credit line. In such instances, the statement is utilized to
impress prospective creditors with the satisfactory condition of the enterprise and
the absence of risk additional credit is granted. When the Statement of Affairs is
presented as an exhibit for credit purposes, the usual Statement of Financial
Position classifications can be used.
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Matina, Davao City
Phone No.: (082)305-0645 Local 137
Assets may be reported at going concern values rather than at amounts that would
be recovered upon liquidation. Obviously, a Statement of Affairs prepared by a
solvent corporation will show an amount available to unsecured creditors exceeding
the total of unsecured claims. Such excess is reported on the liability and equity
side of the statement bringing the statement into balance.
ILLUSTRATION
The following information is available on October 15, 2019 to Popol Company, which
is having difficulty in paying liabilities as they become due:
Carrying amount
Cash P 4,000
Accounts receivable: Current fair value is equal to carrying
46,000
amount
Inventories: NRV, P18,000. Pledged on P21,000 of note
39,000
payable
Plant assets: Current value, P67,400; pledged on mortgage
134,000
payable
Supplies: Current value, P1,500 2,000
Wages payable 5,800
Property taxes payable 1,200
Accounts payable 60,000
Notes payable, P21,000 secured by inventories 40,000
Mortgage payable including interest of P400 50,400
Common stock 100,000
Deficit 59,400
Laguna Company
Statement of Affairs
October 31, 2019
Book Estimated
Value Assets Realizable Value Free Assets
Assets pledge for fully secured creditors:
P107,000 Plant assets P67,400
Less; Fully secured liabilities _ 50,400 P17,000
Assets pledged for partially secured creditors:
39,000 Inventories P18,000
Free Assets:
4,000 Cash P 4,000
46,000 Accounts, receivable 46,000
2,000 Supplies __1,500 _51,500
851
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Total free assets P68,500

Less: Unsecured liabilities with priority __7,000
Net Free Assets P61,500
Estimated deficiency to unsecured creditors (to balance) _20,500
P198,000 P82,000
Book Creditors' Unsecured

Value Liabilities & Stockholders' Equity Claim Liabilities
Fully secured liabilities:
P50,400 Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 Notes payable P21,000
Less: Inventory _18,000 P 3,000
Unsecured creditors with priority:
5,800 Wages payable P 5,800
1,200 Property taxes payable _1,200
Total P 7,000
Unsecured creditors without priority:
60,000 Accounts payable 60,000
19,000 Notes payable 19,000
Stockholders' Equity _____–
P198,000 P82,000
Creditor Group Amount of Amount to

Percentage
Claim be Paid to be paid
Unsecured liabilities with priority P7,000 P7,000 100.0%
Fully secured creditors 50,400 50,400 100.0%
Partially secured creditors 21,000 20,250 * 96.4%
Unsecured creditors without priority 79,000 59,250 75.0%
* P18,000 + (P3,000 X 0.75) = P20,250
ADDITIONAL CONSIDERATIONS
Trustee Accounting and Reporting
Bankruptcy courts appoint trustees to manage a company reorganization in cases of

management fraud, dishonesty, incompetence, or gross mismanagement. The
trustee will now try to revive the business. The said trustee will liquidate the bankrupt
company and shall pay the creditors based on the legal requirements as to whether
they are secured or unsecured. The trustee shall also temporarily run the company
to obtain a better price for it in entirety rather than selling it piecemeal.
Trustees analyze the verifications of every one of creditors' cases against the
debtor's bankruptcy estate, that is, the debtor's net assets. Some of the time the
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Matina, Davao City
Phone No.: (082)305-0645 Local 137
trustee receives title to all assets as a receivership, gets answerable for the debtor's
genuine administration, and should coordinate an arrangement of reorganization or
liquidation. A trustee who takes title to the debtor's assets in a liquidation must make
an intermittent financial report to the bankruptcy court on the advancement of the
liquidation and on the fiduciary relationship held. After accepting the assets, the
trustee normally builds up a lot of bookkeeping records to represent the receivership.
Statement of Realization and Liquidation
Trustees set up a month to month report, called a statement of realization and

liquidation, for the bankruptcy court. It shows the aftereffects of the trustee's fiduciary
activities starting at the point the trustee acknowledges the debtor's assets. The
statement has three significant areas: assets, supplementary, and liabilities. The
debtor's liabilities are not moved to the trustee; however the trustee may acquire new
liabilities that must be reported in the statement of realization and liquidation.
Assets: The assets section of the statement is partitioned into the four groups
appeared previously. The assets to be realized are those received from the debtor
organization. The assets gained are those subsequently procured by the trustee.
The assets realized are those sold by the trustee; the assets not realized are those
staying under the trustee's duty as of the end of the period. Cash is generally not
reported in the statement of realization and liquidation on the grounds that a different
cash flow report is ordinarily made.
Supplementary Items: The supplementary items section of the report consists of

the two items shown above. Supplementary charges include the trustee’s
administration fees and any cash expenses paid by the trustee. Supplementary
credits may include any unusual revenue items.
Liabilities: Despite the fact that the trustee doesn't record the debtor's liabilities, the
trustee settles a portion of the debtor's payables and may bring about new payables
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Matina, Davao City
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during the receivership. The liabilities section of the statement is partitioned as

appeared previously. The liabilities liquidated are creditors' cases settled during the
period. The liabilities not liquidated are those outstanding toward the end of the
reporting period. The liabilities to be liquidated are those obligations remaining on
the books of the debtor company for whose liquidation the trustee is responsible as
of the date of appointment. At last, the liabilities incurred are new commitments the
trustee incurred.
881
Matina, Davao City
Phone No.: (082)305-0645 Local 137

Let’s Check
Activity. Provide the correct term for the following definitions.
1. The inability of an individual or a business to meet its obligations.

2. Assets that have been pledged and that are expected to realize an amount equal
to or in excess of the claims on which they have been pledged.
3. Assets that have not been pledged and are not related to individual liability terms.
4. Claims that have been pledged certain assets that are expected to realize as
much as or more than the number of claims.
5. Claims that carries no legal priority and on which there is no asset pledged.
Let’s Analyze
The D Corporation, which is undergoing liquidation, has the following condensed

balance sheet as of July 1, 2008:
Assets Liabilities and Shareholders’ Equity
Cash P 396,000 Salaries Payable P120,000

Receivables(net) 924,000 Accounts Payable 300,000
Inventory 231,000 Bonds Payable 270,000
Prepaid Expenses 3,000 Bank Loan Payable 1,200,000
Equipment (net) 900,000 Note Payable 594,000
Goodwill 120,000 Ordinary shares 240,000
Deficit (150,000)
Total P2,574,000 Total P2,574,000
The bank loan payable is secured by the equipment having a book value of
P900,000 and a
realizable value of P1,050,000. Of the accounts payable, P140,000 is secured by
inventory
which has a cost of P120,000 and a liquidation value of P132,000. The balance of
the inventory has a realizable value of P70,000. Receivables with a book value and
realizable value of P624,000 and P600,000 respectively have been pledged as
collateral on the note payable. The balance of the receivable is estimated to be 60%
collectible.
891
Matina, Davao City
Phone No.: (082)305-0645 Local 137
In addition to the recorded liabilities are accrued interest on bank loan payable
amounting to P30,000, accrued interest on the bonds payable amounting to
P18,000, trustee’s fee amounting P25,000 and taxes payable amounting to P21,000.
REQUIREMENT: Prepare a Statement of Affairs in July
In A Nutshell
Using your search engine, look for a sample of balance sheet and statement
of affairs. Examine the two documents. What are major differences of balance sheet
and statement of affairs? Explain.
___________________________________________________________________
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901
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Q&A LIST.
1.
2.
3.
4.
5.
KEYWORDS INDEX
Statement of affairs Free assets Deficiency Insolvency
911
Matina, Davao City
Phone No.: (082)305-0645 Local 137

Week 8-9
Big Picture A, B, C: Let’s Check Activities BB’s assignment feature
Big Picture A, B, C: Let’s Analyze Activities BB’s assignment feature
Big Picture A, B, C: In a Nutshell Activities BB’s forum feature
Big Picture A, B, C: Q&A List BB’s discussion feature

Final Exam May 12-13 BB’s quiz feature
921
Matina, Davao City
Phone No.: (082)305-0645 Local 137
Online Code of Conduct

1. Students are expected to abide by and honor code of conduct, and thus everyone and all
are exhorted to exercise self-management and self-regulation.
2. All students are guided by professional conduct as learners in attending On-Line

Blended Delivery (OBD) course. Any breach and violation shall be dealt with properly
under existing guidelines, specifically in Section 7 (Student Discipline) in the Student
Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core
Values, specifically in the adherence to intellectual honesty and integrity; academic
excellence by giving due diligence in virtual class participation in all lectures and
activities, as well as fidelity in doing and submitting performance tasks and assignments;
personal discipline in complying with all deadlines; and observance of data privacy.
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The
University shall institute monitoring mechanisms online to detect and penalize
plagiarism.
5. Students shall independently and honestly take examinations and do assignments,

unless collaboration is clearly required or permitted. Students shall not resort to
dishonesty to improve the result of their assessments (e.g. examinations, assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students
shall not post or share their answers, assignment or examinations to others to further
academic fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the Online
Code of Conduct, as well as all the requirements and protocols in handling online
courses.
Prepared by:
Mark Glenn G. Parpan, CPA

Author
Reviewed by:
Jade Solaňa, MBA, CPA Mary Grace S. Sombilon, MSA, CPA

Program Head –BSIA and BSAIS Assistant Dean
Noted by:
Lord Eddie I. Aguilar, MBA, CPA

Dean
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UNIVERSITY OF MINDANAO

College of Accounting Education

Program: BSA, BSMA, BSIA, BSAIS

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACP 312 – Accounting for Business

Name of Teacher: __________________

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

THIS IS NOT FOR COMMERCIAL USE

Course Information viii

Big Picture: Unit Learning Outcomes (Week 1-3)

Big Picture in Focus: Unit Learning Outcome 5, 6 10

Big Picture: Unit Learning Outcomes 18

Big Picture in Focus: Unit Learning Outcome 2 29

Big Picture in Focus: Unit Learning Outcome 3 35

Big Picture in Focus: Unit Learning Outcome 4 41

Big Picture: Unit Learning Outcomes 47

Big Picture in Focus: Unit Learning Outcome 4 57

Big Picture in Focus: Unit Learning Outcome 5, 6 69

Big Picture in Focus: Unit Learning Outcome 7, 8 74

Big Picture: Unit Learning Outcomes 81

Online Code of Conduct 91

Course Outline: ACP 312 – Accounting for Business Combinations

Course Coordinator: Mark Glenn G. Parpan

Course Outline Policy

Areas of Concern Details

If the assessment task is done in real time through the

Since this course is included in the Licensure Examination

Please note that academic dishonesty such as cheating

However, if the late submission of assessment paper has a

For group assessment tasks, the course coordinator will

illness, accidents financial constraints.

Re-marking of You should request in writing addressed to the program

If disapproved by the course coordinator, you can elevate

2nd formative assessment – 10%

All culled from on-campus/onsite sessions (TBA):

Submission of the final grades shall follow the usual

Preferred Referencing APA 6th- American Psychological Association 6th edition

Student Communication You are required to create a umindanao email account

You can also meet the course coordinator in person through

For students who have not created their student email,

Contact Details of the Lord Eddie I. Aguilar, MBA, CPA

Jade Solaňa, CPA, MBA

Library and Information Brigida E. Bacani

for inquiries, you can email

Well-Being Welfare Ronadora E. Deala

GSTC Facebook Page:

Library and Information Brigida E. Bacani

for inquiries, you can email

Course Information – see/download course syllabus in the Black Board LMS

a. Journalize transactions of an agency and determine results of

Big Picture in Focus: ULO

ACCOUNTING FOR AGENCY

Agencies and branches are established to decentralize operations or to expand into

TRANSACTION HOME OFFICE BOOKS

Working fund- agency 10,000

Shipped merchandise to an Samples Inventory-Agency 3,000

Accounts Receivable 100,000

ACCOUNTING FOR BRANCH