CONSOLIDATED PROBLEMS TESTBANK

Source: AFAR Reviewer by DAYAG 2019 edition

Use the following information for the next 4 questions:

Entity Subsidiary has 40% of its share publicly traded shares in one transaction. Entity parent purchases
the 60% non-publicly traded shares in one transaction, paying P6,300,000, Based on the trading price of
the shares of entity subsidiary at the date of gaining control a value of P4,000,000 assigned to the 40%
non-controlling interest(or fair value of non-controlling interest), indicating that Entity Subsidiary has
paid a control premium of P300,000. The fair value of Entity Subsidiary’s identifiable net assets is
P7,000,000 and a carrying value of P5,000,000.

1. The amount of goodwill arising on consolidation is to be valued on the proportionate basis:

2. The amount of non-controlling interest arising on consolidation is to be valued on the
proportionate basis:
3. The amount of goodwill arising on consolidation is to be valued on the full(fair value) basis:
4. The amount of non-controlling interest arising on consolidation is to be valued on the full(fair
value) basis:

Use the following information for the next 5 questions:

Pares Company acquires 15 percent of Serap Company’s common stock for P500,000 cash and carries
the investment using cost method. A few months later, Pares purchases another 60 percent of Serap
Company’s stock for 2,160,000. At the date, Serap Company reports identifiable assets with a book
value of P3,900,000 and a fair value of P5,100,000, and it has liabilities with a book value and fair value
of P1,900,000. The fair value of the 25% non-controlling interest in Serap Company is P900,000.

5. The amount of goodwill arising on consolidation is to be valued on the proportionate basis:

6. The amount of non-controlling interest arising on consolidation is to be valued on the
proportionate basis:
7. The amount of goodwill arising on consolidation is to be valued on the full(fair value) basis:
8. The amount of non-controlling interest arising on consolidation is to be valued on the full(fair
value) basis:
9. The amount of gain or loss should be recognized when additional shares are acquired:

Use the following information for the next 4 questions:

On September 1, 20x6, Company P acquires 75%(750,000 ordinary shares) of Company S for P7,500,000
(P10 per share). In the period around the acquisition date, Company S’s shares are trading at about P8
per share. Company S’s as a whole may not be P10,000,000. In fact, an independent valuation shows
that the value of Company S is P9,700,000 (fair value of Company S). Assuming that the fair value of the
net identifiable assets is P8,000,000 (carrying value is P6,000,000).
 10. The amount of goodwill arising on consolidation is to be valued on the proportionate basis:
11. The amount of non-controlling interest arising on consolidation is to be valued on the
proportionate basis:
12. The amount of goodwill arising on consolidation is to be valued on the full(fair value) basis:
13. The amount of non-controlling interest arising on consolidation is to be valued on the full(fair
value) basis:

Source: Classroom Drill PRTC REVIEW 2017

14. Stain corporation is an 80% - owned subsidiary of Paint Corp. During 2015 Stain sold
merchandise that cost P96,000 to Paint for P128,000. Paint ending inventory at Dec 31, 2015
contained unrealized profit of P6,400 from the intercompany sales. During 2016 Stain sold
merchandise that cost P112,000 to Paint for P152,000. One-half of this remained unsold by
Paint at December 31, 2016. For 2016 Paints’s separate income was P200,000 and Stain’s
reported net income was P152,000. The consolidated net income for 2016 will be:

15. P company acquired a 90% interest in S company in 2014 at a time when S company’s book
values and fair values were equal to one another. On January 1, 2016, S sold a machine with a
P24,000 book value to P company for P48,000. P depreciates the machine over 10 years using
the straight line method. Separate incomes for P and S are as follows:

P Co. S Co.
Sales P960,000 P560,000
Gain on Sale of Machinery 24,000
Cost of goods sold (400,000) (152,000)
Depreciation Expense (240,000) (72,000)
Other Expenses (96,000) (240,000)
Separate Income P224,000 P120,000

The Consolidated net income for 2016 is:

Use the following information for the next 2 questions:

On January 1, 2014, S Company purchased a delivery truck with an expected useful life of 5 years and
scrap value of P6,400. On January 1, 2016, S company sold the truck to P Company and recorded the
following entry:

Debit Credit
Cash 40,000
Accumulated Depreciation 14,400
Truck 42,400
Gain on sale of truck 12,000
P holds 60% of S’s voting shares. S reported net income of P44,000, and P reported net income
of P78,400 for 2016.
 16. In preparing the consolidated financial statements for 2016, depreciation expense will be:

17. The Consolidated net income for 2016 is:

18. On Jan 1, 2016, P company purchased 80% of S co.’s outstanding stock for P2,000,000, an
amount equal to the book value of interest acquired. Appraisal of S Company’s net assets
revealed that land is undervalued by P80,000 while Plant assets with remaining life of 5 years is
overvalued by P200,000. Substantial portion of S com.’s inventories came from P Co. Summary
of inter-company shipments are given below:

Jan 1 Merchandise costing P420,000 are shipped at

25% gross profit based on cost.
May 1 Merchandise costing P660,000 are shipped at
the same gross profit rate used on Jan 1
Nov 1 Merchandise costing P209,600 are shipped at
the same gross profit rate used on Jan 1 of
which 1/5 is on hand at Dec 31, 2016
The amount of intercompany sales to be eliminated:

19. P Corp. acquired 70% of the voting common stock of S Co. at a time when S Co.’s book values
and fair values were equal. Separate incomes of P Corp and S Co. for 2016 are as follows:
P Co. S Co.
Sales 633,000 350,400
Cost of goods sold 384,000 192,000
Operating expenses 115,200 96,000
Separate Income from own 134,400 62,400
operation

Intercompany sales from P to S for 2015 and 2016 are summarized as follows:
Cost Selling Price unsold at year-end
intercompany Sales – 2015 240,000 374,400 30%
intercompany Sales – 2016 168,000 264,000 40%

The 2016 consolidated income statement will show cost of sales of :

Use the following information for the next 2 questions:

On January 1, 2016. P corp purchased 75% of the common stock of S company. Separate balance sheet
data for the companies at the combination data are given below:

P Corp S Co.
Cash P9,600 P82,400
Accounts Receivable 57,600 10,400
Inventory 52,800 15,200
Land 31,200 12,800
Plant Assets 280,000 120,000
Accumulated Depreciation (96,000) (24,000)
Investment in Ucky 156,800
TOTAL Assets P492,000 P216,800
Accounts Payable P82,400 P56,800
Capital Stock 320,000 120,000
Retained earnings 89,600 40,000
TOTAL EQUITIES P492,000 P216,800
At the date of combination the book values of S Co.’s net assets was equal to the fair value of the net
assets except for S Co.’s inventory which has a fair value of P24,000. Indicate in each of the questions
what the consolidated balance would be for the requested account, assuming the amount assigned to
NCI is the proportionate share in the fair value of net assets.

20. What amount of inventory will be reported:

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

Use the following information for the next 2 questions:

Rich Corp paid P1,125,000 for an 80% interest in Hard Corp on Jan 1, 2016 at a price P37,500 in
excess of underlying book value. The excess was allocated P15,00 to undervalued equipment wit a
ten-year remaining useful life and P22,500 to goodwill which was not impaired during the year.
During 2016, Hard Corp paid dividend of P60,000 to Rich Corp. the income statements of Rich and
Hard for 2016 are given below:

RICH HARD
Sales P2,500,000 P1,000,000
Cost Of sales (1,250,000) (500,000)
Depreciation Expense (250,000) (150,000)
Other Expense (500,000) (225,000)
Net Income P500,000 P125,000

22. Consolidated net income for 2016 is:

23. Non-controlling interest in net assets at Dec 31, 2016

Use the following information for the next 10 questions:

On January 1, 20x7, Perfection Company purchased 24,000 shares of Selecta, Inc. in the open market for
P756,000. The balance sheets of Perfection and Selecta as at this date are presented below:

Perfection Selecta
Cash P 109,000 P 15,000
Accounts Receivable 300,000 35,000
Inventories 140,000 40,000
AFS Financial Assets 20,000
Land 150,000
Buildings 200,000
Equipment 250,000 450,000
Investment in Subsidiary 756,000
Totals P 1,555,000 P 910,000

Accounts Payable P175,000 P210,000

Share Capital, P50 par 200,000
Share Capital, P10 par 300,000
Share Premium 400,000
Retained Earnings, Jan 1 780,000 400,000
Totals P 1,555,000 P 910,000

At the acquisition date, the following net asset items of Selecta, Inc. had carrying values that were different
from their respective fair values:

Carrying Amount Fair Values

Inventories 40,000 70,000
Land 150,000 200,000
Buildings 200,000 270,000
Equipment 450,000 470,000
Patent - 40,000

All other assets and liabilities had carrying values approximately equal to their respective fair values. On
January 1, 20x7, the building had a remaining useful life of 20 years. Equipment and the patent had remaining
useful lives of 10 years each.

Looking farther ahead, assume that goodwill was impaired by P5,000 in 20x7 and by P8,000 in 20x8, and AFS
financial assets were revalued to P25,000 in 20x7 and to P27,000 in 20x8.

Financial data for 2 companies for the year ended Dec 31, 20x7 and 20x8 are as follows:

20x7 20x8
Comprehensive Perfection Selecta Perfection Selecta
Income
Sales 1,200,000 700,000 1,500,000 900,000
Dividend Income 48,000 92,000
Cost of Sales (500,000) (250,000) (600,000) (315,000)
Expenses (400,000) (252,000) (480,000) (300,000)
Net Income P348,000 P198,000 P512,000 P285,000
OCI
Gain on revaluation of 5,000 2,000
AFS
TOTAL Comprehensive P348,000 P203,000 P512,000 P287,000
 Income

24. Non-controlling interest at the date of acquisition using proportionate method

25. Non-controlling interest at the date of acquisition using fair value/ gross up method
26. Goodwill or gain from bargain purchase if NCI uses fair value/ gross up method
27. Goodwill or gain from bargain purchase if NCI uses proportionate method
28. Consolidated Net income in 2017
29. Consolidated Net income in 2018
30. Consolidated Net Income attributable to owners of parent company in 2017
31. Consolidated Net Income attributable to owners of parent company in 2018
32. NCI in consolidated net income in 2017
33. NCI in consolidated net income in 2018
34.
35. For year 20x7 and 20x8. Calculate the following:
a. Consolidated Net Income
b. Consolidated Net Income attributable to owners of parent company.
c. NCI in consolidated net income

ANSWER KEY:

1. 2,100,000
2. 2,800,000
3. 3,300,000
4. 4,000,000
5. 300,000
6. 800,000
7. 400,000
8. 900,000
9. 40,000 Gain
10. 1,500,000
11. 2,000,000
12. 1,700,000
13. 2,200,000
14.