UM Tagum College

Arellano Street, Tagum City, 8100 Philippines

Business Combination; Consolidated & Separate FS PROF. JON D. INOCENTES,CPA

LECTURE

Consolidation subsequent to date of acquisition (Proportionate share)

On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair value of ₱60
per share and par value of ₱40 per share. On acquisition date, ABC Co. elected to measure non-controlling
interest as its proportionate share in XYZ, Inc.’s net identifiable assets.

XYZ’s shareholders’ equity as of January 1, 20x1 comprises the following:

(at carrying amounts)
Share capital 200,000
Retained
earnings 96,000
Total equity 296,000

On January 1, 20x1, the fair values of the assets and liabilities of XYZ, Inc. were determined by appraisal, as
follows:

Carrying Fair Fair value

XYZ, Inc.
amounts values increment
Cash 20,000 20,000 -
Accounts receivable 48,000 48,000 -
Inventory 92,000 124,000 32,000
Equipment 200,000 240,000 40,000
Accumulated
(40,000) (48,000) (8,000)
depreciation
Accounts payable (24,000) (24,000) -
Net assets 296,000 360,000 64,000

The remaining useful life of the equipment is 4 years.

During 20x1, no dividends were declared by either ABC or XYZ. There were also no inter-company
transactions. The group determined that there is no goodwill impairment.

ABC’s and XYZ’s individual financial statements at year-end are shown below:

Statements of financial position

As at December 31, 20x1
ABC Co. XYZ, Inc.
ASSETS
Cash 92,000 228,000
Accounts receivable 300,000 88,000
Inventory 420,000 60,000
Investment in subsidiary 300,000 -
Equipment 800,000 200,000
Accumulated depreciation (240,000) (80,000)
TOTAL ASSETS 1,672,000 496,000
LIABILITIES AND EQUITY
Accounts payable 172,000 120,000
Bonds payable 120,000 -
Total liabilities 292,000 120,000
Share capital 680,000 200,000
Share premium 260,000 -
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000

Statements of profit or loss

For the year ended December 31, 20x1
ABC Co. XYZ, Inc.
Sales 1,200,000 480,000
Cost of goods sold (660,000) (288,000)
Gross profit 540,000 192,000
Depreciation expense (160,000) (40,000)
Distribution costs (128,000) (72,000)
Interest expense (12,000) -
Profit for the year 240,000 80,000

1. How much is the consolidated profit for 20x1?

a. 208,000 b. 280,000 c. 240,000 d. 296,000

2. How much is the consolidated total assets as of December 31, 20x1?

a. 1,867,000 b. 1,907,000 c. 1,894,000 d. 1,904,000

3. How much is the consolidated total equity as of December 31, 20x1?

a. 1,492,000 b. 1,415,000 c. 1,412,000 d. 1,421,000

Consolidation subsequent to date of acquisition – NCI at Fair value

4. How much is the consolidated profit for 20x1?
a. 208,000 b. 280,000 c. 240,000 d. 296,000

5. How much is the consolidated total assets as of December 31, 20x1?

a. 1,867,000 b. 1,907,000 c. 1,894,000 d. 1,904,000

6. How much is the consolidated total equity as of December 31, 20x1?

a. 1,492,000 b. 1,415,000 c. 1,412,000 d. 1,495,000

Impairment of goodwill

The group determined that goodwill is impaired by ₱4,000.

Case #1: On acquisition date, ABC Co. elected to measure non-controlling interest as its proportionate share in
XYZ, Inc.’s net identifiable assets.
1. How much is the consolidated profit for 20x1?
a. 296,000 b. 280,000 c. 208,000 d. 276,000
2. How much is the consolidated total assets as of December 31, 20x1?
a. 1,900,000 b. 1,907,000 c. 1,903,000 d. 1,904,000

3. How much is the consolidated total equity as of December 31, 20x1?

a. 1,492,000 b. 1,415,000 c. 1,488,000 d. 1,491,000

Case #2:
On acquisition date, ABC Co. elected to measure non-controlling interest at fair value. A value of ₱75,000 is
assigned to the non-controlling interest.
4. How much is the consolidated profit for 20x1?
a. 296,000 b. 280,000 c. 278,000 d. 276,000

5. How much is the consolidated total assets as of December 31, 20x1?

a. 1,900,000 b. 1,907,000 c. 1,903,000 d. 1,904,000

6. How much is the consolidated total equity as of December 31, 20x1?

a. 1,492,000 b. 1,415,000 c. 1,488,000 d. 1,491,000