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/ 18
a eweweGme—— 167
PROBLEMS:
pROBLEM 1: TRUE OR FALSE
1, The bas! for consolidation is power. fF Creo
> Entity A acquires Entity B on November 1, 20x1. The 20x1
consolidated profit includes Entity B’s profit from January 1 to
December 31, 20x1 - it is as if control had existed for the entire
year. F ; Trem NOW 4 1 V awoke
Goodwill is remeasured to fair value at each reporting date. ¢
' py F en “DBT Fy LESS
w
Shecomyc ned Mh VaeD Lass
Use the, following information for the next two items:
Entity A acquired 90% interest in Entity B on January 1, 20x1
when Entity B’s net assets had a fair value of #100. On December
31, 20x2, Entity B’s net assets increased to 200 after adjustments
for acquisition-date fair values, net of depreciation.
The NCI on December 31, 20x2 is 20. ¥
Before consolidation, Entity A’s retained earnings balance is
1,000. The consolidated retained earnings is P 1,090. ¢ x
6. NCI in the net assets of a subsidiary is presented in the
consolidated financial statements as a mezzanine item. '
7. Goodwill is attributed both to the owners of the parent and
non-controlling interests only if the non-controlling interests
are measured at fair value. ~
8. The amount of goodwill attributed to non-controlling interests
is included in the measurement of non-controlling interests in
gn
the subsidiary’s net assets. 7
Use the following information for the next two items:
wy Co. owns 80% of Night Co. Day and Night reported profits of
fa and 100, respectively, in 20x1. There is no depreciation of
‘air value adjustment.
9, ‘
* Pe consolidated profit is P300, 7 Cart"
' The profit attributable to the owners of Day Co. is P280. *
[20+ & win] ° 25 aaSSQQx>__—_ i
—
Chapter 4
168
PROBLEM 2: FOR CLASSROOM pIsCUSSION
Consolidation at acquisition date
1. On January 1, 20x1, Health Co acquired 70% interes;
Wealth Co. The finanei@ ai stacemen's of the combining enti
right after the business combination are as follows:
Health Co- Weailtirg
Cy,
Cash 100.00 nt
" 00
Accounts receivable O ra c ay
Inventory y 4
Investment in subsidiary 560,000 |
4 30,000 10 py
400m)
Prepaid assets
5700)
Building, net ! f
Total assets 2ALY
70,000 90,0
Accounts payable )
Share capital ! 1,000,000 20000
Share premium d 350,000 50.00
Retained earings 990,000 230.05)
2,410,000 570.000
Total liabilities and equity,
of Wealth’s assets and liabilities
ate fair values, exce ot as follows:
Fair value
The carrying) amounts
approximate the acquisition-d
Carrying amount
‘Accounts receivable 40,000 20,000
7 400,000 540,000
Building, net
Health measured the NCI at ‘proportionate share’.
Requirement: °] .
quirements Prepare the consolicated statement of financial
position.
‘proportionate’
ea
consolidation subsequent to acquisition date -
ary
2. Pink Co. acqui: I% i
a quired 90% interest in Floyd, Inc. on Janu sancial Statements (Part 1)
sion on Jan. 1, 20x1:
net identifiable assets have a carrying amount
i ni
and fair value of P600,000. The difference is due S
* plovd’s
psd, 000
.
5 the following: :
Carrying amount Fair value .**
Tentory 100,000
Building, net 400,000
The remaining
pink measure
Information’ on Dec. 31, 20x1:
‘d the NCI at ‘prop
110,000 *%
510,000 1'¢
ugafal life of the building is 5 years.
ortionate share’.
statements of) ‘financial position
“ysat December 31, 20x1
ASSETS Pink Co. Floyd Co.
Cash . 620,000 120,000
‘Accounts receivable me ans
Nee bad 56000 ;
Investment in subsidiary (at cost) PaO j a
Prepaid assets D
paling et 1,100,000 350,000
Total assets 2,660,000. 658,000,
Accounts payable 50,000 90,000
Share capital 1,000,000 200,000
Share premium 350,000 50,000
Retained earnings 1,260,000 318,000
Bs
Teta iabltes and equity 2,660,000 658,000.
Statements of profit or loss
For the year ended December 31, 20x1 :
Sales Pink Co. Floyd Co.
Cost of 600,000 200,000
Gispat sold (200,000) (60,000)
Depreciation o 400,000 140,000
ee (100,000) 60,000) 170
Chaptery
Distribution costs
Profit for the
year
no dividends declared, 0° intercom,
goodwill in 201 7
e There were
ment of
transactions and no impair
Requirement: Prepate the December 31, 20x1 consolidated finang,
statements.
Solution:
quisition date - ‘fair value’
receding problem except that Pi
£965,000.
mn subsequent toa
Consolidatio
formation in the p
3, Use the ink
measured the NCTat a fair palue 0}
the December 31, 20x1 consolidated finané:
Requirement: Prepare
statements.
PROBLEM 3: EXERCISES
4. On January 1, 20x1, Sunny Co. acquired 60% interest in Rai
Co. for 300,000. The financial statements of Sunny Co.
i ght after the business combination follows:
Sunny CO. Rainy Co- i!
Carrying Carrying
amt. amt.
Inventory 400,000
Investment in subsidiary 300,000
600,000
Accounts payable
Share capital
Retained earnings ted Financial Sta
1
Chis measured uneler the proportionate share metho
Requirement: Prepare the consolidated statement. of financial
position on January 1, 20x1.
On January 1, 20x1, Hammer Co. acquired 80% interest in Volk
Co. The financial statements of the combining entities right
Cash 160,000 70,000
‘Accounts receivable 200,000 110,000
Inventory 400,000 80,000
Investment in subsidiary 520,000 2
Building, net 1,000,000 300,000
Total assets - 2,280,000 500,000
Accounts payable 100,000 20,000
Share capital 1,000,000 200,000
Share premium 300,000 100,000
Retained earnings 880,000 180,000
Total liabilities and equity 2,280,000 500,000
bilities approximate their fair values,
+ Folk’s assets and lial
100,000) and building (fair
except inventory (fair value is
value is ®400,000).
+ Hammer measured the NCI at ‘proportionate share’.
Requirement: Prepare the consolidated statement of financial
position.
3. On January 1, 20x1, Run Co. acquired 80% interest in Walk Co.
Information on Jan. 1, 20x1:
©. Walk 1. 1 20x
pare net identifiable assets have a carrying amount of
,000 and fair value of P600,000. The difference is due to the following: inventory (carrying amount, g; 00
100,000) and building (carrying amount, 300,009 fap
400,000). a
«The remaining useful life of the building ig 10 Year
« Runmeasured the NCI at ‘proportionate Share’, *
Information on Dec. 31, 20x1: 7
Statements of financial position
As at December 31, 20x1
ASSETS Run Co, +)
Cash 750,000 k
Accounts receivable 260,000
Inventory 200,000
Investment in subsidiary (at cost) 520,000
ant
Total assets 2,680,000 al
=
Accounts payable 80,000 ir
Share capital 1,000,000 2ang
Share premium 300,000
Retained earnings 1,300,000
Total liabilities and equity 2,680,000
Statements of profit or loss
For the year ended December 31, 20x1
Run Co.
Sales 800,000
Cost of goods sold (200,000)
Gross profit 600,000
Depreciation expense (50,000)
Distribution Costs (130,000)
420,000
: . cai
There were no dividends declared, no interc™!
transactions and no impairment of goodwill in 20x1- yr
sted Finacial Statements (Part 1)
yuo Prepare the December 31, 20x1 consolidated financial
gqatementS:
information in #3 above except that Run Co.
use the same
ata fair value of P130,000.
? red the NCI
meas
Requirement? Prepare the December 31, 20x1 consolidated financial
e
statements.
20x1, Joy Co. acquired 60% interest in Axion,
5. On January 1,
Information on Axion’s financial position on
Inc. for £300,000.
this date follows: .
+ The identifiable assets and liabilities approximated their
fair values except for inventories with carrying amount of
120,000 and. fair value of P80,000 and building with
carrying amount of P200,000 and fair value of ?250,000.
The building has a remaining useful life of 5 years.
+ Axion’s equity comprises only share capital and retained
earnings with carrying amounts of P250,000 and P40,000,
respectively.
« NClis measured at ‘proportionate share’.
All the inventories on January 1, 20x1 were sold during 20x1. No
dividends were declared by either entity during 20x1. There were
also no intercompany transactions and no impairment of
goodwill. The individual financial statements of the entities on
December 31, 20x1 are shown below:
Statements of financial position
4s at December 31, 20x1
JoyCo. Axion Co.
—_ foy Co. ‘ion Co.
“ash
4 143,000 60,000
Wentory
msn 440,000 160,000
ment in subsidiary (at cost) 300,000
ial =net 560,000 160,000
TAL ASSET: : =
SS 1,443,000 380,000
>, 14
LIABILITIES AND EQUITY
ble 200,000
1,000,000
243,000
1,243,000
1,443, 000
apital
Retained earnings
TOTAL LIABILITIES AND EQUITY
Statements of profit or loss
For the year ended December 31, 20x1
Joy Co.
Sales 300,000,
Cost of goods sold (165,000)
Gross profit . 135,000
Depreciation expense (40,000)
Distribution costs (32,000)
Profit for the year__
Reguirement: Prepare the consolidated financial statements as
December 31, 20x1.
6. Use the same information in #5 except that Joy Co. measu
the NCI at fair value of ®132,000.
Requirement: Prepare the consolidated financial statements as a
December 31, 20x1. Consolidated Financial Statements (Part 1) 17
5
pROBLEM 4: MICROSOFT EXCEL -
NOTE: This activity is OPTIONAL as the learner will need to
have access to a COMPUTER with a Microsoft Excel _®
tion installed in it.
applica
Open a Microsoft Excel® Worksheet and copy the following:
fa feat, |
fa Parent Subsidiary
2) Cash 40,000 5,000
3 | Accounts receivable 50,000 20,000
4, Inventory 10,000 25,000
5 investment in subsidiary 180,000
ra} Land 800,000 250,000
7
8 | Accounts payable 90,000 130,000
“9 | Share capital 500,000 80,000
10) Share premium 100,000
“1| Retained earnings 390,000 90,000
> To place commas on the amounts or increase/decrease
decimal places, use these buttons.
Dao ae 7
FI ee rete temas 0s trv
Bec re a ee Mere,
Be Bee Rupioe SA
Boor
hdd
Aoret c
SS
2. Make your table look like this: 5 Investment in subsidiary 180,000 S,oqy
6 | Land 300,000 250,000
7 | Goodwill 7,100,099
8 Totals 7,080,000 __300,000 fl ae
9
10. Accounts payable 90,000 130,000 200%
11. Share capital 500,000 80,000 Sony
12. Share premium 100,000 100.0%,
13. Retained earnings 390,000 90,000 390,009
14 | NCL 00t9
15 | Totals 7,080,000 300,000 7,260,000"
Print the file and submit it to your teacher for grading.
PROBLEM 5: MULTIPLE CHOICE - THEORY
1. According to PFRS 10
a. a parent entity is required to consolidate its subsidiaries.
b, a parent entity is encouraged but not required to
consolidate its subsidiaries.
c. a parent need not consolidate a subsidiary if the
subsidiary’s business is different from that of the parent.
d. a parent entity is required to consolidate its subsidiaries
only for internal reporting purposes.
2. Which of the following is not an element of control?
a. Power
b. Exposure, or rights, to variable returns
©) Major holdings
d. Ability to affect return 8
ithe essential elements of control ig
yne oF s wows cd
$ peRS 10, an investor has power if
