Solution Chapter 15

Chapter 15Problem I

Investment in Shy Inc. [P2,500,000 + (15,000 P40)] 3,100,000Cash 2,500,000Common Stock 30,000Paid in capital in excess of par (P40 - P2) 15,000 570,000

Paid in capital in excess of par 30,000Acquisition Expense 67,000

Deferred Acquisition Charges 90,000Acquisition Costs Payable 7,000

Problem IICash consideration transferred P 300,000Contingent performance obligation __15,000Fair value of Subsidiary P 315,000Less: Book value of SS Company (P90,000 + P100,000) 190,000Allocated excess P125,000Less: Over/under valuation of assets and liabilities:

Increase in building: P40,000 x 100% P 40,000Increase in customer list: P22,000 x 100% 22,000Increase in R&D: P30,000 x 100% 30,000 __92,000

Goodwill P 33,000

Investment in SS Company 315,000Cash 300,000Estimated Liability on Contingent Consideration 15,000

Acquisition Expense 10,000Cash 10,000

Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4 wouldbe:

Receivables 80,000Inventory 70,000Buildings 115,000Equipment 25,000Customer list 22,000Capitalized R&D 30,000Goodwill 33,000Current liabilities 10,000Long-term liabilities 50,000

Investment in SS Company 315,000Problem III1.

A. Investment in Sewell 675,000Cash 675,000

B. Investment in Sewell 675,000Cash 675,000

C. Investment in Sewell 318,000Cash 318,000

2.A.

Fair value of Subsidiary:Consideration transferred P675,000

Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000Allocated excess P( 30,000)Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P30,000 P20,000) x 100% (P10,000)Land (P50,000 P70,000) x 100% __20,000 __10,000

Bargain Purchase Gain full (P 40,000)B.

Partial GoodwillFair value of Subsidiary:

Consideration transferred P675,000Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% 634,500Allocated excess P 40,500Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P30,000 P20,000) x 90% (P9,000)Land (P50,000 P70,000) x 90% __18,000 __9,000

Goodwill partial P 31,500Full-GoodwillFair value of Subsidiary:

Consideration transferred (P675,000/90%) P750,000Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000Allocated excess P 45,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P30,000 P20,000) x 100% (P10,000)Land (P50,000 P70,000) x 100% __20,000 __10,000

Goodwill full P 35,000C.


Consideration transferred P318,000Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80% 624,000Allocated excess (P306,000)Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P30,000 P20,000) x 80% (P 8,000)Land (P50,000 P70,000) x 80% __16,000 __8,000

Bargain Purchase Gain partial (parent only) (P314,000)Full-GoodwillFair value of Subsidiary:

Consideration transferred P 318,000FV of NCI* _158,000

P 476,000Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100% 780,000Allocated excess (P304,000)Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P30,000 P20,000) x 100% (P10,000)Land (P50,000 P70,000) x 100% __20,000 _10,000

Bargain Purchase Gain full (parent only) (P314,000)*BV of SHE of S P780,000Adjustments to reflect fair value 10,000FV of SHE of S P790,000x: NCI% 20%FV of NCI P158,000

3.A.

Common Stock Sewell 450,000Paid in capital in excess of par Sewell 180,000Retained Earnings Sewell 75,000Land 20,000

Inventory 10,000Investment in Sewell 675,000Retained earnings (gain) Parent (since

balance sheet accounts are beingexamined) 40,000

B.Partial-Goodwill (Proportionate Basis)

Common Stock Sewell 450,000Paid in capital in excess of par Sewell 180,000

Retained Earnings Sewell 75,000Land 20,000Goodwill 31,500

Inventory 10,000Investment in Sewell 675,000Non-controlling Interest 71,500BV SHE of Sewell(P450,000 + P180,000 + P75,000) P705,000

Adjustments to reflect fair value 10,000FV of SHE of Sewell P715,000x: NCI% 10%FV of NCI (partial) P 71,500

Full-Goodwill (Fair Value Basis)Common Stock Sewell 450,000Paid in capital in excess of par Sewell 180,000Retained Earnings Sewell 75,000Land 20,000Goodwill 35,000

Inventory 10,000Investment in Sewell 675,000Non-controlling Interest 75,000BV SHE of Sewell(P450,000 + P180,000 + P75,000) P705,000

Adjustments to reflect fair value 10,000FV of SHE of Sewell P715,000x: NCI% 10%FV of NCI (partial) P 71,500NCI on Full-Goodwill

(P35,000 P31,500) 3,500FV of NCI (full) P 75,000

C.Partial-Goodwill (Proportionate Basis)

Common Stock Sewell 620,000Paid in capital in excess of par Sewell 140,000Retained Earnings Sewell 20,000Land 20,000

Inventory 10,000Investment in Sewell 318,000Retained earnings (gain)Parent (refer to 3A) 314,000Non-controlling Interest 158,000BV SHE of Sewell(P620,000 + P140,000 + P20,000) P780,000

Adjustments to reflect fair value 10,000FV of SHE of Sewell P790,000x: NCI% 20%FV of NCI (partial) P158,000

Full-Goodwill (Fair Value Basis)Common Stock Sewell 620,000Paid in capital in excess of par Sewell 140,000Retained Earnings Sewell 20,000Land 20,000

Inventory 10,000Investment in Sewell 318,000Retained earnings (gain)Parent (refer to 3A) 314,000Non-controlling Interest 158,000BV SHE of Sewell(P620,000 + P140,000 + P20,000) P780,000

Adjustments to reflect fair value 10,000FV of SHE of Sewell P790,000x: NCI% 20%FV of NCI (full) P158,000

Problem IV

1.January 1, 20x4

Investment in S Company 408,000Cash.. 408,000

2.Schedule of Determination and Allocation of ExcessDate of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)Consideration transferred.. P 408,000

Less: Book value of stockholders equity of S:Common stock (P240,000 x 100%).. P 240,000Paid-in capital in excess of par (P24,000 x 100%)... 24,000Retained earnings (P96,000 x 100%)... 96,000 360,000

Allocated excess (excess of cost over book value) P 48,000Less: Over/under valuation of assets and liabilities:

Increase in inventory (P18,000 x 100%).. P 18,000Increase in land (P72,000 x 100%) 72,000Decrease in buildings and equipment

(P12,000 x 100%)... ( 12,000)Increase in bonds payable (P42,000 x 100%).. ( 42,000) 36,000

Positive excess: Goodwill (excess of cost over fairvalue).. P 12,000

3.(E1) Common stock S Co. 240,000

Additional paid-in capital S Co. 24,000Retained earnings S Co... 96.000

Investment in S Co 360,000Eliminate investment against stockholders equity of S Co.

(E2) Inventory. 18,000Land. 72,000Goodwill. 12,000

Buildings and equipment.. 12,000Premium on bonds payable 42,000Investment in S Co.. 48,000

Eliminate investment against allocated excess.

4.Eliminations

Assets P Co. S Co. Dr. Cr. ConsolidatedCash*. P 12,000 P 60,000 P 72,000Accounts receivable.. 90,000 60,000 150,000Inventory. 120,000 72,000 (2) 18,000 210,000Land. 210,000 48,000 (2) 72,000 330,000Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000Goodwill (2) 12,000 12,000Investment in S Co. 408,000 (1) 360,000

(2) 48,000 -Total Assets P1,320,000 P600,000 P1,602,000Liabilities and Stockholders Equity

Accounts payable P 120,000 P120,000 P 240,000Bonds payable 240,000 120,000 360,000Premium on bonds payable (3) 42,000 42,000Common stock, P10 par 600,000 600,000Common stock, P10 par 240,000 (1) 240,000Paid in capital in excess of par. 60,000 60,000Paid in capital in excess of par. 24,000 (1) 24,000Retained earnings 300,000 300,000Retained earnings _________ 96,000 (1) 96,000 __________ _________

Total Liabilities and StockholdersEquity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000

(1) Eliminate investment against stockholders equity of S Co.

(2) Eliminate investment against allocated excess.* P420,000 P408,000 = P12,000.

5.Assets

Cash P 72,000Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment (net) 828,000Goodwill 12,000Total Assets P1,602,000

Liabilities and Stockholders EquityLiabilities

Accounts payable P 240,000Bonds payable P 360,000Premium on bonds payable 42,000 402,000

Total Liabilities P 642,000Stockholders Equity

Common stock, P10 par P 600,000Paid-in capital in excess of par 60,000Retained earnings 300,000

Total Stockholders Equity P 960,000Total Liabilities and Stockholders Equity P1,602,000

Problem V1.

January 1, 20x4(1) Investment in S Company 432,000

Cash.. 288,000Common stock, P10 par.. 120,000Paid-in capital in excess of par. 24,000

(2) Retained earnings (acquisition-related expense - close toretained earnings since only balance sheets are beingexamined) 12,000

Cash. 12,000Acquisition- related costs.

(3) Paid-in capital in excess of par.. 8,400Cash. 8,400

Costs to issue and register stocks.

2.Schedule of Determination and Allocation of ExcessDate of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)Consideration transferred

Cash. P 288,000Common stock: 12,000 shares x P12 per share.. 144,000 P 432,000

Less: Book value of stockholders equity of S:Common stock (P240,000 x 100%).. P 240,000Paid-in capital in excess of par (P96,000 x 100%).. 96,000Retained earnings (P24,000 x 100%)... 24,000 360,000

Allocated excess (excess of cost over book value) P 72,000Add: Existing Goodwill of Sky Co. (P6,000 x 100%) 6,000Adjusted allocated excess. P 78,000Less: Over/under valuation of assets and liabilities:




Alternatively, the unrecorded goodwill may also be computed by ignoring the existinggoodwill in the books of the subsidiary, thus:

Date of Acquisition January 1, 20x4 (refer to previous table for details of computation)Fair value of Subsidiary (100%)

Consideration transferred P 432,000Less: Book value of stockholders equity of S.. 360,000Allocated excess (excess of cost over book value). P 72,000Less: Over/under valuation of assets and liabilities 36,000Positive excess: Goodwill (excess of cost over fair value)... P 36,000Add: Existing Goodwill 6,000Positive excess: Goodwill (excess of cost over fair

value) P 42,0003.

EliminationsAssets P Co. S Co. Dr. Cr. Consolidated

Cash*.. P 111,600 P 54,000 P 165,600Accounts receivable.. 90,000 60,000 150,000Inventory. 120,000 72,000 (2) 18,000 210,000Land. 210,000 48,000 (2) 72,000 330,000Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000Goodwill 6,000 (2) 36,000 42,000Investment in S Co. 432,000 (4) 360,000

(5) 72,000 -Total Assets P1,443,600 P600,000 P1,725,600Liabilities and Stockholders Equity

Accounts payable P 120,000 P120,000 P 240,000Bonds payable 240,000 120,000 360,000Premium on bonds payable (6) 42,000 42,000Common stock, P10 par**.. 720,000 720,000Common stock, P10 par 240,000 (1) 240,000Additional paid in capital*** 75,600 75,600Additional paid in capital 24,000 (1) 24,000Retained earnings**** 288,000 288,000Retained earnings _________ 96,000 (1) 96,000 __________ _________


(1) Eliminate investment against stockholders equity of Sky Co.(2) Eliminate investment against allocated excess.* P420,000 P288,000 P12,000 P8,400 = P111,600.* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.*** P50,000 + P20,000 P7,000 = P63,000.****P300,000 P12,000 = P288,000.

4.Assets

Cash P 165,600Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment (net) 828,000Goodwill 42,000Total Assets P1,725,600




Common stock, P10 par P 720,000Additional paid-in capital in excess of par 75,600Retained earnings 288,000

Total Stockholders Equity P 1083,600Total Liabilities and Stockholders Equity P1,725,600

Problem VI1.

Schedule of Determination and Allocation of ExcessDate of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)Consideration transferred (P408,000 P6,000).. P 402,000

Less: Book value of stockholders equity of S:Common stock (P240,000 x 100%).. P 240,000Paid-in capital in excess of par (P96,000 x 100%)... 96,000Retained earnings (P24,000 x 100%)... 24,000 360,000





2. Goodwill, P6,000Problem VII1.

Schedule of Determination and Allocation of ExcessDate of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)Consideration transferred:

Common stock: 24,000 shares x P14 per share P 336,000Less: Book value of stockholders equity of Sky:

Common stock (P240,000 x 100%).. P 240,000Paid-in capital in excess of par (P96,000 x 100%)... 96,000Retained earnings (P24,000 x 100%)... 24,000 360,000

Allocated excess (excess of book value over cost) (P 24,000)Less: Over/under valuation of assets and liabilities:


(P12,000 x 100%)... ( 12,000)Increase in patent (P24,000 x 100%)... 24,000Increase in contingent liability (P18,000 x 100%). ( 18,000)Increase in bonds payable (P42,000 x 100%).. ( 42,000) 42,000

Negative excess: Bargain Purchase Gain (excess offair value over cost) (P 66,000)

2. Gain on acquisition, P66,000Problem VIIICase 1:Proportionate Basis (Partial-goodwill Approach)

Partial-goodwillFair value of subsidiary (80%):

Consideration transferred: Cash.......P12,000,000 (80%)Less: Book value of stockholders equity (net assets)

S Company: P7,200,000 x 80%................................. 5,760,000 (80%)Allocated excess.........P 6,240,000 (80%)Less: Over/undervaluation of assets and liabilities:

(P9,600,000 P7,200,000) x 80%....................................... 1,920,000 (80%)Positive excess: Goodwill (partial)..... P 4,320,000 (80%)

Non-controlling interestBook Value of stockholders equity of subsidiary. P 7,200,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities): (P9,600,000 P7,200,000).. 2,400,000Fair value of stockholders equity of subsidiary P 9,600,000Multiplied by: Non-controlling interest percentage............ 20%

Non-controlling Interest (partial).. P1,920,000Fair Value Basis (Full-goodwill Approach)

Full-goodwillFair value of subsidiary (100%):

Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)Less: Book value of stockholders equity (net assets)

S Company: P7,200,000 x 100%.............................. 7,200,000 (100%)Allocated excess... P 7,800,000 (100%)Less: Over/Undervaluation of assets and liabilities:

(P9,600,000 P7,200,000) x 100%.................................... 2,400,000 (100%)Positive excess: Goodwill (full)........P 5,400,000 (100%)The full goodwill of P5,400,000 consists of two parts:

Full-goodwill....... P 5,400,000Less: Controlling interest on full-goodwill

or partial-goodwill... 4,320,000NCI on full-goodwill.......P 1,080,000

Non-controlling interestNon-controlling interest (partial).......P1,920,000Add: Non-controlling interest on full -goodwill

(P5,400,000 P4,320,000 partial-goodwill) or(P5,400,000 x 20%)*...... 1,080,000

Non-controlling interest (full)........P3,000,000* applicable only when the fair value of the non-controlling interest of subsidiary is not given.

Case 2:Proportionate Basis (Partial-goodwill Approach)


Consideration transferred: Cash.....P 7,560,000 (60%)Less: Book value of stockholders equity (net assets)

S Company: P6,000,000 x 60%................................ 3,600,000 (60%)Allocated Excess...... P 3,960,000 (60%)Less: Over/undervaluation of assets and liabilities:

(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%)Positive excess: Goodwill (partial).... P 2,520,000 (60%)

Non-controlling interestBook value of stockholders equity of subsidiary. P 6,000,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities): (P8,400,000 P6,000,000). 2,400,000Fair value of stockholders equity of subsidiary.P 8,400,000Multiplied by: Non-controlling Interest percentage............ 40%Non-controlling interest (partial).P 3,360,000

Fair Value Basis (Full-goodwill Approach) Full-goodwill

Fair value of subsidiary (100%):Consideration transferred: Cash ...P 7,560,000 ( 60%)Fair value of NCI (given).. 4,800,000 ( 40%)

Fair value of subsidiary...P12,360,000 (100%)Less: Book value of stockholders equity (net assets)

S Company: P6,000,000 x 100%........................... 6,000,000 (100%)Allocated Excess...P 6,360,000 (100%)Less: Over/undervaluation of assets and liabilities:

(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%)Positive excess: Goodwill (full)......P 3,960,000 (100%)The full goodwill of P3,960,000 consists of two parts:

Full-goodwill...P 3,960,000Less: Controlling interest on full-goodwill

or partial-goodwill. 2,520,000NCI on full-goodwill..P 1,440,000

Non-controlling interestNon-controlling interest (partial)P 3,360,000Add: Non-controlling interest on full -goodwill

(P3,960,000 P2,520,000 partial-goodwill).. 1,440,000Non-controlling Interest (full)..P 4,800,000

Case 3;Proportionate Basis (Partial-goodwill Approach)


Consideration transferred: Cash..P 9,000,000 (75%)Less: Book value of stockholders equity (net assets)

S Company: P7,200,000 x 75%.......................... 5,400,000 (75%)Allocated Excess....P 3,600,000 (75%)Less: Over/undervaluation of assets and liabilities:

(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%)Positive excess: Goodwill (partial).P 1,800,000 (75%)

Non-controlling interestBook value of stockholders equity of subsidiary..P 7,200,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities): (P9,600,000 P7,200,000). 2,400,000Fair value of stockholders equity of subsidiaryP 9,600,000Multiplied by: Non-controlling Interest percentage............ 25%Non-controlling interest (partial).P 2,400,000


Fair value of subsidiary. P 11,640,000 (100%)Less: Book value of stockholders equity (net assets)

S Company: P7,200,000 x 100%........................... 7,200,000 (100%)Allocated Excess..P 4,440,000 (100%)Less: Over/undervaluation of assets and liabilities:

(P9,600,000 P7,200,000) x 100%.................................. 2,400,000 (100%)Positive excess: Goodwill (full).....P 2,040,000 (100%)The full goodwill of P2,040,000 consists of two parts:

Full-goodwill...P 2,040,000Less: Controlling interest on full-goodwill

or partial-goodwill.... 1,800,000NCI on full-goodwill. .P 240,000

Non-controlling interestNon-controlling interest (partial)P 2,400,000Add: Non-controlling interest on full -goodwill

(P2,040,000 P1,800,000 partial-goodwill)....... 240,000Non-controlling Interest (full)..P 2,640,000

Case 4:Proportionate Basis (Partial-goodwill Approach)


Consideration transferred: Cash..P 2,592,000 (60%)Fair value of previously held equity interest

in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%)Fair value of Subsidiary ... P 3,240,000 (75%)Less: Book value of stockholders equity (net assets)

S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%)Allocated Excess.....P 1,440,000 (75%)Less: Over/undervaluation of assets and liabilities:

[(P6,120,000 P2,280,000) (P4,680,000 P2,280,000)] x 75%................................ 1,080,000 (75%)

Positive excess: Goodwill (partial)... P 360,000 (75%)

Non-controlling interestBook value of stockholders equity of subsidiary..P 2,400,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities): (P3,840,000 P2,400,000). 1,440,000Fair value of stockholders equity of subsidiaryP 3,840,000Multiplied by: Non-controlling Interest percentage............ 25%Non-controlling interest (partial)P 960,000


Fair value of subsidiary (100%):Consideration transferred: Cash..P 2,592,000 (60%)Fair value of previously held equity interest

in acquiree P2,592,000/60% = P4,320,000 x 15%...... 648,000 (15%)Fair value of NCI (given). 1,080,000 (25%)

Fair value of subsidiary.P 4,320,000 (100%)Less: Book value of stockholders equity (net assets)

S Company: P2,400,000 x 100%........................ 2,400,000 (100%)Allocated Excess...P 1,920,000 (100%)Less: Over/undervaluation of assets and liabilities:

(P3,840,000 P2,400,000) x 100%................................ 1,440,000 (100%)Positive excess: Goodwill (full)...P 480,000 (100%)The full goodwill of P480,000 consists of two parts:

Full-goodwill...P 480,000Less: Controlling interest on full-goodwill

or partial-goodwill. 360,000NCI on full-goodwill..P 120,000

Non-controlling interestNon-controlling interest (partial)P 960,000Add: Non-controlling interest on full -goodwill

(P480,000 P360,000 partial-goodwill)....... 120,000Non-controlling Interest (full)P 1,080,000

Problem IX Partial-goodwill (Proportionate Basis)

Fair value of subsidiary (75%):Consideration transferred: Cash.. P270,000 (75%)

Less: Book value of stockholders equity(net assets) S Company:

(P480,000 P228,000) x 75%....................................... 189,000 (75%)Allocated excess... P 81,000 (75%)Less: Over/undervaluation of assets and liabilities:

[(P612,000 P228,000) (P480,000 P228,000) x 75% 99,000 (75%)Negative excess: Bargain purchase gain (to controlling

interest or attributable to parent only). (P18,000) (75%) Full-goodwill (Fair Value Basis)

Fair value of subsidiary (100%):Consideration transferred: Cash.. P270,000 ( 75%)Fair value of non-controlling interest (given) 98,400 ( 25%)

Fair value of subsidiary P368,400 (100%)Less: Book value of stockholders equity

(net assets) S Company:(P480,000 P228,000) x 100%..................................... 252,000 (100%)

Allocated excess... P116,400 (100%)Less: Over/undervaluation of assets and liabilities:

[(P612,000 P228,000) (P480,000 P228,000) x 100% 132,000 (100%)Negative excess: Bargain purchase gain (to controlling

interest or attributable to parent only). (P15,600) (100%)

Problem XPartial-goodwill ApproachSchedule of Determination and Allocation of Excess (Partial-goodwill)Date of Acquisition January 1, 20x4

Fair value of Subsidiary (80%)Consideration transferred.. P 360,000

Less: Book value of stockholders equity of Sky:Common stock (P240,000 x 80%). P 192,000Paid-in capital in excess of par (P96,000 x 80%).... 76,800Retained earnings (P24,000 x 80%).... 19,200 288,000

Allocated excess (excess of cost over book value).. P 72,000Less: Over/under valuation of assets and liabilities:

Increase in inventory (P18,000 x 80%) P 14,400Increase in land (P72,000 x 80%). 57,600Decrease in buildings and equipment

(P12,000 x 80%)..... ( 9,600)Increase in bonds payable (P42,000 x 80%). ( 33,600) 28,800

Positive excess: Partial-goodwill (excess of cost overfair value)... P 43,200

The over/under valuation of assets and liabilities are summarized as follows:Sky Co.

Book valueSky Co.

Fair valueOver/ UnderValuation

Inventory... 72,000 90,000 18,000Land 48,000 120,000 72,000Buildings and equipment (net)......... 360,000 348,000 ( 12,000)Bonds payable (120,000) (162,000) 42,000Net.. 360,000 396,000 36,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:Sky Co.

Book valueSky Co.

Fair value (Decrease)Buildings and equipment .................. 720,000 348,000 ( 372,000)Less: Accumulated depreciation.. 360,000 - ( 360,000)Net book value... 360,000 348,000 ( 12,000)

The following entry on the date of acquisition in the books of Parent Company:January 1, 20x4(1) Investment in Sky Company 360,000

Cash.. 360,000Acquisition of Sky Company.



The schedule of determination and allocation of excess provides complete guidance for theworksheet eliminating entries on January 1, 20x4:(E1) Common stock Sky Co. 240,000

Additional paid-in capital Sky Co. 24,000Retained earnings Sky Co... 96,000

Investment in Sky Co 288,000Non-controlling interest (P300,000 x 20%).. 72,000

Eliminate investment against stockholders equity of Sky Co.

(E2) Inventory. 18,000Accumulated depreciation. 360,000Land. 72,000Goodwill. 43,200

Buildings and equipment.. 372,000Premium on bonds payable 42,000Non-controlling interest (P30,000 x 20%).. 7,200

Investment in Sky Co.. 72,000Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-OwnedSubsidiary (Partial-goodwill)

EliminationsAssets Peer Co. Sky Co. Dr. Cr. Consolidated

Cash*. P 45,600 P 60,000 P 105,600Accounts receivable.. 90,000 60,000 150,000Inventory. 120,000 72,000 (2) 18,000 210,000Land. 210,000 48,000 (2) 72,000 330,000Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000Goodwill (2) 43,200 43,200Investment in Sky Co. 360,000 (1) 288,000

(2) 72,000 -Total Assets P1,785,600 P960,000 P 2,146,800Liabilities and Stockholders Equity

Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000Accounts payable 120,000 120,000 240,000Bonds payable 240,000 120,000 360,000Premium on bonds payable (3) 42,000 42,000Common stock, P10 par 600,000 600,000Common stock, P10 par 240,000 (1) 240,000Paid in capital in excess of par. 60,000 60,000Paid in capital in excess of par. 24,000 (1) 24,000Retained earnings** 285,600 285,600Retained earnings 96,000 (1) 96,000Non-controlling interest

_________ _______ _________(1 ) 72,000(2) 7,200 _79,200


(1) Eliminate investment against stockholders equity of Sky Co.(2) Eliminate investment against allocated excess.* P420,000 P360,000 P14,400 = P45,600.**P300,000 P14,400 = P285,600.

Incidentally, the non-controlling interest on the date of acquisition is computed asfollows:

Common stock Sky company P 240,000Paid-in capital in excess of par Sky co 24,000Retained earnings Sky Co... 80,000Book value of stockholders equity Sky Co.... P 360,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities). 36,000Fair value of stockholders equity of subsidiary P 396,000Multiplied by: Non-controlling Interest percentage... 20Non-controlling interest (partial).. P 79,200

The balance sheet:Peer Company and SubsidiaryConsolidated Balance Sheet

January 1, 20x4Assets

Cash P 105,600Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment 1,308,000Accumulated depreciation ( 480,000)Goodwill 43,200Total Assets P1,666,800





Parents Stockholders Equity/Equity Attributable to theOwners of the Parent P 945,600

Non-controlling interest 79,200Total Stockholders Equity (Total Equity) P 1,024,800Total Liabilities and Stockholders Equity P1,666,800

Full-goodwill ApproachSchedule of Determination and Allocation of Excess (Full-goodwill)Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)Consideration transferred (P360,000 / 80%).. P 450,000

Less: Book value of stockholders equity of Sky:Common stock (P240,000 x 100%). P 240,000Paid-in capital in excess of par (P96,000 x 100%).. 96,000Retained earnings (P24,000 x 100%).... 24,000 360,000

Allocated excess (excess of cost over book value).. P 90,000Less: Over/under valuation of assets and liabilities:

Increase in inventory (P18,000 x 100%) P 18,000Increase in land (P72,000 x 100%). 72,000Decrease in buildings and equipment

(P12,000 x 100%)..... ( 12,000)Increase in bonds payable (P42,000 x 100%). ( 42,000) 36,000

Positive excess: Full -goodwill (excess of cost overfair value)... P 54,000

The following entry on the date of acquisition in the books of Parent Company:January 1, 20x4(1) Investment in Sky Company 360,000

Cash.. 360,000Acquisition of Sky Company.



The schedule of determination and allocation of excess provides complete guidance for theworksheet eliminating entries on January 1, 20x4:(E1) Common stock Sky Co.

240,000Additional paid-in capital Sky Co. 24,000Retained earnings Sky Co... 96,000

Investment in Sky Co 288,000Non-controlling interest (P300,000 x 20%).. 72,000

Eliminate investment against stockholders equity of Sky Co.

(E2) Inventory. 18,000Accumulated depreciation. 360,000Land. 72,000Goodwill. 54,000

Buildings and equipment.. 372,000Premium on bonds payable 42,000Non-controlling interest [(P30,000 x 20%) +

(P45,000 P36,000)]. 18,000Investment in Sky Co.. 72,000


Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-OwnedSubsidiary (Full-goodwill)

Eliminations

Assets Peer Co. Sky Co. Dr. Cr. ConsolidatedCash*. P 45,600 P 60,000 P 105,600Accounts receivable.. 90,000 60,000 150,000Inventory. 120,000 72,000 (2) 18,000 210,000Land. 210,000 48,000 (2) 72,000 330,000Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000Goodwill (2) 54,000 54,000Investment in Sky Co. 360,000 (1) 288,000

(2) 72,000 -Total Assets P1,785,600 P960,000 P 2,157,600Liabilities and Stockholders Equity

Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000Accounts payable 120,000 120,000 240,000Bonds payable 240,000 120,000 360,000Premium on bonds payable (2) 42,000 42,000Common stock, P10 par 600,000 600,000Common stock, P10 par 240,000 (1) 240,000Paid in capital in excess of par. 60,000 60,000Paid in capital in excess of par. 24,000 (1) 24,000Retained earnings** 285,600 285,600Retained earnings 96,000 (1) 96,000Non-controlling interest _________ _______ _________

(1 ) 72,000(2) 18,000 _90,000


(1) Eliminate investment against stockholders equity of Sky Co.(2) Eliminate investment against allocated excess.* P420,000 P360,000 P14,400 = P45,600.**P300,000 P14,400 = P285,600.


Non-controlling interest (partial).. P 79,200Add: Non-controlling interest (P54,000, full P43,200, partial). 10,800Non-controlling interest (full). P 90,000

The balance sheet;Peer Company and SubsidiaryConsolidated Balance Sheet

January 1, 20x4Assets

Cash P 105,600Accounts receivables 150,000Inventories 210,000Land 330,000Buildings and equipment 1,308,000Accumulated depreciation ( 480,000)Goodwill 54,000Total Assets P1,677,600





Parents Stockholders Equity/Equity Attributable to theOwners of the Parent

P 945,600Non-controlling interest 90,000Total Stockholders Equity (Total Equity) P 1,035,600Total Liabilities and Stockholders Equity P1,677,600

Problem XI

Partial-goodwill Approach (Proportionate Basis)Schedule of Determination and Allocation of Excess (Proportionate Basis))Date of Acquisition January 1, 20x4


Common stock: 12,000 shares x P25 per share... P 300,000Less: Book value of stockholders equity of S:

Common stock (P12,000 x 80%). P 9,600Paid-in capital in excess of par (P108,000 x 80%)... 86,400Retained earnings (P72,000 x 80%).... 57,600 153,600


Increase in inventory (P6,000 x 80%) P 4,800Increase in land (P36,000 x 80%). 28,800Increase in buildings and equipment

(P150,000 x 80%)...... 120,000Increase in copyrights (P60,000 x 80%).. 48,000Increase in contingent liabilities estimated

liability for contingencies (P6,000 x 80%)..... ( 4,800) 196,800Negative excess: Bargain purchase gain to controlling

interest or attributable to parent only).. (P 50,400)

The over/under valuation of assets and liabilities are summarized as follows:S Co.

Book valueS Co.

Fair valueOver/UnderValuation

Inventory.... P 60,000 P 66,000 P 6,000Land. 48,000 84,000 36,000Buildings and equipment (net)......... 222,000 372,000 150,000Copyright.. -0- 60,000 60,000Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)Net undervaluation. P 330,000 P 576,000 P246,000

The following entry on the date of acquisition in the books of Parent CompanyJanuary 1, 20x4(1) Investment in S Company... 300,000

Common stock, P1 par 12,000Paid-in capital in excess of par (P300,000 P12,000 par).. 288,000

Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for theworksheet eliminating entries on January 1, 20x4:(E1) Common stock S Co. 12,000

Additional paid-in capital S Co. 108,000Retained earnings S Co 72,000

Investment in S Co 153,600Non-controlling interest (P192,000 x 20%).. 38,400

Eliminate investment against stockholders equity of S Co

(E2) Inventory.. 6,000Land.. 36,000Buildings and equipment 150,000Copyright.... 60,000

Estimated liability for contingencies.. 6,000Investment in S Co... 146,400Non-controlling interest (P246,000 x 20%). 49,200Retained earnings (bargain purchase gain - closed to

retained earnings since only balance sheets are beingexamined)............................................................................. 50,400


Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-OwnedSubsidiary (Proportionate Basis)

Eliminations

Assets P Co. S Co. Dr. Cr. ConsolidatedCash P 334,800 P 334,800Accounts receivable.. 86,400 P 24,000 110,400Inventory. 96,000 60,000 (2) 6,000 162,000Land 120,000 48,000 (2) 36,000 204,000Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000Copyright... (2) 60,000 60,000Investment in S Co.. 300,000

__________ _________(1) 153,600(2) 146,400 -

Total Assets P1,681,200 354,000 P1,987,200Liabilities and Stockholders Equity

Accounts payable P 96,000 42,000 P 138,000Estimated liability for

contingencies (2) 6,000 6,000Bonds payable 240,000 120,000 360,000Common stock, P1 par*.. 44,160 44,160Common stock, P1 par 12,000 (1) 12,000Paid-in capital in excess of

par** 723,840 723,840Paid-in capital in excess of par 108,000(1) (1) 108,000Retained earnings 577,200 (2) 50,400 627,600Retained earnings 72,000 (1) 72,000Non-controlling interest

_________ _______ _________(1 ) 38,400(2) 49,200 _87,600


(1) Eliminate investment against stockholders equity of Scud Co.(2) Eliminate investment against allocated excess.* P32,160 + (12,000 shares xP1 par) = P44,160.**P435,840 + [12,000 shares x (P25 P1)] = P723,840.


Common stock S Co. P 12,000Paid-in capital in excess of par S Co.. 108,000Retained earnings S Co 72,000Book value of stockholders equity S Co. P 192,000Adjustments to reflect fair value (over/ undervaluation

of assets and liabilities). 246,000Fair value of stockholders equity of subsidiary P 438,000Multiplied by: Non-controlling Interest percentage... 20Non-controlling interest (partial).. P 87,600

The balance sheet:Assets

Cash P 334,800Accounts receivables 110,400Inventories 162,000Land 204,000Buildings and equipment (net) 1,116,000Copyright 60,000Total Assets P1,987,200


Accounts payable P 138,000Estimated liability for contingencies 6,000Bonds payable 360,000



Parents Stockholders Equity/Equity Attributable to theOwners of the Parent P1,395,600

Non-controlling interest 87,600Total Stockholders Equity (Total Equity) P1,483,200Total Liabilities and Stockholders Equity P1,987,200

Full-goodwill Approach (Fair Value Basis)Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)Date of Acquisition January 1, 20x4


Common stock: 12,000 x P25 (80%) P 300,000Fair value of NCI (given) (20%). 90,000Fair value of subsidiary (100%). P 390,000

Less: Book value of stockholders equity of S:Common stock (P12,000 x 100%). P 12,000Paid-in capital in excess of par (P108,000 x 100%). 108,000Retained earnings (P72,000 x 100%)... 72,000 192,000


Increase in inventory (P6,000 x 100%) P 6,000Increase in land (P36,000 x 100%) 36,000Increase in buildings and equipment

(P150,000 x 100%).... 150,000Increase in copyrights (P60,000 x 100%) 6,000Increase in contingent liabilities estimated

liability for contingencies (P6,000 x 100%).. ( 6,000) 246,000Negative excess: Bargain purchase gain to controlling

interest or attributable to parent only).. (P 48,000)

The following entry on the date of acquisition in the books of Parent Company:January 1, 20x4(1) Investment in S Company... 300,000

Common stock, P1 par 12,000Paid-in capital in excess of par (P300,000 P12,000 par).. 288,000Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for theworksheet eliminating entries on January 1, 20x4:(E1) Common stock S Co. 12,000

Additional paid-in capital S Co. 108,000Retained earnings S Co 72,000

Investment in S Co 153,600Non-controlling interest (P192,000 x 20%).. 38,400

Eliminate investment against stockholders equity of S Co(E2) Inventory.. 6,000

Land.. 36,000Buildings and equipment 150,000Copyright.... 60,000

Estimated liability for contingencies.. 6,000Investment in S Co... 146,400Non-controlling interest (P90,000 given P38,400) 51,600Retained earnings (bargain purchase gain - closed to

retained earnings since only balance sheets are beingexamined)............................................................................. 48,000


Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-OwnedSubsidiary (Fair Value Basis)

EliminationsAssets P Co. S Co. Dr. Cr. Consolidated

Cash P 334,800 P 334,800Accounts receivable.. 86,400 P 24,000 110,400Inventory. 96,000 60,000 (2) 6,000 162,000Land 120,000 48,000 (2) 36,000 204,000Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000Copyright... (2) 60,000 60,000Investment in S Co.. 300,000

__________ _________(1) 153,600(2) 146,400 -

Total Assets P1,681,200 P354,000 P1,987,200Liabilities and Stockholders Equity

Accounts payable P 96,000 42,000 P 138,000Estimated liability for

contingencies (2) 6,000 6,000Bonds payable 240,000 120,000 360,000Common stock, P1 par*.. 44,160 44,160Common stock, P1 par 12,000 (2) 12,000Paid-in capital in excess of par** 723,840 723,840Paid-in capital in excess of par 108,000(2) (1) 108,000Retained earnings 577,200 (2) 48,000 625,200Retained earnings 72,000 (1) 72,000Non-controlling interest

_________ _______ _________(1 ) 38,400(2) 51,600 _90,000


(1) Eliminate investment against stockholders equity of Scud Co.(2) Eliminate investment against allocated excess.* P32,160 + (12,000 shares xP1 par) = P44,160.**P435,840 + [12,000 shares x (P25 P1)] = P723,840.

The balance sheet:Assets

Cash P 334,800Accounts receivables 110,400Inventories 162,000Land 204,000Buildings and equipment (net) 1,116,000Copyright 60,000Total Assets P1,987,200


Accounts payable P 138,000Estimated liability for contingencies 6,000Bonds payable 360,000



Parents Stockholders Equity/Equity Attributable to theOwners of the Parent P1,393,200

Non-controlling interest 90,000Total Stockholders Equity (Total Equity) P1,483,200Total Liabilities and Stockholders Equity P1,987,200

Problem XII1. Inventory P 140,0002. Land P 60,0003. Buildings and Equipment P 550,0004. Goodwill

Fair value of consideration given P 576,000Less; Book value of SHE 450,000Allocated excess: P126,000Increase / decrease in fair value (Fair valueincrement) for:

Inventory P 20,000Land (10,000)Buildings and equipment 70,000 80,000

Goodwill P 46,0005. Investment in AA Corporation: Nothing would be reported; the balance in the

investment account is eliminated.Problem XIII1. Inventory (P120,000 + P20,000) P140,0002. Land (P70,000 P10,000) P 60,0003. Buildings and Equipment (P480,000 + P70,000) 550,000

4. Full-Goodwill, P57,500Fair value of Subsidiary:

Consideration transferred P470,000Add: FV of NCI 117,500 P587,500

Less: BV of SHE of Slim (P250,000 + P200,000) 450,000Allocated excess P137,500Less: Over/under valuation of A and L: Inc. (Dec.)Inventory P 20,000Land (10,000)Buildings and equipment (net) 70,000 80,000

Goodwill full P 57,500or,Fair value of consideration given by Ford P470,000Fair value of noncontrolling interest 117,500Total fair value P587,500Book value of Slims net assets P450,000Fair value increment for:Inventory 20,000Land (10,000)Buildings and equipment (net) 70,000

Fair value of identifiable net assets (530,000)Goodwill - full P 57,500Partial Goodwill, P46,000


Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000Allocated excess P110,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P20,000 x 80%) P 16,000Land (P10,000 x 80%) ( 8,000)Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000

Goodwill partial P 46,0005. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.

6.Noncontrolling Interest (P587,500 x .20) P117,500

or,BV SHE of SS P450,000Adjustments to reflect fair value (P20,000 P10,000 +P 70,000) 80,000FV of SHE of SS P530,000Multiplied by: NCI % 20%NCI partial goodwill P106,000Add: NCI on full-goodwill (P57,500 P46,000) 11,500NCI full goodwill P117,500

Problem XIV(Overview of the steps in applying the acquisition method when shares have been issued tocreate a combination No. 8 includes a bargain purchase.)

1. The fair value of the consideration includesFair value of stock issued P1,500,000Contingent performance obligation 30,000Fair value of consideration transferred P1,530,000

2. Under the acquisition method, stock issue costs reduce additional paid-in capital.3. The acquisition method records direct costs such as fees paid to investment banks for

arranging the combination as expenses.4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in the

Common Stock account. The P74 fair value in excess of par value (P75 P1) is anincrease to additional paid-in capital of P1,480,000 (P74 20,000 shares).

5. Fair value of consideration transferred (above) P1,530,000Receivables P 80,000

Patented technology 700,000Customer relationships 500,000IPR&D 300,000Liabilities (400,000) 1,180,000Goodwill P 350,000

6. Revenues and expenses of the subsidiary from the period prior to the combination areomitted from the consolidated totals. Only the operational figures for the subsidiary afterthe purchase are applicable to the business combination. The previous owners earnedany previous profits.

7. The subsidiarys Common Stock and Additional Paid-in Capital accounts have noimpact on the consolidated totals.

8. The fair value of the consideration transferred is now P1,030,000. This amount indicates abargain purchase:Fair value of consideration transferred (above) P1,030,000Receivables P 80,000Patented technology 700,000Customer relationships 500,000IPR&D 300,000Liabilities (400,000) 1,180,000Gain on bargain purchase P 150,000

Problem XVIn acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there area limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000consideration transferred exceeds the P680,000 fair value of SSs net assets acquired.1. Inventory = P670,000 (P's book value plus Sun's fair value)2. Land = P710,000 (P's book value plus Sun's fair value)3. Buildings and equipment = P930,000 (P's book value plus S's fair value)4. Franchise agreements = P440,000 P's book value plus S's fair value)5. Goodwill = P80,000 (calculated above)6. Revenues = P960,000 (only parent company operational figures are reported at date of

acquisition)7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs

are reported at date of acquisition)9. Retained Earnings, 1/1 = P390,000 (P's book value)Problem XVI1. A total of P210,000 (P120,000 + P90,000) should be reported.2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The

amount paid was P30,000 greater than the book value of the net assets of SS and is reportedas goodwill in the consolidated balance sheet at January 1, 20X5.

3. In determining the amount to be reported for land in the consolidated balance sheet,P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS forP25,000 (P10,000 + P15,000).

4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in theconsolidated balance sheet. A total of P10,000 was deducted in determining the balancereported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of anintercompany receivable must be offset by the elimination of an intercompany payable.

5. The par value of B's stock outstanding is P100,000.Problem XVII refer also to Multiple Choice; Nos. 24-32

Cash: P74,000 = P44,000 + P30,000Accounts receivable: P155,000 = P110,000 + P45,000Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 P70,000)]Land: P125,000 = [P80,000 + P25,000 + (P45,000 P25,000)]Buildings and equipment: P900,000 = P500,000 + P400,000Accumulated depreciation: P388,000 = P223,000 + P165,000Goodwill (full-goodwill) = P40,000*Total Assets = P1,121,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000

P388,000 + P40,000, or:Total Assets of Power Corp. P 791,500Less: Investment in Silk Corp. (150,500)

P 641,000Book value of assets of Silk Corp. 405,000Book value reported by Power andSilk P1,046,000

Increase in inventory (P85,000 - P70,000) 15,000Increase in land (P45,000 - P25,000) 20,000Goodwill 40,000Total assets reported (based on full-

goodwill) P1,121,000Accounts payable: P89,500 = P61,500 + P28,000Taxes payable P132,000 = P95,000 + P37,000Bonds payable: P480,000 = P280,000 + P200,000Total liabilities: P701,500 = P89,500 + P132,000 + P480,000Common stock: P150,000, parent onlyRetained earnings: P205,000, the amount reported by parentNon-controlling interest (full-goodwill): P64,500*Stockholders equity: P419,500

Consolidated SHE:Common stock P150,000Retained Earnings 205,000Parents SHE or Equity Attributable to Parent P355,000NCI (full-goodwill) 64,500

Consolidated SHE P419,500

Computation of Goodwill:Full-goodwill:Fair value of Subsidiary:

Consideration transferred P150,500Add: FV of NCI **64,500 P215,000

Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000Allocated excess P 75,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P70,000 P85,000) x 100% P 15,000Land (P25,000 P45,000) x 100% 20,000 35,000

Goodwill full P 40,000**given amount, but it should not be lower than the fair value of SHE subsidiary amounting toP52,500 computed as follows :

FV of SHE of SS:Book value of SHE of SS (P50,000 + P90,000).P 140,000Adjustments to reflect fair value (P15,000 + P20,000) 35,000FV of SHE of SS P 175,000Multiplied by: NCI%.......................................................... 30%FV of NCI (partial)..P 52,500

or,Partial GoodwillFair value of Subsidiary:

Consideration transferred P150,500Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000Allocated excess P 52,500Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P15,000 x 70%) P 10,500Land (P20,000 x 70%) 14,000 24,500

Goodwill partial P 28,000If partial-goodwill:

Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000 P388,000 + P28,000,

Non-controlling interest (partial-goodwill): P52,500NCI

FV of SHE of SSD:Book value of SHE of SS (P50,000 + P90,000).P 140,000Adjustments to reflect fair value (P15,000 + P20,000) 35,000FV of SHE of SSD P 175,000

Multiplied by: NCI%.......................................................... 30%FV of NCI (partial)..P 52,500

Stockholders equity: P419,500Consolidated SHE:Common stock P150,000Retained Earnings 205,000Parents SHE or Equity Attributable to Parent P 355,000NCI (partial-goodwill) 52,500

Consolidated SHE P404,500Problem XVIII1. P470,000 = P470,000 - P55,000 + P55,0002. P605,000 = (P470,000 - P55,000) + P190,0003. P405,000 = P270,000 + P135,0004. P200,000 (as reported by GG Corporation)Problem XIX1. P57,000 = (P120,000 - P25,000) x .602. P81,000 = (P120,000 - P25,000) + P40,000 - P54,0003. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200Problem XX1. Investment in Craig Company........................................................... 950,000

Cash ................................................................................................... 950,0002.


Less: BV of SHE of Craig (P300,000 + P420,000) 720,000Allocated excess P 230,000Less: Over/under valuation of A and L: Inc (Decrease)

Land (P250,000 fair P200,000 book value P 50,000Building (P700,000 fair P600,000 book value) 100,000Discount on bonds payable P280,000 fair P300,000

book value) 20,000Deferred tax liability (P40,000 fair P50,000 book value) 10,000

Buildings and equipment (net) 180,000Goodwill P 50,000

3. Adjustments on Craig books:Land......................................................................................................... 50,000Building.................................................................................................... 100,000Discount on Bonds Payable................................................................ 20,000Goodwill.................................................................................................. 50,000Deferred Tax Liability ............................................................................ 10,000Retained Earnings................................................................................. 420,000

Paid-In Capital in Excess of Par..................................................... 650,0004. Elimination entries:

Common Stock ..................................................................................... 300,000Paid-In Capital in Excess of Par .......................................................... 650,000

Investment in Craig Company...................................................... 950,000Problem XXI

Full-GoodwillFair value of Subsidiary:

Consideration transferred (200 shares x P25) P 5,000Less: BV of SHE of Public (P200 + P800 + P1,000) _2,000Allocated excess P 3,000Less: Over/under valuation of A and L: Inc. (Dec.)

Fixed assets (P3,000 fair P2,000 book value) _1,000Goodwill full P2,000

or,

Fair value of Subsidiary:Consideration transferred (200 shares x P25) P 5,000

Less: FV of SHE of Public (P1,0000 + P3,000 P1,000) _3,000Goodwill full P2,000

Note: The currently issued shares of Public Company and its fair value were used for the followingreasons (refer to Illustration 15-15 for comparison):

Total number of shares for Public Company after acquisition not given The fair value of share of Private Company not given.

PublicCompany

PrivateCompany

Fair value of net assets. P3,000 ?Fair value of common stock per share P25

Public PrivateCurrently issued 200 40%** ? /40%Additional shares issued 300 60% 100 /60%

500 ?15,000 shares / 25,000 shares = 60%

Values are prior to acquisition (200 shares P25 market value). Subsequent to acquisition, Private Company is the parent with 60% ownership; prior to

acquisition, Private Company has 0% ownership of Public Company. Prior to acquisition, this represents 100% ownership of Public Company; subsequent to

acquisition, these holders of 100 shares of Public Company become the 40% NCI. Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on full-

goodwill amounted to P800 (P2,000 P1,200 or P2,000 x 40%). This approach to determinepartial goodwill is acceptable as long as there is FV of NCI in the acquirer.

Problem XXII (Assume the use of Full-Goodwill Method)Note: This solution assumes a difference between the basis of acquired assets for accountingand tax purposes for this stock acquisition.1. Investment in Seely Company 570,000

Common Stock*** 95,000Additional Paid-in-Capital 475,000

***Note: Depending on the wording of this exercise, the credit may be cash instead of commonstock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.2. Common Stock - Seely 80,000

Other Contributed Capital Seely 132,000Retained Earnings - Seely 160,000Inventory 52,000Land 25,000Plant Assets 71,000Discount on Bonds Payable 20,000Goodwill** 127,200

Deferred Income Tax Liability* 67,200Investment in Seely Company 570,000Non-controlling Interest [(P570,000/.95) x .05] 30,000

*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))Problem XXIII

HB Country and HCO MediaConsolidation of a variable interest entity is required if a parent has a variable interest thatwill Absorb a majority of the entity's expected losses if they occur Receive a majority of the entity's expected residual returns if they occurBecause (1) HCO Medias losses are limited by contract, and (2) Hillsborough has the rightto receive the residual benefits of the sales generated on the HCO Media internet siteabove P500,000, Hillsborough should consolidate HCO Media.

TPC (Nos. 1, 2 and 3 of the requirement are part of the information)a. The purpose of consolidated financial statements is to present the financial position

and results of operations of a group of businesses as if they were a single entity. Theyare designed to provide information useful for making business and economicdecisionsespecially assessing amounts, timing, and uncertainty of prospective cashflows. Consolidated statements also provide more complete information about theresources, obligations, risks, and opportunities of an enterprise than separatestatements.

b. An entity qualifies as a VIE and is subject to consolidation if either of the followingconditions exist. The total equity at risk is not sufficient to permit the entity to finance its activitieswithout additional subordinated financial support from other parties. In most cases, ifequity at risk is less than 10% of total assets, the risk is deemed insufficient. The equity investors in the VIE lack any one of the following three characteristics ofa controlling financial interest.1. The direct or indirect ability to make decisions about an entity's activities through

voting rights or similar rights.2. The obligation to absorb the expected losses of the entity if they occur (e.g.,

another firm may guarantee a return to the equity investors)3. The right to receive the expected residual returns of the entity (e.g., the investors'

return may be capped by the entity's governing documents or other arrangementswith variable interest holders).

Consolidation is required if a parent has a variable interest that will Absorb a majority of the entity's expected losses if they occur Receive a majority of the entity's expected residual returns if they occurAlso, a direct or indirect ability to make decisions that significantly affect the results ofthe activities of a variable interest entity is a strong indication that an enterprise hasone or both of the characteristics that would require consolidation of the variableinterest entity.

c. Risks of the construction project that has TPC has effectively shifted to the owners of theVIE At the end of the 1st five-year lease term, if the parent opts to sell the facility, andthe proceeds are insufficient to repay the VIE investors, TPC may be required to pay upto 85% of the project's cost. Thus, a potential 15% risk. During construction 11.1% of project cost potential termination loss.Risks that remain with TPC Guarantees of return to VIE investors at market rate, if facility does not perform asexpected TPC is still obligated to pay market rates. If lease is not renewed, TPC must either purchase the facility or sell it on behalf ofthe VIE with a guarantee of Investors' (debt and equity) balances representing a risk ofdecline in market value of asset Debt guarantees

d. TPC possesses the following characteristics of a primary beneficiary Direct decision-making ability (end of five-year lease term) Absorb a majority of the entity's expected losses if they occur (via debt guaranteesand guaranteed lease payments and residual value) Receive a majority of the entity's expected residual returns if they occur (via use ofthe facility and potential increase in its market value).

Problem XXIV1. Implied valuation and excess allocation for S.

Non-controlling interest fair value P 60,000Consideration transferred by P. 20,000

Total business fair value 80,000Fair value of VIE net assets 100,000Excess net asset value fair value P20,000

The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase.All SoftPlus assets and liabilities are recognized at their individual fair values.

Cash P20,000Marketing software 160,000Computer equipment 40,000Long-term debt (120,000)Noncontrolling interest (60,000)Pantech equity interest (20,000)Gain on bargain purchase (20,000)

-0-2. Implied valuation and excess valuation for Softplus.

Noncontrolling interest fair value 60,000Consideration transferred by Pantech 20,000

Total business fair value 80,000Fair value of VIE net identifiable assets 60,000Goodwill P20,000

When the business fair value of a VIE (that is a business) is greater than assessed assetvalues, all identifiable assets and liabilities are reported at fair values (unless a previouslyheld interest) and the difference is treated as a goodwill.

Cash P20,000Marketing software 120,000Computer equipment 40,000Goodwill (excess business fair value) 20,000Long-term debt (120,000)Noncontrolling interest (60,000)Pantech equity interest (20,000)

-0-Multiple Choice Problems1. c at fair value2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]3. d

Consideration transferred P300,000Less: Book value of SHE of S (P100,000 + P115,000) 215,000Allocated excess (excess of fair value or cost over book value)

- sometimes termed as Differential P 85,0004. a Investment in subsidiary in the consolidated statements is eliminated in its entirety.5. d

Consideration transferred P150,000Less: Book value of SHE of S (P40,000 + P52,000) 92,000Allocated excess (excess of fair value or cost over book value)

- sometimes termed as Differential P 58,0006. b [P150,000 (P173,000 P40,000 P5,000)]7. d - P600,000 - P15,000 - P255,000 = P330,0008. c - P475,000 - P300,000 = P175,000 debit9. b fair value10. d fair value11. d fair value12. c -

Full-goodwill:Fair value of Subsidiary:

Consideration transferred P300,000Add: FV of NCI 100,000 P400,000

Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000Allocated excess P120,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P65,000 P70,000) x 100% P( 5,000)Land (P100,000 P90,000) x 100% 10,000Buildings and equipment (P300,000 P250,00) x 100% 50,000 __55,000

Goodwill full P 65,000If partial-goodwill, no answer available, computed as follows:Fair value of Subsidiary:

Consideration transferred P300,000

Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000Allocated excess P 90,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P65,000 P70,000) x 75% P( 3,750)Land (P100,000 P90,000) x 75% 7,500Buildings and equipment (P300,000 P250,00) x 75% 37,500 __41,250

Goodwill full P 48,75013. a Investment in Silver will be eliminated in the consolidated balance sheet14. d

FV of SHE of S:Book value of SHE of S (P100,000 + P180,000)..P 280,000Adjustments to reflect fair value 55,000FV of SHE of S P 335,000Multiplied by: NCI%.................................................................... 25%FV of NCI (partial).P 83,750Add: NCI on full goodwill (P65,000 P48,750).. 16,250FV of NCI (full-goodwill)*P100,000* same with the NCI given per problem

15. b P135,000 = P90,000 + P45,00016. d


Consideration transferred P160,000Add: FV of NCI _40,000 P200,000

Less: BV of SHE of Silver (P40,000 + P120,000) x 100% _160,000Allocated excess P 40,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P45,000 P40,000) x 100% P 5,000Land (P60,000 P40,000) x 100% 20,000 25,000

Goodwill full P 15,00017. a

Total Assets of Gulliver (Jonathan) P610,000Less: Investment in Sea-Gull Corp. (160,000)

P 450,000Book value of assets of Sea Corp. 230,000Book value reported by Gulliver/Jonathan and Sea P 680,000Increase in inventory (P45,000 P40,000) 5,000Increase in land (P60,000 P40,000) 20,000Goodwill (full)* 15,000Total assets reported P 720,000

18. c P100,000 + P95,000 + P30,000 + P40,000 = P265,00019. c

FV of SHE of S:Book value of SHE of S (P40,000 + P120,000).P 160,000Adjustments to reflect fair value [(P45,000 + P60,000) -

(P40,000 + P40,000). 25,000FV of SHE of S P 185,000Multiplied by: NCI%.................................................................... 20%FV of NCI (partial).P 37,000Add: NCI on full goodwill (P15,000 P12,000).. 3,000FV of NCI (full-goodwill)* P 40,000* same with the NCI given per problemPartial GoodwillFair value of Subsidiary:

Consideration transferred P160,000Less: BV of SHE of S (P40,000 + P120,000) x 80% _128,000Allocated excess P 32,000Less: Over/under valuation of A and L: Inc. (Dec.)

Inventory (P5,000 x 80%) P 4,000Land (P20,000 x 80%) 16,000 __20,000

Goodwill partial P 12,00020. a - The amount reported by Jonathan Corporation21. a

Jonathan stockholders' equity(P200,000 + P205,000).. P405,000NCI (full-goodwill) refer to No. 19.. 40,000Consolidated stockholders equity. P445,000

22. d [P132,000 + (P38,000 + {P60,000 P38,000}] or P132,000 + P60,00023. b

Total Assets of P. P1,278,000Less: Investment in Swimmer Corp. (440,000)

P 838,000Book value of assets of S Corp. 542,000Book value reported by P and S P1,380,000Increase in inventory (P60,000 P38,000) 22,000Increase in land (P60,000 P32,000) 28,000Increase in plant assets [P350,000 (P300,000 P60,000)] 110,000Goodwill (full)* 26,667Total assets reported P1,566,667*(P440,000/75%) (P702,000 P142,000) = P26,667

If partial-goodwill:Total Assets of P. P1,278,000Less: Investment in S Corp. (440,000)

P 838,000Book value of assets of S Corp. 542,000Book value reported by P and S P1,380,000Increase in inventory (P60,000 P38,000) 22,000Increase in land (P60,000 P32,000) 28,000Increase in plant assets [P350,000 (P300,000 P60,000)] 110,000Goodwill (partial)* 20,000Total assets reported P1,540,000*[P440,000 (P702,000 P142,000) x 75%]

24. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)25. a


Consideration transferred P150,500Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000Allocated excess P 52,500Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P15,000 x 70%) P 10,500Land (P20,000 x 70%) 14,000 24,500

Goodwill partial P 28,00026. c


Consideration transferred P150,500Add: FV of NCI **64,500 P215,000

Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000Allocated excess P 75,000Less: Over/under valuation of A and L: Inc. (Dec.)Inventory (P70,000 P85,000) x 100% P 15,000Land (P25,000 P45,000) x 100% 20,000 35,000

Goodwill full P 40,000**given amount, but it should not be lower than the fair value of SHE subsidiary amounting toP52,500 computed as follows :

FV of SHE of SS:Book value of SHE of SS (P50,000 + P90,000).P 140,000Adjustments to reflect fair value (P15,000 + P20,000) 35,000

FV of SHE of SS P 175,000Multiplied by: NCI%.......................................................... 30%FV of NCI (partial)..P 52,500

27. bTotal Assets of Power Corp. P 791,500Less: Investment in Silk Corp. (150,500)


Increase in inventory (P85,000 - P70,000) 15,000Increase in land (P45,000 - P25,000) 20,000Goodwill (full) 40,000Total assets reported P1,121,000

If partial-goodwill:Total Assets of Power Corp. P 791,500Less: Investment in Silk Corp. (150,500)


Increase in inventory (P85,000 - P70,000) 15,000Increase in land (P45,000 - P25,000) 20,000Goodwill (partial) 28,000Total assets reported P1,109,000

28. d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000+ P200,000)

29. aNon-controlling interest (partial-goodwill): P52,500

NCIFV of SHE of SSD:

Book value of SHE of SS (P50,000 + P90,000).P 140,000Adjustments to reflect fair value (P15,000 + P20,000) 35,000FV of SHE of SSD P 175,000Multiplied by: NCI%.......................................................... 30%FV of NCI (partial)..P 52,500

30. dNon-controlling interest (fulll-goodwill): P64,500

NCIFV of SHE of SSD:

Book value of SHE of SS (P50,000 + P90,000).P 140,000Adjustments to reflect fair value (P15,000 + P20,000) 35,000FV of SHE of SSD P 175,000Multiplied by: NCI%.......................................................... 30%FV of NCI (partial)..P 52,500Add: NCI on full-goodwill (P40,000 P12,000)... 12,000FV of NCI (full)..P 64,500

31. d P205,000 = The amount reported by Power Corporation32. c P419,500 = (P150,000 + P205,000) + P64,500

If partial-goodwill:Stockholders equity: P419,500

Consolidated SHE:Common stock P150,000Retained Earnings 205,000Parents SHE or Equity Attributable to Parent P355,000NCI (partial-goodwill) 52,500

Consolidated SHE P404,50033. b

Consideration transferred ........................................................................................ P60,000Less: Strand's book value (P50,000 x 80%) .............................................................. (40,000)Fair value in excess of book value ......................................................................... P20,000Excess assigned to inventory (60%) .......................................................... P12,000Excess assigned to goodwill (40%) ........................................................... P 8,000

34. cConsideration transferred (P60,000 80%) ............................................................ P75,000Less: Strand's book value .......................................................................................... (50,000)Fair value in excess of book value ......................................................................... P25,000Excess assigned to inventory (60%) .......................................................... P15,000Excess assigned to goodwill (40%) ........................................................... P10,000

35. aPark current assets ....................................................................................................... P 70,000Strand current assets ................................................................................................... 20,000Excess inventory fair value ......................................................................................... 15,000Consolidated current assets...................................................................................... P105,000

36. cPark noncurrent assets............................................................................................... P 90,000Strand noncurrent assets........................................................................................... 40,000Excess fair value to goodwill (partial) ..................................................................... ___8,000Consolidated noncurrent assets.............................................................................. P140,000

37. dPark noncurrent assets................................................................................................ P 90,000Strand noncurrent assets ............................................................................................ 40,000Excess fair value to goodwill (full)............................................................................. __10,000Consolidated noncurrent assets............................................................................... P140,000

38. b Add the two book values and include 10% (the P6,000 current portion) of the loan takenout by Park to acquire Strand.

39. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loantaken out by Polk to acquire Strand.

40. bPark stockholders' equity........................................................................................... P80,000NCI (partial):

BV of SHE S ..P50,000Adjustments to reflect fair value (inventory). 15,000FV of SHE SP65,000x: Multiplied by: NCI%........................................................................ 20% 13,000

Total stockholders' equity......................................................................................... P93,00041. c

Park stockholders' equity.......................................................................... . P80,000NCI (full):

BV of SHE S ..P50,000Adjustments to reflect fair value (inventory). 15,000FV of SHE SP65,000x: Multiplied by: NCI%......................................................................... 20%NCI (partial)P13,000Add: NCI on full-goodwill (P10,,000 P8,000) 2,000

Non-controlling interest at fair value (20% P75,000) 15,000Total stockholders' equity P95,000

42. b43. a P150,000 + P500,00044. a at fair value45. b

FV, stocks issued P 4,200,000Less: Par value of stocks issued (500,000 shares x P5).. __2,500,000APIC P 1,700,000Add: APIC of P 7,500,000

Less: Stock issuance cost ___100,000P 9,100,000

46. a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,00047. a at fair value48. c49. a

[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000 increase +P100,000 in increase in PPE] = P100,000

50. bP1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in PPE P300,000 P500,000) = P550,000

51. a52. d (P1,000,000 + P250,000) = P1,250,000 P only.53. d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,00054. b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach55. a - P only56. d

Total Assets of P P 960,000Less: Investment in S (330,000)

P 630,000Book value of assets of S 405,000Book value reported by P and S P1,035,000Increase in inventory (P45,000 P26,000) 19,000Increase in land (P45,000 - P24,000) 21,000Increase in plant assets [P300,000 (P225,000 P45,000)] 120,000Goodwill (full) _____0Total assets reported P1,195,000

If partial-goodwill same answer with full-goodwill approach, since there is no gain.57. b step-acquisition

60% FV, stocks issued: 60,000 shares x P6, fair value P360,00030% FV of previously held equity interest: 30,000 shares x P5, fair value 150,00010% FV of NCI (100,000 60,000 30,000) x P, fair value 40,000100% Fair value of subsidiary P560,000Less: Fair value of net assets (SHE) of subsidiary 500,000

P 60,00058. b59. a60. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,00061. d

Book value of Assets (P80,000 + P50,000 + P200,000) P330,000Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000

P 65,00062. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in

the worksheet or eliminating entries.63. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.64. c65. a66. d Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be

made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is aconsolidated subsidiary, so the P300,000 intercompany account will be eliminated.

67. d68. a69. c In the combined financial statements (which normally used to described financial

statements in a common control situation), intercompany accounts are eliminated in full.70. d In consolidating the subsidiary's figures, all intercompany balances must be eliminated in

their entirety for external reporting purposes. Even though the subsidiary is less than fullyowned, the parent nonetheless controls it.

71. dThe acquisition method consolidates assets at fair value at acquisition date regardless of theparents percentage ownership.

72. c73. c

An asset acquired in a business combination is initially valued at 100% acquisition-datefair value and subsequently amortized its useful life.Patent fair value at January 1, 2009 ....................................................................... P45,000Amortization for 2 years (10 year life) ..................................................................... (9,000)Patent reported amount December 31, 2010 ...................................................... P36,000

74. aPP - building .................................................................................................................. P510,000

TT building acquisition-date fair value P300,000Amortization for 3 years (10-year life) (90,000) 210,000

Consolidated buildings ............................................................................................... P720,000-OR-PP - building ................................................................................................................... 510,000

TT building 12/31/x4 P182,000Excess acquisition-date fair value allocation 40,000Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000

Consolidated buildings ............................................................................................... P720,00075. d

Cost of Investment (40 shares* x P40)P 1,600Less: Book value of SHE Pedro Ltd (P300 + P800) x 100%............................................ 1,100Allocated excessP 500Less: Over/Under valuation of Assets and Liabilities:

Increase in Non-current assets: [(P1,500 P1,300) x 100% x 70%......................... 140GoodwillP 360

100%* Pedro Ltd Santi Ltd

Currently issued 150 60% ** 60 60%Additional shares issued.. 100 40% 40 / 40%Total shares 250 100

**150/250

Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltdsshareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2) for the 60 shares in Santi Ltd.Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing theshareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the mergerand 150 new shares held by former shareholders in Santi Ltd. In essence, the formershareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former SantiLtd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that therehas been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.Reverse acquisition occurs when the legal subsidiary has this form of control over the legalparent. The usual circumstance creating a reverse acquisition is where an entity (the legalparent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part ofthe exchange transaction, it issues enough voting equity as consideration for control of thecombined entity to pass to the owners of the legal subsidiary.The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets andliabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisitionaccounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require theassets and liabilities of Santi Ltd to be valued at fair value.

76. dConsideration transferred (4,000,000 shares* x P6)P24,000,000Less: Book value of SHE Man: P18,000,000 x 100%.................................... 18,000,000Allocated excess P 6,000,000Less: Over/Under valuation of assets and liabilities

(book value same fair value) 0Goodwill P 6,000,000

100%

* Man MaskCurrently issued 15 M 60% ** 6 M 60%Additional shares issued.. 10 M 40% 4 M / 40%Total shares 25 M 10 M**15M/25M

77. cP60,000 allocation to equipment is "pushed-down" to subsidiary and increases balancefrom P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.

78. bTarget not met: 100,000 shares x .75 share x P10 = P750,000Target met: 100,000 shares x .8 x P10 = P800,000

79. cTarget not met: 250,000 shares x 1.50 share x P30 = P11,250,000Target met: 250,000 shares x 1.8 x P30 = P13,500,000

80. c500,000 shares x 1.7 exchange ratio x P25 = P21,250,000The investment value does not change as a result of a change in the share prices.

Quiz- XV1. P290,0002. None, since there are no revenues and expenses of the acquire up to the date of

acquisition3. P525,0004. P80,000 = P250,000 - P170,0005. P99,000 = (P10,000 + P80,000 + P350,000 - P110,000)(.30)6. P21,000 = (P60,000 - P12,000 - P5,000 - P8,000 - P14,000)7. P70,000 = P56,000/.88. P56,000 = (P220,000 - P120,000 - P44,000)9. P700,000 = P490,000/.7010. P180,000 = [(P490,000/.70) - (P30,000 + P140,000 + P460,000 - P110,000)]11. P90,000 = P460,000 - P370,00012. P160,000 = (P430,000 - P210,000 - P60,000)13. P700,000 = P560,000/.8014. P80,000 = [(P560,000/.80) - (P50,000 + P200,000 + P600,000 - P230,000)]15. P70,000 = P600,000 - P530,00016. P130,000 = ($60,000 + $210,000 + $630,000 - $250,000)(.20)17. P50,00018. P420,00019. P201,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.30)20. P80,000 = (P700,000 - P620,000)21. P90,000 credit (P260,000 - P350,000)22. P110,000 debit23. P120,000 credit (P300,000 - P420,000)24. P180,000 debit25. P50,000 debit (P300,000 - P250,000)26. P56,000 debit27. P150,000 debit (P600,000 - P450,000)28. P260,000 debit29. c30. 500,000 shares x 1.7 exchange ratio x P25 = P21,250,000. The investment value does not

change as a result of a change in the share prices.31. Inventories (P110,000 + P180,000 P10,000) = P280,00032. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,00033. Investment in DD stock will be fully eliminated and will not appear in the consolidated

balance sheet34. P35,000


Less: BV of SHE of DD (P100,000 + P200,000 P40,000) 260,000Allocated excess P 20,000Less: Over/under valuation of A and L: Inc (Decrease)

Inventory (P 10,000)Buildings and equipment (net) 25,000 15,000

P 5,000Add: Existing goodwill (to be eliminated 30,000Goodwill to be reported P 35,000

or, (Approach used in business combination statutory merger/consolidation)Fair value of consideration given P280,000Fair value of Decibel's net assets:Cash and receivables P 40,000Inventory 170,000Buildings and equipment (net) 375,000Accounts payable (90,000)Notes payable (250,000)

Fair value of net identifiableAssets (245,000)

Goodwill to be reported P 35,000Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in thecomputation of Decibel's net identifiable assets at the date of acquisition.

35. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)36. Retained earnings, P105,000 (parent only, SHE of subsidiary is eliminated)37. The investment balance reported by Roof will be P192,000.38. Total assets will increase by P310,000.39. Total liabilities will increase by P95,000.40. The amount of goodwill for the entity as a whole will be P25,000

[(P192,000 + P48,000) - (P310,000 - P95,000)].41. Non-controlling interest will be reported at P48,000 (P240,000 x .20).Theories1. c 6. B 11. c 16. d 21. b 26. d 31 c 36. d2. a 7. b 12. c 17. c 22. a 27. c 32. d 37. d3. e 8. A 13. d 18. b 23. a 28. c 33. b 38. c4. e 9. D 14. d 19. c 24. b 29. d 34. d 39. b5. b 10, a 15, b 20. c 25. c 30. b 35. d 40. c41. c 46. b 51. c 56. c42. c 47. a 52. b 57. d43. c 48. c 53. a44. c 49. d 54. a45. c 50, b 55, b

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