FINAL EXAM
ACCOUNTING FOR BUSINESS COMBINATIONS
Prepared by: Atty. Mark Anthony B. Rivas, CPA
Part I - True or False
1. NCI in the subsidiary’s profit or loss is presented in the
consolidated statement of profit as part of group’s profit
or loss, the group’s profit or loss in then attributed to both
the owners of the parent and NCI.
2. NCI in the subsidiary’s net assets is presented in the
consolidated statement of financial position within the
equity as part of retained earnings.
3. In consolidation, a parent is exempt from consolidation if
it is in itself subsidiary, its securities are not traded and
its parent.
4. Consolidation involved adding similar assets,
liabilities, income and expenses or parent and its
subsidiaries.
5. With respect to consolidation, the subsidiary equity is
eliminated and replaced with NCI.
6. The consolidated profit pertains only to the parent.
7. Based on PFRS 10, A parent entity is encouraged but not
required to consolidate its subsidiaries.
8. A parent entity is required to consolidate its subsidiary
only for internal reporting purposes.
9. Major shareholdings is one of the elements of control.
10. Power is one of the elements of control. Power means the
investor has existing rights that give it the current ability
to direct the investee’s relevant activities.
11. Entity A holds a majority of the shares in Entity B. The
major holdings entitle A to voting rights that relate solely
to administrative tasks. Entity A has a control over B.
12. Entity A holds 90% interest in Entity B. A’s interest in
the earnings of B is fixed at 10% of the aggregate par value
of A’s shareholdings. Entity A has a control over B.
13. Entity A holds majority of the shares in Entity B’s shares
and is entitled to variable return on B’s shares. The relevant
activities of B are directed by a 3rd party unrelated to A.
Entity A has a control over B.
14. Entity A is the ultimate boss of B. A makes all the major
decisions and earns profit the most if entity B earns profit.
15. Goodwill attributed to both owners of the parent and
non-controlling interest (NCI) if NCI is measured at FV.
16. The Group’s consolidated ending inventory is computed by
this equation: Ending inventory of Entity A plus ending
inventory of Entity B minus intercompany sales minus
unrealized profit in plus realized profit in beginning
inventory.
17. Consolidation begins at the earliest comparative period
presented if business combination occurred during the current
period.
18. When a parent loses control over a subsidiary, the parent
shall restate the consolidate financial statement presented
in previous years.
19. When a parent-subsidiary relationship exists,
consolidated financial statements are prepared in
recognition of accounting concept of materiality.
20. In PAS 27, separate financial statements are the financial
statements of the group in which the assets, liabilities,
equity, income, expenses and cash flows of the parent and its
subsidiaries are presented are those of a single economic
entity.
Part II
- Computational
1. Sun Inc. Is a wholly-owned subsidiary of Patton, Inc. On
January 1, 2020, declared and paid at 1 per share cash
dividends to stockholders of record on May 15,2020.
On May 1, 2020, Sun bought 10,000 shares of Pation’s common
stock for 700,000 on the open market, when the book value per
share was 30,000.
What amount of gain should Patton report from the transaction
in its consolidated income statement for the year ended
December 31, 2020?
2. At December 31, 2020, Grey Inc. Owned 90% of Winn Corp,
a consolidated subsidiary, and 20% of Carr Corp., an investee
in which grey cannot exercise significant influence.
On the same date, Grey gad receivables of 300,000 from Winn
and 200,000 from Carr.
On December 31, 2020 consolidated balance sheet, Grey should
report accounts receivable from affiliates of ________?
3. Clark had the following transactions with the affiliated
parties during 2020:
⚫
Sales of 60,000 to Dean Inc. With 20,000 gross profit
⚫
Dean had 15,000 of inventory on hand at year end.
⚫
Clark owns a 15% in Dea and does not exert significant
influence
⚫
Purchase of raw materials totaling 240,000 from Kent Corp
a wholly-owned subsidiary.
⚫
Kent gross profit on sale was 48,000.
⚫
Clark had 60,000 of this inventory remaining on December
31, 2020.
Before elimination, Clark had consolidated current assets of
320,000.
What amount should Clark report in its consolidated balance
sheet for current assets in December 31, 2020?
4. On January 1, 2020, Paul Corp acquired 80% of Saul Corp.
200,000 shares of the outstanding shares for 5,000,000. Paul
did not pay a control premium in the acquisition.
Same date, that 6,000,000 book value of Saul’s net assets
equaled fair value. Non-controlling interest was measured as
fair value
During 2019, Saul reported net income of 550,000 and paid
dividends of 165,000.
What is the NCI that will be reported in Paul Corp December
31, 2019 consolidated balance sheet?
5. On January 1, 2020, Original Co. Acquired 60% interest in
Pirated, Inc for 360,000. Information on Pirated’s Financial
Statements are as follow:
⚫
Identifiable assets and liabilities approximated their
values except for inventories with carrying amount of
144,000 and fair value of 96,000, and building with
carrying amount 240,000 and fair value of 250,000. The
building has remaining usefule of 8 years.
⚫
Pirated’s retained earnings was 48,000
⚫
NCI is measured at fair value of 240,000
⚫
Investment in subsidiary is measured at cost
⚫
All the inventories on January 1, 2020 were sold
⚫
No dividends, intercompany transactions or impairment in
goodwill.
A summary of financials of Original Co. And Pirated Co. On
December 31, 2020, are as follows:
Original Co.
Total Assets
Pirated Co
1,550,000.00
850,000.00
Total Liabilities
34,000.00
132,000.00
Share Capital
1,200,000
300,000
316,000
118,000
Retained Earnings
Total Equity
1,516,000.00
418,000.00
Sales
700,000
350,000
Cost of Sales
200,000
80,000
Other Operating expense
400,000
200,000
5. How much is the consolidated profit?
6. How much is the good will attributable to non-controlling
interest as of December 31, 2020?
7. How much is the consolidated total assets?
8. How much is the NCI in the net assets as of December 31,
2020?
9. How much is the equity attributable to the owners of the
parent?
10. How much is the consolidated cost of sales?
==nothing follows=