Multiple Choice Problems
1. c Cash consideration transferred
Contingent performance obligation
Fair value of Subsidiary
Less: Book value of SS Company (P90,000 + P100,000)
Allocated excess
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100%
Increase in customer list: P22,000 x 100%
Increase in R&D: P30,000 x 100%
Goodwill
Investment in SS Company
Cash
Estimated Liability on Contingent Consideration
Acquisition Expense (or Retained earnings)
Cash
P 300,000
__15,000
P 315,000
190,000
P125,000
P 40,000
22,000
30,000
__92,000
P 33,000
315,000
300,000
15,000
10,000
10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4
would be:
Receivables
80,000
Inventory
70,000
Buildings
115,000
Equipment
25,000
Customer list
22,000
Capitalized R&D
30,000
Goodwill
33,000
Current liabilities
10,000
Long-term liabilities
50,000
Investment in SS Company
315,000
2. d - P600,000 - P15,000 - P255,000 = P330,000
3. c - P475,000 - P300,000 = P175,000 debit
4. d
Consideration transferred
Less: Book value of SHE of S (P40,000 + P52,000)
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential”
5. b – [P150,000 – (P173,000 – P40,000 – P5,000)]
6. d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)
P150,000
92,000
P 58,000
P330,000
395,000
P 65,000
7. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
8. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
9. c
10. 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
11. c – at fair value
12. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
13. d
Consideration transferred
P300,000
Less: Book value of SHE of S (P100,000 + P115,000)
215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential”
P 85,000
14. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.
15. b
P’s acquisition entry is:
Investment in Silicon
2,500,000
Merger expenses
250,000
C/S (100,000@P1)
100,000
APIC [(100,000@P24) – P400,000]
2,000,000
Cash (P400,000 + P250,000)
Eliminating entries are:
Capital stock
Retained earnings
AOCI
650,000
560,000
280,000
195,000
Treasury stock
Investment in Silicon
Customer lists
Goodwill
35,000
1,000,000
700,000
800,000
Investment in Silicon
1,500,000
16. b – refer to No. 15
17. a – refer to No. 15
18. a – refer to No. 15
19. b – refer to No. 15
20. b
21. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000
22. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE –
P300,000 – P500,000) = P550,000
23. a
24. d (P1,000,000 + P250,000) = P1,250,000 P only.
25. d - A total of P210,000 (P120,000 + P90,000) should be reported.
26. a - 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
reported as goodwill in the consolidated balance sheet at January 1, 20X5.
27. c - 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 for
P25,000 (P10,000 + P15,000).
28. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
29. c- P100,000, the par value of B's stock outstanding is P100,000
30. a
Fair value of subsidiary (100%):
Consideration transferred
P 600,000
Less: Book value of stockholders’ equity
(net assets) – Son Company
(P180,000 + P165,000 + P90,000) x 80%
__348,000
Allocated excess
P 252,000
Less: Over/undervaluation of assets and liabilities:
Increase in land (P420,000 – P264,000) x 80%
P124,800
Increase in building: P96,000 x 80%
__76,800
__201,600
Positive excess: Goodwill
P 50,400
31. b
Fair value of subsidiary (100%):
Consideration transferred
FV of NCI
Control premium
Less: Book value of stockholders’ equity
(net assets) – Son Company
(P180,000 + P165,000 + P90,000) x 100%
Allocated excess
Less: Over/undervaluation of assets and liabilities:
Increase in land (P420,000 – P264,000) x 100%
Increase in building: P96,000 x 100%
Positive excess: Goodwill
P 600,000
147,300
27,600
P 774,900
__435,000
P 339,900
P156,000
__96,000
__252,000
P 87,900
32. c
Fair value of subsidiary (100%):
Consideration transferred
Less: Control premium
P 600,000
44,400
P555,600/80%
P 694,500
__44,400
P 738,900
Add: Control premium
Less: Book value of stockholders’ equity
(net assets) – Son Company
(P180,000 + P165,000 + P90,000) x 100%
Allocated excess
Less: Over/undervaluation of assets and liabilities:
Increase in land (P420,000 – P264,000) x 100%
Increase in building: P96,000 x 100%
Positive excess: Goodwill
__435,000
P 303,900
P156,000
__96,000
__252,000
P 51,900
33. b
FV of S: CT - Acquisition cost
Less: Book value (P20,000,000 + P36,000,000)
Allocated Excess of book value over cost
Add: Existing goodwill
Adjusted Allocated excess
Less: Over/undervaluation of A & L
Bargain purchase gain/Gain on acquisition
P 13,000,000
56,000,000
P(43,000,000)
40,000,000
P( 3,000,000)
__________-0P( 3,000,000)
34. b - Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (60%):
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%)
35. c - 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 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill (No. 34)……………….
2,520,000
NCI on full-goodwill……………………………………..P 1,440,000
36. b

Non-controlling interest (refer to No. 34)
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary…………….P 8,400,000
Multiplied by: Non-controlling Interest percentage...........
40%
Non-controlling interest (partial)………………………………..P 3,360,000
37. c  Non-controlling interest
Non-controlling interest (partial) – refer to No. 36…………P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
38. d - Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (75%):
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%)
39. c - Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
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 2,040,000
Less: Controlling interest on full-goodwill
or partial-goodwill……………………………. 1,800,000
NCI on full-goodwill…………………………………….P 240,000
40. b  Non-controlling interest
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 – P7,200,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage...........
25%
Non-controlling interest (partial)……………………………….P 2,400,000
41. c  Non-controlling interest
Non-controlling interest (partial) – refer to No. 40…………P 2,400,000
Add: Non-controlling interest on full -goodwill
(P2,040,000 – P1,800,000 partial-goodwill)……….....
240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
42. b - Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (75%):
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.……………………………………………….....P1,440,000 (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%)
43. c - Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
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 480,000
Less: Controlling interest on full-goodwill
or partial-goodwill……………………………... 360,000
NCI on full-goodwill……………………………………..P. 120,000
44. b
 Non-controlling interest
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P3,840,000 – P2,400,000)…. 1,440,000
Fair value of stockholders’ equity of subsidiary……………P 3,840,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial)………………………………P 960,000
45. c

Non-controlling interest
Non-controlling interest (partial) –refer to No. 44.…………P 960,000
Add: Non-controlling interest on full -goodwill
(P480,000 – P360,000 partial-goodwill)………….......
120,000
Non-controlling Interest (full)……………………………………P 1,080,000
46. b – fair value
47. d – fair value
48. d – fair value
49. c Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Silver (P100,000 + P180,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P65,000 – P70,000) x 100%
Land (P100,000 – P90,000) x 100%
Buildings and equipment (P300,000 – P250,00) x 100%
Goodwill – full
P300,000
100,000
P( 5,000)
10,000
50,000
If partial-goodwill, no answer available, computed as follows:
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Silver (P100,000 + P180,000) x 75%
Allocated excess
Less: 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%
7,500
P400,000
280,000
P120,000
__55,000
P 65,000
P300,000
_210,000
P 90,000
Buildings and equipment (P300,000 – P250,00) x 75%
37,500
__41,250
Goodwill – full
P 48,750
50. a – Investment in Silver will be eliminated in the consolidated balance sheet
51. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ………………………………
55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%....................................................................
25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P 100,000
* same with the NCI given per problem
52. b – P135,000 = P90,000 + P45,000
53. d
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Silver (P40,000 + P120,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P45,000 – P40,000) x 100%
Land (P60,000 – P40,000) x 100%
Goodwill – full
P160,000
_40,000
P200,000
_160,000
P 40,000
P 5,000
20,000
25,000
P 15,000
54. a
Total Assets of Gulliver (Jonathan)
Less: Investment in Sea-Gull Corp.
P610,000
(160,000)
P 450,000
230,000
P 680,000
5,000
20,000
15,000
P 720,000
Book value of assets of Sea Corp.
Book value reported by Gulliver/Jonathan and Sea
Increase in inventory (P45,000 – P40,000)
Increase in land (P60,000 – P40,000)
Goodwill (full)*
Total assets reported
55. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
56. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) (P40,000 + P40,000)………….………………………………
25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%....................................................................
20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)………………..
3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P40,000 + P120,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P5,000 x 80%)
Land (P20,000 x 80%)
Goodwill – partial
57. a - The amount reported by Jonathan Corporation
58. a
P160,000
_128,000
P 32,000
P 4,000
16,000
__20,000
P 12,000
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19……………………………………..
40,000
Consolidated stockholders’ equity……………………………………. P445,000
59. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
60. b
Total Assets of P.
P1,278,000
Less: Investment in Swimmer Corp.
(440,000)
P 838,000
Book value of assets of S Corp.
542,000
Book value reported by P and S
P1,380,000
Increase in inventory (P60,000 – P38,000)
22,000
Increase in land (P60,000 – P32,000)
28,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)]
110,000
Goodwill (full)*
26,667
Total assets reported
P1,566,667
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
If partial-goodwill:
Total Assets of P.
Less: Investment in S Corp.
P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000
Book value of assets of S Corp.
Book value reported by P and S
Increase in inventory (P60,000 – P38,000)
Increase in land (P60,000 – P32,000)
Increase in plant assets [P350,000 – (P300,000 – P60,000)]
Goodwill (partial)*
Total assets reported
*[P440,000 – (P702,000 – P142,000) x 75%]
61.
d
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
62.
a
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
P 10,500
Land (P20,000 x 70%)
14,000
Goodwill – partial
63. c
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
P150,500
Add: FV of NCI
**64,500
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 – P85,000) x 100%
P 15,000
Land (P25,000 – P45,000) x 100%
20,000
Goodwill – full
P150,500
__98,000
P 52,500
24,500
P 28,000
P215,000
140,000
P 75,000
35,000
P 40,000
**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)…
35,000
FV of SHE of SS……………………………………………… P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)……………………………………………..P 52,500
64. b
Total Assets of Power Corp.
Less: Investment in Silk Corp.
P 791,500
(150,500)
P 641,000
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (full)
Total assets reported
If partial-goodwill:
Total Assets of Power Corp.
Less: Investment in Silk Corp.
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000
P 791,500
(150,500)
P 641,000
405,000
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (partial)
Total assets reported
65.
66.
D
P701,500
=
P1,046,000
15,000
20,000
28,000
P1,109,000
(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)…
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)……………………………………………..P 52,500
67.
D
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)…
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)……………………………………………..P 52,500
Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000
FV of NCI (full)…………………………………………………..P 64,500
68.
69.
D
P205,000
=
The amount reported by Power Corporation
C
P419,500
= (P150,000 + P205,000) + P64,500
If partial-goodwill:
Stockholders’ equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parent’s SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE
P150,000
205,000
P355,000
52,500
P404,500
70. b
Consideration transferred ........................................................................................
Less: Strand's book value (P50,000 x 80%) ..............................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ........................................................... P 8,000
P60,000
(40,000)
P20,000
Consideration transferred (P60,000 ÷ 80%) ............................................................
Less: Strand's book value ..........................................................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .......................................................... P15,000
P75,000
(50,000)
P25,000
71. c
Excess assigned to goodwill (40%) ........................................................... P10,000
72. a
Park current assets .......................................................................................................
Strand current assets ...................................................................................................
Excess inventory fair value .........................................................................................
Consolidated current assets ......................................................................................
P 70,000
20,000
15,000
P105,000
Park noncurrent assets ...............................................................................................
Strand noncurrent assets ...........................................................................................
Excess fair value to goodwill (partial) .....................................................................
Consolidated noncurrent assets ..............................................................................
P 90,000
40,000
___8,000
P140,000
73. c
74. d
Park noncurrent assets ................................................................................................
P 90,000
Strand noncurrent assets ............................................................................................
40,000
Excess fair value to goodwill (full) .............................................................................
__10,000
Consolidated noncurrent assets ...............................................................................
P140,000
75. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
76. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
77. b
Park stockholders' equity ...........................................................................................
P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%........................................................................
20%
13,000
Total stockholders' equity .........................................................................................
P93,000
78. c
Park stockholders' equity .......................................................................... ………….
P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%.........................................................................
20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)…………
15,000
Total stockholders' equity
P95,000
79. d [P99,000 + P26,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000
80. a [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
81. a - P only
82. d – (P960,000 – P330,000) + P565,000 = P1,195,000
83. a - P15,000
= (P115,000 + P46,000) - P146,000
84. b - P65,000
= (P148,000 - P98,000) + P15,000
85. a. BB, P70,000; SS, P24,000,
SS: P24,000
= P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000
= P94,000 - P24,000
86. d - P259,000,
Fair value of SS as a
whole:
P200,000
Book value of SS shares
10,000
Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000
Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000
Differential assigned to goodwill
P259,000
Fair value of SS
87. c - 65 percent
88. a
=
1.00 – (P90,650 / P259,000)
Capital Stock
= P120,000
Retained Earnings
= P115,000
89. b – full-goodwill
FV of S: P600,000/70%...........................................................................................P 857,143
Less: BV – SHE of Stork …………………………………………………………………. 640,000
Allocated excess………………………………………………………………………..P 217,143
Less: Increase in equipment………………………………………………………….. 40,000
+ Excess: Goodwill (full)………………………………………………………………...P 177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
90. a – P150,000 + P500,000
91. a – at fair value
92. b
FV, stocks issued…………………………………………………
Less: Par value of stocks issued (500,000 shares x P5)……..
APIC
Add: APIC of P
Less: Stock issuance cost
P 4,200,000
__2,500,000
P 1,700,000
7,500,000
___100,000
P 9,100,000
93. a – at fair value
94. c**/d* - Please read the discussion below
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity,
does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are
considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant
and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of investment in
associate, joint venture or subsidiary but it is possible that the scope of the project might be expanded in future. (IGAAP
2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as
expenses in the consolidated accounts.
Revised PAS 27 does not define what is meant by “cost”, but in the glossary to PFRS provides an over-riding definition of
“cost” as “the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire
an asset at the time of its acquisition or construction”
As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the acquisition
or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not
separately define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements.
Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate financial statements includes any
costs incurred even if such costs are expensed in the consolidated financial statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate
Financial Statements” not consolidated statements; therefore PFRS 3 which is a standard for business
combination/consolidation will not be the basis for the definition of “cost”). Unlike before the revision of PAS 27 and
implementation of PFRS 10, the basis of the old PAS 27, which is “Consolidated and Separate Statements”, is PFRS 3,
wherein the definition of “cost” was clearly defined. That is why the general rule in the definition of “cost” was applied.
This view is also as suggest by the IASB since they introduced the requirement to expense acquisition costs within PFRS
3, it only applies to financial statements in which a business combination is accounted for under PFRS 3. It follows that
this requirement does not extend to the individual (or separate) financial statements of the investing or parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38 (Intangible
Assets) wherein the direct costs is capitalized in the books of parent entity and eventually become expense through
eliminating entry to prepare consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to
any acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal costs,
due diligence costs – such as finder’s fee are expensed off and not included in the consideration transferred. The key
reasons given for this approach are provided in paragraph BC366:
 Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
 They are separate transactions for which the buyer pays the fair value for the services received.
 These amounts do not generally represent assets of the acquirer at acquisition date because the benefits
obtained are consumed as the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and
liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at cost.
The following items are worth noting to justify the use of this approach:
1.
This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7 th Edition
(2013) which is an IFRS based discussion, in the solution they presented in one of their end-of-chapter
2.
3.
problems, they expensed the direct costs in recording the investment in subsidiary in the book of parent
company
Similar with No. 1 above, in the book Applying IFRS, 3rd edition (2013), by Picker, et al (which is also Ernst and
Young book, which seems to contradict their position in the discussion above) in chapter 24 end-of-the
chapter problems, the direct costs (or “costs incurred in undertaking taking the acquisition” as the term used
in the book) were not part of the investment in subsidiary as evidenced by the amount in the eliminating
entry.
One respected author in accounting even commented that, despite the above analysis capitalizing the
direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and
PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it may be a
problem when there will be an impairment test which will reveal the costs are in fact unrecoverable and thus
that there must be an impairment charge at the parent level (in which the direct costs is included as part the
investment), which would have the effect of bringing the parent’s accounting (with the impairment investment
including the direct costs) in line with what would later appear on the consolidated financial statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of
“costs” in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be part
of the investment in the books of parent entity. But because of the three reasons mentioned above, the author believes
that the direct costs still be considered as expenses applying PFRS 3, aside from the fact that in substance the ultimate
objective is to consolidate, even though there was a separation of standard between Revised PAS 27 and PFRS 10.
95. a
96. 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 a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
97. d
98. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in full.
99. a
100. 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 fully
owned, the parent nonetheless controls it.
101. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.
102. c
An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 .......................................................................
Amortization for 2 years (10 year life) .....................................................................
Patent reported amount December 31, 2010 ......................................................
P45,000
(9,000)
P36,000
103. a
PP - building ..................................................................................................................
P510,000
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
210,000
Consolidated buildings ...............................................................................................
P720,000
-ORPP - building ...................................................................................................................
510,000
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000) 210,000
Consolidated buildings ...............................................................................................
P720,000
104. b
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
105. c
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
106. c
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.
107. d
Cost of Investment (40 shares* x P40)………………………………………………………P 1,600
Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%...................................... 1,100
Allocated excess………………………………………………………………………………P
500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%.....................
140
Goodwill………………………………………………………………………………………….P 360
*
Currently issued……………………
Additional shares issued………..
Total shares…………………………
100%
Pedro Ltd
100 40%
150 60%**
250
Santi Ltd
40 40%
60 / 60%
100
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M
BV of net assets (same with FV)……….. 1.1 M
Fv per share of stock……………………… P 16
P ?
?
P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
½) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger
and 150 new shares held by former shareholders in Santi Ltd. In essence, the former
shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd
shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has
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 legal
parent. The usual circumstance creating a reverse acquisition is where an entity (the legal
parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of
the exchange transaction, it issues enough voting equity as consideration for control of the
combined 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 and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the
assets and liabilities of Santi Ltd to be valued at fair value.
108. b – building account in the books of subsidiary at fair value
109. e – building account in the books of subsidiary at book value
110. d – push-down accounting: equipment account in the books of subsidiary is at fair value
111. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from
P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1.
2.
3.
4.
5.
41.
42.
43.
44.
45.
c
a
e
e
b
c
c
c
c
c
6.
7.
8.
9.
10,
46.
47.
48.
49.
50,
B
b
A
D
a
b
a
c
d
b
11.
12.
13.
14.
15,
51.
52.
53.
54.
55,
c
c
d
d
b
c
b
a
a
b
16.
17.
18.
19.
20.
56.
57.
d
c
b
c
c
c
d
21.
22.
23.
24.
25.
b
a
a
b
c
26.
27.
28.
29.
30.
D
C
C
D
B
31
32.
33.
34.
35.
c
d
b
d
d
36.
37.
38.
39.
40.
d
d
c
b
c