CPA REVIEW SCHOOL OF THE PHILIPPINES
Advanced Financial Accounting Guerrero/German/DeJesus/Lim//Ferrer/Laco/Valix
IFRS 10: Consolidated Financial Statements
Part I: Theory of Accounts
1. IFRS 10 defines them as financial statements of a group in which the assets,
liabilites, equity, income, expenses and cash flows of the parent and its
subsidiaries are presented as those of a single economic unit.
a.
b.
c.
d.
Consilidated financial statements
Separate financial statements
Group financial statements
Combined financial statements
2. Which of the following statements concerning the preparartion of consolidated
financial statements by a parent is incorrect?
a. The parent corporation, as a general rule, shall present consolidated financial
statements including all its subsidiaries regardless of its industry or
dissimilarity.
b. A subsidiary shall be excluded by a parent from the cosolidation simply
because the investor is a venture capital organiztion, mutual fund, unit trust or
similar entity.
c. An investment entity, which (1) obtains funds from one or more investors, (2)
commits to its investors that its business is to invest funds solely for
returns/capital appreciation, and (3) measures and evaluates the performance
substantially all of its investment on a fair value basis is exempted from
preparing consolidated financial statements.
d. A parent corporation, (1) which is wholly-owned or partially-owned subsidiary,
(2) whose debt or equity instrument are not publicly traded, (3) which is not in
the process of initial public offering, and (4) when its immediate or ultimate
parent produces consolidated financial statements available for public use is
exempted from presenting consolidated financial statements.
3. Under IFRS 10, parent corporation is the entity that controls one or more entities.
How does IFRS 10 define control?
a. An investor controls an investee when it is exposed, or has right to variable
return from the investment with the investee and has the ability to affect those
returns through the power over the investee.
b. An investor controls an investee when it has the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities.
c. An investor controls an investee when it has the ability to influence the
financial and operating policies of an entity so as to obtain benefits from its
activities.
d. An investor controls an investee when it owns more than 50% of all the
outstanding capital stocks, whether common or preferred.
4. Under IFRS 10, it refers to the term used to describe the ownership of the largest
block of voting rights in a situation where the remaining rights are widely
dispersed even if it is less than the majority interest thereby requiringthe holder of
such interest to prepare consolidated financial statements?
a. De jure control
b. De facto control
c. Legal control
d. Nominal control
5. Parent corporation has 51% interest in listed entity Sub Inc. Sub is highlyleveraged and started making losses. Parent decided to sell 2% to an investment
bank. The post-sale structure shows that Parent Corp. has only 49% interest,
investment bank has 2% interest and the remaining 49% interest owned by
many shareholders other than the investment bank each with less than 1% pf
votes and there is no arrangement among them to vote collectively. Upon the
sale, Parent corporation can easily reacquire controlling interest in Sub by buying
shares in the market and expects to continue managing Sub through election of
directors in Sub’s general meeting. Sub Inc. is listed with deep and liquid market
for shares. Is the Parent still required to consolidated Sub Inc. in its consolidated
financial statements?
a. No because it has no control considering it only has 49% interest in Sub.
b. Yes because there is de facto control on the part of the Parent Corp. over the
relevant activities of Sub Inc.
c. No because control is not shown by relevant facts.
d. Yes even if the other shareholdrs will connive to gain control.
6. An investee’s only business activity is to purchase receivables and service them
on a day-to-day basis. Servicing involves collection and passing on of principal
and interest payments. Upon default, the investee automatically puts the
receivable to investor X as agreed separately in a put agreement with investor X.
Is investor X required to consolidate investee in its consolidated financial
statements?
a. Yes because X controls the investee’s relevant activity that is managing the
receivables upon default which significantly affects the investee’s returns.
b. No because there is no statement as regards to majority ownership of stocks.
c. Yes but only if X owns 51% or more of voting stocks of investee.
d. No because there is no link of power over the investee to the exposure/right
to variable returns of investment.
7. How shall the parent corporation present the Non-controlling Interest (NCI) in the
Consolidated Statement of Financial Position?
a. It shall be presented within the Consolidated Stockholders’ Equity, separately
from the equity of the owners of the parent.
b. It shall be presented as non-current liability.
c. It shall be presented as non-current asset.
d. It shall be presented as contract equity account like treasure shares and
subscription receivable.
8. Which of the following income items shall not affect both CNI to Parent
(CONSORE) and NCINI/(NCINAS)?
a. Gain on bargain purchase arising from business combination
b. Unrealized/realized income/expense arising from transactions between two
subsidiaries owned by the same parent.
c. Unrealized/realized income/expense arising from downstream transactions or
from parent subsidiary.
d. Impairment loss of goodwill from business combination initially measured
using proportionate share of fair value of net asset acquired.
9. Which of the following income items shall affect CNI to Parent/(CONSORE) only
but not NCINI/(NCINAS)?
a. Amortization of difference between the fair value and book value of the assets
and liabilities of the subsidiary.
b. Unrealized/realized income/expense arising from upstream transactions or
from subsidiary to parent.
c. Impairment loss of goodwill from business combination initially measured
using fair value of NCI.
d. Dividend income of parent coming from subsidiary.
10. IAS 27 as amended defines Separate Financial Statements as those presented
by a parent or an investor with joint control of, or significant influence over, in
addition to its consolidated financial statements. Under IAS 27 as amended,
Investment in Subsidiary shall be accounted for by the parent in its separate
financial statements using
a.
b.
c.
d.
Equity Method under IAS 28
Cost Method
Fair value model under IFRS 9
Any of the above
11. Which of the following statements concerning the requirement of IAS 27 for
preparation of Separate Financial Statements is incorrect?
a. IAS 27 as amended mandates the entities which shall present separate
financial statements.
b. IAS 27 does not mandate or require which parent corporation should produce
separate financial statements but it shall depend on the laws or rules of a
particular jurisdiction.
c. Separate financial statements need not be appended to, or accompany, the
consolidated financial statements.
d. A parent entity that is exempted from preparing consolidated financial
statements in accordance with IFRS 10 provision may present financial
statements as its only financial statements.
e. When the entity elects either cost method or fair value model, an entity shall
recognize a dividend from a subsidiary, a joint venture or an associate in
profit or loss in its separate financial statements when its right to receive the
dividend is established but in case of equity method, it shall be considered as
deduction from investment account.
12. When the parent corporation elects to account its investments in subsidiaries,
associates or jointly controlled entities in its separate financial statements using
cost model or fair value model, how shall it recognize its dividends from a
subsidiary, joint venture or associate?
a. The dividends from a subsidiary, joint venture or associate shall be
recognized as dividend income as part of profit or loss of separate financial
statement of comprehensive income when its right to receive dividend is
established.
b. The dividends from a subsidiary, joint venture or associate shall be
recognized as deduction from investment account when its right to receive
dividend is established.
c. The dividends from a subsidiary, joint venture or associate shall be
recognized as dividend income as part of other comprehensive income of
separate statement of comprehensive income when its right to receive
dividend is established.
d. The dividends from a subsidiary, joint venture or associate shall be eliminated
through proportionate consolidation in the separate statement of
comprehensive income.
13. When the parent corporation elects to account its investments in subsidiaries,
associates or jointly controlled entities in its separate financial statements using
equity method, how shall it recognize its dividends from a subsidiary, joint
venture or associate?
a. The dividends from a subsidiary, joint venture or associate shall be
recognized as dividend income as part of profit or loss of separate financial
statement of comprehensive income when its right to receive dividend is
established.
b. The dividends from a subsidiary, joint venture or associate shall be
recognized as deduction from investment account when its right to receive
dividend is established.
c. The dividends from a subsidiary, joint venture or associate shall be
recognized as dividend income as part of other comprehensive income of
separate statement of comprehensive income when its right to receive
dividend is established.
d. The dividends from a subsidiary, joint venture or associate shall be eliminated
through proportionate consolidation in the separate statement of
comprehensive income.
PART II: Problem Solving
PROBLEM 1. Galaxy Corporation acquired 80% of the outstanding shares of United
Company on June 1, 2016 for P3,517,500. United Company’s stockholders equity
components at the end of this year as follows: Ordinary shares, P100 par, P1,500,000,
Share premium P675,000 and Retained earnings P1,335,000. Non-controlling interest is
measured at fair value and the fair value is P705,000. The assets of united were fairly
valued, except for inventories, which are overstated by P66,000 and equipment which
was understated by P90,000. Remaining useful life of equipment is 4 years.
Stockholder’s equity of Galaxy on January 1, 2016 is composed of ordinary shares
P4,500,000, Share Premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if
any, should be written down by P85,350 at year-end. Net income for the first year of
parent is P450,000 and the net income of subsidiary from the date of acquisition is
P255,000. Dividends declared at the end of the year amounted to P120,000 and
P90,000. During the year, there was no issuance of new ordinary shares.
1. How much is the non-controlling interest in net assets on December 31, 2016?
a.
b.
c.
d.
871,005
763,455
745,455
731,505
2. What is the amount of consolidated shareholder’s equity?
a. 9,122,070
b. 9,853,575
c. 8,773,575
d. 9,867,525
PROBLEM 2. GV Company purchased 70% ownership of DL Company on January 1,
2016 at underlying book value. While each company had its own sales forces and
independent product lines, that were substantial intercorporate sales of inventory each
period. The following intercoporate sales occurred during 2017 and 2018:
Year
2017
2018
2018
Cost of
Seller Product Sold
GV Co.
448,000
DL Co.
312,000
GV Co.
350,000
Sales
Buyer
Price
DL Co.
640,000
GV Co. 480,000
DL Co.
437,500
Unsold at
End of Year
140,000
77,000
63,000
Year Sold
to Outsiders
2018
2019
2019
The following data summarized the results of their financial operations for the year
ended December 31, 2018:
Sales
Gross Profit
Operating Expenses
Ending Inventories
Dividend Received from affiliate
Dividend Received from nonaffiliate
GV Company
3,850,000
1,904,000
770,000
336,000
126,000
-
DL Company
1,680,000
504,000
280,000
280,000
70,000
1. What are the consolidated sales and consolidated cost of goods sold at the end
of 2018?
a.
b.
c.
d.
4,612,500 and 2,457,550
4,612,500 and 2,206,950
4,612,500 and 2,202,050
5,530,000 and 2,202,050
2. What is the consolidated net income attributable to parent shareholder’s equity
and non-controlling interest in net income at the end of 2018?
a.
b.
c.
d.
1,301,335 and 59,115
1,476,335 and 59,115
1,476,335 and 80,115
1,350,335 and 80,115
PROBLEM 3. On January , 2016, RX Company purchased 80% of the shares of MB
Corporation at book value. The shareholders’ equity of MB Corporation on this date
showed: Ordinary Shares – P570,000 and Retained Earnings – P490,000. On April 30,
2016, RX Company acquired a used machinery for P84,000 from MB Corp. that was
being carried in the latter’s books at P105,000. The asset still has a remaining useful life
of 5 years. On the other hand, on August 31, 2016, MB Corp. purchased an equipment
that was already 20% depreciated from RX Co. for P345,000. The original cost of this
equipment was P375,000 and had a remaining life of 8 years. Net income of RX Co.
and MB Corp. for 2016 amounted to P360,000 and P155,000. Dividends paid totaled to
P115,000 and P52,500 for RX Co. and MB Corp., respectively.
In the consolidated financial statements in 2016, what is the non-controlling
interest in the net assets?
a.
b.
c.
d.
236,140
232,500
223,500
263,140
PROBLEM 4. On January 2, 2016, Fever Company acquired 60% of the outstanding
shares of Benz Inc. resulting to an income from acquisition in the amount of P330,000.
During 2016 and 2017, intercompany sales amounted to P6,800,000 and P9,400,000,
respectively. Fever Company consistently recognized a 30% gross profit on sales while
Benz Inc. had a 40% gross profit on sales. The inventories of the buying affiliate were
as follows: 3/4 of the beginning inventory came from intercompany transactions and 1/3
of the ending inventory came from outsiders. The December 31, 2016 inventory of
Fever and Benz amount to P840,000 and P350,000, respectively. The December 31,
2017 inventory of Fever and Benz amount to P570,000 and P150,000, respectively.
On September 1, 2016, Benz Inc., purchased a piece of land costing P3,500,000 from
Fever Company for P5,250,000. On November 2, 2017, the buying affiliate sold this
land to Jam Co. for P7,500,000. On the other hand, on May 1, 2017, Benz Inc., sold a
machinery with a carrying value of P430,000 and remaining life of 4 years to Fever
Company for P190,000. Benz Inc. declared dividends on 2017 in the amount of
P600,000. Separate Statement of Comprehensive Income for the two companies for the
year 2017 follow:
Sales
Cost of Sales
Gross Profit
Operating Expenses
Operating Profit
Gain on sale of Land
Loss on Sale of Machinery
Dividend Revenue
Net Income
Fever Company
P21,500,000
(13,,500,000)
P8,000,000
(3,240,000)
P4,760,000
450,000
P5,210,000
Compute the following amounts for/as of December 31, 2017
1. Consolidated Gross Profit
a. 11,651,250
b. 5,148,750
c. 11,948,750
d. 3,351,250
2. Consolidated Net Income attributable to Parent
a. 11,768,750
b. 9,720,750
c. 10,018,750
d. 11,118,750
Benz Inc.
P10,000,000
(6,200,000)
P3,800,000
(1,100,000)
P2,700,000
2,250,000
(240,000)
110,000
P4,820,000
3. Consolidated Operating Expenses
a.
b.
c.
d.
4,340,000
4,140,000
4,380,000
4,300,000
PROBLEM 5. A summary of the separate income statement of Techno Corporation and
its 75% owned subsidiary, Duo Company, for 2017 were as follows:
Sales
Gain on sale of equipment
Cost of goods sold
Depreciation expense
Other expenses
Income from operations
Techno
P9,000,000
180,000
(3,600,000)
(900,000)
(1,440,000)
P3,240,000
Duo
P5,400,000
-------------(2,340,000)
(540,000)
(720,000)
P1,800,000
There was an upstream sale of equipment with a book value of P720,000 for
P1,170,000 on January 2, 2015. At the time of intercompany sale, the equipment had a
remaining useful life of 5 years. Techno uses straight-line depreciation. The buying
affiliate used the equipment until December 31, 2017, at which time it was sold to
Genex for P648,000.
What is the amount of net profit attributable to non-controlling interests for 2017?
a.
b.
c.
d.
P517,500
472,500
450,000
562,500
PROBLEM 6. On July 1, 2016, Density Company, purchased 80% of the outstanding
shares of Evolve Company at cost of P4,000,000. On that date, Evolve had P2,500,000
of Ordinary Shares and P3,500,000 of Retained Earnings. For 2016, Density had
income of P1,400,000 from its separate operations and paid dividends of P750,000. For
2016, Evolve reported income of P325,000 and paid dividends of P150,000. All assets
and liabilities of Evolve have a book values equal to their respective market values. On
October 1, 2016, there was an upstream sale of machinery for P500,000. The book
value of the machinery on that date was P600,000. The machinery is expected to have
a useful life of 5 years from the date of sale.
In the December 31, 2016 consolidated statement of financial position, how much is the
consolidated net income attributable to the controlling interest?
a.
b.
c.
d.
1,606,000
2,326,000
2,366,000
2,406,000
PROBLEM 7: Superior company owns 60% of Uptown Corporation, which in turn owns
80% of Newton Company. Uptown exercises control over Newton and Superior
exercises control over Uptown. The following information is available:
Income from continuing Operations
Cash dividends declared by:
Cash dividends from:
Associate(s)
Other investments at fair value
Superior
Uptown
Newton
Company
Company Company
P,3,900,000 P2,600,000 P1,500,000
250,000
180,000
110,000
75,000
-nil-
Net unrealized inter-company gains/(losses)
P360,000
within current year income
downstream
Amortization relating to excess of fair value over
book value/(book value over fair value)
of investment
(190,000)
50,000
90,000
-nil40,000
(220,000)
160,000
downstream upstream
140,000
-nil-
What is the consolidated net income attributable to Superior Company
stockholders?
a.
b.
c.
d.
5,939,400
8,893,600
5,834,400
5,901,600
-end of handouts-