PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
AFAR05
BATCH 2020
CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
RELATED STANDARDS: PFRS 10 – CONSOLIDATED FINANCIAL
STATEMENTS; PAS 27 – SEPARATE FINANCIAL STATEMENTS
–
TOPIC OUTLINE
Basic Concepts and
Introduction
CONSOLIDATED
FINANCIAL STATEMENTS
(PFRS 10)
Accounting Requirements
Accounting on Consolidated Financial
Statements on the Date of Acquisition
Accounting on Consolidated Financial
Statements Subsequent to Date of
Acquisition
LECTURE NOTES
BASIC CONCEPTS AND INTRODUCTION
DEFINITION OF TERMS
CONSOLIDATED FINANCIAL STATEMENTS
–
the financial statements of a group in which the
assets, liabilities, equity, income, expense and cash
flows of the parent and its subsidiaries are presented
as those of a single economic entity.
GROUP
–
a parent and its subsidiaries
PARENT
–
an entity that controls one or more entities
SUBSIDIARY
–
an entity that is controlled by another entity.
INTRODUCTION
PFRS 3 deals with the accounting for a business combination at the acquisition date, while PFRS 10 deals
with the preparation and presentation of consolidated financial statements after the business combination
ALL PARENT entities are required to prepare consolidated financial statements, except as follows:
(1) A parent is exempt from presenting consolidated financial statements if:
(a) It is a subsidiary of another entity (whether wholly owned or partially owned and all its other
owners do not object to its non-presentation of consolidated financial statements
(b) Its debt or equity instruments are not traded in a public market (or being processed for such
purpose) and
(c) its ultimate or any intermediate parent produces consolidated financial statements that are
available for public use and comply with PFRS.
(2) Post-employment benefit plans or other long-term employment benefit plans to which PAS 19 applies.
CONTROL
PFRS 10 introduces a new single control model to identify a parent-subsidiary relationship by specifying
that “an investor controls an investee when the investor is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the
investee”.
Based from that control exists if the investor has all of the following:
(a) Power over the investee.
(b) Exposure, or rights, to variable returns from the investee; and
(c) Ability to the affect returns through the use of power.
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BATCH 2020
ACCOUNTING REQUIREMENTS
REPORTING DATES
The financial statements of the parent and its subsidiaries used in preparing consolidated financial
statements shall have the same reporting date.
If the parent’s and its subsidiary’s reporting periods do not coincide, the subsidiary shall prepare financial
statements that coincide with the parent’s reporting period before consolidation.
If this is impracticable, the subsidiary’s financial statements shall be adjusted for significant transactions
and events that occur between the end of the subsidiary’s reporting period and that of the parent’s. The
difference between the parent’s and subsidiary’s end of reporting periods shall not exceed THREE MONTHS.
UNIFORM ACCOUNTING POLICIES
Uniform accounting policies shall be used. If the subsidiary uses different accounting policies, its financial
statements need to be adjusted to conform to the parent’s accounting policies before they are consolidated.
CONSOLIDATION PERIOD
Consolidation begins from the date the investor obtains control over the investee and ceases when the
investor loses control over the investee.
INVESTMENT IN SUBSIDIARY
Under PAS 27, investment in subsidiaries is accounted for in the parent’s SEPARATE FINANCIAL
STATEMENTS either:
(a) at cost
(b) in accordance with PFRS 9
(c) using equity method under PAS 28
ACCOUNTING FOR CONSOLIDATED FINANCIAL STATEMENTS – DATE OF ACQUISITION
Consolidation process at the acquisition date is simple because only the STATEMENTS OF FINANCIAL
POSITION of the combining entities are consolidated. The consolidation involves the following steps:
(1) Eliminate the “Investment in Subsidiary” account. This requires:
(a) Measuring the identifiable assets acquired and liabilities assumed in the business combination at
their acquisition-date fair values.
(b) Recognizing the goodwill from the business combination.
(c) Eliminating the subsidiary’s pre-combination equity accounts and replacing them with the noncontrolling interest.
NOTE: Working paper elimination entries are NOT RECORDED on either books of the parent and
subsidiary.
(2) Add, line by line, similar items of assets and liabilities of the combining entities. The subsidiary’s
assets and liabilities are included in the consolidated financial statements at 100% of their amounts
irrespective of the interest acquired by the parent.
NCI in the net assets of the subsidiary
NCI in the net assets of the subsidiary is presented in the consolidated statement of financial position
WITHIN EQUITY, separately from the equity of the owners of the parent.
NCI in the net assets of the subsidiary consists of:
(a) The amount determined at the acquisition date using PFRS 3. This amount may be measured at
(1) Fair value
(2) The NCI’s proportionate share of the acquiree’s identifiable net assets.
NOTE: Under option 2, any goodwill that arises at the time of acquisition is assigned only to the
parent. Also, NCI cannot be assigned of gain on bargain purchase.
(b) The NCI’s share of changes in equity since the acquisition date.
ACCOUNTING FOR CONSOLIDATED FINANCIAL STATEMENTS – SUBSEQUENT TO DATE OF
ACQUISITION
The consolidation procedures followed to prepare a complete set of consolidated financial statements
subsequent to acquisition is quite similar to that used to prepare consolidated statement of financial
position as of the date of acquisition. However, in addition to the Statement of Financial Position, the
Statement of Comprehensive Income and Retained Earnings Statement of the consolidating companies
must be combined.
NCI in profit or loss and comprehensive income
The profit or loss and each component of other comprehensive income in the consolidated statement of
profit or loss and other comprehensive income are attributed to the following: (a) owners of the parent; (b)
non-controlling interests.
Total comprehensive income is attributed to the owners of the parent and to the NCI even if this results in
the NCI having a deficit balance.
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BATCH 2020
DISCUSSION EXERCISES
STRAIGHT PROBLEMS:
1.
On January 1, 2020, the date of acquisition, the balance sheet of THANOS CORP. (the acquirer) and
HULK INC. (the acquiree) are as follows:
THANOS
HULK
Cash
2,000,000
100,000
Inventories
500,000
50,000
Investment
1,200,000
Land
1,000,000
750,000
Equipment
1,500,000
500,000
Accounts payable
1,500,000
400,000
Share capital (P10 par value)
2,000,000
500,000
Share premium
1,500,000
200,000
Retained earnings
1,200,000
300,000
On January 1, 2020, THANOS acquired ___% of the outstanding stock of HULK. The subsidiary’s
assets and liabilities are stated at their acquisition-date fair values, except for the following:
Land
850,000
Equipment
450,000
REQUIREMENTS: UNDER THE FOLLOWING ASSUMPTIONS: (a) Prepare a complete analysis of the fair
value of the investment and NCI (if necessary) in determining the goodwill or gain on bargain
purchase on the date of acquisition; (b) Prepare the working paper elimination entries; (c) Prepare a
consolidate balance sheet at the date of acquisition.
(1) Assuming THANOS acquired ALL (100%) of the outstanding stock of HULK.
Consideration
BVNA
Excess
Fair Value Adjustments:
Land
Equipment
Goodwill
Working paper elimination entry:
Goodwill
Land
Share capital
Share premium
Retained earnings
Investment in subsidiary
Equipment
Total
1,200,000
(1,000,000)
200,000
Parent
1,200,000
(1,000,000)
200,000
NCI
-
(100,000)
50,000
150,000
(100,000)
50,000
150,000
-
150,000
100,000
500,000
200,000
300,000
1,200,000
50,000
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (100,000 – 50,000)
Goodwill
Total consolidated assets
(2)
6,200,000
1,400,000
(1,200,000)
50,000
150,000
6,600,000
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
1,500,000
400,000
1,900,000
Total equity of acquirer
Gain on bargain purchase
NCINAS
Total consolidated equity
4,700,000
4,700,000
Assuming THANOS acquired 80% of the outstanding stock of HULK. THANOS elected to measure
NCI at fair value. The independent consultant engaged by THANOS determined that the fair
value of 20% NCI is P350,000.
Consideration
BVNA
Excess
Fair Value Adjustments:
Land
Equipment
Goodwill
Working paper elimination entry:
Goodwill
Total
1,550,000
(1,000,000)
550,000
Parent
1,200,000
(800,000)
400,000
NCI
350,000
(200,000)
150,000
(100,000)
50,000
500,000
(80,000)
40,000
360,000
(20,000)
10,000
140,000
500,000
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
Land
Share capital
Share premium
Retained earnings
Investment in subsidiary
Equipment
NCI
BATCH 2020
100,000
500,000
200,000
300,000
1,200,000
50,000
350,000
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (100,000 – 50,000)
Goodwill
Total consolidated assets
(3)
6,200,000
1,400,000
(1,200,000)
50,000
500,000
6,950,000
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
1,500,000
400,000
1,900,000
Total equity of acquirer
Gain on bargain purchase
NCINAS
Total consolidated equity
4,700,000
350,000
5,050,000
Assuming THANOS acquired 80% of the outstanding stock of HULK. THANOS elected to measure
NCI at fair value.
Consideration
BVNA
Excess
Fair Value Adjustments:
Land
Equipment
Goodwill
Working paper elimination entry:
Goodwill
Land
Share capital
Share premium
Retained earnings
Investment in subsidiary
Equipment
NCI
Total
1,500,000
(1,000,000)
500,000
Parent
1,200,000
(800,000)
400,000
NCI
300,000
(200,000)
100,000
(100,000)
50,000
450,000
(80,000)
40,000
360,000
(20,000)
10,000
90,000
450,000
100,000
500,000
200,000
300,000
1,200,000
50,000
300,000
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (100,000 – 50,000)
Goodwill
Total consolidated assets
(4)
6,200,000
1,400,000
(1,200,000)
50,000
450,000
6,900,000
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
1,500,000
400,000
1,900,000
Total equity of acquirer
Gain on bargain purchase
NCINAS
Total consolidated equity
4,700,000
300,000
5,000,000
Assuming THANOS acquired 80% of the outstanding stock of HULK. THANOS elected to measure
NCI at fair value. The independent consultant engaged by THANOS determined that the fair
value of 20% NCI is P180,000.
Consideration
BVNA
Excess
Fair Value Adjustments:
Land
Equipment
Goodwill
Working paper elimination entry:
Goodwill
Total
1,410,000
(1,000,000)
410,000
Parent
1,200,000
(800,000)
400,000
NCI
210,000
(200,000)
10,000
(100,000)
50,000
360,000
(80,000)
40,000
360,000
(20,000)
10,000
-
360,000
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
Land
Share capital
Share premium
Retained earnings
Investment in subsidiary
Equipment
NCI
BATCH 2020
100,000
500,000
200,000
300,000
1,200,000
50,000
210,000
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (100,000 – 50,000)
Goodwill
Total consolidated assets
(5)
6,200,000
1,400,000
(1,200,000)
50,000
360,000
6,810,000
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
1,500,000
400,000
1,900,000
Total equity of acquirer
Gain on bargain purchase
NCINAS
Total consolidated equity
4,700,000
210,000
4,910,000
Assuming the consideration paid by THANOZ excludes control premium of P300,000. THANOS
elected to measure NCI at fair value.
Consideration
BVNA
Excess
Fair Value Adjustments:
Land
Equipment
Goodwill
Working paper elimination entry:
Goodwill
Land
Share capital
Share premium
Retained earnings
Investment in subsidiary
Equipment
NCI
Total
1,800,000
(1,000,000)
800,000
Parent
1,500,000
(800,000)
700,000
NCI
300,000
(200,000)
100,000
(100,000)
50,000
750,000
(80,000)
40,000
660,000
(20,000)
10,000
90,000
750,000
100,000
500,000
200,000
300,000
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (100,000 – 50,000)
Goodwill
Total consolidated assets
2.
1,500,000
50,000
300,000
6,200,000
1,400,000
(1,500,000)
50,000
750,000
6,900,000
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
1,500,000
400,000
1,900,000
Total equity of acquirer
Gain on bargain purchase
NCINAS
Total consolidated equity
4,700,000
300,000
5,000,000
On January 1, 2020, CAPTAIN AMERICA acquired 80% interest in CAPTAIN PHILIPPINES for
P400,000. On that date, CAPTAIN PHILIPPINES has the following equity items:
Share capital
P100,000
Share premium
50,000
Retained earnings
150,000
CAPTAIN PHILIPPINES’ assets and liabilities have a book value equal to their acquisition-date fair
values, except for the following:
Carrying Amount
Fair Value
Inventories
200,000
300,000
Building
400,000
450,000
Additional information:

All inventories on January 1 were sold during the year.

The building has an estimated remaining useful life of 5 years on January 1, 2020.
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
BATCH 2020
CAPTAIN AMERICA elected to measure NCI at fair value.
Information on subsequent reporting date (December 31, 2020) is as follows:
STATEMENT OF FINANCIAL POSITION
Assets:
CAPTAIN AMERICA
Cash
300,000
Accounts receivable
150,000
Inventory
50,000
Investment in subsidiary (at cost)
400,000
Building, net
600,000
Liabilities & Equity:
Accounts payable
Share capital
Share premium
Retained earnings
CAPTAIN PHILIPPINES
75,000
55,000
150,000
320,000
200,000
600,000
300,000
400,000
150,000
100,000
50,000
300,000
CAPTAIN PHILIPPINES reported net income of 200,000 and declared dividends of P50,000 while
CAPTAIN AMERICA reported net income of P500,000 and declared dividends of P100,000.
Information on subsequent reporting date (December 31, 2021) is as follows:
STATEMENT OF FINANCIAL POSITION
Assets:
CAPTAIN AMERICA
CAPTAIN PHILIPPINES
Cash
300,000
80,000
Accounts receivable
400,000
200,000
Inventory
300,000
200,000
Investment in subsidiary (at cost)
400,000
Building, net
550,000
240,000
Liabilities & Equity:
Accounts payable
Share capital
Share premium
Retained earnings
150,000
600,000
300,000
900,000
100,000
100,000
50,000
470,000
CAPTAIN PHILIPPINES reported net income of 250,000 and declared dividends of P80,000 while
CAPTAIN AMERICA reported net income of P600,000 and declared dividends of P100,000.
REQUIREMENTS:
(1) Prepare the necessary working paper elimination entries for the year 2020 and 2021.
(2) Prepare a consolidated income statement showing the consolidated net income and net income
attributable to the parent and NCI for the year 2020 and 2021.
(3) Compute the consolidated retained earnings for the year 2020 and 2021.
(4) Compute the consolidated assets, liabilities and shareholders’ equity for the year 2020 and
2021.
2020
Consideration
BVNA
Excess
Fair Value Adjustments:
Inventories
Building
Goodwill
Working paper elimination entry:
Goodwill
Inventories
Building
Share capital
Share premium
Retained earnings
Investment in subsidiary
NCI
Dividend income
NCI
Dividends declared
COGS
OPEX
Total
500,000
(300,000)
200,000
Parent
400,000
(240,000)
160,000
NCI
100,000
(60,000)
40,000
(100,000)
(50,000)
50,000
(80,000)
(40,000)
40,000
(20,000)
(10,000)
10,000
50,000
100,000
50,000
100,000
50,000
150,000
40,000
10,000
400,000
100,000
50,000
100,000
10,000
Inventory
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100,000
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
BATCH 2020
PPE
10,000
NCI in CI of Subsidiary
NCI
Consolidated Net Income:
C.I. – Parent
C.I. – Subsidiary
Dividend Income
Amortization of FV Adjustments
Consolidated net income
18,000
Parent
500,000
160,000
(40,000)
(88,000)
532,000
18,000
NCI
40,000
(22,000)
18,000
Consolidated Retained Earnings:
Retained earnings – parent (Jan. 1, 2020)
Consolidated net income – parent
Dividends declared
Consolidated retained earnings – December 31, 2020
Total
500,000
200,000
(40,000)
(110,000)
550,000
532,000
(100,000)
432,000
Retained earnings – parent (December 31, 2020)
Share in undistributed earnings of subsidiary [(150,000 – 110,000) x 80%]
Consolidated retained earnings – December 31, 2020
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (150,000 – 110,000)
Goodwill
Total consolidated assets
400,000
32,000
432,000
1,500,000
600,000
(400,000)
40,000
50,000
1,790,000
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
200,000
150,000
350,000
Share capital and share premium - parent
Consolidated retained earnings
NCINAS *
Total consolidated equity
900,000
432,000
108,000
1,440,000
NCINAS (1/1/2019)
NCINIS
Dividends
NCINAS (12/31/2019)
100,000
18,000
(10,000)
108,000
2021
Goodwill
Inventories
Building
Share capital
Share premium
Retained earnings
Investment in subsidiary
NCI
50,000
100,000
50,000
100,000
50,000
150,000
400,000
100,000
Dividend income
NCI
Dividends declared
64,000
16,000
80,000
Retained earnings – subsidiary
OPEX
Inventory
PPE
110,000
10,000
Retained earnings – January 1 (40,000 x 20%)
NCI
NCI in CI of Subsidiary
NCI
100,000
20,000
8,000
8,000
18,000
18,000
Consolidated Net Income:
C.I. – Parent
C.I. – Subsidiary
Dividend Income
Amortization of FV Adjustments
Consolidated net income
Parent
600,000
200,000
(64,000)
(8,000)
728,000
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NCI
50,000
(2,000)
48,000
Total
600,000
250,000
(64,000)
(10,000)
550,000
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
Consolidated Retained Earnings:
Retained earnings – parent (Jan. 1, 2021)
Consolidated net income – parent
Dividends declared
Consolidated retained earnings – December 31, 2020
432,000
728,000
(100,000)
1,060,000
Retained earnings – parent (December 31, 2020)
Share in undistributed earnings of subsidiary [(320,000 – 120,000) x 80%]
Consolidated retained earnings – December 31, 2020
900,000
160,000
1,060,000
Total assets of acquirer
Total assets of acquiree
Elimination of investment in subsidiary
Net fair value adjustments in assets (150,000 – 120,000)
Goodwill
Total consolidated assets
Total liabilities of acquirer
Total liabilities of acquiree
Net fair value adjustments in liabilities
Total consolidated liabilities
Share capital and share premium - parent
Consolidated retained earnings
NCINAS *
Total consolidated equity
NCINAS (1/1/2020)
NCINIS
Dividends
NCINAS (12/31/2019)
3.
1,950,000
720,000
(400,000)
30,000
50,000
2,350,000
150,000
100,000
250,000
900,000
1,060,000
140,000
2,100,000
108,000
48,000
(16,000)
140,000
On January 1, 2020, HAWKEYE CO. acquired 15% ownership interest in CROWEYE CORP. for
P100,000. HAWKEYE classified the investment as held for trading securities in accordance with PFRS
9, Financial Instruments.
On January 1, 2024, HAWKEYE acquired additional 60% ownership interest in CROWEYE for
P800,000. Relevant information follows:
(a) The previously held 15% interest has a carrying amount of P170,000 on December 31, 2023
and fair value of P180,000 on January 1, 2024.
(b) CROWEYE net identifiable assets have a fair value of P1,000,000.
(c) HAWKEYE elected to measure the NCI at proportionate share.
REQUIREMENT: Compute for the goodwill on the date of acquisition.
Consideration transferred
NCI in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net assets
Goodwill
4.
BATCH 2020
800,000
250,000
180,000
1,230,000
(1,000,000)
230,000
ANTMAN CORP., a publicly listed entity, and FLYMAN INC., an unlisted company, exchange equity
interests.

ANTMAN issues 5 shares in exchange for all the outstanding shares of FLYMAN.

ANTMAN’s shares are quoted at P40 per share, while FLYMAN’s shares have a fair value of P200
per share.

The statements of financial position immediately before the combination are shown below:
ANTMAN CORP.
FLYMAN INC.
Identifiable assets
1,600,000
2,400,000
Liabilities
1,300,000
700,000
Share capital
100,000
800,000
Retained earnings
200,000
900,000
Additional information:

The assets and liabilities approximate their fair values.

Share capital of ANTMAN consists of 10,000 ordinary shares with par value of P10 per share
while share capital of FLYMAN consists of 8,000 ordinary shares with par value of P100 per
share.
REQUIREMENTS:
(a) Identify the accounting acquirer
Legal form of the contract: ANTMAN issues 5 shares for each of the outstanding shares of FLYMAN. After
the issuance, ANTMAN’s equity will have the following structure:
ANTMAN’s currently issued shares
10,000
20%
Shares issued to FLYMAN (5 x 8,000)
40,000
80%
Total shares after the combination
50,000
100%
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BATCH 2020
The business combination is a reverse acquisition because FLYMAN obtains control over ANTMAN despite
the fact that ANTMAN is the issuer of shares. In other words, FLYMAN let itself be acquired in order to
gain control over ANTMAN.
(b)
Compute for the amount of goodwill at the date of acquisition.
Consideration transferred (2,000 shares x P200)
NCI in the acquiree
Previously held equity interest in the acquiree
Total
Fair value of net assets
Goodwill
400,000
400,000
(300,000)
100,000
MULTIPLE CHOICE: (THEORIES)
1.
In stock acquisition resulting in a parent company – subsidiary relationship, differences between
current fair values and book values of the subsidiary’s identifiable net assets on the date of
acquisition are:
A.
Disregarded
B.
Entered in the accounting records of the subsidiary
C.
Accounted for in appropriate titled ledger accounts in the parent company accounting records.
D.
Provided in a working paper elimination
2.
3.
4.
Working paper elimination entries are
A.
Recorded on the books of the parent since it has control over the subsidiary.
B.
Recorded on the books of the subsidiary.
C.
Recorded on both books of the parent and subsidiary.
D.
Recorded neither on the books of the parent nor subsidiary.
Control exists even if the parent owns half or less of the voting power of an entity under all of the
following circumstances, except
A.
Power to appoint or remove the employees of the entity.
B.
Power to govern the financial and operating policies of the entity under a statute.
C.
Power over more than half of the voting rights by virtue of a contractual agreement with other
investors.
D.
Power to cast the majority of votes at meetings of the board of directors or equivalent
governing body.
S1:
S2:
S3:
A.
B.
C.
Under PFRS 3, non-controlling interest can be measured at fair value, at its proportionate share
of the acquiree’s identifiable net assets or at cost.
If an NCI is measures at its proportionate share of the acquiree’s identifiable net assets, any
goodwill that arises at the time of acquisition is assigned only to the parent.
NCI cannot be assigned of gain on bargain purchase at all times.
True, true, false
D.
False, false, true
False, true, true
E.
True, true, true
True, false, false
5.
In relation to consolidated financial statements, determine the incorrect statement.
A.
Consolidation starts when control is obtained and ceases when control is lost. Both cases are
accounted for prospectively.
B.
Consolidated financial statements are prepared using uniform accounting policies and same
reporting date.
C.
The consolidated net income is attributable only to the owners of the parent and not to minority
interests.
D.
NCI in the net assets is presented within the consolidated balance sheet within equity,
separately from equity of the owners of the parent.
6.
PAS 27 provides that in the separate financial statements of an entity who have investment in
subsidiaries, joint ventures and associates, it may elect to account for its investments either:
A.
At cost
B.
At fair value in accordance with PFRS 9
C.
Using equity method in accordance with PAS 28\
D.
Any of the above
7.
How is the non-controlling interest in the subsidiary’s profit or loss presented in the consolidated
statement of profit or loss?
A.
As part of the group’s profit or loss. The group’s profit or loss is then attributed to both the
owners of the parent and NCI.
B.
Not presented but disclosed either as a footnote or in the notes. The consolidated profit or loss
pertains to the parent only.
C.
The consolidated profit or loss pertains to the parent only. The NCI in profit is presented
separately.
D.
Any of these as a matter of accounting policy choice.
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
BATCH 2020
QUIZZER (DO-IT-YOURSELF DRILL)
THEORIES
1.
A "group" for consolidation purposes is
A.
A parent and all of the subsidiaries.
B.
An entity that has one or more subsidiaries.
C.
An entity that obtains control over entities or businesses.
D.
An entity, including an unincorporated entity such as partnership, that is controlled by another
entity.
2.
A parent entity controls an overseas subsidiary entity. Because of exchange controls, it is difficult to
transfer funds out of the country to the parent entity. The parent entity owns 100% of the voting
power of the subsidiary. How should the subsidiary be accounted for?
A.
It should be excluded from consolidation and measured at cost.
B.
It is not permitted to be excluded from consolidation because control is not lost.
C.
It should be excluded from consolidation and the equity method should be used.
D.
It should be excluded from consolidation and accounted for as financial asset in accordance with
PFRS 9.
3.
Which of the following statements in relation to consolidation of financial statements is true?
I.
Consolidated financial statements must be prepared using uniform accounting policies.
II.
The noncontrolling interest in the net assets of subsidiaries may be shown by way of note to the
consolidated statement of financial position.
A.
I only
C.
Both I and II
B.
II only
D.
Neither I nor II
4.
The
A.
B.
C.
D.
5.
When separate financial statements are prepared, investments in subsidiaries shall be accounted for
A.
At cost
B.
In accordance with PFRS 9 on measurement financial asset
C.
Either at cost or in accordance with PFRS 9 on measurement of financial asset
D.
Neither at cost nor in accordance with' PFRS 9 on measurement of financial asset
6.
Goodwill is attributed to both the owners of the parent and non-controlling interests (NCI) if
A.
the NCI is measured at proportionate share.
B.
the NCI is measured at fair value
C.
in both A and B.
D.
the goodwill is big.
7.
Control exists if the investor has all of the following except:
A.
Power over the investee.
B.
Exposure or rights to variable returns from the investee.
C.
Ability to the affect returns through use of power.
D.
Ability to sell the subsidiary immediately.
8.
S1:
S2:
A.
B.
noncontrolling interests shall be presented in the consolidated statement of financial position
As part of current liabilities
As part of noncurrent liabilities
As part of the parent shareholders' equity
Within equity, separately from the equity of the owners of the parent
Uniform accounting policies shall be used. If the subsidiary uses different accounting policies, its
financial statements need to be adjusted to conform to the parent’s accounting policies before
they are consolidated.
Consolidation begins from the date the investor obtains control over the investee.
True, false
C.
False, false
False, true
D.
True, true
9.
Which statement is true in relation to business combination achieved in stages?
A.
The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss
included in profit or loss.
B.
The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss
included in other comprehensive income.
C.
The pre-existing interest shall not be remeasured.
D.
The pre-existing interest shall be remeasured at fair value with any resulting gain or loss
recognized in retained earnings.
10.
Which condition is required to exclude a subsidiary from consolidation?
A.
The other owners object to the non-consolidation.
B.
The parents make an election not to consolidate.
C.
The other owners do not object to the non-consolidation and the subsidiary does not have any
publicly traded debt or equity instrument.
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
D.
BATCH 2020
The parent must own 100% of the subsidiary.
PROBLEMS
1.
On January 2, 2009. DR. STRANGE CORP. acquired all the outstanding common stock of ATTY. WEIRD
INC. for P2,060,000. On that date, ATTY. WEIRD INC. reported the following stockholders' equity
account balances: Common Stock P800,000, Additional Paid in Capital P620,000, Retained Earnings
P300,000.
The assets and liabilities of ATTY. WEIRD INC. had book values that were approximately equal to its
market values, except building that was undervalued by P400,000, and equipment that was
overvalued by PI20,000. The building has an estimated, life of 20 years and equipment with 5 years
useful life. Prior to acquisition, ATTY. WEIRD INC. has unimpaired goodwill in the amount of P10,000.
What is the amount of goodwill to be reported in the consolidated balance sheet at the date of
acquisition?
A.
40,000
C.
50,000
B.
60,000
D.
70,000
2.
On January 2, 2009, QUICKSILVER CORP. acquired all the outstanding common stock of FASTGOLD
CORP. for P412,000 cash. The book value of FASTGOLD CORP.'s net assets amounted to P280,000.
On that date, the assets and liabilities of FASTGOLD CORP. had book value that were approximately
equal to their respective market values, except building with useful life of 10 years and was
undervalued by P80,000; and equipment with useful life of 5 years and was overvalued by P20,000.
For the year 2009, QUICKSILVER CORP. reported net income from own operations in the amount of
P224,000, while FASTGOLD CORP reported P60,000 net income from own operations. QUICKSILVER
CORP. accounts its investment in FASTGOLD CORP. under the cost method. What is the amount of
net income in the consolidated income statement for 2009?
A.
288,000
C.
284,000
B.
280,000
D.
272,000
Use the following information in answering the next item(s):
On January 1, 2020, HULK CORP. acquired 70% of outstanding ordinary shares of HALL INC. at a
price of P210,000. On the same date, the net assets of HALL INC. were reported at P260,000. On
January 1, 2020 HULK reported retained earnings of P2,000,000 while HALL reported retained
earnings of P200,000.
All of the assets and liabilities of HALL are fairly valued except machinery which is undervalued by
P80,000 and in inventory which is overvalued by P10,000. The said machinery has a remaining useful
life of four years while 40% of the said inventory remained unsold at the end of 2020.
For the year ended December 31, 2020, HULK reported net income of P1,000000 and declared
dividends of P150,000 in the separate financial statements while HALL reported net income of
P150,000 and declared dividends of P20,000 in the separate financial statements.
HULK accounted the investment in HALL using cost method in the separate financial statements.
3.
What is the non-controlling interest in net assets on December 31, 2020?
A.
P124,800
C.
P126,000
B.
P130,200
D.
P133,800
4.
What is the consolidated net income attributable to parent shareholders for the year ended December
31, 2020?
A.
P1,102,200
C.
P1,141,200
B.
P1,162,200
D.
P1,095,200
5.
What is the amount of consolidated retained earnings on December 31, 2020?
A.
P3,012,200
C.
P2,952,200
B.
P2,991,200
D.
P2,945,200
Use the following information in answering the next item(s):
On January 2, 2009, THANOS CORP. acquired all the outstanding common stock of THANK CORP. for
P400,000, when the book value of THANK CORP.'s net assets amounted to P300,000.
THANOS CORP. uses the cost method to account for this investment in S THANK CORP. The selected
accounts were taken from the financial records of the two companies as of December 31, 2009 (all
depreciable assets have useful life of 10 years for the two companies):
THANK CORP.
THANOS CORP.
BV
MV
Inventory
100,000
30,000
35,000
Property, plant & equipment
5,250,000
290,000
280,000
Patent
10,000
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
6.
7.
BATCH 2020
What amount of property, plant and equipment should be shown in the consolidated balance sheet at
December 31, 2009?
A.
5,250,000
C.
5,529,000
B.
5,530,000
D.
5,531,000
What amount of inventory should be shown in the consolidated balance sheet at December 31, 2009?
A.
100,000
C.
130,000
B.
134,500
D.
135,000
Use the following information in answering the next item(s):
IRON MAN CORP. acquired 80% of RUST CORP.'s outstanding shares. The statements of financial
position of both entities immediately after the acquisition are shown below:
IRON MAN CORP.
RUST CORP.
Investment in subsidiary (at cost)
430,000
Other assets
1,570,000
750,000
Assets
2,000,000
750,000
Liabilities
750,000
400,000
Ordinary share capital
1,000,000
310,000
Retained earnings
250,000
40,000
Liabilities and Stockholders' equity
2,000,000
750,000
At the date of purchase, the fair value of RUST’s assets was P50,000 more than the aggregate
carrying amounts. Non-controlling interest is measured under the proportionate share method.
8.
How much is the goodwill in the consolidated balance sheet prepared immediately after the
acquisition?
A.
110,000
C.
140,000
B.
120,000
D.
160,000
9.
In the consolidated balance sheet prepared immediately after the acquisition, the consolidated total
assets should amount to:
A.
2,910,000
C.
2,430,000
B.
2,480,000
D.
2,370,000
10.
In the consolidated balance sheet prepared immediately after the acquisition, the equity attributable
to the owners of the parent should amount to:
A.
1,200,000
C.
1,330,000
B.
1,260,000
D.
1,630,000
11.
In the consolidated balance sheet prepared immediately after the acquisition, the consolidated
stockholders' equity should amount to:
A.
1,250,000
C.
1,330,000
B.
1,280,000
D.
1,630,000
Use the following information in answering the next item(s):
At the beginning of the year, GROOT CORP. acquired 70% interest in BRANCH CORP. On acquisition
date, BRANCH CORP.’s identifiable assets approximated their fair values except for an inventory
whose fair value exceeded its carrying amount by P10,000 and a building whose fair value exceeded
its carrying amount by P80,000. The building has a remaining useful life of 5 years.
At the end of the year, GROOT CORP. and BRANCH CORP. reported profits of P400,000 and P80,000,
respectively.
No dividends were declared by either entity during year. There were also no inter-company
transactions and impairment in goodwill.
12.
How much is the consolidated profit in 20x1?
A.
496,000
C.
B.
454,000
D.
448,000
388,000
13.
How much is the consolidated profit attributable to owners of the parent in 20x1?
A.
381,800
C.
437,800
B.
396,800
D.
448,800
14.
How much is the consolidated profit attributable to non-controlling interest in 20x1 ?
A.
6,200
C.
57,200
B.
16,200
D.
72,200
15.
On January 1, 1991, HAWKEYE CORP. acquired 100% of CROWEYE CORP.’s outstanding common
stock for P132,000. On that date, the carrying amounts of CROWEYE’s assets and liabilities
approximated their fair values. Summarized balance sheet information for the two companies
immediately after the acquisition follows:
HAWKEYE
CROWEYE
Investment in Style
132,000
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PSBA: AFAR 05_CONSOLIDATED FINANCIAL STATEMENTS (PART 1)
Other assets
Assets
138,000
270,000
BATCH 2020
115,000
115,000
Liabilities
Common stock
50,000
20,000
Share premium in excess of par
80,250
44,000
Retained earnings
139,750
51,000
Liabilities and stockholders' equity
270,000
115,000
What amount of total stockholders' equity should be reported in HAWKEYE’s January 1, 1991,
consolidated balance sheet?
A.
P270,000
C.
P362,000
B.
P286,000
D.
P385,000
- END OF HANDOUTS -
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