ACCOUNTING TUTORIAL SESSION

Advanced Financial Accounting & Reporting - 2

BUSINESS COMBINATION
At the acquisition date, a provisional fair value of
1. Magda Company acquired the net assets of Lena P12,000,000 was attributed to the net assets. An
Company for P1,100,000 and incurred P50,000 for
additional valuation received on May 31, 2012
direct costs related to the business combination. On
the date of acquisition, the assets and liabilities of increased this provisional fair value to P13,000,000
Lena are: and on June 30, 2012 this fair value was finalized at
P14,000,000.
Cash P 120,000
Merchandise Inventory 360,000 What amount should Venus present for goodwill in its
Plant Assets (net) 720,000
statement of financial position at December 31,
Liabilities 270,000
2012? P2,000,000
The merchandise inventory’s market value was
established at P285,000 and so with the plant assets
at P840,000. 5. Father Corp. issued 8,000 shares of its P10 par value
common stock to acquire all the assets and liabilities
The amount of goodwill (gain on acquisition) as a of Mama Co. Papa’s shares are trading at P50 and
result of the business combination is: P125,000
Mama’s P5 par value shares are trading at P18 each.
Source: P2 Baysa

2. Astro Corp. purchased the net assets of Bistro Corp. Acquisition related costs incurred and paid by Father
for P160,000. On the date of purchase, Bistro Corp. are as follows:
had no long-term investments in marketable Broker’s fee P 50,000
securities. The liabilities of the corporation amounted Gen. administrative costs 10,000
to P20,000. The market values of its assets were: Legal fees for the combination 20,000
Audit fee for SEC reg. of stock issue 290,000
Current assets P 80,000
Noncurrent assets 120,000 SEC reg. fee for stock issue 80,000
Total 200,000
Assuming that the balance of the additional paid-in
The amount of goodwill (gain on acquisition) should capital account of Father Corp. before the
be recorded at: (P20,000) combination is 120,000:
Source: P2 Baysa

3. On January 1, 2016, Parent Company purchased the The amount to be debited to additional paid-in capital
net assets of Child Company by paying P425,000 of account is: P320,000
cash and issuing shares of stock at P1,555,000 fair
value. The data of the statement of financial position
as of the said date are as follows: The balance of the additional paid-in capital account
of Father Corp. after the combination is: P120,000
Cash 2,300,000 150,000
AR 500,000 490,000
Inventory 750,000 300,000 6. On January 1, 2010, David Corp. paid P800,000 and
PPE 900,000 532,000 issued 18,000 shares of P50 par ordinary shares with
Goodwill 40,000 market value of P1,320,000 for all the net assets of
Total 4,450,000 1,512,000 Goliath Corp. In addition, David paid P12,000 for
registering and issuing the 18,000 shares and
Liabilities 500,000 285,000
P20,000 for indirect cost of the business combination.
Capital Stock 800,000
APIC 450,000 Summary balance sheet information for the
RE 2,700,000 companies immediately before the merger is as
Total 4,450,000 follows:

Parent Company incurred and paid legal and Cash 1,400,000 160,000
brokerage fees of P12,800, stock issuance costs of Inventories 480,000 400,000
P11,500 and P6,000 indirect acquisition costs. It is Other current assets 120,000 80,000
determinable that a contingency fee of 5,900 would Plant assets (net) 1,040,000 1,120,000
be paid within the year. Liabilities 960,000 280,000
Ordinary shares, P50 par 1,680,000
The amount of goodwill (gain on acquisition) as a Retained Earnings 400,000
result of the combination: P798,900
The total assets immediately after the merger is:
P4,608,000
Total assets after the business combination:
P6,265,600 The total stockholders’ equity after the merger is:
P3,368,000
File Name: NFJPIA_Mockboard 2011_P2
Total stockholders’ equity after the business
combination: P5,474,700
Source: Tutorial Materials

4. On July 1, 2011, the Venus Company acquired the

net assets of Cupid Company for a consideration
transferred of P16,000,000. At the acquisition date,
the carrying amount of Cupid’s net assets was
P10,000,000.
ACCOUNTING TUTORIAL SESSION
Advanced Financial Accounting & Reporting - 2

CONSOLIDATED FINANCIAL STATEMENTS

Paolo Sissy
1. Brown Company acquired 80% of the Ayannah Common Stock P525,000 P120,000
Company for a consideration transferred of Retained Earnings 780,000 210,000
P100,000,000. The consideration was estimated to
include a control premium of P24,000,000. On December 31, 2010, Sissy Co. reported net
Ayannah’s net assets were P85,000,000 at the income of P52,500 and paid dividends of P18,000 to
acquisition date. Paolo. Paolo reported earnings from its separate
operations of P142,500 and paid dividends of
Goodwill should be measured at what amount if the P69,000. Goodwill had been impaired and should be
non-controlling interest is measured through reported at P3,000 on December 31, 2010.
proportionate method: P32,000,000

Goodwill should be measured at what amount if the On December 31, 2010, compute for the following:
non-controlling interest is measured at fair value:
P34,000,000 a. Consolidated net income P177,000
Source: Tutorial Material

2. Balance sheet data for P Corporation and S b. NCINIS P6,900

Company on December 31, 2010, are given below:

P S c. CNI-Parent P170,100
Cash 70,000 90,000
Inventory 100,000 60,000
PPE (net) 500,000 250,000 d. NCI P83,400
Investment in S Co. 260,000
Total 930,000 400,000
e. Consolidated retained earnings P881,100
Liabilities 380,000 150,000 Source: Quiz
Common Stock 300,000 100,000
Retained Earnings 250,000 150,000 5. Parent Corp. acquired 75% of the outstanding
Total 930,000 400,000 ordinary shares of Subsy Co. on January 1, 2011 for
P287,400. Subsy Co.’s stockholders’ equity on this
P Corporation purchased 80% interest in S Company date were as follows: Ordinary shares (P100 par)
on December 31, 2010 for 260,000. S Company’s P131,250; Additional Paid-in Capital P52,500;
PPE had a fair value of 50,000 more than the book Retained Earnings P105,000. Non-controlling
value shown above. In the consolidated balance interest is measured at fair value. Current fair value
sheet on December 31, 2010, of Subsy Co.’s identifiable assets exceeded their
book value as follows: Inventories P15,750; Plant
The amount of total stockholders’ equity to be Assets (useful life 10 years) P26,250; while the book
reported will be: P615,000 value of Patents exceeded their fair value (useful life
5 years) P10,750. Both companies include
depreciation expense and amortization in operating
The amount on non-controlling interest will be: expenses and use the straight-line method of
P65,000 depreciation and amortization. Impairment of
File Name: NFJPIA_Mockboard 2011_P2 goodwill to P4,000 each year is to be recognize. Prior
to acquisition, the ordinary shares of Parent Corp. is
3. On January 1, 2011, Payne Corp. purchased 70% P180,000, Additional Paid-In Capital is P75,000 and
Shayne Corp.’s P10 par common stock for P900,000. Retained Earnings is P150,000.
On this date, the carrying amount of Shayne’s net
assets was P1,000,000. The fair values of Shayne’s
identifiable assets and liabilities were the same as For the year ended December 31, Parent Corp. and
their carrying amounts except for plant assets (net) Subsy Co. reported the following results of
which were P200,000 in excess of the carrying operations:
amount.
Net Income
For the year ended December 31, 2011, Shayne had Parent Corp. Subsy Co.
a net income of P150,000 and paid cash dividends 2011 P 178,000 P 102,000
totaling P90,000. Excess attributable to plant assets 2012 200,000 50,000
is amortized over 10 years.
Dividends
In the December 31, 2011 consolidated balance 2011 P 15,000 P 5,000
sheet, non-controlling interest balance using fair 2012 30,000 10,000
value method should be reported at: P397, 714
Source: Midterm Exam Compute the following (2011 and 2012):

4. On January 1, 2010, Paolo Corp. purchased 80% of a. Consolidated net income attributable to
Sissy Co.’s common stock for P324,000. P15,000 of parent
the excess is attributable to goodwill and the balance P235,581.25, P226,643.75
is to a depreciable asset with an economic life of 10
years. Non-controlling interest is measured at fair
value on date of acquisition. On the date of b. Non-controlling interest
acquisition, shareholders’ equity of the two P114,993.75, P123,875
companies are as follows:

c. Consolidated retained earnings

P370,581.25, P567,225
Source: Quiz
ACCOUNTING TUTORIAL SESSION
Advanced Financial Accounting & Reporting - 2

INTERCOMPANY TRANSACTIONS

1. Papa Co. purchased 70% ownership of Mama Co. on January 1,2009 at underlying book value. While each company has its
own sales forces and independent product lines, there are substantial inter-corporate sales inventory each period. The
following inter-corporate sales occurred during 2010 and 2011:

Year Seller Cost of Goods Sold Buyer Sales Unsold at year-end Year sold to outsiders
2010 Papa P 448,000 Mama P 640,000 P140,000 2011
2011 Mama P 312,000 Papa P 480,000 P 77,000 2012
2011 Papa P 350,000 Mama P 437,500 P 63,000 2012

The following data summarized the results of their financial operations for the year ended, Dec. 31, 2011:
Papa Co. Mama Co.
Sales P 3,850,000 P 1,680,000
Gross profit 1,904,000 504,000
Operating expense 770,000 280,000
Ending inventories 336,000 280,000
Dividend received from affiliate 126,000 --
Dividend received from non-affiliate -- 70,000

For the year ended 2011, compute for the following:

 Consolidated Sales P4,612,500

 Consolidated Cost of Sales P2,202,050

 Net income attributable to parent P1,350,335

 Consolidated ending inventory P576,450

Source: Tutorial Material

2. On January 2, 2008, PP Co. purchased 70% of the stocks of SS Co. at book value. On May 1, 2008, PP Co. acquired a used
machinery for P225,000 from SS Co. that was carried in the latter’s books at P180,000. The machinery has a remaining life
of 6 years.

On October 1, 2008, SS Co. purchased an equipment that was already 30% depreciated from PP Co. for P380,000. The
original cost of this equipment was P600,000 and had a remaining useful life of 5 years.

Results of operations are as follows:

PP Company SS Company
Net Income - 2008 P 630,000 P 110,000
Net Income – 2009 720,000 120,000
Dividends paid – 2008 230,000 70,000
Dividends paid – 2009 190,000 70,000

What is the consolidated net income attributable to parent stockholders in 2008? P668,000

What is the consolidated net income attributable to parent stockholders in 2009? P752,250
Source: AIR 2016 Material
ACCOUNTING TUTORIAL SESSION
Advanced Financial Accounting & Reporting - 2

COMPREHENSIVE PROBLEMS

Problem 1. Awesome Corporation acquired 80% interest in Amazing Company on January 2, 2013 for P2,950,000. On this date, the
share capital and retained earnings of the two companies follow:

Awesome Amazing
Share Capital P 6,000,000 P 2,520,000
Retained Earnings 3,000,000 200,000

On January 2, 2013, the assets and liabilities of Amazing Co. were stated at their fair values except for machinery which is undervalued
by P330,000 with a remaining useful life of 4 years. On September 30, 2014, Amazing sold merchandise to Awesome at an intercompany
profit of P150,000; 25% was still unsold at year-end. Likewise, on October 1, 2014, Amazing purchased merchandise from Awesome
for P2,500,000. The selling affiliate included a 120% mark-up on cost on this sale. Only 75% of these purchases had been sold to
unrelated parties as of December 31, 2014. As of December 31, 2014, goodwill was determined to be impaired by P67,500. The
following summary of the 2013 transactions of the affiliated companies:

Awesome Amazing
Net income P 1,300,000 P 650,000
Dividends declared and paid 600,000 120,000

On the 2014 consolidated financial statements how much would be the:

Goodwill on the date of acquisition P637,500

Non-controlling interest net income P107,500

Net income attributable to parent P1,293,091

Source: Midterm Exam

Problem 2. On January 2, 2013, Pretty Company acquired 90% of the outstanding shares of Handsome Inc. at book value. During 2013
and 2014, intercompany sales amounted to P2,000,000 and P4,000,000, respectively. Pretty Co. consistently recognized 25% mark-up
based on cost while Handsome Inc. had a 25% gross profit on sales. The inventories of the buying affiliate, which all came from
intercompany transactions show:

December 31, 2013 December 31, 2014

Pretty P 240,000 P 160,000
Handsome 100,000 40,000

Separate statement of comprehensive income for the two companies for the year 2014 follow:

Sales P 25,000,000 P 14,000,000

Cost of sales ( 15,000,000) ( 8,400,000)
Gross profit P 10,000,000 P 5,600,000
Operating Expenses ( 6,000,000) ( 3,800,000)
Operating Profit P 4,000,000 P 1,800,000
Loss on sale of office equipment ( 18,000)
Dividend revenue 40,000
Net Income P 4,000,000 P 1,822,000

Compute the following amounts as of December 31, 2014:

Consolidated Gross Profit P15,632,000

Consolidated Operating Expenses P9,800,000

Consolidated Net Income P5,854,000

Non-controlling Interest in Net Income P184,200

Consolidated Net Income attributable to Parent P5,669,800

Source: Midterm Exam

“Say to yourself, ‘My time is coming, and when it hits the surface of the earth,
people shall yield in admiration.’”

Prepared by:
Jason Phil D. Pajarillo
BSA-V