In a business combination, when the fair value exceeds the investment cost, which of the

following statements is correct?

A gain from a bargain purchase is recognized for the amount that the fair value of the
identifiable net assets acquired exceeds the acquisition price.

the value is allocated first to reduce proportionately (according to market value) non-
current assets, then to non-A gain from a bargain purchase is recognized for the amount
that the fair value of the identifiable net assets acquired exceeds the acquisition
price.monetary current assets, and any negative remainder is classified as a deferred
credit.

it is allocated first to reduce proportionately (according to market value) non-current

assets, and any negative remainder is classified as an extraordinary gain.

It is allocated first to reduce proportionately (according to market value) non-current,

depreciable assets to zero, and any negative remainder is classified as a deferred credit.
General Feedback
A gain from a bargain purchase is recognized for the amount that the fair value of the
identifiable net assets acquired exceeds the acquisition price.

A business combination occurs when a company acquires an equity interest in another

entity and has

more than 50% ownership in the entity.

at least 20% ownership in the entity.

control over the entity

100% ownership in the entity.

General Feedback
Explanation: Business combination is a transaction or other event in which an acquirer
obtains control of one or more businesses [IFRS 3(2008) (Appendix A)], regardless of the
percentage of ownership.
 On December 31, Year 2, Saxe Corporation was acquired by Poe Corporation. In the
business combination, Poe issued 200,000 shares of its 10 par common stock, with a
market price of 18 a share, for all of Saxe’s common stock. The stockholders’ equity
section of each company’s balance sheet immediately before the combination was

Poe Saxe
Common stock 3,000,000 1,500,000
Additional paid-in capital 1,300,000 150,000
Retained earnings 2,500,000 850,000
6,800,000 2,500,000

In the December 31, Year 2 consolidated balance sheet, additional paid-in capital
should be reported at

950,000

1,300,000

1,450,000

2,900,000
General Feedback
Suggested Solution
Poe Corporation
Fair Value of Shares issued in acquisition 3,600,000.00
Book value of shares issued (2,000,000.00)
Increase in APIC 1,600,000.00
APIC of acquirer before combination 1,300,000.00
Total APIC to be reported 2,900,000.00

On December 31, Year 1, Neal Co. issued 100,000 shares of its 10 par value common
stock in exchange for all of Frey Inc.’s outstanding stock. The fair value of Neal’s
common stock on December 31, Year 1, was 19 per share. The carrying amounts and
fair values of Frey’s assets and liabilities on December 31, Year 1, were as follows:

Carrying amount Fair value

Cash 240,000 240,000
Receivables 270,000 270,000
Inventory 435,,000 405,000
Property, plant, and 1,305,000 1,440,000
equipment
 Liabilities (525,000) (525,000)
Net assets 1,725,000 1,830,000

What is the amount of goodwill resulting from the business combination?

175,000

105,000

70,000

0
General Feedback
Explanation: In a business combination accounted for as an acquisition, the fair market
value of the net assets is used as the valuation basis for the combination. In this case,
Frey’s assets have an implied fair market value of 1,900,000 which is the market value of
the common stock issue (100,000 shares × 19). The value assigned to goodwill is 70,000,
which is the value of the stock minus the fair value of Frey’s identifiable assets
(1,900,000 – 1,830,000).

TBB issued 120,000 shares of its 25par ordinary shares for all the net assets of HAF
Company on July 1, Year 2. TBB’s ordinary shares were selling at 30 per share at the
acquisition date. In addition a cash payment of 200,000 was made plus an agreed
deferred cash payment of 990,000 payable on July 1, Year 2. The market rate of
interest at the time is 10%.

TBB also agreed to pay additional cash consideration of 250,000 in the event TBB’s
net income falls below the current level within the next 2 years. TBB’s financial
officers were 99% sure the current level of income will at least be sustained during
the prescribed period.

The following out-of-pocket costs were paid in cash by TBB.

Legal and accounting fees paid to advisers 8,000

Broker's fees 4,000
Indirect acquisition costs 3,000
Costs to issue and register the shares 10,400
Total 25,400

Determine the cost of the investment for TBB

4,700,000

3,800,000

5,040,000

4,950,000
General Feedback
Suggested Solution
TBB
Consideration Transferred:
Shares (120,000sh * 30) 3,600,000.00
Cash 200,000.00
PV of Accounts Payable (deferred cash payment) 900,000.00
Contingent consideration -
Total Consideration Transferred = Cost of Investment 4,700,000.00

*note: the total consideration transferred is the cost of investment since there is no
existing equity ownership of acquirer in the acquiree entity. Should there be an existing
equity ownership, the fair value of such ownership (accounted as previously-held equity
instrument) shall be added to determine the total cost of investment

On April 1, Year 1, Dart Co. paid 620,000 for all the issued and outstanding common
stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, Year
1, follow:
Cash 60,000
Inventory 180,000
Property and equipment (net of accumulated 320,000
depreciation of 220,000)
Goodwill 100,000
Liabilities (120,000)
Net assets 540,000

On April 1, Year 1, Wall’s inventory had a fair value of 150,000, and the property and
equipment (net) had a fair value of 380,000. What is the amount of goodwill resulting
from the business combination?

150,000
120,000

50,000

20,000
General Feedback
Suggested Solution
In an acquisition, the net assets of the acquired firm are recorded at their FV. The
excess of the cost of the investment over the FV of the net assets acquired is
allocated to goodwill. The cost of the investment is 620,000, and the FV of the net
assets acquired, excluding goodwill, is 470,000, as computed below.

FMV
Cash 60,000
Inventory (BV = 180,000) 150,000
Prop. and equip. (BV = 320,000) 380,000
Liabilities (120,000)
Total F 470,000

Therefore, the amount allocated to goodwill is 150,000 (620,000 – 470,000).

On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:

Inventories P100, 000 (sold in Year 2)

Building P200, 000 (5- year remaining life)

During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.

What is the consolidated total comprehensive income attributable to parent on December

31, Year 2, if Carlito’s net income for Year 2 is P600,000?

876,000

888,000

808,000
948,000
General Feedback
808,000

On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:

Inventories P100, 000 (sold in Year 2)

Building P200, 000 (5- year remaining life)

During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.

What was the fair value of NCI on January 1, Year 2?

P500,000

P375,000

P525,000

P400,000
General Feedback
P500,000

On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:

Inventories P100, 000 (sold in Year 2)

Building P200, 000 (5- year remaining life)

During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.
How much goodwill (gain on acquisition) is reported in the consolidated statement of
financial position on 1/1/Year 2?

P325,000

P200,000

P(325,000)

P(375,000)
General Feedback
P325,000

Sub Company sells all its output at 20 percent above cost to Par Corporation. Par
purchases all its inventory from Sub. The incomes reported by the companies over the
past three years are as follows:

Year Sub Company’s Net Income Par Corporation’s Operating Income

Year 1 150,000 225,000
Year 2 135,000 360,000
Year 3 240,000 450,000

Sub Company sold inventory for P300,000, P262,500 and P337,500 in the years Year 1,
Year 2, and Year 3 respectively. Par Company reported ending inventory of P105,000,
P157,500 and P180,000 for Year 1, Year 2, and Year 3 respectively. Par acquired 70
percent of the ownership of Sub on January 1, Year 1, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.

What will be the income assigned to controlling interest for Year 2?

P448,375

P495,000

P486,250

P615,375
General Feedback
 Suggested Solution
Profit - Par, Year 2 360,000.00
Share in Profit - Sub, Year 2 94,500.00
Share in RGP in beginning Inventory (105,000/120%*20%*70%) 12,250.00
Share in DGP in Ending Inventory (157,500/120%*20%*70%) (18,375.00)
Profit - Equity Holders of Parent 448,375.00

On January 1, Year 1, Wilhelm Corporation acquired 90 percent of Kaiser Company's

voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, Year 2, the trial
balances of the two companies are as follows:
Wilhelm Corporation Kaiser Company
Debit Credit Debit Credit
Current Assets 200,000 140,000
Depreciable Assets 350,000 250,000
Investment in Kaiser Company 162,000
Stock
Depreciation Expense 27,000 10,000
Other Expenses 95,000 60,000
Dividends Declared 20,000 10,000
Accumulated Depreciation 118,000 80,000
Current Liabilities 100,000 80,000
Long-Term Debt 100,000 50,000
Common Stock 100,000 50,000
Retained Earnings 150,000 100,000
Sales 250,000 110,000
Income from Subsidiary 36,000

Based on the preceding information, what amount would be reported as retained earnings
in the consolidated balance sheet prepared at December 31, Year 2?

314,000

294,000

150,000

424,000
General Feedback
Suggested Solution
 Wilhelm Corporation
Retained Earnings - Parent 150,000.00
Profit - Parent
Sales 250,000.00
Depreciation Expense (27,000.00)
Other expenses (95,000.00) 128,000.00
Dividends Declared - Parent (20,000.00)
Retained Earnings - Parent, Ending 258,000.00
Parent's share in Subsidiary Profit - 2009 36,000.00
Retained Earnings - Equity Holders of Parent 294,000.00

Pact acquired 80% of the equity shares of Sact on 1 July Year 1, paying P3.00
for each share acquired. This represented a premium of 20% over the market price of
Sact’s shares at that date. Sact’s shareholders’ funds (equity) as at 31 March Year 2 were:

Equity shares of P1 each 100,000

Retained earnings at 1 April Year 1 80,000
Profit for the year ended 31 March 40,000 120,000
Year 2
220,000

The only fair value adjustment required to Sact’s net assets on consolidation was a
P20,000 increase in the value of its land. Pact’s policy is to value non-controlling
interests at fair value at the date of acquisition. For this purpose the market price of
Sact’s shares at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest.

What would be the carrying amount of the non-controlling interest ofSact in the
consolidated statement of financial position of Pact as at 31 March Year 2?

P58,000

P56,000

P54,000

P50,000
General Feedback
Suggested Solution
Pact and Sact
 Equity shares, March 1, Year 2 (# of shares) 100,000.00
Multiply by: NCI percentage 20%
NCI held shares 20,000.00
Multiply by: FV/Share (P3 / 120%) 2.50
NCI - Net asset, at acquisition* 50,000.00
Share in profit (40,000 * 9/12 * 20%) 6,000.00
Share in dividends -
NCI - Net asset, March 31, Year 2 56,000.00

A subsidiary made sales of inventory to its parent at a profit this year. The parent, in turn,
sold all but 20 percent of the inventory to unaffiliated companies, recognizing a profit.
The amount that should be reported as cost of goods sold in the consolidated income
statement prepared for the year should be:

the amount reported as intercompany sales by the subsidiary.

the amount reported as intercompany sales by the subsidiary minus unrealized profit in
the ending inventory of the parent.

the amount reported as cost of goods sold by the parent minus unrealized profit in the
ending inventory of the parent.

the amount reported as cost of goods sold by the parent.

General Feedback
the amount reported as intercompany sales by the subsidiary minus unrealized profit in
the ending inventory of the parent.

Novy Corporation purchased at book value 70 percent of the ownership of Meiji

Corporation and 90 percent of the ownership of Cecille Corporation in Year 1. There are
frequent intercompany transfers among the companies. Activity relevant to Year 4 is
presented below.
Production Transfer Unsold at
Year Producer Cost Buyer Price End of Year Year Sold
Year 3 Meiji Corp. 24,000 Novy Corp. 30,000 10,000 Year 4
Year 3 Cecille Corp. 60,000 Meiji Corp. 72,000 18,000 Year 4
Year 4 Novy Corp. 15,000 Meiji Corp. 35,000 7,000 Year 5
Cecille
Year 4 Meiji Corp. 63,000 Corp. 72,000 12,000 Year 5
 Year 4 Cecille Corp. 27,000 Novy Corp. 45,000 15,000 Year 5

For the year ended December 31, Year 4, Novy Corporation reported P80,000 of income
from its separate operations (excluding income from intercorporate investments). Meiji
Corp. reported net income of P37,500, and Cecille Corporation reported net income of
P20,000.

Compute the amount reported as consolidated net income for Year 4.

P 117,900

P 116,750

P 142,50

P 96,750
General Feedback
Suggested Solution
Novy Corporation EHP Consolidated
Profit - Parent (Novy) - separate operations 80,000.00 80,000.00
Profit - Subsidiary (Meiji) 26,250.00 37,500.00
Profit - Subsidiary (Cecille) 18,000.00 20,000.00
Intercompany Sales
RGP: Meiji - Novy [10,000*20%] 1,400.00 2,000.00
RGP: Cecille - Meiji [18,000/120%*20%] 2,700.00 3,000.00
UGP: Novy - Meiji [7,000*57.14%] (3,999.80) (3,999.80)
UGP: Meiji - Cecille [12,000*12.5%] (1,050.00) (1,500.00)
UGP: Cecille - Novy [15,000*40%] (5,400.00) (6,000.00)
Total Profit 117,900.20 131,000.20
*the amount requested is "consolidated Profit", but amount included in choices is
"consolidated profit attributable to parent"
**kindly observe the computation for inter-subsidiary sale

BaduyCorp. owns 80 percent of the stock of Hiphop Company. At the end of Year 2,
Baduy Corp. and Hiphop Company reported the following partial operating results and
inventory balances:
Baduy Corp. Hiphop Co.
Total sales 658,000 510,000
Sales to Hiphop Co. 140,000
Sales to Baduy Corp. 240,000
Profit 20,000
Operating Profit (excluding income from Hiphop 70,000
 Co.)
Inventory, December 31, Year 2:
Purchases from Hiphop Co. 48,000
Purchases from Baduy Corp. 42,000

Baduy Corporation regularly prices its products at cost plus a 40 percent mark-up for
profit. Hiphop Company prices its sales at cost plus a 20 percent mark-up. The total sales
reported by Baduy and Hiphop include both intercompany sales and sales to nonaffiliates.

The consolidated cost of sales for Year 2 must be:

790,000

770,000

535,000

496,333
General Feedback
Suggested Solution
baduy Corp
Cost of goods sold - Parent (658,000/140%) 470,000
Cost of goods sold - Subsidiary (510,000/120%) 425,000
Intercompany Sale (140,000+240,000) (380,000)
Unrealized gross profit on ending inventory
[(48,000/120%)*20%] (6,667)
[(42,000/140%)*40%] (12,000)
Consolidated Cost of Goods Sold 496,333

On January 1, Year 1 SST Company purchased a computer with an expected life of 5

years. On January 1, Year 3 SST Company sold the computer to PMN corporation and
recorded the following entry:
Cash P39, 000
Accumulated Depreciation 16, 000
Computer Equipment 40, 000
Gain on sale of equipment 15, 000

PMN Corporation holds 60% of the voting shares of SST Company. SST Company and
PMN Corporation reported income from its own operations of P45, 000 and P85, 000 for
Year 3 respectively. There is no change in the estimated life of the equipment as a result
of intercompany sale.

How much is the income attributable to the Non-Controlling Interest for Year 3?

12,000

14,000

18,000

21,000
General Feedback
PMN Corporation and SST Company
NCI
Profit - Parent (own operation)
Profit - Subsidiary 18,000
Intercompany sale of PPE
Eliminate Gain (6,000)
Amortization of gain 2,000
Total 14,000

Penny Company owns an 80% controlling interest in the Sandy’s Company. Sandy
regularly sells merchandise to Penny, which then sold to outside parties. The gross profit
on all such sales is 40%. On January 1, Year 2, Penny sold land and a building to Sandy.
The value of the parcel is 20% to land and 80% to structures. Pertinent data for the
companies is summarized in the next page.

Penny Sandy
Internally generated net income, Year 2 520,000 250,000
Internally generated net income, Year 3 340,000 235,000
Intercompany merchandise sales, Year 2 100,000
Intercompany merchandise sales, Year 3 120,000
Intercompany inventory, December 31, Year 2 15,000
Intercompany inventory, December 31, Year 3 20,000
Cost of real estate sold on January 1, Year 2 600,000
Sales price of real estate on January 1, Year 2 800,000
Depreciable life of building 20 yrs

For Year 2, what is the consolidated comprehensive income attributable to controlling

interest?
523,200

525,000

625,000

532,500
General Feedback
523,200

BigBang Company owns an 80% controlling interest in Sheldon Company. Sheldon

regularly sells merchandise to BigBang, which then sells to outside parties. The gross
profit on all such sales is 40%. On January 1, Year 1, BigBang sold land and a building to
Sheldon. The value of the parcel is 20% to land and 80% to structures. Pertinent data for
the companies is summarized below.
BigBang Sheldon
Internally generated net income, Year 2 340, 000 235, 000
Internally generated net income, Year 1 P520, 000 P250, 000
Intercompany merchandise sales, Year 2 120, 000
Intercompany merchandise sales, Year 1 100, 000
Intercompany inventory, December 31, Year 2 20, 000
Intercompany inventory, December 31, Year 1 15, 000
Cost of real estate sold on January 1, Year 1 600, 000
Sales price of real estate on January 1, Year 1 800, 000
Depreciable life of building 20 years.

For Year 2, what is the consolidated comprehensive income attributable to controlling

interest?

453, 400

534, 400

543, 000

543, 400
General Feedback
Suggested Solution
BigBang Company
 EHP
Profit - Parent (own operation) 340,000
Profit - Subsidiary 188,000 (235,000*80%)
Intercompany sale - Inventory (upstream)
Unrealized gross profit (6,400) (20,000*40%*80%)
Realized gross profit 4,800 (15,000*40%*80%)
Intercompany sale - PPE (downstream)
PPE - amortization of
gain 8,000 [((800,000-600,000)*80%)/20]
Profit - EHP 534,400

On July 1, Year 1, Eliza, Rochie and Jessa formed a joint arrangement for the sale of
merchandise. Eliza was designated as the managing joint operator. Profits or losses
are to be divided as follows: Eliza, 50%; Rochie, 25%; and Jessa, 25%. On October 1,
Year 1, though the joint operation is still uncompleted, the participants agreed to
recognize profit or loss on the venture to date. The cost of inventory on hand is
determined at P25,000. The investment in Joint Operation account has a debit balance
of P15,000 before distribution of profit and loss. No separate set of books is
maintained for the joint operation and the participants record in their individual books
all venture transactions.

The joint operation profit (loss) on October 1, Year 1 is:

10,000

25,000

(15,000)

None
General Feedback
Suggested Solution
Eliza, Rochie, and Jessa
Operation before P/L 15,000.00
Unsold merchandise 25,000.00
Profit 10,000.00
K and L[1] join in a venture for the sale of certain merchandise. The participants agree to
the following:
· K shall be allowed a commission of 10% on his net purchase.
· The participants shall be allowed commissions of 25% on their respective sales.
· K and L shall divide the profit or loss 60% and 40%, respectively.
Joint arrangement transactions follows:
Dec.
1 K makes cash purchase of P57,000
3 L pays venture expenses of P9,000.
Sales are as follows: K P48,000; L P36,000. The participants keep
5 their own cash receipts.
6 K returns unsold merchandise and receives P15,000 cash.
15 The participants make cash settlement.

In the distribution of the net profit of the venture, what are the shares of K and L,
respectively?

4,260 3,230

4,680 3,120

4,820 3,430

4,840 4,230
General Feedback
Suggested Solution JA K L
Sales 84,000 (48,000) (36,000)
Purchases (57,000) 57,000
Expenses (9,000) 9,000
Purchase returns 15,000 (15,000)
Profit 33,000
Allocation of profit
Commission - purchases (4,200) 4,200
Commission - sales (21,000) 12,000 9,000
Balance (7,800) 4,680 3,120 #20
Settlement 33,000 14,880 (14,880) #21

Three joint operators are involved in a joint operation that manufactures ships chandlery.
At the beginning of the year the joint operation held P50,000 in cash. During the year the
joint operation incurred the following expenses: Wages paid P20,000, Overheads accrued
P10,000. Additionally, creditors amounting to P40,000 were paid and the joint operators
contributed P15,000 cash each to the joint operation. The balance of cash held by the
joint operation at the end of the year is:

P5,000

P25,000

P35,000

P75,000
General Feedback
Suggested Solution
Cash, beginning 50,000
Joint operators' additional investment 45,000
Disbursments
Wages (20,000)
Payment of accounts (40,000)
Cash, ending 35,000

Which of the following may not qualify as a joint arrangement:

Entities X and Y jointly publishes accounting and other business books. Per agreement, X
shall recruit authors and obtain exclusive printing and distribution rights; while Y shall
facilitate the actual publication of the books. X and Y shall share in the profits in the
ration of 60% and 40% respectively.

Entities X and Y established a new corporation Z and agrees to a joint control owning
45% and 35% with the remaining 20% issued in a public offering. Subsequently, Z
acquires 80% ownership of entity A that has a 90% ownership in Y.

Entities X and Y agrees to jointly control entity Z, each owning 40% interest. Entity A is
the parent of Y with a 90% ownership. Entity B, the parent of X with 82% ownership,
hold an investment in Y of 45% designated as fair value through profit or loss.

Entities X and Y acquires and agreed to jointly and equally own a spaceship to establish a
space tourism business. Their initial offering is a round trip to the moon at the very
affordable price of 1million US dollar. The package includes thee month physical
training, latest astronaut space suit (with color options of silver, gold, or ivory), travel
insurance, rental of adventure camera with 360 lens, and dedicated wifi connection to
allow immediate update to facebook, twitter, instagram, and other social networking sites.
X and Y agrees to share in the common revenues and expenses related to the operation
and maintenance of the spaceship.
General Feedback
Explanation X has control over entity Z. X directly owns 45% in Z and
indirectly owns 25.2% thru Z's contol over A that has
control over Y.

On January 2, Year 1, Abnoy Company and Sibuyas Company formed the DILAWAN
Company, a merchandising joint venture intended to prevent any political identity to
sit in the government without their approval. Each invested P200,000 for a 50%
interest in the joint venture with the agreement that the managing group is awarded
first to Abnoy. The venture’s operation went smoothly as nobody noticed their
scheme.
The condensed financial statements for Abnoy Company, Sibuyas Company and for
the joint venture, Dilawan Company are presented below:
Dilawan Company
Abnoy Co. Sibuyas Co. (a joint venture)
Profit or Loss:
Sales P3,000,000 P2,000,000 P1,000,000
Investment income 125,000 125,000 –
Total 3,125,000 2,125,000 1,000,000
Cost and expense 1,500,000 1,200,000 750,000
Net income P1,625,000 P 925,000 P 250,000

Financial Position:
Assets P3,550,000 P2,850,000 P2,000,000
Investment in Dilawan Company 325,000 325,000 –
Total assets P3,875,000 P3,175,000 P2,000,000
Liabilities P2,100,000 P1,900,000 P1,350,000
Capital stock 1,200,000 P1,000,000 –
Retained earnings 575,000 275,000 –

Ventures, Capital – – 650,000

Total liabilities and capital P3,875,000 P3,175,000 P2,000,000

How much would be the total liabilities to be reported by Sibuyas Company on

December 31, Year 1 is:
P3,250,000 P3,400,000 P2,575,000 P1,900,000
General Feedback
Dilawan Company
 Total liabilities 1,900,000.00
*note: since the Dilawan company is a joint venture; the parties shall account
for their investment using the equity method; thus, the liabilities of the JV shall
be reported only by the JV entity.

On January 1, Year 1, two real estate companies, Woodsgate and Deca, set up a
separate vehicle, Royal Pines Company, for the purpose of acquiring and operating a
shopping center. The contractual arrangement between the parties establishes joint
control of the activities that are conducted in Royal Pines Company. The main feature
of Royal Pines’ Legal form is that the entity, not the parties, has rights to the assets,
and obligations for the liabilities, relating to the arrangement. These activiites include
the rental of the retail units, managing the car park, maintaining the center and its
equipment, such as lifts, and building the reputation and customer base for the center
as a whole.
As a result, Woodsgate Company paid P1.6 million for 50,000 shares of Royal Pines’
voting common stock, which represents a 40% investment. No allocation to goodwill
or other specific account was mad the joint control over Royal Pines is achieved by
this acquisition and so Woodsgate applies the equity method. Royal Pines’ distributed
a dividend of P2 per share during the year and reported net income of P560,000. What
is the balance in the Investment in Royal Pines account found in Woodsgate’s
financial records as of December 31, Year 1?
1,844,000 1,884,000 1,724,000 1,784,000
General Feedback
Woodsgate and Deca
Initial Investment 1,600,000.00
Profit share 224,000.00
Dividend share (100,000.00)
Investment, ending 1,724,000.00

Apple Inc. and Samsung Inc. Incorporated an entity named Sample Inc. where in the
parties will have voting rights in the decision affecting the relevant activities of the
arrangement. The contract provides that unanimous consent by the parties is necessary for
the validity of Sample’s corporate act. The purpose of the arrangement is for Sample Inc.
to manufacture parts for the parties own manufacturing processes. The assets and
liabilities held in Sample Inc. are in are name of Sample Inc. what is the classification of
the interest of Apple Inc. and Samsung Inc. in Sample Inc. based on Sample Inc.’s Legal
form only.
It shall be classified as Investment in Subsidiary because of the presence of control.

It shall be classified as Investment in Associate because f the presence of significant

influence.

It shall be classified as Joint Arrangement accounted for as Investment in Joint Venture

under Equity Method because Sample Inc. holds title over the assets of the venture.

It shall be classified as Joint Arrangement accounted for as Joint Operation because in

case of doubt, it shall be resolved in favour of Joint Operation.
General Feedback
It shall be classified as Joint Arrangement accounted for as Investment in Joint Venture
under Equity Method because Sample Inc. holds title over the assets of the venture.

A party to a joint operation sells an asset to the operation. The profit it can realise is:

None

100%

100% - the party’s share, until the asset is sold by the operation

The selling operator’s share

General Feedback
100% - the party’s share, until the asset is sold by the operation

Goodwill arising from a business combination is

amortized over 40 years or its useful life, whichever is longer.

amortized over 40 years or its useful life, whichever is longer.

amortized over 40 years or its useful life, whichever is shorter.

never amortized.
General Feedback
never amortized.

A contingent consideration agreement was made on Jan. 1, Year 1, wherein an additional

cash payment would be made on Jan. 1, Year 3, equal to twice the amount by which
average annual earnings of the Hanes Division exceed P25,000 per year, prior to January
1, Year 3. Net income was P50,000 in Year 1 and P60,000 in Year 2. How much
adjustment will be made to goodwill on January 1, Year 3?

P60,000

P120,000

P85,000

none
General Feedback
none

On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:

Inventories P100, 000 (sold in Year 2)

Building P200, 000 (5- year remaining life)

During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.

What is the NCI in net assets of subsidiary on December 31, Year 2?

P455,000

P552,000

P495,000

P795,900
General Feedback
P552,000

How much is the profit attributable to the Controlling Interest?

40,000

32,000

24,000

8,000
General Feedback
Suggested Solution
Pact and Sact
Profit reported by subsidiary 40,000.00
Multiply by number of months with control 9/12
Multiply by percentage of ownership 80%

Profit attributable to Controlling

Interest 24,000.00

*It was assumed that no further equity transactions transpired from

the acquisition date since no data is available.
On January 1, Year 1 SST Company purchased a computer with an expected life of 5 years. On
January 1, Year 3 SST Company sold the computer to PMN corporation and recorded the
following entry:
Cash P39, 000
Accumulated Depreciation 16, 000
Computer Equipment 40, 000
Gain on sale of equipment 15, 000

PMN Corporation holds 60% of the voting shares of SST Company. SST Company and PMN
Corporation reported income from its own operations of P45, 000 and P85, 000 for Year 3
respectively. There is no change in the estimated life of the equipment as a result of
intercompany sale.

How much is the income attributable to the Non-Controlling Interest for Year 3?

12,000

14,000

18,000

21,000
General Feedback
PMN Corporation and SST Company
NCI
Profit - Parent (own operation)
Profit - Subsidiary 18,000
Intercompany sale of PPE
Eliminate Gain (6,000)
Amortization of gain 2,000

Total 14,000
On January 1, Year 1 SST Company purchased a computer with an expected life of 5 years. On
January 1, Year 3 SST Company sold the computer to PMN corporation and recorded the
following entry:
Cash P39, 000
Accumulated Depreciation 16, 000
Computer Equipment 40, 000
Gain on sale of equipment 15, 000

PMN Corporation holds 60% of the voting shares of SST Company. SST Company and PMN
Corporation reported income from its own operations of P45, 000 and P85, 000 for Year 3
respectively. There is no change in the estimated life of the equipment as a result of
intercompany sale.

What is the consolidated total comprehensive income attributable to parent for Year 3?

P103, 000

P106, 000

P112, 000

P130, 000
General Feedback
PMN Corporation and SST Company
EHP NCI Consolidated
Profit - Parent (own operation) 85,000 85,000
Profit - Subsidiary 27,000 18,000 45,000
Intercompany sale of PPE
Eliminate Gain (9,000) (6,000) (15,000)
 Amortization of gain 3,000 2,000 5,000

Total 106,000 14,000 120,000

Three joint operators are involved in a joint operation that manufactures ships chandlery.
At the beginning of the year the joint operation held P50,000 in cash. During the year the
joint operation incurred the following expenses: Wages paid P20,000, Overheads accrued
P10,000. Additionally, creditors amounting to P40,000 were paid and the joint operators
contributed P15,000 cash each to the joint operation. The balance of cash held by the
joint operation at the end of the year is:

P5,000

P25,000

P35,000

P75,000
General Feedback
Suggested Solution
Cash, beginning 50,000
Joint operators' additional investment 45,000
Disbursments
Wages (20,000)
Payment of accounts (40,000)

Cash, ending 35,000