PROBLEM 1

Charm Inc. purchased a controlling interest in Jade Inc. on January 1, 20x2. When Jade’s
common stock and retained earnings were carried at P1,890,000 and P60,000 respectively. On
that date, Jade’s book values approximated its fair market values, with the exception of the
company’s inventories and a patent held by Jade. The patent, which had an estimated remaining
useful life of ten years, had a fair market value which was P20,000 higher than its Book value.
Jade’s inventories on January 1, 20x2 were estimated to have a fair value that was P16,000
higher than their book value. It was predicted that Jade’s goodwill impairment test, which was to
be conducted on December 31, 20x3, would result in a loss equal to 10% of the goodwill
(regardless of the amount) at the date of acquisition being recorded). During 20x2, Jade reported
a net income of P60,000 and paid P12,000 in dividends. Jade’s 20x3 net income and dividends
were P72,000 and P15,000 respectively. Jade uses straight-line amortization for all of its assets
and using equity method. Assuming that Charm purchases 100% of Martin for P300,000.
(ADAPTED DAYAG, 2019)
The amount of goodwill on December 31, 20x3 amounted to
a. P36,000 c. P21,600
b. P60,000 d. P24,000
Answer A, P36,000, is the total under valuation of Assets (and Liabilities if there is).
Answer B, P60,000, is the allocated excess only. The total over/under valuation of Assets and
Liabilities need to be deducted from it, in order to get the goodwill before impairment loss.
Answer C, P21,600 is the correct answer.
Answer D, P24,000, is the amount of goodwill on January 1, 20x2- date of acquisition.
The investment in Jade Inc. on December 31, 20x3 amounted to
a. P300,000 c. P382,600
b. P330,000 d. P405,000
Answer A, P300,000, is the cost (FV of subsidiary) or the consideration transferred by the
parent.
Answer B, included in the computation only the income and Dividends of the subsidiary for
20x2 and the amortization of allocated excess of inventory and patent for 20x2, but did not
include in the computation the income and dividends of the subsidiary for 20x3, the amortization
of allocated excess of patent and the impairment of goodwill on 20x3.
Answer C, P382,600, is the correct answer.
Answer D, did not deduct to the cost, the Amortization of allocated excess of inventory and
patent for 20x2, the Amortization of allocated excess of patent and the impairment of goodwill
for 20x3. Only income and dividends of the subsidiary for 20x2 and 20x3, were included in the
computation.
Assuming that Charm acquires 80% of Jade for P300,000. The amount of full-goodwill on
December 31, 20x3 amounted to:
a. P 57,600 c. P99,000
b. P89,100 d. P135,000
Answer A, P57,600 is the result when Subsidiary (Jade) income on 20x3 is multiplied to 80%.
Answer B, P89,100 is the correct answer.
Answer C, P99,000, is the amount of Goodwill on January 1, 20x2 – date of acquisition.
Answer D, P135,000 is the allocated excess only. The total under valuation of 36,000 need to be
deducted from it in order to get the goodwill on 1/1/20x2 –date of acquisition (before impairment
loss).
PROBLEM 2

Taguig Inc. purchased 100% of the outstanding voting shares of Macky Inc. for P200,000 on
January 1, 20x4. On that date, Macky Inc. had common stock and retained earnings worth
P100,000 and P60,000, respectively. Goodwill is tested annually for impairment. The Balance
sheets of both companies, as well as Macky’s fair market values on the date of acquisition are
disclosed below:

The net incomes for Taguig and Macky for the year ended December 31,20x7 were P160,000
and P90,000 respectively. Macky paid P9,000 in Dividends to Taguig during the year. There
were no other inter-company transactions during the year. Moreover, on impairment test
conducted on December 31,20x7 revealed that the goodwill should actually have a value of
P20,000. Both companies use a FIFO system, and most of Macky’s inventory on the date of
acquisition was sold during the year. Taguig did not declare any dividends during the year.
Assume that Taguig Inc. uses the Equity method unless stated otherwise. Assume that any
difference between the fair values and book values of the equipment, trademark and bonds
payable would all be amortized over 10 years.
(ADAPTED DAYAG, 2019)

The amount of goodwill arising from this business combination is

a. P40,000- This is the allocated excess (Excess of FV of subsidiary or the consideration
transferred by the parent ,1/1/20x4 over the Book Value of SHE-subsidiary).
b. P14,000 - Answer B, is the amount of the increase in trademark because it is undervalued.
c. P (24,000) - This is a gain on acquisition which is the result if the total over/under valuation
of assets and liabilities is greater than the allocated excess.
d. P 24,000 - is the correct answer.

How much Goodwill will be carried on Macky’s Balance Sheet on December 31, 20x7?
a. Zero - is the correct answer.
b. P16,000 – This is the total undervaluation of assets and liabilities.
c. P (10,000) - This is the amount of decrease in equipment because it is overvalued (BV>FV).
d. P 24,000 - This is the amount of goodwill on January 1, 20x4 –date of acquisition.

The amount of Retained Earnings appearing on the Consolidated Balance Sheet as of

January 1, 20x7 would be:
a. P60,000 - Answer A is the Retained Earnings of the Subsidiary on the date of acquisition.
b. P70,000 - is the correct answer.
c. P130,000 - This is the result when the Retained Earnings of Taguig Inc. (P70,000) and
Macky Inc. (P60,000) at the date of acquisition is added.
d. P160,000 - Answer D, P160,000, is the book value of Shareholder’s equity of the
subsidiary.

PROBLEM 3
On January 1, 20x6, Straw Company acquired 90% of Berry Company in exchange for 5,400
shares of P10 par common stock having a market value of P120,600. Straw and Berry condensed
balance sheets were as follows:

At the date of acquisition, all assets and liabilities of Berry Company have book value
approximately equal to their respective market values except following as determined by
appraisal follows:

(ADAPTED DAYAG, 2019)

What is the amount of partial goodwill on January 1, 20x6?
a. P48,000- This is the consolidated retained earnings on January 1, 20x6.
b. P11,800 – Answer B is the non-controlling interests (in net assets) on January 1, 20x6.
c. P14,400 - Answer C is the correct answer.
d. P 25,200 –is the allocated excess (Excess of cost over Book Value of SHE-Subsidiary
1/1/20x6).
In addition to information in No. 1 assuming that on December 31, 20x6, the following results
were given:

What is the Non-Controlling Interest on December 31, 20x6?

a. P610- Answer A is the non-controlling interest in Net Income on December 31, 20x6.
b. 32,090 - This is the profit for the period attributable to Equity Holders of Parent on 12/31/06.
c. P12,010 – is the correct answer.
d. 32,700 – This is the consolidated/group net income on December 31, 20x6. (32,090 + 610)
What is the Consolidated Retained Earning, December 31,20x6?
a. P80,090- is the sum of the consolidated RE on 1/1/20x6 and the Parents profit attributable to
equity holders’ 20x6. The dividends paid by the Parent- 2016 is not yet deducted from this
amount.
b. 65,090 – is the correct answer.
c. 41,000 – This is the Retained Earnings of the subsidiary on January 1, 20x6.
d. 46,400 – This is the Retained Earnings of the subsidiary on December 31,20x6.