Name: Date:

Quiz II – AC12 Score:

I. Write the uppercase letter of the correct answer in the space

provided before the number.

1. ABC Co. initially tested its goodwill for impairment on September

30, 20x1. When should ABC perform its second impairment testing on
its goodwill?
a. on or before September 30, 20x2
b. on or before December 31, 20x2
c. at any date not earlier than September 30, 20x2
d. at any date during 20x2

2. According to PAS 27, which of the following is required to present

separate financial statements?
a. A publicly-listed entity
b. A parent
c. An entity with an investment in associate
d. None of these

3. On September 30, 20x1, RIBALD Co. acquired all of the identifiable

assets and assumed all of the liabilities of OFFENSIVE, Inc. by
issuing 10,000 shares with par value of ₱20 per share.

On this date, RIBALD’s shares were assigned a provisional value of

₱400 per share. Also, because some identifiable assets acquired and
liabilities assumed have fair values that were not readily
available, a provisional amount of ₱2,800,000 was assigned to
OFFENSIVE’s net identifiable assets.

On April 1, 20x2, after RIBALD’s 20x1 financial statements were

issued, new information was obtained confirming that the fair value
of RIBALD’s shares on September 30, 20x1 is ₱440 per share and that
the fair value of OFFENSIVE’s net identifiable assets as of
September 30, 20x1 is ₱3,600,000.

On July 1, 20x2, two competitors of RIBALD have also merged which

led to RIBALD believing that the merger with OFFENSIVE is not as
profitable as expected. RIBALD now wants to decrease the amount
assigned to the consideration transferred to OFFENSIVE on September
30, 20x1 to ₱360 per share and the value of OFFENSIVE’s net
identifiable assets to ₱1,600,000.

How should RIBALD account for the new information obtained on July
1, 20x2?
a. As a retrospective adjustment resulting to increase in goodwill
by ₱400,000.
b. As a retrospective adjustment resulting to decrease in goodwill
by ₱400,000.
c. As a retrospective restatement resulting to decrease in goodwill
by ₱400,000. The adjustment is treated as a correction of a prior
period error.
d. The new information obtained is ignored. No adjustment to
goodwill is necessary.

4. A British parent entity uses the revaluation model to measure its

property, but a Philippine subsidiary uses the cost model. The
Philippine subsidiary’s directors find the revaluation model too
costly to implement. In the consolidated financial statements, is
the group allowed to measure the Philippine subsidiary’s property
under the cost model?
 a. Yes, the British parent’s property shall be adjusted to conform
to the subsidiary’s accounting policy of cost model.
b. No, the Philippine subsidiary’s property shall be adjusted to
conform to the group’s accounting policy of revaluation model.
c. Yes, both models will be reflected in the consolidated financial
statements, but this fact must be disclosed in the notes.
d. None of these, the property is eliminated in the consolidated
financial statements.

II. Write the answer in the space provided before the number.

On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by

issuing 5,000 shares with fair value of ₱60 per share and par value of
₱40 per share.

XYZ’s shareholders’ equity as of January 1, 20x1 comprises the

following:
  Carrying amounts
Share capital 200,000
Retained
earnings 96,000
Total equity 296,000

On January 1, 20x1, the fair values of the assets and liabilities of

XYZ, Inc. were determined by appraisal, as follows:
Carrying Fair
XYZ, Inc.
amounts values
Cash 20,000 20,000
Accounts receivable 48,000 48,000
Inventory 92,000 124,000
Equipment 200,000 240,000
Accumulated
(40,000) (48,000)
depreciation
Accounts payable (24,000) (24,000)
Net assets 296,000 360,000

The remaining useful life of the equipment is 4 years.

During 20x1, no dividends were declared by either ABC or XYZ. There

were also no inter-company transactions. The group determined that
goodwill is impaired by ₱4,000.

ABC’s and XYZ’s individual financial statements at year-end are shown

below:

Statements of financial position

As at December 31, 20x1
ABC Co. XYZ, Inc.
ASSETS
Cash 92,000 228,000
Accounts receivable 300,000 88,000
Inventory 420,000 60,000
Investment in subsidiary 300,000 -
Equipment 800,000 200,000
Accumulated depreciation (240,000) (80,000)
TOTAL ASSETS 1,672,000 496,000

LIABILITIES AND EQUITY

Accounts payable 172,000 120,000
Bonds payable 120,000 -
 Total liabilities 292,000 120,000
Share capital 680,000 200,000
Share premium 260,000 -
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND
1,672,000 496,000
EQUITY
Statements of profit or loss
For the year ended December 31, 20x1
ABC Co. XYZ, Inc.
Sales 1,200,000 480,000
Cost of goods sold (660,000) (288,000)
Gross profit 540,000 192,000
Depreciation expense (160,000) (40,000)
Distribution costs (128,000) (72,000)
Interest expense (12,000) -
Profit for the year 240,000 80,000

On acquisition date, ABC Co. elected to measure non-controlling

interest as its proportionate share in XYZ, Inc.’s net identifiable
assets.

1. How much is the consolidated profit for 20x1?

Parent Subsidiary Consolidated
Profits before adjustments 240,000 80,000 320,000
Depreciation of FVA (32,000) (8,000) (40,000)
Goodwill impairment (4,000) - (4,000)
Consolidated profit 204,000 72,000 276,000

2. How much is the consolidated total assets as of December 31,

20x1?
Total assets of ABC Co. 1,672,000
Total assets of XYZ, Inc. 496,000
Investment in subsidiary (300,000)
FVA, net 24,000
Goodwill, net 8,000
Effect of intercompany
-
transaction
Consolidated total assets 1,900,000

3. How much is the consolidated total equity as of December 31,

20x1?
Share capital of ABC Co. 680,000
Share premium of ABC Co. 260,000
Consolidated retained earnings 468,000
Equity attributable to owners of the
1,408,000
parent
Non-controlling interests 80,000
Consolidated total equity 1,488,000

John Co. issued 15 million shares to acquire the whole share capital
of Matt Co., consisting of 6 million shares. The fair value of the net
assets of Matt Co. and John Co. are P30 million and P18 million
respectively. The fair value of each of the shares of Matt Co. is P6
and the quoted market price of John Co.’s shares is P2. The share
capital of John Co. is 25 million shares after the acquisition.

4. How much is the effective cost of the combination? 24,000,000

(4,000,000 x 6 FV/share)
     
     John Co. Matt Co.  
40% CS (JMT) 10 4 40%
60% CS (ABC) 15 6 60%
  Total 25 10 100%

5. How much is the goodwill (gain on bargain purchase)? 6,000,000

(24,000,000 consideration – 18,000,000 FVNAA of John Co.)
6. How many shares issued are to be disclosed in the consolidated
financial statements? 25,000,000 (John Co’s issued shares after
acquisition)

On January 1, 2016, K Corp. purchased all of T Corp.’s common stock

for P1,200,000. On that date, the fair values of T Corp.’s assets and
liabilities equaled their carrying amounts of P1,320,000 and P320,000,
respectively. During 2016, T Corp. paid cash dividends of P20,000.
Selected information from the separate balance sheets and income
statements of K Corp. and T Corp. as of December 31, 2016, and for the
year then ended follows:

K Corp. T Corp.
Balance sheet accounts
Investment in subsidiary 1,320,000 -
Retained earnings 1,240,000 560,000
Total stockholders’ equity 2,620,000 1,120,000

Income statement accounts

Operating income 420,000 200,000
Equity in earnings of T Corp. 140,000 -
Net income 400,000 140,000

7. In K Corp.’s December 31, 2016 consolidated balance sheet,

what amount should be recorded as retained earnings? 1,240,000 (K
Corp.’s RE)

On January 1, JJ acquired 80 percent of the outstanding voting stock

of SZ for P260,000 cash consideration. The remaining 20 percent of SZ
had an acquisition-date fair value of P65,000. On January 1, SZ
possessed equipment (5-year useful life) that was undervalued on its
books by P25,000. SZ also had developed several secret formulas that
JJ assessed at P50,000. These formulas, although not recorded on SZ’s
financial records, were estimated to have a 20-year future life.

As of December 31, the financial statements of JJ and SZ appeared as

follows:

JJ SZ
Income statement
Revenues 300,000 200,000
Cost of goods sold 140,000 80,000
Expenses 20,000 10,000
Net income 140,000 110,000

Balance Sheet
Cash and receivables 210,000 90,000
Inventory 150,000 110,000
Investment in SZ 260,000 -
Equipment (net) 440,000 300,000
Total assets 1,060,000 500,000
Liabilities 420,000 140,000
Common stock 200,000 100,000
Retained earnings 440,000 260,000
Total liabilities and equity 1,060,000 500,000

During the year, JJ bought inventory for P80,000 and sold it to SZ for
P100,000. SZ had paid for only half of this purchase by the end of the
year. Of these goods, SZ still owns 60% on December 31.

8. What is (are) the eliminating entry (entries) to adjust the

cost of goods sold for consolidation purposes? (Use the space below
for the entries)

Sales 100,000
Cost of goods sold 100,000

Cost of goods sold 12,000

Inventory 12,000

9. What is the total consolidated gross profit? 268,000

Conso Sales (300,000 + 200,000 – 100,000) 400,000
Conso COGS (140,000 + 80,000 – 100,000 + 12,000) (132,000)
Conso GP 268,000

On 1/3/20x6, John Co. sold equipment costing P100,000 to its 100%-

owned subsidiary, Matt Co., for P80,000. At the time of the sale, the
equipment had been 50% depreciated (using the straight-line method and
an assigned life of 10 years). Matt Co. continued depreciating the
equipment by using the straight-line method over its remaining useful
life.

10. What is the carrying amount of the equipment in the

12/31/20x6 consolidated statement of financial position? 40,000
(100,000/10 years x 4 remaining years) (1/3/20x6 – 50% depreciated – 5
years out of 10 years useful life. 12/31/20x6 – 6 years out of 10
years of useful life; hence 4 years remaining useful life)
11. What is the amount of intercompany profit (loss) that must be
deferred at 13/31/20x6? 24,000 (30,000 gain on sale – 6,000 excess
depreciation based on the entry below)
12. What is (are) the eliminating entry (entries) to adjust the
depreciation expense for consolidation purposes? (Use the space below
for the entries)

Accumulated depreciation 6,000

Depreciation expense 6,000

Jom Co. paid ₱150,000 for its 75% interest in Matt Co. Jom elected to
value NCI at fair value. Matt’s net identifiable assets approximated
their fair values at acquisition date. The acquisition resulted in a
goodwill attributable to NCI of ₱10,000.

Since the acquisition date, Matt has made accumulated profits of

₱200,000. There have been no changes in Matt’s share capital since
acquisition date. The group determined that goodwill has been impaired
by ₱8,000.

A summary of the individual statements of financial positions of the

entities as at the end of reporting period is shown below:
  Jom Co. Matt Co.
Total assets 1,000,000 500,000
Total liabilities 200,000 120,000
Share capital 300,000 100,000
Retained earnings 500,000 280,000
Total liabilities and equity 1,000,000 500,000

13. How much is the fair value assigned to NCI at date of

acquisition?
Fair value of NCI (squeezed) 55,000
NCI's proportionate share in NA (180,000 x 25%) (45,000)
Goodwill attributable to NCI - acquisition date (given) 10,000
14. How much is the goodwill at the end of reporting period?
Consideration transferred (given) 150,000
Less: Previously held equity interest in the acquiree -
Total 150,000
Less: Parent's proportionate share in the net assets of
subsidiary (₱180,000 acquisition-date fair value x 75%) (135,000)
Goodwill attributable to owners of parent – acquisition
date 15,000
Less: Parent’s share in goodwill impairment (₱8,000 x
75%) (6,000)
Goodwill attributable to owners of parent – current year 9,000

Fair value of NCI 55,000

Less: NCI's proportionate share in the net assets of
subsidiary (₱180,000 acquisition-date fair value x 25%) (45,000)
Goodwill attributable to NCI – acquisition date 10,000
Less: NCI’s share in goodwill impairment (₱8,000 x 25%) (2,000)
Goodwill attributable to NCI – current year 8,000

Goodwill, net – current year 17,000

15. How much is the NCI in net assets at the end of reporting
period?
Owl's net assets at fair value – current year 380,000
Multiply by: NCI percentage 25%
Total 95,000
Add: Goodwill attributable to NCI – current yr. (see 8,0
solution above) 00
Non-controlling interest in net assets – current year 103,000
16. How much is the consolidated retained earnings at the end of
reporting period?
Owl's retained earnings – current year   500,000
Consolidation adjustments:
Owl's share in the net change in Owlet's net assets
(a)
150,000
Owl’s share in goodwill impairment (6,000)
Net consolidation adjustments 144,000
Consolidated retained earnings – current year   644,000 

On January 1, 2016, Parent Company acquired 90% of Subsidiary Company

in exchange for 5,400 shares of P10 par common stock having a market
value of P120,600. Parent and Subsidiary condensed balance sheets were
as follows:

Parent Subsidiary
Cash 30,900 37,400
Accounts receivable (net) 34,200 9,100
Inventories 22,900 16,100
Equipment (net) 179,000 40,000
Patent - 10,000
Total assets 267,000 112,600

Accounts payable 4,000 6,600

Bonds payable, 10% 100,000 -
Common stock, P10 par 100,000 50,000
Additional paid-in capital 15,000 15,000
Retained earnings 48,000 41,000
Total liabilities and equity 267,000 112,600

At the date of acquisition, all assets and liabilities of Subsidiary

Company have book value approximately equal to their respective market
values except the following as determined by appraisal as follows:

Inventories (FIFO method) – 17,100

Equipment (net; remaining life of 4 years) – 48,000
Patent (no impairment) – 13,000

17. How much is the partial goodwill (gain on bargain purchase)

on January 1, 2016? 14,400

The separate incomes of P Co. and S Co., its 80% owned subsidiary, for
2019 were determined as follows:
P S
Sales 400,000 100,000
Less: Cost of sales 200,000 60,000
Gross profit 200,000 40,000
Less: Other expense 100,000 30,000
Net income 100,000 10,000
During 2019, P Co. sold merchandise that cost P20,000 to S Co. for
P40,000, and at December 31, 2019 half of these inventory items
remained unsold by S Co.

18. How much is the minority interest in net income for 2019?
2,000 (S profit 10,000 x 20%)
19. How much is the consolidated sales for 2019? 460,000 (P sales
400,000 + S Sales 100,000 – intercompany sale 40,000)
20. How much is the consolidated cost of sales for 2019? 230,000
(P COGS 200,000 + S COGS 60,000 – intercompany sale/purchase 40,000 +
overstatement of inventory ending due to unrealized profit 10,000)
21. How much is the profit attributable to equity holders of the
parent for 2019? 98,000 (P net income 100,000 – unrealized profit
10,000 + share in profit of S 8,000)

- END -