AFAR - 7.0 & 8.0 - Version 2 - Answered

AFAR_7.0 and 8.0 UL CPA REVIEW CENTER R.D.
BALOCATING
UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
CPAREVIEWCENTER
ADVANCED FINANCIAL ACCOUNTING & REPORTING

CONSOLIDATION
PFRS 10 Consolidated Financial Statements

(summary)
Objective
The objective of PFRS 10 is to establish principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities.
The Standard:
∙ requires a parent entity (an entity that controls one or more other entities) to present consolidated
financial statements
∙ defines the principle of control, and establishes control as the basis for consolidation ∙ sets out how to
apply the principle of control to identify whether an investor controls an investee and therefore must
consolidate the investee
∙ sets out the accounting requirements for the preparation of consolidated financial statements ∙ defines
an investment entity and sets out an exception to consolidating particular subsidiaries of an
investment entity*.
* Added by Investment Entities amendments, effective 1 January 2014.
Key definitions
Consolidated The financial statements of a group in which the assets, liabilities, equity, income,
financial expenses and cash flows of the parent and its subsidiaries are presented as those
statements of a single economic entity
An investor controls an investee when the investor is exposed, or has rights, to
Control of an variable returns from its involvement with the investee and has the ability to affect
investee those returns through its power over the investee
An entity that:
1. obtains funds from one or more investors for the purpose of providing
those investor(s) with investment management services
2. commits to its investor(s) that its business purpose is to invest funds solely
Investment entity* for returns from capital appreciation, investment income, or both, and 3.
measures and evaluates the performance of substantially all of its investments
on a fair value basis.
An entity that controls one or more entities

Parent
Existing rights that give the current ability to direct the relevant activities
Power
Rights designed to protect the interest of the party holding those rights without
Protective giving that party power over the entity to which those rights relate
Activities of the investee that significantly affect the investee's returns
rights Relevant
activities
* Added by Investment Entities amendments, effective 1 January 2014.
Control
An investor determines whether it is a parent by assessing whether it controls one or more investees. An
investor considers all relevant facts and circumstances when assessing whether it controls an investee. An
investor
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AFAR_7.0 and 8.0 UL CPA REVIEW CENTER R.D.BALOCATING
controls an investee when it 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.
An investor controls an investee if and only if the investor has all of the following elements:
∙ power over the investee, i.e. the investor has existing rights that give it the ability to direct the relevant
activities (the activities that significantly affect the investee's returns)
∙ exposure, or rights, to variable returns from its involvement with the investee
∙ the ability to use its power over the investee to affect the amount of the investor's returns.
Power arises from rights. Such rights can be straightforward (e.g. through voting rights) or be complex (e.g.
embedded in contractual arrangements). An investor that holds only protective rights cannot have power over
an investee and so cannot control an investee.
An investor must be exposed, or have rights, to variable returns from its involvement with an investee to control
the investee. Such returns must have the potential to vary as a result of the investee's performance and can be
positive, negative, or both.
A parent must not only have power over an investee and exposure or rights to variable returns from its
involvement with the investee, a parent must also have the ability to use its power over the investee to affect its
returns from its involvement with the investee.
When assessing whether an investor controls an investee an investor with decision-making rights determines
whether it acts as principal or as an agent of other parties. A number of factors are considered in making this
assessment. For instance, the remuneration of the decision-maker is considered in determining whether it is an
agent.
Accounting requirements
Preparation of consolidated financial statements
A parent prepares consolidated financial statements using uniform accounting policies for like transactions and
other events in similar circumstances.
However, a parent need not present consolidated financial statements if it meets all of the following conditions:
∙ it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and its other owners,
including those not otherwise entitled to vote, have been informed about, and do not object to, the
parent not presenting consolidated financial statements
∙ its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or
an over-the-counter market, including local and regional markets)
∙ it did not file, nor is it in the process of filing, its financial statements with a securities commission or other
regulatory organisation for the purpose of issuing any class of instruments in a public market, and ∙ its
ultimate or any intermediate parent of the parent produces consolidated financial statements available for
public use that comply with IFRSs.
Consolidation procedures
Consolidated financial statements:
∙ combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of
its subsidiaries
∙ offset (eliminate) the carrying amount of the parent's investment in each subsidiary and the parent's
portion of equity of each subsidiary (PFRS 3Business Combinations explains how to account for any
related goodwill)
∙ eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to
transactions between entities of the group (profits or losses resulting from intragroup transactions that
are recognised in assets, such as inventory and fixed assets, are eliminated in full).
A reporting entity includes the income and expenses of a subsidiary in the consolidated financial statements
from the date it gains control until the date when the reporting entity ceases to control the subsidiary. Income
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and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the
consolidated financial statements at the acquisition date.
The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional
financial information prepared by subsidiary, unless impracticable. Where impracticable, the most recent
financial statements of the subsidiary are used, adjusted for the effects of significant transactions or events
between the reporting dates of the subsidiary and consolidated financial statements. The difference between the
date of the subsidiary's financial statements and that of the consolidated financial statements shall be no more
than three months.
Non-controlling interests (NCIs)
A parent presents non-controlling interests in its consolidated statement of financial position within equity,
separately from the equity of the owners of the parent.
A reporting entity attributes the profit or loss and each component of other comprehensive income to the
owners of the parent and to the non-controlling interests. The proportion allocated to the parent and non-
controlling interests are determined on the basis of present ownership interests.
The reporting entity also attributes total comprehensive income to the owners of the parent and to the non
controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in ownership interests
Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the
subsidiary are equity transactions (i.e. transactions with owners in their capacity as owners). When the
proportion of the equity held by non-controlling interests changes, the carrying amounts of the controlling and
non-controlling interests area adjusted to reflect the changes in their relative interests in the subsidiary. Any
difference between the amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and attributed to the owners of the parent.
If a parent loses control of a subsidiary, the parent:
∙ derecognises the assets and liabilities of the former subsidiary from the consolidated statement of
financial position
∙ recognises any investment retained in the former subsidiary at its fair value when control is lost and
subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance
with relevant IFRSs. That fair value is regarded as the fair value on initial recognition of a financial asset
in accordance with PFRS 9Financial Instruments or, when appropriate, the cost on initial recognition of
an investment in an associate or joint venture
∙ recognises the gain or loss associated with the loss of control attributable to the former controlling
interest.
PAS 27 Separate Financial Statements
Separate financial statements are those presented by an entity in which the entity could elect to account for its
investments in subsidiaries, joint ventures and associates either at cost, in accordance with IFRS 9 Financial
Instruments, or using the equity method as described in IAS 28 Investments in Associates and Joint Ventures.
When an entity prepares separate financial statements, it shall account for investments in subsidiaries, joint
ventures and associates either:
(a) at cost;
(b) in accordance with IFRS 9; or
(c) using the equity method as described in IAS 28.
The entity shall apply the same accounting for each category of investments. Investments accounted for at cost
or using the equity method shall be accounted for in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations when they are classified as held for sale or for distribution (or included in a
disposal group that is classified as held for sale or for distribution). The measurement of investments
accounted for in accordance with IFRS 9 is not changed in such circumstances.
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Problem 1
Supernova Company had the following summarized balance sheet on December 31, 2015:
Assets
Accounts receivable P 200,000 Inventory 450,000 Property and plant (net) 600,000
Goodwill 150,000 Total P1,400,000
Liabilities and Equity

Notes payable P 600,000 Ordinary share capital, P5 par 300,000 Share premium 400,000
Retained earnings 100,000 Total P1,400,000
The fair value of the inventory and property and plant is P600,000 and P850,000, respectively.
Assume that Redstar Corporation exchanges 75,000 of its P3 par value shares ordinary, when the fair price is
P20/share, for 100% of the ordinary shares of Supernova Company. Redstar incurred acquisition costs of
P5,000 and share issuance costs of P5,000.
Required:
a. What journal entry will Redstar Corporation record for the investment in Supernova?
Investment in Supernova 1,500,000
Ordinary share capital 225,000
Share premium 1,275,000
Acquisition expense 5,000

Share premium 5,000
Cash 10,000
b. Prepare a supporting value analysis and determination and distribution of excess schedule
Consideration transferred 1,500,000

NCI (none) -
Fair value of Supernova 1,500,000
Determination of Excess
Fair value of Supernova 1,500,000
Less: Book value of Supernova net assets or equity 800,000
Excess or differential 700,000
Allocation of excess to identifiable assets and liabilities

Allocated Type of
Fair value Book value Excess Adjustment
AR P 200,000 P200,000 -
Inventories - undervalued 600,000 450,000 150,000 debit
P & P 850,000 600,000 250,000 debit
Amount allocated to identifiable assets and liabilities 400,000
UNIDENTIFIABLE EXCESS - GOODWILL 300,000 debit
Total excess of fair value over book value 700,000
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c. Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.
Ordinary share capital -Supernova 300,000

Share premium – supernova 400,000
Retained Earnings – supernova 100,000
Inventory 150,000
Property and plant 250,000
Goodwill 300,000
Investment in supernova 1,500,000
Problem 2
On December 31, 2015, Parent Company purchased 80% of the common stock of Subsidiary Company for
P280,000. On this date, Subsidiary had total owners' equity of P250,000 (common stock P20,000; other paid-in
capital, P80,000; and retained earnings, P150,000). Any excess of cost over book value is due to the under or
overvaluation of certain assets and liabilities. Inventory is undervalued P5,000. Land is undervalued P20,000.
Buildings and equipment have a fair value which exceeds book value by P30,000. Bonds payable are overvalued
P5,000. The remaining excess, if any, is due to goodwill. Noncontrolling interest is measured at fair value.
Required:
a. Prepare a value analysis schedule for this business combination.
Value Analysis 100% 80% 20% Fair value of Sub 350,000 280,000 70,000 Less: FV of INA 310,000
248,000 62,000 Goodwill 40,000 32,000 8,000
b. Prepare the determination and distribution schedule for this business combination
Consideration transferred (80%) 280,000

NCI (280,000/80% x 20%) 70,000
Fair value of Sub. 350,000
Fair value of Sub 350,000
Less: Book value of Sub 250,000

Allocated Type of
Excess Adjustment
Inventories - undervalued 5,000 debit
Land – undervalued 20,000 debit
Buildings - undervalued 30,000 debit
Bonds payable – overvalued 5,000 debit
UNIDENTIFIABLE EXCESS - GOODWILL 40,000 debit
Total excess of fair value over book value 100,000
c. Prepare the necessary elimination entries in general journal form.
Common stock – Subsidiary Co. 20,000

Other paid-in capital – Subsidiary Co. 80,000
Retained Earnings – Subsidiary Co. 150,000
Inventory 5,000
Land 20,000
Buildings 30,000
Bonds payable or Discount on Bonds 5,000
Goodwill 40,000
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Investment in Subsidiary Company 280,000
Noncontrolling interests 70,000
Problem 3
P Company acquired a majority interest in S Company on April 1, 2015, by issuing 500,000 shares of
unregistered P5 par ordinary shares and P1,500,000 cash in exchange for all the shares of S Company. It is
estimated that the fair value of the P Company shares at the date of exchange is P6 per share and the total
registration cost is P200,000. Additionally, P maintains an “acquisitions” department, and P Company estimates
that this department devoted approximately 60% of its efforts in S acquisition. This department incurs average
monthly expenses of P10,000.
Required: Prepare the journal entry on April 1, 2015, to record the P Company’s investment in S Company.
Investment in S Company 4,500,000

Ordinary share capital (500,000 x P5) 2,500,000
Share premium [500,000 x (P6 – P5)] 500,000
Cash 1,500,000
Share premium 200,000

Acquisition expense (10,000 x 60%) 6,000
Cash 206,000
Problem 4
P Company purchased an 80% interest in S Company for P84,800 on July 1, 2015. S Company’s Statement of
Financial Position on that date was as follows:
Equity
Share Capital 30,000
Retained earnings 50,000
Liabilities
Payables 12,000
Total equity and liabilities 92,000
Assets
Plant and equipment (net) 11,000
Patents 4,000
Inventory 42,000
Receivables 20,000
Cash 15,000
Total assets 92,000
A study of S Company’s assets and liabilities revealed the following information:
Fair value
Inventory P55,000
Plant and equipment 20,000
Patents 12,000
The fair values of the remainder of the assets and liabilities were equal to their book values.
Required:
a. Prepare the entry on July 1, 2015 to record the acquisition.
Investment in S Company 84,800

Cash 84,800
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b. Give the elimination entry.
Share capital, S Company 30,000

Retained earnings, S Company 50,000
Inventory 13,000 110,000 , this is the FV of INA
Patents 8,000
Gain on acquisition of business 3,200 Parent purchase price plus NCI – FV of INA Noncontrolling interest
22,000
c. Determine the noncontrolling interest measured at proportionate fair value of acquiree’s net assets on July 1,
2015.
NCI = 110,000 x 20% = 22,000
Problem 5
The balance sheet of Sparkle Corporation at January 1, 2016, reflected the following balances:
Cash P45,000 Accounts payable P40,000 Accounts receivables 35,000 Income taxes payable
60,000 Inventory 120,000 Bonds payable 200,000 Land 70,000 Share capital 250,000 Buildings
& equipment (net) 480,000 Retained earnings 200,000 P750,000 P750,000
Harrison Corporation, which had just entered into an active acquisition program, purchased 80% of the
common stock of Sparkle on January 2, 2016, for P470,000. Assuming that noncontrolling interest is to be
measured at fair value. A careful review of the fair value of the assets and liabilities of Sparkle indicated the
following:
Book Value Fair Value

Inventory P120,000 P140,000 Land 70,000 60,000 Buildings & equipment (net) 480,000
550,000
Required: Compute the appropriate amount to be included in the consolidated balance sheet immediately
following the acquisition for each of the following items:
a. Inventory = 140,000
b. Land = 60,000
c. Buildings & equipment (net) = 550,000
d. Goodwill
Consideration transferred 470,000
NCI (470,000/.80 x .20) 117,500
Total 587,500
Less: FV of INA 530,000
Goodwill 57,500
e. Investment in Sparkle Corporation = 0, will be eliminated in full.

f. Noncontrolling interest = 117,500
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Problem 6
On January 1, 2016, Parent Company purchased 100% of the common stock of Subsidiary Company for
P280,000. On this date, Subsidiary had total owners' equity of P240,000.
On January 1, 2016, the excess of cost over book value is due to a P15,000 undervaluation of inventory, to a
P5,000 overvaluation of Bonds Payable, and to an undervaluation of land, building and equipment. The fair
value of land is P50,000. The fair value of building and equipment is P200,000. The book value of the land is
P30,000. The book value of the building and equipment is P180,000.
Required:
a. Prepare schedule for determination and distribution of the excess of cost over book value.
Consideration transferred (Parent purchase price) 280,000
Less: Book value of Subsidiary net assets (SHE) 240,000
Allocated Type of
Excess Adjustment
Inventory - undervalued 15,000 debit
Land - undervalued 20,000 debit
Building and equipment – undervalued 20,000 debit
Bonds payable – overvalued 5,000 debit
Gain (20,000) credit
Excess 40,000
b. Prepare elimination entries.
Owners’ equity, Subsidiary Company 240,000

Inventory 15,000
Land 20,000
Building and equipment 20,000
Bonds payable 5,000
Investment in Subsidiary Company 280,000
Gain on acquisition of business 20,000
Problem 7
On December 31, 2015, Parent Company purchased 80% of the common stock of Subsidiary Company for
P1,550,000. On this date, Subsidiary had total owners' equity of P650,000 (common stock P100,000; other paid
in capital, P200,000; and retained earnings, P350,000). Any excess of cost over book value is due to the under or
overvaluation of certain assets and liabilities. Assets and liabilities with differences in book and fair values are
provided in the following table:
Book Fair
Value Value
Current Assets P500,000 P800,000 Accounts Receivable 200,000 150,000 Inventory
800,000 800,000 Land 100,000 600,000 Buildings (net) 700,000 900,000 Current
Liabilities 800,000 875,000 Long-Term Debt 850,000 930,000
Remaining excess, if any, is due to goodwill.
Required:
a. Prepare schedule for determination and distribution of the excess of cost over book value.
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b. Prepare elimination entries.
MULTIPLE CHOICE:
1. On June 1, 2015, PARDS Company acquires 100% of the stock of SARGE Company. On this date, PARDS has
retained earnings of P100,000 and SARGE has retained earnings of P50,000. On December 31, 2015, PARDS
has retained earnings of P120,000 and SARGE Company has retained earnings of P60,000. The amount of
retained earnings that should appear in the December 31, 2015 consolidated balance sheet is:
a. P120,000 b. P130,000 c. P150,000 d. P180,000
Sarge Retained earnings will be eliminated. Only the parent’s retained earnings will appear in the
consolidated FS.
2. The balance sheets of Pandy and Sal Corporations at year end 2015 are summarized as follows:
Pandy Sal
Share Capital 2,500,000 1,000,000
Retained earnings 1,000,000 500,000
Liabilities 1,500,000 500,000
5,000,000 2,000,000
Assets 5,000,000 2,000,000
On January 1, 2016, Pandy purchased 90% of Sal Corporation’s outstanding shares for P2,000,000 when the
fair value of Sal’s net assets was P2,200,000. If the consolidated balance sheet is prepared immediately after
the business combination, the consolidated equity will be (note: NCI is measured at proportionate fair value
of acquiree’s net assets):
a. P7,000,000 b. P5,200,000 c. P3,720,000 d. P3,500,000 Equity attributable to shareholders of
the parent:
Share capital 2,500,000
Retained earnings 1,000,000 3,500,000
Noncontrolling interest (2,200,000 x 10%) 220,000
Consolidated equity 3,720,000
3. On July 1, 2015, when Shark Company’s total shareholders’ equity was P260,000, Park Corporation purchased
7,000 shares of Shark’s ordinary shares at P40 per share. Shark Company had 10,000 shares outstanding
both before and after the purchase by Park and the book value of Shark’s net assets on July 1, 2015 was equal
to the fair value. The fair value of the noncontrolling interest’s shares in the subsidiary is P105,000. On a
consolidated balance sheet prepared at July 1, 2015, goodwill would be shown at:
a. P125,000 b. P98,000 c. P134,000 d. P50,000
Consideration transferred (7,000 x P40) 280,000

NCI 105,000
Total 385,000
Less: FV of INA of Shark (BV=FV) 260,000
Goodwill 125,000
4. The shareholder’s equity of Paul and Saul Corporations at December 31, 2015 are as follows
Paul Saul
Share Capital, P10 par P300,000 P100,000
Share Premium 50,000 150,000
Retained earnings 150,000 200,000
Totals P500,000 P450,000
On January 1, 2016, Paul and Saul consummate business combination in which Paul issues 15,000 shares for
90% of the outstanding shares of Saul. Shares of Paul currently sell for P20 in the market The consolidated
balance sheet of Paul Corporation and Subsidiary immediately after the combination will show share
premium in the amount of:
a. P125,000 b. P150,000 c. P185,000 d. P200,000
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P50,000 + 15,000(P20 – P10) = P200,000
5. Smithson Corporation acquires 70% of the outstanding stock of Vereen Corporation in a purchase business
combination. The book values of Vereen’s net assets are equal to their fair values except for the building
whose net book value and fair value are P200,000 and P300,000, respectively. At what amount will the
building be reported on the consolidated balance sheet?
a. P200,000 b. P300,000 c. P270,000 d. P230,000
QUESTIONS 6 TO 15 ARE BASED ON THE FOLLOWING PROBLEM:

W Electronics published the following balance sheet for December 31, 2015.
Cash P100,000 Accounts payable P 70,000 Accounts receivable 210,000 Taxes payable
130,000 Inventory 360,000 Notes payable 500,000 Buildings & equipment (net) 480,000
Common Stock 600,000 Goodwill 100,000 Additional paid-in capital 120,000 Investment in S
Co. 530,000 Retained earnings 360,000 P1,780,000 P1,780,000
The balance sheet of S Co for December 31, 2015 appeared as follows:
Cash P40,000 Accounts payable P 10,000 Accounts receivable 80,000 Taxes payable 60,000
Marketable securities 50,000 Notes payable 130,000 Inventory 120,000 Common Stock
200,000 Buildings & equipment (net) 210,000 Retained earnings 100,000 P500,000 P500,000
W acquired 80% of S Common stock on December 31, 2015. The fair values of S’s identifiable assets and
liabilities were equal to book values, except for the following:
Book value Fair Value
Inventory P120,000 P190,000 Buildings & equipment (net) 210,000 410,000 Notes
payable 130,000 120,000 Determine the consolidated balances of the following
accounts:
6. Retained earnings:
a. P360,000 b. P380,000 c. P440,000 d. P460,000 7. Common stock:
a. P600,000 b. P640,000 c. P760,000 d. P800,000 8. Notes Payable:
a. P596,000 b. P620,000 c. P622,000 d. P630,000 9. Inventory:
a. P480,000 b. P512,000 c. P536,000 d. P550,000 10. Goodwill:
a. P100,000 b. P166,000 c. P330,000 d. P390,000 11. Noncontrolling Interest (at
proportionate fair value of acquiree’s net assets):
a. P116,000 b. P40,000 c. P60,000 d. P112,000 12. Accounts payable:
a. P70,000 b. P72,000 c P78,000 d. P80,000 13. Total assets:
a. P1,750,000 b. P2,086,000 c. P2,180,000 d. P2,250,000 14. Equity:
a. P1,080,000 b. P1,196,000 c. P1,320,000 d. P1,380,000 15. Total liabilities:
a. P200,000 b. P700,000 c. P892,000 d. P890,000
Elimination entries for consolidation of FS at date of acquisition:

Common stock – S Company 200,000
Retained Earnings – S Company 100,000
Inventory 70,000
Buildings and equipment 200,000
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Notes payable 10,000
Goodwill 66,000
Noncontrolling interest (580k x 20%) 116,000
W - Parent S - Subsidiary Debit Credit Consolidated

Cash 100,000 40,000 140,000 Accounts receivable 210,000 80,000 290,000 Marketable securities 50,000 50,000
Inventory 360,000 120,000 70,000 550,000 Buildings & equipment (net) 480,000 210,000 200,000 890,000 Goodwill
100,000 66,000 166,000 Investment in S Co. 530,000 530,000 -
1,780,000 500,000 2,086,000
Accounts payable 70,000 10,000 80,000 Taxes payable 130,000 60,000 190,000 Notes payable 500,000 130,000
10,000 620,000 Common Stock 600,000 600,000 Additional paid-in capital 120,000 120,000 Retained earnings 360,000
360,000 Common Stock - S Company 200,000 200,000 -
Retained earnings - S Company 100,000 100,000 - Noncontrolling interest 116,000 116,000 1,780,000 500,000
2,086,000
16. When it purchased Sutton, Inc. on January 1, 2016Pavin Corporation issued 500,000 shares of its P5 par
voting common stock. On that date the fair value of those shares totaled P4,200,000. Related to the
acquisition, Pavin had payments to the attorneys and accountants of P200,000, and stock issuance fees of
P100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as follows:
Pavin Sutton
Common Stock P4,000,000 P700,000
Paid-in capital in excess of par 7,500,000 900,000
Retained earnings 5,500,000 500,000
P17,000,000 P2,100,000
Immediately after the purchase, the consolidated balance sheet should report paid-in capital in excess of par
of:
a. P8,900,000 b. P9,100,000 c. P9,200,000 d. P9,300,000
17. High Flying Airplanes purchased 60 percent of Best Quality Airframes for P420,000. At that date the book and
fair values of Best Quality were P600,000 and P740,000, respectively. After reassessment, no adjustment has
been made to market values. In the separate income statement of the parent, the amount of gain on bargain
purchase is:
a. P0 b. P320,000 c. P24,000 d. P40,000 100% parent nci
FV 716k 420k 296k
Less: FV of INA 740K 444k 296k
Gain (24) (24) 0
18. Fast Products purchased 70 percent of Slow Company for P154,000. At the Acquisition date Slow had
common stock and retained earnings of P10,000 and P130,000, respectively. Included in the Slow’s assets
was machinery with a book value and market value of P150,000 and P200,000 respectively. What is the
amount of noncontrolling interest (measured at proportionate fair value of acquiree’s net assets) recognized
on the consolidated balance sheet at the acquisition date?
a. P42,000
b. P57,000
c. P132,000
d. P87,000
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19. In number 18, compute the goodwill if Noncontrolling interest is recognized at P66,000 fair value.
a. P30,000 b. P21,000 c. P9,000 d. P80,000
20. For 2012, a 100%-owned subsidiary reported (a) net income of P75,000 and (b) dividends declared of
P15,000 (P10,000 of which was paid in 2012). What amount appears in the parent’s separate income
statement for 2012 under the cost method of accounting?
a. P10,000 CONSOLIDATION – Subsequent to date of
b. P60,000 acquisition
c. P75,000 d. P15,000 e. P65,000
COMPUTATION OF CONSOLIDATED NET INCOME (Group total comprehensive

income) & ALLOCATION OF SUBSIDIARY NET INCOME
Noncontrolling Own Income: Controlling
Interest Income Consolidated Net Income Interest Income
Of Parent (note 1) xxx xxx - Of Subsidiary xxx xxx xxx Amortization of excess (note 2)
(xxx) (xxx) (xxx) Unrealized profit on intercompany sales
of inventory – end:
Downstream sales (xxx) (xxx) - Upstream sales (xxx) (xxx) (xxx) Realized profit on
intercompany sales of
inventory – beginning:
Downstream sales xxx xxx - Upstream sales xxx xxx xxx Unrealized gain on
intercompany sales
of fixed assets: (note 4)
Downstream sales (xxx) (xxx) - Upstream sales (xxx) (xxx) (xxx) Realized gain on
intercompany sales
of fixed assets (note 5)
Downstream sales xxx xxx - Upstream sales xxx xxx xxx xxx xxx xxx
Note 1: Own income of the parent does not include investment income from subsidiary. Note 2: This represents
the fair value differences realized during the period. IF the fair value differential is a credit differential, it
should be added.
Note 3: All gains and losses from downstream sales are allocated 100% to parent; for upstream sales, it should
be allocated proportionately to parent and noncontrolling interest.
Note 4: On the year of sale, the entire amount of gain is eliminated.
Note 5: This represents piecemeal realization of gain or loss in the case of depreciable fixed assets, that is,
amount of gain or loss divided by remaining useful life adjusted accordingly for the number of months
if not a whole year. In case of gain on sale of land, it is realized only when it is sold to an entity outside
the group.
Note 6: Reverse the adjustment if intercompany losses.
Note 7: Component of other comprehensive income in the subsidiary should also be attributed between the
parent and noncontrolling interest.
Note 8: If a subsidiary has outstanding cumulative preference shares that are classified as equity and are held
by non-controlling interests, the parent computes its share of profit or loss after adjusting for the
dividends on such shares, whether or not dividends have been declared.
12
Problem – Equity Method and Cost Method
On January 1, 2015, P Company purchased an 80% interest in s Company from P2,800,000. On this date, S
Company had share capital of P1,000,000 and retained earnings of P500,000. Non-controlling interest had a fair
value of P700,000 at date of acquisition.
An examination of S Company’s assets and liabilities revealed that book values were equal to fair values except
plant and equipment (net) which had a book value of P2,000,000 and a fair value of P2,500,000, and inventory
which had a book value of P600,000 and a fair value of P800,000. The plant and equipment had an expected
remaining life of five years, and the inventory should all be sold in 2015.
P Company’s income from its own operations was P700,000 in 2015, and P800,000 in 2016. S Company’s
income was P600,000 in 2015 and P500,000 in 2016. S Company paid P150,000 dividends in 2015 and
P120,000 in 2016.
Required:
a. Compute consolidated net income, controlling interest net income and non-controlling interest net income for
2015 and 2016.
Consolidated 80% 20%
Parent NCI
2015:
P Company own income 700,000 700,000 -
S Company income 600,000 480,000 120,000
Amortization of excess:
Inventory (200,000) (160,000) (40,000)
Plant and equipment (100,000) (80,000) (20,000)

(500,000/5)
1,000,000 940,000 60,000
2016:
S Company income 500,000 400,000 100,000
Amortization of excess (100,000) (80,000) (20,000)
1,200,000 1,120,000 80,000
b. Prepare entries that P Company would have made in 2015 and 2016 in respect to its investment in S Company
using equity method.
2015:
To record acquisition on January 1, 2015.

Cash 2,800,000
To record dividends received from S Company.
Cash 120,000
150,000 x 80% = 120,000
To record equity in reported subsidiary profit.

Equity in S Company profit 480,000
To record amortization of excess.

13
2016:
Cash 96,000
120,000 x 80% = 96,000
To record equity in reported subsidiary profit.

To record amortization of excess.

c. Compute the balance of the investment at December 31, 2015 and 2016.
2015 2016
Investment in S Co., Jan. 1 2,800,000 2,920,000
Equity in S Co. profit (net) 240,000 320,000
Dividends from S Co. (120,000) (96,000)
Investment in S, Dec. 31 2,920,000 3,144,000
d. Compute the balance of non-controlling interest to be reported in the December 31, 2015 and 2016 statement
of financial position. Assume that NCI is measured initially at fair value.
2015 2016
Non-controlling interest, Jan. 1 700,000 730,000
NCI net income 60,000 80,000
Non-controlling interest, Dec. 31 730,000 786,000
e. Prepare eliminating entries for consolidated statement working papers on December 31, 2015 and 2016.
December 31, 2015:

Dividends, S Company 120,000
Investment in s Company 120,000
Share capital – S Co. 1,000,000

Retained earnings, 1/1/2015 – S. Co. 500,000
Cost of sales 200,000
Goodwill 1,300,000
Non-controlling interest, 1/1/2015 700,000
Depreciation expense 100,000

Accumulated depreciation-plant & equipment 100,000
December 31, 2016:

Investment in s Company 224,000

14
Goodwill 1,300,000

f. Redo requirements a to e using cost method
a. Compute consolidated net income, controlling interest net income and non-controlling interest net
income for 2015 and 2016.
Consolidated 80% 20%
Parent NCI
2015:
S Company income 600,000 480,000 120,000
Amortization of excess:
Inventory (200,000) (160,000) (40,000)
Plant and equipment (100,000) (80,000) (20,000)

(500,000/5)
1,000,000 940,000 60,000
2016:
S Company income 500,000 400,000 100,000
Amortization of excess (100,000) (80,000) (20,000)
1,200,000 1,120,000 80,000
b. Prepare entries that P Company would have made in 2015 and 2016 in respect to its investment in S
Company using cost method.
2015:
To record acquisition on January 1, 2015.

Cash 2,800,000

Cash 120,000
Dividend income 120,000
150,000 x 80% = 120,000
2016:
Cash 96,000
120,000 x 80% = 96,000
15
c. Compute the balance of the investment at December 31, 2015 and 2016.
2015 2016
Investment in S, Dec. 31 2,800,000 2,800,000
d. Compute the balance of non-controlling interest to be reported in the December 31, 2015 and 2016
statement of financial position. Assume that NCI is measured initially at fair value.
2015 2016
Non-controlling interest, Jan. 1 700,000 730,000
NCI net income 60,000 80,000
Non-controlling interest, Dec. 31 730,000 786,000
e. Prepare eliminating entries for consolidated statement working papers on December 31, 2015 and 2016.
December 31, 2015:


Cost of sales 200,000
Goodwill 1,300,000

December 31, 2016:

Retained earnings, 1/1/2016 – P Company 120,000

Goodwill 1,300,000

16
MULTIPLE CHOICE:
1. Jake Corporation has several subsidiaries that are included in its consolidated financial statements and
several other investments in corporations that are unconsolidated. In its trial balance at the end of the
current year, the following inter – company balances appear. Cake Corporation is the unconsolidated
company; the rest are consolidated.
Due from Compton Corporation P50,000
Due from Craiger Corporation 10,000
Cash advance to Corn Company 8,000
Cash advance to Queen 15,000
Current receivable from Cake 20,000
What amount should Jake report as inter-company receivables on its consolidated balance
sheet? a. P0 b. P83,000 c. P20,000 d. P60,000
17
QUESTIONS 2 TO 8 ARE BASED ON THE FOLLOWING.

B Corporation acquired 80% of the voting stock of D Co. on January 2, 2015, for P500,000. Other data
relevant to the companies are as follows:
B Corp. D Co.
Retained earnings, January 1, 2015 P400,000 P200,000 Net income-2015 70,000
Income excluding investment income-2015 90,000
Dividends declared 30,000 20,000 Common stock 500,000 300,000
All assets of D Co. have fair values equal to their book values except for an equipment whose book value is
P125,000 below its fair value. This equipment has 10 years remaining life.
2. Consolidated net income that will be reported for 2015:
a. P136,000 b. P146,000 c. P147,500 d. P160,000
3. The balance of investment account on December 31, 2015 using the equity method of accounting is:
a. P500,000 b. P530,000 c. P540,000 d. P550,000
4. Noncontrolling interest net income is:

a. P0 b. P11,500 c. P12,000 d. P14,000
5. Investment income that B should recognize for 2015 using the equity method:
a. 46,000 b. P48,000 c. P56,000 d. P70,000
6. When separate financial statements are appended to the consolidated financial statements in which the
parent accounted the investment in subsidiary at cost, the investment income and investment in subsidiary,
respectively, are:
a. P46,000 and P500,000 b. P16,000 and c. P16,000 and P530,000 d. P46,000 and P525,000
P500,000
7. The amount of noncontrolling interest (initially measured at proportionate fair value of acquiree’s net assets)
in the consolidated balance sheet at 12/31/2015 is :
a. P108,000 b. P132,500 c. P136,500 d. P100,000
QUESTIONS 8 AND 9 ARE BASED ON THE FOLLOWING INFORMATION:

On January 1, 2015, D Co. purchased 80% of U Corporation’s P10 par common stock for P975,000. On this
date, the carrying amount of U’s net assets was P1,000,000. The fair values of U’s identifiable assets and
liabilities were the same as carrying amounts except for plant assets (net), which were P100,000 in excess of
the carrying amount. The plant assets have remaining 10 years useful life. For the year ended December 31,
2015, U had net income of P190,000 and paid cash dividends totaling P125,000. The fair value of the
noncontrolling shares is assumed to have the same fair value as the acquired shares as indicated by the
parent’s purchase price.
8. In the January 1, 2015 consolidated balance sheet, goodwill should be reported at: a. P118,750
b. P75,000 c. P95,000 d. P175,000
9. In December 31, 2015, consolidated balance sheet, noncontrolling interest should be: a.
P254,750 b. P213,000 c. P220,000 d. P231,000
10. Akin enterprise purchases 100 percent of Bakit Company at January 1, 2015. One purchase differential was
created as a result of the acquisition . Plant assets were appraised at P600,000 more than the book value.
What is the purchase differential amortization in 2015 working paper if plant assets have an estimated
remaining life of 10 years?
a. P45,000 b. P0 c. P60,000 d. P100,000
11. PH Corporation purchased 80 percent of Classic Company’s stock at January 1, 2013. At this time, equipment
of Classic had book and fair values of P69,000 and P93,000, respectively. Equipment has a remaining life of
18
three years. What is the amount of purchase differential amortization recognized in 2013 consolidated
statements?
a. P6,400 b. P23,000 c. P8,000 d. P24,800
12. Denver, Inc. acquired 80 percent of Colorado Corporation at January 1, 2015. At that date the equipment
owned by each company had the following book value, appraised value, and estimated remaining economic
life.
Denver Colorado
Book value P88,000 P48,000
Market value 96,000 72,000
Life 8 years 6 years
What is the balance in the equipment account on the consolidated balance sheet at December 31,
2015? a. P144,000 b. P117,000 c. P133,000 d. P137,000
QUESTIONS 13 TO 16 ARE BASED ON THE FOLLOWING INFORMATION.

Ping acquired 70 percent of Sing for P875,000 at the beginning of 2014. The book value of Sing at that date
was P1,000,000 and the entire purchase differential was identified as goodwill. The reported net income for
Sing during 2014 and 2015 wasP46,000 and P54,000, respectively, while the dividends declared during the
two years were P30,000 per year.
13. How much noncontrolling interest (initially measured at fair value) would be reported in the 2015 end-of
year consolidated statement of financial position?
a. P300,000 b. P312,000 c. P387,000 d. P903,000
14. How much investment income would Ping record during 2015 assuming there is no goodwill impairment?
(equity method)
a. P37,800 b. P28,000 c. P70,000 d. P12,000
15. At the end of 2014, what balance would appear in Ping’s Investment in Sing account assuming there is no
goodwill impairment? (equity method)
a. P799,000 b. P886,200 c. P877,200 d. P951,000
16. At the end of 2015, it is determined that 40 percent of the goodwill is impaired and is written off. What is the
Investment in Sing balance at end of 2015? (equity method)
a. P971,000 b. P917,000 c. P833,000 d. P789,000 Note: Full goodwill = 250,000; impairment
loss = 100,000; loss to parent = 70,000
17. Page Company purchased an 80% interest in the common stock of the Seed Company for P600,000 on
January 1, 2015, when Seed Company had the following stockholders' equity:
Common stock, P10 par............................ P300,000
Preferred stock, 10%, P10 par.................... 100,000
Paid-in excess of par, common.................... 50,000
Retained earnings................................ 200,000
The preferred stock is cumulative and was 2 years in arrears on January 1, 2015. Any excess of cost over
book value on the common stock purchase was attributed to goodwill. Seed had net income of P40,000
during 2015and paid no dividends. The noncontrolling interest share of net income was:
a. P6,000 Seed income (subsidiary) 40,000
b. P6,400 c. P8,000 d. P16,000
NCI
Less: Preferred stocks (10% x P100,000 par) 10,000 10,000

Income to common stockholders 30,000
Less: NCI common (30,000 x 20%) 6,000 6,000
Parent’s equity in Seed income 24,000
Total NCI income 16,000
18. On January 1, 2015, Payne Corp. purchased 70% of Shayne Corp.'s P10 par common stock for P900,000. On
this date, the carrying amount of Shayne's net assets was P1,000,000. The fair values of Shayne's identifiable
19
assets and liabilities were the same as their carrying amounts except for plant assets (net), which were
P200,000 in excess of the carrying amount. For the year ended December 31, 2015, Shayne had net income
of P150,000 and paid cash dividends totaling P90,000. Excess attributable to plant assets is amortized over
10 years.
In the December 31, 2015, consolidated balance sheet, noncontrolling interest should be reported at ____.
a. P282,714 Items 19 and 20 are based on the following:
b. P300,500 c. P397,714 d. P345,500
On January 1, 2014, Ritt Corp. purchase 80% of Shaw Corp.’s P10 common stock for P975,000. On this date, the
carrying amount of Shaw’s net assets was P1,000,000. The fair values of Shaw’s’ identifiable assets and
liabilities were the same as their carrying amounts except for plant assets (net) which were P100,000 in excess
of the carrying amount. The fair value of noncontrolling interest in Shaw on January 1, 2014 was P250,000. For
the year ended December 31, 2014, Shaw had net income of P190,000 (assumed to be the adjusted subsidiary
income) and paid cash dividend totaling P125,000.
19. In the January 1, 2014, consolidated balance sheet, goodwill should be reported at
a. P0
b. P75,000
c. P95,000
d. P125,000
20. In the December 31, 2014, consolidated balance sheet, noncontrolling interest should be reported at
a. P200,000
b. P213,000
c. P220,000
d. P263,000
21. On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw
Company for P220,000 cash. On that date, Shaw's net assets had a book value of P148,000. Equipment with
an 8-year life was undervalued by P20,000 in Shaw's financial records. Shaw has a database that is valued at
P52,000 and will be amortized over ten years. Shaw reported net income of P25,000 in the year of
acquisition and P32,500 in the following year. Dividends of P2,500 were declared and paid in each of those
two years.
The third year of operations is now complete. For each of the two companies, selected account balances as
of December 31 for this third year are as follows:
Parkway Shaw
Revenues P250,000 P142,500
Expenses 175,000 100,000
Equipment (net) 125,000 60,000
Retained earnings, beginning 150,000 75,500
Dividends paid 25,000 5,000
What should be the Investment in Shaw Company account balance in the records of Parkway Corporation at
December 31 of the third year?
Equity Method Method
Cost
a. P282,500 P220,000
b. P286,900 P220,000
c. P262,500 P220,000
d. P328,000 P220,000
e. P277,500 P220,000
22. On January 1 of the year of acquisition, Ashley Inc. pays P300,000 for 60% of Marea Co.'s outstanding
common stock. Marea reported common stock on that date of P250,000 with retained earnings of P100,000.
Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by P20,000.
During the due diligence process, it was discovered that Marea had a patent that was not on the books, but
20
had a market value of P50,000. The patent has a useful life of 10 years. At initial recognition, Ashley
measures noncontrolling interest at fair value. Marea earns income and pays cash dividends as follows:
Net Income Dividends Paid
Acquisition year P40,000 P15,000
Second year P60,000 P20,000
Third year P90,000 P30,000
On the consolidated statement of financial position at the end of the third year, what amount should be
reported as noncontrolling interest?
a. P200,000
b. P341,600
c. P241,600
d. P250,000
e. P276,000
21
Consolidation – Intercompany Transactions
COMPUTATION OF CONSOLIDATED NET INCOME (Group total comprehensive

income) & ALLOCATION OF SUBSIDIARY NET INCOME
Noncontrolling Own Income: Controlling
Interest Income Consolidated Net Income Interest Income
Of Parent (note 1) xxx xxx - Of Subsidiary xxx xxx xxx Amortization of excess (note 2)
(xxx) (xxx) (xxx) Unrealized profit on intercompany
sales of inventory – end:
Downstream sales (xxx) (xxx) - Upstream sales (xxx) (xxx) (xxx) Realized profit on
intercompany
sales of inventory – beginning:
Downstream sales xxx xxx - Upstream sales xxx xxx xxx Unrealized gain on
intercompany
sales of fixed assets: (note 4)
Downstream sales (xxx) (xxx) - Upstream sales (xxx) (xxx) (xxx) Realized gain on
intercompany sales
of fixed assets (note 5)
Downstream sales xxx xxx - Upstream sales xxx xxx xxx xxx xxx xxx
Note 1: Own income of the parent does not include investment income from subsidiary. Note 2: This represents
the fair value differences realized during the period. IF the fair value differential is a credit differential, it
should be added.
Note 3: All gains and losses from downstream sales are allocated 100% to parent; for upstream sales, it should
be allocated proportionately to parent and noncontrolling interest.
Note 4: In the year of sale, the entire amount of gain is eliminated.
Note 5: This represents piecemeal realization of gain or loss in the case of depreciable fixed assets, that is,
amount of gain or loss divided by remaining useful life adjusted accordingly for the number of months
if not a whole year. In case of gain on sale of land, it is realized only when it is sold to an entity outside
the group.
Note 6: Reverse the adjustment if intercompany losses.
Note 7: Component of other comprehensive income in the subsidiary should also be attributed between the
parent and noncontrolling interest.
Note 8: If a subsidiary has outstanding cumulative preference shares that are classified as equity and are held
by non-controlling interests, the parent computes its share of profit or loss after adjusting for the
dividends on such shares, whether or not dividends have been declared.
22
Consolidated Sales and Cost of Sales
Consolidated sales should not include intercompany sales and consolidated cost of sales should
reflect the cost to the consolidated entity. Although they are easily determined in the working papers after
elimination entries are posted, the following pro-forma computations are provided.
To compute consolidated sales:
Sales:
Parent xxx
Subsidiary xxx
Total xxx
Less: Intercompany sales (upstream and downstream) **xxx
Consolidated sales xxx
To compute consolidated cost of sales:
Cost of sales:
Parent xxx
Subsidiary xxx
Total xxx
Less: Intercompany sales (upstream and downstream) **xxx
Add: Unrealized profit in ending inventory ***xxx
Less: Realized profit from beginning inventory ****xxx
Consolidated cost of sales xxx
** Elimination entry for intercompany sales

Sales xxx
Cost of sales xxx
***Elimination entry for unrealized profit in ending inventory

Cost of sales xxx
Inventory, end xxx
****Elimination entry for realized profit from beginning inventory (if investment is recorded at equity
method in the parent’s books. If sale is downstream, all charged to parent/investment account Investment
in Subsidiary xxx
Noncontrolling interest xxx RE, beg. , Subsidiary
Cost of sales xxx
****Elimination entry for realized profit from beginning inventory (if investment is recorded at cost method
in the parent’s books. If sale is downstream, all charged to parent/investment account Retained earnings,
beginning (parent) xxx
Noncontrolling interest xxx RE, beg. , Subsidiary
Cost of sales xxx
23
Intercompany Sale – Inventories
1. Several years ago Pen Corporation, purchased an 80% interest in Snow Company. The book values
of Snow’s asset and liability accounts at that time were considered to be equal to their fair market
values. Pen paid an amount corresponding to the underlying book value of Snow so that no
allocations or goodwill resulted from the purchase price.
The following selected account balances are from the individual financial records of these two
companies as of December 31, 2014:
Pen Snow
Sales P 640,000 P 360,000
Cost of goods sold 290,000 197,000
Operating expenses 150,000 105,000
58,000
Each of the following problems is an independent situation.

a. Assume that Pen sells inventory to Snow at a markup equal to 40% of the cost. Inter-company
transfers were P90,000 in 2013 and P110,000 in 2014. Of this inventory, P28,000 of the 2013
transfers were retained and then sold by Snow in 2014 while P42,000 of the 2014 transfers
were held until 2015.
On consolidated financial statements for 2014, what balances would appear for the following
accounts:
Sales = 640,000 + 360,000 – 110,000 = 890,000

Cost of goods sold = 290,000 + 197,000 – 110,000 – (28,000/1.40 x .40) + (42,000/1.40 x .40) =
381,000
Inventory = 42,000/1.40 = 30,000
Noncontrolling interest in subsidiary’s net income = 58,000 x 20% = 11,600
b. Assume that Snow sells inventory to Pen at a markup equal to 40% of cost. Inter-company
transfers were P50,000 in 2013 and P80,000 in 2014. Of this inventory, P21,000 of the 2013
transfers were retained and then sold by Pen in 2014, whereas P35,000 of the 2014 transfers
were held until 2015.
On consolidated financial statements for 2014, what balances would appear for the following
accounts:
Sales = 640,000 + 360,000 – 80,000 = 920,000

Cost of goods sold = 290,000 + 197,000 – 80,000 – (21,000/1.40 x .40) + (35,000/1.40 x .40) =
411,000
Inventory = 35,000/1.40 = 25,000
Noncontrolling interest in subsidiary’s net income = (58,000 + 6,000 – 10,000) x 20% = 10,800
2. Top Company holds 90% of the common stock of Bottom Company. In 2014, Top reports sales of
P800,000 and cost of goods sold of P600,000. For this same period, Bottom has sales of P300,000
and cost of goods sold of P180,000. During 2014, Top sold merchandise to Bottom for P100,000.
The subsidiary still possesses 40% of this inventory at the end of 2014. Top had established the
transfer price based on its normal markup. What are consolidated sales and cost of goods sold?
a. P 1,000,000 and P 690,000
b. P 1,000,000 and P 705,000
c. P 1,000,000 and P 740,000
d. P 970,000 and P 696,000
Markup rate = (800k-600k)/800k =25% of SP

Or (800k-600k)/600k=33 1/3% of cost
Ending inventory = 100,000 x 40% = 40,000
24
Unrealized profit in ending inventory = 40,000 x 25% = 10,000
Or 40,000/1.33333 x 33.33% = 10,000
3. Use the same information as in problem 2 except that the transfers were from Bottom Company to
Top Company. What are the consolidated sales and cost of goods sold for 2014? a. P 1,000,000 and
P 720,000
b. P 1,000,000 and P 755,000
c. P 1,000,000 and P 696,000
d. P 970,000 and P 712,000
Markup rate = (300k-180k)/300k =40% of SP

Or (300k-180k)/180k=66 2/3% of cost
Ending inventory = 100,000 x 40% = 40,000
Unrealized profit in ending inventory = 40,000 x 40% = 16,000
Or 40,000/1.6666 x 66.66..% = 16,000
4. P Corporation acquired a 60% interest in S Corporation on January 1 2014, at book value equal to
fair value. During 2014 P sold merchandise that cost P90,000 to S Corporation for P126,000. One
third (1/3) of this merchandise remained in S Corporation inventory at December 31, 2014. S
reported net income of P80,000for 2014. P’s income from S for 2014 is (using the equity method):
a. P24,000
b. P33,600
c. P36,000
d. P48,800
Downstream sales
Equity of parent in S income (60% x 80,000) 48,000
Unrealized profit in ending inventory (12,000)
Income from S Corporation 36,000
5. Jet Corporation, a 90% owned subsidiary of Pet Corporation, sold inventory items to its parent at a
P12,000 profit in 2014. Pet resold 1/3 of these inventory to outside entities. Jet reported net income
of P50,000 for 2014. Noncontrolling interest income that will appear in the consolidated income
statement for 2014 is:
a. P8,750
b. P7,500
c. P4,200
d. P8,000
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS.

Paula Corporation acquired a 70% interest in Sandy Corporation on January 1, 2014 when Sandy’s
book values were equal to their fair values. During 2014, Paula sold merchandise that cost P75,000
to Sandy for P110,000. At December 31, 2014, three-fourths of the merchandise acquired from
Paula remained in Sandy’s inventory. Separate incomes (investment income is not included) of
Paula and Sandy are as follows:
Paula Sandy
Sales Revenue P150,000 P200,000
Operating expenses 12,000 15,000
Separate incomes 48,000 115,000
6. The consolidated income statement for Paula Corporation and subsidiary for the year ended
December 31, 2014 will show consolidated cost of sales of:
a. P76,250
25
b. P160,000
c. P50,000
d. P133,750
7. Paula’s income from Sandy for 2014 is (using the equity method):
a. P80,500
b. P54,250
c. P88,750
d. P90,000
8. Snodgrass Corporation is an 80% owned subsidiary of Prattle Corporation. During 2013, Snodgrass
sold merchandise that cost P120,000 to Prattle for P160,000. Prattle’s ending inventory at
December 31, 2013 contained unrealized profit of P8,000 from the inter-company sales. During
2014, Snodgrass sold merchandise that cost P140,000 to Prattle for P190,000. One half of this
merchandise remained unsold by Prattle at December 31, 2014. For 2014, Prattle’s separate
income (does not include investment income) was P250,000 and Snodgrass’ reported net income
was P190,000. Parent’s net income for 2014 will be:
a. P377,500
b. P356,000
c. P388,400
d. P342,500
Consolidat Controlling Noncontrolli
ed Net Interest Income ng Interest
Income Income
Own Income:
Of Parent 250,000 250,000 -
Of Subsidiary 190,000 152,000 38,000
Unrealized profit on
intercompany sales of inventory
– end:
Downstream sales (xxx) (xxx) -
Upstream sales (25,000) (20,000) (5,000)
Realized profit on
Downstream sales xxx xxx -
Upstream sales 8,000 6,400 1,600
423,000 388,400 34,600
9. A 55% owned subsidiary makes the following entry to record a sale of merchandise to its parent
Accounts Receivable P120,000

Sales revenue P120,000
All sales made by the subsidiary are at 125% of cost. One third of this merchandise remains in the
parent’s inventory at year-end. A working paper entry to eliminate unrealized profits from
consolidated inventory would include a credit to inventory in the amount of:
a. P24,000
b. P12,000
c. P8,000
d. P10,000
10. Hardwood Inc., holds a 90% interest in Pittstoni Company. During 2013, Pittstoni sold inventory
costing P77,000 to Hardwood for P110,000. A total of P40,000 of this inventory was not sold to
26
outsiders until 2014. During 2014, Pittstoni sold inventory costing P72,000 to Hardwood for
P120,000. A total of P50,000 of this inventory was not sold to outsiders until 2015. In 2014,
Hardwood reported net income of P150,000 while Pittstoni reported P90,000. What is the non
controlling interest in the income of the subsidiary?
a. P8,000
b. P8,200
c. P9,000
d. P9,800
Unrealized profit in 12/31/2013 = 40,000 x 30% = 12,000 (note: will be realized in 2014)
Unrealized profit in 12/31/2014 = 50,000 x 40% = 20,000
Realized income of Sub. In 2014 = (90,000 + 12,000 – 20,000) x .10 = 8,200
Income Income
Own Income:
Of Parent 150,000 150,000 -
Of Subsidiary 90,000 81,000 9,000
Unrealized profit on
intercompany sales of inventory
– end:
Downstream sales (xxx) (xxx) -
Upstream sales (20,000) (18,000) (2,000)
Realized profit on
Downstream sales xxx xxx -
Upstream sales 12,000 10,800 1,200
232,000 223,800 8,200
11. King Corporation owns 80% of Lee Corporation’s common stock. During October 2014, Lee sold
merchandise to King for P100,000. At December 31, 2014, 50% of this merchandise remains in
King’s inventory. For 2014, gross profit percentages were 30% for King and 40% for Lee. The
amount of unrealized intercompany profit in ending inventory at December 31, 2014, that should
be eliminated in the consolidation process is:
a. P 40,000
b. P 20,000
c. P 16,000
d. P 15,000
27
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS.
Robinette Corporation acquired 70% of the voting common stock of Shipman Outlet Stores
Incorporated (Shipman) at a time when a Shipman’s book values and fair values were equal.
Robinette manufactures home furnishing which are sold at a standard markup to the department
stores, as well as to its own outlet, Shipman. Separate income of Robinette and Shipman for 2014 are
as follows:
Robinette Shipman
Sales revenue P700,000 P400,000
Operating expense 120,000 100,000
Separate incomes 180,000 100,000
Intercompany sales from Robinette to Shipman for 2013 and 2014 are summarized as follows:
Cost Selling price Unsold at year-end

Intercompany sales 2013 P250,000 P390,000 40%
Intercompany sales 2014 175,000 275,000 50%
12. The 2014 consolidated income statement will show sales revenue of:
a. P825,000
b. P900,000
c. P750,000
d. P625,000
13. The 2014 consolidated income statement will show cost of goods sold of:
a. P340,000
b. P319,000
c. P350,000
d. P400,000
14. Division Corporation owns 85 percent of Regional Operations Company. During 2013, Division sells
inventory costing P30,000 to Regional for P40,000. Regional does not sell any of this inventory to
unrelated parties before the end of 2013. During 2014, Division sells inventory costing P50,000 to
Regional for P65,000. Also during 2014, Regional sells all the inventory purchased in 2013 and 70
percent of the inventory purchased in 2014 to unrelated entities. What is the adjustment to cost of
goods sold in the 2014 worksheet elimination?
a. P70,500 credit
b. P70,500 debit
c. P20,500 credit
d. P20,500 debit
Sales 65k
Cogs 65K
Investment in Regional 10k

Cogs 10k
Cogs 4.5k
Inventory, end 4.5k
28
15. Becker Corporation owns 60 percent of Checker Company. During 2014, Becker sells inventory
costing P10,000 to Checker for P14,000. Checker sells 75 percent of this inventory to unrelated
entities before the end of 2014. What is the adjustment to sales in the 2014 worksheet elimination?
a. P4,000 debit
b. P4,000 credit
c. P14,000 debit
d. P14,000 credit
Intercompany sales – Fixed Assets

1. P Company has controlling interest in the capital stock of S Company. On January 1, 2013, an
intercompany sale of equipment, which cost P100,000 ten years ago, was made for P80,000. The
original estimate of service life was 20 years and that a remaining life of 10 years was reasonable.
During 2013 and 2014, the companies’ reported income from their own operations were P
Company, P50,000, and S Company P40,000.
Selling price 80,000

Less: BV of equipment
Cost 100,000
Acc. Depreciation (50,000) 50,000
Intercompany gain on sale of equipment 30,000
Required: Compute consolidated net income, controlling interest net income and noncontrolling
interest income if:
a. Sale is downstream, S Company is 80%-owned by P Company.
Income Income
2013:
Own Income:
Of Parent 50,000 50,000 -
Of Subsidiary 40,000 32,000 8,000
Deferred intercompany gain (30,000) (30,000)
Piecemeal realization 3,000 3,000 -
63,000 55,000 8,000
2014:
Own Income:
Of Parent 50,000 50,000 -
Of Subsidiary 40,000 32,000 8,000
Piecemeal realization 3,000 3,000
93,000 85,000 8,000
2013 Elimination:
Gain on sale of equipment 30,000
Equipment 20,000
Accumulated depreciation 50,000
2014 elimination entry.

Investment in subsidiary (RE beg., parent) 27,000
Equipment 20,000
29

b. Sale is upstream, S Company is 80% - owned by P Company.

Income Income
2013:
Own Income:
Of Parent 50,000 50,000 -
Of Subsidiary 40,000 32,000 8,000
Deferred intercompany gain (30,000) (24,000) (6,000)
Piecemeal realization 3,000 2,400 6,00
63,000 60,400 2,600
2014:
Own Income:
Of Parent 50,000 50,000 -
Of Subsidiary 40,000 32,000 8,000
Piecemeal realization 3,000 2,400 600
93,000 84,400 8,600
2013 Elimination:
Gain on sale of equipment 30,000
Equipment 20,000

2014 elimination entry.

Investment in subsidiary (RE, beg., parent) 21,600
Noncontrolling interest (RE, beg. Sub) 5,400
Equipment 20,000
30
2. On January 1, 2013, intercompany sale of land took place between South Company and its
subsidiary, Border Co., for P120,000 cash. The land had originally cost P100,000. South Co. earned
P220,000 net income in 2013 (not including any investment income) while Border Co. reported
P90,000. In 2015, the land was sold to unrelated entity for P135,000. Also in 2015, South Company
reported P250,000 net income (excluding any investment income) while Border Company reported
P100,000
Required: Compute (for years 2013 and 2015) consolidated net income, controlling interest net
income and noncontrolling interest net income if:
a. Sale is downstream, S Company is 80%-owned by P Company.
Income Income
2013:
Own Income:
Of Parent 220,000 220,000
Of Subsidiary 90,000 72,000 18,000
Deferred intercompany gain on (20,000) (20,000)

sale of land
290,000 272,000 18,000
2015:
Own Income:
Of Parent 250,000 250,000
Of Subsidiary 100,000 80,000 20,000
Realized intercompany gain on 20,000 20,000

sale of land
370,000 350,000 20,000

b. Sale is upstream, S Company is 80%-owned by P Company
Income Income
2013:
Own Income:
Of Parent 220,000 220,000
Of Subsidiary 90,000 72,000 18,000
Deferred intercompany gain on (20,000) (16,000) (4,000)

sale of land
290,000 276,000 14,000
2015:
Own Income:
Of Parent 250,000 250,000
Of Subsidiary 100,000 80,000 20,000
Realized intercompany gain on 20,000 16,000 4,000

sale of land
370,000 346,000 24,000
31
3. Proteus Corporation acquired a 70% interest in Sturgeon Corporation several years at a cost equal
to book value and fair value. On January 1, 2014, Proteus sold equipment with an estimated six-year
remaining useful life to Sturgeon at a gain of P84,000. Sturgeon reports net income of P400,000 for
2014 and pays P120,000 dividends. Proteus’ income from Sturgeon for 2014 under the equity
method is:
a. P400,000
b. P316,000
c. P210,000
d. P414,000
(400,000 x 70%) – 84,000 + (84,000/6) = 210,000
4. Franklin Corporation sold a large machine to its 80% owned subsidiary, Stone Corporation, on
January 1, 2014. Franklin sells the machine for P220,000 when its book value is P170,000 and it has
a 5 year remaining useful life with no expected salvage value. Separate balance sheets for Franklin
and Stone include the following equipment and accumulated depreciation amounts at December 31,
2014:
Franklin Stone
Equipment P1,500,000 P600,000
Less: Accumulated depreciation (400,000) (100,000)
Equipment net P1,100,000 P500,000
Consolidated amounts for equipment and accumulated depreciation at December 31, 2014 should
be:
a. P2,100,000 and P500,000 respectively

b. P2,150,000 and P510,000 respectively
c. P2,050,000 and P490,000 respectively
d. P2,150,000 and P490,000 respectively
5. P Corporation acquired a 90% interest in S Corporation in 2013 at a time when S’s book values and
fair values were equal to one another. On January 1, 2014, S sold a machine with a P30,00 book
values to P for P60,000. P depreciates the machine over 10 years using the straight-line method.
Separate incomes for P and S for 2014 are as follows:
P Corp. S Corp.
Sales P1,200,000 P700,000
Gain on sale of machinery 30,000
Cost of goods sold (500,000) (190,000)
Depreciation (300,000) (90,000)
Other expense (120,000) (300,000)
Separate income P280,000 P150,000
P’s investment income from S (using the equity method) for 2014 is:
a. P150,000
b. P135,000
c. P108,000
d. P110,700 (150,000 – 30,000 + 3,000) x 90% =110,700
6. Refer to information in number 5, the consolidated net income is:

a. P430,000
b. P403,000 (280,000 + 150,000 – 30,000 + 3,000) = 403,000
c. P390,700
d. P280,000
32
7. Refer to information in number 5, the noncontrolling interest net income is:
a. P15,000
b. P12,000
c. P12,300 (150,000 – 30,000 + 3,000) x 10%
d. P11,700
8. Refer to information in number 3, the controlling interest net income is:

a. P430,000
b. P403,000
c. P390,700 280,000 +110,700 = 390,700
d. P280,000
9. Refer to information in number 5, the consolidated depreciation expense is:

a. P390,000
b. P370,000
c. P387,000 (300,000 + 90,000 – 3,000) =387,000
d. P363,000
10. Sylvester Corporation acquired an 80% interest in Shuster Corporation on January 1, 2013. On
January 1, 2014, Shuster sold a building with a book value of P100,000 to Sylvester for P160,000.
The building had a remaining useful life of ten years and no salvage value. The separate balance
sheets of Sylvester and Shuster on December 31, 2014 include the following balances:
Sylvester Shuster
Buildings P800,000 P500,000
Accumulated depreciation 240,000 150,000
The building and accumulated depreciation amounts that should appear on the consolidated
balance sheet at December 31, 2014 are:
a. P1,300,000 and P390,000 respectively
b. P1,240,000 and P390,000 respectively
c. P1,240,000 and P384,000 respectively
d. P1,300,000 and P384,000 respectively
Elimination entry:
Gain on sale 60,000
Buildings 60,000
Acc. Depreciation 6,000

11. Dau Corporation purchased land from its 60% owned subsidiary, Dock corporation, in 2010 at a
cost of P15,000 greater than Dock’s book value. In 2014, Dau sold the land to an outside entity for
P20,000 greater than Dau’s book value. The 2014 consolidated income statement should report a
gain on the sale of land of:
a. P20,000
b. P15,000
c. P25,000
d. P35,000
12. On January 1, 2014, the Jonas Company sold equipment to its wholly owned subsidiary, Neptune
Company, for P1,800,000. The equipment cost Jonas P2,000,000; accumulated depreciation at the
time of sale was P500,000. Jonas was depreciating the equipment on the straight-line method over
20 years with no salvage value, a procedure that Neptune continued. On the consolidated balance
sheet at December 31, 2014, the cost and accumulated depreciation, respectively, should be:
a. P1,500,000 and P600,000
33
b. P1,800,000 and P500,000
c. P1,800,000 and P100,000
d. P2,000,000 and P600,000
13. Southern Materials owns 75 percent of Western Furniture’s common stock. On December 31, 2014
Southern sells a machine costing P65,000 with P15,000 accumulated depreciation at date of sale to
Western for P36,000. What amount will be debited in the December 31, 2014, worksheet
elimination entry for the machine account?
a. P15,000
b. P29,000
c. P14,000
d. P44,000
14. Maust Inc. owns 80% of Light Co.'s common stock. On January 2 of the current year, Maust sold Light
some equipment for P200,000. The equipment had a carrying amount of P180,000. Light is
depreciating the acquired equipment over a twenty-year remaining useful life by the straight-line
method. The net adjustments to calculate consolidated net income for the current year and the
following year would be an increase (decrease) of:
Current Year Following Year

a. (P19,000) P1,000
b. P1,000 -
c. (P20,000) -
d. (P10,000) P10,000
e. (P56,000) P4,000
15. On January 1 of the current year, Rogers Inc. sold equipment costing P1,400,000 with accumulated
depreciation of P840,000 to Cooper Corp., a wholly owned subsidiary, for P750,000. Rogers had
owned the equipment for six years and was depreciating the equipment using the straight-line
method over ten years with no salvage value. Cooper will continue to use the straight-line method
over the remaining four years of the equipment's economic life. In consolidated statements at
December 31 of the current year, the cost and accumulated depreciation, respectively, should be:
a. P1,400,000 and P840,000.
b. P1,400,000 and P1,027,500.
c. P750,000 and P187,500.
d. P1,400,000 and P980,000.
e. P750,000 and P840,000.
16. Saddle Corporation is an 80%-owned subsidiary of Paso Company. On January 1, 2012, Saddle sold
Paso a machine for P50,000. Saddle's cost was P60,000 and the book value was P40,000. The
machine had a 5-year remaining life at the time of the sale. A consolidated balance sheet only is
being prepared on December 31, 2014. The retained earnings of the controlling interest requires
which of the following adjustments?
a. Debit P4,000
b. Debit P6,000
c. Debit P3,200 (unrealized gain remaining at 12/31/2014 = 4,000; 4,000 x 80% = 3,200)
d. Debit P4,800
17. Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquired by Pennie several years
ago. On January 1, 2013, Pennie sold land with a book value of P60,000 to Stroud for P90,000.
Stroud resold the land to an unrelated party for P100,000 on September 26, 2014. The gain from
sale of land that will appear in the consolidated income statements for 2013 and 2014,
respectively, is _______.
a. P0 and P10,000
b. P0 and P40,000
c. P30,000 and P10,000
d. P30,000 and P40,000
34

AFAR - 7.0 & 8.0 - Version 2 - Answered

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AFAR - 7.0 & 8.0 - Version 2 - Answered

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AFAR_7.0 and 8.0 UL CPA REVIEW CENTER R.D.

ADVANCED FINANCIAL ACCOUNTING & REPORTING

PFRS 10 Consolidated Financial Statements

* Added by Investment Entities amendments, effective 1 January 2014.

An entity that controls one or more entities

* Added by Investment Entities amendments, effective 1 January 2014.

Preparation of consolidated financial statements

Consolidated financial statements:

Non-controlling interests (NCIs)

Changes in ownership interests

If a parent loses control of a subsidiary, the parent:

PAS 27 Separate Financial Statements

Liabilities and Equity

Acquisition expense 5,000

Consideration transferred 1,500,000

Allocation of excess to identifiable assets and liabilities

Ordinary share capital -Supernova 300,000

a. Prepare a value analysis schedule for this business combination.

Consideration transferred (80%) 280,000

Allocation of excess to identifiable assets and liabilities

c. Prepare the necessary elimination entries in general journal form.

Common stock – Subsidiary Co. 20,000

Investment in S Company 4,500,000

Share premium 200,000

A study of S Company’s assets and liabilities revealed the following information:

Investment in S Company 84,800

Share capital, S Company 30,000

NCI = 110,000 x 20% = 22,000

Book Value Fair Value

e. Investment in Sparkle Corporation = 0, will be eliminated in full.

b. Prepare elimination entries.

Owners’ equity, Subsidiary Company 240,000

Remaining excess, if any, is due to goodwill.

b. Prepare elimination entries.

Consideration transferred (7,000 x P40) 280,000

P50,000 + 15,000(P20 – P10) = P200,000

QUESTIONS 6 TO 15 ARE BASED ON THE FOLLOWING PROBLEM:

Elimination entries for consolidation of FS at date of acquisition:

W - Parent S - Subsidiary Debit Credit Consolidated

COMPUTATION OF CONSOLIDATED NET INCOME (Group total comprehensive

P Company own income 700,000 700,000 -

S Company income 600,000 480,000 120,000

Inventory (200,000) (160,000) (40,000)

Plant and equipment (100,000) (80,000) (20,000)

1,000,000 940,000 60,000

P Company own income 800,000 800,000 -

S Company income 500,000 400,000 100,000

Amortization of excess (100,000) (80,000) (20,000)

1,200,000 1,120,000 80,000

Investment in S Company 2,800,000

To record dividends received from S Company.

To record equity in reported subsidiary profit.

To record amortization of excess.

Equity in S Company profit 240,000

To record equity in reported subsidiary profit.

Investment in S Company 400,000

To record amortization of excess.

Equity in S Company profit 80,000

December 31, 2015:

Equity in S Company profit 240,000

Share capital – S Co. 1,000,000

Depreciation expense 100,000