Answers To Quiz 1 Period 3

ACC 113 - ACCOUNTING FOR BUSINESS COMBINATION
QUIZ October 15, 2021
Directions: Write the letter that corresponds to your answer. (in Capital Letter). Present solutions if
necessary.
1. Consolidated financial statements are typically prepared when one company has a controlling
financial interest in another unless:
a. The subsidiary is a finance company.
b. The fiscal year-ends of the two companies do not coincide.
c. The two companies are in unrelated industries, such as manufacturing and real estate.
d. The parent is in itself a subsidiary of another entity, its debt or equity instruments are not traded
in a public market, and its ultimate parent produces consolidated general-purpose financial
statements that comply with PFRSs.
2. If the impairment of the value of goodwill is seen to have reversed, then the company may
a. Reverse the impairment charge and credit income for the period.
b. Reverse the impairment charge and credit retained earnings.
c. Not reverse the impairment charge.
d. Reverse the impairment charge only if the original circumstances that led to the impairment no
longer exist and credit retained earnings.
3. When NCI is measured at proportionate share,

a. goodwill is attributed only to the owners of the parent.
b. goodwill is attributed to both the owners of the parent and NCI.
c. goodwill impairment is allocated to both the owners of the parent and NCI.
d. b and c
4. On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair
value of ₱15 per share. On this date, XYZ’s total equity was ₱74,000. The investment in subsidiary is
measured at cost.
XYZ’s assets and liabilities approximate their fair values on January 1, 20x1 except for the following:
Fair value
XYZ, Inc. Carrying Fair adjustment
amounts values s
Inventory 23,000 31,000 8,000
Equipment (4 yrs.
remaining life) 40,000 48,000 8,000
Total 63,000 79,000 16,000
There were no intercompany transactions during 20x1. However, it was determined that goodwill is
impaired by ₱1,000.
How much is the goodwill attributable to NCI as of December 31, 20x1?

a. 550
b. 2,220
c. 620
d. 1,280
5. On January 1, 20x2, ABC Co. sells 60% out of its 80% interest in XYZ, Inc. for ₱100,000. ABC’s
remaining 20% interest in XYZ has a fair value of ₱25,000. This gives ABC significant influence over
XYZ. The statements of financial position immediately before the sale are shown below:
Statements of financial position

As at January 1, 20x2
ABC Co. XYZ, Inc. Consolidated
ASSETS
Cash 23,000 57,000 80,000
Accounts receivable 75,000 22,000 97,000
Inventory 105,000 15,000 120,000
Investment in subsidiary 75,000 - -
Equipment 200,000 50,000 260,000
Accumulated
(60,000) (20,000)
depreciation (84,000)
Goodwill - - 3,000
TOTAL ASSETS 418,000 124,000 476,000
LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000
Bonds payable 30,000 - 30,000
Total liabilities 73,000 30,000 103,000
Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000
Retained earnings 110,000 44,000 118,000
Non-controlling interest - - 20,000
Total equity 345,000 94,000 373,000
TOTAL LIAB. & EQTY. 418,000 124,000 476,000
How much is the gain (loss) on the disposal?

a. 38,000
b. 42,000
c. 62,000
d. 78,000
6. This type of group arises when a parent’s subsidiary has its own subsidiary (sometimes referred to
as ‘sub-subsidiary’).
a. Vertical group
b. Horizontal group
c. Simple group
d. D-shaped group
7. This type of group arises when a parent has a direct controlling interest in at least one subsidiary. In
addition, both the parent and the subsidiary together hold a controlling interest in another entity.
a. Vertical group
b. Horizontal group
c. Complex group
d. D-shaped group
8. On January 1, 20x1, Subsidiary One acquires 60% interest in Subsidiary Two. On January 1, 20x3,
Parent acquires 80% interest in Subsidiary One. Identify the acquisition dates of Subsidiary One and
Subsidiary Two.
Subsidiary One Subsidiary Two
a. January 1, 20x1 January 1, 20x1
b. January 1, 20x3 January 1, 20x3
c. January 1, 20x1 January 1, 20x3
d. January 1, 20x3 January 1, 20x1
9. Parent acquires 80% interest in Subsidiary One on January 1, 20x1. Parent acquires 25% interest in
Subsidiary Two on January 1, 20x2. Subsidiary One acquires 30% interest in Subsidiary Two on
January 1, 20x3.
Subsidiary One Subsidiary Two
a. January 1, 20x1 January 1, 20x1
b. January 1, 20x3 January 1, 20x3
c. January 1, 20x1 January 1, 20x3
d. January 1, 20x3 January 1, 20x1
10. Which of the following statements is true regarding push-down accounting?

a. The Philippine SEC requires push-down accounting if a subsidiary is “substantially wholly-
owned,” i.e., parent’s ownership interest is at least 95%.
b. The Philippine SEC encourages push-down accounting if a parent’s ownership interest is 80% to
less than 95%.
c. The Philippine SEC prohibits push-down accounting if a parent’s ownership interest is less than
80%.
d. All of these are incorrect
11. These are those presented in addition to consolidated financial statements or the financial
statements of an entity with an investment in associate or joint venture that is accounted for using
equity method in accordance with PAS 28.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements
12. Entity A acquired an investment in associate for ₱1M many years ago. At the end of the current
reporting period, the investment has a fair value of ₱2.9M. If the equity method is used, the
investment would have a current carrying amount of ₱2.6M. In Entity A’s separate financial
statements, the investment should be valued at
a. 1,000,000.
b. 2,600,000.
c. 2,900,000.
d. any of these, as a matter of an accounting policy choice
4. A Solution:
Consideration transferred (5,000 sh. x ₱15) 75,000
Less: Previously held equity interest in the acquiree -
Total 75,000
Less: Parent's proportionate share in the net assets of subsidiary (₱90,000 acquisition-date fair
value* x 80%) (72,000)
Goodwill attributable to owners of parent – Jan. 1, 20x1 3,000
Less: Parent’s share in goodwill impairment (₱1,000 x 80%) (800)
Goodwill attributable to owners of parent – Dec. 31, 20x1 2,200
Fair value of NCI (see given) 18,750

Less: NCI's proportionate share in the net assets of subsidiary (₱90,000 acquisition-date fair
value x 20%) (18,000)
Goodwill attributable to NCI – Jan. 1, 20x1 750
Less: NCI’s share in goodwill impairment (₱1,000 x 20%) (200)
Goodwill attributable to NCI – Dec. 31, 20x1 550
Goodwill, net – Dec. 31, 20x1 2,750
* 74,000 + 16,000 FVA = 90,000 fair value
5. B Solution:
Step 1: We will identify the carrying amounts of XYZ’s assets and liabilities in the consolidated financial
statements as at the date control was lost.
Statements of financial position

As at January 1, 20x2
Carrying amount of XYZ’s net
ABC Co. XYZ, Inc. Consolidated
assets
ASSETS (a) (b) (c) = (b) – (a)
Cash 23,000 57,000 80,000 57,000
Accounts receivable 75,000 22,000 97,000 22,000
Inventory 105,000 15,000 120,000 15,000
Investment in subsidiary 75,000 - -
Equipment 200,000 50,000 260,000 60,000
Accumulated depreciation (60,000) (20,000) (84,000) (24,000)
Goodwill - - 3,000
TOTAL ASSETS 418,000 124,000 476,000 130,000
LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000 30,000
Bonds payable 30,000 - 30,000 -
Total liabilities 73,000 30,000 103,000 30,000
Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000 -
Retained earnings 110,000 44,000 118,000 -*
Non-controlling interest - - 20,000 -
Total equity 345,000 94,000 373,000 100,000
TOTAL LIAB. & EQTY. 418,000 124,000 476,000
*The consolidated retained earnings pertains to the parent only. Thus, no retained earnings is allocated to XYZ.
Step 2: We will prepare the deconsolidation journal entries (DJE):
DJE #1: To recognize the gain or loss on the disposal of controlling interest.
Jan. 1, Cash – ABC Co. (Consideration received) 100,000
20x2
Investment in associate (Investment retained) 25,000
Accounts payable – XYZ, Inc. 30,000
Accumulated depreciation – XYZ, Inc. 24,000
Non-controlling interest 20,000
Cash – XYZ, Inc. 57,000
Accounts receivable – XYZ, Inc. 22,000
Inventory – XYZ, Inc. 15,000
Equipment – XYZ, Inc. 60,000
Goodwill 3,000
Gain on disposal (squeeze) 42,000

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ACC 113 - ACCOUNTING FOR BUSINESS COMBINATION

QUIZ October 15, 2021

3. When NCI is measured at proportionate share,

How much is the goodwill attributable to NCI as of December 31, 20x1?

Statements of financial position

LIABILITIES AND EQUITY

How much is the gain (loss) on the disposal?

10. Which of the following statements is true regarding push-down accounting?

Fair value of NCI (see given) 18,750

Goodwill, net – Dec. 31, 20x1 2,750

* 74,000 + 16,000 FVA = 90,000 fair value

Statements of financial position

LIABILITIES AND EQUITY

Step 2: We will prepare the deconsolidation journal entries (DJE):

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