Chapter 15 Problem I Investment in Shy Inc. [P2,500,000 + (15,000 P40)] Cash Common Stock Paid in capital in excess of par (P40 - P2) 15,000
Paid in capital in excess of par Acquisition Expense Deferred Acquisition Charges Acquisition Costs Payable
3,100,000 2,500,000 30,000 570,000 30,000 67,000 90,000 7,000
Problem II
Cash consideration transferred Contingent performance obligation Fair value of Subsidiary Less: Book value of SS Company (P90,000 + P100,000) Allocated excess Less: Over/under valuation of assets and liabilities: Increase in building: P40,000 x 100% Increase in customer list: P22,000 x 100% Increase in R&D: P30,000 x 100% Goodwill Investment in SS Company Cash Estimated Liability on Contingent Consideration Acquisition Expense (or Retained earnings) Cash
P 300,000 __15,000 P 315,000 190,000 P125,000 P 40,000 22,000 30,000
__92,000 P 33,000
315,000 300,000 15,000 10,000 10,000
Not Required: The working working paper eliminating entry on the date of acquisition, 6/30/20x4 be:
Receivables Inventory Buildings Equipment Customer list Capitalized R&D Goodwill Current liabilities Long-term liabilities Investment in SS Company
80,000 70,000 115,000 25,000 22,000 30,000 33,000 10,000 50,000 315,000
Problem III Case 1: Proportionate Basis (Partial-goodwill Approach) Partial-goodwill Fair value of subsidiary (80%): Consideration transferred: Cash……………………….......P12,000,000 (80%) Less: Book value of stockholders’ equity (net assets) 80%............. .................. ....... 5,760,000 (80%) – S Company: P7,200,000 x 80%............................... Allocated excess.…………………………………… excess.………………………………………………...... ………….......P 6,240,000 (80%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 80%.............................. 80%............. ............................. .............. 1,920,000 (80%) (80%) Positive excess: Goodwill (partial)…………………………….... P 4,320,000 (80%)
Non-controlling interest Book Value of stockholders’ equity of subsidiary…………. Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P9,600,000 – P7,200,000)… – P7,200,000)….. Fair value of stockholders’ equity of subsidiary…………… Multiplied by: Non-controlling interest percentage............
P 7,200,000 2,400,000 P 9,600,000 20%
would
Non-controlling Interest (partial)……………………… (partial)……………………………….. ………..
P1,920,000
Fair Value Basis (Full-goodwill Approach) Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash (P12,000,000 / 80%).. P 15,000,000 15,000,000 (100%) Less: Book value of stockholders’ equity (net assets) 100%.............. ................. 7,200,000 (100%) – S Company: P7,200,000 x 100%............................. Allocated excess.…………………………………… excess.……………………………………………….. ………….. P 7,800,000 (100%) Less: Over/Undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%............................... 100%............. .................. ..... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%) The full – goodwill goodwill of P5,400,000 consists of two parts: Full-goodwill……………………………………………....... P 5,400,000 Less: Controlling interest interest on full-goodwill or partial-goodwill…………………………….…. 4,320,000 NCI on full-goodwill…………………………………….......P 1,080,000
Non-controlling interest Non-controlling interest (partial)…………………… (partial)……………………………….... ………….......P1,920,000 Add: Non-controlling interest on full -goodwill (P5,400,000 – P4,320,000 P4,320,000 partial-goodwill) or (P5,400,000 x 20%)*…………………………………...... 1,080,000 Non-controlling interest (full)…………………………………........ P3,000,000 * applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Case 2: Proportionate Basis (Partial-goodwill Approach) Partial-goodwill Fair value of subsidiary (60%): Consideration transferred: Cash……………………….....P 7,560,000 (60%) Less: Book value of stockholders’ equity (net assets) 60%............. .................. . 3,600,000 (60%) – S Company: P6,000,000 x 60%............................... Allocated Excess.…………………………… Excess.……………………………………………….. ………………….... P 3,960,000 (60%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 60%.............................. 60%............. ......................... ........ 1,440,000 (60%) (60%) Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
Non-controlling interest Book value of stockholders’ equity of subsidiary…………. P 6,000,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P8,400,000 – P6,000,000)…. – P6,000,000)…. 2,400,000 Fair value of stockholders’ equity of subsidiary…………….P 8,400,000 Multiplied by: Non-controlling Interest percentage............. 40% Non-controlling interest (partial)…………………… (partial)………………………………. ………….P 3,360,000
Fair Value Basis (Full-goodwill Approach) Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash ………………………...P 7,560,000 ( 60%) 4,800,000 ( 40%) Fair value of NCI (given)………………………………….. Fair value of subsidiary………………… subsidiary…………………………………………...P12,360,000 ………………………...P12,360,000 (100%) Less: Book value of stockholders’ equity (net assets) 100%.............. ............. 6,000,000 (100%) – S Company: P6,000,000 x 100%........................... Allocated Excess.…………………………………………………..P Excess.…………………………………………………..P 6,360,000 (100%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 100%............................... 100%............. .................. ... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%) The full – goodwill goodwill of P3,960,000 consists of two parts: Full-goodwill……………………………………………...P 3,960,000 Less: Controlling interest interest on full-goodwill or partial-goodwill……………………………. 2,520,000 NCI on full-goodwill……………………………………..P 1,440,000
Non-controlling Interest (partial)……………………… (partial)……………………………….. ………..
P1,920,000
Fair Value Basis (Full-goodwill Approach) Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash (P12,000,000 / 80%).. P 15,000,000 15,000,000 (100%) Less: Book value of stockholders’ equity (net assets) 100%.............. ................. 7,200,000 (100%) – S Company: P7,200,000 x 100%............................. Allocated excess.…………………………………… excess.……………………………………………….. ………….. P 7,800,000 (100%) Less: Over/Undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%............................... 100%............. .................. ..... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%) The full – goodwill goodwill of P5,400,000 consists of two parts: Full-goodwill……………………………………………....... P 5,400,000 Less: Controlling interest interest on full-goodwill or partial-goodwill…………………………….…. 4,320,000 NCI on full-goodwill…………………………………….......P 1,080,000
Non-controlling interest Non-controlling interest (partial)…………………… (partial)……………………………….... ………….......P1,920,000 Add: Non-controlling interest on full -goodwill (P5,400,000 – P4,320,000 P4,320,000 partial-goodwill) or (P5,400,000 x 20%)*…………………………………...... 1,080,000 Non-controlling interest (full)…………………………………........ P3,000,000 * applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Case 2: Proportionate Basis (Partial-goodwill Approach) Partial-goodwill Fair value of subsidiary (60%): Consideration transferred: Cash……………………….....P 7,560,000 (60%) Less: Book value of stockholders’ equity (net assets) 60%............. .................. . 3,600,000 (60%) – S Company: P6,000,000 x 60%............................... Allocated Excess.…………………………… Excess.……………………………………………….. ………………….... P 3,960,000 (60%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 60%.............................. 60%............. ......................... ........ 1,440,000 (60%) (60%) Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
Non-controlling interest Book value of stockholders’ equity of subsidiary…………. P 6,000,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P8,400,000 – P6,000,000)…. – P6,000,000)…. 2,400,000 Fair value of stockholders’ equity of subsidiary…………….P 8,400,000 Multiplied by: Non-controlling Interest percentage............. 40% Non-controlling interest (partial)…………………… (partial)………………………………. ………….P 3,360,000
Fair Value Basis (Full-goodwill Approach) Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash ………………………...P 7,560,000 ( 60%) 4,800,000 ( 40%) Fair value of NCI (given)………………………………….. Fair value of subsidiary………………… subsidiary…………………………………………...P12,360,000 ………………………...P12,360,000 (100%) Less: Book value of stockholders’ equity (net assets) 100%.............. ............. 6,000,000 (100%) – S Company: P6,000,000 x 100%........................... Allocated Excess.…………………………………………………..P Excess.…………………………………………………..P 6,360,000 (100%) Less: Over/undervaluation of assets and liabilities: (P8,400,000 – P6,000,000) x 100%............................... 100%............. .................. ... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%) The full – goodwill goodwill of P3,960,000 consists of two parts: Full-goodwill……………………………………………...P 3,960,000 Less: Controlling interest interest on full-goodwill or partial-goodwill……………………………. 2,520,000 NCI on full-goodwill……………………………………..P 1,440,000
Non-controlling interest Non-controlling interest (partial)………………………………P 3,360,000 Add: Non-controlling interest on full -goodwill (P3,960,000 – P2,520,000 P2,520,000 partial-goodwill)………….. 1,440,000 Non-controlling Interest (full)…………………………………..P 4,800,000
Case 3; Proportionate Basis (Partial-goodwill Approach) Partial-goodwill Fair value of subsidiary (75%): Consideration transferred: Cash………………………..P 9,000,000 (75%) Less: Book value of stockholders’ equity (net assets) 75%............. ................ .. 5,400,000 (75%) – S Company: P7,200,000 x 75%........................... Allocated Excess.…………………………… Excess.………………………………………………...P …………………...P 3,600,000 (75%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 75%.............................. 75%............. ........................ ....... 1,800,000 (75%) Positive excess: Goodwill (partial)……………………………. P 1,800,000 (75%)
Non-controlling interest Book value of stockholders’ equity of subsidiary…………..P 7,200,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P9,600,000 – P7,200,000)…. – P7,200,000)…. 2,400,000 Fair value of stockholders’ stoc kholders’ equity of subsidiary……………P 9,600,000 Multiplied by: Non-controlling Interest percentage.............. 25% Non-controlling interest (partial)…………………… (partial)………………………………. ………….P 2,400,000
Fair Value Basis (Full-goodwill Approach) Full-goodwill Fair value of subsidiary…………………………………………. P 11,640,000 (100%) Less: Book value of stockholders’ equity (net assets) 100%.............. ................. ... 7,200,000 (100%) – S Company: P7,200,000 x 100%............................ Allocated Excess.…………………………………… Excess.………………………………………………….P …………….P 4,440,000 (100%) Less: Over/undervaluation of assets and liabilities: (P9,600,000 – P7,200,000) x 100%............................... 100%............. .................. ... 2,400,000 (100%) Positive excess: Goodwill (full)………………………………..... P 2,040,000 (100%) The full – goodwill goodwill of P2,040,000 consists of two parts: Full-goodwill……………………………………………...P 2,040,000 Less: Controlling interest interest on full-goodwill or partial-goodwill…………………………….... 1,800,000 NCI on full-goodwill……………………………………. .P 240,000
Non-controlling interest Non-controlling interest (partial)………………………………P 2,400,000 Add: Non-controlling interest on full -goodwill (P2,040,000 – P1,800,000 P1,800,000 partial-goodwill)…..…….... . 240,000 Non-controlling Interest (full)…………………………………..P 2,640,000
Case 4: Proportionate Basis (Partial-goodwill Approach) Partial-goodwill Fair value of subsidiary (75%): Consideration transferred: Cash………………………..P 2,592,000 (60%) Fair value of previously held equity interest in acquiree acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 . (15%) Fair value of Subsidiary Subsidiary ..………………………………………. P 3,240,000 (75%) Less: Book value of stockholders’ equity (net assets) S Company: (P4,680,000 – P2,280,000) x 75%.......... 1,800,000 .(75%) – S Allocated Excess.…………………………… Excess.………………………………………………....P …………………....P 1,440,000 (75%) Less: Over/undervaluation of assets and liabilities: [(P6,120,000 – P2,280,000) P2,280,000) – (P4,680,000 – P2,280,000)] x 75%............................... 75%................ ..................... ...... 1,080,000 (75%) Positive excess: Goodwill (partial)……………………………... P 360,000 (75%)
Non-controlling interest Book value of stockholders’ equity of subsidiary…………..P 2,400,000 Adjustments to reflect fair value (over/ undervaluation of assets and liabilities): (P3,840,000 – P2,400,000)…. 1,440,000 Fair value of stockholders’ equity of subsidiary……………P 3,840,000 Multiplied by: Non-controlling Interest percentage............ 25% Non-controlling interest (partial)………………………………P 960,000
Fair Value Basis (Full-goodwill Approach) Full-goodwill Fair value of subsidiary (100%): Consideration transferred: Cash………………………..P 2,592,000 (60%) Fair value of previously held equity interest in acquiree P2,592,000/60% = P4,320,000 x 15%...... 648,000 (15%) Fair value of NCI (given)…………………………………. 1,080,000 (25%) Fair value of subsidiary………………………………………….P 4,320,000 (100%) Less: Book value of stockholders’ equity (net assets) – S Company: P2,400,000 x 100%.................................... 2,400,000 (100%) Allocated Excess.…………………………………………………P 1,920,000 (100%) Less: Over/undervaluation of assets and liabilities: (P3,840,000 – P2,400,000) x 100%................................ …..1,440,000 (100%) Positive excess: Goodwill (full)………………………………… ..P 480,000 (100%) The full – goodwill of P480,000 consists of two parts: Full-goodwill……………………………………………...P 480,000 Less: Controlling interest on full-goodwill or partial-goodwill…………………………….…... 360,000 NCI on full-goodwill……………………………………..P. 120,000
Non-controlling interest Non-controlling interest (partial)………………………………P 960,000 Add: Non-controlling interest on full -goodwill (P480,000 – P360,000 partial-goodwill)…..…………....... 120,000 Non-controlling Interest (full)……………………………………P 1,080,000
Problem IV Partial-goodwill (Proportionate Basis) Fair value of subsidiary (75%): Consideration transferred: Cash……………………….. P270,000 (75%) Less: Book value of stockholders’ equity (net assets) – S Company: (P480,000 – P228,000) x 75%....................................... 189,000 (75%) Allocated e xcess………………………………………………... P 81,000 (75%) Less: Over/undervaluation of assets and liabilities: [(P612,000 – P228,000) – (P480,000 – P228,000) x 75% 99,000 (75%) Negative excess: Bargain purchase gain (to c ontrolling interest or attributable to parent only)………………. (P18,000) (75%)
Full-goodwill (Fair Value Basis) Fair value of subsidiary (100%): Consideration transferred: Cash……………………….. Fair value of non-controlling interest (given)………… Fair value of subsidiary ………………………………………… Less: Book value of stockholders’ equity (net assets) – S Company: (P480,000 – P228,000) x 100%..................................... Allocated excess………………………………………………... Less: Over/undervaluation of assets and liabilities: [(P612,000 – P228,000) – (P480,000 – P228,000) x 100% Negative excess: Bargain purchase gain (to c ontrolling interest or attributable to parent only)……………….
P270,000 ( 75%) 98,400 ( 25%) P368,400 (100%)
252,000 (100%) P116,400 (100%) 132,000 (100%) (P15,600) (100%)
Problem V 1. A. Investment in Sewell 675,000 Cash B. Investment in Sewell 675,000 Cash C. Investment in Sewell 318,000 Cash 2. A. Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% Land (P50,000 – P70,000) x 100% Bargain Purchase Gain – full
675,000 675,000 318,000
P675,000 705,000 P( 30,000) (P10,000) __20,000
__10,000 (P 40,000)
B. Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 90% Land (P50,000 – P70,000) x 90% Goodwill – partial Full-Goodwill Fair value of Subsidiary: Consideration transferred (P675,000/90%) Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% Land (P50,000 – P70,000) x 100% Goodwill – full
P675,000 634,500 P 40,500 (P9,000) __18,000
__9,000 P 31,500
P750,000 705,000 P 45,000 (P10,000) __20,000
__10,000 P 35,000
C. Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 80% Land (P50,000 – P70,000) x 80% Bargain Purchase Gain – partial (parent only)
P318,000 624,000 (P306,000) (P 8,000) __16,000
Full-Goodwill Fair value of Subsidiary: Consideration transferred FV of NCI*
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P30,000 – P20,000) x 100% (P10,000) Land (P50,000 – P70,000) x 100% __20,000 Bargain Purchase Gain – full (parent only) *BV of SHE of S P780,000 Adjustments to reflect fair value 10,000
__8,000 (P314,000)
P 318,000 _158,000 P 476,000 780,000 (P304,000)
_10,000 (P314,000)
FV of SHE of S x: NCI% FV of NCI
P790,000 20% P158,000
3. A. Common Stock – Sewell Paid in capital in excess of par – Sewell Retained Earnings – Sewell Land Inventory Investment in Sewell Retained earnings (gain) – Parent (since balance sheet accounts are being examined)
450,000 180,000 75,000 20,000 10,000 675,000
40,000
B. Partial-Goodwill (Proportionate Basis) Common Stock – Sewell 450,000 Paid in capital in excess of par – Sewell 180,000 Retained Earnings – Sewell 75,000 Land 20,000 Goodwill 31,500 Inventory Investment in Sewell Non-controlling Interest BV – SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P715,000 x: NCI% 10% FV of NCI (partial) P 71,500 Full-Goodwill (Fair Value Basis) Common Stock – Sewell 450,000 Paid in capital in excess of par – Sewell 180,000 Retained Earnings – Sewell 75,000 Land 20,000 Goodwill 35,000 Inventory Investment in Sewell Non-controlling Interest BV – SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P715,000 x: NCI% 10% FV of NCI (partial) P 71,500 NCI on Full-Goodwill (P35,000 – P31,500) 3,500 FV of NCI (full) P 75,000
10,000 675,000 71,500
10,000 675,000 75,000
C. Partial-Goodwill (Proportionate Basis) Common Stock – Sewell 620,000 Paid in capital in excess of par – Sewell 140,000 Retained Earnings – Sewell 20,000 Land 20,000 Inventory Investment in Sewell Retained earnings (gain) – Parent (refer to 3A) Non-controlling Interest BV – SHE of Sewell (P620,000 + P140,000 + P20,000) P780,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P790,000
10,000 318,000 314,000 158,000
x: NCI% FV of NCI (partial)
20% P158,000
Full-Goodwill (Fair Value Basis) Common Stock – Sewell 620,000 Paid in capital in excess of par – Sewell 140,000 Retained Earnings – Sewell 20,000 Land 20,000 Inventory Investment in Sewell Retained earnings (gain) – Parent (refer to 3A) Non-controlling Interest
10,000 318,000 314,000 158,000
BV – SHE of Sewell (P620,000 + P140,000 + P20,000) P780,000 Adjustments to reflect fair value 10,000 FV of SHE of Sewell P790,000 x: NCI% 20% FV of NCI (full) P158,000 Problem VI 1. January 1, 20x4 Investment in S Company…………………………………………… Cash……………………………………………………………………..
408,000 408,000
2. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred……………………………….. Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P24,000 x 100%)... Retained earnings (P96,000 x 100%)………………... Allocated excess (excess of cost over book value)…… Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and e quipment (P12,000 x 100%)……………………………………... Increase in bonds payable (P42,000 x 100%)…….. Positive excess: Goodwill (excess of cost over fair value)……………………………………………………..
P 408,000 P 240,000 24,000 96,000
360,000 P 48,000
P 18,000 72,000 ( 12,000) ( 42,000)
36,000 P 12,000
(E1) Common stock – S Co………………………………………… Additional paid-in capital – S Co…………………………… Retained earnings – S Co…………………………………… Investment in S Co……………………………………… Eliminate investment against stockholders’ equity of S Co.
240,000 24,000 96.000
(E2) Inventory…………………………………………………………. Land……………………………………………………………… Goodwill…………………………………………………………. Buildings and equipment……………………………… Premium on bonds payable……………………………… Investment in S Co…………………………………………
18,000 72,000 12,000
360,000
12,000 42,000 48,000
Eliminate investment against allocated excess.
4. Eliminations Assets Cash*…………………………. Accounts receivable…….. Inventory………………….
P
P Co.
S Co.
12,000
P 60,000
90,000
60,000
120,000
72,000
Dr.
Cr.
Consolidated P
72,000 150,000
(2) 18,000
210,000
Land…………………………….
210,000
48,000
Buildings and equipment (net)
480,000
360,000
Goodwill…………………… Investment in S Co………….
408,000
Total Assets
(2) 72,000
330,000 (2)
12,000
828,000
(2) 12,000
12,000 (1) 360,000 (2) 48,000
-
P1,320,000
P600,000
P1,602,000
Accounts payable……………
P 120,000
P120,000
P 240,000
Bonds payable…………………
240,000
120,000
360,000
Liabilities and Stockholders’ Equity
Premium on bonds payable Common stock, P10 par………
(3)
600,000 240,000
(1) 240,000
60,000
Paid in capital in excess of par. Retained earnings……………
42,000
600,000
Common stock, P10 par………
Paid in capital in excess of par.
42,000
60,000 24,000
(1) 24,000
300,000
Retained earnings…………… _________ 96,000 Total Liabilities and Stockholders’ Equity P1,320,000 P600,000 (1) Eliminate investment against stockholders’ equity of S Co. (2) Eliminate investment against allocated excess. * P420,000 – P408,000 = P12,000.
300,000 (1) 96,000
__________
_________
P 462,000
P 462,000
P1,602,000
5. Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Goodwill Total Assets
P
72,000 150,000 210,000 330,000 828,000 12,000 P1,602,000
Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Paid-in capital in excess of par Retained earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity
P 240,000 P 360,000 42,000
402,000 P 642,000 P 600,000 60,000 300,000 P 960,000 P1,602,000
Problem VII Partial-goodwill Approach Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred………………………………..
P 360,000
Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 80%)…………………….
P 192,000
Paid-in capital in excess of par (P96,000 x 80%)....
76,800
Retained earnings (P24,000 x 80%)………………....
19,200
Allocated excess (excess of cost over book value)…..
288,000 P
72,000
Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 80%)………………
P 14,400
Increase in land (P72,000 x 80%)……………………. Decrease in buildings and equipment (P12,000 x 80%)…………………………………….....
57,600
Increase in bonds payable (P42,000 x 80%)………. Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………...
(
9,600)
( 33,600)
The over/under valuation of assets and liabilities are summarized as follows:
28,800 P 43,200
Sky Co. Book value
Sky Co. Fair value
Over/ Under Valuation
Inventory………………….……………..
72,000
90,000
18,000
Land………………………………………
48,000
120,000
72,000
Buildings and equipment (net).........
360,000
348,000
( 12,000)
Bonds payable…………………………
(120,000)
(162,000)
42,000
Net………………………………………..
360,000
396,000
36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows: Sky Co. Book value
Sky Co. Fair value
(Decrease)
Buildings and equipment ..................
720,000
348,000
( 372,000)
Less: Accumulated depreciation…..
360,000
-
( 360,000)
Net book value………………………...
360,000
348,000
(
12,000)
The following entry on the date of acquisition in the books of Parent Company: January 1, 20x4 (1) Investment in Sky Company…………………………………………… Cash…………………………………………………………………….. Acquisition of Sky Company.
360,000 360,000
(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)…………………………………………………………… Cash…………………………………………………………………….
14,400 14,400
Acquisition- related costs.
The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – Sky Co………………………………………………. Additional paid-in capital – Sky Co…………………………………. Retained earnings – Sky Co…………………………………………... Investment in Sky Co………………………………………………… Non-controlling interest (P300,000 x 20%)………………………..
240,000 24,000 96,000 288,000 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…………………………………………………………………. Accumulated depreciation…………………………………………. Land………………………………………………………………………. Goodwill…………………………………………………………………. Buildings and equipment………………………………………….. Premium on bonds payable……………………………………… Non-controlling interest (P30,000 x 20%)……………………….. Investment in Sky Co………………………………………………..
18,000 360,000 72,000 43,200 372,000 42,000 7,200 72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Partial-goodwill) Eliminations Assets
Peer Co.
Sky Co.
45,600
P 60,000
90,000
60,000
Inventory………………….
120,000
72,000
(2) 18,000
210,000
Land…………………………….
210,000
48,000
(2) 72,000
330,000
Buildings and equipment
960,000
720,000
Goodwill…………………… Investment in Sky Co………….
360,000
Cash*…………………………. Accounts receivable……..
Total Assets
P
Dr.
Cr.
Consolidated P
105,600 150,000
(2) 372,000
1,308,000
(2) 43,200
43,200 (1) 288,000 (2) 72,000
-
P1,785,600
P960,000
P 2,146,800
P 480,000
P360,000
Accounts payable……………
120,000
120,000
240,000
Bonds payable…………………
240,000
120,000
360,000
Liabilities and Stockholders’ Equity
Accumulated depreciation
(2) 360,000
Premium on bonds payable Common stock, P10 par………
(3) 600,000
60,000
42,000
480,000
42,000 600,000
240,000
Common stock, P10 par………
Paid in capital in excess of par.
P
(1) 240,000 60,000
Paid in capital in excess of par.
24,000
Retained earnings**……………
285,600
285,600
Retained earnings…………… Non-controlling interest…………
96,000 _________
_______
Total Liabilities and Stockholders’ Equity P1,785,600 P960,000 (1) Eliminate investment against stockholders’ equity of Sky Co. (2) Eliminate investment against allocated excess. * P420,000 – P360,000 – P14,400 = P45,600. **P300,000 – P14,400 = P285,600.
(1) 24,000
(1) 96,000 _________ P 853,200
(1 ) 72,000 (2) 7,200
_79,200
P 853,200
P2,146,800
Incidentally, the non-controlling interest on the date of acquisition is computed as follows: Common stock – Sky company…………………………………… Paid-in capital in excess of par – Sky co………………………… Retained earnings – Sky Co..………………………………………. Book value of stockholders’ equity – Sky Co………..………….. Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)…………………………………………. Fair value of stockholders’ equity of subsidiary………………… Multiplied by: Non-controlling Interest percentage…………... Non- controlling interest (partial)…………………………………..
P 240,000 24,000 80,000 P 360,000 36,000 P 396,000 20 P 79,200
The balance sheet: Peer Company and Subsidiary Consolidated Balance Sheet January 1, 20x4 Assets Cash Accounts receivables Inventories Land Buildings and equipment Accumulated depreciation Goodwill Total Assets Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity
P
105,600 150,000 210,000 330,000 1,308,000 ( 480,000) 43,200 P1,666,800
P 240,000 P 360,000 42,000
402,000 P 642,000 P 600,000 60,000 285,600 P 945,600 79,200 P 1,024,800 P1,666,800
Full-goodwill Approach Schedule of Determination and Allocation of Excess (Full-goodwill) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred (P360,000 / 80%)………….. Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 100%)…………………. Paid-in capital in excess of par (P96,000 x 100%).. Retained earnings (P24,000 x 100%)…………….... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………… Increase in land (P72,000 x 100%)…………………. Decrease in buildings and equipment (P12,000 x 100%)…………………………………..... Increase in bonds payable (P42,000 x 100%)…….
P 450,000 P 240,000 96,000 24,000 P
360,000 90,000
P 18,000 72,000 ( 12,000) ( 42,000)
36,000
Positive excess: Full -goodwill (excess of cost over fair value)………………………………………………...
P 54,000
The following entry on the date of acquisition in the books of Parent Company: January 1, 20x4 (1) Investment in Sky Company…………………………………………… Cash……………………………………………………………………..
360,000 360,000
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)…………………………………………………………… Cash…………………………………………………………………….
14,400 14,400
Acquisition- related costs.
The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: 240,000 (E1) Common stock – Sky Co………………………………………………. Additional paid-in capital – Sky Co…………………………………. Retained earnings – Sky Co…………………………………………... Investment in Sky Co………………………………………………… Non-controlling interest (P300,000 x 20%)………………………..
24,000 96,000 288,000 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…………………………………………………………………. Accumulated depreciation…………………………………………. Land………………………………………………………………………. Goodwill…………………………………………………………………. Buildings and equipment………………………………………….. Premium on bonds payable……………………………………… Non-controlling interest [(P30,000 x 20%) + (P45,000 – P36,000)]……………………………………………. Investment in Sky Co………………………………………………..
18,000 360,000 72,000 54,000 372,000 42,000 18,000 72,000
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Full-goodwill) Eliminations Assets
Peer Co.
Sky Co.
45,600
P 60,000
90,000
60,000
Inventory………………….
120,000
72,000
(2) 18,000
210,000
Land…………………………….
210,000
48,000
(2) 72,000
330,000
Buildings and equipment
960,000
720,000
Goodwill…………………… Investment in Sky Co………….
360,000
Cash*…………………………. Accounts receivable……..
Total Assets
P
Dr.
Cr.
Consolidated P
105,600 150,000
(2) 372,000
1,308,000
(2) 54,000
54,000 (1) 288,000 (2) 72,000
-
P1,785,600
P960,000
P 2,157,600
P 480,000
P360,000
Accounts payable……………
120,000
120,000
240,000
Bonds payable…………………
240,000
120,000
360,000
Liabilities and Stockholders’ Equity
Accumulated depreciation
(2) 360,000
Premium on bonds payable Common stock, P10 par………
(2) 42,000
600,000
Common stock, P10 par……… Paid in capital in excess of par.
60,000 24,000
(1) 24,000
285,600
285,600 96,000
(1) 96,000
Non-controlling interest…………
_________
42,000
(1) 240,000
60,000
Retained earnings……………
480,000
600,000 240,000
Paid in capital in excess of par. Retained earnings**……………
P
_______
Total Liabilities and Stockholders’ Equity P1,785,600 P960,000 (1) Eliminate investment against stockholders’ equity of Sky Co.
_________ P 864,000
(1 ) 72,000 (2) 18,000
_90,000
P 864,000
P2,157,600
(2) Eliminate investment against allocated excess. * P420,000 – P360,000 – P14,400 = P45,600. **P300,000 – P14,400 = P285,600.
Incidentally, the non-controlling interest on the date of acquisition is computed as follows: Non-controlling interest (partial)………………………………….. Add: Non-controlling interest (P54,000, full – P43,200, partial). Non-controlling interest (full)……………………………………….
P
79,200 10,800 P 90,000
The balance sheet; Peer Company and Subsidiary Consolidated Balance Sheet January 1, 20x4 Assets Cash Accounts receivables Inventories Land Buildings and equipment Accumulated depreciation Goodwill Total Assets
P
105,600 150,000 210,000 330,000 1,308,000 ( 480,000) 54,000 P1,677,600
Liabilities and Stockholders’ Equity
Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity
P 240,000 P 360,000 42,000
402,000 P 642,000 P 600,000 60,000 285,600 P 945,600 90,000 P 1,035,600 P1,677,600
Problem VIII Partial-goodwill Approach (Proportionate Basis) Schedule of Determination and Allocation of Excess (Proportionate Basis)) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred: Common stock: 12,000 shares x P25 per share…...
P 300,000
Less: Book value of stockholders’ equity of S: Common stock (P12,000 x 80%)…………………….
P
9,600
Paid-in capital in excess of par (P108,000 x 80%)...
86,400
Retained earnings (P72,000 x 80%)………………....
57,600
153,600
Allocated excess (excess of cost over book value)……
P 146,400
Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 80%)………………
P
Increase in land (P36,000 x 80 %)……………………. Increase in buildings and equipment (P150,000 x 80%)…………………………………......
4,800 28,800 120,000
Increase in copyrights (P60,000 x 80%)…………….. Increase in contingent liabilities – estimated liability for contingencies (P6,000 x 80%)……..... Negative excess: Bargain purchase gain to controlling interest or attributable to parent only)……………..
48,000 (
4,800)
196,800 (P 50,400)
The over/under valuation of assets and liabilities are summarized as follows: S Co. Book value Inventory………………….……………... Land……………………………………….
P
60,000 48,000
S Co. Fair value P
66,000 84,000
Over/Under Valuation P
6,000 36,000
Buildings and equipment (net).........
222,000
372,000
150,000
Copyright………………………………..
-0-
60,000
60,000
Estimated liability for contingencies..
0
Net undervaluation…………………….
P 330,000
(
6,000)
(
P 576,000
6,000) P246,000
The following entry on the date of acquisition in the books of Parent Comp any January 1, 20x4 (1) Investment in S Company…...…………………………………… Common stock, P1 par……………………………………………… Paid-in capital in excess of par (P300,000 – P12,000 par)……..
300,000 12,000 288,000
Acquisition of S Company.
The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – S Co……………………………………………. Additional paid-in capital – S Co………………………………. Retained earnings – S Co………………………………………… Investment in S Co……………………………………………… Non-controlling interest (P192,000 x 20%)………………………..
12,000 108,000 72,000 153,600 38,400
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. Land……………………………………………………………………….. Buildings and equipment……………………………………………… Copyright……………………………………………………………….... Estimated liability for contingencies…………………………….. Investment in S Co……………………………………………... Non-controlling interest (P246,000 x 20%)………………………. Retained earnings (bargain purchase gain - closed to retained earnings since only balance sheets are being examined).............................................................................
6,000 36,000 150,000 60,000 6,000 146,400 49,200
50,400
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Proportionate Basis) Eliminations Assets Cash…………………
P Co.
S Co.
Dr.
Cr.
P 334,800
Consolidated P
334,800
Accounts receivable……..
86,400
P 24,000
Inventory………………….
96,000
60,000
(2)
6,000
162,000
Land…………………………
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright……………………... Investment in S Co……..
Total Assets
110,400
(2) 60,000
60,000
300,000 __________
(1) 153,600 (2) 146,400
_________
P1,681,200
354,000
P1,987,200
42,000
P 138,000
-
Liabilities and Stockholders’ Equity
Accounts payable……… Estimated liability for contingencies… Bonds payable……… Common stock, P1 par*…..… Common stock, P1 par……… Paid-in capital in excess of par**
P
96,000
(2) 240,000
120,000
44,160 12,000
(1) 12,000
723,840
723,840 108,000
(1) 108,000
577,200
Retained earnings…………… Non-controlling interest…………
_________
6,000 360,000
44,160
Paid-in capital in excess of par Retained earnings
6,000
72,000
(1) 72,000
_______
_________
Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 (1) Eliminate investment against stockholders’ equity of Scud Co. (2) Eliminate investment against allocated excess.
P 444,000
(2) 50,400
627,600
(1 ) 38,400 (2) 49,200
_87,600
P 444,000
P1,987,200
* P32,160 + (12,000 shares xP1 par) = P44,160. **P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
Incidentally, the non-controlling interest on the date of acquisition is computed as follows: Common stock – S Co……….………………………………… Paid-in capital in excess of par – S Co…………………….. Retained earnings – S Co……………………………………… Book value of stockholders’ equity – S Co…………………. Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)…………………………………………. Fair value of stockholders’ equity of subsidiary………………… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial)…………………………………..
P 12,000 108,000 72,000 P 192,000 246,000 P 438,000 20 P 87,600
The balance sheet: Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Copyright Total Assets Liabilities and Stockholders’ Equity Liabilities Accounts payable Estimated liability for contingencies Bonds payable Total Liabilities Stockholders’ Equity Common stock, P1 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity
P
334,800 110,400 162,000 204,000 1,116,000 60,000 P1,987,200
P 138,000 6,000 360,000 P 504,000 P
44,160 723,840 627,600
P1,395,600 87,600 P1,483,200 P1,987,200
Full-goodwill Approach (Fair Value Basis) Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred: Common stock: 12,000 x P25 (80%)……………… Fair value of NCI (given) (20%)………………………. Fair value of subsidiary (100%)………………………. Less: Book value of stockholders’ equity of S: Common stock (P12,000 x 100%)……………………. Paid-in capital in excess of par (P108,000 x 100%). Retained earnings (P72,000 x 100%)………………... Allocated excess (excess of cost over book value)…… Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 100%)……………… Increase in land (P36,000 x 100%)…………………… Increase in buildings and equipment (P150,000 x 100%)………………………………….... Increase in copyrights (P60,000 x 100%)…………… Increase in contingent liabilities – estimated liability for contingencies (P6,000 x 100%)…….. Negative excess: Bargain purchase gain to controlling interest or attributable to parent only)……………..
P
300,000 90,000 390,000
P P 12,000 108,000 72,000
P
192,000 P 198,000
6,000 36,000 150,000 6,000
(
6,000)
246,000 (P 48,000)
The following entry on the date of acquisition in the books of Parent Company: January 1, 20x4 (1) Investment in S Company…...…………………………………… Common stock, P1 par……………………………………………… Paid-in capital in excess of par (P300,000 – P12,000 par)…….. Acquisition of S Company.
300,000 12,000 288,000
The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – S Co…………………………………………….
12,000
Additional paid-in capital – S Co………………………………. Retained earnings – S Co………………………………………… Investment in S Co……………………………………………… Non-controlling interest (P192,000 x 20%)……………………….. Eliminate investment against stockholders’ equity of S Co
108,000 72,000
(E2) Inventory………………………………………………………………….. Land……………………………………………………………………….. Buildings and equipment……………………………………………… Copyright……………………………………………………………….... Estimated liability for contingencies…………………………….. Investment in S Co……………………………………………... Non-controlling interest (P90,000 given – P38,400)…………… Retained earnings (bargain purchase gain - closed to retained earnings since only balance sheets are being examined)............................................................................. Eliminate investment against allocated excess.
6,000 36,000 150,000 60,000
153,600 38,400
6,000 146,400 51,600
48,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary (Fair Value Basis) Eliminations P Co.
Assets Cash…………………
S Co.
Dr.
Cr.
Consolidated
P 334,800
P
334,800
Accounts receivable……..
86,400
P 24,000
Inventory………………….
96,000
60,000
(2)
6,000
162,000
Land…………………………
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright……………………... Investment in S Co……..
Total Assets
110,400
(2) 60,000
60,000
300,000 __________
(1) 153,600 (2) 146,400
_________
P1,681,200
P354,000
P1,987,200
42,000
P 138,000
-
Liabilities and Stockholders’ Equity
Accounts payable……… Estimated liability for contingencies…
P
Bonds payable……… Common stock, P1 par*…..…
96,000
(2) 240,000
120,000
360,000 44,160
12,000
(2) 12,000
723,840
Paid-in capital in excess of par Retained earnings
6,000
44,160
Common stock, P1 par………
Paid-in capital in excess of par**
6,000
723,840 108,000
(1) 108,000
577,200
Retained earnings…………… Non-controlling interest…………
_________
72,000
(1) 72,000
_______
_________
Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 (1) Eliminate investment against stockholders’ equity of Scud Co. (2) Eliminate investment against allocated excess. * P32,160 + (12,000 shares xP1 par) = P44,160. **P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
P 444,000
(2) 48,000
625,200
(1 ) 38,400 (2) 51,600
_90,000
P 444,000
P1,987,200
The balance sheet: Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Copyright Total Assets Liabilities and Stockholders’ Equity
P
334,800 110,400 162,000 204,000 1,116,000 60,000 P1,987,200
Liabilities Accounts payable Estimated liability for contingencies Bonds payable Total Liabilities Stockholders’ Equity Common stock, P1 par Paid-in capital in excess of par Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity
P 138,000 6,000 360,000 P 504,000 P
44,160 723,840 652,200
P1,393,200 90,000 P1,483,200 P1,987,200
Problem IX 1. Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred: Common stock: 24,000 shares x P14 per share Less: Book value of stockholders’ equity of Sky: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P96,000 x 100%)... Retained earnings (P24,000 x 100%)………………... Allocated excess (excess of book value over cost)…… Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and equipment (P12,000 x 100%)……………………………………... Increase in patent (P24,000 x 100%)………………... Increase in contingent liability (P18,000 x 100%)…. Increase in bonds payable (P42,000 x 100%)…….. Negative excess: Bargain Purchase Gain (excess of fair value over cost)……………………………………
P 336,000 P 240,000 96,000 24,000
360,000 (P 24,000)
P 18,000 72,000 ( 12,000) 24,000 ( 18,000) ( 42,000)
42,000 (P 66,000)
2. Gain on acquisition, P66,000 Problem X 1. January 1, 20x4 (1) Investment in S Company…………………………………………… Cash…………………………………………………………………….. Common stock, P10 par…………………………………………….. Paid-in capital in excess of par…………………………………….
432,000
(2) Retained earnings (acquisition-related expense - close to retained earnings since only balance sheets are being examined)…………………………………………………………… Cash…………………………………………………………………….
288,000 120,000 24,000
12,000 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. Cash…………………………………………………………………….
8,400 8,400
Costs to issue and register stocks.
2. Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred Cash………………………………………………………. Common stock: 12,000 shares x P12 per share….. Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P96,000 x 100%).. Retained earnings (P24,000 x 100%)………………... Allocated excess (excess of cost over book value)……
P 288,000 144,000 P 240,000 96,000 24,000
P 432,000
360,000 P 72,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… Adjusted allocated excess…………………………………. Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and equipment (P12,000 x 100%)……………………………………... Increase in bonds payable (P42,000 x 100%)…….. Positive excess: Goodwill (excess of cost over fair value)……………………………………………………..
6,000 78,000
P P 18,000 72,000 ( 12,000) ( 42,000)
36,000 P 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing goodwill in the books of the subsidiary, thus: Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation) Fair value of Subsidiary (100%) Consideration transferred……………………………………………………… Less: Book value of stockholders’ equity of S……………………………….. Allocated excess (excess of cost over book value)…………………………. Less: Over/under valuation of assets and liabilities…………………………… Positive excess: Goodwill (excess of cost over fair value)…………………... Add: Existing Goodwill……………………………………………………………… Positive excess: Goodwill (excess of cost over fair value)……………………………………………………………………………
P 432,000 360,000 P 72,000 36,000 P 36,000 6,000 P
42,000
3. Eliminations Assets
P Co.
S Co.
111,600
P 54,000
P 165,600
90,000
60,000
150,000
Inventory………………….
120,000
72,000
(2) 18,000
210,000
Land…………………………….
210,000
48,000
(2) 72,000
330,000
Buildings and equipment (net)
480,000
360,000
Goodwill…………………… Investment in S Co………….
432,000
Cash*………………………….. Accounts receivable……..
Total Assets
P
6,000
Dr.
Cr.
(2)
Consolidated
12,000
828,000
(2) 36,000
42,000 (4) 360,000 (5) 72,000
-
P1,443,600
P600,000
P1,725,600
Accounts payable……………
P 120,000
P120,000
P 240,000
Bonds payable…………………
240,000
120,000
360,000
Liabilities and Stockholders’ Equity
Premium on bonds payable Common stock, P10 par**…..…
(6)
720,000 240,000
(1) 240,000
75,600
Additional paid in capital……
Retained earnings****
42,000
720,000
Common stock, P10 par………
Additional paid in capital***
42,000
75,600 24,000
(1) 24,000
288,000
Retained earnings…………… _________ 96,000 Total Liabilities and Stockholders’ Equity P1,443,600 P600,000 (1) Eliminate investment against stockholders’ equity of Sky Co. (2) Eliminate investment against allocated excess. * P420,000 – P288,000 – P12,000 – P8,400 = P111,600. * *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000. *** P50,000 + P20,000 – P7,000 = P63,000. ****P300,000 – P12,000 = P288,000.
288,000 (1) 96,000
__________
_________
P 486,000
P 486,000
P1,725,600
4. Assets Cash Accounts receivables Inventories Land Buildings and equipment (net) Goodwill Total Assets Liabilities and Stockholders’ Equity
P
165,600 150,000 210,000 330,000 828,000 42,000 P1,725,600
Liabilities Accounts payable Bonds payable Premium on bonds payable Total Liabilities Stockholders’ Equity Common stock, P10 par Additional paid-in capital in excess of par Retained earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity
P 240,000 P 360,000 42,000
402,000 P 642,000 P 720,000 75,600 288,000 P 1083,600 P1,725,600
Problem XI 1. Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred (P408,000 – P6,000)…….. Less: Book value of stockholders’ equity of S: Common stock (P240,000 x 100%)………………….. Paid-in capital in excess of par (P96,000 x 100%)... Retained earnings (P24,000 x 100%)………………... Allocated excess (excess of cost over book value)…… Less: Over/under valuation of assets and liabilities: Increase in inventory (P18,000 x 100%)…………….. Increase in land (P72,000 x 100%)…………………… Decrease in buildings and e quipment (P12,000 x 100%)……………………………………... Increase in bonds payable (P42,000 x 100%)…….. Positive excess: Goodwill (excess of cost over fair value)……………………………………………………..
P 402,000 P 240,000 96,000 24,000
360,000 P 42,000
P 18,000 72,000 ( 12,000) ( 42,000)
36,000 P
6,000
2. Goodwill, P6,000 Problem XII 1. Inventory 2. Land 3. Buildings and Equipment
4.
Goodwill Fair value of consideration given Less; Book value of SHE Allocated excess: Increase / decrease in fair value (Fair value increment) for: Inventory Land Buildings and equipment Goodwill
5.
P 140,000 P 60,000 P 550,000
P 576,000 450,000 P126,000
P 20,000 (10,000) 70,000
80,000 P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the investment account is eliminated.
Problem XIII 1. Inventory (P120,000 + P20,000) 2. Land (P70,000 – P10,000) 3. Buildings and Equipment (P480,000 + P70,000) 4. Full-Goodwill, P57,500 Fair value of Subsidiary: Consideration transferred Add: FV of NCI Less: BV of SHE of Slim (P250,000 + P200,000) Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.)
P140,000 P 60,000 550,000
P470,000 117,500
P587,500 450,000 P137,500
Inventory Land Buildings and equipment (net) Goodwill – full
or, Fair value of consideration given by Ford Fair value of noncontrolling interest Total fair value Book value of Slim’s net assets Fair value increment for: Inventory Land Buildings and equipment (net) Fair value of identifiable net assets Goodwill – full Partial Goodwill, P46,000 Fair value of Subsidiary: Consideration transferred Less: BV of SHE of Slim (P250,000 + P200,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P20,000 x 80%) Land (P10,000 x 80%) Buildings and equipment (net) (P70,000 x 80%) Goodwill – partial 5.
Investment in Slim Corporation: None would be reported; the balance in the investment account is eliminated. Noncontrolling Interest (P587,500 x .20)
P 20,000 (10,000) 70,000
80,000 P 57,500
P470,000 117,500 P587,500 P450,000 20,000 (10,000) 70,000 (530,000) P 57,500
P470,000 360,000 P110,000 P 16,000 ( 8,000) 56,000
64,000 P 46,000
P117,500
6. or, BV – SHE of SS P450,000 Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000 FV of SHE of SS P530,000 Multiplied by: NCI % 20% NCI – partial goodwill P106,000 Add: NCI on full-goodwill (P57,500 – P46,000) 11,500 NCI – full goodwill P117,500 Problem XIV 1. P470,000 = P470,000 - P55,000 + P55,000 2. P605,000 = (P470,000 - P55,000) + P190,000 3. P405,000 = P270,000 + P135,000 4. P200,000 (as reported by GG Corporation) Problem XV 1. P57,000 = (P120,000 - P25,000) x .60 2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000 3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200 Problem XVI (assuming that acquisition-related costs is treated as expenses) In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000 consideration transferred exceeds the P680,000 fair value of SS ’s net assets acquired.
1. 2. 3. 4. 5. 6.
Inventory = P670,000 (P's book value plus Sun's fair value) Land = P710,000 (P's book value plus Sun's fair value) Buildings and equipment = P930,000 (P's book value plus S's fair value) Franchise agreements = P440,000 P's book value plus S's fair value) Goodwill = P80,000 (calculated above) Revenues = P960,000 (only parent company operational figures are reported at date of acquisition) 7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs are reported at date of acquisition) 9. Retained Earnings, 1/1 = P390,000 (P's book value) Problem XVII 1. Investment in Craig Company ........................................................... Cash ...................................................................................................
950,000 950,000
2. Fair value of Subsidiary: Consideration transferred Less: BV of SHE of Craig (P300,000 + P420,000) Allocated excess Less: Over/under valuation of A and L: Inc (Decrease) Land (P250,000 fair – P200,000 book value Building (P700,000 fair – P600,000 book value) Discount on bonds payable P280,000 fair – P300,000 book value) Deferred tax liability (P40,000 fair – P50,000 book value) Buildings and equipment (net) Goodwill 3. Adjustments on Craig books: Land ......................................................................................................... Building.................................................................................................... Discount on Bonds Payable ................................................................ Goodwill.................................................................................................. Deferred Tax Liability ............................................................................ Retained Earnings ................................................................................. Paid-In Capital in Excess of Par ..................................................... 4.
Elimination entries: Common Stock ..................................................................................... Paid-In Capital in Excess of Par .......................................................... Investment in Craig Company......................................................
P950,000 720,000 P 230,000 P 50,000 100,000 20,000 10,000 180,000 P 50,000
50,000 100,000 20,000 50,000 10,000 420,000 650,000
300,000 650,000 950,000
Problem XXI 1. *
Man Mask (Public Co.) (Private Co.) Currently issued…………………… 10 M 40% 4 M 40% Additional shares issued……….. 15 M 60% ** 6 M / 60% Total shares………………………… 25 M 10 M **15M/25M
FV of net assets ………………………P 18 M BV of net assets (same with FV)…. 18 M Fv per share of stock……………….P 8
P30 M ? P 6
2. Consideration transferred (4,000,000 shares* x P6) …………………………..P24,000,000 Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000 Allocated excess …………………………………………………………………..P 6,000,000 Less: Over/Under valuation of assets and liabilities 0 (book value same fair value)……………………………………………… Goodwill………………………………………………………………………………P 6,000,000
Problem XXII (Assume the use of Full-Goodwill Method) Note: This solution assumes a difference between the basis of acquired assets for accounting and tax purposes for this stock acquisition.
1. Investment in Seely Company Common Stock*** Additional Paid-in-Capital
570,000 95,000 475,000
***Note: Depending on the wording of t his exercise, the credit may be cash instead of common stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000. 2. Common Stock - Seely Other Contributed Capital – Seely Retained Earnings - Seely Inventory Land Plant Assets Discount on Bonds Payable Goodwill** Deferred Income Tax Liability* Investment in Seely Company Non-controlling Interest [(P570,000/.95) x .05] *(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
80,000 132,000 160,000 52,000 25,000 71,000 20,000 127,200 67,200 570,000 30,000
Problem XXIII HB Country and HCO Media Consolidation of a variable interest entity is required if a parent has a variable interest that will Absorb a majority of the entity's expected losses if they occur Receive a majority of the entity's expected residual returns if they occur Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right to receive the residual benefits of the sales generated on t he HCO Media internet site above P500,000, Hillsborough should consolidate HCO Media.
TPC (Nos. 1, 2 and 3 of the requirement are part of the information) a. The purpose of consolidated financial statements is to present the financial position and results of operations of a group of businesses as if they were a single entity. They are designed to provide information useful for making business and economic decisions — especially assessing amounts, timing, and uncertainty of prospective cash flows. Consolidated statements also provide more complete information about t he resources, obligations, risks, and opportunities of an enterprise than separate statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following conditions exist. The total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. In most cases, if equity at risk is less than 10% of total assets, the risk is deemed insufficient. The equity investors in the VIE lack any one of the following three characteristics of a controlling financial interest. 1. The direct or indirect ability to make decisions about an entity's activities through voting rights or similar rights. 2. The obligation to absorb the expected losses of the entity if they occur (e.g., another firm may guarantee a return to the equity investors) 3. The right to receive the expected residual returns of the entity (e.g., the investors' return may be capped by the entity's governing documents or other arrangements with variable interest holders). Consolidation is required if a parent has a variable int erest that will Absorb a majority of the entity's expected losses if t hey occur Receive a majority of the entity's expected residual returns if they occur Also, a direct or indirect ability to make decisions that significantly affect the results of the activities of a variable interest entity is a strong indication that an enterprise has one or both of the characteristics that would require consolidation of the variable interest entity. c. Risks of the construction project that has TPC has effectively shifted to the owners of the VIE
At the end of the 1st five-year lease term, if the parent opts to sell the facility, and the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up to 85% of the project's cost. Thus, a potential 15% risk. During construction 11.1% of project cost potential termination loss. Risks that remain with TPC Guarantees of return to VIE investors at market rate, if facility does not perform as expected TPC is still obligated to pay market rates. If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of decline in market value of asset Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decisionmaking ability (end of five-year lease term) Absorb a majority of the entity's expected losses if they occur (via debt guarantees and guaranteed lease payments and residual value) Receive a majority of the entity's expected residual returns if they occur (via use of the facility and potential increase in its market value). Problem XXIV 1. Implied valuation and excess allocation for SP. FV of VIE: Consideration transferred by P. Non-controlling interest fair value FV/Total business fair value of VIE Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000) + P40,000 – P120,000) Excess net asset value fair value/Bargain purchase gain
P 20,000 __ 60,000 P 80,000 __100,000 P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All SP’ assets and liabilities are recognized at their individual fair values. Cash Marketing software Computer equipment Long-term debt Noncontrolling interest Pantech equity interest Gain on bargain purchase
2.
Implied valuation and excess valuation for SP. FV of VIE: Consideration transferred by P. Non-controlling interest fair value FV/Total business fair value of VIE Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000) + P40,000 – P120,000) Excess fair value over net assets/ Goodwill
Noncontrolling interest fair value Consideration transferred by Pantech Total business fair value Fair value of VIE net identifiable assets Goodwill
P20,000 160,000 40,000 (120,000) (60,000) (20,000) (20,000) - 0-
P 20,000 __ 60,000 P 80,000 __60,000 P 20,000
60,000 20,000 80,000 60,000 P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset values, all identifiable assets and liabilities are reported at fair values (unless a previously held interest) and the difference is treated as a goodwill. Cash P20,000 Marketing software 120,000 Computer equipment 40,000 Goodwill (excess business fair value) 20,000
Long-term debt Noncontrolling interest PT equity interest
(120,000) (60,000) (20,000) -0-
Multiple Choice Problems 1. c – at fair value 2. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)] 3. d Consideration transferred P300,000 Less: Book value of SHE of S (P100,000 + P115,000) 215,000 Allocated excess (excess of fair value or cost over book value) - sometimes termed as “Differential” P 85,000 4. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety. 5. d Consideration transferred P150,000 Less: Book value of SHE of S (P40,000 + P52,000) 92,000 Allocated excess (excess of fair value or cost over book value) - sometimes termed as “Differential” P 58,000 6. b – [P150,000 – (P173,000 – P40,000 – P5,000)] 7. d - P600,000 - P15,000 - P255,000 = P330,000 8. c - P475,000 - P300,000 = P175,000 debit 9. b – fair value 10. d – fair value 11. d – fair value 12. c Full-goodwill: Fair value of Subsidiary: Consideration transferred P300,000 Add: FV of NCI 100,000 P400,000 Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000 Allocated excess P120,000 Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P65,000 – P70,000) x 100% P( 5,000) Land (P100,000 – P90,000) x 100% 10,000 Buildings and equipment (P300,000 – P250,00) x 100% 50,000 __55,000 Goodwill – full P 65,000 If partial-goodwill, no answer available, computed as f ollows: Fair value of Subsidiary: Consideration transferred P300,000 Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000 Allocated excess P 90,000 Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P65,000 – P70,000) x 75% P( 3,750) Land (P100,000 – P90,000) x 75% 7,500 Buildings and equipment (P300,000 – P250,00) x 75% 37,500 __41,250 Goodwill – full P 48,750 13. a – Investment in Silver will be eliminated in the consolidated balance sheet 14. d FV of SHE of S: Book value of SHE of S (P100,000 + P180,000)………………..P 280,000 Adjustments to reflect fair value ……………………………… 55,000 FV of SHE of S……………………………………………………… P 335,000 Multiplied by: NCI%.................................................................... 25% FV of NCI (partial)………………………………………………….P 83,750 Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250 FV of NCI (full-goodwill)*…………………………………………P100,000 * same with the NCI given per problem
15. b – P135,000 = P90,000 + P45,000 16. d Full-goodwill: Fair value of Subsidiary:
Consideration transferred Add: FV of NCI Less: BV of SHE of Silver (P40,000 + P120,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P45,000 – P40,000) x 100% Land (P60,000 – P40,000) x 100% Goodwill – full
P160,000 _40,000
P 5,000 20,000
P200,000 _160,000 P 40,000
25,000 P 15,000
17. a Total Assets of Gulliver (Jonathan) Less: Investment in Sea-Gull Corp.
P610,000 (160,000) P 450,000 230,000 P 680,000 5,000 20,000 15,000 P 720,000
Book value of assets of Sea Corp. Book value reported by Gulliver/Jonathan and Sea Increase in inventory (P45,000 – P40,000) Increase in land (P60,000 – P40,000) Goodwill (full)* Total assets reported 18. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000 19. c
FV of SHE of S: Book value of SHE of S (P40,000 + P120,000)………………….P 160,000 Adjustments to reflect fair value [(P45,000 + P60,000) (P40,000 + P40,000)………….……………………………… 25,000 FV of SHE of S……………………………………………………… P 185,000 Multiplied by: NCI%.................................................................... 20% FV of NCI (partial)………………………………………………….P 37,000 Add: NCI on full goodwill (P15,000 – P12,000)……………….. 3,000 FV of NCI (full-goodwill)*………………………………………… P 40,000 * same with the NCI given per problem Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P40,000 + P120,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P5,000 x 80%) Land (P20,000 x 80%) Goodwill – partial
P160,000 _128,000 P 32,000 P 4,000 16,000
__20,000 P 12,000
20. a - The amount reported by Jonathan Corporation 21. a Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000 NCI (full-goodwill) – refer to No. 19…………………………………….. 40,000 Consolidated stockholders’ equity……………………………………. P445,000 22. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000 23. b Total Assets of P. P1,278,000 Less: Investment in Swimmer Corp. (440,000) P 838,000 Book value of assets of S Corp. 542,000 Book value reported by P and S P1,380,000 Increase in inventory (P60,000 – P38,000) 22,000 Increase in land (P60,000 – P32,000) 28,000 Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000 Goodwill (full)* 26,667 Total assets reported P1,566,667 *(P440,000/75%) – (P702,000 – P142,000) = P26,667 If partial-goodwill: Total Assets of P.
P1,278,000
Less: Investment in S Corp. Book value of assets of S Corp. Book value reported by P and S Increase in inventory (P60,000 – P38,000) Increase in land (P60,000 – P32,000) Increase in plant assets [P350,000 – (P300,000 – P60,000)] Goodwill (partial)* Total assets reported *[P440,000 – (P702,000 – P142,000) x 75%] 24. 25.
26.
(440,000) P 838,000 542,000 P1,380,000 22,000 28,000 110,000 20,000 P1,540,000
d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000) a Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of SSD (P50,000 + P90,000) x 70% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P15,000 x 70%) P 10,500 Land (P20,000 x 70%) 14,000 Goodwill – partial
P150,500 __98,000 P 52,500
c Full-goodwill: Fair value of Subsidiary: Consideration transferred Add: FV of NCI Less: BV of SHE of SS (P50,000 + P90,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P70,000 – P85,000) x 100% Land (P25,000 – P45,000) x 100% Goodwill – full
P215,000 140,000 P 75,000
P150,500 **64,500
P 15,000 20,000
24,500 P 28,000
35,000 P 40,000
**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to P52,500 computed as follows :
FV of SHE of SS: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SS……………………………………………… P 175,000 Multiplied by: NCI%.......................................................... 30% FV of NCI (partial)……………………………………………..P 52,500
27. b Total Assets of Power Corp. Less: Investment in Silk Corp. Book value of assets of Silk Corp. Book value reported by Power and Silk Increase in inventory (P85,000 - P70,000) Increase in land (P45,000 - P25,000) Goodwill (full) Total assets reported If partial-goodwill: Total Assets of Power Corp. Less: Investment in Silk Corp.
P 791,500 (150,500) P 641,000 405,000 P1,046,000 15,000 20,000 40,000 P1,121,000
P 791,500 (150,500) P 641,000
Book value of assets of Silk Corp. Book value reported by Power and Silk Increase in inventory (P85,000 - P70,000) Increase in land (P45,000 - P25,000) Goodwill (partial) Total assets reported 28. 29.
d
P701,500
=
405,000 P1,046,000 15,000 20,000 28,000 P1,109,000
(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000 + P200,000)
a Non-controlling interest (partial-goodwill): P52,500 NCI FV of SHE of SSD: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SSD P 175,000 Multiplied by: NCI%.................. ........................................ 30% FV of NCI (partial)……………………………………………..P 52,500
30.
d Non-controlling interest (fulll-goodwill): P64,500 NCI FV of SHE of SSD: Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000 Adjustments to reflect fair value (P15,000 + P20,000)… 35,000 FV of SHE of SSD P 175,000 Multiplied by: NCI%............... ........................................... 30% FV of NCI (partial)……………………………………………..P 52,500 Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000 FV of NCI (full)…………………………………………………..P 64,500
31. 32.
d
P205,000
=
The amount reported by Power Corporation
c P419,500 = (P150,000 + P205,000) + P64,500 If partial-goodwill: Stockholders’ equity: P419,500 Consolidated SHE: Common stock Retained Earnings Parent’s SHE or Equi ty Attributable to Parent NCI (partial-goodwill) Consolidated SHE
P150,000 205,000 P355,000 52,500 P404,500
33. b Consideration transferred ........................................................................................ Less: Strand's book value (P50,000 x 80%) .............................................................. Fair value in excess of book value ......................................................................... Excess assigned to inventory (60%) .......................................................... P12,000 Excess assigned to goodwill (40%) ........................................................... P 8,000
P60,000 (40,000) P20,000
Consideration transferred (P60,000 ÷ 80%) ............................................................ Less: Strand's book value .......................................................................................... Fair value in excess of book value ......................................................................... Excess assigned to inventory (60%) .......................................................... P15,000 Excess assigned to goodwill (40%) ........................................................... P10,000
P75,000 (50,000) P25,000
Park current assets ....................................................................................................... Strand current assets ................................................................................................... Excess inventory fair value ......................................................................................... Consolidated current assets ......................................................................................
P 70,000 20,000 15,000 P105,000
34. c
35. a
36. c Park noncurrent assets ............................................................................................... Strand noncurrent assets ........................................................................................... Excess fair value to goodwill (partial) ..................................................................... Consolidated noncurrent assets ..............................................................................
P 90,000 40,000 ___8,000 P140,000
Park noncurrent assets ................................................................................................ Strand noncurrent assets ............................................................................................ Excess fair value to goodwill (full) ............................................................................. Consolidated noncurrent assets ...............................................................................
P 90,000 40,000 __10,000 P140,000
37. d
38. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken out by Park to acquire Strand. 39. b
Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken out by Polk to acquire Strand.
40. b Park stockholders' equity ........................................................................................... NCI (partial): BV of SHE – S ……………………………………………………………..P50,000 Adjustments to reflect fair value (inventory)………………………. 15,000 FV of SHE – S………………………………………………………………P65,000 x: Multiplied by: NCI%..................... ................................................... 20% Total stockholders' equity .........................................................................................
P80,000
13,000 P93,000
41. c Park stockholders' equity..........................................................................…………. P80,000 NCI (full): BV of SHE – S ……………………………………………………………..P50,000 Adjustments to reflect fair value (inventory)………………………. 15,000 FV of SHE – S………………………………………………………………P65,000 x: Multiplied by: NCI%..................... .................................................... 20% NCI (partial)………………………………………………………………P13,000 Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000 Non-controlling interest at fair value (20% × P75,000)………… 15,000 Total stockholders' equity P95,000 42. b P’s acquisition entry is: Investment in Silicon Merger expenses
2,500,000 250,000 C/S (100,000@P1) APIC [(100,000@P24) – P400,000] Cash (P400,000 + P250,000)
Eliminating entries are: Capital stock Retained earnings AOCI
100,000 2,000,000 650,000
560,000 280,000 195,000 Treasury stock Investment in Silicon
Customer lists Goodwill
700,000 800,000 Investment in Silicon
43. b – refer to No. 42 44. a – refer to No. 42 45. a – refer to No. 42 46. b – refer to No. 42 47. b 48. a – P150,000 + P500,000
35,000 1,000,000
1,500,000
49. a – at fair value 50. b FV, stocks issued………………………………………………… Less: Par value of stocks issued (500,000 shares x P5)…….. APIC Add: APIC of P Less: Stock issuance cost
P 4,200,000 __2,500,000 P 1,700,000 7,500,000 ___100,000 P 9,100,000
51. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000 52. a – at fair value 53. c 54. a [P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase + P100,000 in increase in PPE] = P100,000 55. b P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE – P300,000 – P500,000) = P550,000 56. a 57. d (P1,000,000 + P250,000) = P1,250,000 P only. 58. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000 59. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach 61. a - P only 62. d Book value of Assets (P80,000 + P50,000 + P200,000) P330,000 Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000 P 65,000 63. a – zero, since the revaluation of P65,000 is already recorded in the books of subs idiary (not in the worksheet or eliminating entries. 64. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius. 65. a - P15,000 = (P115,000 + P46,000) - P146,000 66. b - P65,000 = (P148,000 - P98,000) + P15,000 67. BB, P70,000; SS, P24,000, no answer available SS: P24,000 = P380,000 - (P46,000 + P110,000 + P75,000 + P125,000) BB P70,000 = P94,000 - P24,000 68. P259,000, no answer available Fair value of SS as a whole: P200,000 Book value of SS shares 10,000 Differential assigned to inventory (P195,000 - P105,000 - P80,000) 40,000 Differential assigned to buildings and equipment (P780,000 - P400,000 - P340,000) 9,000 Differential assigned to goodwill P259,000 Fair value of SS 69. c - 65 percent = 1.00 – (P90,650 / P259,000) 70. a Capital Stock = P120,000 Retained Earnings = P115,000 71. d - A total of P210,000 (P120,000 + P90,000) should be reported. 72. a - As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The amount paid was P30,000 greater than the book value of the net assets of SS and is reported as goodwill in the consolidated balance sheet at January 1, 20X5. 73. c - In determining the amount to be reported for land in the consolidated balance sheet, P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for P25,000 (P10,000 + P15,000). 74. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the consolidated balance sheet. A total of P10,000 was deducted in determining the balance reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an intercompany receivable must be offset by the elimination of an intercompany payable. 75. P100,000, the par value of B's stock outstanding is P100,000, no answer available 76. c**/d*
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity, does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are considered as expensed. The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of investment in associate, joint venture or subsidiary but it is possible that the scope of the project might be expanded in future. (IGAAP 2013 under IFRS by Ernst and Young, page 530,) This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as expenses in the consolidated accounts. Revised PAS 27 does not define what is meant by “cost” , but in the glossary to PFRS provides an over-riding definition of “cost” as “the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction” As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not separately define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements. Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate financial statements includes any costs incurred even if such costs are expensed in the consolidated financial statements. The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate Financial Statements” not consolidated statements; therefore PFRS 3 w hich is a standard for business combination/consolidation will not be the basis for the definition of “cost ”). Unlike before the revision of PAS 27 and implementation of PFRS 10, the basis of the old PAS 27, which is “Consolidated and Separate Statements”, is PFRS 3, wherein the definition of “cost” was clearly defined. That is why the general rule in the defin ition of “cost” was applied. This view is also as suggest by the IASB since they introduced the requirement to expense acquisition costs within PFRS 3 , it only applies to financial statements in which a business combination is accounted for under PFRS 3 . It follows that this requirement does not extend to the individual (or separate) financial statements of the investing or parent entity. So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38 (Intangible Assets) wherein the direct costs is capitalized in the books of parent entity and eventually become expense through eliminating entry to prepare consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to any acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal costs, due diligence costs – such as finder’s fee are expensed off and not included in the consideration transferred. The key reasons given for this approach are provided in paragraph BC366: Acquisition-related costs are not part of the fair value exchange between the buyer and seller. They are separate transactions for which the buyer pays the fair value for the services received. These amounts do not generally represent assets of the acquirer at acquisition date because the benefits obtained are consumed as the services are received. The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at cost . The following items are worth noting to justify the use of this approach: 1.
2.
3.
This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7th Edition (2013) which is an IFRS based discussion, in the solution they presented in one of their end-of-chapter problems, they expensed the direct costs in recording the investment in subsidiary in the book of parent company Similar with No. 1 above, in the book Applying IFRS, 3rd edition (2013), by Picker, et al (which is also Ernst and Young book, which seems to contradict their position in the discussion above) in chapter 24 end-of-the chapter problems , the direct costs (or “costs incurred in undertaking taking the acquisition” as the term used in the book) were not part of the investment in subsidiary as evidenced by the amount in the eliminating entry. One respected author in accounting even commented that, despite the above analysis capitalizing the direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it may be a problem when there will be an impairment test which will reveal the costs are i n fact unrecoverable and thus that there must be an impairment charge at the parent level (in which the direct costs is included as part the investment), which would have the effect of bringing the parent’s accounting (with the impairment investment including the direct costs) in line with what would later appear on the consolidated financial statements .
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of “costs” in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be part of the investment in the books of parent entity. But because of the three reasons mentioned above, the author believes that the direct costs still be considered as expenses applying PFRS 3, aside from the fact that in substance the ultimate objective is to consolidate, eventhough there was a separation of standard between Revised PAS 27 and PFRS 10.
77. a 78. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
79. d 80. a 81. c – In the combined financial statements (which normally used to described financial statements in a “common control” situation), intercompany accounts are eliminated in full. 82. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it. 83. d The acquisition method consolidates assets at fair value at acquisition date regardless of the parent’s percentage ownership. 84. c 85. c An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life. Patent fair value at January 1, 2009 ....................................................................... Amortization for 2 years (10 year life) ..................................................................... Patent reported amount December 31, 2010 ......................................................
P45,000 (9,000) P36,000
86 a PP - building .................................................................................................................. P510,000 TT building acquisition-date fair value P300,000 Amortization for 3 years (10-year life) (90,000) 210,000 Consolidated buildings ............................................................................................... P720,000 -ORPP - building ................................................................................................................... 510,000 TT building 12/31/x4 P182,000 Excess acquisition-date fair value allocation 40,000 Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000 Consolidated buildings ............................................................................................... P720,000 87. b Target not met: 100,000 shares x .75 share x P10 = P750,000 Target met: 100,000 shares x .8 x P10 = P800,000 88. c Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000 Target met: 250,000 shares x 1.8 x P30 = P13,500,000 89. c 500,000 shares x 1.7 exchange ratio x P25 = P21,250,000 The investment value does not change as a result of a change in the share prices. 90. d Cost of Investment (40 shares* x P40)………………………………………………………P 1,600 Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%............................................ 1,100 Allocated excess……………………………………………………………………………… P 500 Less: Over/Under valuation of Assets and Liabilities: Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%......................... 140 Goodwill………………………………………………………………………………………….P 360 100% *
Currently issued…………………… Additional shares issued……….. Total shares…………………………
Pedro Ltd 100 40% 150 60%** 250
Santi Ltd 40 40% 60 / 60% 100
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M BV of net assets (same with FV)……….. 1.1 M Fv per share of stock……………………… P 16
P ? ? P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s shareholders exchange their shares for Pedro Ltd. Pedro Ltd t herefore issues 150 shares (60 x 2 ½) for the 60 shares in Santi Ltd.
