BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013 PROBLEM 1. On January 2, 2013, Phillips Corporation purchase 80% of Signage Company’s outstanding shares for P648,000. P30,000 of the excess is attributable to goodwill and the balance to an equipment with an economic life of ten years. Non-controlling interest is measured at its fair value on date of acquisition. On the date of acquisition, stockholders’ equity of the two companies were as follows:
Ordinary shares Retained earnings
Phillips Corporation P1,050,000 1,560,000
Signage Company P 240,000 420,000
On December 31, 2013, Signage Company reported net income of P105,000 and paid dividends of P36,000 to Philips. Philips reported from its separate operations of P285,000 and paid dividends of P138,000. Goodwill had been impaired and should be reported at P6,000 on December 31, 2013. 1. What is the non-controlling interest in profit of Signage Company on December 31, 2013? A. P21,000 B. P13,800 C. P18,750 D. P18,600 2. What is the consolidated profit attributable to parent shareholders on December 31, 2013? A. P340,200 B. P360,000 C. P336,000 D. P356,400 3. What is the consolidated retained earnings attributable to parent’s shareholders equity on December 31, 2013? A. P1,757,400 B. P2,079,750 C. P1,762,200 D. P1,758,000 4. What amount of non-controlling interest is to be presented in the consolidated statement of financial position on December 31, 2013? A. P164,250 B. P145,500 C. P166,800 D. P154,500 PROBLEM 2. On January 2, 2012, D Corporation purchased 80% of the outstanding shares of C Company for P4,750,000. At that date, C had P4,000,000 of ordinary shares outstanding and retained earnings of P1,600,000. C’s equipment with a remaining life of 5 years had a book value of P2,250,000 and a fair value of P2,630,000. C’s remaining assets had book values equal to their fair values. All intangibles except goodwill are expected to have remaining lives of 8 years. The income and dividend figures for both D and C are as follows: Net income of D in 2012 is P900,000; 2013 is P1,100,000. Net income of C in 2012 is P340,000; 2013 is P510,000. Dividends of D in 2012 is P220,000; 2013 is P390,000. Dividends of C in 2012 is P70,000; 2013 is P130,000. D’s retained earnings balance at the date of acquisition was P3,450,000. 1. How much is the consolidated retained earnings attributable to controlling interest in 2013? BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013 A. B. C. D.
P5,272,400 P5,333,200 P5,238,400 P5,232,400
2. Share of D Corporation in the adjusted and undistributed earnings of C Company in 2012 A. P211,200 B. P155,200 C. P216,000 D. P182,400 3. How much is the consolidated profit in 2013? A. P1,343,200 B. P1,438,000 C. P1,430,000 D. P1,464,000 4. How much is the non-controlling interest in net assets in 2013? A. P1,295,600 B. P1,250,000 C. P1,302,400 D. P1,289,500 PROBLEM 3. Positive Corporation acquired 80% of the outstanding common stock of Synergy Company on June 1, 2013 for P586,250. Synergy Company’s stockholder’s equity components at the end of this year are as follows: Ordinary shares, P100 par, P250,000, APIC P112,500, Retained Earnings P222,500. Non-controlling interest is measured at fair value. All the assets of Synergy were fairly valued, except for inventories, which are overstated by P11,000, and equipment, which was understated by P15,000. Remaining useful life of equipment is 4 years. Both companies use the straight-line method for depreciation and amortization. Stockholder’s equity of Positive on January 1, 2013 is composed of Ordinary shares P750,000, Share premium P175,000, Retained Earnings P525,000. Fair value of non-controlling interest on the date of acquisition is P117,500. Goodwill, if any, should be written down by P14,225 at year-end. Net income for the first year of parent and subsidiary are P75,000 and P42,500 (from date of acquisition) respectively. Dividends declared at the end of the year amounted to P20,000 and P15,000. During the year, there was no issuance of new ordinary shares. 1. What is the balance of the non-controlling interest in net assets of subsidiary on December 31, 2013? A. P145,167.50 B. P127,242.50 C. P124,242.50 D. P121,917.50 2. What is the amount of consolidated shareholder’s equity? A. P1,520,345 B. P1,642,262.50 C. P1,462,262.50 D. P1,644,587.50
PROBLEM 4. Pure Corporation acquired an 80% interest in Sincere Company on January 2, 2012 for P2,520,000. On this date, the share capital and retained earnings of the two companies follow:
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013 Pure Corp. P6,000,000 3,000,000
Share Capital Retained earnings
Sincere Co. P2,250,000 450,000
On January 2, 2012, the assets and liabilities of Sincere Co. were stated at their fair values except for machinery which is undervalued by P225,000 (remaining life is 3 years). On September 30, 2012, Sincere sold merchandise to Pure at an intercompany profit of P150,000; 25% was still unsold at year-end. Likewise, on October 1, 2013, Sincere purchased merchandise from Pure for P3,600,000. The selling affiliate included a 20% mark-up on cost on this sale. Only 75% of these purchases had been sold to unrelated parties as of December 31, 2013. As of December 31, 2013, goodwill was determined to be impaired by P60,000. The following is the summary of the 2013 transactions of the affiliated companies: Pure Corp. P1,500,000 600,000
Net Income Dividends declared and paid
Sincere Co. P600,000 180,000
On the 2013 consolidated financial statements, how much would be the: 1. Net income attributable to Parent A. P1,638,000 B. P1,708,500 C. P1,608,000 D. P1,686,000 2. Non-controlling interest in net income A. P70,500 B. P100,500 C. P82,500 D. P85,500 PROBLEM 5. On January 2, 2012, Power Company acquired 90% of the outstanding shares of Solar Inc. at book value. During 2012 and 2013, intercompany sales amounted to P2,000,000 and P4,000,000, respectively. Power Company consistently recognized a 25% mark-up based on cost while Solar Inc. had a 25% gross profit on sales. The inventories of the buying affiliate, which all came from inter-company transactions show: Power Solar
December 31, 2012 P240,000 100,000
December 31, 2013 P160,000 40,000
On October 1, 2012, Solar Inc. purchased a piece of land costing P1,000,000 from Power Company for P1,500,000. On December 1, 2013, Solar Inc. sold this land to unrelated party for P1,500,000. On the other hand, on July 1, 2013, Solar Inc. sold a used photo-copier with a carrying value of P60,000 and remaining life of 3 years to Power Company for P42,000. Separate Statement of Comprehensive income for the two companies for the year 2013 follow: Sales Cost of sales Gross Profit Operating expenses
Power Company P25,000,000 (15,000,000) P10,000,000 (6,000,000)
Solar Inc. P14,000,000 (8,400,000) P5,600,00 (3,800,000)
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013 Operating Profit Loss on Sale of Office Equipment Dividend Revenue Net Income
P4,000,000
P4,000,000
P1,800,000 (18,000) 40,000 P1,822,000
Compute the following amount s for/as December 31, 2013 1. Consolidated Gross Profit A. P19,632,000 B. P15,712,000 C. P15,632,000 D. P15,584,000 2. Consolidated Net Income attributable to Parent A. P6,183,300 B. P6,369,000 C. P6,169,800 D. P6,191,300 3. Non-controlling interest in Net income A. P189,700 B. P185,700 C. P188,200 D. P184,200 4. Consolidated Operating expense A. P9,800,000 B. P9,788,000 C. P9,803,000 D. P9,789,500 PROBLEM 6. On January 1, 2012, P Corporation purchased 80% of S Company’s outstanding stock for P620,000. At that date, all of S Company’s assets and liabilities had market values approximately equal to their book values and no goodwill was included in the purchase price. The following information was available for 2012: Income from own operations of P Corporation, P150,000; Operating loss of S Company, P20,000. Dividends paid in 2012 by P Corporation, P75,000; by S Company to P Corporation, P12,000. On July 1, 2012, there was a downstream sale of equipment at a gain of P25,000. The equipment is expected to have a remaining useful life of 10 years from the date of sale. Also, on January 1, 2012, there was an upstream sale of furniture at a loss of P7,500. The furniture is expected to have a useful life of five years from the date of sale. Non-controlling interest is measured at fair market value. 1. How much is the consolidated net income attributable to parent shareholders’ equity? A. P97,250 B. P115,050 C. P112,250 D. P103,050 PROBLEM 7. On July 1, 2013, Issue Company purchased 80% of the outstanding shares of Intrigue Company at a cost of P1,600,000. On that date, Intrigue had P1,000,000 of capital stock and P1,400,000 of retained earnings. For 2013, Issue had income of P560,000 from its separate operations and paid dividends of P300,000. For 2013, Intrigue reported income of P130,000 and paid dividends of P60,000. All the assets and liabilities of Intrigue have book values equal to their respective fair market values. Assume income was earned evenly throughout the year except for the intercompany transaction on October 1. On October 1, 2013, Issue purchased an equipment from Intrigue for P200,000. The book value of the equipment on that BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013 date was P240,000. The loss of P40,000 is reflected in the income of Intrigue indicated above. The equipment is expected to have a useful life of 5 years from the date of sale. 1. In the December 31, 2013 consolidated statement of financial position, how much is the consolidated net income attributable to the parent company? A. P642,400 B. P930,400 C. P946,400 D. P962,400 *** END ***
BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013
