Chapter 17 – Consolidated Financial Statements (Part 2) Multiple Choice – Computational Answers at a glance: 1. D 6. 2. A 7. 3. C 8. 4. A 9. 5. D 10.
C C A B A
11. 12. 13. 14. 15.
B D B B D
16. 17. 18. 19. 20.
Solution: 1. D Solution: Equipment, net – Lion Co. (800,000 x 8/10) Equipment, net – Cub Co. (fair value) (1,280,000 x 3/5) Consolidated equipment, net – Dec. 31, 20x2 2. A Solution: Dec. Accumulated depreciation (320K x 2/5) 31, Depreciation expense (320K ÷ 5) 20x2 Retained earnings – Lion Co.* Retained earnings – Cub Co.*
D A A B D
2,560,000 768,000 3,328,000
128,000 64,000 51,200 12,800
*These are the shares of Lion and Cub in the depreciation of the FVA in the prior year, i.e., 20x1 (64,000 x 80% & 20%).
3. C Solution: Equipment, net – Kangaroo Equipment, net – Joey FVA on equipment, net - increment [(480,000 – 400,000) x 8/10] Consolidated equipment, net – Dec. 31, 20x2
2,000,000 1,200,000 64,000 3,264,000
4. A Solution: Analysis of net assets Acquisition Consolidation Net date change date Share capital 400,000 400,000 Retained earnings (1.12M – 800K) 320,000 1,120,000 Totals at carrying amounts 720,000 1,520,000 Fair value adjustments at acquisition date -
Owlet Co.
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Subsequent depreciation of FVA Unrealized profits (Upstream only) Subsidiary's net assets at fair value
NIL NIL 720,000
1,520,000
800,000
The fair value of NCI at acquisition date is computed as follows: (The solution below is based on a portion of Goodwill computation Formula #2.)
Fair value of NCI
220,000 (squeeze)
NCI's proportionate share in net assets of subsidiary (180,000) Goodwill attributable to NCI - acquisition date (given) 40,000 a
a
(start)
(₱720,000 see above x 25%) = ₱180,000
5. D Solution: Consideration transferred (given) Less: Previously held equity interest in the acquiree Total Less: Parent's proportionate share in the net assets of subsidiary (₱720,000 acquisition-date fair value x 75%) Goodwill attributable to owners of parent – acquisition date
600,000 600,000
(540,000) 60,000 Less: Parent’s share in goodwill impairment (₱32K x 75%) (24,000) 36,000 Goodwill attributable to owners of parent – current year Fair value of NCI (see Requirement ‘a’) Less: NCI's proportionate share in the net assets of subsidiary (₱720,000 acquisition-date fair value x 25%) Goodwill attributable to NCI – acquisition date Less: NCI’s share in goodwill impairment (₱32,000 x 25%)
Goodwill attributable to NCI – current year Goodwill, net – current year
220,000 (180,000) 40,000 (8,000) 32,000 68,000
6. C Solution: Subsidiary’s net assets at fair value (see above)
Multiply by: NCI percentage Total Add: Goodwill attributable to NCI (see above)
NCI in net assets – current year
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1,520,000 25% 380,000 32,000 412,000
7. C Solution: Parent's retained earnings – current year Consolidation adjustments: Parent's share in the net change in subsidiary's net assets (a)
Parent’s share in goodwill impairment Net consolidation adjustments Consolidated retained earnings
2,000,000 600,000 (24,000) 576,000 2,576,000
(a)
Net change in subsidiary’s net assets (see above) ₱800,000 x 75% = ₱600,000.
8. A Solution: Total assets of Parent Total assets of Subsidiary Investment in subsidiary (consideration transferred) Fair value adjustments - net Goodwill – net Effect of intercompany transactions Consolidated total assets
4,000,000 2,000,000 (600,000) 68,000 5,468,000
9. B Solution: Share capital of Parent Share premium of Parent Consolidated retained earnings Equity attributable to owners of the parent Non-controlling interests Consolidated total equity
1,200,000 2,576,000 3,776,000 412,000 4,188,000
10. A Solution: Sales by Rooster Co. Sales by Cockerel Co. Less: Intercompany sales during the current period Consolidated sales
4,000,000 2,800,000 (600,000) 6,200,000
11. B Solution: The unrealized profit in ending inventory is computed as follows: Sale price of intercompany sale 600,000 Cost of intercompany sale (480,000) 58
Profit from intercompany sale Multiply by: Unsold portion as of yr.-end Unrealized gross profit in ending inventory
120,000 1/4 30,000
Cost of sales of Rooster Co. Cost of sales of Cockerel Co. Less: Intercompany sales during the current period Add: Unrealized gross profit in ending inventory Less: Realized profit in beginning inventory Add: Depreciation of FVA on inventory Consolidated cost of sales
1,600,000 1,200,000 (600,000) 30,000 2,230,000
12. D Solution: Profits before adjustments Consolidation adjustments: Unrealized profit (Reqmt.’a’) Dividend income (given) Net consol. adjustments
Profits before FVA Depreciation of FVA (b) Sh. in goodwill impairment Consolidated profit OCI Comprehensive income (b)
Rooster 936,000
Cockerel 700,000
Consolidated 1,636,000
(30,000) (40,000) (70,000) 866,000 (24,000) 842,000 296,000 1,138,000
N/A 700,000 (8,000) 692,000 100,000 792,000
(30,000) (40,000) (70,000) 1,566,000 (32,000) 1,534,000 396,000 1,930,000
Share in goodwill impairment: (₱32,000 x 75%); (₱32,000 x 25%)
13. B (See solution above) 14. B Solution: Owners of parent Rooster's profit before FVA (see above)
Sh. in Cockerel’s profit before FVA
Sh. in goodwill impairment (see above)
Profit attributable to (d)
Sh. in Cockerel’s OCI Comprehensive inc. attributable to (c)
Consolidated
866,000
N/A
866,000
(24,000) 1,367,000 296,000 75,000 1,738,000
(8,000) 167,000 N/A 25,000 192,000
(32,000) 1,534,000 296,000 100,000 1,930,000
(c)
Depreciation of FVA Rooster's OCI
NCI
Share in Cockerel’s profit before FVA: (₱700,000 x 75%); (₱700,000 x 25%)
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(d)
Share in Cockerel’s OCI: (₱100,000 x 75%); (₱100,000 x 25%)
15. D (See solution above) 16. D Solution: The consolidated sales and cost of sales are computed as follows: Consolidated sales Sales of Pig Co. 4,000,000 Sales of Piglet Co. from Sept. 1 to Dec. 31 only (₱2.88M x4/12) 960,000 Less: Intercompany sales during the year (324,000) Consolidated sales 4,636,000 17. A Solution: The unrealized profit in ending inventory is computed as follows: Sale price of intercompany sale 324,000 Cost of intercompany sale (₱324,000 ÷ 150%) (216,000) Profit from intercompany sale 108,000 Multiply by: Unsold portion as of year-end 1/3 36,000 Unrealized gross profit Cost of sales of Pig Co. COS of Piglet Co. from Sept. 1 to Dec. 31 only (₱1.2M x 4/12)
Less: Intercompany sales during the year Add: Unrealized gross profit in ending inventory Less: Realized profit in beginning inventory Add: Depreciation of FVA on inventory Consolidated cost of sales
1,600,000 400,000 (324,000) 36,000 1,712,000
18. A Solution: Parent Subsidiary Consolidated Profits before adjustments Consolidation adjustments: Unrealized profit - (see above) Net consolidation adjustments
Profits before FVA Depreciation of FVA Consolidated profit a
896,000
240,000
a
1,136,000
( - ) ( - ) 896,000 ( - ) 896,000
(36,000) (36,000) 204,000 ( - ) 204,000
(36,000) (36,000) 1,100,000 ( - ) 1,100,000
(₱720,000 x 4/12 = ₱240,000)
19. B Solution: 60
Pig's profit before FVA (see above) Share in Piglet’s profit before FVA
(c)
Owners of parent 896,000 153,000
Depreciation of FVA
( (
Share in goodwill impairment
Totals (c)
- ) - )
1,049,000
NCI N/A 51,000 ( (
- ) - )
51,000
Consolidated 896,000 204,000 ( (
- ) - )
1,100,000
Shares in Piglet’s profit before FVA (see above): (₱204K x 75%); (₱204K x
25%)
20. D Solution: Profit or loss attributable to owners of parent and NCI Owners Consoliof parent NCI dated 936,000 N/A 936,000 Bear's profit before FVA (given) (a)
Share in Cub’s profit before FVA Profit attributable to preference (b) shareholders of Cub
Depreciation of FVA Share in impairment loss on goodwill
Totals
489,000
163,000
652,000
N/A
48,000
48,000
1,424,960
211,000
1,636,000
(a)
The shares in Cub’s profit are computed as follows: Profit of Cub. Co.
700,000
One-year dividends on cumulative preference sh. (400K x 12%) (48,000)
Profit of Cub Co. attributable to ordinary shareholders Allocation: Bear's share (₱652,000 x 75%) NCI's share (₱652,000 x 25%) As allocated: NOTE: Answer choice is rounded-off.
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(b)
652,000 489,000 163,000 652,000
