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:

Phillips Corporation Signage Company

Ordinary shares P1,050,000 P 240,000
Retained earnings 1,560,000 420,000

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?
A. P5,272,400
B. P5,333,200
C. P5,238,400
D. P5,232,400

BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013

BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013

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:

Pure Corp. Sincere Co.

Share Capital P6,000,000 P2,250,000
Retained earnings 3,000,000 450,000

BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013

BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013

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 inter-company 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. Sincere Co.

Net Income P1,500,000 P600,000
Dividends declared and paid 600,000 180,000

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:

December 31, 2012 December 31, 2013

Power P240,000 P160,000
Solar 100,000 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:

Power Company Solar Inc.

Sales P25,000,000 P14,000,000
Cost of sales (15,000,000) (8,400,000)
Gross Profit P10,000,000 P5,600,00
Operating expenses (6,000,000) (3,800,000)
Operating Profit P4,000,000 P1,800,000
Loss on Sale of Office Equipment (18,000)
Dividend Revenue 40,000
Net Income P4,000,000 P1,822,000

Compute the following amount s for/as December 31, 2013

BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013

BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013

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 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

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BUSINESS COMBINATION – SUBSEQUENT TO ACQUISITION & INTERCOMPANY TRANSACTIONS #0013