CPA REVIEW SCHOOL OF THE PHILIPPINES . MANILA In PRACTICAL ACCOUNTING PROBLEMS I! BATCH 76 BUSINESS COMBINATION — SUBSEQUENT TO ACQUISITION GUERRERO/GERMAN/LIM/SIY/FERRER/DELA CRUZ PROBLEM 1. 15 On January 2, 2014, (Arrow) Corporation acquired 80% of (CEO) Company's ordinary shares for 3,240,000. P150,000 of the excess is attributable to goodwill and the balance to a depreciable asset with an economic life of fen 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 Arrow Corporation CEO Company Ordinary shares 5,250,000 1,200,000 Retained earnings 7,800,000" 2,100,000 On December 31, 2014, CEO Company reported net income of 525,000 and paid dividends of P180,000 to Arrow. Arrow reported earnings from its Separate operations of P1,425,000 and paid dividends of P630,000. Goodwill had been impaired and should be reported at P30,000 on December 31, 2014. 1. How much is the non-controlling interest in profit_of CEO Company on December 31, 2014? A, P93,750 B. _P93,000 c —_P105,000 D. —_P69,000 2. How much is the consolidated profit on December 31, 2014? A. P1,788,750 B. -P1,893,750 ¢. —_P1,800,000 D. 1,770,000 3, How much is the consolidated retained earnings attributable to parent's shareholders equity on December 32, 2014? f ‘A. 8,811,000 are ate B. 8,790,000 5 c._P8,787,000 D. —P10,398,750 : 4, What amount of non-controlling interest is presented in the consolidated statement of financial position on December 31, 20147 A. P821,250 PAQ- 7LOF 8. 834,000 a P772,500 t >. P727,500 fPage 2 PROBLEM 2 AL »YSL Corporation acquired 80% of the outstanding ordinary shares of GBX’Company on\June 1, 2014 for P586,250. GBX Company's stockholder’s equity components at the end of this year were as follows: Ordinary shares, P100 par, P250,000, Share premium P112,500, Retained Earnings P222,500. Non-controlling interest is measured at fair value. All the assets of GBX were fairly valued, except for inventories, which is overstated by P12,000, and equipment, which is 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 YSL_on January 1, 2024’ Is composed of Ordinary shares 750,000, 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 75,000 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, A 1. What is the amount of the non-controlling interest in net assets of GBX Company on December 320142 A P145,167.50 \ i B P127,24250 =P f © pizazaaso D. P121,917.50 ts 2, What is the amount of consolidated shareholder's equity? P1,520,345 B. P1,642,262,50 C. — P1,462,262.50 IS Ap D. P1,644,587.50 iv. i > PROBLEM 3. Blue Chill Corporation acquired 70% of the outstanding ordinary shares of Red Coo! Company on January 2, 2013 for P418,000. Red Cool's stockholders’ equity on the date of acquisition were as follows: Ordinary shares, P50 par, P130,000 ; Retained earnings ,P350,000. Non-controlling interest is measured on January 2, 2013 at fair value. The fair market value is P164,500, Red Cool’s identifiable net assets with fair values different from their book values were as follows: Inventories, P18,000 overvalued (the remaining 1/6 were sold in 2014); Building, P39,000 undervalued, In the books of Red Cool Company, Building has a book value of P72,000 on December 31, 2014 and 54,000 by December 31, 2015. The building was acquired several years ago for P270,000 and since then no other acquisitions took place. Patents (economic life of 8 years), P17,000 overvalued. Both Blue Chill Corporation and Red Cool Company include depreciation expense and amortization in operating expenses, Both companies use the straight-line method for depreciation and amortization. Impairment of goodwill s to be recognized in the amount of P9,000 in 2013 and P6,000 in 2014. Prior to acquis the ordinary shares of the acquirer is P375,000 and share premium is P157,500, Retained Earnings of the acquirer on January 1, 2014 is P500,000 per books. Non-controlling interest in the consolidated statement of financial position on Dscember 31, 2013 is P198,698 egies earnings oF Red Cool Company as of December 31, 2014 per books amount to P425,875. >A ~ AO?Page 3 Net income of Blue Chill Corporation in 2013 amount to P165,000 and in 2014 amount to P192,500. The acquirer declared and paid dividends in the amount of P60,000 in 2013 ; P95,000 iti 2014 while the acquired company declared and paid dividends to acquirer company in the amount of P17,500 in 2013 and none in 2014, In the consolidated financial statements, compute for the ff: Non controlling interest in profit/loss in 2013 Profit in 2013 Retained earnings attributable to parent's equity in 2013, Stockholders equity in 2013 Non controlling interest in profit/loss in 2014 Non controlling interest in net assets in 2014 Profit in 2014 Retained earnings attributable to parent's equity in 2014 Stockholders equity in 2014 10. Dividends declared in 2014 -end of handouts- PA2- F607