Solution Chapter 15

Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000  P40)] 3,100,000
Cash 2,500,000
Common Stock 30,000
Paid in capital in excess of par (P40 - P2)  15,000 570,000
Paid in capital in excess of par 30,000

Acquisition Expense 67,000
Deferred Acquisition Charges 90,000
Acquisition Costs Payable 7,000
Problem II
Cash consideration transferred P 300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P 315,000
Less: Book value of SS Company (P90,000 + P100,000) 190,000
Allocated excess P125,000
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100% P 40,000
Increase in customer list: P22,000 x 100% 22,000
Increase in R&D: P30,000 x 100% 30,000__92,000
Goodwill P 33,000
Investment in SS Company 315,000

Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense 10,000

Cash 10,000
Not Required: The working paper eliminating entry on the date of acquisition,
6/30/20x4 would be:
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
Capitalized R&D 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
Investment in SS Company
315,000
Problem III
1.
A. Investment in Sewell 675,000
Cash 675,000
B. Investment in Sewell 675,000
Cash 675,000
C. Investment in Sewell 318,000
Cash 318,000
2.
A.
Fair value of Subsidiary:
Consideration transferred P675,000
Less: BV of SHE of S (P450,000 + P180,000 + 705,000
P75,000)x100%
Allocated excess P( 30,000)
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 __10,000
Bargain Purchase Gain – full (P 40,000)
B.
Partial Goodwill
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) 634,500
x 90%
Allocated excess P 40,500
Inventory (P30,000 – P20,000) x 90% (P9,000)
Land (P50,000 – P70,000) x 90% __18,000 __9,000
Goodwill – partial P 31,500
Full-Goodwill
Consideration transferred (P675,000/90%) P750,000
Less: BV of SHE of S (P450,000 + P180,000 + 705,000
P75,000)x100%
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 __10,000
Goodwill – full P 35,000
C.
Partial Goodwill
x 80%
Allocated excess (P306,000)
Inventory (P30,000 – P20,000) x 80% (P 8,000)
Land (P50,000 – P70,000) x 80% __16,000 __8,000
Bargain Purchase Gain – partial (parent only) (P314,000)
Full-Goodwill
Consideration transferred P 318,000
FV of NCI* _158,000
P 476,000
x 100%
Allocated excess (P304,000)
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 _10,000
Bargain Purchase Gain – full (parent only) (P314,000)
*BV of SHE of S P780,000
Adjustments to reflect fair value 10,000
FV of SHE of S P790,000
x: NCI% 20%
FV of NCI P158,000
3.
A.
Common Stock – Sewell 450,000
Paid in capital in excess of par – Sewell 180,000
Retained Earnings – Sewell 75,000
Land 20,000
Inventory 10,000
Investment in Sewell 675,000
Retained earnings (gain) – Parent (since
balance sheet accounts are being
examined) 40,000
B.
Partial-Goodwill (Proportionate Basis)
Land 20,000
Goodwill 31,500
Inventory 10,000
Non-controlling Interest 71,500
BV – SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
FV of SHE of Sewell P715,000
x: NCI% 10%
FV of NCI (partial) P 71,500
Full-Goodwill (Fair Value Basis)

Land 20,000
Goodwill 35,000
Inventory 10,000
(P450,000 + P180,000 + P75,000) P705,000
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
C.
Partial-Goodwill (Proportionate Basis)
Land 20,000
Inventory 10,000
Retained earnings (gain)–Parent (refer to 3A) 314,000
(P620,000 + P140,000 + P20,000) P780,000
x: NCI% 20%
FV of NCI (partial) P158,000
Full-Goodwill (Fair Value Basis)

Land 20,000
Inventory 10,000
Retained earnings (gain)–Parent (refer to 3A) 314,000
(P620,000 + P140,000 + P20,000) P780,000
x: NCI% 20%
FV of NCI (full) P158,000
Problem IV
1.
January 1, 20x4
Investment in S Company…………………………………………… 408,000
408,000
Cash……………………………………………………………………..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration
transferred……………………………….. P 408,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)
………………….. P 240,000
Paid-in capital in excess of par (P24,000 x
100%)... 24,000
Retained earnings (P96,000 x 100%)
………………... 96,000 360,000
Allocated excess (excess of cost over book value)
…… P 48,000
Increase in inventory (P18,000 x 100%)
…………….. P 18,000
Increase in land (P72,000 x 100%)
…………………… 72,000
Decrease in buildings and equipment
(P12,000 x 100%)
……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)
…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)
…………………………………………………….. P 12,000
(E1) Common stock – S Co………………………………………… 240,000

Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity
of S Co.
(E2) 18,000
Inventory………………………………………………………….
Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds 42,000
payable………………………………
Investment in S 48,000
Co…………………………………………
Eliminate investment against allocated excess.
4.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
P P
Cash*…………………………. 12,000 60,000 P 72,000
Accounts receivable…….. 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
(2)
Buildings and equipment (net) 480,000 360,000 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
P1,320,00 P600,00
Total Assets 0 0 P1,602,000
Liabilities and Stockholders’
Equity
P120,00
Accounts payable…………… P 120,000 0 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
(1)
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
96,00
Retained earnings…………… _________ 0 (1) 96,000 __________ _________
Total Liabilities and Stockholders’ P1,320,00 P600,00 P P
Equity 0 0 462,000 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
5.
Assets
Cash P 72,000
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment (net) 828,000
Goodwill 12,000
Total Assets P1,602,000
Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Stockholders’ Equity
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings 300,000
Total Stockholders’ Equity P 960,000
Total Liabilities and Stockholders’ Equity P1,602,000
Problem V
1.
January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
288,000
Cash……………………………………………………………………..
Common stock, P10 120,000
par……………………………………………..
Paid-in capital in excess of 24,000
par…………………………………….
(2) Retained earnings (acquisition-related expense - close to

retained earnings since only balance sheets are being
examined) 12,000
……………………………………………………………
12,000
Cash…………………………………………………………………….
Acquisition- related costs.
(3) Paid-in capital in excess of 8,400

par………………………………………..
8,400
Cash…………………………………………………………………….
Costs to issue and register stocks.
2.
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per
share….. 144,000 P 432,000
………………….. P 240,000
100%).. 96,000
………………... 24,000 360,000
…… P 72,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)
……… 6,000
Adjusted allocated excess…………………………………. P 78,000
…………….. P 18,000
…………………… 72,000
(P12,000 x 100%)
……………………………………... ( 12,000)
…….. ( 42,000) 36,000
value)
…………………………………………………….. 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)
Consideration
transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of
S……………………………….. 360,000
…………………………. P 72,000
Less: Over/under valuation of assets and
liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)
…………………... P 36,000
Add: Existing
Goodwill……………………………………………………………… 6,000
value)
…………………………………………………………………………… P 42,000
3.
Eliminations
P P
Cash*………………………….. 111,600 54,000 P 165,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
(2)
Buildings and equipment (net) 480,000 360,000 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (4) 360,000
(5) 72,000 -
P1,443,60 P600,00
Equity
P120,00
Accounts payable…………… P 120,000 0 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par**…..… 720,000 720,000
(1)
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
96,00
Retained earnings…………… _________ 0 (1) 96,000 __________ _________
Total Liabilities and Stockholders’ P1,443,60 P600,00 P
Equity 0 0 P 486,000 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity of Sky Co.
* 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.
4.
Assets
Cash P 165,600
Inventories 210,000
Land 330,000
Goodwill 42,000

Liabilities
Additional paid-in capital in excess of par 75,600
Total Stockholders’ Equity P 1083,600
Problem VI
1.

Consideration transferred (P408,000 – P6,000)
…….. P 402,000
………………….. P 240,000
100%)... 96,000
………………... 24,000 360,000
…… P 42,000
…………….. P 18,000
…………………… 72,000
(P12,000 x 100%)
……………………………………... ( 12,000)
…….. ( 42,000) 36,000
value)
…………………………………………………….. P 6,000
2. Goodwill, P6,000
Problem VII
1.

Consideration transferred:
Common stock: 24,000 shares x P14 per share P 336,000
Less: Book value of stockholders’ equity of Sky:
………………….. P 240,000
100%)... 96,000
………………... 24,000 360,000
Allocated excess (excess of book value over cost)
…… (P 24,000)
…………….. P 18,000
…………………… 72,000
(P12,000 x 100%)
……………………………………... ( 12,000)
Increase in patent (P24,000 x 100%)
………………... 24,000
Increase in contingent liability (P18,000 x
100%)…. ( 18,000)
…….. ( 42,000) 42,000
Negative excess: Bargain Purchase Gain (excess of
fair value over cost)
…………………………………… (P 66,000)
2. Gain on acquisition, P66,000
Problem VIII
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)
– S Company: P7,200,000 x 80%...................................... 5,760,000 (80%)
Allocated excess.……………………………………………….......P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 80%........................................... 1,920,000 (80%)
Positive excess: Goodwill (partial)…………………………….... P 4,320,000 (80%)
 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)….. 2,400,000
Fair value of stockholders’ equity of subsidiary…………… P 9,600,000
Multiplied by: Non-controlling interest percentage............ 20%
Non-controlling Interest (partial)……………………………….. P1,920,000
Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
Consideration transferred: Cash (P12,000,000 / 80%).. P 15,000,000 (100%)
– S Company: P7,200,000 x 100%.............................. 7,200,000 (100%)
Allocated excess.……………………………………………….. P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 100%.................................... 2,400,000
(100%)
Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%)
The full – goodwill of P5,400,000 consists of two parts:
Full-goodwill……………………………………………....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill…………………………….…. 4,320,000
NCI on full-goodwill…………………………………….......P 1,080,000
Non-controlling interest (partial)……………………………….......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 – 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:
Consideration transferred: Cash……………………….....P 7,560,000 (60%)
– S Company: P6,000,000 x 60%................................ 3,600,000 (60%)
Allocated Excess.……………………………………………….... P 3,960,000 (60%)
(P8,400,000 – P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
of assets and liabilities): (P8,400,000 – 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)……………………………….P 3,360,000

 Full-goodwill
Consideration transferred: Cash ………………………...P 7,560,000 ( 60%)
Fair value of NCI (given)………………………………….. 4,800,000 ( 40%)
Fair value of subsidiary…………………………………………...P12,360,000 (100%)
– S Company: P6,000,000 x 100%........................... 6,000,000 (100%)
Allocated Excess.…………………………………………………..P 6,360,000 (100%)
(P8,400,000 – P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%)

Full-goodwill……………………………………………...P 3,960,000
or partial-goodwill……………………………. 2,520,000
NCI on full-goodwill……………………………………..P 1,440,000
Non-controlling interest (partial)………………………………P 3,360,000
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
Case 3;
Consideration transferred: Cash………………………..P 9,000,000 (75%)

– S Company: P7,200,000 x 75%............................. 5,400,000 (75%)
Allocated Excess.………………………………………………...P 3,600,000 (75%)
(P9,600,000 – P7,200,000) x 75%..................................... 1,800,000 (75%)
Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage.............. 25%
Non-controlling interest (partial)……………………………….P 2,400,000

 Full-goodwill
Fair value of subsidiary…………………………………………. P 11,640,000 (100%)
– S Company: P7,200,000 x 100%............................... 7,200,000 (100%)
Allocated Excess.………………………………………………….P 4,440,000 (100%)
(P9,600,000 – P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)

Full-goodwill……………………………………………...P 2,040,000
or partial-goodwill…………………………….... 1,800,000
NCI on full-goodwill……………………………………. .P 240,000
Non-controlling interest (partial)………………………………P 2,400,000
(P2,040,000 – P1,800,000 partial-goodwill)…..…….... . 240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
Case 4:
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 . (15%)
Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%)
– S Company: (P4,680,000 – P2,280,000) x 75%.......... 1,800,000 .(75%)
Allocated Excess.………………………………………………....P 1,440,000 (75%)
[(P6,120,000 – P2,280,000) –
(P4,680,000 – P2,280,000)] x 75%..................................... 1,080,000 (75%)
Positive excess: Goodwill (partial)……………………………...P 360,000 (75%)
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
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

 Full-goodwill
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%)
– S Company: P2,400,000 x 100%.................................... 2,400,000 (100%)
Allocated Excess.…………………………………………………P 1,920,000 (100%)
(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
or partial-goodwill…………………………….…... 360,000
NCI on full-goodwill……………………………………..P. 120,000
Non-controlling interest (partial)………………………………P 960,000
(P480,000 – P360,000 partial-goodwill)…..…………....... 120,000
Non-controlling Interest (full)……………………………………P 1,080,000
Problem IX
 Partial-goodwill (Proportionate Basis)
Consideration transferred: P270,000
Cash……………………….. (75%)
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 189,000
75%....................................... (75%)
Allocated P 81,000
excess………………………………………………... (75%)
[(P612,000 – P228,000) – (P480,000 – P228,000) 99,000
x 75% (75%)
Negative excess: Bargain purchase gain (to
controlling (P18,000)
interest or attributable to parent only) (75%)
……………….
 Full-goodwill (Fair Value Basis)
Consideration transferred: P270,000
Cash……………………….. ( 75%)
Fair value of non-controlling interest (given) 98,400
………… ( 25%)
Fair value of subsidiary P368,400
………………………………………… (100%)
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 252,000
100%..................................... (100%)
Allocated P116,400
excess………………………………………………... (100%)
[(P612,000 – P228,000) – (P480,000 – P228,000) 132,000
x 100% (100%)
Negative excess: Bargain purchase gain (to
controlling (P15,600)
interest or attributable to parent only) (100%)
……………….
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration
transferred……………………………….. P 360,000
……………………. P 192,000
80%).... 76,800
……………….... 19,200 288,000
….. P 72,000
……………… P 14,400
……………………. 57,600
(P12,000 x 80%)
……………………………………..... ( 9,600)
………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over
fair value)
………………………………………………... P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sky Co. Sky Co.
Book Fair Over/ Under
value value 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. Sky Co.
Book value 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 360,000
Company……………………………………………
360,000
Cash……………………………………………………………………..
Acquisition of Sky Company.
examined) 14,400
……………………………………………………………
14,400
Cash…………………………………………………………………….
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky 240,000
Co……………………………………………….
Additional paid-in capital – Sky 24,000
Co………………………………….
Retained earnings – Sky 96,000
Co…………………………………………...
Investment in Sky 288,000
Co…………………………………………………
Non-controlling interest (P300,000 x 20%) 72,000
………………………..
Eliminate investment against stockholders’ equity of Sky Co.
(E2) 18,000
Inventory………………………………………………………………….
Accumulated depreciation…………………………………………. 360,000
Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 43,200
Buildings and 372,000
equipment…………………………………………..
payable………………………………………
………………………..
Co………………………………………………..
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:
80%-Owned Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
P P P
Cash*…………………………. 45,600 60,000 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
(2)
Buildings and equipment 960,000 720,000 372,000 1,308,000
Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
P1,785,60 P960,00
Total Assets 0 0 P 2,146,800
Equity
P P360,00 (2)
Accumulated depreciation 480,000 0 360,000 P 480,000
120,00
Accounts payable…………… 120,000 0 240,000
Bonds payable………………… 240,000 120,000 360,000
(1)
Retained earnings**…………… 285,600 285,600
96,00
Retained earnings…………… 0 (1) 96,000
Non-controlling interest………… (1 ) 72,000
_________ _______ _________ (2) 7,200 _79,200
Equity 0 0 P 853,200 853,200 P2,146,800
* 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:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
of assets and liabilities)…………………………………………. 36,000
Fair value of stockholders’ equity of subsidiary………………… P 396,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 43,200

Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
Non-controlling interest 79,200
Total Stockholders’ Equity (Total Equity) P
1,024,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)

Consideration transferred (P360,000 / 80%)
………….. P 450,000
…………………. P 240,000
100%).. 96,000
…………….... 24,000 360,000
….. P 90,000
…………… P 18,000
…………………. 72,000
(P12,000 x 100%)
…………………………………..... ( 12,000)
……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over
fair value)
………………………………………………... P 54,000
January 1, 20x4
(1) Investment in Sky 360,000
Company……………………………………………
360,000
Cash……………………………………………………………………..
Acquisition of Sky Company.

examined) 14,400
……………………………………………………………
14,400
Cash…………………………………………………………………….
240,000
(E1) Common stock – Sky
Co……………………………………………….
Additional paid-in capital – Sky 24,000
Co………………………………….
Retained earnings – Sky 96,000
Co…………………………………………...
Co…………………………………………………
………………………..
Eliminate investment against stockholders’ equity of Sky Co.
(E2) 18,000
Inventory………………………………………………………………….
Accumulated depreciation…………………………………………. 360,000
Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 54,000
equipment…………………………………………..
payable………………………………………
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – P36,000)] 18,000
…………………………………………….
Co………………………………………………..

80%-Owned Subsidiary (Full-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
P P P
Cash*…………………………. 45,600 60,000 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
(2)
Buildings and equipment 960,000 720,000 372,000 1,308,000
Goodwill…………………… (2) 54,000 54,000
Investment in Sky Co…………. 360,000 (1)
288,000
(2)
72,000 -
P1,785,60 P960,00
Total Assets 0 0 P 2,157,600
Equity
P P360,00 (2)
Accumulated depreciation 480,000 0 360,000 P 480,000
120,00
Accounts payable…………… 120,000 0 240,000
Bonds payable………………… 240,000 120,000 360,000
(1)
Retained earnings**…………… 285,600 285,600
96,00
Retained earnings…………… 0 (1) 96,000
Non-controlling interest………… _________ _______ _________ (1 ) _90,000
72,000 (2)
18,000
Equity 0 0 P 864,000 864,000 P2,157,600
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

follows:
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
The balance sheet;
Peer Company and Subsidiary

Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 54,000

Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the P 945,600
Owners of the Parent
Total Stockholders’ Equity (Total Equity) P
1,035,600
Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Common stock: 12,000 shares x P25 per
share…... P 300,000
……………………. P 9,600
80%)... 86,400
……………….... 57,600 153,600
…… P 146,400
……………… P 4,800
……………………. 28,800
Increase in buildings and equipment
(P150,000 x 80%)
…………………………………...... 120,000
Increase in copyrights (P60,000 x 80%)
…………….. 48,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 80%)
……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain to
controlling
interest or attributable to parent only)
…………….. (P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:
S Co. S Co. Over/Under

Book value Fair value Valuation
Inventory………………….
……………... P 60,000 P 66,000 P 6,000
Land………………………………………
. 48,000 84,000 36,000
Buildings and equipment
(net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000
Estimated liability for
contingencies.. 0 ( 6,000) ( 6,000)
Net
undervaluation……………………. P 330,000 P 576,000 P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company…...…………………………………… 300,000
par………………………………………………
Paid-in capital in excess of par (P300,000 – P12,000 par) 288,000
……..
Acquisition of S Company.
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
………………………..
Eliminate investment against stockholders’ equity of S Co
(E2) 6,000
Inventory…………………………………………………………………..
36,000
Land………………………………………………………………………..
equipment………………………………………………
60,000
Copyright………………………………………………………………....
Estimated liability for 6,000
contingencies……………………………..
Investment in S Co……………………………………………... 146,400
……………………….
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are
being 50,400
examined).............................................................................

80%-Owned Subsidiary (Proportionate Basis)
Eliminations
P
Cash………………… 334,800 P 334,800
P
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
744,00 222,00
Buildings and equipment (net). 0 0 (2) 150,000 1,116,000
Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1)
__________ _________ 153,600
(2)
146,400 -
P1,681,20
Total Assets 0 354,000 P1,987,200
Equity
P
Accounts payable……… 96,000 42,000 P 138,000
Estimated liability for (2)
contingencies… 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Common stock, P1 par……… 12,000 (1) 12,000
Paid-in capital in excess of
par** 723,840 723,840
(1) (1)
108,00
Paid-in capital in excess of par 108,000 0
(2)
Retained earnings 577,200 50,400 627,600
Retained earnings…………… 72,000 (1) 72,000
_________ _______ _________ (2) 49,200 _87,600
Total Liabilities and Stockholders’ P1,681,20 P354,00 P P
Equity 0 0 444,000 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
follows:
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Retained earnings – S Co……………………………………… 72,000
Book value of stockholders’ equity – S Co…………………. P 192,000
of assets and liabilities)…………………………………………. 246,000
Fair value of stockholders’ equity of subsidiary………………… P 438,000
Multiplied by: Non-controlling Interest percentage…………... 20
The balance sheet:

Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,395,600
Total Stockholders’ Equity (Total Equity) P1,483,200
Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Common stock: 12,000 x P25 (80%)
……………… P 300,000
Fair value of NCI (given) (20%)
………………………. 90,000
Fair value of subsidiary (100%)
………………………. P 390,000
……………………. P 12,000
100%). 108,000
………………... 72,000 192,000
…… P 198,000
……………… P 6,000
…………………… 36,000
Increase in buildings and equipment
(P150,000 x 100%)
………………………………….... 150,000
Increase in copyrights (P60,000 x 100%)
…………… 6,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 100%)
…….. ( 6,000) 246,000
Negative excess: Bargain purchase gain to
controlling
interest or attributable to parent only)
…………….. (P 48,000)
January 1, 20x4
(1) Investment in S Company…...…………………………………… 300,000
par………………………………………………
Paid-in capital in excess of par (P300,000 – P12,000 par) 288,000
……..
Acquisition of S Company.
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
………………………..
Eliminate investment against stockholders’ equity of S Co
(E2) 6,000
Inventory…………………………………………………………………..
36,000
Land………………………………………………………………………..
equipment………………………………………………
60,000
Copyright………………………………………………………………....
Estimated liability for 6,000
contingencies……………………………..
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P90,000 given – P38,400) 51,600
……………
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are
being 48,000
examined).............................................................................
80%-Owned Subsidiary (Fair Value Basis)
Eliminations
P
Cash………………… 334,800 P 334,800
P
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
744,00 222,00
Buildings and equipment (net). 0 0 (2) 150,000 1,116,000
Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1)
__________ _________ 153,600
(2)
146,400 -
P1,681,20 P354,00
Equity
P
Accounts payable……… 96,000 42,000 P 138,000
Estimated liability for (2)
contingencies… 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Common stock, P1 par……… 12,000 (2) 12,000
Paid-in capital in excess of par** 723,840 723,840
(2) (1)
108,00
Paid-in capital in excess of par 108,000 0
(2)
Retained earnings 577,200 48,000 625,200
Retained earnings…………… 72,000 (1) 72,000
_________ _______ _________ (2) 51,600 _90,000
Total Liabilities and
Stockholders’ P1,681,20 P354,00 P P
Equity 0 0 444,000 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
The balance sheet:
Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000

Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,393,200
Total Stockholders’ Equity (Total Equity) P1,483,200
Problem XII
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
Fair value of consideration given P 576,000

Less; Book value of SHE 450,000
Allocated excess: P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory P 20,000
Land (10,000)
Buildings and equipment 70,000 80,000
Goodwill P 46,000
5 Investment in AA Corporation: Nothing would be reported; the balance in the

.
investment account is eliminated.
Problem XIII
1 Inventory (P120,000 + P20,000) P140,000
.
2 Land (P70,000 – P10,000) P 60,000
.
3 Buildings and Equipment (P480,000 + P70,000) 550,000
.
4. Full-Goodwill, P57,500
Add: FV of NCI 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Inventory P 20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
or,
Fair value of consideration given by Ford P470,000
Fair value of noncontrolling interest 117,500
Total fair value P587,500
Book value of Slim’s net assets P450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Fair value of identifiable net assets (530,000)
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
5 Investment in Slim Corporation: None would be reported;

.
the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20) 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
(Overview of the steps in applying the acquisition method when shares have been issued to
create a combination No. 8 includes a bargain purchase.)
1. The fair value of the consideration includes
Fair value of stock issued P1,500,000
Contingent performance obligation 30,000
Fair value of consideration transferred P1,530,000
2. Under the acquisition method, stock issue costs reduce additional paid-in capital.
3. The acquisition method records indirect costs as expenses.
4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in
the Common Stock account. The P74 fair value in excess of par value (P75 – P1) is
an increase to additional paid-in capital of P1,480,000 (P74 × 20,000 shares).
5. Fair value of consideration transferred (above) P1,530,000
Receivables P 80,000
Patented technology 700,000
Customer relationships 500,000
IPR&D 300,000
Liabilities (400,000) 1,180,000
Goodwill P 350,000
6. Revenues and expenses of the subsidiary from the period prior to the combination
are omitted from the consolidated totals. Only the operational figures for the
subsidiary after the purchase are applicable to the business combination. The
previous owners earned any previous profits.
7. The subsidiary’s Common Stock and Additional Paid-in Capital accounts have no
impact on the consolidated totals.
8. The fair value of the consideration transferred is now P1,030,000. This amount
indicates a bargain purchase:
Fair value of consideration transferred (above) P1,030,000
Receivables P 80,000
Patented technology 700,000
Customer relationships 500,000
IPR&D 300,000
Liabilities (400,000) 1,180,000
Gain on bargain purchase P 150,000
Problem XVII (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. Inventory = P670,000 (P's book value plus Sun's fair value)

2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. 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 XVIII
1. P15,000 = (P115,000 + P46,000) - P146,000
2. P65,000 = (P148,000 - P98,000) + P15,000
3. SS: P24,000 = P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000 = P94,000 - P24,000
4. 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
5. 65 percent = 1.00 – (P90,650 / P259,000)

6. Capital Stock = P120,000
Retained Earnings = P115,000
Problem XVI
1. A total of P210,000 (P120,000 + P90,000) should be reported.
2. 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.
3. 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).
4. 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.
5. The par value of B's stock outstanding is P100,000.
Problem XX
1. Investment in Craig Company............................................... 950,000
Cash.................................................................................. 950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value P 50,000
Building (P700,000 fair – P600,000 book value) 100,000
Discount on bonds payable P280,000 fair –
P300,000 20,000
book value)
Deferred tax liability (P40,000 fair – P50,000 book 10,000
value)
Goodwill P 50,000
3. Adjustments on Craig books:

Land...................................................................................... 50,000
Building................................................................................. 100,000
Discount on Bonds Payable................................................... 20,000
Goodwill................................................................................ 50,000
Deferred Tax Liability............................................................. 10,000
Retained Earnings................................................................. 420,000
Paid-In Capital in Excess of Par.......................................... 650,000
4. Elimination entries:
Common Stock...................................................................... 300,000
Paid-In Capital in Excess of Par.............................................. 650,000
Investment in Craig Company........................................... 950,000
Problem XXI
Full-Goodwill
Consideration transferred (200 shares x P25) P 5,000
Less: BV of SHE of Public (P200 + P800 + P1,000) _2,000
Fixed assets (P3,000 fair – P2,000 book value) _1,000
Goodwill – full P2,000
or,
Consideration transferred (200 shares x P25) P 5,000
Less: FV of SHE of Public (P1,0000 + P3,000 – P1,000) _3,000
Goodwill – full P2,000
Note: The currently issued shares of Public Company and its fair value were used for the
following reasons (refer to Illustration 15-15 for comparison):
 Total number of shares for Public Company after acquisition – not given
 The fair value of share of Private Company – not given.
Public Private
Company Company
Fair value of net assets……………. P3,000 ?
Fair value of common stock per share P25
Public Private
Currently issued 200 40%* ? /
* 40%
Additional shares issued 300 60% 100 /
60%
500 ?
15,000 shares / 25,000 shares = 60%
 Values are prior to acquisition (200 shares × P25 market value).

 Subsequent to acquisition, Private Company is the “parent” with 60% ownership;
prior to acquisition, Private Company has 0% ownership of Public Company.
 Prior to acquisition, this represents 100% ownership of Public Company; subsequent
to acquisition, these holders of 100 shares of Public Company become the 40% NCI.
 Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on
full-goodwill amounted to P800 (P2,000 – P1,200 or P2,000 x 40%). This approach to
determine partial goodwill is acceptable as long as there is FV of NCI in the acquirer.
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 570,000

Common Stock*** 95,000
Additional Paid-in-Capital 475,000
***Note: Depending on the wording of this 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 80,000

Other Contributed Capital – Seely 132,000
Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000
Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
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 the 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
the 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 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
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 decision-
making 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 S.
Non-controlling interest fair value P 60,000
Consideration transferred by P. 20,000
Total business fair value 80,000
Fair value of VIE net assets 100,000
Excess net asset value fair value P20,000
The P20,000 excess net asset fair value is recognized by PanTech as a bargain
purchase. All SoftPlus’ assets and liabilities are recognized at their individual fair
values.
Cash P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
-0-
2. Implied valuation and excess valuation for Softplus.

Noncontrolling interest fair value 60,000
Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill 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 (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (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
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
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:
Add: FV of NCI 100,000 P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 280,000
100%
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 50,000 __55,000
100%
If partial-goodwill, no answer available, computed as follows:

Less: BV of SHE of Silver (P100,000 + P180,000) x _210,000
75%
Inventory (P65,000 – P70,000) x 75%
P( 3,75
0)
Land (P100,000 – P90,000) x 75% 7,500
Buildings and equipment (P300,000 – P250,00) x 37,500 __41,250
75%
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:
Add: FV of NCI _40,000 P200,000
Less: BV of SHE of Silver (P40,000 + P120,000) x _160,000
100%
Inventory (P45,000 – P40,000) x 100% P 5,000
Land (P60,000 – P40,000) x 100% 20,000 25,000
17. a
Total Assets of Gulliver (Jonathan) P610,000
Less: Investment in Sea-Gull Corp. (160,000)
P 450,000
Book value of assets of Sea Corp. 230,000
Book value reported by Gulliver/Jonathan and Sea P
680,000
Increase in inventory (P45,000 – P40,000) 5,000
Increase in land (P60,000 – P40,000) 20,000
Goodwill (full)* 15,000
Total assets reported P 720,000
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
Less: BV of SHE of S (P40,000 + P120,000) x _128,000
80%
Inventory (P5,000 x 80%) P 4,000
Land (P20,000 x 80%) 16,000 __20,000
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 P1,380,00
0
Increase in plant assets [P350,000 – (P300,000 – 110,00
P60,000)] 0
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. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
0
P60,000)] 0
Goodwill (partial)* 20,000
*[P440,000 – (P702,000 – P142,000) x 75%]
24. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)

25. a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Inventory (P15,000 x 70%) P
10,500
Land (P20,000 x 70%) 14,000 24,500
26. c
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**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. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (full) 40,000
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Goodwill (partial) 28,000
28 d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
.
+ P200,000)
29. a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
30 d
.
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000
FV of NCI (full)…………………………………………………..P 64,500
31 d P205,000 = The amount reported by Power Corporation

.
32 c P419,500 = (P150,000 + P205,000) + P64,500

.
Stockholders’ equity: P419,500
Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
33. b
Consideration transferred ....................................................................... P60,000
Less: Strand's book value (P50,000 x 80%)............................................. (40,000)
Fair value in excess of book value .......................................................... P20,000
Excess assigned to inventory (60%) ..........................................P12,000
Excess assigned to goodwill (40%) ...........................................P 8,000
34. c
Consideration transferred (P60,000 ÷ 80%)............................................ P75,000
Less: Strand's book value ....................................................................... (50,000)
Fair value in excess of book value .......................................................... P25,000
Excess assigned to inventory (60%) ..........................................P15,000
Excess assigned to goodwill (40%) ...........................................P10,000
35. a
Park current assets................................................................................. P 70,000
Strand current assets.............................................................................. 20,000
Excess inventory fair value..................................................................... 15,000
Consolidated current assets.................................................................... P105,000
36. c
Park noncurrent assets........................................................................... P 90,000
Strand noncurrent assets....................................................................... 40,000
Excess fair value to goodwill (partial).................................................... ___8,000
Consolidated noncurrent assets............................................................. P140,000
37. d
Park noncurrent assets............................................................................ P 90,000
Strand noncurrent assets........................................................................ 40,000
Excess fair value to goodwill (full)........................................................... __10,000
Consolidated noncurrent assets.............................................................. P140,000
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....................................................................... P80,000
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%
13,000
Total stockholders' equity...................................................................... 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
43. a – P150,000 + P500,000
44. a – at fair value
45. b
FV, stocks issued………………………………………………… P
4,200,000
Less: Par value of stocks issued (500,000 shares x P5) __2,500,00
…….. 0
APIC P
1,700,000
Add: APIC of P 7,500,000
Less: Stock issuance cost ___100,000
P
9,100,000
46. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000

47. a – at fair value
48. c
49. 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
50. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in
PPE – P300,000 – P500,000) = P550,000
51. a
52. d (P1,000,000 + P250,000) = P1,250,000 P only.
53. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000
54. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
55. a - P only
56. d
Total Assets of P P 960,000
Less: Investment in S (330,000)
P 630,000
Book value of assets of S 405,000
P45,000)]
Goodwill (full) _____0
If partial-goodwill – same answer with full-goodwill approach, since there is no gain.
57. b – step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value P360,000
30% FV of previously held equity interest: 30,000 shares x P5, fair 150,000
value
10% FV of NCI (100,000 – 60,000 – 30,000) x P, fair value 40,000
100% Fair value of subsidiary P560,000
Less: Fair value of net assets (SHE) of subsidiary 500,000
P 60,000
58. b
59. a
60. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
61. 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
62. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary
(not in the worksheet or eliminating entries.
63. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of
Sirius.
64. 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 which 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 definition 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. This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7 th
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
2. Similar with No. 1 above, in the book Applying IFRS, 3 rd 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.
3. 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 in 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.
65. a
66. 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.
67. d
68. a
69. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in
full.
70. 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.
71. d
The acquisition method consolidates assets at fair value at acquisition date regardless of
the parent’s percentage ownership.
72. c
73. 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........................................................ P45,000
Amortization for 2 years (10 year life)..................................................... (9,000)
Patent reported amount December 31, 2010.......................................... P36,000
74. 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
-OR-
PP - 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
75. 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%
* Pedro Ltd Santi Ltd
Currently issued…………………… 150 60% ** 60 60%
Additional shares issued……….. 100 40% 40 / 40%
Total shares………………………… 250 100
**150/250
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 therefore issues 150
shares (60 x 2 ½) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the
merger and 150 new shares held by former shareholders in Santi Ltd. In essence, the
former shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The
former Santi Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The
IASB argues that there has been a reverse acquisition, and that Santi Ltd is effectively
the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the
legal parent. The usual circumstance creating a reverse acquisition is where an entity
(the legal parent) obtains ownership of the equity of another entity (the legal subsidiary)
but, as part of the exchange transaction, it issues enough voting equity as consideration
for control of the combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require
the assets and liabilities of Santi Ltd to be valued at fair value.
76. d
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
(book value same fair value)…………………………………………… 0
Goodwill…………………………………………………………………………… P 6,000,000
100%
* Man Mask
Currently issued…………………… 15 M 60% ** 6 M 60%
Additional shares issued……….. 10 M 40% 4 M / 40%
Total shares………………………… 25 M 10 M
**15M/25M
77. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases
balance from P330,000 to P390,000. Consolidated balance is P420,000 plus
P390,000.
78. 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
79. 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
80. 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.
Quiz- XV
1. P290,000 = P30,000 + P120,000 + P300,000 - P45,000 - P115,000
2. None, since there are no revenues and expenses of the acquire up to the date of
acquisition
3. P525,000
4. P80,000 = P250,000 - P170,000
5. P99,000 = (P10,000 + P80,000 + P350,000 - P110,000)(.30)
6. P21,000 = (P60,000 - P12,000 - P5,000 - P8,000 - P14,000)
7. P70,000 = P56,000/.8
8. P56,000 = (P220,000 - P120,000 - P44,000)
9. P700,000 = P490,000/.70
10. P180,000 = [(P490,000/.70) - (P30,000 + P140,000 + P460,000 - P110,000)]
11. P90,000 = P460,000 - P370,000
12. P160,000 = (P430,000 - P210,000 - P60,000)
13. P700,000 = P560,000/.80
14. P80,000 = [(P560,000/.80) - (P50,000 + P200,000 + P600,000 - P230,000)]
15. P70,000 = P600,000 - P530,000
16. P130,000 = ($60,000 + $210,000 + $630,000 - $250,000)(.20)
17. P50,000
18. P469,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.70)
19. P201,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.30)
20. P80,000 = (P700,000 - P620,000)
21. P90,000 credit (P260,000 - P350,000)
22. P110,000 debit
23. P120,000 credit (P300,000 - P420,000)
24. P180,000 debit
25. P50,000 debit (P300,000 - P250,000)
26. P56,000 debit
27. P150,000 debit (P600,000 - P450,000)
28. P260,000 debit
29. c
30. 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.
31. Inventories (P110,000 + P180,000 – P10,000) = P280,000
32. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
33. Investment in DD stock will be fully eliminated and will not appear in the consolidated
balance sheet
34. P35,000
Less: BV of SHE of DD (P100,000 + P200,000 – 260,000
P40,000)
Less: Over/under valuation of A and L: Inc
(Decrease)
Inventory (P
10,000)
Buildings and equipment (net) 25,000 15,000
P 5,000
Add: Existing goodwill (to be eliminated 30,000
Goodwill to be reported P 35,000
or, (Approach used in business combination – statutory merger/consolidation)

Fair value of consideration given P280,000
Fair value of Decibel's net assets:
Cash and receivables P 40,000
Inventory 170,000
Accounts payable (90,000)
Notes payable (250,000)
Fair value of net identifiable
Assets (245,000)
Goodwill to be reported P 35,000
Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the
computation of Decibel's net identifiable assets at the date of acquisition.
35. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)

36. Retained earnings, P105,000 (parent only, SHE of subsidiary is eliminated)
37 The investment balance reported by Roof will be P192,000.
.
38 Total assets will increase by P310,000.
.
39 Total liabilities will increase by P95,000.
.
40 The amount of goodwill for the entity as a whole will be P25,000
.
[(P192,000 + P48,000) - (P310,000 - P95,000)].
41 Non-controlling interest will be reported at P48,000 (P240,000 x .20).
.
Theories
1 c 6. B 11. c 16. d 21. b 26. d 31 c 36. d
.
2 a 7. b 12. c 17. c 22. a 27. c 32. d 37. d
.
3 e 8. A 13. d 18. b 23. a 28. c 33. b 38. c
.
4 e 9. D 14. d 19. c 24. b 29. d 34. d 39. b
.
5 b 10, a 15, b 20. c 25. c 30. b 35. d 40. c
.
41 c 46. b 51. c 56. c

.
42 c 47. a 52. b 57. d
.
43 c 48. c 53. a
.
44 c 49. d 54. a
.
45 c 50, b 55, b
.

Solution Chapter 15

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Chapter 15

Paid in capital in excess of par 30,000

Investment in SS Company 315,000

Acquisition Expense 10,000

Full-Goodwill (Fair Value Basis)

Full-Goodwill (Fair Value Basis)

(E1) Common stock – S Co………………………………………… 240,000

Eliminate investment against allocated excess.

Liabilities and Stockholders’ Equity

(2) Retained earnings (acquisition-related expense - close to

(3) Paid-in capital in excess of 8,400

Liabilities and Stockholders’ Equity

Date of Acquisition – January 1, 20x4

Date of Acquisition – January 1, 20x4

2. Gain on acquisition, P66,000

Fair Value Basis (Full-goodwill Approach)

The full – goodwill of P3,960,000 consists of two parts:

Consideration transferred: Cash………………………..P 9,000,000 (75%)

Fair Value Basis (Full-goodwill Approach)

The full – goodwill of P2,040,000 consists of two parts:

Fair Value Basis (Full-goodwill Approach)

The full – goodwill of P480,000 consists of two parts:

The over/under valuation of assets and liabilities are summarized as follows:

 Incidentally, the non-controlling interest on the date of acquisition is computed as

The balance sheet:

Liabilities and Stockholders’ Equity

Fair value of Subsidiary (100%)

(2) Retained earnings (acquisition-related expense - close to

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:

 Incidentally, the non-controlling interest on the date of acquisition is computed as

The balance sheet;

Peer Company and Subsidiary

Liabilities and Stockholders’ Equity

The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. Over/Under

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:

The balance sheet:

Full-goodwill Approach (Fair Value Basis)

The balance sheet:

Liabilities and Stockholders’ Equity

Fair value of consideration given P 576,000

5 Investment in AA Corporation: Nothing would be reported; the balance in the

5 Investment in Slim Corporation: None would be reported;

Problem XVII (assuming that acquisition-related costs is treated as expenses)

1. Inventory = P670,000 (P's book value plus Sun's fair value)

5. 65 percent = 1.00 – (P90,650 / P259,000)

3. Adjustments on Craig books:

 Values are prior to acquisition (200 shares × P25 market value).

Problem XXII (Assume the use of Full-Goodwill Method)

1. Investment in Seely Company 570,000

2. Common Stock - Seely 80,000

 TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

Consolidation is required if a parent has a variable interest that will

2. Implied valuation and excess valuation for Softplus.

Multiple Choice Problems

4. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.

6. b – [P150,000 – (P173,000 – P40,000 – P5,000)]

If partial-goodwill, no answer available, computed as follows:

15. b – P135,000 = P90,000 + P45,000

20. a - The amount reported by Jonathan Corporation

24. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)

31 d P205,000 = The amount reported by Power Corporation

32 c P419,500 = (P150,000 + P205,000) + P64,500

46. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000