BUSINESSCOMBINATION

1.OnDecember2015,Ki
ll
uaLtd.acqui
redalltheassetsandl
i
abi
li
ti
esofGonLtd.wi
thKi
ll
uaLtd.i
ssui
ng
100,
000shar
estoacquir
ethesenetassets.Thefairval
ueofGonLtd.
’
sasset
sandli
abil
i
ti
esatthi
sdatewer
e:

Cash P50,000
FurnitureandFi tt
ings 20,000
Account sRecei vable 5,000
Plant 125,000
Account sPayabl e 15,000
CurrentTaxLi abil
ity 8,000
Provisionforannual l
eave 2,000
Thef i
nanci alyearf orKill
uaLtd.isJanuary-December .
Thef airvalueofeachKi l
luaLtd.shareatacqui si
ti
ondat eis1 .
90.Atacquisi
ti
ondat e,theacquirercoul
donly
determi neapr ovisi
onal f
airvaluefortheplant.OnMar ch1,201 6,Kil
luaLt
d.receivedt hef
inalval
uefrom t
he
i
ndependentappr aisal
,thefairvalueatacquisiti
ondatebei ngP1 31,000.Assumingt heplanthadaf urt
her
fi
veyearl i
fefrom t heacqui si
ti
ondat e.
Theamountofgoodwi l
lari
si
ngf rom thebusinesscombi nationatDecember1 ,2015?
a.P15,000 c.P5,000
b. 9,000 d. 0

ANSWER:B

Considerati
ontr ansf
err
ed(100,000x1.90) P1
90,000
Less:FairValueofnetident
ifi
abl
easset
sacqui
red
Cash P50,000
Furnit
ure&Fi tt
ings 20,000
AccountsRecei vable 5,000
Plant 131,000
AccountsPayabl e (15,000)
Currenttaxli
abili
ty (8,000)
Li
abili
ti
es (2,000) 1
81 ,000
Goodwi l
l P9,000

2.TheE.Vendi vel Companyacqui r

edthenetassetsoft
heVi
varCompanyonJanuar
y1,201
5andmadet
he
fol
l
owingent r
yt or ecordthepurchase:
CurrentAsset s………………………………………1 00,000
Equipment ……………………………………………1 50,000
Land……………………………………………………. .50,000
Buil
dings ……………………………………………….300,000
Goodwi l
l……………………………………………….1 00,000
Liabi
li
ti
es…………………………………. 80,000
CommonSt ock,P1par……………. 100,000
Paid-i
ncapital
inexcessofpar… 520,000

Assumi ngthattheaddi
ti
onalsharesonJanuar
y1 ,2017woul
dbei ssuedont hatdat
etocompensateforany
fal
li
nt hevalueofE.VendivelcommonstockbelowP1 6pershar
e,t heset
tl
ementwouldbet ocurethe
defi
ciencybyi ssui
ngaddedsharesbasedontheirfai
rval
uesonJanuar y1,2017.Thef
airpr
iceoftheshar
es
onJanuar y1,201 7wasP10.

Whatistheaddi
ti
onal
numberofshar
esi
ssuedonJanuar
y1,201
7tocompensat
eforanyf
all
int
heval
ueof
t
hestock?

a.P160,000 c.60,000
b.100,0000 d.10,000
ANSWER:C
Defi
ciency(16-1
0)x100,000sharesissuedt
oacqui
re……………………………….P600,000
Di
videdby:Fairval
ueoftheshare……………………………………………………… 10
Addit
ionalnumberofsharest
oissued………………………………………………….P60,000

3.XCompanyacqui resal
lofYCompanyi nanacqui si
ti
onpr oper
lyaccountedforasanassetacquisi
ti
on.X
i
ssues80,000sharesofcommonst ockwi t
haf airval
ueofP8, 000,000forY’snetasset
s.Thefairval
uesof
Y’
sassetsandl i
abi
l
it
iesapproximat
et hei
rbookval ues,exceptYhascustomerl i
stsval
uedatP3,000,000that
arenotreport
edonitsbalancesheet,anditsplantassetsareoverval
uedbyP5, 000,000.Herearethe
balancesheet
sofXandYpr iortot
heacqui si
ti
on:

XCompany YCompany

Asset
s P30,
000,
000 P1
0,000,
000

Li
abi
l
it
ies P1
6,000,
000 P 6,
000,
000

Commonst
ock,$1par 1
,000,
000 1
00,
000

Addi
ti
onal
pai
d-i
ncapi
tal 9,
000,
000 2,
900,
000

Ret
ainedear
nings 4,
000,
000 1
,000,
000

P30,
000,
000 P1
0,000,
000

Howmuchgoodwi
l
lisr
ecogni
zedf
ort
hisacqui
si
ti
on?

a. P 2,
000,000
b. P 3,
000,000
c. P 6,
000,
000
d. P11,
000,000

ANS: C

Cost P8,
000,
000
Fai
rvalueofnetasset
sacqui
red
Report
edassets P5,000,
000
Cust
omerl i
sts 3,000,
000
Li
abil
i
ti
es (
6,000,
000) 2,
000,
000
Goodwi l
l P6,
000,
000

4.Pacquir
esalloft
hevoti
ngsharesofSbyissui
ng500,000sharesofP1parcommonst ockvalued
atP10,
000,000.Incl
udedintheagreementi
saconti
ngencyguarant
eeingthefor
mershareholder
sof
SthatP'
sshareswill
beworthatleastP1
8pershareaf
teroneyear.I
fthesharesarewor
thless,Pwil
l
 paythefor
mershar
ehol
der sofSenoughcashtoreimburset
hem fort
hedecli
neinvaluebel
owP18
pershar
e.Pesti
matesthatther
eisa5% chancethatt
hestockval
uewi l
lbeP16attheendofone
year
,anda95% chancethatthest
ockval
uewi l
lbeP18pershareorhi
gher.Adiscountrat
eof10% i
s
appropr
iat
e.Whati
sthevalueofthest
ockpriceconti
ngencyatt
hedateofacquisi
ti
on?

a. P1,000,000
b. P 45,455
c. P 50,000
d. P 863,636

ANS: B

Rat
ional
e:[
(P1
8-P1
6)x500,
000]x.
05=P50,
000/
1.1
0=P45,
455

5.Ppur
chasedal
loftheoutst
andingshar
esofSforP1,
300,000atati
mewhent
heunder
lyi
ngbook
val
ueofSwasP1,200,000.S'sasset
sandli
abi
l
it
iesconsi
stoft
hefol
l
owing:

Fai
rval
ue Bookval
ue

Cash,r
ecei
vabl
es P250,
000 P250,
000

I
nvent
ory 360,
000 380,
000

Equi
pment 900,
000 600,
000

Li
abi
l
it
ies 30,
000 30,
000

Thegai
nonacqui
si
ti
oni
s:

a. P140,
000
b. P180,
000
c. P220,
000
d. P260,
000
ANS:B

Rat
ional
e:

Cost P1
,300,
000

Bookval
ue 1
,200,
000

Excessofcostoverbookval
ue P 1
00,
000

Excess

I
nvent
ory P(
20,
000)

Equi
pment 300,
000 280,
000

Gai
n P 1
80,
000

Forquest
ions6-
7:

PCompanyacquir
edall
ofthenetasset
sofSCompany.Thebal
ancesheetofSCompanyi
mmedi
atel
ypr
ior
t
otheacqui
si
ti
on,al
ongwit
hmar ketval
uesofi
tsasset
sandl
i
abi
l
it
ies
,isasfol
l
ows:

Account
s SCompany
bookvalue marketval
ue
Currentassets P 800, 000 P1 ,
000,000
Pl
ant&equi pment( net ) 28,000,000 35,000,000
Pat
ent s 100,000 2,000,000
I
dent i
fi
abl
eintangible:brandnames 0 13,000,000
Ski
ll
edwor kfor ce 0 4,
000,000
Goodwi l
l 200,000 700,000
Li
abili
ti
es 21,
000,000 20,000,000
Commonst ock,$1 0par 2,
000,000
Additi
onalpaid-incapital 3,
000,000
Retainedearnings 3,
100,000

6.PCompanypaysP40,000,000i
ncashforSCompany,i
nanacqui
si
ti
onpr
oper
lyr
epor
tedasa
st
atut
orymer
ger
.Pr ecordsgoodwi
ll
of:

a. P18,
000,
000
b. P17,
300,
000
c. P 9,
000,
000
d. P 4,
300,
000

ANS:C
Rat
ionale:P9,
000,
000=P40,
000,
000–(
P1,
000,
000+P35,
000,
000+P2,
000,
000+P1
3,000,
000-
P20,000,000)
.

7.NowassumePCompanypaysP30,000,
000incasht
oacquir
eSCompany,i
nanacqui
si
ti
onpr
oper
ly
repor
tedasast
atut
orymer
ger
.Precordsagai
nonacquisi
ti
onof:

a. Zero
b.P1,
000,
000
c.P1
,700,
000
 d.P5,
700,
000

ANS:B
Rat
ionale:P(1
,000,
000)=P30,
000,
000–(
P1,
000,
000+P35,
000,
000+P2,
000,
000+P1
3,000,
000-
P20,000,000)
.

8.BatsI nc,anewcor porati

onformedandor ganizedbecauseoftherecentconsoli
dati
onofIIInc,andJJInc.,
shallissue10% parti
cipati
ngprefer
redst ockswithaparvalueofP1 00forI
IandJJnetasset scontri
buti
on,
andcommons har
eswi thaparvalueofP50f orthedif
fer
encebet weenthetotal
sharestobeissuedandt he
prefer r
edsharedissued.Thetotalsharestobei ssuedbyBatsshallbeequival
enttoaverageannual ear
nings
capitali
zedat1 0%.RelevantdataonI IandJJf ol
lows:

I
I JJ

Tot
alasset
s P720,
000 P921
,600

Tot
all
i
abi
l
it
ies 432,
000 345,
600

Annual
ear
nings(
aver
age) 46,
080 69,
120

Thet
otal
pref
err
edshar
est
obei
ssuedandt
heamountofgoodwi
l
ltober
ecogni
zedbyBat
sar
e:

a. Pr
efer
redshar
es:8,
640 Goodwi
l
l:P288,
000

b. Pr
efer
redshar
es:5,
760 Goodwi
l
l:P288,
000

c. Pr
efer
redshar
es:2,
880 Goodwi
l
l:P864,
000

d. Pr
efer
redshar
es:7,
280 Goodwi
l
l:P864,
000

ANSWER:A

I
I JJ TOTAL

Aver
ageannual
ear
nings P46,
080 P69,
120 P1
15,
200

Di
vi
dedby:Capi
tal
i
zedat 1
0%

Tot
alst
ockt
obei
ssued P1
,152,
000

Goodwi
l
l(f
orCommonSt
ock) 864,
000

Pr
efer
redst
ock(
samewi
thNetAsset
s):

864,
000/
P100par 8,
640shar
es
9.Compani
esAandBdeci
det
o consol
i
dat
e.Assetandest
imat
edannual
ear
ningscont
ri
but
ionsar
eas
fol
lows:

Co.
A Co.B Co.
C

Netassetcont
ri
but
ion P300,
000 P400,
000 P700,
000

Est
imatedannual
ear
nings 50,
000 80,
000 1
30,
000
cont
ri
buti
on

Stockholdersofthetwocompaniesagreet hatasi
nglecl
assofstockbeissued,thatthei
rcont
ri
but i
onsbe
measur edbynetassetsplusal
lowancesf orgoodwi
ll
,andthat10% beconsideredasanor malrat
eofr et
urn.
Earningsinexcessofthenormalrat
eofr etur
nshall
becapital
i
zedat20% incal cul
ati
nggoodwill
.Itwasalso
agreedt hatauthor
izescapi
tal
stockofthenewcompanyshal l
be20,000shar eswithaparvalueofP1 00a
share.

Whati
samountofgoodwi
l
lcr
edi
tedt
oCo.A,andt
het
otal
cont
ri
but
ionofCo.
B(netasset
spl
usgoodwi
l
l)
”

a. P1
00,
000;P400,
000 c.P1
00,
000;P600,
000

b. P1
50,
000;
P500,
000 d.P200,
000;P600,
000

ANSWER:C

CompanyA CompanyB

NetAssetCont
ri
but
ion P300,
000 P400,
000

Add: P50,
000 P80,
000

Goodwi
l
lAver
age/
Annual
Ear
nings

Less:Nor
mal
Ear
nings(
10%ofnet 30,
000 40,
000
asset)

Excessear
nings P20,
000 P40,
000

Di
vi
dedby:Capi
tal
i
zedat 20% 20%

Goodwi
l
l P1
00,
000 P200,
000

Tot
alcont
ri
but
ion(
stockt
obe P400,
000 P600,
000
i
ssued

10.MalakasCompanyacqui redall
ofMagandaCor porat
ion'sasset
sandli
abil
i
ti
esonJanuary2,2013,i
na
busi
nesscombi nati
on.Atthatdate,Magandareport
edasset swithabookval
ueofP624,000andl i
abil
i
ti
esof
P356,000.Malakasnot edthatMagandahadP40, 000ofr esear
chanddevelopmentcostsoni
tsbooksatthe
acqui
sti
ondatet hatdidnotappeartobeofvalue.Malakasalsodetermi
nedthatpat
ent
sdevelopedby
Magandahadaf airval
ueofP1 20,000buthadnotbeenr ecordedbyMaganda.Exceptforbui
ldi
ngand
equi pment ,Mal akasdet erminedthef airval
ueofal lotherasset sandl i
abil
i
ti
esreportedbyMaganda
appr oximat edMal akasr ecordedamount s.Inr ecordingthet r
ansferofassetsandli
abili
tiestoitsbooks,
Mal akasr ecor dedgoodwi l
lofP93,000.Mal akaspai dP51 7,000toacqui reMaganda' sassetandl iabil
i
ti
es.
I
ft hebookval ueofMaganda' sbuil
dingsandequi pmentwasP341 ,
000att hedateofacqui sit
ion,whatwas
theirf airval ue?
a.P441 ,000
b.P41 7,000
c.P341 ,000
d.P41 7,000
Answer :B.
Sol ution
Comput ationofFai rValue
Amountpai d P517,000
BookVal ueofasset s P624,000
BookVal ueofl i
abi l
i
ties. ( 356,000)
BookVal ueofnetasset s. P268, 000
Adj ust mentf orRandDcost s.(40,000)
Adj ust edbookval ue. P228,000
Fairval ueofpat ent. 120,000
Goodwi l
lrecor ded. 93,000 ( 441,000)
Fairval uei ncrementof
buildingandequi pment P76,000
Bookval ueofbui ldingandEqui pment . 341 ,
000
FairVal ueofbui l
dingsandequi pment P41 7,000
11.Ri char dLt d.andLi wayLt d.aretwof amilyownedi cecr eam producingcompani esinPampanga.Ri char
d
Ltd.i sownedbyt heMel adfami l
y,whi l
etheBasi l
iofami l
yownsLi wayLt d.TheMeladf ami l
yhasonl yoneson.
andhei sengagedt obemar ri
edtothedaught erofBasi l
iof amil
y.Becauset hesoncur rentl
ymanagi ngLiway
Ltd. ,itispr oposedt hathebeal lowedt omanagebot hcompani esafterthewedding.Asar esult,i
tisagreed
byt het wof ami l
iest hatRichardandLt d.shouldt akeovert henetasset sofLiwayLt
d.

Thebal
ancesheetatLi
wayLt
d.i
mmedi
atel
ypr
iort
othet
akeoveri
sasf
oll
ows:

Car
ryi
ngAmount Fai
rVal
ue

Account srecei
vabl
e P20,000 P20, 000
I
nvent or
y 140,000 125, 000
Land 620,000 840, 000
Buil
dings( net
) 530,000 550, 000
Farm equipment(net) 360,000 364,000
I
rri
gationequipment(net
) 220,000 225,000
Vehicl
es( net) 160,000 1 72,000
Totalassets P2,050,000

Accountspayable P80,000 P80,000

Loan-Metrobank 480,000 480,
000
Sharecapital 670,000
Retai
nedear ni
ngs 820,000
Total P2,
050,000
Thet
akeoveragr
eementspeci
fi
edt
hef
oll
owi
ngdet
ail
s:

*Richar dLtd.i
stoacqui realltheasset sofLi wayLt d.andexceptoneoft hevehi cles( havi ngacar rying
amountofP45, 000andoff airvalueofP48, 000)andassumeal lt
hel i
abili
ti
esexceptf ort hel oanf rom
Met robank.LiwayLt d.isthent ogo,i ntoliquidati
on.
*CashatP20, 000,hal ftobepai dondat eofexchangeandhal finoneyear 'sti
me.Thei ncr ement al
borrowingr at
eis1 0% perannum ( presentval ueforP1at1 0% for1per i
odi s0.909091 ).
*Suppl yofapat entr el
atingtot hemanuf actur eoficecr eam.Thi shasaf ai
rval ueofP60, 000buthasnot
beenr ecognizedint her ecordsofLi wayLt d.becausei tresul
tedf rom ani nternall
ygener at edr esearch
project.
*Richar dLtd.i
stosuppl ysufficientcasht oenabl et hedebtt oMet robankt obepai df orandt ocovert he
l
iquidati
oncost sofP5, 500.itwi llal
sogi veP1 50.000t obedi str
ibutedt oMr .anMr s.Mel adt oassi st
si n
payingt heweddingcost s.
*Richar dLtd.i
salsot ogi veapi eceofi tsownpr i
mel andt oLi wayLt d.tobedi str
ibut edt oMrandMr s.Mel ad,
thi
sevent uall
ybeingavai l
ablet obegi vent oanyof f
spr i
ngoft hef orthcomi ngmar riage.Thepi eceofl andin
quest i
onhasacar ryingamountofP80, 000andaf airvalueofP220, 000.
*Richar dLtd.i
stoi ssue90, 000shar es,thesehavi ngaf airvalueofP1 4pershar e,t obedi str
ibutedvi aLiway
Ltd.tothesoont o-be- mar ri
ed- daught erofMr .andMr s.Melad,whoi scurrentlyashar ehol derinLi wayLt d.

Thet
akeoverproceededaspertheagr
eementwit
hRichar
dLt
d.i
ncur
ri
ngi
nci
dent
alacqui
si
ti
oncost
sof
P25,
000,whil
etherewereP18,000sharei
ssuecost
s.

Theamountofgoodwi
l
lor(
bar
gai
npur
chasegai
n):

a.P45. 682
b. 70, 682
c.1 18,682
d.P(109,818)
Answer :A
Soluti
on
Considerati
ont ransferr
ed:
Shares:(90.000xP1 4pershare) P1,260, 000
Cash:Payabl eNow 20, 000
Deferred(P20, 000x0. 909091 ) 18,182
Patent 60, 000
Cash( toMet robank) 480, 000
Li
quidationcost s 5,500
Weddi ngcost s 1 50,000
Land 220, 000 P2,
213,
682
Less:Fairvalueofneti denti
fi
ableasset
sacqui r
ed.
Account sreceivable P20, 000
I
nvent ory 125, 000
Land 840, 000
Buil
dings 550, 000
Farm equipment 364, 000
I
rri
gationequi pment 225, 000
Vehicl
es(P1 72,000-P480, 000) 124,000
Account spayabl e (
80, 000) 2,1
68,
000
Goodwi ll P45,
682
12.TheBoyGeor ge,Companyacquiredt
henetasset
soft
heGi
rlConr
adCompanyonJanuar
y1,201
5,and
madet hefoll
owi ngentrytorecor
dthepurchase:
CurrentAssets100,000
Equipment1 50, 000
Land50, 000
Buil
dings300, 000
Goodwi l
l100,000
Li
abili
ti
es80,000
Commonst ock,P1par1 00.000
Paidincapit
al i
nexcessatpar520, 000

Assumingt hataddit
ionalshar
esonJanuar
y1,2017wouldbei
ssuedonthatdatetocompensat
ef oranyfal
l
i
ntheval ueatBoyGeor gecommonstockbel
owP1 6pershar
e.Theset
tl
ementwoul dbet
ocuret he
defi
ciencybyi ssui
ngaddedsharesbasedonthei
rfai
rval
ueonJanuar
y1,2017.Thefai
rpr
iceoftheshares
onJanuar y1,201 7wasP1 0.

Whatistheaddi
ti
onal
numberofshar
esi
ssuedonJanuar
y1,201
7tocompensat
eforanyf
all
int
heval
ueat
t
hestock?

a.160,000
b.100,000
c.60,000
d.10,000
Answer :C
Soluti
on
Defici
ency:(P16-P10)x100,
000sharesi
ssuedt
oacqui
re P600,000
Divi
dedby:fairval
ueofshare P10
Additi
onalnumberofsharestoi
ssued 60,000

Anotherexampleatconti
ngenciesi
swher
etheacqui
reri
ssuestotheacqui
reeandtheacquir
eeis
concernedthatt
heissueoftheseshar
esmaymakethemarketpri
ceattheacqui
rer’
ssharesdecl
i
neover
ti
me.

Theref
oret
heacquir
ermayof
feraddi
ti
onal
cashorshar
esi
fthemar
ketpr
icef
all
sbel
owspeci
fi
edamount
overaspeci
fi
cperi
odoft
ime.

13.Fayacqui r
esasset sandl i
abi
li
ti
esofMayCompanyonJanuar y1 ,
2016.Toobt ai
ntheseshar es,Faypays
P400,000 andi ssues1 0,
000shar esofP20parval uecommonst ockont hisdate.Fay'sstockhadaf air
valueofP36pershar eont hatdate.FayalsopaysP1 5,000t oalocal i
nvestmentfir
mf orarrangi
ngt he
tr
ansacti
on.Anaddi t
ionalP10,000waspai dbyFayi nst ockissuancecosts.
Thebookval uesf orbothFayandMayasofJanuar y1 ,2016f ol
l
ow.Thef airvalueofeachofFayandMay
accoubtsisalsoincluded.Inaddit
ion,Mayhol dsafull
yamor ti
zedtrademar kthatst
il
lret
ainsP40,000val ue.
Thef i
guresbelowar einthousands.Anyr elatedquestionsal sointhousands.
MayCompany
Fay,Inc. BookVal ue Fai rVal ue
Cash P900 P80 P80
Receivables 480 180 160
I
nventory 660 260 300
Land 300 120 1 30
Buil
dings(net) 1,
200 220 280
Equipment (
net) 360 100 75
Account sPayable 480 60 60
Long- t
erml i
abil
it
ies 1,1
40 340 300
CommonSt ock 1,200 80
Retainedear ni
ngs 1,
080 480
Assumi ngthecombi nati
onisaccountedf
orasanacqusi
ti
on,i
mmedi
atel
yaf
tert
heacqui
si
ti
on,i
nthebal
ance
sheetofFay:
Whatamountwi l
lbereport
edf orgoodwi
l
l?
a.P55 c.P70
b.65 d.135

Answer :A.
ConsiderationTransferred:
Cash P400
Shares( 10,
000x36) 360
Total P760
Less:Fairvalueofneti den.asset
sacquired
Cash P80
Receivables 160
I
nvent ory 300
Land 130
Buil
dings(net) 280
Equipment (
net) 75
Trademar k 40
Account sPayable (60)
Long- ter
ml i
abil
i
ties (300) 705
Goodwi ll P55

1
4.Usingthesamei
nformat
ioni
nNo.1
,whatamountwi
l
lber
epor
tedf
orr
etai
nedear
nings?
a.P1,
065 c.P1
,525
b.1 ,
080 d.1,560

Answer :A.
Acquirer-Fay(atbookval
ue) P1,
080
Less:Acquisi
ti
on-r
elat
edcosts 1
5
Acquiree-May( notacqui
red) 0
Retai
nedEar ni
ngs P1
,065

1
5.Usi
ngthesamei
nfor
mati
oni
nNo.1
,whatamountwi
l
lber
epor
tedf
orcashaf
tert
hepur
chaset
ransact
ion?
a.P980 c.P875
b.P900 d.P555

Answer :D.
Acquirer-Fay( atbookval ue) P900
Less:Cashpai dt oacqui r
enetasset
sofMay 400
Acqui sit
ion- r
elat
edcosts 1 5
St ockissuancecost s 1
0
Acquiree-May( fai
rvalue) 80
Cash P555

16.
Vil
lenaCompanyi ssuedit
scommonst ockforthenetasset
sofWynonaCompanyi nabusiness
combinati
ontreatedasanacquisi
ti
on.Vi
l
lena'
scommonst ockissuedwaswort
hP1 ,
500,000.Att hedat
eof
combinati
on,Vil
lena'
snetasset
shadabookval ueofP1 ,600,
000andaf ai
rval
ueofP2, 000,
000;Wynona's
netasset
shadabookval ueofP950,000andaf airval
ueofP1 ,100,
000.I
mmediat
elyfol
lowi
ngt he
combi
nat
ion,t
henetasset
soft
hecombi
nedcompanys
houl
dhavebeenr
epor
tedatwhatamount
?

a.P3,
500,
000 b.P3,
100,
000 c.P4,
200,
000 d.P2,
550,
000

Answer
:b.P3,
100,
000

Sol
uti
on:

Acqui
si
ti
onCost P1
,500,
000

Less:Fai
rVal
ueofI
dent
if
iabl
e

Asset
sAcqui
red 1
,100,
000

Goodwi
l
l P400,
000

Vi
l
lena'
sNetAs
set
satBookVal
ue 1
,600,
000

Wynona'
sNetAsset
satFai
rVal
ue 1
,100,
000

Tot
alAsset
sAf
terCombi
nat
ion P3,
100,
000

17.OnJuly1 ,2014,TrenceCompanyacqui redthenetasset

softheYasserCompanyf orapri
ceofP
42,000,000.Attheacquisit
iondat et
hecarryingval
ueofYasser'
snetassetwasP35,000,000.Atthe
acquisi
ti
ondat eaprovisi
onal f
airval
ueofthenetassetswasP37, 000,
000.Anaddit
ionalval
uati
onrecei
ved
onApr i
l30,201 5i
ncreasedt heprovisi
onalvaluet
oP38, 500,
000andonJul y31
,201 5thi
sfai
rvaluewas
fi
nali
zedatP40, 000,000.

Whatamountshoul
dTr
enceCompanypr
esentt
hegoodwi
l
lini
tsst
atementoff
inanci
alposi
ti
onat
December31,2015?

a.P2,
000,
000 b.P7,
000,
000 c.P3,
500,
000 d.P5,
000,
000

Answer
:c.P3,
500,
000

Sol
uti
on:

Acqui
si
ti
onCost P42,
000,
000

Fai
rVal
ueofI
dent
if
iabl
eAsset
s

Acqui
red 38,
500,
000

Goodwi
l
l P3,
500,
000

I
tems1
8-1
9ar
ebasedont
hef
oll
owi
ngdat
a:

Stat
ementoff
inanci
alposit
ionposi
ti
onref
lect
inguni
for
m account
ingpr
ocedur
esl
,aswellasf
air
eval
uet
hat
aretobeusedasbasisofthecombinati
onareprepar
edonSeptember1,2016asf
oll
ows:

CompanyAceCompanyBeeCompanyCi
dAsset
s
P5,250,
000P6,800,
000P900,000Liabil
it
iesP3,900,000P2,600,000P480,000Capit
alst
ock,al
lP15par
1,
900,0001,
400,000475,000Additi
onalpaid-
incapital400,00040,000Ret
ainedearni
ngs(
defi
cit
)(450,
000)
2,
400,000(
95,000)Tot
alequit
iesP5,250,
000P6, 800,000P900,000

AceCompanyshar
eshaveamar
ketval
ueofP22pershar
e.Mar
ketval
uesi
snotavai
l
abl
eforshar
esofBee
CompanyandCidCompany.

OnSeptember1,2016AceCompanyacquir
esalloftheasset
sandassumest hel
iabi
l
it
yofBeeCompanyand
CidCompanybyissui
ngP200,000shar
esofit
sstocktoBeeCompanyandpai d29,000sharesofi
tsst
ockt
o
CidCompany.AceCompanypaysP1 0,
000forregi
ster
ingandissui
ngsecur
it
iesandP20,000forot
her
acqui
si
ti
oncostscombinat
ion.

1
8.Whati
sthegoodwi
l
ltober
ecor
dedAceCompanyonSept
ember1
,201
6?

a.P448,
000
b.P220,
000
c.P400,
000
d.P418,
000

19.Whati
sthetot
alst
ockhol
der
sequi
tyi
nthecombi
nedst
atementoff
inanci
alposi
ti
onaf
tercombi
nat
ionon
Sept
ember1,2016?

a.P6,
488,
000
b.P3,
252,
000
c.P6,
468,
000
d.P6,
458,
000

Sol
uti
on#1
8

Answer
:D

BeeCompany
Pr
icepaid P4,
400,000
Netassets. 4,200,
000
Goodwill P 200,
000

CidCompany
Pri
cepaid P638,
000
Netassets 420,
000
Goodwi l
l. P218,
000
Totalgoodwill P418,
000

Sol
uti
on#1
9

Answer
:A
TotalEquity P1
,450,000
Additi
onal shareissuance 3,435,000
Additi
onal paid-i
ncapi t
al. 1,603,000
Registeri
ngandi ssui
ngfee. (10,000)
Otheracqui si
tioncosts. (
20,000)
Totalstockholdersequity P6,458,000

20.Thestat
ementoffinanci
alposi
ti
onofB.o.B.CompanyasofDecember31 ,2013isasfol
l
ows:
Assets Liabil
it
iesandShar eholder
’sEqui
ty
Cash 175,000 Cur r
entLi abi
li
ti
es 250,000
AccountsReceivabl
e 250,000 Mor tgagepayabl e 450,000
I
nventory 725,000 Or di
nar yShareCapital200,000
Propert
y,pl
antandequipment950,000 Shar ePr emium 400,000
2,100,000 Accumul atedProf
it
s 800, 000
2,1
00,000

OnDecember31 ,201 3theTaylorSwi f

tInc.boughtal
loftheout st
andi
ngshar esofB.o.
B.Companyf orP
1,800,000cash.Ont hedateofacqui sit
ion,t
hefairmarketvalueofB.o.B.
’
sinventori
eswasP675, 000,whi
l
e
t
hef airval
ueofB.o.B.’
sproperty,plantequipmentwasP1 ,
100,000.Thefairvalueofal
lot
herassetsand
l
iabil
i
ti
esofB.o.B.wer eequaltot hei
rbookvalues.Inaddit
ion,notincl
udedabovewer ecostsi
n-process
r
esear chanddevelopmentofB. o.BCompanyamount i
ngt oP1 00,000.

Goodwi
l
lamount
edt
o:

a.P400,
000 b.P300,
000 c.P200,
000 d.P-
0-

Ans.C
Considerati
onTr ansferr
ed P1
,800,
000
BookVal ueofNetAsset s:
OrdinaryShar eCapital P200,
000
SharePr emium P400,
000
Accumul atedPr of
it
s( P800k+P1
00k) P900,
000
Al
locableexcess P300,
000
I
ncrease/Decr easeinassets:
I
nvent or
y( 675k-725k) P50,000
P.P.
E( 1100k- P950K) (P1
50,000)
P200,000

21.BrunoMar sCompanyacquir
edBi
ll
boar
dCompany’snetasset
sbyi
ssui
ngit
sownP14parval
ueor
dinar
y
sharestotali
ng50,000shar
esatmar
ketpr
iceofP1
4.55.BrunoMarsCompanyhadt
hef
oll
owing
expendituresincur
red:

Fi
nder ’
sf eepaid P50,000
Pre-acqui si
ti
onauditfee, 40,
000
30% waspai d
General admi ni
str
ati
ve 1
5,000
cost
s
Docst amppai don 3,
500
i
ssuancef orthe
combinat ion
Legalfeesf orthe 32,
000
combinat ionpaid
Auditfeesf orSEC 46,
000
 regi
strationofshareissue
SECr egi st
rat
ionforthe 1
0,000
shareissuepai d
Sharei ssuancecostspaid 1
0,000
(i
nclusiveoftaxespai d)
sOtheri ndi
rectcostspaid 1
6,000

Thet
otal
amountdebi
tedt
oexpenseshoul
dbe

a.P1
53,
000 b.P1
56,
500 c.P1
95,
000 d.P1
91,
500

Ans.D

Finder ’
sf eepaid P50,000
Pre- acqui si
ti
onauditfee, 40,
000
30% waspai d
Docst amppai don 3,
500
i
ssuancef orthe
combi nat ion
Legal feesf orthe 32,
000
combi nat ionpaid
Audi tfeesf orSEC 46,
000
registrationofshar eissue
SECr egi strat
ionfort
he 1
0,000
sharei ssuepai d
Shar ei ssuancecost spaid 10,
000
(i
nclusi veoft axespaid) P191,
500

22.On1December2015,Casi
oLtd.acqui
redallt
heass et
sandli
abi
li
ti
esofAuror
aLtd.Wit
hCasi
oLt d.
I
ssui
ng100,000shar
estoacquir
ethesenetassets.Thefai
rval
ueofAuror
aLtd.’
sasset
sandl
i
abil
it
iesatt
his
dat
ewere:

Cash P50,000
Furnitureandf i
tt
ings 20,000
Account sr ecei
vable 5,000
Pl
ant 125,000
Account spayabl e 15,000
Currentt axli
abi
li
ty 8,000
Provisionforannual l
eave 2,000

Thef
inanci
alyearf
orCasi
oLt
d.i
sJanuar
y–December
.

Thef ai
rval
ueofeachCasi oLt d.Shar eatacqui
si
ti
ondateisP1
.90.Atacquisi
ti
ondate,theacquirercoul
d
onlydetermineaprovisionalfairval
uef orthepl
ant.On1March2016,CasioLtd.recei
vedt hefi
nalval
uefrom
theindependentappraisal,t
hef airvalueatacqui
si
tiondat
ebei
ngP1 31,000.Assumingt heplanthadfur
ther
fi
ve-yearli
fefrom t
heacqui si
tiondat e.

Theamountofgoodwi
l
lar
isi
ngf
rom t
hebusi
nesscombi
nat
ionofDecember1
,201
5:
a.P15,000
b.P9,000
c.P5,000
d.0

Ans:B
Sol
uti
on:
Considerati
ont r
ansferred(100,000sharesxP1.90) P1
90,000
Less:fai
rvalueofneti dentif
iabl
easset
sacqui
red:
Cash P50,000
Furnit
ureandf it
ti
ngs 2,000
Accountsr ecei
vable 5,000
Plant 131,000
Accountspayabl e (15,000)
Currenttaxli
abili
ty (8,000)
Li
abili
ti
es (2,000) 181
,000
Goodwi l
l P9,000

Oneofthepr obl
emsthatmayari
seinmeasur
ingt
heassetsandli
abil
i
ti
esoftheacqui
reei
sthatt
heini
ti
al
accounti
ngf orthebusi
nesscombi
nati
onmaybeincompletebytheendoftherepor
ti
ngperi
od.Forexampl
e,
theacquisi
ti
ondat emaybeAugust18andtheendofr
epor t
ingper
iodmaybeAugust31 .

Inthi
ssituati
on,i
naccordancewit
hpar.45,t
heacquirermustrepor
tprovi
si
onalamountsi
nit
sfinanci
al
stat
ement s.Theprovi
si
onalamountswil
lbebestest
imatesandwill
needtobeadjustedt
ofai
rvalueswhen
thoseamount scanbedet er
minedaft
ertheendofthereport
ingperi
od.Themeasurementper
iodinwhich
theadjustmentscanbemadecannotexceedoneyearaf t
ert
heacquisi
ti
ondate.

Thecarryi
ngamountoft
hepl
antmustbecal
cul
atedasi
fit
sfai
rval
ueatt
heacqui
si
ti
ondat
ehasbeen
recogni
zedfr
om t
hatdat
e,wi
thanadj
ustmentt
ogoodwil
l
.

I
fthepl
anthada5- yearl
i
fefrom t
heacqui
si
ti
ondat
es.Casi
oLt
d.woul
dhavechargeddepreci
ati
onf
or1
monthi
n201 5.Ext
radepreci
ati
onofP100bei
ngP6,000÷5yearsx1/
12i
srequi
redin2016.

Theadj ust
ingentr
yatMarch1,2016is:
(Adjustmentforpr
ovi
si
onalaccount
ing)
Plant6,000
Goodwi ll
6,000

(Adjustmenttodepreci
ati
onduet
opr
ovi
si
onal
account
ing)
Retainedearnings,1
/1/
16100
Accumul at
eddepr eci
ati
on100

I
fdepr
eci
ati
onhasbeencal
cul
atedmont
hlyf
or201
6,f
urt
heradj
ust
ment
swoul
dber
equi
red.

23.JaneLtd.
,asuppli
erofsnookerequi
pment,agr
eedt
obeacqui
ret
hebusi
nessofar
ival
fir
m,Mer
cyLt
d.
taki
ngoveral
lasset
sandliabi
l
it
iesasat1June2016.

Thepr
iceagr
eeduponwasP40,000,payabl
eP20,000cashandthebal
ancebythei
ssuet
othesell
ing
companyofP16,000f
ull
ypai
dshar
edinJaneLt
d.theseshar
eshavi
ngafai
rval
ueofP2.5pershar
e.

Thet
ri
albal
ancesoft
het
wocompani
esasat1June201
6wer
easf
oll
ows(
int
housandpeso)
:

JaneLt
d. Mer
cyLt
d.
Dr
. Cr. Dr. Cr.
Sharecapit
al P1
00 P90
Retai
nedear ni
ngs 1
2 P24
Accountspayable 2 20
Cash P30 -
Pl
ant(net) 50 30
I
nventor
y 14 26
Accountsrecei
vable 8 20
Governmentbonds 12 -
Goodwill - 10
 P1
14 P1
14P1
10 P1
10

Al
lt
hei
dent
if
iabl
enetasset
sofMer
cyLtd.wererecordedbyMercyLtd.atfai
rval
ueexceptfort
heinvent
ory
whi
chwasconsi
der
edtobeworthP28,000.Theplanthadanexpect
edr emaini
ngli
feoff
iveyears.

Thebusinesscombi
nationwascompletedandMer cyLt
d.wentint
oli
qui
dat
ion.Costofl
i
quidat
ionamount
ed
toP1,000.JaneLt
d.incurr
edinci
dent
al cost
sofP500.Costofi
ssui
ngshar
esinJaneLtd.wereP400.

Theamountofgoodwi
l
l:

a.P0
b.P2,000
c.P2,900
d.P3,900

Ans.:
B
Sol
uti
on:

Consi
derat
iontransf
err
ed:
Cash P20,000
Shares:
16,000sharesxP2.
50 40,000 P60,000

Less:f
airval
ueofnetident
if
iabl
easset
sacqui
red:
Plant 30,000
Invent
ory 28,000
Accountsrecei
vable 5,000
Plant 20,000
Accountspayable (
20,000) 58,000
Goodwill P2,000

Itshouldbenot edthatacqui siti

on-rel
atedcostsisnotthesamewi t
hliqui
dati
on-rel
atedcost sevent houghthe
consequenceofacqui siti
onisl i
quidat
ionoftheacquiree.Anycost sofli
quidat
ionorofsimi l
aritem paidor
suppli
edbyt heacqui rershoul dbepar toftheconsiderat
iontransf
erredforreasonthatitwasi ntendedto
compl etetheprocessofl iquidati
on.Ther easonforsuchinclusi
onisthattheconsiderati
onrecei vedfrom t
he
acquirermaybeusedt opayf orli
abil
i
ti
esnotassumedbyt heacqui r
erandf orli
qui
dationexpenseswhi chis
tantamountforunr ecordedl i
abili
ti
esfrom li
quidat
ionpointofview.Theseitemsshouldnotbeconf usedwith
acquisit
ion-r
elatedcostsasnot edear l
ierwhichareconsider
edout ri
ghtexpenses.Further,anyl i
quidati
on
costsorsimilarit
em whi chwasnotoft hesamesi t
uati
onasment i
onedaboveshoul dbet reatedasexpenses.

Wheni tl
i
quidates,cost sofli
quidat
ionpaidbyt heacquir
eeshouldbefort
heaccountoft
heacquireandwi
ll
beeventual
lytransferredtostockholders
’ equi
tyaccount.Thi
spaymentmadeshoul
dconsider
edexpenses
bytheacquireeinthepr ocessofli
quidat
ionnotunli
kepaymentsuppli
edandmadebyt heacquir
erwhichi
s
i
ntendedforanyunr ecordedexpenses .

Fait
hCompanyisacqui
ri
ngt
henetassetsofLoveCompanyf
oranagr
eeduponpr
iceofP1
000,
000on
Apri
l1,
201
4.Theval
uewastent
ati
vel
yassi
gnedasfol
l
ows:

CurrentAsset
s P100,000
Land 70,000
Equipment-5yearli
fe 300, 000
Buil
ding-20yearl
if
e 500,000
CurrentLi
abil
i
ti
es (200, 000)
Goodwi l
l 230, 000

Val
ueswer
esubjectt
ochangedur
ingthemeasur ementper
iod.Depr
eci
ati
oni
stakentothenear
est
mont
h.The measur
ementper
iod expi
red on Apri
l1,2015 atwhi
ch ti
me t
he fai
rval
ue ofthe
 equipmentandbuil
dingasofacquisi
ti
ondat
ewer erevi
sedto280,
000and600,
000,r
espect
ivel
y.
24.
Howmucht ot
aldepreci
ationexpensewil
lber
ecordedfor2015.
a. 85,000
b. 86,000
c. 83,500
d. 86,500

Ans.B
Equipment280,
000/556,
000
Bui
lding600,
000/20 30,
000
86,
000
25.
Howmuchgoodwi
l
lispr
esent
edi
n201
5st
atementoff
inanci
alposi
ti
on?
a. 230,
000
b. 180,
000
c. 150,
000
d. 200,
000

Ans.C
Agreedpr i
ce 1
,000,
000
Less:fai
rvalueofnetasset
s
(1
,050,000-200,000) 850,
000
150,
000

26.West portLtd.asupli
erofsnookerequipment,agreedt oacquirethebusinessofar ival
fir
m,ManukauLtd.
taki
ngoveral lasset
sandl i
abi
li
ti
esasat1 June20x4.
Thepriceagr eeduponwasP40, 000,payableP20,000cashandt hebalancebyt heissuetot hesel
l
ing
companyofP1 6,
000f ul
l
ypaidsharesinWest por
tLtd.theseshareshavi ngafairval
ueofP2. 50pershare.
Thetri
albalancesoft hetwocompani esaaat1June20x4wer easf ol
lows:
WestportLtd ManukauLt d.

Shar
ecapi
tal P1
00,
000 P90,
000
Ret
ainedear
ning 1
2,000 P24,
000
Account
spayabl
es 2,
000 20,
000
Cash P30,
000 -
Pl
ant 50,
000 30,
000
I
nvent
ory 14,
000 26,
000
Account
srecei
vabl
e 8,
000 20,
000
Gover
nmentbonds 1
2,000 -
Goodwi
l
l -
--- 1
0,000
P1
14,
000 P1
14,
000 P110,
000 P1
10,
000

All
theidenti
fi
abl
enetassetsofManukauLtd.wererecordedbymanukauLt d.Atf
airval
ueexceptforthe
i
nventorywhichwasconsideredtobewort
hP28, 000.Theplanthadanexpect edremaini
nglif
eoffiveyear
s.
Thebusinesscombinat
ionwascompl et
edandManukauLt d.wentintoli
quidati
on.WestportLt
d.I
ncur r
ed
i
ncidental
costsofP500inrel
ationt
otheacquisi
ti
oncost.CostofissuingsharesinWesportLtd.wereP400.
Theamountofgoodwi l
lto:

A.Nil
orzero
B.P2,509
C.P2,900
D.P3,900
ANSWER:B

Costofinvest
ment{ 20,
000+( 16,000
P60,
500
sharesxP2.50)+500i ncidentalcost
}
Less:marktvalueofnetassetsacquired: P30, 000
Pl
ant 28,000
I
nventory 5,
000
Accountrecei
vable 20,000
Pl
ant (20,000)
Accountspayable 58,
000
Goodwi l
l P2,
500

27.Bat sI
nc.,anewcor por ati
onf ormedandor ganizedbecauseoft her ecentconsol
idati
onofIIInc.andJJ
I
nc.,shalli
ssue1 0% par t
ici
pat i
ngpr ef
erredstockswi thaparvalueofP1 00foral
lI
IandJJnetasset s
contri
buti
ons,andcommonshar eswithaparval ueofP50f ort
hedifferencebetweent hetot
al sharest
obe
i
ssuedandt hepref feredshar edt obeissued.Thet otals
harestobei ssuedbyBat sshallbeequi val
entt
o
averageannual ear ningscapi tal
izedat10%.Rel evantdataonI IandJJf oll
ows:
I
I JJ
Totalasset
s...
..
..
....
....
...
..
...
...
..
..
...
... P720, 000 P921 ,
600
Totall
iabi
li
ti
es..
..
....
....
...
..
...
...
..
..
...
.. 432, 000 345,600
Annual ear
nings( aver age)...
..
...
..
..46,080 69,120
Thetotalpreferr
edshar est obei ssuedandt heamountofgoodwi ll
tober ecogni
zedbyBat sare:

A.Pr
efer
redshar
es:8,
640 Goodwi
l
l:P288,
000
B.Pr
efer
redshar
es:5,
760 Goodwi
l
l:P288,
000
C.Pr
efer
redshar
es:2,
880 Goodwi
ll
:P864,
000
D.Pr
efer
redshar
es:7,
280 Goodwi
l
l:P864,
000

ANSWER:A

I
I JJ Total
Averageannualar ni
ngs P46,080 P69,
120 P1 15,200
Divi
dedby:capitali
zedat 10%
Totalst
ocktobei ssued P1,
152, 000
Less:netasset
s( f
orP/S) 864,000
Goodwi l
l(f
orcommon
P288,
000
st
ock)
Preferr
edstock(samewi th
Netassets):
864,000/100 8,
640shar
es

28.Cor
morantCorpor
atl
onpaid800,
000fora40% I
nter
esti
nPl
umageCompanyonJanuar
y1,2005when
Pl
umage'sst
ockhol
der'
sequi
tywasasfol
l
ows:

10% cumulativepreferr
edstock,$1
00par S500,000
Commonst ock,$10parvalue S300,000
Otherpaid-I
ncapi t
al S400,000
Retai
nedear nings S800,
000
Total
stockholders’equi
ty S2,000,000

Onthi
sdat
e,t
hebookvaluesofPl
umage'sasset
sandl
i
abi
l
it
iesequal
edt
hei
rfai
rval
uesandt
her
ewer
eno
di
vi
dendsI
nar
rear
s.Goodwil
lfr
om t
hei
nvest
mentis
a.S0.
b.150,
000.
c.200,
000.
d.Noneoft
heabovel
scor
rect
.

Answer
:d

CostofCor mor ant

'sinvestment
: $800,000
Less:bookval ueacquired:
Totalequit
y $2, 000,000
Less:Preferr
edequi ty $500,000
Netcommonequi ty $1,500,000
xpercentacqui red 40%
=Plumagebookval ue $600, 000 $600,000
Goodwi l
l $200,000
29.OnFebr uary5,Pr yorCorporat
ionpaid$1 ,600,000forallt
heissuedandoutst
andi
ngcommonstockof
Shaw,I nc.,i
nat r
ansactionproperl
yaccount edf orasanacqui si
ti
on. Thebookval
uesandf
airval
uesof
Shaw' sassetsandliabil
i
ti
esonFebr uary5wer easf ol
lows:

BookValue Fai
rValue
Cash $160,000 $160,000
Recei
vables(
net) 180,
000 180,
000
I
nventor
y 315,
000 300,000
Pl
antandequipment(
net
)820,000 920,000

Li
abi
li
ti
es (350,000) (350,
000)
Netasset
s $1,1
25,000 $1,21
0,000

Whati
stheamountofgoodwi
l
lresul
ti
ngf
rom t
hebusi
nesscombi
nat
ion?

a)$-0-.
b)$475,000.
c)$85,000.
d)$390,000.

Answer
:d

FVofconsider
ati
ontr
ansf
err
ed $1,
600,000
Less:FVofNetAsset
s $1
,210,000
Goodwill $390,000

OnJanuar
y1,20x5,t
hef
airval
uesofCr
ème’
snetasset
swer
easf
oll
ows:

CurrentAsset P1
00,
000
Equipment 150,
000
Land 50,
000
Buil
dings 300,
000
Li
abili
ti
es 80,
000
30.OnJanuar y1 ,20x5,Br ul
eeCompanypur chasedt henetasset soft heCr èmeCompanybyi ssuing
100,
000shar esofit
sP1parvaluestockwhenthefai
rvalueoft hestockwasP6. 20.Itwasfur
theragreedthat
Brul
eewouldpayanaddi ti
onalamountonJanuary1,20x7,iftheaverageincomedur i
ngthe2-yearperiodof
20x5-20x6 exceeded P80,000 peryear
.The expect ed value ofthi
s considerati
on was calcul
ated as
P184,000;t
hemeasur ementper i
odisoneyear.Whatamountwi llberecordedasgoodwi llonJanuar y1,
20x5?
a.Zero c.P180,000
b.P100,000 d.P284,000

Ans:d

Consi
derati
ont r
ansferr
ed
Shar es:(100,000sharesxP6.20) P620,
000 Cont
ingent
consi
derati
on 1
84,
000
Total P804,
000
Less: Curr entAssets(atf
airval
ues) P1
00,
000
Equi pment 150,
000
Land 50,
000
Buildings 300,
000
Liabili
ti
es ( 80,
000) 520,
000
Goodwil
l P284,
000

31.OnJul y1,20x5TheSt rawCompanyacqui red1 00% oftheBerryCompanyf oraconsi

derat
iontr
ansf er
red
ofP1 60Mi l
l
ion.Attheacquisit
iondatethecar r
yingamountofBer ry’snetassetswasP1 00Mi l
l
ion.Att he
acquisit
iondateapr ovi
si
onal f
airval
ueofP120Mi ll
ionwasat t
ri
but
edtot henetasset
s.Anaddit
ionalvaluat
ion
recei
vedonMay31 ,20x6increasedthi
sprovisi
onalfai
rtoP1 35Mil
lionandonJul y30,20x6t hi
sfairvalue
wasf inali
zedatP1 40Mi ll
i
on.Whatamountshoul dStr
aw presentf
orgoodwi l
lini
tsstat
ementoff inancial
posit
iononDecember31 ,20x6,accordi
ngtoPFRS3Busi nessCombinations?
a.P20mi l
li
on c.P50mi ll
ion
b.P25mi l
li
on d.P60mi l
l
ion

Ans:b

Consi
derati
ont
ransf
erred P160mi
l
li
on
Fai
rValueonMay31 ,20x6 1
35mil
li
on
Goodwill P25mil
l
ion

32.HazelCor
p.wasmer gedint
oSebasti
anCor
p.i
nacombinat
ionpr
oper
lyaccount
edf
orasacqui
si
ti
onof
i
nterest
.Thei
rcondensedsheet
sbefor
ethecombi
nat
ionshow:

Sebast
ian Hazel

Cur
rentasset
s…………………………………………….
. P1
,144,
000 P 81
3,800

Pl
antandequi
pment
,net
……………………………….
.. 2,
327,
000 520,
000

Pat
ent
s…………………………………………………….
. - 1
30,
000
 Tot
alasset
s……………………………………………….
. P3,
471
,000 P1
,463,
800

Li
abi
l
it
ies………………………………………………….
.. P1
,352,
000 P 85,
800

Capi
tal
stock,parP1
00………………………………….
. 1
,300,
000 650,
000

Addi
ti
onal
pai
d-i
ncapi
tal
……………………………….
. 1
95,
000 1
95,
000

Ret
ainedear
nings…………………………………….
..
..
. 624,
000 533,
000

Tot
alLi
abi
l
it
iesandEqui
ty………………………………. P3,
471
,000 P1
,463,
800

Peri
ndependentappr ai
ser
’srepor
t,Hazel’
sassetshavefai
rmar ketval
uesofP826,800f orcurr
entasset
s,
P624,000forplantandequipmentandP1 69,000f orpat
ents.Hazel’
sli
abil
it
iesarepr
operlyval
ued.
Sebast
ianpurchasesHazel’
snetassetsforP1,534,000.Howshoul dthediff
erencebetweenthebookvalue
ofHazel’
snetassetsandtheconsider
ati
onpaidbySebast i
anbeconsi dered?

a. Goodwi
l
l:P 0;I
ncr
easei
nAsset
s:P1
56,
000

b. Goodwi
l
l:P 0;I
ncr
easei
nAsset
s:P31
2,000

c. Goodwi
l
l:P1
69,
000;I
ncr
easei
nAsset
s:P1
56,
000

d. Goodwi
l
l:P1
69,
000;I
ncr
easei
nAsset
s:P 78,
000

ANSWER:(
a)

Consi
der
ati
ont
ransf
err
ed……………….
.. P1
,534,
000

Less:Mar
ketval
ueofnetasset
sacqui
red,excl
udi
ngGW:

Cur
rentasset
s…………………….
.. P826,
800

Pl
antandequi
pment
………………. 624,
000

Pat
ent
s……………………………… 1
69,
000

Li
abi
l
it
ies……………………………. (
85,
800) 1
,534,
000

Goodwi
l
l…………………………………… P -
0- (
a)
 Book Fai
r I
ncr
ease

Val
ue Val
ue (
Decr
ease)

Cur
rentAsset
s………………. P81
3,800 P826,
800 P 1
3,000

Pl
antandEqui
pment
……….
. 520,
000 624,
000 1
04,
000

Pat
ent
s……………………….
. 1
30,
000 1
69,
000 39,
000

I
ncr
easei
nasset
s…………… P1
56,
000 (
a)

33.OnDecember2015,Agul
anCo.acquir
edallt
heassetsandli
abi
l
iti
esofToquer
oCo.wi
thAgul
an
Co.issui
ng150,
000sharest
oacqui
rethesenetasset
s.Thefai
rval
ueofToqueroCo.
’
sasset
sand
l
iabi
li
ti
esatt
hisdat
ewere:

Cash…………………………………………………………… P75,
000

Account
srecei
vabl
e…………………………………………. 7,
500

Fi
xandFur
nit
ures……………………………………………. 30,
000

Pl
antandEqui
pment
………………………………………… 1
87,
500

Account
spayabl
e…………………………………………….
. 22,
500

Cur
rentt
axl
i
abi
l
it
y……………………………………………. 1
2,000

Pr
ovi
si
onf
orannual
leave…………………………………… 3,
000

Thef
inanci
alyearf
orAgul
anCo.i
sJanuar
y–December
.

ThefairvalueofeachAgulanCo.shar eatacqui
sit
iondateisP2.Atacqui si
ti
ondate,theacquirer
coul
donl ydetermineaprovi
sionalf
airval
uefortheplantandequipment .OnMar ch1 ,2016,Agulan
Co.receivedthefi
nalval
uefrom theindependentapprai
sal,t
hefairval
ueatacqui si
ti
ondat ebeing
P196,500.Assumingtheplantandequi pmenthadaf urt
herfi
ve-yearli
fef r
om t
heacqui si
ti
ondat e.

Theamountofgoodwi
l
lar
isi
ngf
rom t
hebusi
nes
scombi
nat
ionatDecember1
,201
5:

a. P 0
 b. P1
8,750

c. P37,
500

d. P30,
500

ANSWER:(
c)

Consi
der
ati
ont
ransf
err
ed(
150,
000shar
esxP2) P300,
000

Less:Fai
rval
ueofneti
dent
if
iabl
easset
s
acquir
ed:

Cash……………………………………………. P 75,
000

Account
srecei
vabl
e………………………….
. 7,
500

Fi
xandFur
nit
ure……………………………… 30,
000

Pl
antandEqui
pment
………………………… 1
87,
500

Account
spayabl
e…………………………….
. ( 22,
500)

Cur
rentt
axl
i
abi
l
it
y…………………………… ( 1
2,000)

Li
abi
l
it
ies………………………………………. ( 3,
000) 262,
500

Goodwi
l
l……………………………………………… P37,
500

34.HomerLt d.isseekingtoexpandit
sshareofthewidget
smar ketandhasnegot iatedt
otakeovert
he
operationsofTanLt d.onJanuary1,20x4.Thebal
ancesheetsoft hetwocompani esasatDecember31 ,
20x4wer easfol
lows:
Homer Tan
Cash P23, 000 P12, 000
Receivables 25, 000 34, 700
I
nvent ory 35, 500 27, 600
Freehol dLand 150,000 100, 000
Buil
dings( net
) 60,000 30, 000
Pl
antandequi pment(net) 65,000 46, 000
Goodwi l
l 25, 000 2,000
P383,500 P252, 300

Accountspayabl e P56, 000 P43,500

Mor t
gageloan 50,000 40,
000
Debentures 1
00,000 50,
000
Commonst ock,100,000shares 100,000
Commonst ock,60,000shares 60, 000
Additi
onalpaid-i
ncapital 28,
500 26,800
Retai
nedear nings 49,
000 32,000
 P383,
500 P252,
300

HomerLt d.i
stoacqui
real
lt
heasset
s,exceptcashofTanLtd.Theasset
sofTanar
eal
lrecor
dedatf
airval
ue
except :
FairValue
I
nvent ory P39, 000
Freeholdland 130,000
Buil
dings 40,000

l
nexchange,HomerLt d.i
stoprovidesuff
ici
entextr
acasht oal l
ow TanLtd.torepayallofit
soutst
andi
ng
debtsandi t
sli
qui
dati
oncostsofP2,400,pl
ustwofull
ypai dsharesinHomerLtd.foreverythr
eeshareshel
d
i
nTanLt d.Thefai
rvalueofashareinHast i
ngsLtd.isP320.Ani nvest
igat
ionbythel i
qui
datorofTanLtd.
revealsthatonDecember31 ,20x3,thefoll
owmgout st
andingdebtswer eoutst
andingbuthadnotbeen
recorded:

Accountspayable P1,
600
Mortgageint
erest 4,
000

Thedebentur
esissuedbyTanLt d.aretoberedeemedata5% premi
um.Costsofissui
ngtheshar
eswere
P1,200.
Theexcessoffai
rvalueofnetassetsovercostorgai
nonacqui
si
ti
ont
hatwi
llberecognizedi
mmediat
elyi
n
theincomest
atementis:

a.NilorZero
b.P17,700
c.P29,700
d.P34,300

ANSWER:C

Consi
der
ati
ont r
ansferr
ed:
Shar
es:2/3x60, 000xP3. 20. 1
28,
000
Cash
Accountspayable. 45,100
Mortgageandi nt
erest 44,000
Debenturesandpremium 52,500
Li
quidati
onexpenses 2,
400
1
44, 000
Cashhel
d (12,000) 1 32,
000
260,
000
Less:Fairvalueofassetsandl
i
abi
l
it
iesacqui
red:
Account sreceivabl
e P34,700
I
nvent ory 39,000
Freeholdland 1
30,000
Buil
dings 40,
000
Pl
antandequi pment 46,000 289,700
BargainPur chaseGai n P 29,700
35.
.West por
tLt
d.,asuppl
i
erofsnookerequi
pment,agr
eedt
oacqui
ret
hebusi
nessofar
ivalf
ir
m,Manukau
Lt
d.taki
ngoveral
lasset
sandl
iabi
li
ti
esasat1June20x4.

Thepri
ceagreeduponwasP40,000,payabl
eP20,000cashandt hebal
ancebyt heissuetothesel
li
ng
companyof1
6,000ful
l
ypai
dshar
esinWes t
portLt
d.t
heseshar
eshavingaf
airval
ueofP2.50pershar
e.

Thet
ri
albal
ancesoft
het
wocompani
esasat1June20x4wer
easf
oll
ows.

West por
tLtd. ManukauLt d.
Dr . Cr. Dr. Cr.
Sharecapit
al P100,000 P90,000
Retai
nedear ni
ngs 12,000 P24, 000
Accountspayable 2,
000 20,000
Cash P30, 000 -
Pl
ant(net) 50, 000 30, 000
I
nventor
y 14,000 26,000
Accountsreceivabl
e 8, 000 20,000
Governmentbonds 12, 000 -
Goodwill - - .
P114,000 P114,000 P110,000 P1 1
0,000
Al
ltheidentifi
ablenetassetsofManukauLt
d.wererecor dedbyManukauLt d.atfairvalueexceptfort
he
i
nventor
ywhi chwasconsi deredt
obeworthP28,
000.Thepl anthadanexpectedremai ningli
feoff
iveyear
s.

Thebusinesscombi
nati
onwascompl et
edandManukauLt d.wenti
ntol i
qui
dat
ion.West
por
tLt
d.i
ncur
red
i
ncident
alcost
sofP500i nr
elat
iont
ot heacqui
si
ti
oncost
s.Costsofissui
ngsharesinWest
por
tLt
d.were
P400.Theamountofgoodwi
l
lto:

a.Nil
orzero
b.P2,500
c.P2,900
d.P3,900

ANSWER:B

CostofInvestment
[P20,000+( 16,
000shar esxP2.50)+P500,i
nci
dent
alcost
s) P 60,
500
Less:Marketvalueofnetassetsacqui
red:
Pl
ant P 30,
000
I
nventory 28,000
Accountsrecei
vable 5,000
Pl
ant 20,000
Accountspayable (20,000) 58,000
Goodwill P 2,500

Wheni tli
qui
dates,cost
sofl i
quidat
ionpaidbyt heacquir
eeshouldbef ortheliquidat
ionaccountofthe
acqui
ree and wi l
l event
uall
y be t ransf
erred to sharehol
ders’ equi
ty account. Any cost s of
l
iqui
dati
onpaidorsuppliedbytheacquirershouldbecapit
ali
zedascostofacquisit
ionwhichstentwi
ththe
costmodelunderPFRSNo.3i nmeasur i
ngthecostofthecombinat
ion.
Anydir
ectcostsofacqui
si
ti
onshouldbecapital
i
zabl
eunderthecostmodelrei
terat
edinPFRSNo.3PhaseI .
Thi
smodel i
nPFRSNo.3wi l
lbeamendedunderPhaseII(pendi
ngimplementati
onpossi
blyunt
ilearl
y2008),
wherei
nalldi
rectcost
swil
lbeoutr
ightexpense.Cost
sofissui
ngshareswil
lbedebitedt
osharepr emium or
API
Caccount.

Anycost sofli
qui dat
ionpaidorsuppli
edbyt heacquir
ershouldbecapi tali
zedascostofacqui si
tionwhichis
consistentwi
tht hecostmodel underPFRSNo.3i nmeasur i
ngthecostoft hecombinati
on.Thef airval
uesof
l
iabil
i
tiesundertakenar ebestmeasuredbyt hepresentval
uesoff utur
ecashout fl
ows.I nt
angibl
easset sare
recognized when i t
sf ai
rvalue can be measur
ed reli
abl
y.Asset sothert han i
ntangi
ble assetsmustbe
recognizedifi
tispr obabl
ethatthefut
ureeconomi cbenefi
tswil
lfl
owt ot heacqui
rerandi t
sfairvaluecanbe
measur edreli
ably.

36.MangoCompanyacqui r
edAppl eCompanyonJanuar y2,201 6byissui
ngcommonshar es.Al
lofAppl
e’
s
assetsandliabi
li
ti
eswerei
mmedi at
elytr
ansf
err
edt oMangoCompanywhi chreport
edtotal
parvalueof
sharesoutstandi
ngofP218,400andP327,600andaddi t
ionalpaid-
incapit
alofP370,000andP650,800
i
mmedi atelybeforeandaf
terthebusi
nesscombinati
on,respecti
vel
y.
Assumi
ngthatMango’
scommonst
ockhadamar
ketofP25pershar
eatt
het
imeofacqui
si
ti
on,what
numberofshar
eswasissued?

a. 1
5,600
b. 1
0,000
c. 1
5,600
d. 1
0,000

Answer:C
Parval ueofshar esoutstandi
ngfol
l
owingmerger P327,
600
Paid-incapitalfol
lowingmer ger 650,800
Totalfairval
ueofpai d-
incapit
al P978,400
Parval ueofshar esoutstandi
ngbefor
emerger P218,400
Paid-incapitalbeforemer ger 370,000 (
588,400)
Increaseinparval ueandpai d-i
ncapi
tal P390,
000
Divi
dedbypr icepershar e P25
Numberofshar esissued 1
5,600

37.
Thest
ockhol
der
’sequi
ti
esofMi
l
kit
aCor
por
ati
onandKeanuCompanyatJune1
,201
6bef
ore
combi
nat
ionwereasfol
l
ows :
Mi
l
kit
a Keanu

Capi
tal
Stock,P1
00parval
ue P1
0,000,
000 P3,
000,
000

API
C 50,
000 -

Ret
ainedEar
nings 5,
000,
000 1
,000,
000

37.OnJune2,2016,Mil
ki
taCorporat
ioni
ssued50,
000ofi
tsuni
ssuedshar
eswithamarketval
ueofP1
03per
sharef
ortheassetsandli
abi
l
it
iesofKeanuCompany.Ont
hesamedayMi lki
taCor
por
ationpai
dP100,
000for
l
egal
fees,document
aryst
ampt
axofP20,
000andP1
90,
000f
orSECr
egi
str
ati
onf
eesofequi
tysecur
it
ies.

Shar
ehol
der
’sequi
tywoul
dincl
ude:

a. P1
5,000,
000Capi
tal
Stock;P4,
900,
000Ret
ainedear
nings;P1
0,000St
ocki
ssuancecost
b. P1
5,000,
000Capi
tal
stock;P1
0,000API
C;P4,
880,
000Ret
ainedear
nings
c. P1
5,1
50,
000Capi
tal
Stock;P50,
000API
C;P4,
690,
000Ret
ainedear
nings
d. P1
5,000,
000Capi
tal
Stock;P200,
000API
C;P4,
690,
000Ret
ainedear
nings
Answer:A
Capi
talstock:
Bef orecombi nati
on P1
0,000,
000
Issuedatpar( 50,
000xP1 00) 5,000,
000 P1
5,000,
000
API
C:
Bef orecombi nati
on 50,
000
Issuance( P3x50, 000) 150,
000
Document arystampt ax (20,
000)
SECRegi str
ationfees (1
80,000) -
-0—
Ret
ainedear nings:
Bef orecombi nati
on 5,
000,000
Legal fees (1
00,000) 4,
900,000
St
ockissuancecost( P190,000+20,
000-
200,
000) (10,
000)
St
ockholder ’
sequity P1
9,890,000

38.RedCompanyi ssueditscommonst ockforthenetassetsofBl

ueCompanyi nabusiness
combinationtreat
edasacqui si
ti
on.Red’scommonst ockissuedwaswort
hP1 ,
500,000.Att hedateof
combination,Red’snetassetshadabookval ueofP1 ,
600,000andafai
rval
ueofP1 ,800,000.Bl
ue’s
netassetshadabookval ueofP700,000andaf ai
rval
ueofP850,000.I
mmedi atel
yfol
lowingthe
combination,thenetassetsofthecombinedcompanyshoul dhavebeenreportedatwhatamount ?
a. P3,000, 000
b. P2,400,000
c. P3,100,000
d. P1,850,000

ANSWER:C
Rationale
Acqui si
ti
onCost P1,
500,
000
Netasset sacquir
ed 850,000
Goodwi ll 650,000
Red’snetassets@BV 1,
600,000
Blue’snetassets@FV 850,000
Totalnetassets P3,100,
000

39.Mat aInc.purchasedalloft
henetassetsofTorr
albaCompanyonFebruary1,
2015byissui
ng
8,000shar esofitsP20parcommonst ock.Atthet
ime,thest
ockwassell
i
ngforP40pershare.
Directcostsassociatedwit
hconsummat i
ngthecombinati
ont
otal
l
edP5,000.UnderI
FRS3,whattot
al
amountshoul dthenetasset sacquir
edber ecor
dedbyMat aI
nc.Assumi
ngtheconti
ngent
considerati
onofP7, 000isdetermined?

ANSWER:C
Rat
ional
e(8,
000shar
esX40=P320,
000+7,
000cont
ingentconsi
der
ati
on=P327,
000)
40.Payl aCo.Wi l
l i
ssueshar eofP12parcommonst ockf ort henetassetsofTal
isayCo.Payla’
scommon
st
ockhasacur rentmar ketvalueofP40pershar e.Talisaybal ancesheetaccountsf
ollow:
Cur rentAssetsP500000 Commonst ock,par P4( P80000)
Proper tyandequi pment1500000 Addi ti
onal paid- i
n-capi t
al(320000)
Li
abi li
ti
es(400000) Retai
nedear nings( 400000)
Tali
saycur r
entasset sandpr oper
tyandequipment ,respect ivel
y,areapprai
sedofP400000andP1 600000;
i
t’
sl i
abili
ti
esar ef ai
rlyvalued.Accordi
ngly,PaylaCo.I ssuedshar esofit
’scommonst ockwit
htotalmarket
valueequal t
ot hatofMaxnetasset s.Torecognizegoodwi llofP200000,howmanyshar eswer ei
ssued?
a.55000 c.40000
b.45000 d.50000
Solut i
on:
ANS:B
Fairvalueofneti dentif
iableasset
sacqui r
ed:
Currentasset s P500000
Propertyandequi pment 1500000
Li
abili
ti
es (
400000)
FMVofnetasset s P1600000
Add:Goodwi ll 200000
Consi derati
ont ransferr
ed P1800000
DividedBy:Cur rentmar ketvaluepershare P40
Numberofshar esi ssued 45000

41.CompaniesofPandJdeci detoconsol
i
dat
e.Assetandest
imatedannual
earni
ngscont
ri
but
ionsar
eas
fol
lows:
Co.P Co.J Total
Netassetcont
ri
buti
on P400000 P350000 P750000
Esti
matedannualearni
ngscontr
ibut
ion 80000 70000 150000

Stockholder soft het wocompani esagreet hatasi ngl

ecl assofst ockbei ssued,t
hatthei
rcont r
ibuti
onsbe
measur edbynetasset splusal
lowancesf orgoodwi ll
,andt hat1 0% beconsi der
edasanor malrateofret
urn.
Earningsi nexcessoft henormal rat
eofr eturnshallbecapi tali
zedat20% i ncalcul
ati
nggoodwi l
l.I
twasalso
agreedt hattheaut hor i
zedcapitalst
ockoft henewcor por ationshall be20,000shareswit
haparval ueof
P100ashar e.
(1
)Thet otalcont ri
but i
onofCo.J( netassetsplusgoodwi l
l
) ,and( 2)Theamountofgoodwi llcredi
tedt oCo.A:
a.(
1)P475000; (2) P100000 c.(1)P525000; (2)P200000
b.(1
)P500000; (
2) P150000 d.(1)P600000; (2)P1 00000
Soluti
on:
ANS:C
CompanyA CompanyB
NetAssetCont ributions P400000 P350000
Add:Goodwi l
l
Aver age/Annual Ear ni
ngs P 80000 P 70000
Less:Nor mal Ear nings
(10% onNetAsset ) 40000 35000
ExcessEar nings P 40000 P 35000
Divi
dedby:Capi t
alizedat 20% 20%
Goodwi l
l P200000( c) P1 75000
TotalCont ri
buti
on( stockt obeissued) P400000 P600000( c)

42.ABCorporat
ionwasmer gedi
ntoCDCorpor
ati
oninacombinat
ionpr
oper
lyaccount
edf
orasacqui
si
ti
on
ofi
nter
est
s.Thei
rbalancesheet
sbefor
ethecombinat
ionar
easfol
l
ows:
ABCor p.
Cur
rentAssets..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P8,352,950
Pl
antandEqui pment,net.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.6,450,
700
Pat
ents..
..
..
..
..
...
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. -

Tot
alAsset
s..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..P1
4,803,
650

Li
abil
i
ties.
..
..
...
...
..
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..P5,71
3,650
Capit
al St
ock,parP1 00..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
.4,600,000
Addit
ionalpaid-i
ncapi t
al..
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..950,000
Retai
nedEar nings.
..
...
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...3,
540,000

Tot
alLi
abi
l
it
iesandEqui
ty.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P1
4,803,
650

CDCor p.
Cur
rentAssets..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
...
P7, 505,000
Pl
antandEqui pment,net.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..3,130,450
Pat
ents..
..
..
..
..
...
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.1 53,800

Tot
alAsset
s..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P10,
789,
250

Li
abil
i
ties..
..
..
..
...
..
..
..
..
..
...
..
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
.P 939,
000
Capit
al st
ock,parP100...
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..3,
400,000
Addit
ionalpaid-i
ncapi t
al.
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
.. 950,
000
Retai
nedEar nings.
..
...
..
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..5,
500,250

Tot
alLi
abi
l
it
iesandEqui
ty.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.PP1
0,789,
250

Per-i
ndependentapprai
ser
’sreport
,thefai
rmarketvalueofCD’scur r
entasset
sisP7,808,
000;plantand
eqi
pmenti sP3,
452,
000;andpat ent
sP286,900.Liabi
lit
iesofCDCor porat
ionar
eproperlyval
ued.AB
Corporat
ionpur
chasesthenetassetsofCDCorpor at
ionforP10,607,
900.Howshoul dthedif
fer
ence
betweenthebookvalueofCDCor porat
ion’
snetassetsandt heconsi
derati
onpaidbyABCor porati
onbe
consi
dered?

A.Goodwi
l
l:P286,
900;I
ncr
easei
nAsset
s:P757650

B.Goodwi
l
l:P286,
900;I
ncr
easei
nAsset
s:P303,
000

C.Goodwi
l
l:P 0;I
ncr
easei
nAsset
s:P303,
000

D.Goodwi
l
l:P 0;I
ncr
easei
nAsset
s:P757,
650

Answer
:D

Considerati
onTr ansferred..
...
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
...
..
..
...
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P10,607,
900
Less:Mar ketvalueofnetasset sacquired,excludingGW:
Cur r
entAsset s..
..
...
..
...
..
...
..
..
...
..
...
..
..
...
..
..
...
..
..
...
...
..
..
.P7,808,000
PlantandEqui pment ..
..
..
...
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
...3,452,000
Patents...
..
..
...
...
..
..
...
...
..
..
...
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
...
..286, 900
Liabil
i
ti
es....
..
...
..
...
..
..
...
...
..
..
...
..
...
..
..
...
..
..
...
..
..
...
..
...
..
.(939, 000) 10,607,
900
Goodwi
l
l.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. P -
0- (
D)

Cur
rentAssets Pl
antandEquipment Pat
ent
s
Bookval
ue P7,505,000 P3,130,450 P153,
800
Fai
rVal
ue 7,
808,000 3,452,
000 286,
900

I
ncr
ease(Decr
ease) P 303,
000 P 321
,550 P1
33,
100
i
nassets

Cur
rentAsset
s P303, 000
Pl
antandEquipment 321,550
Pat
ents 133,
100

I
ncr
easei
nAsset
s P757,
650(
D)

43.
Compani
esXX,YY,andZZdeci
det
oconsol
i
dat
e.Thepar
ti
est
oaconsol
i
dat
ionhavet
hef
oll
owi
ngdat
a:

NetAssets Averageannualearnings
XXCo.
..
..
..
..
..
..
..
..
..
..
.P6,800,000 P 680, 000
YYCo..
..
..
..
..
..
..
..
..
..
.3,000,
000 400,000
ZZCo..
..
..
..
..
..
..
..
..
..
.10,
200,000 920,000

Thepart
iescoll
ecti
vel
yagr
eedthatt
henewcor por
ati
on,RRCo.Wil
li
ssueasi
ngl
eclassofstockbasedon
theear
ningsrat
io.Whati
sthest
ockdist
ri
but
ionrat
iotocompani
esXX,YY,
andZZrespect
ivel
y?

A.34:
15:
51
B.33:
15:
52
C.34:
20:
46
D.33:
21:
46

Answer
:C

XX:P 680,000 680,000/2,000,000 =34%

YY: 400,000 400,000/2,000,000 =20%
ZZ: 920,000 920,000/2,000,000 =46%

P2,
000,
000 1
00%

44.Pakcompany’ sowns50% ofGaner nCompany’scumulati

vepreferencesharesand30% ofi tsordi
nary
shares.Ganern’sshar esoutstandingatDecember31 ,2016incl
udeof1 0% cumulat i
vepref
erencesharesand
P40,000,000ofor dinaryshares.
Ganer nreport
edpr ofi
rofP8, 000,000f ort
heyearendedDecember31 ,2016.Ganer ndecl
aredandpai d
P1,500,000pr eferenceshar esdur i
ng201 6.Ganernpaidnoprefer
enceshar esdividendduri
ng201 5.On
January31 ,
201 7,priortothedat ethatthefi
nanci
alst
atementsareauthorizedt
oi ssue,Ganerndist
ri
buted
10% ordinarysharedi vidend.
Howmuchi st hetot alamountt ober ecogni
zedbyPakCompanyi nits201 6pr
ofitandlossrel
atedtothese
i
nvestment ?
a.P2,450,000
b.P2,600,000
c.P2,700,000
d.P2,850,000
Answer :D
Soluti
on:
Ganernprofi
t P8,
000,000
Multi
pli
edby:pakcompany’
si nter
est 30%
PakCompanyshar ei
nGaner n’sprof
it P2,
400,000
Divi
dendsdeclar
edandpaid 1,
500,000
Multi
pli
edby:pakcompany’
si nter
est 30%
Divi
dendincome 450,000
P2,850,000
45.CompaniesT,G,B,part
iestoconsoli
dati
onhavethefoll
owingdat
a:

TCo. G.Co. B.Co

NetAss
ets…………………..P400,000 P600,000 P1,000,000
Aver
ageannualear
nings…. 60,000 60,000 80,000

Thepart
iescoll
ecti
vel
yagr
eedthatt
henewcor por
ati
on,RCCo.wil
li
ssueasi
nglecl
assofst
ocksbasedon
theear
ningsrat
io.Whati
sthest
ockdist
ri
but
ionrat
iotocompani
esT,G,B,r
especti
vel
y?

a.20:
30:
50 c.30:
40:
30
b.30:
30:
40 d.40:
40:
30

ANSWER:
Fracti
on
T: P60,000 6/20 =30%
G: 60,000 6/20 =30%
B: 80,000 8/20 =40%
P200,000 100%
46.Whenshouldabusi nesscombinati
onbeunder taken?
A. Whenaposi ti
venetpresentvalueisgeneratedtotheshareholdersofanacqui
ri
ngf i
rm.
B. Whenthet wofirmsareinthesamel i
neofbusi ness,buteconomiesofscalecannotbeatt
ainedby
t
heacquiror.
C.Whent wof ir
msar eindiff
erentli
nesofbusiness,creat
ingdiver
sif
icat
ion.
D.Whencashwi llbepaidfortheacquir
edfir
m' sstock.

Answer
:A.

Abusinesscombi nat
ioni
sbenefi
cialwhent heresulti
saposit
iveNPV.Thi
seffectr
esul
tsf
rom synergy,which
exi
stswhent hevalueofthecombi nedf i
rm exceedst hesum oftheval
uesofthesepar
atefir
ms .Itcanbe
det
ermi nedbyusingtheri
sk-adj
ustedratetodiscountthechangeincashfl
owsofthenewlyformedent i
ty.I
f
aposit
ivenetpresentval
ueisgenerated,acombi nati
onisi
ndicat
ed.

Answer(B)i
sincor
rectbecauseacombinati
oni
sindicat
edi feconomiesofscal
ecanbeat
tai
ned.Answer
(C)i
sincorr
ectbecausediversi
fi
cat
ionmayormaynotr esulti
napositi
veNPV.Answer(D)isi
ncorr
ect
becausesomebenefici
alcombinati
onsi
nvol
veexchangesofst ock.

47.Whichoft hefoll
owi ngstatementsi smostcor rect?
a.Af i
rm acquiri
nganot herfir
mi nahor i
zontal
mer gerwill
nothaveitsrequir
edr ateofreturnaffected
becauset hetwof ir
mswi llhavesi mi
larbetas
b.Inmostmer gers,thebenef i
tsofsyner gyandt hepr i
cepr emium t
heacqui r
erpaysovermar ketpr i
cear
e
summedandt hendi vi
dedequal lybetweent heshar eholdersoftheacquiri
ngandt argetfir
ms
c.Financial
theorysayst hatthechoi ceofhowt opayf oramer gerisreall
yirr
elevantbecause,al t
houghit
mayaf fectthefi
rm’scapi t
alstructur
e,itwill
notaf fectt
hef i
rm’soveral
lrequir
edr ateofreturn
d.Thepr i
mar yrati
onaleforanyoper ati
ngmer geri ssynergy,butiti
salsopossiblethatmer gerscanincl
ude
aspectsofbot hoper at
ingandf inancialmergers
Answer:D
48.
Agai
nshoul
dber
epor
tedonanacqui
si
ti
oni
f:

a. Thefai
rvalueoftheconsi
derati
onpaidisl essthanthebookval ueoft
henetassetsacquired.
b. Thefai
rvalueoftheconsi
derati
onpaidpl usthepr esentval
ueofanyearningsconti
ngencyis
l
essthanthebookvalueofthenetasset sacqui r
ed.
c. Thefai
rvalueoftheconsi
derati
onpaidisl essthanthef ai
rval
ueofnetassetsacqui
redplus
thef
airval
ueofidenti
fi
abl
eintangibl
esacqui r
ed.
d. Thefai
rvalueoftheconsi
derati
onpaidpl usthepr esentval
ueofanyearningsconti
ngencyis
l
essthanthefai
rvalueofi
dentif
iablenetassetsacqui r
ed.

ANS:D
49.Thefol
l
owingst
atement
sper
tai
ningt
obusi
nesscombi
nat
ionar
enott
rueexcept
:

a.Thepool
i
ngofi
nter
estmet
hodr
ecor
dedt
heasset
sandl
i
abi
l
it
iesoft
heacqui
redcompanyatt
hei
rfai
r
val
ues.

b.St
atut
orymergerref
erst
othecombi
ningoft
woormoreexi
sti
nglegal
enti
ti
esi
ntoonenewlegal
ent
it
y
wherei
nthepr
eviouscompaniesar
edi
ssol
vedandar
ethenr
eplacedbythenewconti
nui
ngcompany.

c.I
nastockacqui
sit
ion,t
heparentandthesubsi
diar
yhast
hei
rownsepar
atef
inanci
alr
ecor
dsand
st
atement
sforext
ernalfi
nanci
alr
eport
ingpurposes.

d.Theacqui
ri
ngenter
pri
semayi
nher
itt
heacqui
redf
ir
m'si
nef
fi
cienci
esandpr
obl
emst
oget
herwi
thi
ts
i
nadequater
esour
ces.

Answer
:d

50.Thecostofregi
steri
ngequit
ysecuri
ti
esi
nabusinesscombi
nat
ionshoul
dber
ecor
dedas;
a.Anincomeoft heperi
od
b.anexpenseoft heper
iod
c.Deducti
onf r
om addi
ti
onalpai
dincapit
al
d.Partoft
hecostofthestockacqui
red

Answer
:C

DATEOFACQUI SITION
1
. Jeri
cel
Companyhadcommonst ockofP350,000andretai
nedearningsofP490,000.CathreneInc.
hadcommonst ockofP700, 000andr et
ainedear
ningsofP980,000.OnJanuar y1,2016,Cathr
ene
i
ssued24,000shar esofcommonst ockwi t
haP12parvalueandaP35f ai
rval
uef oral
lofJeri
cel
company’scommonst ock.Thiscombinati
onwasaccountedforasanacqui si
ti
on.Immediatel
yafter
thecombination,whatwast heconsolidat
ednetasset?
a. P280,000
b. P2,
520, 000
c. P1,
680, 000
d. P1,
190, 000
ANS:A

Consol
i
datedStockholder’
sEquit
y
Acqui
rer(Parent
-Cathr
ene),bookval
ue
(P700,000+P980, 000) P1
,680,
000
Add:Newlyissuedshares
 (
34,000xP35f ai
rvalue) 1
,190,
000
Acqui
ree(Subsi
diar
y-Jer
icel
)eli
minat
ed
i
nprepari
ngconsoli
datedbal
ancesheet. 0
P2,870,
000
2.OnJanuar
y1,201
6,Par
kCor
por
ati
onandSt
randCor
por
ati
onandt
heircondensedbal
ancesheetar
eas
f
oll
ows:

ParkCorp. St
randCor p.
--
- -
------
-----
--- ----
-- -
------
---
---
--
CurrentAssets…………………………………. 70, 000 20,000
Non- currentAssets……………………………. 90, 000 40,000
--
- -
------
-----
--- ----
-- -
------
---
---
--
TotalAssets…………………………………… 1 60,000 60,
000
CurrentLiabil
i
ties…………………………….. 30, 000 1
0,000
Longt erm debt………………………………. . 50,000 -
Stockholders’Equit
y…………………………. 80,000 50,000
--
- -
------
-----
--- ----
-- -
------
---
---
--
TotalLiabil
i
ti
esandEqui t
ies 160,000 60,000

OnJanuary2,201 6.Par
kCor porati
onborrowed60, 000andusedt heproceedst
oobt ai
n80% oft he
outst
andi
ngcommonshar esofStrandCorporati
on.Theacquisi
ti
onpr i
cewasconsi
der edpr oport
ionat
eto
Str
and’sf
airval
ue.The60, 000debti spayabl
ein1 0equalannualpri
ncipal
payments,plusinter
est,begi
nni
ng
December31 ,2016.Theexcessf ai
rvalueoftheinvest
mentovertheunder l
yi
ngbookval ueoftheacquired
netasset
sisall
ocatedtoinventory(60%)andt ogoodwill
(40%).

Onaconsol
i
dat
edbal
ances
heetasofJanuar
y2,201
6,whatshoul
dbet
heamountf
oreachoft
hef
oll
owi
ng?

Theamountofgoodwi
l
lusi
ngpr
opor
ti
onat
ebasi
s(par
ti
al)
:

A.Usingthesamei
nfor
mat
ioni
nNo.
60,t
heamountofgoodwi
l
lusi
ngf
ull
fai
rval
ue.
(f
ull
/gr
oss-
up)basi
s:
a.P 0
b.8,000
c.10,000
d.20,000

ANS: C
Fairval
ueofSubsidiary:
Fairval
ueofconsiderati
ongi
ven:60,
000x80% 75,
000
Less:BookvalueofNetAssets/St
ockhol
der
s’
EquityofSubsi
diar
y 50,000
All
ocatedExcess 25,000
-
----
-----
---
Less:Over/Under
valuati
onofAsset
sandLi
abi
l
it
ies:
I
ncreasei
nInventory(
25,
000x60%=1 5,
000x1 00%) 15,
000
-
---
---
---
---
Goodwi
l
l(f
ull
/gr
oss-
up) 10,
000
-
---
---
---
---
-
---
---
---
---
*
100% i
ncr
easeofi
nvent
oryshoul
damountt
o15,
000/
80%

B.Usi
ngthesameinformati
oninNo.
60,t
heamountofst
ockholder
s’equi
tyusi
ngf
ull
fai
rval
ue(
ful
l
/gr
ossup
goodwil
l
)pr
oport
ionatebasi
stodet
ermi
nenon-
contr
oll
i
nginter
estshoul
dbe:
a.80,
000
b.93,
000
c.95,
000
d.1
30,
000

ANS:C
Par
kstockhol
dersequit
y 80,
000
Non-cont
rol
li
ngint
erest(
ful
lgoodwill
)
St
randstockhol
ders’
equity 50,
000
Add:Adj
ustmentstoref
lectfai
rval
ue-
i
nventor
y 1
5,000
-
---------
---
St
randstockhol
ders’
equi
tyatFV 65,000
Non-Contr
oll
ingi
nter
est
s 20% 1 3,
000
-
---------
--- -
- --
- -
----
---
Non-Contr
oll
i
nginter
est
s(part
ial
) 93,000
Add:Non-Contr
oll
i
ngint
eresti
nfull
goodwi
l
l
(1
0,000-8,
000) 2,
000
-
---
-- -
-----
Consoli
dat
edSt ockholder
s’Equi
ty 95,000
-
---
-- -
-----
-
---
-- -
-----
3.OnJanuary2,201 1
,PareCo.pur chased75% ofKi
ddCo’soutst
andi
ngcommonst ock.Ont
hatdat
e,t
he
fai
rval
ueofthe25% noncont rol
l
inginter
estwasP35,000.Duri
ng2011
,Ki
ddhadneti ncomeofP20,
000.
Select
edbalancesheetdataatDecember31 ,
2011,i
sasfol
lows:

Par
e Ki
dd

Tot
alasset
s P420,
000 P1
80,
000

Li
abi
l
it
ies P1
20,
000 P60,
000

Commonst
ock 1
00,
000 50,
000

Ret
ainedEar
nings 200,
000 70,
000

Duri
ng201
1PareandKi ddpai
dcashdividendsofP25,
000andP5,
000r
espect
ivel
y,t
othei
rshar
ehol
der
s.
Ther
ewerenootheri
ntercompanyt
ransacti
ons.

I
nPare’sDecember31 ,
201
1consol
i
dat
edbal
ancesheet
,whatamountshoul
dber
epor
tedasnoncont
rol
l
ing
i
nter
estinnetasset
s?

a. P30,
000

b. P35,
000

c. P38,
750

d. P40,
000

ANSWER:C

Fairval
ueofnoncont rol
l
ingint
erest P35,
000
Plus:Shareofnetincome( 25% x20,000) 5,
000
Less:Shareofdivi
dends( 25% x5,000) (1,
250)
Noncont r
oll
i
nginterest P38,
750
4.Wheni tpur
chasedSutt
on,Inc.onJanuary1,20x1PavinCorporat
ioni
ssued500,000sharesofit
sP5par
voti
ngcommonst ock.Onthatdatet
hefairval
ueofthosesharestot
aledP4,200,
000.Rel
atedtothe
acquisi
ti
on,Pavi
nhadpayment stotheatt
orneysandaccountantsofP200,000,andst
ockissuancefeesof
P100,000.Immediatel
ypri
ortothepurchase,t
heequitysect
ionsofthetwofir
msappearedasf ol
l
ows:

Pavi
n Sut
ton

CommonSt
ock P4,
000,
000 P700,
000

Pai
dincapi
tal
inexcessofpar 7,
500,
000 900,
000

Ret
ainedear
nings 5,
500,
000 500,
000

Tot
al P1
7,000,
000 P2,
100,
000

I
mmedi
atel
yaf
tert
hepur
chase,t
heconsol
i
dat
edbal
ancesheetshoul
drepor
tpai
dincapi
tal
inexcessofpar
of
.

a. P8,
900,
000

b. P9,
100,
000

c. P9,
200,
000

d. P9,
300,
000

ANSWER:B

FV,stocksissued P4,200,000
Less:Parvalueofstocksi
ssued(
500,
000shar
esx 2,500,000
P5)
APIC P1,700,000
Add:API CofP 7,500,000
Less:Stockissuancecost 100,000
P9,
100,000

5.TheMoonCompanyacqui r
eda70% i nterestInTheSwanCompanyf orP1 ,420,
000whent hefairval
ue
ofSwan' sident i
fi
ableasset sandlabil
itieswasP1 ,
200,000.Moonacqui reda65% i nterestI
nTheHomer
Companyf orP300, 000whent hefairval ueofHomer '
si dent i
fi
ableassetsandl i
abil
it
ieswasP640, 000.
Moonmeasur esnon- control
li
nginterestatt herelevantshar eoft heidenti
fiablenetasset satt
he
acquisi
tiondat e.NeitherSwannorHomerhadanycont ingentl i
abil
it
iesattheacqui siti
ondateandt he
abovef airvalueswer et hesameast hecar ryingamount sint hei
rf i
nanci
al statements.Annualimpairment
reviewshavenotr esultedInanyimpai rmentl ossesbei ngr ecogni zed.
UnderPFRS3Bussi nesscombi nations,whatf i
guresi nr espectofgoodwi l
landofgai nsonbargain
purchasesshoul dbei ncludedinMoon' sconsol i
dat edst atementoff i
nancial posi
ti
on?
a.Goodwi l
l:P580,000:Gai nsonthebar gainpur chases :P1 16,000
b.Goodwi l
l:Nilorzero:Gai nsonthebar gainpur chases :P1 16,000
c.Goodwi l
l
:Ni lorzero;Gai nsonthebar gainpur chases :Ni lorzero
d.Goodwi l
l:P580,000:Gai nsonthebar gainpur chases :Nilorzer o
Answer :D
Soluti
on
Fairvalueofsubsi di
ary-Swan
Consi derati
ontransfer
red P1,
420.000
l
ess :Fairvalueatidenti
fi
abl
eassetsandli
abil
i
ti
esofSwan
(
70% xP1 .
2mi l
li
on) 840.
000
Goodwi ll(
parti
al) P580,000
"Goodwi l
li
scar r
iedasonassetintheconsoli
dat
edst
atementoff
inanci
alposi
ti
on."

Fai
rval
ueofSubsi
diar
yHomer

Consi
der
ati
ont
ransf
err
ed P300.000

l
ess
:Fai
rval
ueatident
if
iabl
easset
sandLi
abi
l
it
iesofHomer
(
65% xP640000) 41
6,000

Gai
nonbar
gai
npur
chases P(
116,
000)

6. Quest i
onsAandBar ebasedonthefol
lowi
ng:
Winstonhast hefol
l
owi
ngaccountbal
ancesasofFebruary1,2014:
Inventory P600,000 Commonst ock(P10parvalue)P 800,
000
Land 500,
000 Retai
nedearnings,Jan.1
,20141,100,
000
Buildi
ngs( net
)(FVP1
,000,
000) 900,000 Revenues 600,000
Expenses 500,
000

Arl
ingt
onpaysP1 .
4mi l
l
ioncashandi ssues1 0,
000sharesofisP30parvaluecommonst ock(val
uedat
P80pershare)foral
lofWinston’soutst
andingstockandWi nstoni
sdissol
ved.St
ocki
ssuancecosts
amounttoP30,000.Pri
ortorecor di
ngthesenewl yi
ssuedshares,Arl
i
ngtonrepor
tsaCommonSt ock
accountofP900,000andAddi t
ionalPaid-
inCapitalofP500,000.

A.Det
ermi
net
hegoodwi
l
lthatwoul
dbeI
ncl
udedi
ntheFebr
uar
y1,201
4,f
inanci
alst
atementofAr
li
ngt
on.

a.P200,
000 b.P230,
000 c.P1
00,
000 d.P1
30,
000

Answer:C.
Costofacqui ri
ngWi nst
on
Cash P1
,400,000
Shar esofst ocks(10,
000x80) 800,000 2,200,000
Fai
rvalueofnetasset sacqui
red:
Invent or
y P600,000
Land 500,000
Building 1,000,000 (2,
1 00,000)
Goodwi l
l P100,000

B.AssumethatArl
ingt
onpayscashofP20mil
li
on.Nostocki
sissued.Anaddi
ti
onal
40,
000I
spai
dIndi
rect
combinat
ioncost
s,deter
minet
henetgainf
rom busi
nes
scombi nat
ion.

a.P1
00,
000 b,P200,
000 c.260,
000 d.60,
000

Answer
:D.
Gainfr
om businesscombi nat
ionmustbe P60,000.
Costofacquiri
ngWi nston P2,000,000
Fai
rvalueofnetassetsacquir
ed 2,100,000
Addit
ional
Cost (40,000)
Netgai
nfrom businesscombinati
on P60, 000
7.OnDecember31 ,2015,SecoCompanypaidP950,000f or95% oft heoutstandi
ngcommonst ockof
SanaCompany.Ther emaini
ng5% washeldbyastockholderwhowasunwi ll
ingtosel
lt
hestock.Sana'
s
netassetshadabookvalueofP810,
000andaf ai
rmar ketvalueofP900, 000wheni twasacquir
edby
Seco.IfSanausespush-downaccount
ing,t
henon-cont r
oll
ingint
erestshouldbereport
edat:

a.P40,
500 b.P50,
000 c.P47,
500 d.P45,
000

Answer
:b.P50,
000

Sol
uti
on:

Acquisi
ti
onCost P950,
000
Divi
dedby: 95%
Total P1 ,
000,
000
Multi
pli
edby: 5%
Non-cont r
oll
i
ngI
nter
est P50,000

8.Ambr oseCompanyacquiresacontr
oll
ingi
nt er
estinMoni
caCompanyi ntheopenmar ketforP220,
0
00.TheP200parval uecapit
alst
ockofMoni caCompanyatt hedateofacquisi
ti
onisP250,000andit
s
ret
ainedearningsamountst
oP1 00,
000.Themar ketval
uepershar
eofMoni caCompanyi sP220per
share.I
ntheconsoli
datedst
atementoffi
nancialposi
ti
ononthedateofacquisi
ti
on,non-contr
oll
i
ng
i
nterestwouldshowabalanceof:

a.P55,
000 b.P60,
000 c.P62,
500 d.P50,
000

Answer
:a.P55,
000

Sol
uti
on:

Control
li
ng(Parent
)Int
erest:
SharesAcquired(P220,000/P220) 1,
000shares
Divi
dedbyShar esOutst
anding(P250,000/P200) /1
,250
Parent'
sInt
erest 80%
P220,
000/80% =P275, 000
Non-cont r
oll
i
ng/Minori
tyInter
esti
nNetAssetsofSubsi
diar
y:
(P275,000x20% )= P55, 000

9.OnAugust31 ,2016,CompanyPacqui r
es75% (750,000ordi
naryshar es)ofCompanySf orP7,500,000
(P10pershare)
.Intheperi
odaroundtheacquisi
ti
ondate,CompanyS' ssharesaretradi
ngataboutP8per
share.CompanyPpayspr emium overmarketbecauseofthesynergiesitbeli
evesitwil
lget
.Iti
stherefor
e
reasonabl
etoconcludethatt
hefai
rvalueofCompanySasawhol emaynotbeP1 0,000,
000.Infact,an
i
ndependentvaluati
onshowsthattheval
ueofCompanySi sP9,700,000(f airval
ueofCompanyS) .
Assumingthatt
hef ai
rval
ueofthenetident
if
iabl
eassetsisP8,
000,000( carryingval
ueisP6,000,000)

Goodwi
l
lar
isungonconsol
i
dat
ioni
stobeval
uedont
hepr
opor
ti
onat
ebasi
sor"
Par
ti
al"Goodwi
l
l:

a.P200,
000
b.P1,
500,000
c.P1,
700,
000
d.P2,
000,000

Answer
:B

Fai
rval
ueofsubsi
diar
y:

Consider at
iontr
ansferred:
. P7,
500,
000
Less:
bookval ueofNetasset s
(P6,000,000x75%) . 4,500,000
All
ocatesexcess. P3,000,000
Less:over/undervaluati
onofAsset
sand
Li
abil
it
ies((P8,
000, 000-P6,000,000)x75% 1
,500,
000

Goodwi
l
l(
par
ti
al)
. P1
,500,
000

10.Mar k,apri
vatel i
mitedcompany,hasar rangedfil
orman,apubli
cli
mitedcompany,t
oacquireitasa
meansofobt ainingast ockexchangelist
ing.Manissue1 5mil
li
onsharesacqui
ret
hewhol eoftheshare
capit
alofMask( 6mi l
li
onshares).Thefai
rvalueofthenetassetsofMaskandManar eP30mi ll
ionandP18
mill
i
onr espect
ively.Thefairval
ueofeachoft heshareofMaski sP6andt hequot
edmar ketpr
iceofMan's
shareisP2.Theshar ecapit
alofMani sP25mi ll
i
onshar esofacqui
si
ti
on.Computethevalueofgoodwil
lin
theaboveacqui sit
ion.

a.P1
6mil
li
on
b.P12mi
l
li
on
c.P6mil
l
ion
d.P10mi
l
li
on

Answer
:C

Considerationtr
ansf
er r
ed(4,000,
000shar
es*xP6) P24,
000,
000
Less:bookval ueofequity—Man.
(P18,000,000x1 00%) . 1
8,000,
000
All
ocatedexcess P6,000,
000
Less:over /
underval
uat i
onofasset
sand
l
iabil
i
ties(bookvaluesmef ai
rval
ue)
. 0

Goodwi
l
l P6,
000,
000

100%
Man–––––>Mask
Curr
entl
yissued. 1
5M 60%** 6M 60%
Addi
ti
onalsharesi
ssued. 10M 40% <—–4M /
40%

Tot
alshar
es. 25M. 1
0M

1
1.CondensedSt at
ementofFinanci
alPosi
ti
onofDol ceInc.andGabbanaI
nc.asof1
2/31
/201
1wer
eas
f
oll
ows:
Dolce Gabbana
Cur r
entasset
s 275,000 P65,000
Noncur r
ent 625,000 425,000
assets
Totalasset
s 900,000 490,000
Liabil
i
ti
es 65,000 35,000
 Ordi nary 549, 700 296, 700
shar es,P23Par
Shar ePr emium 35, 300 28, 300
Accumul at
ed 250, 000 1 30,000
Prof i
ts(l
osses)
OnJanuar y1 ,2012,DolceI
nc.i ssued30,000shar eswithmarketval
ueofP25/sharefortheassetsand
l
iabil
i
ti
esofGabbanaI nc.DolceI nc.al
sopaidP1 25,000cash.Thebookvalueref
lectsthefai
rval
ueofthe
assetsandl iabil
i
ti
es,exceptthatt henon-curr
entassetsofGabbanaInc.havefai
rvalueofP630, 000and
thenoncur rentassetsofDolceI nc.areoverst
atedbyP30, 000.Conti
ngentconsi
derati
on,whichis
determinable,isequal t
oP15, 000.Dolcepaidf orthesharei
ssuancecost
sonlyamount ingtoP74,000and
i
ncurredot heracqui si
ti
oncost samount i
ngtoP1 9,000.

Asaresul
tofacqui
ri
ngt
henetasset
sofGabbanaI
nc.
,comput
efort
het
otal
li
abi
l
it
iesi
nthebooksof
Dol
ce.

a.P1
00,
000 b.P1
15,
000 c.P1
34,
000 d.P65,
000

Ans.C
Li
abil
i
ti
esofDolce P65,000
Li
abil
i
ti
esofGabbana P35,000
Conti
ngentConsi
derat
ion P15,000
Acqui
sit
ionCostI
ncurr
ed P19,000
Tot
alli
abil
i
ti
es P134,000

1
2.OnDec.31,
2013,PI
nc.paidP495,000cashf
oral
lt
heout
standi
ngst
ockofSCompany.S’
sas
set
sand
l
i
abi
li
ti
esont
hatdaywer
easf ol
lows:

Cash P60,
000

I
nvent
ory 1
50,
000

P.
P.E(
netofaccumul
ateddep.ofP1
00,
000) 350,
000

Li
abi
l
it
ies 70,
000

Onthedayofbusi
nesscombinat
iont
hefai
rval
ueoft
heinventorywasP125,
000andthefai
rvalue
ofP.
E(net
)wasP385,000.Thegoodwil
l(i
ncomef
rom acqui
si
tion)r
esul
ti
ngfr
om t
hisacqui
si
ti
on
amount
sto:

a.(
P5,
000)

b.
P85,
000

c.P40,
000

d.
P5,
000

Ans.A

Acquisi
ti
oncost P495,
000
Less:Bookvalueofi
nter
estacqui
red(
P560,
000–P70,
000) 490,
000
 Di
fference 5,
000
Al
locati
on:
I
nventory P 25,
000
Propert
yandequipment (35,
000) (
10,
000)
I
ncomef r
om acquisi
ti
on P(5,
000)

1
3.Thebal
ancesheet
sofPedr
oLt
d.andSant
iLt
d.onJune30,201
6wer
easf
oll
ows:

PedroLt
d Sant
iLt
d
Currentassets P500 P700
Non- curr
entassets 1
,300 3,000
Tot
al assets P1,800 P3,700
Sharecapi t
al:
100shar es P300
60s hares P600
Retainedearnings 800 1,400
P1
,100 P2,000
Cur
rentl
iabi
li
ti
es P300 P600
Non-cur
rentl
iabi
l
it
ies 400 1
,100
P700 P1 ,700
Tot
alequi
tyandl
i
abi
l
it
ies P1,800 P3,700

OnJul y1,PedroLtd.acqui
redal
lt
heissuedsharesofSanti
Ltd.gi
vi
nginexchange2½ Pedr
oLt
d.shar
es
foreachor di
naryshareofSant
iLt
d.PedroLtd,t
husissued150sharest
oacquiret
he60shar
esi
ssuedby
SantiLtd.

Thefai
rvalueofeachordinaryshareofSantiLt
d.onJuly1,2016isP40,whil
ethequotedmarketpri
ceof
PedroLtd.
’
sordinarysharesisP16.Thefai
rvaluesofPedroLtd.
’
sidenti
fi
abl
eassetsandli
abi
l
it
iesat
acqui
si
ti
ondatear ethesameast heircar
ryi
ngamount sexceptf
orthenon-curr
entasset
swhosef ai
rval
ue
wasP1,500.Thet axrat
ei s30%.

Theamountofgoodwi
l
lacqui
redonJul
y1,201
6:
a.P1,1
60
b.P856
c.PP400
d.P360

Ans.:D
Soluti
on:
Consi derati
ontransf
erred(40shares*xP40) P1
,600
Less:Bookval ueofSHE–Pedr oLtd.(P300+P800)x100% 1
,100
All
ocat edexcess P500
Less:Over /undervaluati
onofAssetsandLiabi
l
it
ies:
I
ncr easei nNon- cur
rentasset
s:[(
P1,500–P1 ,
300)x100% x70%] 1
40
Goodwi l
l P360

1
00%
PedroLt
d. Sant
iLt
d.
Curr
entl
yissued 150 60%*
* 60 60%
Addi
ti
onal shar
esi
ssued 100 40% 40 40%
Tot
alshares 250 1
00

*
*150/
250

Pedr
oLt
d,i
ssued2½ shar
edi
nexchangef
oreachor
dinar
yshar
eofSant
iLt
d.Al
lofSant
iLt
d.’
s
shar
ehol
dersexchangethei
rshar
esf
orPedr
oLt
d.Pedr
oLt
d.Ther
efor
eissues1
50shar
es(
60x2½)f
or
the60shar
esinSantiLt
d.

Pedr oLtd.i
snowt helegalpar entofthesubsidiar
y,Sant
iLt
d.However ,analyzingthesharehol
dingin
Pedr oLtd.showst hatitconsistsofthe1 00sharesexi
sti
ngpriort
othemer gerand1 50newshar esheldby
formershar eholdersi
nSant iLtd.Inessence,t hef
ormersharehol
dersofSant iLtd.nowcontrolboth
entit
iesPedr oLtd.andSant iLtd.Thef ormerSantiLt
d.shar
eholdershavea60% i nt
eresti
nPedr oLtd
[150/(100+1 50)]
.TheI ASBar guest hatther
ehasbeenar everseacquisi
ti
on,andt hatSantiLt
d.is
effecti
velytheacquirerofPedr oLtd.

Thekeyaccount i
ngef f
ectofdecidingt
hatSanti
Ltd.i
stheacquir
eristhattheassetsandli
abi
li
ti
esofPedro
Ltd.ar
etobeval uedatfairval
ue.Thisi
scontr
arytonormalacqui
sit
ionaccounting,basedonPedroLtd.
beingthelegal
par entofSanti
Ltd.,whi
chwouldrequi
retheassetsandliabil
i
ti
esofSantoLtd.t
obevalued
atfai
rvalue.

14.Mask,apr i
vateli
mit
edcompany,hasar r
angedf orMan,apublicl
i
mi t
edcompany,t oacquireitasa
meansofobt ai
ningastockexchangel i
sti
ng.Mani ssues15mill
i
onsharestoacqui
rethewhol eoft he
sharecapi
talofMask( 6mill
ionshar
es).Thef ai
rvalueoft
henetassetsofMaskandManar eP30mi l
l
ion
andP1 8mil
li
onr espect
ivel
y.Thefai
rvalueofeachoft hesharesofMaskisP6andthequot edmar ket
pri
ceofMan’sshar eisP2.ThesharecapitalofMani s25mill
i
onsharesaftert
heacquisit
ion.Calculat
ethe
val
ueofgoodwi lli
ntheaboveacquisit
ion.

a.P16mi
ll
ion
b.P12mi
ll
ion
c.P10mi
ll
ion
d.P6mil
l
ion

Ans.:D
Sol
uti
on:

Considerat
iontr
ansferred(4,000,000shar esxP6) P24,000,000
Less:BookvalueofSHE–Man:P1 8,000,000x1 00% 18,000,000
All
ocatedexcess P6,000,000
Less:Over/Undervaluati
onofAsset sandLiabi
l
it
ies
(
bookvaluesamef ai
rvalue) 0
Goodwi l
l P6,000,000

15.Clari
sseCompanyacquiresacontrol
li
ngint
eresti
nMi miCompanyi ntheopenmar ketforP1 20,000.
TheP1 00parvaluecapi
talst
ockofMimiCompanyatt hedateofacquisi
ti
onisP125,000andi t
’sretained
earni
ngsamount stoP50,000.Themar ketval
uepers har
eofMi miCompanyi sP1 20pershar e.Int he
consoli
datedst
atementoffi
nanci
alposi
ti
ononthedateofacquisi
ti
on.Noncontr
oll
ingint
erestwouldshow
abalanceof:

a. P30,000
b. P40,
000
c. P25,
000
d. P17

Ans.A

Cont
rol
l
ing(Parent
)int er
est:
Sharesacqui red(P120,000/P120) 1,
000shar
es
Divi
dedshar esout st
anding(
P125,000/
P100) ÷1,
250
Parent’
sint
er est 80%
 Mi
nor
it
yint
eresti
nnetasset
sofsubsi
diar
y(P1
50,
000x20%)P30,
000

1
6.Ont
hedayofacqui
si
ti
onAnneI
nc.hadt
hef
oll
owi
ngasset
sandl
i
abi
l
it
ies
:

BookValue FairVal ue
Currentasset
s P100,000 P1 00, 000
Plantasset
s(net) 220,000 260, 000
Li
abili
ti
es) (
40,000) (40,000)
SeanCompanypai dP450,000for90% oft
heout standingvot
ingst
ockofAnne.Thegoodwi
l
lint
he
consoli
datedstatementoff
inancial
posi
ti
onatacqui
sit
ioni s:
P190,000
P120,000
P180,000
P230,000

Ans.C

Par
entCompanyI nter
est P450,000
NCI 50,000
Consi
derati
on P500,000
Less:Fai
rvalueofnetasset
s 320,000
Goodwill P180,
000

17.Semi nari
an.Inc.has1 00,000shar esofP2parval uest ockoutst
anding.Pr i
estsCor porati
onacqui red
30, 000shar esofSemi nari
an’sshar esonJanuar y1,20x 4f orPl
20000whenSemi nari
an’snetassetshada
totalfairval
ueofP350000.OnJul y1 ,20x7,Pri
est
sagr eedt obuyanaddi t
ional60,000shar esof
Semi nar i
anf r
om singlestockholderf orP6pershar e“AlthoughSemi narian’
sshar e5.wer eselli
ngint heP5
rangear oundJuly1 ,20x7.Pr i
estsforecastedthatobtai
ni ngcontrol
ofSemi nari
anwoul dpr oduce
signifi
cantrevenuesyner gi
est ojustif
ythepr emium pri
cepai d.i
fSemi nari
an‘sneti denti
fi
ableassetshada
fairvalueofP500000onJul yi,20x7,howmuchgoodwi llonful
lfai
rvaluebasi sshouldPr i
estsreportinit
s,
post -combi nati
onconsol i
datedbal ancesheet ?

A.P-0-
B.P60,000
C.P90,000
D.P100,000

ANSWER:B

60% FV,stocksi
ssued:60,
000shar esxP6,f ai
rvalue P360,
000
30% FV,ofprevi
ouslyhel
dequityinterest
:30,
000shar esxP5f
air
1
50,
000
val
ue
10% FVofNCI( 1
00,000-60,000-30, 000)xP4,fai
rval
ue 40,
000
100% FVofsubsidi
ary P560,000
Less:f
airval
ueofnetassetofsubsidiary 500,000

19.Robi
nCor por
ati
onpurchased150,000previ
ousl
yunissuedsharesofNestCompany's$10parvalue
commonst ockdir
ectl
yfr
om Nesttor$3,400,
000.Nest'
sstockhol
der'
sequityi
mmediatel
ybeforethe
i
nvestmentbyRobinconsist
edof$3,000,000ofcapi
talst
ockand$2, 600,
000inret
ainedear
nings.What
i
sthebook
val
ueofRobin'si
nvestmentinNest
?

a.$1
,500,
000.
b.$1,
680,
000.
c.$2,
800,
000.
d.$3,
000,
000.

Answer
:d

Sharesout st
andingbefor
enewshar esarei
ssued $300, 000
SharesissuedtoRobi n $150,000
Tot
al sharesoutstandi
ng $450,000
PercentageownedbyRobi nequal
s1 50,
000/450,
000= 33.33%

Stockhol
ders'equi
tybeforenewsharesarei
ssued $5,
600,000
+l
nvestmentbyRobi n $3,
400,000
=Stockhol
ders'equi
tyafterRobi
ninvest
ment $9,
000,000
xRobin'spercent
ageowner ship 33.
33%
=BookvalueofRobi n'
sinter
est $3,
000,000

20.PogiCor
por
ati
onpai
dP1
00,
000cashf
ort
henetas
set
sofGandaCor
por
ati
onwhi
chconsi
stedoft
he
fol
l
owing:

BookValue Fai
rValue
CurrentAsset
s P98,000 P120,000
PropertyandEqui
pment P350, 000 P400,000
Li
abili
ti
esassumed P100,000 P110,
000

Thepr
oper
tyandequi
pmentacqui
redi
nthi
sbusi
nesscombi
nat
ionshoul
dber
ecor
dedatwhatamount
?

a.P100,000
b.P80,000
c.P350,000
d.P400,000

Answer
:d

ThePr
oper
tyandequi
pmentshoul
dber
ecor
dedati
tsFai
rVal
ueofP400,
000

21.I
ce,aprivatelimit
edcompany,hasar rangedf orCream,apublicli
mitedcompany,toacquir
eitasa
meansofobt ainingast ockexchangel i
sti
ng.Cream issues15mill
ionsharestoacqui
rethewholeofthe
sharecapit
al ofIca(6mi l
li
onshares).Thefairval
ueoft henetassetsofIceandCream areP30mi l
li
onand
P18mi l
l
ionres pecti
vely.Thefai
rvalueofeachoft hesharesofI
cei sP6andt hequot
edmar ketpri
ceof
Cream’ssharesi sP2.Theshar ecapitalofMani s25mi ll
i
onsharesaftertheacqui
si
ti
on.Cal
culatethe
val
ueofgoodwi lli
ntheaboveacqui sit
ion.
a.P16mi l
l
ion c.P10mi l
li
on
b.P12mi l
l
ion d.P 6mi l
li
on

Ans:d

Consider
ati
ont
ransf
erred(
4mil
li
onshar
es*xP6) P24,
000,
000
Less:BVofSHE–Cr eam:P18mil
l
ionx100% 1
8,000,000
All
ocatedexcess P 6,
000,
000
Less:Over/
Undervaluat
ionofAsset
sandLi
abi
l
it
ies
(
bookvaluesamef ai
rval
ue) 0
Goodwi l
l P 6,
000,
000

22.Red,Inc.has1 00,000shar esofP2parval uestockoutstanding.VelvetCorporationacquired30,000

sharesofRed’ ssharesonJanuar y1,20x5f orP120,000whenRed’ snetasset shadat ot
al f
airval
ueof
P350,000.OnJul y1,20x8,Vel vetagreedtobuyanaddi tional60,000shar esodRedf rom single
stockholderforP6pershar e.Al t
houghRed’ sshareswer eselli
ngintheP5r angear oundJuly1 ,20x8,
Velvetforecast
edt hatobt
ainingcont rolofRedwoul dproducesi gnif
icantrevenuesyner giestojust
if
ythe
premium pr i
cepaid.IfRed’
sneti denti
fi
ableassetshadaf airvalueofP500, 000onJul y1,20x8,howmuch
goodwi l
lonf ul
lfai
rvaluebasisshoul dVelvetreporti
nit
spost -combi nati
onconsolidatedbalancesheet?
a.P 0 c.P 90,000
b.P60,000 d.P100,000

Ans:b

(60%) Fairvalueofconsider ati

ongiven
Shares:60,000shar esxP6,f ai
rvalue P360,
000
(30%) Fairvalueonpr eviouslyheldequityint
erest
30,000shar esxP5,f ai
rvalue 1
50,
000
(10%) Fairvalueofnon- cont r
oll
ingi
nterest
(1
00, 000–60, 000–30, 000)xP5,f ai
rvalue 50,
000
(100%)FairvalueofSubsi di
ar y P560,
000
Less: FairvalueofNetAsset s(SHEofSubsi diar
y) 500,000
Goodwil
l(Full
/Gross-up) P 60,
000

23.
AquinoCor p.acquir
edallt
heasset
sandli
abil
i
ti
esofBinayCor
p.byi
ssui
ngsharesofi
tscommonstock
onJanuary1,201 6.Part
ial
bal
ancesheetdat
aforthecompani
espri
ort
othebusi
nesscombinat
ionand
i
mmedi at
elyfoll
owingthecombinat
ioni
sprovi
ded:

Aqui
no Bi
nay

Book Book Combi

nat
io
Val
ue Val
ue n

Cash………………………………………. P1
30,
000 P 50,
000 P 1
80,
000

Account
srecei
vabl
e…………………….
. 1
44,
000 40,
000 1
88,
000

I
nvent
ory………………………………….
. 66,
000 90,
000 1
76,
000

Pl
antandequi
pment
,net
……………….
. 800,
000 300,
000 1
,300,
000

Goodwi
l
l…………………………………… ?

Tot
alAs
set
s………………………………. P1
,140,
00 P480,
000 P ?
0

Account
spayabl
e………………………… P P 50,
000 P1
50,
000
1
00,
000
 Bondspayabl
e……………………………. 500,
000 200,
000 700,
000

Commonst
ock,P2par
………………….
. 200,
000 50,
000 320,
000

Addi
ti
onal
pai
d-i
ncapi
tal
………………… 1
30,
000 40,
000 490,
000

Ret
ainedear
nings……………………….
. 21
0,000 1
40,
000 ?

Tot
alLi
abi
l
it
iesandEqui
ti
es……….
..
..
..
.. P1
,140,
00 P480,
000 P ?
0

Whatnumberofsharesandinwhatpricedi
dAquinoi
ssuefort
hisacquisi
ti
on,aswel
last
he
amountofgoodwil
ltobereportedbyt
hecombinedent
it
yimmedi at
elyfol
l
owingthecombi
nat
ion?
a. P80,
000;P8;P450, 000
b. P60,
000;P8;P454, 000
c. P40,
000;P6;P456, 000
d. P20,
000;P6;P460, 000
ANSWER:(
b)
Commonst ock–combi ned………………………… P320, 000

Common–Acqui
rerAqui
no……………………….
. 200,
000

Commonst
ocki
ssued……………………………… P1
20,
000

Di
vi
dedby:Parval
ueofcommonst
ock………….
. P 2

NumberofAqui
noshar
est
oacqui
reBi
nay……… 60,
000 (
b
)

Paid-
incapit
albooksofAqui
no(
P200,
000+ P330,
000
P130,000)
…

Pai
d-i
ncapi
tal
int
hecombi
nedbal
ancesheet

(
P320,
000+P490,
000)
……………………………….
. 81
0,000

Pai
dincapi
tal
from t
heshar
esi
ssuedt
oacqui
re P480,
000
Bi
nay….

Di
vi
dedbyt
henumberofshar
es…………………………… 60,
000

Fai
rval
uepershar
eswhens
ocki
sissued……….
..
..
..
..
..
..
. P 8 (
b
)

Neti
dent
if
iabl
easset
sofAqui
nobef
oreacqui
si
ti
on:

(
P130,
000+1
44,
000+66,
000+800,
000-
 1
00,
000–500,
000)
………………………….
..
..
..
..
.. P540,
000

Neti
dent
if
iabl
easset
sint
hecombi
nedbal
ancesheet
:

(
P180,
000+1
88,
000+1
76,
000+1
,300,
000-

1
50,
000–700,
000………………………………….
. 994,
000

Fai
rval
ueoft
heneti
dent
if
iabl
easset
shel
dbyBi
nay

att
hedat
eofacqui
si
ti
on………………………………… P454,
000 (
b
)

24.Richar
d,Inc.i
stoacqui
reRaymondCor p.byabsorbi
ngal
lt
heassetsandassumingal
lt
heli
abi
l
it
iest
o
thelatt
eri
nexchangeforshar
esoftheformer’
sstock.Bel
owaret
hebalancesheet
softhetwocompani
es
withthecorr
espondi
ngapprai
sedvalueincr
ementforRaymondCorp.
Ri
chard Raymond

Asset
s,perbooks………………………………… P2,
000,
000 P1
,250,
000

Asset
s,appr
aisedi
ncr
ease……………………… 1
50,
000

Li
abi
l
it
ies…………………………………………… P 750,
000 P 400,
000

Commonst
ock(
Nopar
;P1
00par
)……………… 1
,000,
000 500,
000

Addi
ti
onal
pai
d-i
ncapi
tal
…………………………. 350,
000 1
50,
000

Ret
ainedear
nings(
def
ici
t)
………………………. (
100,
000) 200,
000

Tot
alEqui
ti
es……………………………………… P2,
000,
000 P1
,250,
000

Thepar t
iesagreet ousetheappr ai
sedvalues,againstwhichthefai
rmarketvalueoft
heshareswi
l
l
bemat ched.Ri chard,I
nc.’
scommonst ockiscurr
entlysell
ingatP100pershare.Thenumberof
sharetobei ssuedbyRi chard,I
nc.is:
a. 20,000
b. 15,000
c. 13,000
d. 10,000
ANSWER:(d)
Assetsatappr aisedval
ue( P1
,250,000+P1 50,000) ………………… P1,
400,000

Les
s:Li
abi
l
it
ies……………………………………………………………. 400,
000
 Netasset
satappr
aisedval
ues…………………………………………. P1
,000,
000

Di
vi
dedby:Cur
rentsel
l
ingpr
icepershar
e…………………………….
. 1
00

Numberofshar
esi
ssued…………………………………………………. 1
0,000

25.OnJuly1,2016,ParentLtd.acquir
edal
ltheissuedshar
ecapi
talofSubLtd.givi
nginexchangeof
100,000shar
esinParentLtd.thesehavi
ngafai
rvalueofP5pershare.Atacqui
si
ti
ondate,thebal
ance
sheetsofParentLt
d.andSubLt d.and t
hef ai
rvaluesofSubLtd'sassetsandliabi
l
it
ies,wereas
fol
l
ows:

ParentLt
d. SubLt
d.
Carryi
ngAmount Car
ryi
ngAmount Fai
rVal
ue
EQUITYANDLI ABILI
TIES
Equi
ty
ShareCapi tal P550,000 P300,000
Retai
nedear ni
ngs 350,
000 140,000
Total
equity P900,000 P440,000
Li
abil
i
ti
es
Provi
sions P30,000 P 60,000 P 60,
000
Payables. 27,
000. 34,
000. 34,000
Taxli
abil
it
ies 10,
000 6,
000 6,
000
Total
li
abil
iti
es P67, 000 P100,000
Tot
alequi
tyandl i
abi
li
ti
es P967,000 P540,000

ASSETS
Land P120,000 P1
50,000 P1
70,000
Equipment 620, 000 480,000 330,000
Accumul at
eddepreci
ati
on (1
80,000) (1
70,000)
Invest
mentinsubsidi
ary 500,000
Invent
ory. 92,000 75,000 80,000
Cash 15,000 5,000 5,
000
Tot
alAssets P967,000 P540,000

Atacqui
si
ti
ondate,SubLt
d.hasanunrecordedpat
entwi
thaf
airval
ueofP20,
000andacont
ingentl
i
abi
l
it
y
ofwit
hafairval
ueofP15,
000.Thetaxrat
ei s30%.

Theamountofgoodwi
l
lacqui
redonJul
y1,201
6:

a.P25,000
b.P15,
000
c.P10,
000
d.Zero

ANSWER:A

Consi
der
ati
ont
ransf
err
ed(
100,
000shar
esxP5) P500,
000
Less.BookvalueofSHE-S:P440, 000x100℅ 440,000
All
ocatedexcess P 60,
000
Less:Over/Undervali
dati
onofAssetsandLi
abil
i
ti
es
I
ncreaseinLand:P20,000x1 00% x70% P14,
000
I
ncreaseinEquipment:P20,000x100% x70% 14,000
I
ncreaseinInventor
y:P5,000x100% x70% 3,500
I
ncreaseinParent:P20,
000x1 00% x70% 14,
000
I
ncreaseinProvisi
on:P(1
5,000)x100% x70% (
10,
500) 35,
000
Goodwi l
l P 25,
000

26.OhJanuar y1,2016,ParkCor por

ati
onandSt
andCor porat
ionandt
hei
rcondenserbal
ancesheet
areasf oll
ows:
ParkCor p. Str
andCor p.
CurrentAsset s P70,000 P20, 000
Non- currentAsset s 90,000 40,000
TotalAssets P160,000 P60,000
CurrentLiabi l
it
ies P30,000 10,000
Long- t
erm Debt 50,000 -
Stockholder s'Equit
y 80,000 50,000
TotalLiabil
i
tiesandEqui t
ies P160,000 P60,000

OnJanuary2,2016,Par
kCorpor
ationbor
rowedP60,000andusedt hepr
oceedstoobtai
n80% ofthe
outst
andi
ngcommonsharesofSt
randCorpor
ati
on.Theacqui
si
ti
onpr
icewasconsi
deredpropor
ti
onat
eto
Stand'
sfai
rval
ue.

TheP60,000debtispayabl
ein1 0equalannualpr
inci
pal
s,pl
usi
nter
est,begi
nni
ngDecember31 ,2016.
Theexcessfai
rvalueoftheinvest
mentovert heunderl
yi
ngbookvalueoft heacqui
rednetassetsis
al
locat
edtoi
nvent
ory(60%)andtogoodwill
(40%).

Ontheconsol
idat
edbalancesheetasofJanuar
y2,201
6,whatshoul
dbet
heamountofeachofgoodwi
l
l
usi
ngpropor
ti
onatebasi
s(par
ti
al)
?

a.P 0
b.P8,000
c.P10,000
d.P20,000

ANSWER:B

FairValueofconsiderati
ongiven P60,000
Less:Bookvalueofnetasset s(P50,
000x80%) 40,000
All
ocatedexcess P20,000
Less:Over /
Undervalidati
onofAsset
sandLiabi
l
it
ies
IncreaseinInventory(
P20,000x60% =P1 2,
000/80%
=P15,000increaseini
nvent
oryx80% 12,000
Goodwi ll
(part
ial
). P8,000

27.OnJune1
2,201
5DonCompanypur
chases8,
000shar
esofSam Companyf
orP68pershar
e.
 Justpr
iort
othepur
chase,Sam Co.hast
hef
oll
owi
ngst
atementoff
inanci
alposi
ti
on.

ASSETS Li
abili
ti
es&Equi ty
Cash P 20,000 Currentliabi
lit
ies P250,000
I
nventor
y 280, 000 CommonSt ock,P5par 50,000
Equi
pment 400, 000 APIC 130,
000
Goodwil
l 1 00,000 RetainedEar nings 370,
000
Tot
alAsset
s P800, 000 Tot
al Liabil
it
iesandEqui
tyP800,000

OnJune1 2,201
5Sam’ si
nventoryhasaf
airval
ueofP450,
000andt hattheequi
pmentisworth
P600,000.Whatistheamountofnoncontrol
li
ngi
nter
esti
ntheconsoli
datedst
atementoff
inanci
al
posi
ti
onont hedateofacqui
si
tion?
a. P128,000
b. P150,000
c. P164,000
d. P120,000

ANSWER:C
Rati
onale
Cash P 20, 000
I
nventory 450, 000
Equi
pment 600, 000
Tot
alAssets 1
,070, 000
Li
abli
ti
es (250,000)
NetAssets P820, 000
X20%
NCI P164, 000

28.Usi
ngt hedat
aintheprecedi
ngnumberwhatist
heamountofgoodwil
l(gai
nonacqui
si
ti
on)t
o
bereport
edintheconsol
i
datedstat
ementoff
inanci
alposi
ti
onont
hedateofacqui
si
ti
on?
a. P98,000
b. P100,000
c. P112,000
d. P106,000

ANSWER:C
Rational
e
Acquisit
ionCost(8000x68) P544,000
NCI 164,
000
Total P708,000
Less:NetAssets P820,000
GainonAcqui si
ti
on (P112,
000)

29.Thebalancesheet
sofMi
nLtd.andKi
m Lt
donJune30,2017wer
easf
oll
ows:
MinLtd Ki
m Ltd
Curr
entassets P 600 P 800
Non-curr
entasset
s 1200 2900
Tot
alassets P1800 P3700
Cur
rentLi
abil
i
ties P 250 P 700
Non-cur
rentl
iabi
li
ti
es 450 1000
P700 P1700
ShareCapit
al
100shar
es P 300
60shares P 600
Retai
nedEarni
ngs 800 1400
P1100 P2000
Tot
alequi
tyandl
i
abi
l
it
ies P1800 P3700

OnJuly,2017,Mi
nLtdacqui
redal
lt
heissuedshar
esofKim Lt
dgivi
nginexchange21/
2Mi nLtdshar
esfor
eachordi
nar
yshareofKi
m Lt
d.MinLtdthusi
ssued150sharestoacqui
ret
he60sharesissuedbyKim Lt
d.

Thefairval
ueofeachordi
naryshar
eofKim Lt
donJul y1,2017i
sP40,whi l
ethequotedmar ketpri
ceofMin
Ltd’
sordinar
ysharesi
sP16.Thefai
rval
uesofMi nLtd’
sident
ifi
ableasset
sandli
abil
i
tiesatacquisi
ti
ondat
e
arethesameast hei
rcar
ryi
ngamountsexceptforthenon-currentasset
swhosefai
rvaluewasP1500.
Thetaxrateis30%.

Theamountofgoodwi llacquir
edonJul y1,
2016is
a.P11 60 c.P400
b.P 856 d.P360
Solut
ion:
ANS:D
Considerationtr
ansferred(40shar es*xP40) P1600
Less:Bookval ueofSHE- PedroLtd( P300+P800)x1 00% 1100
All
ocatedExcess P 500
Less:Over /Undervaluati
onofAsset sandLiabi
l
it
ies:
IncreaseinNon- currentassets:[
(P1500–P1300)x
100% x70% 140
Goodwi ll P 360

100%
MinLt
d Kim Lt
d
Curr
entl
yissued 150 60% 60 60%
Addi
ti
onal shar
esi
ssued 100 40% 40/40%
Tot
alshares 250 100

*
*150/
250

MinLtdissues21 /
2sharesi
nexchangef
oreachordi
naryshar
eofKi
m Ltd.al
lofMi
nLt
d’sshar
ehol
ders
exchangetheirsharesf
orMinLt
d.MinLt
dtheref
orei
ssues150shar
es(60x21 /
2)f
ort
he60sharesinKim
Ltd.

MinLtdi snowt helegalparentoft

hesubsidiary,Ki
m Ltd.however,anal
yzingtheshareholdi
nginMinLtd
showst hatitconsi
stsofthe100sharesexisti
ngpr i
ort
ot hemer gerand1 50newshar esheldbyfor
mer
shareholdersinKim Lt
d.Inessence,t
hefor mershareholdersofKim Lt
dnowcont rolbothenti
ti
esMinLtd
andKi m Ltd.TheformerKim Ltdshar
eholdershavea60% i nt
erestinMinLtd[
150/(1
00+1 50)]
.TheIASB
arguesthatt her
ehasbeenar ever
seacquisit
ion,andthatKim Ltdisef
fecti
vel
ytheacquirerofMinLtd.

30.OnJul
y1,201
6,NalyCo.Acqui
redallt
heissuedshar
ecapit
alofLit
oCo.givi
nginexchangeof120,
000
shar
esinNal
yCo.thesehavi
ngafairval
ueofP5pershare.Atacquisi
ti
ondat
e,thebal
ancesheetsofNal
y
Co.AndLi
toCo.Andthefai
rval
uesofLit
oCo. ’
sasset
sandli
abil
i
ti
eswer easfol
l
ows:
NalyCo. Li
toCo.
Carr
yingAmount Carr
yingAmount Fai
rValue
ASSETS
Cash P15,
000 P 5,
000 P 5,
000
I
nventory 92,000 75,
000 80,000
I
nvestmentinSubsidi
ary
(SharesinLi
toCo.) 500,
000
Equi
pment 620,
000 480,
000 330,
000
Accumulateddepreci
ati
on (
180,
000) (
170,
000)
Land 120,
000 150,
000 1
70,
000
TOTALASSETS P967,
000 P540,
000

LI
ABILITIESANDEQUITY
Li
abil
it
ies
Payables P27,000 P34,
000 P34,
000
Taxli
abil
iti
es 1 0,
000 6,
000 6,
000
Provi
sions 30,000
Total
li
abi l
i
ti
es P 67,
000 P40,
000
Equit
y
Sharecapi t
al P550,
000 P360,
000
Retai
nedear ni
ngs 350,
000 140,
000
Total
equi t
y P900,
000 P500,000
TOTALEQUI TYANDLI
ABILI
TIES P967,
000 P540,000

Atacquisit
iondat
e,Li
toCo.Hasanunrecor
dedpat
entwi
thaf
airval
ueofP20,
000andacont
ingentl
i
abi
l
it
y
wit
haf airval
ueofP15,000.Thet
axr
ateis30%.

Theamountofgoodwi l
lacquir
edonJul y1 ,
2016:
a.P65,000 c.P50,000
c.P45,000 d.Zero
Solut
ion:
ANS:A
Considerat
iontr
ansferred( 1
20,000shar esxP5) P600,
000
Less:BookvalueofSHE- Lit
oP500, 000x1 00% 500,
000
All
ocatedexcess P1
00,
000
Less:Over/Undervaluati
onofAsset sandLi abi
li
ti
es:
I
ncreaseinLand:P20, 000x1 00% x70% P1
4,000
I
ncreaseinEquipment :P20,000x1 00% x70% 14,
000
I
ncreaseinInventory:P5,000x1 00% x70% 3,500
I
ncreaseinPatent:P20, 000x1 00% x70% 14,
000
DecreaseinProvisi
on:( P20,000)x1 00% x70% (10,
500) 35,000
Goodwi l
l P 65,
000

Thenetfairval
ueofthesubsidi
arycoul
dbecalcul
atedbyrevalui
ngtheasset sandl i
abil
i
ti
esofthe
subsi
diar
yf r
om thecarr
yingamountstofai
rval
ue,rememberingthatunderPASNo.1 2IncomeTaxes
reval
uati
onofassetsrequir
esarecogni
ti
onofthetaxeff
ectoftherevaluati
onbecauset hereisa
dif
fer
encebet weenthecarryi
ngamountandthetaxbasecausedbyt her evaluat
ion.

31.OnJanuar
y1 ,201
6,Par
kCor
por
ati
onandSt
randCor
por
ati
onandt
hei
rcondensedbal
ance
sheetar
easfol
lows:

Par
kCor
por
ati
on St
randCor
por
ati
on

Cur
rentAsset
s……………………………….
. P70,
000 P20,
000

Non-
cur
rentAsset
s………………………….
. 90,
000 40,
000

Tot
alAsset
s………………………………….
. P1
60,
000 P60,
000
 Cur
rentLi
abi
l
it
ies……………………………. P30,
000 P1
0,000

Longt
erm debt
………………………………. 50,
000 -

St
ockhol
der
’sEqui
ty………………………… 80,
000 50,
000

Tot
alLi
abi
l
it
iesandEqui
ti
es……………….
. P1
60,
000 P60,
000

OnJanuar y2,201 6,ParkCor porat

ionbor
rowedP60, 000andusedt heproceedstoobtain80% of
theoutstandingcommonshar esofSt r
andCorporat
ion.Theacqui
si
ti
onpr i
cewasconsi dered
propor
tionatetoStrand’sfai
rvalue.TheP60,
000debti spayabl
ein10equal annualpr
incipal
payment s,pl
usinterest
,beginningDecember31 ,
2016.Theexcessfairval
ueoftheacquirednet
asset
sisal l
ocatedtoinventory(60%)andtogoodwi l
l(40%).

Onaconsol
i
datedbal
ancesheetasofJanuar
y2,201
6,whatshoul
dbet
heamountofgoodwi
l
l
usi
ngpr
oport
ionat
ebasi
s(par
ti
al)
?

a. P0
b. P8,
000
c. P1
0,000
d. P20,
000
Answer
:B

Fai
rval
ueofconsi
der
ati
ongi
ven P60,
000

Less:Bookval
ueofnetasset
s(P50,
000x80%) 40,
000

Al
l
ocat
edexcess P20,
000

Less:I
ncr
easei
ninvent
ory(
P20,
000x60%)
/80%

=P1
5,000i
ncr
easei
ninvent
oryx80% 1
2,000

Goodwi
l
l(par
ti
al) P8,
000

32.Pit
aCompanyacquiresacont r
oll
ingint
eresti
nSodaCompanyi ntheopenmar ketfor
P120,000.TheP100parvaluecapitalst
ockofSodaCompanyatt hedateofacquisi
ti
onis
P100,000anditsr
etai
nedearningsamount stoP50,000.Themarketval
uepershareofSoda
Companyi sP150pershare.I
ntheconsol i
datedstat
ementoff
inanci
alposi
ti
on,non-contr
oll
i
ng
i
nterestwoul
dshowabal anceof:

a. P80,
000
b. P5,
000
c. P30,
000
d. P35,
000
Answer
:C

Cont
rol
l
ing(
Par
ent
)int
erest
:

Shar
esacqui
red(
P120,
000/P1
50) 800shar
es

Di
vi
dedshar
esout
standi
ng(
P100,
000/
P100) ÷1
,000

Par
ent
’si
nter
est 80%

Mi
nor
it
yint
eresti
nnetasset
sofsubsi
diar
y(P1
20,
000/80% x20%) P30,
000

33.AACompanyacquir
edall
thei
ssuedshar
ecapit
alofBBCompanyonMar ch31 ,
2016givi
ngin
exchangeof100,
000shar
esinAACo.Thesehavi
ngaf ai
rval
ueofP5pershare.Atacqui
sit
iondate,t
he
balancesheet
sofAACoandBBCo.Andf ai
rval
uesofBBCo.’sasset
sandl
iabil
i
ti
es,wer
easf ol
lows:

AACo. BBCo.

Car
ryi
ngAmount Car
ryi
ngAmount Fai
rVal
ue

Asset
s:

Cash.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P1
5,000 P 5,
000 P 5,
000

I
nvent
ory.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 92,
000 75,
000 80,
000

I
nvest
menti
nSubsi
diar
y

(
Shar
esi
nBBCo.
)..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 500,
000

Equi
pment.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. 620,
000 480,
000 330,
000

Accumul
ateddepr
eci
ati
on.
..
..
..
..
..
..
..
..
..
..
..
..
..
..(
180,
000) (
170,
000)

Land.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. 1
20,
000 1
50,
000 1
70,
000

Tot
alAsset
s..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. P967,
000 P540,
000

Li
abi
l
it
iesandEqui
ti
es:

Li
abi
l
it
ies

TaxLiabil
i
ties...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...P1 0,000 P6,000 P 6,000
Payables..
...
..
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
.. 27,000 34,000 34,000
Provi
sions...
..
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
.. 30, 000 60,
000 60,000

Tot
alLi
abi
l
it
ies.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P67,
000 P1
00,
000
Equi
ty
ShareCapi
tal.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..P550,000 P300,000
Retai
nedEarni
ngs...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 350,
000 1
40,000
P900,000 P440,
000

Tot
alLi
abi
l
it
iesandEqui
ty.
..
..
..
..
..
..
..
..
..
..
..
..
.. P967,
000 P540,
000

Atacqui
sit
iondat
e,BBCo.Hasanunrecor
dedpatentwithafai
rvalueofP20,000,cont
ingentl
i
abi
l
itywi
th
afai
rval
ueofP1 5,
000,andoneoft
hepayablesi
sadividendpayableofP8,000.AACo.acquir
esthe
esofBBCo.Onacum di
shar vbasi
sor“di
vi
dends-on”arr
angement .
Thetaxrat
eis30%.Theamountof
goodwil
lacqui
redonMarch31,
2016:

A.P1
6,000
B.P17,
000
C.P18,
000
D.P19,
000

Answer
:B

Consi
derati
ontr
ansf
erred[(
100, 000sharesxP5)-P8, 000]...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..P492,
000
Less:
BookValueofShareholdersEquity-BBCo:
P440,000x100% ..
..
..
..
....
..
...
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..440,000

All
ocatedExcess....
..
...
..
...
..
..
...
..
..
..
...
..
..
..
..
..
..
..
..
...
..
..
...
..
..
...
..
..
...
...
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P 52,
000
Less:Over/
Underval uat
ionofAsset sandLiabil
it
ies:
Increasei
nLand:P20, 000x1 00% x70%. ..
..
..
...
..
..
...
..
..
...
..
P1 4,000
Increasei
nEqui pment :P20, 000x1 00% x70%. ..
...
..
..
...
..
..
.1 4,000
Increasei
nInvent ory:P5,000x1 00% x70%. .
..
...
..
..
...
..
..
...
.3, 500
Increasei
nPat ent:P20,000x1 00% x70%. .
...
..
..
...
..
..
...
..
..
...
.14,000
Increasei
nPr ovisi
on:P( 15,000)x1 00% x70%. ..
..
..
..
...
..
..
.(10,500) 35,000
Goodwi l
l.
..
..
..
..
...
..
....
...
..
..
...
..
...
..
..
..
...
..
..
..
..
..
..
..
..
..
...
..
..
...
..
..
...
..
..
....
...
..
..
..
..
..
..
..
..
..
..
..
..
..
.. P1 7,
000(B)

34.Whatwoul dbetheeff
ectontheconsol
idat
edfinanci
alst
atement
sifanunconsol
i
datedsubsi
diar
yis
accountedforbythecostmethodofaccounti
ng,butconsol
idat
edfi
nanci
alst
atementsar
epreparedfor
othersubsi
diari
es?

a.All
theunconsol
i
datedsubsi
diar
y'sl
edgeraccountbal
anceswoul
dbei
ncl
udedi
ndi
vi
dual
l
yint
he
consoli
dat
edfi
nancial
stat
ements.
b.Consol
i
dat
edneti
ncomewoul
dnoti
ncl
udeanyamount
sfort
heunconsol
i
dat
edsubsi
diar
y.

c.Consol
i
dat
edneti
ncomewoul
dbet
hesameasi
fthesubsi
diar
yhadbeeni
ncl
udedi
ntheconsol
i
dat
ion.

d.Di
vi
dendr
evenuef
rom t
heunconsol
i
dat
edsubsi
diar
ywoul
dbei
ncl
udedi
nconsol
i
dat
edneti
ncome.

Answer
:D

35.UnderSFAS141R,whatval
ueoft
heasset
sandl
i
abi
l
it
iesi
sref
lect
edi
nthef
inanci
alst
atement
sont
he
acqui
si
ti
ondateofabusi
nesscombi
nati
on?

a.Carr
yingval
ue
b.Fai
rvalue
c.Bookvalue
d.Averageval
ue

Answer
:b

36.Theparentcompanyowned65% ofsubsi
diary’snetasset
s.Ont
heconsol
i
dat
edst
atementoff
inanci
al
posit
ionofthecombinedent
it
y,t
her
etai
nedear ningshasamountequal
to:

a. Thesubsi
diar
y’sr
etai
nedear
nings
.

b. The65% oft
hesubsi
diar
y’sr
etai
nedear
ningspl
uspar
entcompany’
sret
ainedear
nings.

c. The1
00% oft
hesubsi
diar
y’sr
etai
nedear
ningspl
uspar
entcompany’
sret
ainedear
nings.

d. Thepar
entcompany’
sret
ainedear
nings
.

ANSWER:(
d)

Onl
ythepar
entcompany’
sret
ainedear
ningswi
l
lappearont
heconsol
i
dat
edst
atementoff
inanci
al
posi
ti
on.

37.
Whi chisnottrueaboutt hewor kingpaperf
orconsol idatedst atementoffi
nanci
al posi
ti
ononthedat
e
ofacquisi
ti
on?
a. Theamount sintheconsol idatedcolumnrefl
ectsthef inancialposit
ionofsi
ngleeconomi cent
it
y
compr i
singtwolegal entit
ies,afterel
imi
nati
ngallintercompanybal ances
b. Consoli
datedr et
ainedear ni ngsincl
udeonlytheretainedear ningsoftheparentcompany
c. Theeliminati
onent r
yisr ecor dedintheparentandsubsi di
ary’saccounti
ngrecords
d. Theconsol i
datedpaid-incapi t
alamountsarethoseoft hepar entcompanyonly.
Ans.C

38.OnDecember31,
2013,PaloCompanypai d P990,000for99% oftheoutst
andi
ngcoomonst ockof
SotaCompany.Ther
emaini
ng1 % washeldbyast ockhol
derwhowasunwi l
l
ingtosel
lt
hestock.Sot
a’snet
asset
shadabookvalueofP850,000andaf airmarketval
ueofP900,000whenitwasacquir
edbyPal o.I
f
Sotausespush-
downaccount
ing,thenon-contr
oll
i
nginter
estshoul
dbereport
edat:
a.P8,500
b.P9,000
c.P9,
900
d.P10,000
Ans.B
Solut
ion:
P900,000x1 %=P9000
39.RizalCorporat
ionpai
dP1
00,
000cashf
ort
henetas
set
sofBoni
faci
oCor
por
ati
onwhi
chcons
ist
edof
thefoll
owing:

BookValue Fai
rValue
CurrentAsset
s P98,000 P120,000
PropertyandEqui
pment P350, 000 P400,000
Li
abili
ti
esassumed P100,000 P110,
000

Thepr
oper
tyandequi
pmentacqui
redi
nthi
sbusi
nesscombi
nat
ionshoul
dber
ecor
dedatwhatamount
?

a.P400,000
b.P80,000
c.P350,000
d.P100,000

Answer
:A

40.ThePropertyandequipmentshouldber ecor
dedatitsFairValueofP400,000
OnJanuary2,201 1,Bul
al
oCo.pur chased75% ofParesCo’sout standi
ngcommonstock.Ont
hatdat
e,t
he
fai
rval
ueofthe25% noncontrol
li
nginterestwasP35,000.Dur i
ng201 1,Par
eshadneti
ncomeofP20,
000.
Select
edbalancesheetdataatDecember31 ,
2011,i
sasfoll
ows:

Bul
al
o Par
es

Tot
alass
ets P420,
000 P1
80,
000

Li
abi
l
it
ies P1
20,
000 P60,
000

Commonst
ock 1
00,
000 50,
000

Ret
ainedEar
nings 200,
000 70,
000

Duri
ng2011BulaloandPar
espaidcashdi
vi
dendsofP25,000andP5,
000r
espect
ivel
y,t
othei
r
shar
ehol
ders.Therewer
enootheri
nter
companyt
ransact
ions
.

I
nBulalo’
sDecember31 ,
2011consol
i
dat
edbal
ancesheet
,whatamountshoul
dber
epor
tedas
noncontr
oll
i
ngint
eresti
nnetasset
s?

a. P30,
000

b. P35,
000

c. P38,
750

d. P40,
000
ANSWER:C

Fai
rval
ueofnoncont
rol
l
ingi
nter
est P35,
000

Pl
us:Shar
eofneti
ncome(
25% x20,
000) 5,
000

Less:Shar
eofdi
vi
dends(
25% x5,
000) (
1,250)

Noncont
rol
l
ingi
nter
est P38,
750

SUBSI
QUENTDATEOFACQUI SI
TION
1.Wat
kinsI
nc.acqui
resal
loft
heoutst
andi
ngst
ockofGuenCor
por
ati
ononJanuar
y1,201
6.Att
hatdat
e,
Guenownsonl
ythr
eeasset
sandhasnol
i
abi
l
it
ies:

BookVal
ue Fai
rVal
ue
I
nvent
ory P40,000 P50,000
Equi
pment 80,000 75,000
Bui
l
ding 200,000 300,000

I
fWal
ki
nspaysP450,000i
ncashf
orGuen,whatamountwoul
dber
epr
esent
edatt
hesubsi
diar
y’sbui
l
ding
i
naconsol
i
dat
ionatDecember31
,201
8,assumi
ngt
hebookval
ueatt
hatdat
eisst
il
lP200.000?
a.200,000 c.285,000
b.255,000 d.300,000

ANSWER:
Bui
l
ding,bookval
ue P200,000
I
ncr
easet
ofai
rval
ue(
300,000-200,000) 1
00,000
Amor
ti
zat
ionofal
l
ocat
edexcess(
100,000/
20x3year
s) (
15,000)
Consol
i
dat
edbui
l
ding,1
2/31
/201
8 P285,000
2.OnJanuar
y1,201
6,Har
ryI
nc.r
epor
tsnetasset
sofP880,000al
thoughapat
ent(
wit
ha1
0-yearl
i
fe)
havi
ngabookval
ueof330,000i
snowwor
thP400,000.NewtCor
por
ati
onpaysP840,000ont
hatdat
e
f
oran80% owner
shi
pinNewt
.OnDecember31
,201
7,Har
ryr
epor
tst
otal
expensesofP621
,000whi
l
e
Newtr
epor
tsexpensesofP71
4,000.Whati
stheconsol
i
dat
edt
otal
expensebal
anceonDecember31
,
201
7?
a.1
,197,800 c.1
,342,000
b.1
,335,000 d.1
,349,000
ANSWER:
Har
ryexpense P621
,000
Newtexpense P71
4,000
Amor
ti
zat
ionofal
l
ocat
edexcess
(
400,000–330,
000)/1
0year
s 7,000 721
,000

Consol
i
dat
edt
otal
expensef
or201
7 P1
,342,000
3.Keep,
Inc.,acal
endaryearcorporat
ion,acqui
res70% ofGeor
geCompanyonSept
ember1 ,20x4and
anaddit
ional10% onApri
l1,20x5.Totalannual
amorti
zati
onofP6,
000r
elat
est
othef
irstacqui
si
ti
on.
Georgereportst
hefol
lowingfi
guresfor20x5:

Revenues P500,
000

Expenses 400,
000

Ret
ainedear
nings,1
/1/
20x5 300,
000

Di
vi
dendspai
d 50,
000

CommonSt
ock 200,
000

Wit
houtr
egardforthi
sinvest
ment,
Keef
eearnsP300,000i
nnetincomeduri
ng20x5.All
neti
ncomeis
ear
nedevenl
ythroughouttheyear
.Whati
sthecont
roll
i
ngi
nter
estinconsol
i
dat
ednetincomefor20x5?

a. P371
,500

b. P372,
850

c. P373,
300

d. P394,
000

ANSWER:B

Netincomefrom ownoperat
ions;
Parent–Keefe P300,000
Subsidi
ary-George(P500,
000–P400,
000) 100,
000
P400,000
Less:Amor ti
zati
onofal l
ocatedexcess 6,000
I
mpai rmentofgoodwi ll(i
fany) 0
Consolidat
ed/Gr oupNetI ncome P394,
000
Less:Non- control
li
nginterestinNetIncome
Subsidiar
ynetincomef rom ownoper ati
ons:
1/1
/20y0-4/ 1/
20y0( 3mont hs):
P100,000x3/ 1
2=P25, 000x30% P7,
500
4/1/20y0–1 2/31 /
20y0( 9mont hs)
:
P100,000x9/ 12=P75, 000x20% 15,
000
Total P22,500
Less:Amor ti
zati
onofal l
ocatedexcess :
1/1
/20y0–4/ 1/20y0(3mont hs)
P6,000x3/1 2=P1 ,
500x30% 450
4/
1 /
20y0–1 2/
31/20y0( 9months)
P6,000x9/ 12=P4, 500x20% 900
I
mpai r
mentofgoodwi l
l(i
fany):
Fi
rst3mont hs:P0x30% 0
Remaining9mont hs :P0x20% 0 21
,150
CNIattr
ibut
abletothecont r
oll
i
nginter
est(
CI-
CNI
)/Pr
ofit
at
tri
butabl
etoequi t
yholdersofparent P372,
850

4.OnApril1,NarzInc.exchagesP430, 000fairval
ueconsi der
ationfot70% oftheoutstandi
ngst ockof
AnneCor porat
ion.Theremai ni
ng30% oft heoutstandi
ngshar escont i
nuedtotradeatacol l
ect
ivef ai
r
valueofP165,000.Anne’sidentif
iabl
eassetsandliabil
i
tieseachhadbookval uest hatequatedtheirfai
r
valuesonApr i
l1foranettotalofP500, 00.Duri
ngt heremainderoft heyear
,Annegener at
esrevenuesof
P600,000andexpensesofP360, 000andpai dnodi vi
dends.OnaDecember31consol i
datedbalance
sheet,whatamountshoul dber eport
edasanon- controll
i
nginterestonafull
fairval
uebasis?

a. P219,
000
b. P237,000
c. P287,000
d. P250,000
ANS:A

BookvalueofSt ockhol der’sEquityofSubsidi

ary4/1/1
6 P500,
000
Add:Netincomef or9mont hs
(
P600,000- P360, 000=P240, 000x9/ 1
2) 180,000
BookvalueofSt ockhol der’sEquityofSubsidi
ary12/31/1
6 P680,
000
Add:Adjustment stor efl
ectfairval
ue 0
Fai
rvalueofSt ockhol der’
sEqui tyofSubsidi
ary12/31/
16 P680,000
Mult
ipl
i
edby:Non- cont r
olli
nginterespercent
age 30%
Non-control
li
ngi nter est(parti
algoodwi l
l) P204,000
Add:Non- controll
ingi nterestinFullGoodwill
(
P95,000f ull -P80,000par ti
al) 1
5,000
Non-control
li
ngI nter est(full
) P219,
000

Parti
alGoodwill
Fairval
ueofSubsidiary:
Fai
rvalueofconsiderat
iontransf
err
ed:Cash P430,
000
Less:BookvalueofNetAsset s(Stockhol
der’
sEquit
y-
Subsi
diar
y):(P500,000x70%) 350,000
Parti
alGoodwill P80,000

Full
-goodwi l
l
(70%)Fairvalueofconsi der
ationtr
ansf
erred:Cash P430,
000
(30%)Fairvalueofnon- controll
i
ngint
erests 165,
000
(100%)Fai rvalueofsubsidi
ary P595,000
Less:Bookval ueofNetAsset s
(
Stockhol der
’sEquit
y-Subsidi
ary) 500,
000
Goodwi l
l(Full
/Gross-up) P95,
000

5.OnJanuary3,2016,Al i
Companyacqui red80% ofFrazerCorp.
’scommonst ockforP344,000i
ncash.
Attheacquisi
ti
ondate,thebookvaluesandf ai
rval
uesofFrazer’
sasset
sandliabil
i
ti
eswer eequal
,andthe
fai
rvalueofthenon-control
l
ingi
nterestwasequalto20% ofthebookvalueofFrazer.Thest
ockholder
s’
equit
yaccountsofthetwocompani esattheacquisi
ti
ondateare:
 Ali Frazer
Commonst ock,P5parvalue P500,
000 P200,000
Addi
ti
onalpaidincapi
tal 300,
000 80,
000
Ret
ainedEarnings 350,
000 150,000
Tot
alStockhoders
’Equit
y P1,
150,000 P430,000

Non-cont
rol
l
ingi
nter
estwasassi
gnedi
ncomeofP1
1,000i
nAl
i
’sconsol
i
dat
edi
ncomest
atementi
n
2016.

Whatwi
l
lbet
heamountofneti
ncomer
epor
tedbyFr
azerCor
p.i
n201
6?

a. P44,
000
b. P55,
000
c. P66,
000
d. P36,
000

ANS:B

Ful
l
-goodwillPr
esent at
ion(workbackapproach)
Non-controll
i
ngi nt
eresti
nnetincome P1
1,000
Divi
dedby:Non- cont
roll
i
ngint
erest 20%
Subsidi
ary-FrazerNetIncomef r
om hi
sownoper
ati
ons P55,
000

6.Attheendof201 6,MicahCompany’ sstockholdersequit

yincludescommonstockof500, 000and
addi
ti
onalpaidincapit
alof300,000.Paperpurchaseda70% i nteresti
nSli
ckCompanyonJanuar y1,201
6,
whent henon-cont
roll
ingi
nter
estinSli
ckhadaf airval
ueof90,000.Nodi f
fer
enti
alarosef rom t
he
busi
nesscombi nat
ion.Duri
ng201 6,Sl
ickreportnetincomeof20, 000anddeclaresdividendof5,000.The
2016consoli
datedbalancesheetincl
udesr et
ainedear ni
ngsof630, 000(
contr
oll
i
ngint erestpor
ti
on).

Det
erminetheconsol
i
dat
edequi
tyonDecember31
,201
1:
a.1,
430,000
b.1,
457,
000
c.1
,524,500
d.1,
526,000

ANS:C
Consol
idatedEquity:
At
tri
butabl
etoEqui tyHol
ders’
ofPar
ent
/Cont
rol
l
ingI
nter
est
:
Commonst ock 500,000
Additi
onalpaid-i
ncapi
tal 300,000
Retai
nedear nings 630,000
-
---
------
- -
--
Equi
tyHol
dersofPar ent
/Cont
rol
l
ingI
nter
est 1,
430,000
Non-Contr
oll
i
nginterest
:
(90,
000+(
20,000-5,000)X30% 94,500
-
-----
--------
Consol
i
dat
edEqui
ty 1
,524,500

7.Er
hlyn’
sCompanyacqui r
edan80% i nt
eresti
ntheAir
aCompanywhenAi ra’
sequit
ycompr i
sedshar
e
capi
talof100,000andret
ainedear
ningsof500,000.Ai
ra’
scur
rentst
atementoff
inanci
alposi
ti
onshows
shar
ecapitalof100,
000,areval
uat
ionreserveof400,
000andretai
nedearni
ngsof1400,000.

Whatfi
gureinrespectofAi
ra’
sret
ainedear
ningsshoul
dbei
ncl
udedi
ntheconsol
i
dat
edst
atementof
f
inanci
alposi
ti
on?
a.720,
000
b.1,
440,000
c.1,
040,000
d.1,
520,000

ANS:A
Thi
sistheparentcompany’sshareoft hepostacqui
sit
ionr
etainedear ni
ngsoft hesubsi
diar
y.Thi si
s
det
erminedbydeduct i
ng(i)theparentcompany’sshareofther etainedearningsofthesubsidiaryofthe
dat
eofacquisiti
onfr
om (i
i)theparentcompany’sshareofther etainedearningsofthesubsidiaryatthe
endofthecurrentr
eporti
ngper i
od.

Air
a’sret
ainedear ni
ngs
,dateofacqui
si
ti
on 500,000
Less:Air
a’sret
ainedearni
ngs,endoft
hecurr
entr
epor
ti
ngper
iod 1,400,000
900,000
X:Contr
oll
i
ngint
erest% 80%
Air
a’sr
etai
nedearni
ngsincl
udedi
ntheconsol
i
dat
edf
inanci
alposi
ti
on 720,000

8.Bet
aCompanyacqui r
ed1 00per centofthevot ingcommonshar esofStandardVideoCorporati
on,it
s
bi
tt
erri
val
,byissui
ngbondswi t
haparval ueandf ai
rvalueofP1 50,
000.Immediatel
ypriort
othe
acqui
si
ti
on.Betareport
edt ot
alasset sofP500, 000,li
abili
ti
esofP280,000,andstockhol
ders'equit
yat
P220,
000.Atthatdate,StandardVi deoreportedt ot
alassetsatP400,000,l
iabi
l
it
iesofP250,000.,and
st
ockhol
ders'
equityofP150,000.I ncludedinSt andard'
sliabi
l
it
ieswasanaccountpayabl etoBetainthe
amountatP20,000 whichBet aincludedinitsaccount srecei
vable.

Basedonthepr ecedi
nginf
ormation:(1
)whatamountoftotal
assetsdi
dBetarepor
tini
tsbal
ances heet
i
mmedi at
elyaft
ertheacqui
sit
ion:(2)whatamountofasset
swasr epor
tedi
ntheconsol
idat
edbalance
sheeti
mmedi at
elyaft
ert
heacqui si
ti
on?

a.(
1 )P650, 000;(
2)P650,
000
b.(
1 )P650. 000;(
2)P800,000
c.(
1 )P800, 000;(
2)P650,
000
d.(
1 )P800. 000:(
2)P800000
Answer :B
Sol
ut i
on
Beta'sBalanceSheet
Tot
al assetsofBetaCompanybeforeissuanceofshar
es P500,000
Add:InvestmentinSubsi
diary(
atfai
rvalue) 1
50,000
Tot
al assetinthebal
ancesheetofBetaCompany P650,000

Consol
i
dat
edBal
ancesheet
:

Beta'
s(parent
)assets P650,000
StandardVideo'
s(subsidi
ary)asset
s 400,000
Totalasset
sbeforeeliminati
ons P1,
050,000
I
nvestmentinsubsidiary (
150,000)
A/Rfrom Standar
d (
20,000)
Consolidat
edTotalassets P880, 000

9.MonteroCompanyi scontemplat
ingthepurchaseofthenetasset
sofToyot
aCompanyf orP800,
000
cash.Tocomplet
ethet r
ansacti
on,dir
ectacquisi
ti
oncostsar
eP1 5,
000.Thebal
ancesheetofToyot
a
Companyont hepurchasedateisasfoll
ows:
 ToyotaCompany
BalanceSheet
December31 ,201
4
Assets Li
abili
ti
esandEqui
ty
Currentassets P80, 000 Liabi
li
ti
es P100,000
Land 50,000 CommonSt ock,P10par 1 00,000
Buil
ding 450,000 Paid-
incapi t
al 150,000
Acc.depreciat
ion (
200, 000) Retai
nedear nings 230,000
Equipment 300,000
Acc.depreciati
on (100,000)
Total P580, 000 Total P580,000
Thef ol
l
owingf ai
rval
ueswereobt ainedf
orToyot
a’sasset
sandliabil
i
ti
es :
Currentassets P100,000
Equipment P275,000
Land 75,000
Li
abili
ti
es 102,000
Buil
ding 300,000

Deter
mi netheincreaseinassetsthatresul
tedf
rom t
hebusi
nesscombi
nat
ion.
A.P887, 000
B.P902, 000
C.P91 7,000
D.P747, 000
Answer:A
Sol
uti
on
Fai
rvalueofasset sacquired P750, 000
Goodwi l
l(800,000-648, 000) 152,000
OPC (15,
000)
I
ncreasei nAssets P887,000

10.DMCICompanyacqui red80% capi

tali
nterestofSTONERI CHCompany.DMCIpai dP1,
240,000for
the80% int
erestandpaidP88, 000forl
egalassistance( r
elat
edtot heacquisit
ion).STONERI CHnetassets
valuedatP1,200,000composedofcapi t
alstock,P600, 000;additi
onalpaid-incapit al
ofP180,000,and
ret
ainedearningsofP420,000.Attheti
meofacqui sit
ion,STONERI CHbui l
dingisunder val
uedby
P100,000andhasst il
laremainingl
if
eof30year s.Anyot herexcessisal
locatedt ogoodwi l
l
.STONERI CH
Companyr epor t
ednetincomeofP1 40,
000andpai ddivi
dendsofP20, 000dur i
ngt heyear.

Howmuchi
sthei
ncomefrom i
nvest
mentundert
heequit
ymethod?
a.P1
09,
333 b.P1 12,
000 c.P99,
733 d.P1 08,
667

Answer:A.
Costofinvestment(1 ,
240,
000+88, 000) P1
,328,000
Bookvalueofi nvest
ment( 1,
200,000x80%) 960,000
Excessofcostoverbookval ue P368,000
I
ncomef r
om investment:
Share(140,000x80%) P112,000
Amor ti
zati
onal l
ocatedtobuil
ding
(
100,000x80%/ 30yr
s.) 2,
667
P109,
333
11.WesternCompany,buysal loftheoutst
andingstockofAbensonCompanyonJanuar y1 ,2014.Annual
excessamor t
izat
onofP1 2,
000r esult
sfrom t
hispurchaset
ransacti
on.0nthedateofthetakeover,
Westernreportedret
ainedear ni
ngsofP400, 000whi l
eAhensonr eport
edaP200, 000balance.Western
report
edincomeofP40, 000in201 4andP50, 000in201 5andpaid1 0,
000indivi
dendseachyear .
Abensonr eport
ednetincomeofP20, 000in2014andP30, 000in201 5andpai
dP5, 000individendseach
year.
Assumet hatWestern'
srepor t
edi ncomedoesi ndudeincomeder i
vedfrom t
hesubsidi
ary.

I
fthepar
entusest
hecostmethodofaccount
ingi
nvest
menti
nsubsi
diar
y,whatar
etheconsol
i
dat
ed
r
etai
nedear
ningsonDecember31,2015?

a.P470,
000 b.P51
0,000 c.P446,
00 d.486,
000

Answer :D.
West er
n'sr et
ainedeamlngsatthedateoft
akeover P400,000
Add:Reponedneti ncomeofWet em:2014and2015(40,
000+50,
000) 90,000
Less:Dividendspaidfor2years(10,
000x2) (20,000)
Add:Undi stri
butedntIncomeofAbensonfor2years
(20,000+30, 000-5,000-5,
000) 40,000
Annual excessamor ti
zat
ionfor2years(
12,
000X2) 24,000
Consoli
dat edRet ai
nedEarni
ngs,December31,
2015 P486,000

12.CocoCompany' sCIduringt
heyearwasP250, 000,i
tdecl
areddivi
dendsofP90,000andt he
depreci
ati
onandamor t
izat
ionofcurr
entfairval
ueexcesswasP50, 000.I
fitwasacqui
redl
astyearbyNut
Companyasi tswhol
lyownedsubsidi
ary,theNCIinCIofsubsi
diar
yunderthecostmethodofaccounti
ng
fort
hecurrentyeari
s:

a.P1
50,
000 b.P1
60,
000 c.P200,
000 d.P-
0-

Answer
:d.P-
0-

Becauset
her
eisnoNCIi
nawhol
l
yownedsubsi
diar
y.

13.Alont
eCorporat
ionholds80% ofRonni
eCompanyandusest hecostmet
hodinaccount
ingfori
ts
i
nvestment.Duri
ng2015,RonnieCompanyr epor
tedCIofP80,
000andpaiddivi
dendsofP60,000.Ther
e
wasnopur chasedi
ffer
enceattheti
meofinvestment
.WhatamountofConsol
idat
edCIatt
ri
butabl
eto
parentwil
lberepor
tedin2015?

a.P1
44,
000 b.P1
64,
000 c.P1
56,
000 d.P80,
000

Answer
:b.P1
64,
000

Sol
uti
on:
Al
onteCI P1
40,
000
Par
ent'
sshar
eofSubsi
diar
yNetI
ncome
(P80, 000x80% ) 64,
000
Less:DividendsRecei
vedbyAlont
e
(P50, 000x80% ) 40,000
ConsolidatedCIAtt
ri
butabl
etoPar
ent P164,000

14.OnJanuary1 ,t
woyearsago,PabCor porat
ionpurchasedalloftheoutst
andingcommonst ockofShaw
Companyf orP220,000cash.Onthatdate,Shaw'snetassetshadabookval ueofP1 48,
000.Equipment
withan8-yearli
fewasunderval
uedbyP20, 000inShaw' sfi
nancialrecor
ds.Shawhasadat abasethati
s
valuedatP52,
000andwi l
lbeamor t
izedovertenyears.Shawr eportedneti
ncomeofP25, 000intheyear
ofacquisi
ti
onandP32,500inthefol
lowingyear.Divi
dendsofP2, 500wer edecl
aredandpaidineachof
thosetwoyears.

Thethi
rdyearofoperat
ionsisnowcomplet
e.Foreachoft
het
wocompani
es,sel
ect
edaccountbal
ances
asofDecember31f ort
histhi
rdyearar
easfol
lows:

Whati
sconsol
i
dat
edr
etai
nedear
ningsatJanuar
y1oft
het
hir
dyeari
fthepar
entcompanyusest
hei
nit
ial
val
uemet
hod?

a.P191,
100
b.P192,
500
c.P1
87,000
d.P134,
600

Answer
:D

PabCompany'sretainedearni
ngsatjanuar
y1ofthi
rdyear
.P1 50,
000
Addi
ti
onal
equi
ty:fi
rstyear(P25,000–P2,500). 22,500
Addi
ti
onal
equi
ty:secondyear( P32,500–P2,500)
. 30,000

Amorti
zati
onf
or2years(P7,
700/2years)
. (
15,
400)
Consol
idat
edRet
ainedEarni
ngsatjanuary1of3r
dyear P1 87,
100

15.Peter,Inc.owns1 00% ofTheRockCompany.Thebookval ueoftheGoodwil

li
sP300,
000.WhenPet
er
madei t
si nvestment,TheRockhadaf airval
ueofP2,800,
000.Today,t
heval
ueofTheRockhasf
all
ent
o
P2,250,000.Anappr ai
salofTheRock'
snetassetsreveal
safai
rval
ueofP2,075,
000.Howmuch
"i
mpairment "shouldPeterrecor
drelat
edt oi
tsi
nvestmenti
nTheRock?

a.P550,
000
b.P175,
000
c.P0
d.P125,
000

Answer
s:D

Fai
rval
ueofPi
nk'si
nvest
ment P2,250,
000
Fai
rval
ueoft
heRed'sAsset
s. P2,075,
000
Goodwil
l P 1
75,000
Car
ryi
ngamountofGoodwi
l
l. (300,000)
Goodwil
lI
mpai
rment
. (P 125,
000)

16.Lesl
ieProduct
s,I
ncpurchased60% ofthest
ockofEdzCr eam CompanyonJan.2,201 6forP1 80,
000.
OnthatdateEdzreport
edretai
nedear
ningsofP1 00,000andhadP200,000ofst ockout
standing.Lesl
ie’
s
r
etainedearni
ngswasP400,000atacquisi
ti
on.Lesli
eaccount
sforit
sinvestmentinEdzunderthecost
method.Thecompaniesrecordedt
hefoll
owingresultsf
or201
6and201 7:

Lesl
i
e Edz

201
6:CI P70,
000 P35,
000

Di
vi
dendspai
d P25,
000 P30,
000

201
7:CI P90,
000 P40,
000

Di
vi
dendspai
d P30,
000 P1
5,000

Whatamountofconsol
i
dat
edCIat
tr
ibut
abl
etopar
entandconsol
i
dat
edr
etai
nedear
ningswi
l
lber
epor
ted
i
n2017?

a. P1
21,
000andP523,
000,r
espect
ivel
y

b. P1
05,
000andP523,
000,r
espect
ivel
y

c. P1
05,
000andP525,
000,r
espect
ivel
y

d. P1
21,
000andP533,
000,r
espect
ivel
y

Ans.C
Consoli
datedneti
ncome–201 7
Netincome–Leslie P 90,
000
Divi
dendincome(P15,
000x60%) (9,
000)
Edz’neti
ncome 40,000
MINIS(P40,000x40%) (
16,
000)
Consoli
datedneti
ncomeat
tr
ibutabl
etopar
ent–201
7 P105,
000

Consoli
datedr etai
nedearnings–201 7
Ret
ainedear nings,Jan.2,2016-Lesli
e P400,
000
Consoli
datedneti ncomeat t
ri
butabl
etopar ent
–201
6:
Netincome–Lesl ie P70,
000
Divi
dendi ncome( P30,000x60%) (18,
000)
Edz’netincome 35,
000
MINIS(P35, 000x40%) (14,
000) 75,
000
Di
videndspai d,2016–Leslie (25,000)
Consoli
datedr etai
nedearnings,Dec.31,2016 P450,000
Consoli
datedneti ncomeat t
ri
butabl
etopar ent
–201
7 105,000
Di
videndspai d.2017–Lesl i
e (30,000)
Consoli
datedr etai
nedearnings,Dec.31,2017 P525,000

1
7.Fort
heyearendedFeb.28,201
6,SCompany,t
he90% ownedpur
chasedsubsi
diar
yofPCor
por
ati
on,
declar
edadividendofP100,000andhadCIofP300,000.Al
sofort
hatyear,amor
ti
zat
ionoft
hecurrent
fai
rvaluedi
ff
erencesofS’sident
if
iabl
enetasset
swasP60,
000.ThebalanceofNCIi
nCIofSubsi
diary
accountonFeb.28,2016,is:
a. P24,000
b. P21 ,
000
c. P24,900
d. P20,000

Ans.A
S’
snetincome P300,
000
Amort
izati
onofal
l
ocat
eddi
ff
erence (60,
000)
Adj
ust
ednetincomeofS P240,
000

Mi
nor
it
yint
eresti
nneti
ncomeofsubsi
diar
y(P240,
000x1
0%)P 24,
000

18.OnJanuar y1 ,201 5,Wilhelm Cor por

ati
onacquir
ed90% ofKaiserCompany’svoti
ngstock,at
under l
yingbookval ue.Thef airvalueofthenon-cont
rol
l
ingint
erestwasequal
to1 0% oft
hebookval
ueof
Kaiseratt hatdat e.Wi lhel
m usest heequit
ymethodinaccounti
ngforit
sownershi
pofKaiser.On
December31 ,201 6,t hetri
albal ancesofthet
wocompani esareasfoll
ows:
DebitCr edit
Debi tCr edit
Currentasset sP200,000P1 40,000
Depr eciableasset s350,000250,000
I
nvest menti nKai serCompany1 62,000
Depr eciati
onexpense27,0001 0,000
Otherexpenses95,00060,000
Divi
dendsdecl ared20,0001 0,000
Accumul ateddepr eci ati
onP1 1
8,000P80,000
Currentl i
abili
ti
es1 00,00080,000
Long- term debt 100,00050,000
Commonst ock1 00,00050,000
Retainedear nings1 50,0001 00,000
Sales250,000
I
ncomef rom Subsi diary36,000
P854,000P854,000P470,000P470,000

Bas edont hepr ecedi

nginfor
mation,whatamountwoul dber
epor
tedr
etai
nedear
ningsi
nthecons
oli
dat
ed
balancesheetpr epar
edatDecember31 ,2016?
a.P424,000
b.P31 4,000
c.P294,000
d.P1 50,000
Ans.:C
Solution:
Parent ’s(Wi l
helm)Retai
nedearnings ,1/1/
2015*P1 50,000
Add:CNIat tr
ibut
abletot
hecont r
oll
ingi nt
erest(CNI–CI )/
Profitattr
ibutabletoequit
yholdersofpar ent164,000
Less:Di vi
dends–Par ent(Wil
helm)20,000
Parent ’s(Wi l
helm)Retai
nedearnings ,12/31/
301 5
(Equitymet hod)orConsoli
datedRet ainedEar ni
ngsP294,000

Netincomef rom ownoper

ati
ons:
ParentP128,000
Subsidiar
y40,000
P168,000
Less:Amor tizati
onofal l
ocatedexcess
I
mpai rmentoff ull
-goodwill(i
fany)
Consolidated/Gr oupNetI ncome
Less:Non- cont rol
li
nginteresti
nNetI ncome:
Subsidiaryincomef rom ownoper ati
onsP40,000
Less:Amor tizati
onofal l
ocatedexcess
I
mpai rmentoff ull
-goodwill(i
fany)
P40,000
XNon- cont rol
li
ngi nter
ests10%4,000
CNIat t
ributabletot hecontrol
li
nginterest(CNI–NI)/
Profi
tattri
butablet oequityholdersofpar ent
P164,000

Netincomef rom ownoperati

ons
ParentSubsidiar
y
SalesP250,000P1 1
0,000
Otherexpenses95,00060,000
Depr eci
ati
onexpense27,00010,000
Netincomef rom ownoperati
onsP128,000P40,000

*I
tshoul
dbenotedt
hatsi
nceequi
tymethodwasused,t
her
etai
nedear
ningsonJanuar
y1,201
5isal
so
consi
der
edastheconsol
i
dat
edret
ainedearni
ngs.

19.OnJanuar y1 ,201 6,Pli

msol Companyacqui red1 00% ofShi
ppingCorporat
ion’
svot
ingshares,at
under l
yi
ngbookval ue.Plimsolusest hecostmet hodinaccount
ingfori
tsi
nvest
mentinShipping.
Shippi ng’
sr etainedear ningswer eP75,000ont hedateofacquisi
ti
on.OnDecember31 ,2016,thetr
ial
balancedat af orthet wocompani esareasfoll
ows:
Debi tCredi
tDebi tCredit
Curr entasset sP100,000P75,000
Depr eciableasset s( net)
200,0001 50,000
I
nvest mentinShi ppi ngCompany1 25,000
Depr eciati
onexpense20,0001 5,000
Otherexpenses60,00045,000
Dividendsdecl ared25,0001 5,000
Curr entli
abili
ti
es40,00025,000
Long- t
erm debt 75,00050,000
Commonst ock1 00,00050,000
Retai nedear nings150,00075,000
Sales1 50,0001 00,000
Dividendsi ncome1 5,000
P530,000P530,000P300,000P300,000

Basedontheinf
ormati
onpr
ovi
dedwhatamountofr
etai
nedear
ningswi
l
lber
epor
tedi
ntheconsol
i
dat
ed
bal
ancesheetprepar
edonDecember31
,2016?

a.P310,000
b.P235,000
c.P225,000
d.P210,000

Ans.B
Solut
ion:
Parent’
s(Plimsol)Ret
ainedearni
ngs,1/1/
2016*P1 50,000
Add:CNIat tri
but
abletothecontr
oll
ingint
erest(CNI-NI)/
Profi
tattr
ibutabl
etoequityhol
dersofparent**1
1 0,000
Less:Divi
dends–Par ents(Pli
msol)
25,000
Parent’
s(Plimsol)Ret
ainedearni
ngs,12/31/
201 6
(
Equi
tymet
hod)orConsol
i
dat
edRet
ainedEar
ningsP235,000

Oralter
nativel
y.Consoli
datedRetainedEarningscanal sobedeterminedbyusingtheRetainedEarningsof
ParentonDecember31 ,201 6undercostmet hod( model)
.ThenadjusttheRetai
nedEarningsofPar ent
underthecostmet hod(model )onDecember31 ,201
6f r
om costtoequitymethodfr
om thedateof
acquisi
ti
ont oarr
iveatRetainedEarningsofPar entonDecember31 ,201 6undert
heequitymethod,whi ch
wil
leventuall
ybeconsideredast heConsolidatedRetainedEarni
ngsonDecember31 ,2016.Thus,the
comput at
ionisasfoll
ows:

Parent’s(
Plimsol )RetainedEar ni
ngs ,1/1/
201 6*P1 50,000
Add:Repor tedNetI ncomeofPar ent–201 6( costmodel )
:
NetincomeofPar entfrom itsownoper ati
onsP70,000
Add:Di vi
dendI ncome1 5,00085,000
Less:Divi
dendsdecl ared–Par ent(Pli
msol )25,000
Parent’s(
Plimsol )RetainedEar ni
ngs ,12/31/201 6(costmodel )
P210,000
Retroacti
veadj ustmentt oconver tcostmodel t
oequi t
ymet hodsincethedateofacquisi
ti
onforpur
poses
ofconsolidation/Par ent’sshareofadj ustedneti ncreaseissubsi
diary’
sretai
nedearni
ngs:
Retainedear nings–Subsi diar
y,1/1/
201 6P75,000
Retainedear nings–Subsi diar
y,12/31/201 6:
Retainedear nings–Subsi diar
y,1/1/
201 6P75,000
Add:Neti ncomeofSubsi diary–201 640,000
Less:Divi
dendsdecl ared1 5,000100,000
I
ncreasei nret ainedear ningsorcumul ati
veneti ncomel esscumul at
ivedivi
dends
25,000
Parent’s(
Plimsol )RetainedEar ni
ngs( equitymet hod)orConsol i
datedRetainedEarni
ngs,12/
31/201
6P235,
000

*I
tshoul dbenot edt hatont hedat eofacqui si
ti
on,theret
ainedearningsofparenti
sconsi
deredalsoasthe
consoli
dat edr etainedear ningsr egardlessoft
hemet hod (costorequit
y)used,butnotonsubsequent
years.
**Netincomef r
om ownoper ati
ons:
ParentP70,000
Subsidiary40,000
P110,000
Less:Amor ti
zationofal l
ocat edexcess
I
mpai rmentoff ull
- goodwi ll(i
fany)
Consolidated/ GroupNetI ncomeP1 10,000
Less:Non- controll
ingi nterestinNetI ncome:
Subsidiaryneti ncomef r
om ownoper ati
ons
Less:Amor ti
zationofal l
ocat edexcess
I
mpai rmentoff ull
- goodwi ll(i
fany)
P40,000
XNon- cont r
oll
ingi nterest0%
CNIat t
ributablet ot hecont rolli
nginterest(CN–NI )/Prof
itatt
ri
butabletoequi
tyholder
sofparent
P110,
000

Netincomef r
om ownoper at
ions
ParentSubsidi
ary
SalesP150,000P1 00,000
Otherexpenses60,00045,000
Depr eci
ati
onexpense20,0001 5,000
Netincomef r
om ownoper at
ionsP70,000P40,000

20.JayCorporat i
onholds70per centofShaneCompanyandusest hecostmet
hodinaccounti
ngforit
’s
i
nvestment.During201 5,ShaneCompanyr epor
tedCIofP70,
000andpaiddivi
dendsofP40,000.Jay
report
edCI(includingdivi
dendincome)ofP1 30,
000andpaiddivi
dendsofP50,
000.Therewasno
purchasedif
ferenceatt heti
meofi nvest
ment.Whatamountofconsol
idat
edCIatt
ri
but
abletoparentwil
l
ber
epor
tedf
or201
5?

a. P151,
000
b. P172,
000
c. P102,
000
d. P 70,
000

Ans.B
Netincome –Pablo P1
30,
000
Divi
dendincome(P40,000x70%) (28,000)
Sit
o’sneti
ncome 70,000
MINIS(P70,000x30%) ( 21,
000)
Consoli
datedneti
ncomeatt
ri
but
abl
etopar
ent P1 51,
000

21.DenverCo.acquired60% ott hecommonst ockofKaileyCorp.onSeptember1,20x4.For20x4,Kai

ley
repor
tedrevenuesofP800, 000andexpensesatP620, 000.Theannual amountofamorti
zat
ionrel
atedto
thi
sacquisi
ti
onwasP1 5,000.DenverCo.accountsfori
tsconsoli
dat
ionsaccor
dingPFRS3.
I
nconsoiidat
ion.thet
ot aiamountofexpensesrel
atedtoKaileyandto.Denver‘
sacqui
sit
ionatKail
eytor
20x4isdeterminedtobe
A.P206,667
B.P211,
667
C.P620,000
D.P635,000

ANSWER:B
Asagener al
rule,i
fproblem i
ssil
entitisassumedthatexpensesar
egener
atedevenlyt
hroughout
t
heyear
,thus:
Expenses( 9/1
/20x4-12/31/20x4):P620,000x4/12 P206,667
Amor t
izat
ionofal l
ocat
edexcess :P15,000x4/ 1
2 5,
000
P21 1
,667

22.Pel
i
canCorpor
ati
onacquir
eda30% int
eresti
nCrust
aceanI
ncorporat
edatbookval
uesever
al year
s
ago.Cr
ust
aceandecl
ared$100,000di
vi
dendsin2005andrepor
tedit
sincomefort
heyearasfol
lows:

I
ncomef rom conti
nui
ngoperat
ions$700,000
Lossondisconti
nueddivi
si
on (1
00,000)
Netincome $600,000

Pel
i
can‘
sInves
tmenti
nCr
ust
aceanaccountf
or2005shoul
dincr
easeby

a.S150,
000
b.S160,
000
c.S180,
000
d.S210,
000

Answer
:a

Pel
ican’
sshareofincome
equals$600,000x30% = $1
80,
000
Pel
ican’
sshareof
di
vidends=$1 00,
000x30% $(30,
000)
I
ncreaseininvest
mentaccount $1
50,000
23.Xi
ngCorporati
onowns80per centofthevot
ingcommonshar
esofAdamsCorporat
ion.Noncont
rol
l
ing
i
nter
estwasassigned$24,000ofincomeinthe2009consol
i
dat
edincomest
atement
.Whatamountofnet
i
ncomedidAdamsCor por
ationr
eportfort
heyear?

a.$150,000
b.$96,000
c.$120,000
d.$30,000

Answer
:a

NCIshar
einincome $24,000
Di
videdbyNCI: 20%
AdamsNetIncome $1 20,000

Ter
iCorporat
ionacquired80% ofYakiCompany’
sst
ockonJanuar
y1,20x5.Att
heacqui
si
ti
ondat
e,Yaki
hadthefol
l
owi ngaccountbal
ances:

BookValue Mar
ketValue Remai
ningLi
fe
CashandRecei vabl
es P 30,000 P 30,
000 3months
I
nventory 100,
000 120,
000 5months
Pl
antAssets( net) 250,
000 290,
000 8years
Li
abil
i
ties 150,
000 160,
000 5years
CommonSt ock 10,
000
Retai
nedEar nings 220,
000

YakihasincomeofP80,000andpaysdi
vi
dendsofP20,
000duri
ng20x6.Assumi
ngthereisnogoodwi
l
l
i
mpairment,whati
stheamountofi
ncomeal
l
ocat
edtothenon-
cont
rol
l
ingi
nter
estf
or20x6?
a.P15,
400
b.P19,400
c.P14,
600
d.P18,600

Ans:c

NetIncome P80,
000
Less:Pl
antAsset
s P290,000(MV)
250,
000( BV)
P40,000/8yrs (
5,000)
Li
abi
l
it
ies P160,
000
150,
000
P1 0,
000/5yrs (
2,000)
Consol
idat
edIncome P73,
000
NCIrat
e 20%
I
ncomeal l
ocat
edtoNCI P14,
600

SD2.
French I ndustri
esacqui red an 80% inter
estin Fri
esCompany by pur chasi
ng 24,000 ofits30, 000
outstandingshar esofcommonst ockatbookval ueofP1 05,000onJanuar y1,20x4.Friesreport
ednet
i
ncomei n20x4ofP45, 000andi n20x5ofP60,000ear nedevenlythr
oughouttherespecti
veyears.French
receivedP1 2,000dividendsfrom Fri
esin20x4andP1 8,
000i n20x5.Frenchusest heequit
ymet hodt o
recorditsi nvestment.Whati sthebalanceofFrench’sInvest
mentaccounti nFri
esaccountatDecember
31,20x5?
a.P105, 000
b.P1 38,600
c.P1
59,000
d.P165,
000

Ans:c

I
nvestment(
1/1/
20x4) P1
05,
000
Add:Sharei
nnetincome–20x4(
P45,
000x80%) 36,
000
Less:Di
vi
dendsrecei
ved 12,
000
I
nvestment(
12/31/
20x4) P1
29,000
Add:Sharei
nnetincome–20x5(
P60,
000x80%) 48,
000
Less:Di
vi
dendsrecei
ved 18,
000
I
nvestment(
12/31/
20x5) P1
59,000

26.
OnJanuary1,2016,SpeedCo.purchased75% ofthecommonstockofSlowCo.for
P632,
000.Onthisdate,Sl
owCo.hadcommonst ock,ot
herpai
d-i
ncapi
tal
,andret
ainedear
nings
ofP80,
000,P240,000,andP380,000,r
especti
vel
y.SpeedCo.’
scommonst ockamountedt
o
P1,
000,000andretai
nedearni
ngsofP400,000.

OnJanuary1 ,201 6,theonlytangibl

eassetsofSlowCo.thatwer eunderval
uedwer einventoryand
equipment.I
nvent ory,forwhichFIFOisused,waswor t
hP1 0,000mor ethatcost.Theinventory
wassoldin201 6.Equi pment,whichwaswor thP30,000mor et
hanbookval ue,hasaremai ning
l
if
eof8year s,andst raight
-l
inemet hodisused.Anyremainingexcessisful
l-goodwil
lwithan
i
mpai r
mentfor201 6amount ingtoP6,000.SlowCo.reportednetincomeofP1 00,000andpai d
di
videndsofP40, 000.

ComputetheConsoli
datedNetIncomeAtt
ri
but
abl
etoCont
rol
l
ingI
nter
estandNon-
cont
rol
l
ing
i
nter
estr
espect
ivel
yusingFul
l-Goodwil
l
:

a. P250,
812.
50;P21
,937.
50

b. P254,
812.
50;P20,
937.
50

c. P250,
000.
00;P21
,000.
00

d. P255,
000.
00;P25,
000.
00

ANSWER:(
a)

Neti
ncomef
rom ownoper
ati
ons:

Speed[
P200,
000–(
P20,
000x75%)
]……………………… P 1
85,
000

Sl
ow……………………………………………………………. 1
00,
000

P
285,
000

Less:Amor
ti
zat
ionofal
l
ocat
edexcess
…………………….
. 6,
250

I
mpai
rmentoff
ull
-goodwi
l
l…………………………….
. 6,
000
 Consol
i
dat
ed/
GroupNetI
ncome……………………………. P 272,
750

Less:Non-
cont
rol
l
ingi
nter
esti
nNetI
ncome

Sl
owneti
ncomef
rom own

oper
ati
ons…………………………. P1
00,
000

Less:Amor
ti
zat
ionofal
l
ocat
edexcess
……. 6,
250

I
mpai
rmentoff
ull
-goodwi
l
l 6,
000

87,
750

x:Non-
cont
rol
l
ingi
nter
est
…………………… 25% P 21
,937.
50

CNIat
tr
ibut
abl
etot
hecont
rol
l
ingi
nter
est P250,
812.
5
0

27.OnJanuary1,201
6,StevenCorp.acqui
red80% ofKevi
nCorp.i
nexchangefor2,
700shar
es
ofP10parcommonst ockhavi
ngamar ketval
ueofP60,300.St
evenCorp.andKevi
nCorp.
condensedbal
ancesheetswereasfol
lows:

St
evenCor
por
ati
onandKevi
nCor
por
ati
on

Bal
anceSheet
satJanuar
y1,201
6

(
bef
orecombi
nat
ion)

St
even Kevin
Corp. Corp.

Asset
s:

Cash…………………………………………………………. P1
5,450 P1
8,700

Account
srecei
vabl
e(net
)…………………………………. 1
7,1
00 4,
550

I
nvent
ori
es…………………………………………………… 1
1,450 8,
050

Bui
l
ding………………………………………………………. 89,
500 20,
000

Pat
ent
s……………………………………………………….
. - 5,
000

Tot
alasset
s……………………………………………… P1
33,
500 P56,
300
 Li
abi
l
it
iesandEqui
ti
es:

Account
spayabl
e……………………………………………. P 2,
000 P 3,
300

Bondspayabl
e,1
0%.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 50,
000 -

Commonst
ock,P1
0par
…………………………………….
. 50,
000 25,
000

Addi
ti
onal
pai
d-i
ncapi
tal
……………………………………. 7,
500 7,
500

Ret
ainedear
nings……………………………………………. 24,
000 20,
500

Tot
all
i
abi
l
it
iesandequi
ti
es…………………………….
.. P1
33,
500 P56,
300

Atthedat
eofacquisi
tion,al
lassetsandliabi
l
it
iesofKevi
nCorp.havebookval
ueapproximatel
y
equalt
othei
rrespect
ivemar ketvaluesexceptthefol
l
owingasdeter
minedbyappr
aisalasfoll
ows:

I
nvent
ori
es(
FIFOmet
hod)
………………………….
. P 8,
550

Bui
l
ding(
net–r
emai
ningl
i
fe–4year
s)…………… 24,
000

Pat
ent
s(r
emai
ningl
i
fe1
0year
s)…………………… 6,
500

Goodwi
l
l(noi
mpai
rment
)…………………………….

I
nwhatamountofpar
ti
algoodwi
l
lonJanuar
y1,201
6:

a. P1
3,000

b. P1
3,1
00

c. P1
2,900

d. P1
2,1
00

ANSWER:(
b)

Consi
der
ati
ongi
ven………………………………………… P60,
300

Less:
BookVal
ueofSHE–Kevi
nCor
p.1
/1/
201
6:

C/
S–K:P25,
000x80%.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. P20,
00
0

API
C–KP7,
500x80%.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 6,
000

RE–KP20,
500x80%.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. 1
6,400 42,
400

Al
l
ocat
edExcess……………………………………………. P1
7,900

Less:
Over
/Underval
uat
ion ofAs
set
sandLi
abi
l
it
ies:
 *
Incr
easei
nInvent
ori
es(
P500x80%)
…………….
. P400

*
Incr
easei
nBui
l
ding(
P4,
000x80%)
….…………… 3,
200

*
Incr
easei
nPat
ent
s(P1
,500x80%)
……………….
. 1
,200 4,
800

Goodwi
l
l–par
ti
al
……………………………………………… P1
3,1
00

BookVal
ues Fai
rVal
ues I
ncr
ease

*
Invent
ori
es…………………… P 8,
050 P 8,
550 P 500

Bui
l
ding………………………. 20,
000 24,
000 4,
000

Pat
ent
s……………………….
. 5,
000 6,
500 1
,500

P6,
000

28.ThePonyCompanyacqui redalloftheoutst
andingstockofStagCompanyonJanuar yI,2011,f
or
P206,000incash.Staghadabookval ueofonlyP140,000ont hatdat
e.However,equi
pment(
havi
ngan
ei
ght-yearl
i
fe)asunderval
uedbyP40, 000onSt ag’
sf i
nanci
alr
ecords.Abui
ldi
ngwi t
ha20-yearl
if
ewas
over
valuedby10,000.Subsequentt
otheacquisi
ti
on,Stagrepor
tedthefol
l
owing:

CI Di
vi
dendsPai
d
201
1 50,
000 10,
000
201
2 50,
000 40,
000
201
3 30,
000 20,
000

I
naccountingforthisinvest
mentPonyhasusedt hecostmet
hod.Sel
ect
edaccount
stakenf
rom t
he
f
inanci
alr
ecordsofthesetwocompaniesasofDecember31
,201
3,ar
easfol
lows:

PonyCompany St
agCompany
Revenues-Oper ati
ng P310,000 P1 04,
000
Expenses 198,000 74,000
Equipment(net) 320,000 50,000
Buil
dings(net) 220,000 68,000
Commonst ock 290,000 50,000
RetainedEarni
ngs,12/
31/
201
3Bal
ance 410,000 160,000

Whatamountshoul
dber
epor
terasconsol
i
dat
edr
etai
nedear
ningsatDecember31
,201
3?

a.P136,
500
b.P137,
500
c.P1
42,000
d.P122,
000
ANSWER:B

Consol
i
datedNetI ncome
Neti
ncomef rom ownoper at
ions-Pony
(P31 0,
000–P1 98,
000) P1
12,
000
Neti
ncomef rom ownoper at
ions-Stag
(P1 04,
000–P74, 000) 30,
000
Amor t
izati
on:Equipment(P40, 000/8) P5,000
Bui
ldings(P10,000/20) (
500) (4,
500)
Consolidat
edneti ncome P 1
37,
500

29.ReyesCorporati
onhol
ds70% ofOyamaCompany,andusest hecostmethodinaccount
ingf
or
i
tsinvest
ment.Duri
ng2016,OyamaCompanyr eportedCIofP80,000andpaiddivi
dendsof
P50,000.Reyesreport
edCI(i
ncl
udingdividendincome)ofP250, 000andpaiddi
videndsof
P50,000.Therewasnopurchasediff
erenceatthet i
meofi nvest
ment.Whatamountof
consoli
datedCIat
tri
but
abl
etoparentwillbereportedfor2016?

a. P295,
000
b. P271
,000
c. P21
5,000
d. P80,
000
Answer
:B

Neti
ncomef
rom ownoper
ati
ons -Reyes P250,
000

Less:Di
vi
dendi
ncome(
P50,
000x70%) (
35,
000)

Oyama’
sneti
ncome 80,
000

NCIi
nOyama’
sneti
ncome(
P80,
000x30%) (
24,
000)

Consol
i
dat
edneti
ncomeat
tr
ibut
abl
etopar
ent P271
,000

30.FaveInc.
,purchased80% ofGadeCompany’soutst
andi
ngcommonst ockforP280,000,
P80,000abovetheunder lyi
ngbookval
ueonJanuar
y2,2015.Thefai
rval
ueofGade’snetassets
approxi
matedbookval ue.OntheDecember31’
2015consoli
datedst
atementoff
inanci
alposi
ti
on,
NCIshoul
dber
epor
tedat
:
a. P52,
000
b. P46,
000
c. P70,
000
d. P64,
000

ANSWER:C
Rationale
Consi derat
ionTr
ansfer
red P280,000
Divi
dedby:% ofowner ship 80%
TotalFVofGade’ sassets P350,000
Multipli
edby:% ofNCI 20%
NCI P70,000
 31.I
fawhol lyownedsubsi
diar
y’sCIwasP150,000,thesubsi
diar
ydecl
areddi
videndsofP80,
000and
thedepr eci
ati
onandamorti
zati
onofcurr
entfairval
ueexcesswasP20,000,t
heNCIi nCIof
subsidi
aryunderthecostmethodofaccount
ingis:
a. P1 00,000
b. P70, 000
c. P- 0-
d. P1 30,000

ANSWER:C
Zer
obecauset
her
eisnoNCIi
nawhol
l
yownedsubsi
diar
y.

32.onJanuar y1 ,
201 6,Bul l
etCompanyacqui red80per centofElectri
cCompany’ scommonst ockf or
P300, 000cash.Att hatdat e,Electricr
epor t
edcommonst ockoutstandingofP200, 000andr et
ainedearnings
ofP1 00,000,andt hef airvalueoft henoncont rol
lingint erestwasP75, 000.Thebookval uesandf ai
rval
uesof
El
ect r
ic’sasset sandl iabi li
ti
eswer eequal,exceptf orotheri nt
angibleassetswhi chhadaf ai
rvalueP75,000
greaterthanbookval ueanda6- yearremainingl ife.Electricreport
edt hefol
lowi ngdat
afor201 5and201 6:
Year NetIncome Compr ehensi veI ncome Divi
dendsPaid
201 6 P25, 000 P30, 000 P5, 000
201 7 40, 000 45,000 10,000
Bull
etr epor tedsepar ateneti ncomef r
om ownoper ati
onsofP1 30,000andpai ddivi
dendsofP30, 000for
bothyear s.
Whati st heamountofconsol idatedcompr ehensi veincomer eportedf or2016?
a. P1 45,000 c.P1 18, 500
b. P1 47,500 d.P1 30, 000
Soluti
on:
ANS:B
Fairvalueofconsi der ationgi ven P300,000
Fairvalueofnoncont rollinginterest 75,
000
Fairvalueoft heSubsi di ary P375,000
Less:BookVal ueofSt ockhol der’
sequi tyofsubsi diary
(P200, 000+P1 00, 000) 300,000
All
ocat edexcess P 75,
000
Less:Over /Underval uat ionofAsset sandLiabilit
ies:
I
ncr easeinI ntangi bleAsset s 75,
000
Amor ti
zat ionofallocat edexcess :P75, 000/6year s P1 2,
500

Not
e:Si
ncetheall
ocatedexcessi
satt
ri
but
ablet
ounder
val
uedi
ntangi
bleasset
,itdoesnotmakesense,
whet
herpar
ti
alorful
lgoodwil
lmethodi
sused.

Consol
i
dat edCompr ehensi
veI
ncome:
Netincomef r
om ownoperati
ons:
Parent-
Bullet P1
30,000
Subsidi
ary-El
ectr
ic 25,000
P155,000
Less:Amorti
zati
onofall
ocatedexcess 12,
500
I
mpairmentoffull
-goodwil
l(i
fany) 0
Consoli
dated/
GroupNetI ncome P142,
500
Add:OtherCompr ehensi
veIncome
(P30,
000–P25, 000) 5,
000
Consoli
datedCompr ehensi
veIncome P1
47,
000
33.
OnMar ch31,2016,AppleInc.exchangesP580, 000f ai
rval
ueconsi der
ati
onfor80% oft heoutstanding
st
ockofCherryI
nc.Ther emaining20% oft heoutstandi
ngsharescontinuedtotradeatacol l
ecti
vef ai
rval
ue
ofP165,
000.Cherry’
sidenti
fi
ableassetsandl i
abi
lit
ieseachhadbookval uesthatequal
edt heirf
airvalueson
March31foranettotalofP500,000.Dur i
ngther emainderyear,Cherr
ygener at
esrevenuesofP900, 000
andexpensesofP360,000andpai dnodi vidends.OnaDecember31consol idatedbalancesheet ,what
amountshoul
dber eportedasnon- contr
oll
ingint
erestonaf ul
l
-fairval
uebasis?

A.
P246,
000
B.
P181,
000
C.
P65,000
D.
P165,
000

Answer
:A

Bookval
ueofSt
ockhol
dersEqui
tyofSubsi
diar
y3/31/
16.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P500,
000
Add:Neti
ncome(P900,
000-P360, 000=P540,000x9/
12)..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.405,
000

Bookval
ueofSHEofSubsidiary12/31
/16..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P905,
000
Add:Adj
ust
mentst
oref
lectfairval
ue...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. 0

Fai
rval
ueofSHEofSubsi
diar
y12/31
/16.
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P905,000
Mult
ipl
i
edbyNon-cont
rol
l
ingi
nter
est
spercentage..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 20%

Non-contr
oll
inginterest(Part
ialGoodwill
).
..
..
...
..
..
..
...
..
..
..
...
..
..
..
..
..
..
..
..
..
..
...
..
..
...
..
..
..
..
..
..
..
.P1
81,
000
Add:
Non- control
li
ngi nt
erestinFullGoodwill
[P245,000(ful
l)
-P180,000(part
ial
)
..
..
..
..
..
..
..
...
..
...
..
..
..
...
...
..
..
...
..
..
..
..
...
..
..
..
..
..
.. 65, 000

Non-
cont
rol
l
ingI
nter
est(
Ful
l
)..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P246,
000(
A)

Comput ati
onandall
ocati
onofGoodwi l
l:
Total
FairValue Par
entPr
ice(80%) NCIVal ue(
20%)
CompanyFai rVal
ue P745,000 P580, 000 P165,
000
Fai
rValueofnetassetsexcludi
ng 500,
000 400,
000 100,
000
goodwi l
l
GOODWI LL P245, 000 P180,000 P65,
000

34.OnDecember31 ,2016,LongCompany’sst
ockholders’equi
tyincludescommonst ockofP1,
000,000and
addit
ional
paid-i
ncapital
ofP600,000.LongCo.Purchaseda90% i nter
estinShor
tCo.onJanuary1,2016,
whent henon-cont
roll
i
nginter
esti
nShortCo.Hadaf airvalueofP230, 000.Nodif
fer
enti
alar
osefrom the
businesscombinat
ion.During2016,Shor
tCo.Report
snetincomeofP20,000anddeclar
esdividendof
P5,000.The201 6consol
idatedbal
ancesheeti
ncl
udesretai
nedear
ningsofP630,
000(contr
oll
i
ngi nt
erest
porti
on).Theconsoli
dat
edequi t
yonDecember31,2016:

A.
P2,
230.
000
B.
P2,
254,
500
C.
P2,
253,
000
D.
P2,
205,
500

Answer
:B

Consol
idatedEquity:
At
tri
but
abletoPar ent/
Cont ol
li
ngI nterest:
CommonSt ock...
..
..
..
..
...
...
..
..
...
..
...
..
...
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
P1,
000,000
Addit
ionalpaid-i
ncapital
...
...
..
..
...
...
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
.600, 000
Retai
nedEar nings.
..
..
..
...
...
..
..
...
...
..
..
...
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
.. 630,000

Equit
yHolders’ofParent/
Control
l
ingI
nter
est.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P2,
230,000
Non-contr
oll
i
ngI nt
erest
:
[
(P230,000+( P20,000-P5,000]x10% ..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. 24,500

Consol
i
dat
edEqui
ty.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P2,
254,
500(
B)

35.OnJanuar
y1,201
6,Par
entCompanypur
chased80% oft
hecommonst
ockofSubsi
diar
yCompanyf
or
P31
6,000.Ont
hisdat
e,Subsi
diar
yCompanyhadacommonst
ock,ot
herpai
d-i
ncapi
tal
,andr
etai
ned
ear
ningsofP40,000,P1
20,000,P1
90,000,r
espect
ivel
y.Par
entCompany’
scommonst
ockamount
edt
o
P500,000andr
etai
nedear
ningsofP200,000.
OnJanuar
y1,201
6,t
heonl
ytangi
bleasset
sofSubsi
diar
ythatwer
eunder
val
uedwer
einvent
oryandbui
l
ding.
I
nvent
ory,f
orwhi
chFI
FOi
sused,waswor
thP5,000mor
ethancost
.Thei
nvent
orywassol
din201
6.
Bui
l
dingwhi
chwaswor
thP1
5,000mor
ethanbookval
ue,hasar
emai
ningl
i
feof8year
sandst
rai
ght
-l
ine
depr
eci
ati
oni
sused.Anyr
emai
ningexcessi
sful
l
-goodwi
l
lwi
thi
mpai
rmentf
or201
6amount
ingt
oP3,000.
Subsi
diar
yCompanyr
epor
tedneti
ncomeofP50,000andpai
ddi
vi
dendsofP1
0,000i
n201
6whi
l
ethe
par
ent
’sr
epor
tedneti
ncomeamount
edt
oP1
00,000andpai
ddi
vi
dendsofP20,000.

Det
ermi
net
heConsol
i
dat
edNetI
ncomeAt
tr
ibut
abl
etoCont
rol
l
ingI
nter
est
/Pr
ofi
tAt
tr
ibut
abl
etoEqui
ty
Hol
der
sofPar
ent
.
a.1
42,000 c.1
26,500
b.1
32,1
25 d.1
24,1
00
ANSWER:
Ful
l
-Goodwi
l
l:
Neti
ncomef
rom ownoper
ati
ons:
Par
ent(
P100,000-(
10,000x80%) P92,000
 Subsi
diar
y 50,000
P1
42,000
Less:Amor
ti
zat
ionofal
l
ocat
edexcess *
6,875
I
mpai
rmentoff
ull
-goodwi
l
l(i
fany) 3,000
Consol
i
dat
edNetI
ncome P1
32,1
25
Less:NCIi
nNeti
ncome :
Subsi
diar
yneti
ncomef
rom ownoper
ati
on P50,000
Less:Amor
ti
zat
ionofal
l
ocat
edexcess 6,875
I
mpai
rmentoff
ull
-goodwi
l
l(i
fany) 3,000
P40,1
25
Mul
ti
plyby:NCI 20% 8,025

Consol
i
dat
edNetI
ncomeat
tr
ibut
abl
etocont
rol
l
ingi
nter
est P1
24,1
00

*
Amor
ti
zat
ionofal
l
ocat
edexcess:
I
ncr
easei
ninvent
ory:5,000(
sol
din201
6) P5,000
I
ncr
easei
nbui
l
dings:1
5,000/8year
s 1
,875
Tot
al P6,875
36.OnJanuar
y2,201
3,Pascual
Cor
por
ati
onpur
chased80% ofSuazonCompany’
sP1
0parcommonst
ock
f
orP975,000.Ont
hisdat
e,t
hebookval
ueofSuazon’
snetasset
swasP1
,000,000.Thef
airval
ueof
Suazon’
sident
if
iabl
enetass
etsandl
i
abi
l
it
ieswer
ethesameast
hei
rcar
ryi
ngamount
sexceptf
orpl
antasset
s
(
10yearl
i
fe)
,whi
chwer
eP1
00,000excessoft
hecar
ryi
ngamount
.Fort
heyearendedDecember31
,201
3,
Suazonhadacompr
ehensi
vei
ncomeofP1
90,000andpai
dcashdi
vi
dendst
otal
i
ngP1
25,000.I
nthe
December31
,201
3consol
i
dat
edst
atementoff
inanci
alposi
ti
on,non-
cont
rol
l
ingi
nter
est(
NCI
)shoul
dbe
r
epor
tedat
:
a.200,000 c.254,750
b.236,
000 d,1
82,750

ANSWER:
NCI
,01
/02/
201
3(975,000/
80%% x20% P243,750
NCI
,di
vi
dends(
125,000x20%) (
25,000)
NCI
,adj
ust
ednetofsubsi
diar
y(1
90,000–*1
0,000)x20% 36,000
*
100,000/
10year
s=1
0,000
NCI
,December31
,201
3 P254,750
37.Thefol
l
owingar ethef
eaturesoft
heconsoli
datedworki
ngpaperforthesecondyearaft
eracqui
si
ti
on
except
,
a. Eli
minati
onofthetotal
equi
tyaccountsofsubsi
diar
yagai
nstthei
nvestmentaccount(
par
ent’
s
int
erest
)andNCI.
b. All
ocati
onofexcessbyadjust
ingtheasset
softhesubsi
diar
yt of
airval
ues.
 c. Recogni
ti
onofNCIi
nt heCIoft
heparentcompany,adj
ust
edf
oramor
ti
zat
ionanddepr
eci
ati
on.
d. Amorti
zat
ionoft
heal
locat
edexcess
.

ANSWER:C.Becauset
her
ecogni
ti
onofNCIshoul
dbei
ntheCIofsubsi
diar
yandnott
hepar
entcompany.

38.Whichofthefoll
owingobservat
ionsisnotconsist
entwiththeuseofpush-downaccount
ing?
a.Therevaluat
ioncapi
talaccounti
spar tofthesubsi
diar
y’sst
ockholder
s’equi
ty.
b.Eli
minati
ngentri
esrelat
edtothediff
er ent
ial
areneededi nt
hewor kpaper
s
c.Nodiffer
enti
alari
sesintheconsoli
dationprocess
d.Revaluat
ionCapit
alaccountisel
iminatedinprepari
ngconsoli
datedstat
ements

Ans:b

39.Themet hodofaccounti
ngf
ori
nvest
menti
nsubsi
diar
ythati
sappr
opr
iat
efort
heacqui
si
ti
onmet
hodof
combinat
ioni s:
a.Thecostmet hod
b.Themar ketvaluemethod
c.Theequitymet hod
d.Thepoolingmet hod

Answer
:C

40.
Ifthepar
entcompanyusesthecostmet hodofaccount
ingforapar
ti
all
yownedsubsi
diar
yandtherear
e
noint
ercompanyprof
itorl
ossesel
iminat
edf ort
hecomputati
onofconsol
idat
edCI
,Consoli
datedr
etai
ned
ear
ningsisequalt
othebalanceoftheparentcompany’
s:

a. Ret
ainedEar
nings

b. Ret
ainedEar
ningspl
ust
hepar
ent
’
sshar
eoft
hebal
anceoft
hesubsi
diar
y’sr
etai
nedear
nings

c. Retai
nedearni
ngspl
usthepar
ent’
sshar
eoft
heneti
ncr
easei
nthesubsi
diar
y’sr
etai
nedear
ning’
s
subsequentt
othedat
eofacqui
si
ti
on

d. Ret
ainedear
ningspl
ust
hebal
anceoft
her
etai
nedear
nings

Ans.C

I
NTERCOMPANYTRANSACTI
ONS-I
NVENTORI
ES

1.
BruceCompanyowns80% ofLeeCor p.
’
scommonst ock.Duri
ngOctober2016,Leesoldmerchandiseto
Brucefor100,
000.AtDecember31,2026,one-hal
foft
hemer chandi
seremai
nedinBruceinventor
y.For
2016,grosspr
ofi
tpercent
ageswere30% forBr
uceand40% forLee.Theamountofunreali
zed
i
ntercompanyprof
iti
nendingi
nventor
yatDecember31,2016thatshoul
dbeeli
minatedinconsol
idat
ionis:

a.40,
000
b.20,
000
c.16,
000
d.15,
000
ANS: B
Sal
est oBr uce 1
00, 000
EndingI nvent
ory 1
\ 2
Merchandi seinvent
oryofBr uce12/
31/
201
6
i
nclusiveofprofit
s 50,000
GPr ateofLee( thesel
ler) 40%
Unrealizedprofi
tinendinginvent
ory 20,000

2.TheMar oonsCompanyhol dsa70% i

nteresti
ntheHaenaCompany.Atthecurr
entyearendMar oons
hol
dsinventorypurchasedf
rom Haenaf
or270, 000atacostpl
us20%.Thegroup’
sconsolidat
edstat
ement
offi
nanci
al posi
ti
onhasbeendr af
tedwi
thoutanyadjust
mentsi
nrel
ati
ontothi
shol
dingofinventor
y.

Whatadjust
mentsshoul
dbemadet othedraf
tconsol
i
dat
edst
atementoff
inanci
alposi
ti
onf
igur
esf
ornon-
cont
rol
l
ingint
erestandr
etai
nedear
nings?

Non-Cont
rol
l
ingi
nterest Retai
nedEar
nings
a. Nochange Reduceby45,000
b. Nochange Reduceby54,000
c. Reduceby16,200 Reduceby37,800
d. Reduceby13,500 Reduceby31,500

ANS:
D

EndingInvent
oryofMaroons(parent
)-upst
ream sal
es 270,
000
MarkupofSubsi di
ary 20/
120
Unreal
izedprofi
ti
nendinginvent
oryofMaroons(parentcompany) 45,000

NonCont
rol
l
ingi
nter
est (
30% X45,
000) 1
3,500

Cont
rol
l
ingi
nter
est(
70% X45,
000) 31
,500

3.
X-BeamsI nc,owned70% ofthevoti
ngcommonst ockofKentCorp.Dur
ing20x4,Kentmadeseveral
sales
ofi
nventor
yt oX-Beams.Thetotal
sell
i
ngpr i
cewasP1 80,000andt
hecostP1 00,
000.Attheendoftheyear,
20%ofthegoodswer esti
l
linX-Beams’ i
nventory.Kent’
srepor
tedi
ncomewasP300, 000.
Whatwast henon-contr
oll
i
nginter
estKent ’
snetincome?
a. P90,000
b. P85,200
c. P54,000
d. P98,800
e. P86,640
ANSWER:B

Par
ent Subsi
diar
y
NetI
ncomef r
om own 21
0,000 90,000
oper
ati
ons:
X-Beams( par ent)Kent
(subsi diar
y),70%: 30%
Unr ealizedPr ofitinEIofPar ent (1
1,200) (4,
800)
(X- Beams) :
P1 80,000x20% =P36, 000x
(180- 100/ 180)=P1 6,000,
70%: 30%
Non- controll
ingI nterestinKent
’s 85,
200
NetI ncome

4.During201 1
,Par dCorp.soldgoodst oit
s80% ownedsubsi di
ary,SeedCor p.AtDecember31 ,onehal fof
thesesgoodswer eincl
udedi nSeed’sendinginventory.Report
ed201 1sell
ingexpensewer eP1 ,100,000and
P400, 000forPar dandSeed,r especti
vel
y.Pard’ssell
i
ngexpensesi ncludedP50, 000inf r
eightoutcost sfor
goodst oSeed.Whatamountofsel l
ingexpensesshoul dberepor tedinPard’ s201 1consolidat
edi ncome
stat
ement ?
a. P1,500,000
b. P1,480,000
c. P1,475,000
d. P1,450,000
ANSWER:D
Ther equir
ementi stodeterminetheamountofsel l
ingexpensest ober eportedinPar d’s201 1consol i
dated
i
ncomest atement.Pard’ssel
li
ngexpensesf or2011includeP50, 000i nfrei
ghtoutcost sforgoodssol dt o
Seed,i t
ssubsidiar
y.ThisP50,000becomespar tofSeed’ si
nventor ybecausei tisacostdi rect
lyassoci at
ed
withbr i
ngi
ngt hegoodst oasalableconditi
on.Noneoft heP50,000r epresent sasel l
i
ngexpensef orthe
consol i
dat
edent it
y,andP1 ,
450,000(P1,1
00,000+P400, 000-P50, 000)shoul dber eportedassel l
i
ng
expensesi nconsolidat
edincomest atement.

5.OnJanuar
y1,201
3,Er
onCompanypur
chased90% ofBessyCompanyf
orP400,000.Ont
hatdayBessy
Company’
sequi
tyconsi
stedofP1
00,000ofcapi
tal
stockandP300,000ofr
etai
nedear
nings.Ass
etsand
l
i
abi
l
it
ieswer
efai
rl
yval
ued.I
n201
3Bessyhadsal
esofP500,000andcostofsal
esofP300,000.Onehal
fof
t
hesal
eswer
etoEr
on.Bessy”
spr
ici
ngpol
i
cyhasnotchangedf
orsever
alyear
s.AtJanuar
y1,201
3,Er
on’
s
i
nvent
orycont
ainedP40,000ofBessy’
smer
chandi
sepur
chasedi
n201
2.Er
on’
sDecember31
,201
3,
i
nvent
oryi
ncl
udedP25,000ofBessy’
smer
chandi
se.Bot
hcompani
esuseFI
FO.

For201
3Er
onhadCIf
rom i
tsownoper
ati
onsofP200,000andpai
ddi
vi
dendsofP80,000.Bessy’
sCIwas
P75,000;i
tpai
dP30,000di
vi
dendsdur
ingt
heyear
.

For201
3,consol
i
dat
edCIat
tr
ibut
abl
etopar
enti
s:
a.270,900 c.271
,000
b.272,900 d.271
,900

ANSWER:
Sal
es 500,000 Gr
ossPr
ofi
tRat
e(Bessy)=200,000/
500,000
Costofsal
es 300,000 =40%
Gr
ossPof
it 200,
000

Neti
ncomef
rom ownoper
ati
on–Er
on P200,000
Adj
ust
edneti
ncome–Bess
y
Neti
ncomef
rom ownoper
ati
on P75,000
Real
i
zedpr
ofi
tbegi
nni
ngi
nvent
ory(
40,000x40%) 1
6,000
Unr
eal
i
zedpr
ofi
tendi
ngi
nvent
ory(
25,000x40%) (
10,000) 81
,000
Consol
i
dat
edNetI
ncome 281
,000
At
tr
ibut
abl
etoNCI(
81,000X1
0%) 8,1
00
At
tr
ibut
abl
etoPar
ent P272,900

6.Par
ryCo.owns80% i
nter
esti
nSt
arr
yCo.acqui
redsever
alyear
sago.St
arr
yregul
arl
ysel
l
smer
chandi
set
o
i
tspar
entat1
23% ofSt
arr
y’scost
.Gr
ospr
ofi
tdat
aofPar
ryandSt
arr
yfort
heyear201
6ar
easf
oll
ows:
Par
ry St
arr
y
Sal
es 1
,000,000 800,000
Costofgoodssol
d 800,000 640,000
Gr
osspr
ofi
t P200,000 P1
60,000
Dur
ing201
6,Par
rypur
chasedi
nvent
oryi
temsf
rom St
arr
yatat
ransf
erpr
iceofP400,000.Par
ry’
sDecember
31
,201
5and201
6invent
ori
esi
ncl
udedgoodsacqui
redf
rom St
arr
yofP1
00,000andP1
25,000,r
espect
ivel
y.
Theconsol
i
dat
edcostofgoodssol
dofPar
ryandsubsi
diar
yfor201
6was:
a.1
,024,000 c.1
,052,000
b.1
,045,000 d.1
,056,000

ANSWER:
Costofsal
esof
: *
Grosspr
ofi
trat
e
Par
ry 800,000 1
60,000/800,000=20%
St
arr
y 640,000
P1
,440,000
Less:I
nter
companysal
es (
400,000)
Real
i
zedpr
ofi
tinbegi
nni
ngi
nvent
ory (
20,000)
(
100,000x*
20%)
Add:unr
eal
i
zedpr
ofi
tinendi
ngi
nvent
ory 25,000
(
125,000x*
20%)
Consol
i
dat
edcostofgoodssol
d P1
,045,000
7.
Xyri
lCorp.ownsan80% i
nter
esti
nEri
caCor p.acquir
edsever
alyear
sago.Ericaregul
arl
ysell
s
merchandi
setoit
spar
entat125% ofEr
ica’
scost.Grosspr
ofi
tdataofXyr
ilandEri
cafortheyear201
6ar
eas
f
oll
ows:

Xyr
il Er
ica
Sal
es P1,
000,000 P800,
000
Costofgoodssol
d 800,000 640,
000
GrossProf
it P200,000 P160,
000

Duri
ng2016,Xyr
ilpur
chasedinvent
oryi
temsfrom Er
icaatat r
ansf
erpri
ceofP400,
000.Xyri
l
’sDecember31 ,
2015and2016invent
ori
esincl
udedgoodsacquiredfrom Er
icaofP100,
000abdP125,000,respect
ivel
y.The
consol
i
dat
edsalesofXyri
lCorp.andsubsi
diar
yfor201 6were:

a. P1
,800,
000
b. P1
,425,
000
c. P1
,400,
000
d. P1
,240,
000
ANS:C
Consoli
datedSal es
Salesof :
Xyr i
l P1,
000,
000
Erica 800,
000
Total P1,
800,
000
Less:I
ntercompanySales 400,
000
Consoli
datedSal es P1,
400,
000
8.
Usingt
hesamei nformationi
nNo.137,t
heunr
eal
i
zedpr
ofi
tsint
heyear
-end201
5and201
6invent
ori
es
were:

a. P100,000andP125,000respecti
vely
b. P800,000andP100,000respecti
vely
c. P20,000andP25,000respecti
vely
d. P16,
000andP20, 000respecti
vel
y

ANS:C
Reali
zedProf
iti
nbeginninginventor yofXyr
il(
Upst
ream)
P1
00,
000x20% ( 1
60/ 80),GPofEr ica P20,
000
Unreal
izedPr
ofi
tinendinginventor yofXyri
l
P1
25,
000x20%,GPofEr ica P25,
000

9.Fr ancisCompanyowns1 00℅oft hecapi

talstockofbothGem CompanyandRobi nCompany.Fr anci
s
purchasesmer chandi seinvent
oryfrom Robi
nCompanyat1 40℅ofRobin'scost
.During2016,merchandise
thatcostRobinP40, 000wassol dtoGem.Gem sol dallofthi
smerchandisetounrel
atedcustomersfor8,200
during201 6.I
npr eparingcombinedf i
nanci
alstatementsfor2016Fr
ancis'bookkeeperdisr
egardedthe
commonowner shipofGem CompanyandRobi nComapany.Bywhatamountwasunadj ust
edreveneu
over st
atedint
hrint hecombi nedincomestatementf or2016andtheamountt hatshouldbeeli
minat
edf r
om
costofgoodsol di nthecombi nedincomes t
atementf or2016?

Over
stat
edUnadj
ust
edReveneu CostofGoodsol
dtobeel
i
minat
ed

a. P1 6,
000. P16000
b. 40,000. 40,
000
c. 56, 000. 56,
000
d .81 ,
200. 56,
000
Answer:C
Sol
uti
on

Over
stat
edUnadj
ust
edRevenue:

Whencomput i
ngcombi nedrevenuetheobj
ect
iveist
orestat
etheaccountsasitt
heint
ercompany
tr
ansacti
onhadnot -occur
red.Assumingthatt
her
ewasnosal ebetweenGem andRobi nthecorr
ectamount
ofcombinedrevenueisoverst
atedbytheP56,000(40,
000x140℅)int
ercompanyreveneurecogni
zedby
Robin(
thesel
l
er).

Costofgoodssol
dtobeel
i
minat
ed:
 Whencomput i
ngcombi nedcistofgoodssold,t
heobjecti
veistorest
atetheaccountsasi
fthe
i
nt ercompanyt r
ansacti
onshadnotoccur red.Assumingtherewasnosal ebetweenGem andRobi n,the
cor r
ectamountofcombi nedcostofgoodssol dwouldbeP40, 000theorigi
nalcostofthemer
chandiset o
Robi n(t
heseller
).However,Robin,recogni
zedP40, 000forCGSandGem r ecogni
zedP56,000(40,000x1 40℅)
forat otal
ofP96, 000.Thus,56,
000( 96,
000-40,000)shouldbeeli
minatedfrom CGSi nhecombinedi ncome
statementf or2016.

I
nci
dent
all
y,t
heent
ryf
ort
habovei
temsel
i
minat
ingt
hei
nter
companyt
ransact
ionswoul
dbe:

Sal
es 56,
000

CGS(
orpur
chases
). 56,
000

10.RyanRet ai
lCompanysel lsgoodsf orcash,onnor malcredit(
2/10,n/30).However ,onJuly1
,201 4,the
companysol dausedcomput erforP22,000;thei nventor
ycarryi
ngvaluewasP4, 40O.Thecompany
coll
ectedP2,000cashandagr eedtoletthecust omermakepayment sont heP20, 000wheneverpossi ble
duri
ngt henext12mont hs.Thecompanymanagementst atedthati
thadnor el
i
ablebasisforest
imati
ngt he
probabil
it
yofdefaul
t.Thef ol
lowingaddi t
ionaldataar eavail
abl
e:(a)coll
ecti
onsont heinstal
mentreceivable
duri
ng201 4wer eP3,000anddur ing201 5wer eP2, 000,and(b)onDecember1 ,2015,RyanRetai
l
repossessedthecomput er(estimatednetr eal
izablevalueP7,000).

Det
ermi
net
her
eal
i
zedgr
osspr
ofi
tonl
nst
almentsal
esf
ort
heyear201
4.

A.P1,600
B.P4,000
C.P2,400
D.P5,600
Answer:B
Sol
uti
on

Tot
alcol
l
ect
ionsmadei
n201
4:

Downpayment P2,000
I
nstall
ment 3,000 P5,000
Grosspr of
itr
ate(22,
000-4, 400/22,000) x80℅
Grosspr of
itr
eali
zed: P4,000
11.PeterCorporat
ionowns70% ofJohnConpany' scommonst ock,acquir
edJanuary1,201 5.Goodwil
lfr
om
theInvestmenti
snotamor t
ized.Johnregular
lysell
smer chandi
setoPeterat150percentofJohn'scost
.
Peter'
sDecember31 ,
201 5and201 6inventori
esincl
udegoodspur chasedint
ercompanyofP1 12,
500and
P33,000,respecti
vel
y.Thesepar atei
ncomes( donotincludei
nvest
mentincome)ofPet erandJohnfor201 6
aresummar i
zedasfoll
ows:
Pet
er John
Sales 1,200,000 800,000
CostofSal es (
600,000) (500,000)
OtherExpenses (400,000) (
100,000)
SeparateIncome P200, 000 P200,000

Tot
alconsol
idat
edi
ncomeshoul
dbeal
l
ocat
edt
oneti
ncomet
oret
ainedear
ningsandmi
nor
it
yint
eresti
nthe
amountsof:
a.358,
550and67,
950,r
espect
ivel
y
b.378,
550and60,
000,r
espect
ivel
y
c.366,
500and60,
000,r
espect
ivel
y
d.366,
500and67,
950,r
espect
ivel
y

Answer:A.
SeparateIncome( 200, 000+200,000) 400,000
Add:reali
zedmar k-uponbegi nni
nginventor
y(112,
500x1 /
3) 37, 500
Less:unreali
zedmar kuponendinginvent
ory(33,
000x1 /
3) ( 11,
000)
Consoli
datedneti ncome 426, 500
Minori
tyinteres
tincome[ (
200,
000+37,500-11,
000)x30%] (
67,950)
NetIncomet oRet ainedEarni
ngs 358,550

12.Select
edi nf
ormationfr
om theseparat
eandconsol i
datedbalancesheetsandincomest
atement
sofPass
I
nc.,anditssubsidi
ary,SuccessCo.,asofDec.31,
201 4,andfortheyearthenendedisasf
oll
ows:
PassI nc Successco. Consoli
dated
BalanceSheetaccount s
AccountsReceivable 52,
000 38,000 78,
000
Invent
ory 60,000 50,000 104,
000
I
ncomeSt atementaccounts
Revenues 400,000 280,000 616,000
CostofGoodsSol d 300,000 220,000 462,000
GrossProfi
t. 100,
000 60,000 1
54,000

Addit
ionalI
nformati
on:
Duri
ng201 4,Passsoldgoodst
oSuccessatthesamemark-uponcostthatPassusesf
oral
lsal
es.How
muchisthecorrectcostoft
hemerchandi
seacquir
edbySuccessf
rom Pass?
a.64,000
b.48,000
c.24,000
d.18,000

Answer:B.
I
ntercompanySal e
Total
Sales(400,000+280,000) 680,000
Consoli
datedSales (
616,000) 64,
000
Less:Mark-up(64,000x1 /
4) (
16,
000)
Costofmer chandi
setransf
erred 48,
000

13.EvanCorporati
onowns75% oft heout
standingstockofJewel Company,acqui
redatbookvalueduri
ng
2012.Duri
ng201 5JewelCompanysol dmer chandisetoEvanforP1 50,000atagr
ossprof
itr
ateof40%.At
theendof201 5,Evanst
il
lowedP75, 000toJewel f
orthemerchandise.OnDecember31,2015inventor
y
amountingtoP60, 000f
rom theintercompanypur chasesremainedatEvan.Theamountofunreali
zedprof
it
ofEvanthatshouldbeel
iminatedinconsoli
dat i
onis:

a.P24,
000 b.P36,
000 c.P30,
000 d.P6,
000

Answer
:a.P24,
000

Sol
ut i
on:
EndingInvent
ory,Evan P60,
000
Multi
pli
edbyGr ossProfi
tRat
e 40%
Unreali
zedProfi
t,Evan P24,
000

1
4.MongCor
por
ati
onpur
chased90% oft
hest
ockofGoCompanyonJanuar
y1,201
4.Ont
hatdat
e,t
he
bookval
ueofGo'snetasset
sappr
oxi
mat
edf
airval
ue.Asar
esul
toft
hepur
chase,Mongr
ecogni
zedP
50,000ofgoodwi
l
l.

Dur i
ng2014,Gosoldinventoryt
oMong.OnDecember31 ,2014,Gohadunreali
zedprof
it
soni t
sbooksofP
8,000.ByDecember31 ,201 5,al
loft
hei nventor
ylef
tonMong' sbookshadbeensoldt
oout si
depart
ies
.
During2015,MongsoldinventorytoGoandhadP1 2,000ofunreal
i
zedprof
it
slef
tonit
sbooksatt heendof
2015.For2015,Mongr eportedoperati
ngi ncomeofP450,000,andGor eport
edCIofP31 0,000.Whatis
theconsoli
datedCIat
tr
ibutabletoparentfor2015?

a.P736,
200 b.P71
7,000 c.P724,
200 d.P731
,800

Answer
:c.P724,
200

Solution:
NetI ncomef rom ownoper ati
on-Mong P450, 000
Unreal izedProfitinEndingI nventor
y-downstr
eam (12,000)
RealizedSepar ateNetI ncome-Mong P438,000
Mong' sshareofGo' sAdj ustedNetIncome:
NetIncome P31
0, 000
Reali
zedPr of
iti
nBeg.I nvent
ory 8,000 318,000
Minor it
yI nt
erestinSubsi diary
(P31 8,000x1 0% ) (31,
800)
Att
ribut abletoPar ent P724,200

15.Duringthefi
scalyearendedMay31 ,2003,SwopeCompany,t he80%- ownedsubsidiar
yofPone
Corporati
on,sol
dmer chandisetoi
tsparentcompanyatbi
ll
edpricestot
ali
ngP360, 000,represent
inga220%
mar kuponSwope' scost.OnMay31 ,2003,Pone'
sinvent
ori
esincludedmer chandi
setotali
ngP54,000
purchasedfrom Swope—aP1 2,
000incr
easeoverthecomparableJune1 ,2002,amount .

Thetot
alamountt
obeeli
minat
edforconsol
i
dat
edcost
sofgoodssol
dofPoneCor
por
ati
onandsubsi
diar
y
fort
hefi
scal
yearendedMay31,2003,i
s:

a.P58,
000
b.P60,000
c.P300,000
d.Someot heramount

Ans:D
Feedback:(
P368,
000x5/
6)+(
P348,
000x1
/6)=P358,
000

16.Sever
alyear
sagoRubyCompanyacqui
red70% ofRi
zacompanyatbookval
ue.Rel
evantdat
afor201
3
areasfol
l
ows:

Ruby Ri
za

CIf
rom i
t’
sownoper
ati
ons 400,
000 250,
000

Di
vi
dendsdecl
aredandpai
din201
3 270,
000 1
10,
000

Mer
chandi
sef
rom i
nter
companysal
es
 i
nRuby’
sinvent
ory:

Jan.1
,201
3 40,
000

Dec.31
,201
3 70,
000

Gr
osspr
ofi
trat
eonsal
es:

201
2 70% 40%

201
3 75% 30%

Consol
i
dat
edCIf
or201
3is:

a.645,
000

b.
625,
000

c.51
7,000

d.
571
,000

Ans.A

Neti
ncomef rom ownoper ati
on–Pi p P 400,
000
Adj
ustednetincomeofSol :
Netincome P 250,000
Reali
zedpr ofi
tinbeginninginventory-
Upstream ( P40,000x40%) 16,000
Unreali
zedpr ofi
tinendinginventory-
Upstream ( P70,000x30%) (21 ,
000) 245,
000
Consoli
dat
edneti ncome-2008 P 645,
000

17.Sai
li
ngCompanyowns1 00% ofthecapit
al st
ockofbot hTwillCorp.andWebbCor p.Twillpurchases
merchandi
seinvent
oryfr
om Webbat1 40% ofWebb’ scost.Dur
ing201 6,merchandisethatcostWebbP40,
000wassol dt
oTwill
.Twil
lsol
dallofthi
smer chandisetounr el
atedcustomersf orP81,200dur i
ng201 6.I
n
prepar
ingcombinedfi
nancial
stat
ement sf
or201 6,Sail
i
ng’sbookkeeperdisregardedthecommonowner shi
p
ofTwil
landWebb.Bywhatamountwasunadj ustedrevenueover st
atedinthecombi nedincomest at
ements
for2016andtheamountthatshouldbeeli
mi natedfrom costofgoodssol dinthecombi nedincome
stat
ementfor2016?

Overst
atedUnadjust
edRevenueCostofgoodssol
dtobeel
i
minat
ed
a.P16,000 P1 6,000
b.P40,000 P40,000
c.P56,000 P56,000
d.P81,200 P56,000

Ans.:C
Sol
uti
on:

Over
stat
edUnadj
ust
edRevenue:

Whencomput
ingcombi
nedr
evenue,t
heobj
ect
ivei
stor
est
atet
heaccount
sasi
fthei
nter
company
tr
ansacti
onhadnotoccurr
ed.Assumingt
hatt
herewasnosalebetweenTwi l
landWebb,thecorr
ectamount
ofcombi nedr
evenuewouldbeP81,200sol
dtounrelat
edcustomers.Thus,unadj
ust
edrevenueis
overst
atedbytheP56,000(P40,000x140%)int
ercompanyrevenuerecognizedbyWebb( t
hesell
er)
.

Costofgoodssol
d:

Whencomput ingcombi nedcostofgoodssol d,theobject

ivei
storestat
etheaccount sasift
he
i
nt ercompanyt ransact
ionshadnotoccur red.Assumi ngt
herewasnosal ebet weenTwil
landWebb,t he
cor r
ectamountofcombi nedcostofgoodssol dwoul dbeP40,000theor i
ginalcostofmerchandiset
oWebb
(thesel l
er)
.However ,Webbr ecognizedP40,000f orCGSandTwillrecognizedP56,000( P40,000x1 40%)
forat otalofP96,000.Thus ,P56,000( P96,000–P40,000)shoul dbeel iminatedfr
om CGSi nthe
combi nedincomest at
ementf or2016.

I
nci
dent
all
y,t
heent
ryf
ort
heabovei
temsel
i
minat
ingt
hei
nter
companyt
ransact
ionswoul
dbe:

Sal
es56,000
Costofgoodssol
d(Pur
chase)56,000

18.
OnJanuary1 ,2016,JoyCompanypur chased75% oftheout
standingst
ockofMaeCompanyatbook
val
ue.Duri
ng201 6Maesol dinvent
oryit
emscost i
ngP50,000toJoyf orP75,000.Joyresol
d60% ofthis
i
nventoryt
ooutsider
sdur i
ngtheyearforP100,000.Fort
heyear201 6JoyhadCIf r
om it
’sownoperati
onsof
P200,000andpai ddi
videndsofP120,000.Mae‘sCIfort
heyearwasP1 10,
000,itpaidP40,000i
ndividends
.
Whatistheconsoli
datedCIattr
ibut
abl
etopar entf
or2016?

a. P273,
000
b. P279,
000
c. P300,
000
d. P275,
000
Ans.
D
Neti
ncomef rom ownoper ati
on–Joy P200,
000
Mae’sadjust ednetincome:
Neti ncome P1
10,000
Unr eali
zedpr ofi
tinendi
nginvent
ory-
Upst r
eam ( P25,000x40%) (10,
000) 100,000
Consoli
datedneti ncome P300, 000
MINIS(P100, 000x25%) (25.000)
At
tri
butabl
et opar ent P275,000

19.OnJanuar y1 ,
201 6,KielCompanypur chased90% ofRonCompanyf orP400, 000.Ont hatdayRon
Company’ sequityconsistedofP1 00,
000ofcapi talst
ockandP300, 000ofret
ainedear ni
ngs,.Asset
sand
l
iabi
l
iti
eswer efairl
yvalued.
I
n201 6Ronhadsal esofP500,000andcostofsal esofP300,000.
Onehal fofthesaleswer et
oKi el
.
Ron’sprici
ngpolicyhasnotchangedf orseveralyears.
AtJanuar y1.2016,Ki el
’si
nvent
orycontainedP40, 000ofRon’ smerchandisepurchasedin201 5.Ki
el’
s
Dec.31,2016inventoryincludedP25,000ofRon’ smer chandise.Bot
hcompani esuseFIFO.
For201 6Kiel hadCIf rom i
t’
sownoper ati
onsofP200, 000andpaiddivi
dendsofP80, 000.Ron’sCIfor
2016wasP75, 000.ItpaidP30, 000divi
dendsdur ingtheyear .

For201
6.consol
i
dat
edCIat
tr
ibut
abl
etopar
enti
s:

a. P270,
900
b. P272,
900
c. P273,
000
d. P271.
900
Ans.B
Grossprof
itrateofSit(P200,000/P500, 000) 40%
Netincomef rom ownoper ati
ons–Ki el P200,
000
AdjustednetincomeofRon:
Netincome P 75,000
Reali
zedpr ofi
tinbeginninginventory-
Upst r
eam ( P40,000x40%) 16,000
Unreali
zedpr ofi
tinendinginventory-
Upst r
eam ( P25,000x40%) (10,000) 81,
000
Consol i
dat
edneti ncome P281,000
MINI S(P281,000x1 0%) ( 8,100)
Att
ributabl
etopar ent P272,900

20.GLYSDICor porati
onpur chasedinvent
oryfrom GBYCor porat
ionforP120,000onSept ember20,20x4
andresold80per centoft heinvent
orytounaffi
li
atedCompani espriortoDecember31 ,
20x4,f
orP140,000.
Dresserproducedt heinventorysol
dtoGLSDICor p.forP75,000owns70per centofGBY’
svoti
ngcommon
st
ock.Thecompani eshadnoot hertr
ansact
ionsdur i
ng20x4.

WhatamountofConsol
i
dat
edneti
ncomewi
l
lbeassi
gnedt
ononcont
rol
l
ingi
nter
estf
or20x4?
A.P20,
000
B.P30,
800
C.P44,
000
D.P45,
000
E.P69,
200

ANSWER:E
Consol
idatedsal es P140,
000
Costofgoodssol d (
60,
000)
Consol
idatedneti ncome P80,
000
I
ncomet oGLYSDI ’
SNoncont rol
li
nginter
est
:
Sales P120,000
Repor tedcostofsales 1
75, 000
Repor tincome P45,000
Por t
ionr eal
ized x.80
Realizedneti ncome P36,000
Por t
iontononcont rol
li
nginterest x.30
Incomet ononcont r
oll
ingint
erest (1
0,800)
Incomet ocontrol
l
inginter
est P69,200

21.Kr
ist
elI
nc.acquired100% ofGaspardFarmsonJanuar y5,20x3.During20x3,Kr
istelsoldGaspard
FarmsforP625,000goodswhi chhadcostP425,000.GaspardFarmsst i
llowned12% ofthegoodsatt he
endoftheyear.I
n20x4,Kr i
stel
soldgoodswit
hacostofP800000t oGaspar dFar
msf orP1 000000and
GaspardFarmsstil
lowned1 0% ofthegoodsatyearend.For20x4,costofgoodssol
dwasP1 ,
200,000for
GaspardFarmsandP5, 400,000forKri
stel
.Whatwasconsolidat
edcostofgoodssoldf or20x4?
A.P6,600,
000
B.P5,596,
000
C.P6,596,
000
D.P5,625,
000
E.P5,
620,000

ANSWER:B

Costofsal
es
KCompany(
p) P5,400,000
GCompany(
s) 1,
200,000
Total 6,600,000
Less:I
nter
companysal es 1000, 000
Real
izedpr
ofit[
P625,000x12%=75,
000x(
625-425)
/625] 24,000
Add:Unreali
zedprofi
t[1000,
000x10%=100,
000x(
1000-800)/
1000] _20,000
Consoli
dated 5,596,000

22.Bl
ueCompanyowns80per centofthecommonst ockofWhit
eCorporat
ion.Duri
ngtheyear,Bl
ue
repor
tedsal
esof$1,000,
000,andWhi t
er epor
tedsal
esof$500,
000,i
ncludi
ngsalestoBlueof$80,000.The
amountofsal
esthatshoul
dbereportedintheconsol
i
datedi
ncomestat
ementf ort
heyearis:

a.$500,
000.
b.$1,
300,000.
c.$1,
420,
000.
d.$1,
500,000.

Answer
:c

BlueSales $1,
000,000
WhiteSales $500,000
Less:I
ntercompanySal
es $80,000
Consoli
datedSales $1,
420,000

23.PepeCorpor
ati
onownsan80% i nteres
tinSisaCompany,andtDecember31 ,2012,Pepe'
sinvestmenti
n
Si
saunderthecostmet hodwasequal to80% ofSisa'
ss t
ockhol
dersequit
y.Duri
ng201 3,Si
sasell
s
merchandi
setoPepef orP1 00,
000,atagr ossprof
itt
oSi saofP20,000.AtDecember31 ,2013halfoft
his
merchandi
seisi
ncludedt oPepe'
sinventor
y.SeparateincomesforPepeandSisaf or2013aresummar i
zed
asfol
lows:

Pepe Si
sa
Sal
es P500,000 P300,000
Costofsal
es (250,
000) (
200,000)
Operat
ingExpenses (
125,
000) (
40,000)
CIfr
om ownoper at
ions P125,
000 P60,000

I
nthecosol
i
dat
edst
atementofCIf
or201
3,NCIi
nCIofsubsi
diar
yis:

a.P12,
000
b.P11,
000
c.P1
0,000
d.P14,
000

Answer
:c

Netincome-Sisa P60,
000
Unreali
zedprofi
ti
nendi
nginvent
ory
upstr
eam Adjust
edneti
ncomeSisa (1
0,000)
P50, 000
NCIpr
opor
ti
onat
eshare 20%
NCIi
nneti
ncomeofsubsi
diar
y P10,000
24.SandCompanyowns80% ofWi chCor p.
’scommonst ock.DuringOctober20x6,Wichsoldmer chandise
toSandf orP100,000.AtDecember31 ,20x6,one-
halfofthemer chandi
ser emainedinSandinventory.For
20x6,gr oss pr
ofitpercentages were 30% f orSand and 40% f orWi ch.The amountofunr eal
ized
i
ntercompanyprof i
tinendi
nginventor
yatDecember31 ,20x6t hatshoul
dbeel i
minatedinconsol
i
dationis:
a.P40,000 c.P16,000
b.P20,000 d.P1 5,
000

Ans:b

SalestoSand P1
00,000
x:EndingInventory 1
/2
Mer chandi
seI nvent
oryofSand,1 2/
31/
201
6 P 50,
000
i
nclusiveofprofi
ts
x:GPr ateofWi ch(sel
ler) 40%
Unreali
zedpr ofi
tinendinginvent
ory P20,000

25.OnJanuary1,2014,DiamondCo.purchased80% oft heout st

andingshar
esofStarCo.bypaying
P170,
000,theStarCo.’
scommons t
ockandretainedearningsont hi
sdateamountedtoP75,000and
P115,
000respecti
vel
y.Alsoonthi
sdate,anequipmentisunder val
uedbyP1 0,000wit
haremai ni
ng
l
if
eof5year s.

OnJanuar
y1,2016,St
arCo.hadP75,
000ofcapi
tal
stockandP300,000ofr
etai
nedearni
ngs.Also
ont
hesamedate.DiamondCo.hadP500,
000ofcapital
stockandP350,
000ofret
ainedear
nings.

Duri
ngtheyear,Di
amondCo.solmerchandi
set
oStarCo.f
orP30,
000andi
nturn,purchased
P20,000f
rom StarCo.I
nter
-companysal
esofmer
chandi
seweremadeatt
hefoll
owinggr osspr
ofi
t
rat
es:

Sal
esmadebypar
ent
…………………………………………. 25% basedoncost

Sal
esmadebysubsi
diar
y……………………………………… 20% basedonsal
es

OnDecember31,2016,30% ofal
li
nter
-companysal
esr
emai
nint
heendi
ngi
nvent
oryoft
he
pur
chas
ingaf
fi
li
ate.

Thebeginningi
nventor
yofDiamondCo.i ncl
udesP1,
250wort
hofmer chandiseacqui
redfr
om Star
Co.onwhi chStarCo.r
eport
ed apr of
itofP500.Whi l
e,t
hebegi
nni
ngi nventor
yofStarCo.al
so
i
ncludesP1 ,
500ofmerchandiseacqui
r edfrom Di
amondCo.at35% mar k-
up.

Usi
ngt
hecostmet
hodt
hef
oll
owi
ngsel
ect
edr
esul
tsofoper
ati
onsf
or201
6wer
easf
oll
ows:

Di
amondCo. St
arCo.

Di
vi
dendspai
d…………………………. P30,
000 P5,
000

Neti
ncomef
rom ownoper
ati
ons……. P50,
000 P1
5,000

Add:Di
vi
dendi
ncome………………… 4,
000

Neti
ncome…………………………….
. P54,
000 P1
5,000
 ThebalanceofI
nvest
menti
nSt
arCo.andt
heNon-
cont
rol
l
ingI
nter
esti
nNetI
ncomeasofDecember
31,201
6,shouldbe:

a. P1
70,
000;P2,
360

b. P1
36,
000;P2,
360

c. P1
36,
000;P2,
460

d. P1
70,
000;P2,
460

ANSWER:(
d)

I
nvest
menti
nSt
arCo.=P1
70,
000si
ncecostmodel
met
hodi
sinef
fect
.

Neti
ncomeofSubsi
diar
y………………………………………………. P
1
5,000

Add:Real
i
zedpr
ofi
tinbeg.I
nvent
oryofPar
ent

(
upst
ream)
…………………………………………………………. 500

Less:Unr
eal
i
zedpr
ofi
tinendi
ngi
nvent
oryofpar
ent(
upst
ream)

(
P20,
000x30% =P6,
000x25/
125)
……………………………. 1
,200

Less:Amor
ti
zat
ionofal
l
ocat
edexcess(
P8,
000/
80%)
/5year
s……… 2,
000

1
2,300

Mul
ti
pli
edby:Non-
cont
rol
l
ingi
nter
est
………………………………… 20%

Non-
cont
rol
l
ingi
nter
esti
nneti
ncome………………………………… P
2,
460

26.LargeCorp.acquired75% interesti
nSmal lCorp.i
n2015.FortheyearendedDecember31 ,201
5
and201 6,SmallCorp.report
edneti ncomeofP80, 000andP90,000,respecti
vely.Duri
ng201 5,
SmallCorp.solmerchandisetoLar geCorp.forP10,000ataprofi
tofP2,000.Themer chandisewas
l
aterresol
dtoLargeCor p.tooutsiderforP15,
000dur i
ng2016.Forconsoli
dati
onpur poses,whatis
thenon-contr
oll
i
nginterest’
sshareofSmal l
’snetincomefor2015and201 6,respecti
vel
y?

201
5 201
6

a. P20,
000 P22,
500

b. P1
9,500 P22,
000

c. P20,
500 P23,
000

d. P1
9,000 P22,
000
ANSWER:(
b)

201
5 201
6

Smal
l
’sneti
ncomef
rom ownoper
ati
on*
……………… P80,
000 P90,
000

Unr
eal
i
zedpr
ofi
ti
nendi
ngi
nvent
ory

ofSmal
l–201
5…………………………………….
. (
2,000) (
2,000)

P78,
000 P88,
000

Mul
ti
pli
edby:Non-
cont
rol
l
ingi
nter
est
..
……………….
. 25% 25%

Non-
cont
rol
l
ingi
nter
esti
nNetI
ncome……………….
. P1
9,500 P22,
000

27.Colt
onCompanyacqui red80per centownershipofMot aCompany' svot i
ngsharesonJanuar y1,2008,
atunderl
yingbookval ue.Thef airvalueoft henoncontr
olli
ngi nterestonthatdat ewasequalt o20percentof
thebookval ueofMot aCompany.Dur i
ng2008,Col t
onpur chasedi nventoryf or$30,000andsol dtheful
l
amounttoMot aCompanyf or$50, 000.OnDecember31 ,2008,Mot a'sendinginventor
yi ncl
uded$10,
000of
i
temspur chasedf rom Colton.Al soin2008,Mot apur chasedi nventoryfor$80, 000andsol dtheunit
st o
Colt
onfor$1 00,000.Coltonincluded$30, 000ofit
spurchasef r
om Mot ainendinginventoryonDecember31 ,
2008.Summar yincomest atementdat aforthet
wocompani esr evealedthef ol
lowing:

Whatamountofi
ncomewi
l
lbeassi
gnedt
othenoncont
rol
l
ingshar
ehol
der
sint
he2008consol
i
dat
edi
ncome
st
atement
?

a.$6,
200

b.$5,
400

c.$5,
800

d.Noneoft
heabove
ANSWER:B

Repor
tedneti
ncomeofMot
aCompany $33,
000

Unr
eal
i
zedpr
ofi
tonsal
etoCol
tonCompany

$20,
000x(
$30,
000/$1
00,
000) ( 6,
000)

Real
i
zedneti
ncome $27,
000

Noncont
rol
l
ingi
nter
est
'sshar
e x0.
20

I
ncomeassi
gnedt
ononcont
rol
l
ingi
nter
est $ 5,
400

28.HunterCompanyandMossCompanybothpr oduceandpur chasefabri

cforresal
eeachper
iodand
fr
equentl
ysel
lt
oeachot
her.Si
nceHunt
erCompanyholds80percentownershi
pofMossCompany,Hunt
er'
s
cont
rol
lercompil
edt
hefoll
owingi
nfor
mati
onwit
hr egardtoint
ercompanyt r
ansact
ionsbet
weenthetwo
companiesi
n2007and2008:

Comput
etheamountofcostofgoodssol
dtober
epor
tedi
ntheconsol
i
dat
edi
ncomest
atementf
or2008.

a.$1
84,
250

b.$202,
250

c.$21
7,000

d.Noneoft
heabove

ANSWER:A
29.Czari
naCor porat
ionacqui
redan80% i nteresti
nGr aceCorporati
onin201 5.Fortheyearended
December31 ,2015and201 6,Gracereportedneti ncomeofP1 40,000andP1 50,
000,respecti
vely.Dur
ing
2015,Gracesoldmer chandi
setoCzari
naCor p.forP20,000atapr ofi
tofP4,000.Themer chandisewasl at
er
resol
dbyCzar i
naCor p.t
ooutsi
derforP30, 000dur ing2016.Forconsoli
dati
onpur poses,whati
st henon-
contr
oll
i
ngint
er est
’
sshar eofGrace’
snetincomef or2015and201 6,respecti
vely?

a. P27,
200;P30,
800
b. P32,
000;P36,
000
c. P32,
000;P30,
800
d. P27,
200;P36,
000
Answer
:A

201
5 201
6

Gr
ace’
sneti
ncomef
rom ownoper
ati
on P1
40,
000 P1
50,
000

Unr
eal
i
zedpr
ofi
ti
nendi
ngi
nvent
ory (4,
000) -

Real
i
zedpr
ofi
tinbegi
nni
ngi
nvent
ory - 4,
000

P1
36,
000 P1
54,
000

Mul
ti
pli
edby 20% 20%

Non-
cont
rol
l
ingi
nter
esti
nNeti
ncome P27,
200 P30,
800

30.OnJanuar
y1,201
6,CGCompanypur
chased80% oft
hest
ockout
standi
ngofJJCompanyatapr
icet
hat
i
ncl
udedP25,
000ofexcessduet
ounder
val
uat
ionofl
and.

OnDecember31 ,2016,CGCompanyhadi nitsinvent

ori
esP22,000ofmer chandisepurchasedfrom JJ
Companyat1 25% ofcost.Onthesamedate,JJCompany’ si
nvent
ori
esincl
udedP1 5,000ofmer chandise
whi
chwer epurchasedfrom CGCompanyat1 20% ofcost.TheNCIreport
edont heconsolidat
eds t
atement
off
inanci
alposi
ti
onatDecember31 ,201
6wasP82, 420.For2016,CGCompanyr eportedincomeof
P215,600computedundert heequi
tymethod.NCInetincomewasP26, 1
80.

Thenetasset
sofJJCompanyasatDecember31
,201
6is:

a. P281
,200
b. P41
6,500
c. P270,
500
d. P831
,300
Answer
:B

NCIonDecember31
,201
6consol
i
dat
edf
inanci
alposi
ti
on P82,
420

NCIi
nunr
eal
i
zedpr
ofi
tonmer
chandi
sesol
dtoCG

(
P22,
000x25/
125)x20% 880

NCIi
nnetasset
sofJJasofDecember31
,201
6 P83,
300

Di
vi
dedby: 20%

Netasset
sofJJonDecember31
,201
6 P41
6,500

OnJanuary1,
201 5,Bl
ueCompanypurchased80% oftheout
standi
ngsharesofGreyCompanybypayi
ng
P340,
000,theGreyCompany’scommons tockandret
ainedearni
ngsonthisdat
eamountedt
oP150,000
andP230,000respect
ivel
y.Al
soont
hisdate,anequi
pmentisunderval
uedbyP20,000wit
haremaini
ngli
fe
of10year
s.

OnJanuar
y1,
2017,GreyCompanyhadP150,
000ofcapi
tal
stockandP300,
000ofr
etai
nedear
nings.Al
so
ont
hesamedate,Bl
ueCompanyhadP1 ,
000,
000ofcapi
talst
ockandP700,
000ofr
etai
nedear
nings.

Duri
ngtheyear
,Bl ueCompanysol dmer chandiset
oGr eyforP60,000andi nturn,purchasedP40,000fr
om
GreyCompany.Inter-
companysal esofmer chandi
sewer emadeatt hefoll
owinggr ossprofi
trat
es:
Sal
esmadebypar ent 25% basedoncost
Sal
esmadebysubsi diary 20% basedonsales
OnDecember31 ,2017,30% ofal
lint
er-companysal esremainintheendinginventoryofthepurchasi
ng
af
fil
i
ate.

Thebeginni
ngi
nvent
oryofBl ueCompanyi ncl
udesP2, 500wort
hofmerchandiseacquir
edfrom Gr
ey
CompanyonwhichGr eyCompanyr eport
edapr ofi
tofP1,
000.Whi
let
hebegi nni
nginventor
yofGreyal
so
i
ncludesP3,
000ofmer chandiseacquir
edfrom BlueCompanyat35% mark-up.
Usi
ngt hecostmethodt
hefol
l
owingsel
ect
edr
esul
tsofoper
ati
onsf
or201
7wer
easf
oll
ows:
Bl
ueCompanyGr eyCompany
Di
videndspaid
NetIncomefrom ownoper
ati
ons
Add:Divi
dendIncome
Netincome

32.Thest ockholder’
sequi
tyofsubsi
diar
yonDecember31,201
7shouldbe:
a.P450,000 c.P481,
600
b.P470,000 d.P484,
000
33.}Theconsol i
datedst
ockhol
der’
sequityonDecember31
,2017usi
ngpropor
ti
onat
ebasi
s(orpar
ti
al
goodwillappr oach):
a.P1,911,000 b.P1,
905,920
c.P1,906,000 d.P1,
740,000

Sol
utions:
1}ANS:B
Non- cont r
olli
ngi nterest s( i
nnetasset s):
Commonst ockofSubsi di ary,1 2/31 /2017
Retainedear ningsofSubsi diar y,1 2/31/201 7:
Ret ainedear ningsofSubsi diary1 /
1/201 7 P300, 000
Add:Neti ncomeofSubsi di ar y 30, 000
Less:Di videndsofSubsi diar y 10,000 320,
000
Bookval ueofst ockhol der s’equi tyof
Subsi diar y,1 2/31 /201 7 P470,
000
Adjust ment st or eflectf ai rvalueofnetasset s:
Increasei nequi pment ,
1 /
1 /201 5 20,
000
Accumul at edamor ti
zat i
on( P2,000x3year s) (6, 000)
FairvalueofNetAsset s /SHEofSubsi diary,1 2/31/201 7 P484,000
Less:UPEIofBl ue—201 7 2,400
RealizedSt ockhol der s’Equi t
yOfSubsi diary,1 2/31/2017 P481,600
Mul t
ipli
edby:Non- cont roll
ingi nt erest 20%
Non- cont rolli
ngi nterest( i
nnetasset s)–par tialgoodwi l
l P 96,320
Add:Non- cont r
olli
ngi nter estonf ullgoodwi ll
(P25, 000–P20, 000) 5,
000
Non- cont rolli
ngi nterest( i
nnetasset s)–f ull goodwi l
l P101
,320
2}ANS:B
ConsolidatedSt ockhol der s ’Equi ty,1 2/31/201 7:
Cont roll
i
ngi nterest /Par ent ’
sI nt erest/Par ent’sPor t
ion/
Equi tyHol der sofBl uei nSt ockhol ders ’
Equi t
y,12/31/2017:
Commonst ockofPar ent P1
,000,
000
Ret ainedear ningsofPar ent( equitymet hod),
12/ 31 /201 7 809,
680
Cont roll
i
ngI nter est/Par ent’sSt ockhol ders ’Equity,
12/ 31 /201 7 P1
,809,
680
Non- cont rolli
ngi nterest ,1 2/31 / 201 7(partialgoodwi l
l
) 96,
320
ConsolidatedSt ockhol der s ’
’ Equi ty,1 2/31 /
201 7 P1
,906,
000

34.Noki
aCo.owns75% ofSamsungCo.
’
scommonst
ock.Fort
heyear201
6,i
ncomest
atementofNoki
a
Co.andSamsungCo.I
sasfol
lows:

NokiaCo. SamsungCo.
Sal
es..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P4,500,00 P1,750,
000
Costofsal
es..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..2,800,
00 850,000
GrossProf
it
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P1,700,000 P900,000
Operat
ingExpense..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..980,000 645,
000

NetI
ncome.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P720,
000 P255,
000

I
ntercompanysal
esfor2016ar
eupsr
eam andtotal
P650,000.Noki
a’
sDecember31 ,
2015andDecember
31,
201 6i
nvent
ori
escontai
nunr
eal
i
zedprofi
tsofP98,000andP120,
000,
respect
ivel
y.Theconsol
i
dat
edcost
ofsalesf
or2016:

A.
P2,
978,
000
B.
P3,
672,
000
C.
P3,
022,
000
D.
P2,
798,
000

Answer
:C

Combinedcostofsal
es(P2,
800,000+P850, 000) .
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
..
P3,650000
Less:I
nter
companypurchases
....
..
..
..
..
..
..
...
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
..650,000
Add:Unreali
zedpr
ofi
tfr
om endinginventory...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
..120,000
Less:
Unreali
zedpr
ofi
ti
nbeginninginventory.
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
...
..
..
..98,000

Consol
i
dat
edcostofsal
es.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P3,
022,
000(
C)

35.OneCo.acqui red a60% int

eresti
nTwoCo. i
n2015.FortheyearendedDecember31 ,
2015and201 6,
TwoCo. r
epor t
ednetincomeofP560, 000andP590,000,r
especti
vely.Dur
ing2015,TwoCo. sold
merchandisetoOneCo. forP50,000ataprof
itofP10,
000.Themer chandi
sewasl at
erresol
dbyOneCo.To
out
siderforP60,000during2016.Forconsol
i
dationpur
poses,whatisthenon-contr
oll
i
nginterest’
sshar
eof
Two’snetincomef or2016?

A.
P240,
000
B.
P236,
000
C.
P232,
000
D.
P323,
000

Answer
:A

Two’
sneti
ncomef
rom ownoper
ati
on.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
P590,
000

P600,000
Mul
ti
pli
edbyNCIper
cent
age.
..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..40%

Non-
cont
rol
l
ingi
nter
esti
nNetI
ncome.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. P240,
000(
A)
*I
nter
company:Pl
antAssets
35.OnJanuar
y1 ,
2016,RedInc.
soldequipmentwit
haf our
- yearr
emaini
ngusef ull
i
feandabookvalueof
P350,000t
oit
s65%- ownedsubsidiar
yforapriceofP530,000.Inconsoli
dat
ionwor ki
ngpaper
sfortheyear
endedDecember31,2016,t
heeli
minati
onentryconcer
ningt hi
str
ansact
ionwill
incl
ude:

A.
Adebittoequipmentf orP180,
000
B.
Acreditt
odepr eciat
ionexpenseforP1
80,
000
C.
Adebittocashf orP350,000
D.
Adebittogainonequi pmentforP180,
000

Answer
:D

100% unreali
zedgainandr estoretheor igi
nal bookvalue, dat
eofsal
e1/
1/1
6
Gainonsal e...
..
..
...
..
..
...
..
...
..
...
...
...
..
..
...
...
..
...
..
..
...
.P180,000
Equipment .
..
..
...
..
...
..
...
..
..
...
...
...
...
..
..
. P180,000
Theentr
ymadei nthebooksofsubsi di
aryont hedat eofsale:
Equipment .
..
..
..
...
..
..
...
..
...
..
...
..
..
...
...
...
...
..
..
...
..
...
...
P530, 000
Cash...
..
..
...
..
..
...
..
...
..
...
..
..
...
...
...
...
..
..
. P530,000
Theentr
ymadei nthebooksofpar entont hedat eofsal e:
Cash...
..
..
...
..
..
..
...
..
..
...
..
...
..
...
..
..
...
...
...
...
..
..
...
..
...
..
.P530,000
Equipment .
..
..
...
..
...
..
...
..
..
...
...
...
...
..
. P350,000
GainonSal e..
...
..
...
..
...
..
..
...
...
...
...
..
. 180,000

From consol
i
datedpoi
ntofvi
ew,ther
eshouldbenogai
n.Ther
efor
e,t
oel
i
minat
ethegai
nshoul
dbedebi
ted
andequipmentshoul
dbereduceaccordi
ngl
y.

Fordepreci
ati
on:
Accumulateddepreci
ati
on.
..
..
..
..
..
..
...
..
..
..
..
..
..
..
..
.P45,
000
Depreci
ati
onexpense(P180,000/4years) P45,
000

36.Br
uceCompanyowns80% ofLeeCo.
’
scommonst
ock.Dur
ingOct
ober201
6,Leesol
dmer
chandi
set
o
Br
ucef
or1
00,000.AtDecember31
,201
6,one-
hal
foft
hemer
chandi
ser
emai
nedi
nBr
ucei
nvent
ory.For
201
6,gr
osspr
ofi
tper
cent
ageswer
e30% f
orBr
uceand40% f
orLee.Theamountofunr
eal
i
zedpr
ofi
tin
endi
ngi
nvent
oryatDecember31
,201
6thatshoul
dbeel
i
minat
edi
nconsol
i
dat
ioni
s:
a.40,000 c.1
6,000
b.20,000 d.1
5,000
ANSWER:
Sal
est
oBr
uce P1
00,000
Mul
ti
plyby:Endi
ngi
nvent
ory 1
/2
Mer
chandi
sei
nvent
oryofBr
uce,1
2/31
/201
6incl
usi
veofpr
ofi
ts 50,000
Mul
ti
plyby:GPr
ateofLee 40%
Unr
eal
i
zedPr
ofi
tinendi
ngi
nvent
ory P20,000
37.Consol
i
dat
edneti
ncomef
orapar
entandi
ts80per
centownedsubsi
diar
yshoul
dbecomput
edby
el
imi
nati
ng:

a.allunr
eal
i
zed profi
tin downst
ream int
ercompanyi nvent
orysal
es,and unr
eal
i
zed pr
ofi
tin upst
ream
i
nter
companyinvent
orysal
esmadedur i
ngthecurrentyear.

b.allunreal
i
zedprof
iti
ndownstr
eam int
ercompanyi
nvent
orysal
es,andthenoncont
rol
l
ingi
nter
est
'sshar
eof
unreali
zedprof
iti
nupstr
eam i
nvent
orysalesmadedur
ingt
hecurrentyear
.

c.thecontrol
l
ingi
nter
est
'sshar
eofunr eal
izedprof
iti
ndownst
ream i
nter
companysal
es,andt
hecont
rol
l
ing
i
nterest
'sshar
eofunreal
i
zedprofi
tinupstr
eam sal
esmadeduri
ngthecurrentyear
.

d.allunreal
i
zed pr
ofi
tin downst
ream i
nter
company sales,and t
he noncont
rol
l
ing i
nter
est
's shar
e of
unr
eali
zedprofi
ti
nupst
ream sal
esmadeduri
ngthecur
rentyear.

Answer
:A

38.
Themat eri
al saleofinventoryit
emsbyapar entcompanyt oanaf f
il
iatedcompany:
a. Ent
er stheconsol i
datedr evenuecomputat
iononlyift
hetransferwast heresul
tofarm’slengt
h
bargaini
ng.
b. Aff
ect sconsolidatednetincomeunderaper i
odicinvent
orysyst em butnotunderaperpetual
i
nventorysyst em.
c. Doesnotr esulti
nconsol i
datedi
ncomeuntilt
hemer chandiseissoldtooutsideenti
ti
es.
d. Doesnotr equireawor ki
ngpaperadjust
menti ft
hemer chandisewast ransf
erredatcost
.
ANS:C

39.Consoli
dat
edneti
ncomef
orapar
entandi
ts80per
centownedsubsi
diar
yshoul
dbecomput
edby
el
iminat
ing:

a. al
lunreal
i
zedprofi
tindownst
ream i
ntercompanyinvent
orysal
es,andunr
eal
i
zedpr
ofi
tinupst
ream
i
nter
companyinvent
orysal
esmadedur i
ngthecurr
entyear.

b. al
lunreal
i
zedprof
iti
ndownstream i
nter
companyinvent
orysales,andt
henoncontr
oll
i
ngi
nter
est
's
shar
eofunreal
i
zedprof
iti
nupstr
eam i
nvent
orysal
esmadeduringthecur
rentyear
.

c. the contr
oll
ing i
nter
est
'sshar
e ofunreal
ized pr
ofi
tin downst
ream i
ntercompanysales,and t
he
control
l
inginter
est'
sshar
eofunreal
i
zedprofiti
nupst
ream sal
esmadeduringthecur
rentyear
.

d. al
lunr
eal
i
zedprof
iti
ndownstream i
nter
companysal
es,andthenoncont
rol
l
ingi
nter
est
'sshar
eof
unr
eal
i
zedpr
ofi
ti
nupstr
eam sal
esmadeduringt
hecur
rentyear
.

ANSWER:A

40.
Asubsidiar
ymadesalesofi
nventoryt
oitspar
entataprofi
tthi
syear.Theparent
,int
urn,sol
dall
but20
per
centoftheinvent
oryt
ounaff
il
iat
edcompanies,r
ecogni
zingapr of
it
.Theamountthatshouldberepor
ted
ascostofgoodssoldint
heconsoli
dat
edincomestat
ementpreparedfortheyearshoul
dbe:

A.t
heamountrepor
tedasi
ntercompanysal
esbythesubsi
diar
y.
B.t
heamountrepor
tedasi
ntercompanysal
esbythesubsi
diar
yminusunreal
i
zedprofi
tint
heending
i
nvent
oryoft
heparent.
C.t
heamountreport
edascostofgoodssol
dbytheparentminusunr
eal
izedprof
iti
ntheendi
nginvent
oryof
t
heparent
.
D.t
heamountreport
edascostofgoodssol
dbytheparent.
ANSWER:B

I
NTERCOMPANYTRANSACTI
ONS-PLANTASSETS

1
. OnJanuary1 ,2016,JanCo.pur chased90% equityofJoCo..OnJanuary3,2016,Josol
d
equipment(wit
hor i
ginalcostofP750,000andcarryi
ngcostofP375,000)toJanforP540,
000.The
equipmenthavear emai ni
nglif
eofthree(3)year
sandwasdepr eci
atedusingthest
rai
ghtl
inemethod
bybothcompani es.I
nJanconsol idat
edbalancesheetasofDecember31 ,2016,t
hecost,
accumulat
eddepr eciati
onandbookval ueshouldbereport
edat:

Cost Accumul
atedDepr
eci
ati
on NetBookVal
ue

a. P750,
000 P500,000 P375,000
b. 375,000 375,
000 -
0-
c. 750,000 750,
000 -
0-
d. 750,000 500,
000 250,000

ANS:D

Cost P750,
000
Less:Accumul atedDepreciati
on,12/
31/1
6
Accumul atedDepreciation,1
/1/
16 P375,
000
Depr eci
ationExpense- 2016:
(
P750,000- P375,000) /
3year
s 1
25,
000 500,
000
NetBookVal ue,1 2/
31/1
6 P250,
000

2. Kestr
elCompanyacqui r
edan80% int
erestinRepti
leCorporati
ononJanuary1,2004.On
January1 ,2005,Rept i
l
esold abuil
ding wit
habookval ueof$50,000 to Kestrelf
or
$80,000.Thebui l
dinghadaremaini
ngusef ull
if
eoftenyear sandnosalvagevalue.The
separate bal
ance sheetsofKest
reland Rept i
l
e on December31 ,2005 incl
uded the
fol
l
owi ngbalances:

Kest
rel Repti
le
Bui
ldi
ngs $ 400,
000 $ 250,000
AccumulatedDepr
eci
ati
on- 120,
000 75,000
Buil
dings

Theconsol
i
datedamountsforBui
ldi
ngsandAccumulatedDepr
eciat
ion-Bui
l
dingst
hat
appear
ed,r
espect
ivel
y,ont
hebal
ancesheetatDecember31
,2005,were

a.$620,
000and$1
92,
000.
 b.$620,
000and$1
95,000.
c.$650,
000and$192,
000.
d.$650,
000and$195,
000.

ANSWER:
Combinedbuildi
ngamount
s $ 650,
000
Less:I
nter
companygain ( 30,
000 )
Consoli
datedbui
ldi
ngamount
s $ 620,
000

Combi nedAccumulat
edDepreci
ati
on $ 1
95,
000
Less:Piecemeal
recogni
ti
onofgai
n
( 3,
000 )
Consol
i
dat
edaccumul
ateddepr
eci
ati
on
$ 1
92,
000

2. PiedImperial
-Pi
geonCor por
ati
onacqui r
eda90% i nt
eresti
nOffshor
eCorporat
ioni
n2003
whenOf fshor
e’bookvalueswereequivalenttofai
rval
ues.Off
shoresol
dequipmentwit
ha
bookval ueof$80,000t oPiedImperial-Pi
geonfor$1 30,
000onJanuar y1,2005.Pied
Imperial
-Pi
geonisf ul
l
ydepr eci
ati
ngt heequi pmentovera4- yearperi
odbyusingt he
str
aight-
li
nemethod.Offshore’
report
edneti ncomefor2005was$320, 000.Pi
edImperial
-Pigeon’
s2005netincomef rom Off
shorewas

a.$249,
250.
b.$250,
500.
c.$254,
250.
d.$288,
000.

ANSWER:
PiedImper i
al-
Pi geon’sshareofRoger’
sincome
=( $320,000x90%)= $ 288,
000
Less:Profi
toni ntercompanysale($130,
000-
$80,000)x90% = ( 45,
000
Add:Piecemeal recognit
ionofdef
erredprofi
t
($50,000/4year s)x90% =
11,
250
I
ncomef
rom Of
fshor
e $ 254,
250
4.TheRoelCompanyacqui
redequipmentJanuary1
,2013ataccostof800,000,depr eci
ati
ngitover8years
withani
lresi
dual
val
ue.OnJanuary1,2016.TheMuldonCompanyacqui r
ed1 00% ofRoel andestimat
edthe
fai
rval
ueoftheequi
pmentat460,000,wit
har emai
ningl
i
feof5years.Thisfairvaluewasnotincorpor
ated
i
ntoRoel’
sbookandthedepreci
ati
onexpenseconti
nuedtobecalcul
atedbyr eferencetoori
ginal
cost.

Whatadj
ust
mentshoul
dbemadetothedepreci
ati
onex
pensefortheyearandt
hest
atementoff
inanci
al
posi
ti
oncar
ryi
ngamounti
npr
epar
ingtheconsol
idat
edf
inanci
alst
atement
sfort
heyearendedDecember31
,
2017?
 Depreci
ati
onExpense Carr
yingAmount
a.I
ncreaseby8,000 Incr
easeby24,000
b.I
ncreaseby8,000 Decreaseby24,
000
c.Decreaseby8,000 I
ncreaseby24,
000
d.Decreaseby8,000 Decreaseby24,000

ANS:D
Fai
rval
ueadj
ust
ment
sunderPFRS3par
.36notr
efl
ect
edi
nthebooksmustbeadj
ust
edf
oronconsol
i
dat
ion.

Annualdepreci
ati
onexpense:
Roel’
sdepreci
ati
on:(800,000-0)
/8year
s 100,
000
Muldon’
sdepreciat
ion(460,000/
5) 92,000
8,
000

Netcarryi
ng/bookvalue,12/
31/2017:
Roel’
sbookvalue( 800,000-
(800,000/8year
sX5yr
s) 300,
000
Muldon’sbookvalue(note)(
460,000-(460,
000/
5X3year
s)276,000
Decrease 24,000

5..OnJanuar y1,2016.PoeCor por

ati
onsoldmachi nef
or900,000t oSaxeCor p.i
tswhol
lyownedsubsi
diar
y.
Poepaid1 ,
100,000f ort
hismachine,whichhadaccumulateddepr eci
ati
onof250,000.Poeesti
matedof
100,000salvagevalueanddepr eci
atedthemachineont hestr
aightli
nemethodover20years,apol
icy
whichSaxecont inued,I
nPoe’sDecember31 ,201
6,consoli
datedbalancesheet,t
hismachi
neshoul
dbe
i
ncludedincostandaccumul ateddepreciat
ionas:

COST ACCUMULATEDDEPRECI
ATI
ON
a. 1
,100,
000 300,000
b. 1,
100,
000 290,000
c. 900,000 40,
000
d. 850,000 42,
500

ANS:A

Whenpr epar
ingconsoli
datedfi
nanci al
statements,theobjectiveist
or estat
etheaccount sasifthe
i
nt ercompanyt r
ansacti
onshadnotoccur red.Therefore,t
he201 6gai
nonsal eofmachi neof50,000
(900, 000-(1,
100,000-250,
000)mustbeel i
minated,sincetheconsolidatedentit
yhasnotr eal
izedanygain.I
n
effect,themachinemustber ef
lectedont heconsolidatedbalancesheetat1 /1/2016atPoe’scostof
1,100,000andaccumul at
eddepr eciati
onof250, 000ins t
eadofatanew“ cost”of900,000.Forconsol
idat
ed
statementpur poses,2016depreciati
oni sbasedont heor i
ginalamount s(1,
100,000-100,000)X1 /20=
50, 000).

Theref
ore,int
he12/31/
2016consoli
dat
edbal
ancesheet
,themachi
nei
sshownatacostof1
,100,
000l
ess
accumulateddepr
eciat
ionof300,
000(250,
000+50,
000).

6.Per
egri
neCor porat
ionacqui
reda90% interestinCli
ffCor
porat
ioni
n2004atati
mewhenCl iff
’sbook
val
uesandfairval
ueswereequal t
ooneanot her.OnJanuary1,2005,Cl
i
ffsol
datruckwit
haP45, 000book
val
uetoPeregri
neforP90,000.Peregr
ineisdepr eci
ati
ngthetr
uckover1
0yearsusingt
hestr
aight-l
i
ne
met
hod.Separ
atei
ncomesf
orPer
egr
ineandCl
i
fff
or2005wer
easf
oll
ows:

Sal
es
Peregr
ine Cliff
Sales P1,800,
000 P1,050,000
Gainonsaleoftruck 45,000
CostofGoodsSol d (
750,
000) (
285, 000)
Depreci
ati
onex pense (
450,
000) (
135,000)
Otherexpense (
180,
000) (
450, 000)
Separat
eincomes 420,
000 225, 000

Per
egr
ine’
sinvest
menti
ncomef
rom Cl
i
fff
or2005was:

a. P1
61,
550.

b. P1
62,
000.

c. P1
66,
050.

d. P202,
500.

ANSWER:C

Cli
ffreportedincome P225,000
Less:Intercompanygai
nontruck (45,000)
Plus:Piecmeal r
ecogni
ti
onofgai
n=P45,
000/
10year
s 4,500
Cli
ffadjustedincome 184,500
Maj or
ityPercentage 90%
I
ncomef r
om Cli
ff P166,050

7.Fal
conCorporat
ionsol
dequipmenttoits80%- ownedsubsi
diary,RodentCor
p.,onJanuary1,2005.Fal
con
soldtheequi
pmentforP110,000whenitsbookvaluewasP85,000andi thada5-yearremaini
nguseful
li
fe
withnoexpectedsal
vagevalue.Separ
atebalancesheet
sforFalconandRodentincludedthefol
lowi
ng
equipmentandaccumulateddepreci
ati
onamount sonDecember31 ,2005:

Falcon Rodent
Equipment P750, 000 P300,000
Less:Accumulat
ed (200,000) (50,
000)
Depreciat
ion
Equipment-net P550,
000 P250,
000

Consol
i
datedamountf
orequipmentandaccumul
ateddepr
eci
ati
onatDecember31
,2005wer
erespect
ivel
y:
a. P1
,025,
000and P245,000
b. P1
,025,
000andP250, 000
c. P1
,025,
000andP245, 000
d. P1
,050,
000andP250, 000

ANSWER:A
Combi
nedequi
pment
samount P1
,050,
000

Less:Gai
nonsal
e (
25,
000)

Consol
i
dat
edequi
pmentbal
ance P1
,025,
000

Combi
nedAccumul
ateddepr
eci
ati
on P250,
000

Less:Depr
eci
ati
onongai
n (
5,000)

Consol
i
dat
edAccumul
atedDepr
eci
ati
on P245,
000

8.Monicapurchasedequipmentf r
om Its85% ownedsubsidi
ary,El
oisaCompanyforP1
50, 000onjanuar
y
2015andtheequipmentandI tsaccumul at
eddepreci
ati
onwer ecarr
iedonthebooksEl
oisaat200,
00and
P100,
000,respecti
vely.Moni
caest i
matesar emai
ningli
feoftheequipmenttobe5years,atwhi
chtimeno
sal
vageval
uel sexpectedtoexist
.Str
aight-l
i
nedepreci
ati
onisused.Eloi
sarepor
tedanetincomefor2015of
P150,
000.

Whatpor
ti
onoft
hedepr
eci
ati
onr
ecor
dedbyMoni
camustbeel
i
minat
edf
orconsol
i
dat
ionpur
pose?

A.20% oft
hegai
nonsal
e C.33-
1/3% oft
hegai
nonsal
e

B.40% oft hegainonsal e D.66- 2/3% ofthegai

nonsal
e
Answer :A
Solut
ion
I
ntercompanysei li
ngpr i
ce P1
50,000
Netbookval uecarr
iedonthebooksofEloisaCompany (
100000)
I
ntercompanygai nonsale P50,000
Amor t
izedf or5yearstheremai
ningl
if
e( 50,000/
5year
s) P10,000
Porti
onoft hegaineliminat
edfr
om depreciat
ion(
10/
50) 20℅

9.OnJanuar y1,2009,Pil
i,I
nc.purchased75% ofSi l
iCo.f orP500,000.OnthatdatetheequityofSi
li
consistedofcapital
stockofP300, 000andr et
ainedear ni
ngsofP200, 000.Allasset
sandliabi
li
ti
esofSil
i
weref air
lyval
ued.Goodwi ll
,i
fany,isnotamorti
zed.
ByJanuar y2,2012,thereati
nedear ni
ngsofSil
ihadi ncreasedt oP500,000.For2012Sili
reportedCIof
P60,000andpai ddivi
dendsofP1 0,000.For201 3Sil
irepor t
edCIofP70,000andpai ddivi
dendsof20,000.
OnApr i
l1,
2012,Pil
isoldalandandanol dof f
icebuildingonit.Pi
l
i'
sori
ginalcostf
orthelandwas
P20,000;t heoffi
cebuil
dinghadabookval ueofP50, 000.Si l
ipai
dP35,000f ort
helandandP40, 000fortge
bui
ldi
ng.I testi
matesthatthebui
ldinghasar emainingli
feof5year s.

For2013,whati
sthebal
anceinPi
li
'
sequi
tymet
hodI
nvest
menti
nSi
l
iaccount
?
a.P760,250 c.P775,
000
b.P829,000 d.P791,
500

Answer:D.
I
nvest
mentinSi
l
iCompanyst
ock–Equi
tymet
hod
 Pri
cepaid P500,
000
I
nvestmentincomenetofdi vi
dends–2007t o201 0:
Incr
easeinear ni
ngs( P500,000–P200, 000)x75% 225,
000
I
nvestmentincome,Dec.31 ,201 0:
ShareofSi l
i
’snetincome( P60, 000x75%) 45,
000
Unreal
izedgainonsal eofland–Downst r
eam (
15,
000)
Unreal
izedlossonsal eofbui l
ding–Downst ream 10,
000
Reali
zedlossonsal eofbuil
ding( P1
0,000/5)x75% (1,
500) 38,
500
I
nvestmentincome,Dec.31 ,201 1:
ShareofSi l
i
’snetincome( P70, 000x75%) 52,
500
Reali
zedloss( P10,000/5) (2,
000) 50,
500
Di
videndsreceived:
2010:(P1 0,
000x75%) 7,500
2011:(P20,000x75%) 1
5,000. (
22,
500)
I
nvestmentinSiliCompanyst ock,Dec.31 ,2011 P791
,500

10.OnJanuary1,2014Jel'
zCor por
ationsel
lsanequipmentwit
haP30,000bookval
uetoi
tssubsi
diary
Jom' zCompanyforP40,000.Jom'zi nt
endstousetheequipmentf
or5year
s.OnDecember31,2015Jom'
z
sell
stheequi
pmenttoanout si
depar t
yforP25,000.Whatamountofgai
n(loss)f
ort
hesal
eofasset si
s
reportedont
heconsoli
datedfi
nancialst
atements?

a.l
ossofP5,
000 b.l
ossofP1
,000 c.gai
nofP7,
000 d.gai
nofP25,
000

Answer
:c.gai
nofP7,
000

Sol
uti
on:

Equi
pmentBookVal
ue P30,000
Depreci
ati
on(P30,
000x2/
5) 12,
000
Carr
yingValue P1
8,000

Sel
l
ingPr
ice P25,000
Car
ryi
ngVal
ue 18,000
Gai
n P7,000

1
1.Pi
eInc.owns80% ofCakeCompany'
sout
standi
ngcommonst
ock.Pi
erepor
ts

costofgoodssoldinthecurr
entyearofP425,
000whileCakeCo.repor
tsP260,000.Dur
ingthecurr
entyear
,
PieInc.sel
l
sinvent
orycost
ingP125,000toCakeCo.forP187,
500.60% oft
hesegoodsar enotr
esol
dby
CakeCompanyunt ilt
hefoll
owingyear.Whati
sconsol
idat
edcostofgoodssol
d?

a.P685,
000
b.P497,
500
c.P460,
000
d.P535,
000

Answer :D
I
ntercompanygr ossprofi
t(P1
87,500–P1 25,
000) P62,
500
I
nventoryremainingatyearend 60%
Unreali
zedInt
ercompanygr ossprof
itat1
2/31. P37,
500
Costofgoodsol d–PieInc. P425,
000
Costofgoodsol d–CakeCo. 260,
000
Removei nter
companysales 187,
500
Defer
redunr eal
i
zedgrossprof
it
. 37,500
Consol
idatedcostofgoodsold P535,000

12.Pr
esent
edbelowaresever
alf
igur
esrepor
tedforPos
tInc.andMar
yCo.asofDecember31oft
hecur
rent
yearwhi
chwasthesecondyearofowni
ngMar y.

Twoyear sago,PostInc.acquired80% ofMar yCo.'

soutst
andingcommonst ockonJanuar
y1.Theenti
re
dif
ferencebet
weent heamountpai dandthefairval
ueofMar y'
snetassetsisatt
ri
butedt
oaprevi
ousl
y
unrecordedpatentwit
haf ai
rvalueofP112,
500.Thepatentisbeingamor ti
zedover20year
s.Dur
ingthefi
rst
year,MarysoldPostinventorycosti
ngP60,000f orP70,
000.30% oft hi
sinvent
orywasnotsol
dtoext
ernal
parti
esunti
lt
hef ol
lowingyear.Dur i
ngthesecondyear,Marysoldinventor
ycosti
ngP90,000toPostf
or
P115,000.Ofthi
sinventory,25% remainedunsoldonDecember31oft hesecondyear.

Whati
stheamountofconsol
i
dat
edsal
esf
ort
hesecondyear
?

a.P815,
000
b.P535,000
c.P608,
000
d.P585,
000

Answer
:B

PostIncor porati
on'srepor
tedsales. P450,
000
MaryCor porati
on'sreport
edsales 250,
000
El
iminationofI nter
companysales 115,
000
Consolidatedsal es P585,
000

13.
OnJan.1,2016,Angeli
caCorporat
ionacqui
red90% ofEhr
lynCompany.Angel
i
causesthecostmet hod.
Anal
ysi
sofdatar
elati
vetothi
spurchaseindi
cat
esthatgoodwi
llofP50,
000wasacqui
redi
nt hi
spurchase.
Thegoodwi
lli
sunimpair
ed.

OnJuly1 ,2018,Ehr lynsoldapat enttoAngelica.Thesalepri

cewasP1 00,000;Angelica’
sbookval
uewas
P50,000.Ehr l
ynest imatesthatthepat enthasal i
feof5yearsandnosalvagevalue.Itwil
lusest
rai
ght
-l
ine
depreci
ation.
For2018,Angel icaCIP400, 000f rom itsownoper ati
ons.Ehrl
ynhadCIofP1 00,
000.
Consoli
dat edCIf or201 8i
s:
a. P455, 000
b. P450, 000
c. P449. 500
d. P440, 000
Ans.A
Neti ncomef rom ownoper ati
ons–Pi pe P400,000
Pipe’sshar eofSmoker ’
sadj ustednetincome:
Neti ncome P100,
000
Unr eali
zedgain,July1 ,2018–Upst ream (50,
000)
Real i
zedgain,Dec.31 ,2018(P50,000/5)x½ 5,
000 55,000
 Consol idatedneti ncome,Dec.31 ,2018 P455,
000
14.
Sever alyear sagoPar entCor porati
onacqui r
ed80% ofSubCor porati
on.Analysi
sofdatarelat
ivetothi
s
purchaseindi catest hatgoodwi l
l ofP60, 000wasacqui redinthispurchase.
OnOct .1,201 6,Subsol dtoPar entausedcarf orP32,
000i ncash.Subhador iginal
lypaidP55,000forthe
car;onthedayoft hesal e,thecarhadabookval ueofP23,000.Parentestimatedther emai
ningli
feofthe
carat3year s.
Parent’
sCIf rom i tsownoper at i
onswasP1 00,000in201 6andP1 20,000in201 7.Sub’sCIwasP60, 000in
2016andP75, 000i n201 7.
Consoli
dat edCIat tri
but abletopar entfor201 6and201 7are:
a. P1 38,000andP1 79, 400,respect i
vely
b. P1 38,400andP1 95, 000,respect i
vely
c. P1 38,000andP1 79, 000,respect i
vely
d. P1 41,400andP1 82,400,r espectively
Ans.D
2016 201 7
Netincomef rom oper at
ions–Par ent P100,000 P120,000
Parent ’
sshar eofadj ust edneti ncomeofSub:
Neti ncome P 60,000 P 75,000
Unr eal i
zedgai n–Upst ream (9,
000) -
Real izedgai n:201 6(P9, 000/3)x¼ 750
201 7(P9,000/ 3) - 3,
000
Adj ustedneti ncome P 51,
750 P 78,000
Consol idatedneti ncome P151,
750 P198,000
MINI S (10,
350) (15,
600)
Attri
but ablet opar ent P141,
400 P182,400

15.OnJanuary1,2015,Pur
eCompanypur
chased80% oft
heoutst
andingsharesofSur
eCompanyatacost
ofP1,000,000.Onthatdat
e,Sur
eCompanyhadP400,000ofcapit
alstockandP600,000ofr
etai
ned
earni
ngs.

OnJul
y1,201
5,Sur
eCompanysol
dequi
pmentwi
thabookval
ueofP60,000t
oPur
eCompanyf
orP80,000.

For2015and201 6,t
heresul
tsofthei
roperat
ionsar
e:
20152016
PureCo.Sur
eCo. Pur
eCo.SureCo.
Netincomefrom ownoperat
ionsP400,000P200,000P300,000P1
50,000
Divi
dendspai
d100,00050,00080,00020,000

Theint
ercompanygaini
sincl
udedi
nt henetincomeofSur
eCompany.Theequi
pmentsol
disexpect
edt
o
haveausefull
i
feoffi
veyearsfr
om dateofsale.

Thenon-
cont
rol
l
ingi
nter
est
sonDecember31
:

20152016
a.P226,400 P256,800
b.P226,400 P253,200
c.P226,000 P252,400
d.P230,000 P256,000

Ans.:B

20152016
Capit
alst
ock–Sur e,December31P400,000P400,000
Ret
ainedearni
ngs–Sur e,December31:
Ret
ainedearni
ngs–Sur e,Januar
y1P600,000P750,000*
Add:Netincome200,000150,000
Total
P800,000P900,000
Less:Divi
dends50,000750,000* 20,000880,000
Stockholders’equit
y–Sur e,1 2/31 P1,150,000P1 ,280,000
Less:Unrealizedgain( upstream sal es)20,000*18,000*
P1,130,000P1 ,262,000
Add:Real i
zedgai nthrudepr eci ati
on( upstr
eam sales)
:(P20,000/5x6/
12)
2,0004,000
Reali
zedst ockholders’equity–Sur e,12/31P1
,132,000P1 ,266,000
Multi
pli
edby:Non- cont r
oll
ingi nterest%20%20%
Non- contr
olli
nginterests,December31 P226,
400P253, 200(b)

Thereisnostep-upvalueinfai
rval
ueofnetasset
s,soadj
ust
mentwoul
dnotbenecessar
y.Theexcessof
costoverbookrepresentsgoodwil
lwhi
chhasnobear i
ngi
nthecomput
ati
onofnon-
contr
oll
ingi
nter
est
(minor
ityi
nter
est
).

Ther
ewasagoodwi l
l ar
isi
ngfrom acquisi
ti
onamount i
ngt
oP200,000[ P1,000,000–( P1,000,000x80%)
],
anyi
mpairmentl
ossesar i
si
ngfrom thi
sgoodwillshoul
dbeignor
edf orpurposesofcomput i
ngminori
ty
i
nter
est
s.Butanyadjust
ment stor
eflectfai
rval
uelessamorti
zat
ionshouldber ecogni
zed.

I
nanupst ream sales(subsi
diar
yist
heseller)t
heunr eali
zedgainonsaleofequipmentamount i
ngtoP20,
000wasi ncludedintheP200,000neti ncomeandsi nceitwasoninter
companygai n,sother
eisaneedt o
el
iminatesuchgai nf r
om consoli
dat
edpoi ntofview.
However ,insubsequentyear–201 6,ther et
ainedearningsofSureforJanuar
y1 ,2016incl
udesthe
unreal
izedgai nofP1 8,000(P20,000–P2,000)f orreasont
hatP200,000neti ncomeof201 5wascarri
ed
overto201 6,t
herefore,t
hereisaneedtor efl
ectsuchdeductionofP18,000forconsolidat
edpointofvi
ew.

16.OnJanuar y1,201
6,PCompanypur chased80% oftheoutst
andi
ngsharesofSCompanybypayi ngP700,
000.Ont hatdat
e,SCompanyhadP300,000capi t
alst
ockandP500,000ofr etai
nedear nings.An
undervaluedassetatt
ri
butabl
etobui
l
dingamountingtoP75,000wi t
haremaini
ngusef ull
ifeof25years.Al
l
otherassetsandl i
abi
l
it
iesofSCompanyhadbookval ueapproxi
matedt
heirfai
rmar ketvalue.

OnJanuary1,2017,P’
scommonstockandr
etai
nedear
ningsamount
edt
oP1
,000,000andP800,000,
r
espect
ivel
y,whil
eSCompany’sr
etai
nedear
ningsi
sP600,000.

The2017neti
ncomeanddividendsusi
ngcost(
ori
nit
ial
val
ue)model
wasasf
oll
ows:
Neti
ncomeDivi
dends
PCompanyP340,000P100,000
SCompanyP150,000P50,000

OnApri
l1,2017,SCompanysoldequipmentwi
thabookval
ueofP30,000toPCompanyforP60,000.The
gai
nonsaleisincl
udedi
nthenetincomeofSCompanyindi
cat
edabove.Theequi
pmenti
sexpect
edtohave
aremai
ningusefull
if
eoff
iveyear
sf r
om t
hedat
eofthesal
e.

OnSeptember30,2017,PCompanysoldmachinerywit
habookval
ueofP40,000t
oSCompanyf orP75,
000.Thegai
nonthesaleisal
soincl
udedi
nthenetincomeofPCompanyindi
cat
edabove.Themachi
neryi
s
expect
edtol
astf
ortenyearsfr
om thedat
eofsale.

Thenon-
cont
rol
l
ingi
nter
esti
nneti
ncomef
or201
7:

a.P30,000
b.P25,500
c.P24,900
d.P24,300

Ans.
:D
Sol
uti
on:
Netincomeofsubsi diaryP150,000
Less:Unreali
zedgainonsal eofequi pment(upstr
eam)–yearofsal
e30,000
Amor ti
zat
ionofall
ocat edexcess 3,000
P117,000
Add:Realizedgai
nonsal eofequi pment( upst
ream)–20174,500
P121,500
Multi
pli
edby:Non- cont r
oll
ingint
er ests20%
Non- cont
roll
i
nginterestsinnetincomeP24,300

FVofSubsi diary:
Considerati
ont ransferr
edP700,000
Less:Bookval ueofSHE–S,1 /1
/2016
[(
P300,00+P500,000)x80%] 640,000
All
ocatedexcess60,000
Less:Over/UnderVal uat
ionofAsset
sandLi
abi
l
it
ies:
I
ncreasei nbuildings:P75,000x80%60,000
Goodwi l
l
P0

Not
e:Asaconsequencet
odetermi
nedexcess
,ther
eisnogoodwi
l
l(f
ull
orpar
ti
al
)ar
isi
ngt
her
efr
om:
Amort
izat
ionofal
l
ocat
edexcess
:P75,000/25yearsP3,000

Upst ream Sal

eofEquipment(dat
eofsale–4/
1/201
7):
Sales P60,000
Less:Bookval ueofequipment 30,000
Unreal i
zedGain(onsaleofequi
pment) 30,000
Realizedgainonsaleofequipment:
201 7P30,000/5year s=P6,000x9/ 1
2
(4/
1 /2017–1 2/31
/2017) P4,500
201 8 P6,000

Downst r
eam SaleofMachiner
y(dat
eofsale–9/
30/
17)
:
Sales P75,000
Less:Bookval ueofmachinery 40,000
Unreal i
zedGain(onsaleofmachi
nery) P35,000
Real i
zedgainonsaleofmachiner
y:
201 7:P35,000/1 0year
s=P3,500x3/ 12
(9/
1 /2017–1 2/31/
2017) P875
201 8 P3500

17. On Januar y1 ,
2015,Al
exCor porati
on sol
d equi pmentt o Arse Company,it
’sowned subsi di
ary,for
P680,000.Alex had paid P1000,000 f orthis equipment,f orwhi ch t
he depreciat
ion t
ot he date of
i
ntercompanysal etotal
l
edP360, 000.Bot hcompani esuset hestraightl
inemethodofdepr eci
ati
onfortheir
depreci
ableas set
s.Theequipmenthada1 0yearl if
ewhenpur chasedandanexpect edsalvagevalueof
P100,000.Whatamountshoul dbei ncludedinthecons ol
i
datedstatementoffi
nancialposi
ti
onatDecember
31,2015,fortheequipmentcostandaccumul ateddepr eci
ati
on?

a. P1000,000andP360,000
b. P680,000andP450,000
c. P1000,000andP450,000
d. P680,000andP360,000

Ans.C
Equi
pment–ator
igi
nal
cost P1
,000,
000

Accumulateddepr
eci
ati
on:
Timeofsal
e P360,
000
 Cur
rentdepr
eci
ati
on(
P900,
000/
10) 90,
000 P 450,
000

18.OnJanuar y1 ,2016,LesCompanypur chased80% oftheoutstandingstockofNorielCompanyatacost

ofP720, 000.Ont hedate,Nor i
elCompanyhadP400, 000ofcapitalst
ockandP500, 000ofr etai
nedear
nings
.
For201 6,NorielCompanyr eport
edi ncomeofP1 80,
000andpai ddividendsofP60,000.Al lt
heasset
sand
l
iabi
l
iti
esofNor ielCompanyar eatf airmarketval
ue.
OnDecember31 ,
2016,LesCompanysol dequipmenttoNorielCompanyf orP75,000t hathadacostof
P45,000.Theequi pmenti sexpect edtohaveausef ulli
feof10year sfr
om thi
sdat e.Lesusest hecost
methodt oaccountf ori
t’
sinvestmenti nNoriel
.
Theamountofconsol i
datedCIat t
ri
butabl
et opar
entonDecember31 ,2016i
s:

a. P320,
000
b. P200,
000
c. P314,
000
d. P200,
000

Ans.C
Netincome–Po P200,000
Unreali
zedgain,Dec.31–DS (
30,000)
Netincomef r
om ownoper at
ion–Po 270,000
NetincomeofSo 1
80,000
Consoli
datednetincome,Dec.31,201
6 P350,
000
MINIS(P180,000x20%) (
36,000)
Att
ri
butabl
etopar ent P314,000

19.Dalt
onCor p.owned70% att heoutstandingcommonst ockofShr ugslnc.OnJanuar y1,20x4.Dalton
acquir
edabui ldi
ngwi thaten-yearli
feforP420, 000Nosal vageval uewasant i
cipatedandt hebuil
dingwas
tobedepreciatedont hestrai
ght-l
inebasis.OnJanuar y1 ,20x6.Dal t
onsoldt hi
sbui l
dingtoShrugsfor
P392000.Att hatti
me,t hebuil
dinghadar emainingli
feofei ghtyearsbutsti
llnoexpect edsalvagevalue.l
n
prepari
ngfi
nancialstatementsfor20x6,howdoest hi
stransf eraf
fectthecalcul
at i
onofDal t
onsshareat
consoli
dat
edneti ncome?
A.Consoli
datedneti ncomemustber educedbyP44. 800
B.Consoli
datedneti ncomemustber educedbyP50. 400
C.Consoli
datedneti ncomemustber educedbyP49. 000
D.Consoli
datedneti ncomemustber educedbyP56. 000

ANSWER:C
20X6
Unreal
izedgainonsal
eofequipment (
56,000)
Reali
zedgainonsaleofequi
pment(
upst
ream 7,
000
sal
aes)throughdepr
eci
ati
on
Net (
49,
000)

Sell
ingpr i
ce P392,
000
Less:bookval ue1/1
/20x6
Cost1/
1/20x2 P420,
000
Less:accumul ateddepreciat
ion:
P420,000/10yr
s.x 84,
000 336,
000
2yrs.
Unreal i
zedgainonsaleofequi pment P56,000
Realizedgain–depr eciat
ion:P56,000/
8yrs. P7,000

20.OnJanuary1,20x4,GGCompanypurchasedacomputerwit
hanexpectedeconomi
cli
feoffi
veyear
s.
OnJanuaryl,20x6,GGsoldt
hecomputer,t
oTLKCorpor
ationandr
ecorded.t
hefoll
owi
ngentr
y:
 Cash..
..
..
..
..
..
..
..
..
..
...
..
...
..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
.39,000
Accumulat
edDepr eciat
ion..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
.16.000
Comput erEquipment...
..
..
..
..
..
..
..
..
..
..
..
...
..40,000
Gai
nonSal eofEquipment...
..
..
..
..
..
...
..
..
.1 5,
000

TLKCor porati
onhol ds60per centofGG' svotingshar
es.GGr epor
tedneti
ncomeofP45,000.AndTLK
repor
tedi ncomef rom it
sownoper at
ionsofP85, 000for20x6.Therei
snochangeintheest
imatedeconomi
c
l
ifeoftheequi pmentasar esul toftheintercorporot
etransf
er.I
ntheprepar
ati
onoft
he20x6consoli
dated
i
ncomest atement.depr eciat
ionexpensewi l
lbe:
A.Debitedf orP5,000i ntheel i
mi nati
ngent ri
es
B.Creditedf orP5,000int heel iminati
ngent r
ies
C.Debitedf orP13,000i ntheel iminati
ngent ri
es.
D.Creditedf orP13.000i ntheel iminati
ngent ri
es

ANSWER:
TheP39, 000pai dto( 36Companywi l
lbechargedt odepr eciati
onexpensebyTLKCor porat
ionover
theremain'ng3year sofowner ship.Asar esult
.TLKCorpor ati
onwi ldebitdepr eciat
ionexpensef orPl3,
000
eachyear .(36Companyhadchar gedPl é.
000t oaccumulateddepr eci at'
oni n2year s,foranannual rat
eof
P8000.Depr eciati
onexpenset hereforemustber educedbyP5, 000( P1 3.000P8, 000]i npreparingthe
consoli
datedst atement s
21.PiedImper ial-PigeonCor porati
onacqui reda90% interestinOf f
shor eCor porati
oni n2003when
Offshor
e'bookval ueswereequi valenttofai
rvalues.Off
shor esoldequi pmentwi t
habookval ueof$80,000
toPiedImper ial-Pigeonfor$1 30,000onJanuar y1,2005.Pi edImper ial
-Pigeoni sfull
ydepr eciat
ingthe
equipmentovera4yearper i
odbyusi ngthestrai
ght-l
i
nemet hod.Of f
shor e'reportedneti ncomef or2005
was$320, 000.Pi edlmperial
- Pi
geon' s2005neti ncomef r
om Of fshorewas

a.$249,
250.
b.$250,
500.
c.$254,
250.
d.$288,
000.

Answer
:c

Piedlmperial
-Pi geon'sshareofRoger'
s
i
ncome=( 320, 000x90%)= $288,
000
Less:Prof
itoni ntercompanysale
(130,
000-80, 000)x90% = (45,
000)
Add:Piecemeal recognit
ionof
deferr
edpr of
it($50, 000/4years)x90% = $11
,250
I
ncomef r
om Of fshore $254,250

22.RootCorp.owns1 00% ofBeerCor

p.’
scommonst ock.OnJanuar
y2,20x5,Rootsol
dtoBeerf orP40,000
machinerywithacarryi
ngamountofP30, 000.Beerisdepreci
ati
ngtheacqui
redmachineryoveraf i
veyear
l
ifebythestrai
ght-l
i
nemet hod.Thenetadjust
mentstocomput e20x5and20x6Pr of
itAtt
ri
butabl
etoEqui t
y
HoldersofPar entorCNIAt t
ri
but
abl
eto Cont r
oll
i
ng Inter
est
sbeforeincome t
axwoul d be an i
ncrease
(decr
ease)of:

20x5 20x6
a. P(8,000) P2,
000
b. (8,000) 0
c. (
1 0,
000) 2,
000
d. (
1 0,
000) 0

Ans:a

20x5 20x6
Unreal
izedgainonsal
eofmachiner
y P(
10,
000)
Reali
zedgainonsaleofmachi
nery
P1
0,000/5 2,
000 P2,
000
Netadjust
ment s P(8,
000) P2,
000

23.ThePineCompanyowns65% ofTheAppl eCompany.Ont helastdayoftheaccounti

ngperi
odApplesold
toPineanon- curr
entassetforP200,000.Theassetori
ginal
lycostP500,000andatt heendofthereport
ing
peri
odi t
scarryi
ngamounti nAppl e’
sbookswasP1 60,
000.Thegr oup’sconsol
idatedstat
ementoffi
nancial
posit
ionhasbeendr af
tedwithoutanyadjust
mentsinrel
ati
ontothisnon-curr
entasset.
Whatadj ust
mentshouldbemadet otheconsol
i
dateds t
atementoff i
nanci
alposit
ionfi
guresf
ornon-curr
ent
assetsandretai
nedernings?

Non-curr
entassets Retai
nedear
nings
a. I
ncreasebyP300, 000 I
ncreasebyP195,
000
b. ReducebyP40, 000 ReducebyP26,000
c. ReducebyP40, 000 ReducebyP40,000
d. I
ncreasebyP300, 000 I
ncreasebyP300,000

Ans:b

Upst
ream Sales:
Sell
i
ngpr i
ceofnon- cur
rentasset
s P200,
000
Less:Book/carr
yingval
ue,dateofsal
e 1
60,
000
Gainonintercompanysale P 40,
000

El
i
minat
ingEntri
eswoul dbe:
Retai
nedEar nings–Par ent(
65% xP40, 000) P26,000
Non- cont
roll
i
ngi nt
erest(35% xP40,000) 14,000
Non-currentasset P40,000
24.SteveCo.i s80% -ownedsubsi diar
yofPeterCo.
,acqui r
edatbookval
uesever
alyear
sago.
Compar ati
vesepar at
ecompanyi ncomest at
ementsf
ort heseaff
il
i
atedcor
por
ati
onsfor2016ar
eas
fol
lows:

Pet
erCo. St
eveCo.

Sal
es……………………………………………. P3,
000,
000 P1
,400,
000

Di
vi
dendi
ncome………………………………. 21
6,000 -

Gai
nonbui
l
ding………………………………. 60,
000 -

I
ncomecr
edi
ts…………………………………. P3,
276,
000 P1
,400,
000

Costofsal
es………………………………….
. P2,
000,
000 P
800,
000

Oper
ati
ngexpenses
………………………….
. 600,
000 300,
000

I
ncomedebi
ts………………………………….
. P2,
600,
000 P1
,100,
000

Neti
ncome…………………………………….
.. P 676,
000 P
300,
000
 OnJanuar
y5,2016PeterCo.sol
dabuildi
ngwit
ha8-yearr
emaini
ngusef
ull
i
fet
oSt
eveCo.asagai
n
ofP60,
000.St
eveCo.paiddi
videndsofP240,
000dur
ing2016.

TheNon-cont
rol
l
ingi
nter
esti
nneti
ncomeandCNIAt
tr
ibut
abl
etoCont
rol
l
ingI
nter
est
sfor201
6,
shoul
dbe:

a. P80,
000;P640,
000

b. P80,
000;P647,
500

c. P60,
000;P647,
500

d. P60,
000;P640,
000

ANSWER:(
c)

Pr
ofi
tAt
tr
ibut
abl
etoEqui
tyhol
der
sofpar
ent–201
6

Neti
ncomef
rom ownoper
ati
on:

Pet
erCo.
:

Neti
ncome…………………………………. P676,
000

Less
:Di
vi
dendI
ncome……………………. 21
6,000 P460,
000

St
eveCo. 300,
000

P760,
000

Less:Unr
eal
i
zedgai
nonsal
eofbui
l
ding……………….
. 60,
000

Add:Piecemeal
recogni
ti
onofexcess
depreci
ati
on/
……
7,
500
Real
i
zedgai
nthr
udepr
eci
ati
on(
P60,
000/
8-
yr
s.)
…

P707,
500

Less:Amor
ti
zat
ionofal
l
ocat
edexcess
………………….
. 0

Non-
cont
rol
l
ingi
nter
est
sinneti
ncome

(
P300,
000x20%)
……………………………………. 60,
000 (
c)

Pr
ofi
tAt
tr
ibut
abl
etoEqui
tyHol
der
sofpar
ent
…………… P647,
500 (
c)

25.OnJanuar
y1,2013,PCompanypurchased80per
centoftheoutst
andi
ngshar
esofSCompanyatacost
ofP700,
000.Onthatdat
e,SCompanyhadP300,000ofcapi
talst
ockandP500,000ofr
etai
nedear
nings.

For2013,PCompanyhadCIofP300,
000from i
tsownoperat
ionsandpaiddi
videndsofP1 00,
000.For
2013,SCompanyr
epor
tedaCIofP150,000andpaiddi
vi
dendsofP50,000.Al
loftheasset
sandli
abi
li
ti
es
ofSCompanyhadbookval
uesappr
oxi
mat
elyequal
tot
hei
rrespect
ivemar
ketval
ues.

OnApr i
l1,2013,SCompanysoldequi
pmentwit
habookval
ueofP30,000t
oPCompanyf orP60,
000.The
gainonthesaleisincl
udedi
ntheClofSCompanyindi
cat
edabove.Theequi
pmenti
sexpectedt
ohavea
useful
li
feoffi
veyearsfr
om t
hedat
eofthesal
e.

Consol
i
dat
edCIat
tr
ibut
abl
etopar
entf
or201
3is:

a.P397,
200
b.P423,
600
c.P400,
800
d.P399,
600

ANSWER:D

Consol
i
datedNetI ncome
Netincomef rom ownoper ati
ons-PCompany P300,
000
AdjustednetincomeofSCompany:
Netincome-S P150,000
Unreali
zedgain,4/1/
11–Upstream (30,000)
Reali
zedgain,12/31/
11(P30,
000/5)x9/
12 4,
500 124,500
Consol i
dat
ednetincome 424,500
Att
ributabl
etoNCI(P1 24,500x20%) (24,900)
Att
ributabl
etoparent P399,600

26.Apex,Inc.,andSmall
,Inc.,for
medabusi nesscombinationonJanuary1,2007,whenApexacquireda60
percenti
nterestinthecommonst ockofSmal lforP372,000.Thebookval ueofSmal lont hatdaywas
P350,000.Pat ent
sheld byt he subsidiar
y( wit
ha1 2-yearr emai
ning l
i
fe)were underval
ued wit
hinthe
company‘saccountingr
ecor dsbyP1 20,000.Anygoodwi l
lindicat
edbytheacquisi
ti
onpri
ceisnotamorti
zed.

I
nter
companyi
nvent
orysal
esbet
weent
het
wocompani
eshavebeenmadeasf
oll
ows:

Tr
ansferPrice EndingBal ance
Year CosttoApex toSmal l (
att
ransf erpr i
ce)
2007 P60,000 P72,000 15,000
2008 70,000 84,000 25, 000
2009 80,000 100, 000 20, 000
2010 100,000 125,000 40, 000
2011 90,000 120,000 30, 000
2012 120,000 150,000 50, 000
2013 112,
000 160,000 40, 000

Smal
lsol
dabui l
dingtoApexonJanuary1 ,201
1,forP80,
000.Thebuil
dinghadanetbookvalueofP30,
000
ont
hatdateandaf ive-yearl
i
fe.Nosal
vagevaluewasexpectedfort
hisassetwhi
chwasbeingdepreci
ated
byt
hestr
aight
-l
inemet hod.

Theindi
vi
dualf
inanci
alst
atement
sfort
heset
wocompani
esasofDecember31
,201
3andt
heyeart
hen
endedfol
l
ow:
 Apex Smal
l
I
nc. I
nc.

Sales P700, 000 P300,000

Costofgoodssold (460,000) (205,000)
Operati
ngexpenses (170,000) ( 70.
000)
Divi
dendincome(from Smal
l
) 3,000 -0-
P 73,000 P 25,000

Ret
ainedear
nings,Januar
y1,2013 P690, 000 P400,
000
CI(
above) 73,000 25,
000
Di
vi
dendspaid ( 45,000) ( 5,000)
Ret
ainedear
nings,December31,201
3 P71 8,000 P420,000

Cashandr ecei
vabl
es P275,000 P142,000
I
nvent or
y 233,
000 229,000
I
nvestmenti nSmallCompany 372,000 -0-
Bui
ldings(net) 308,000 202,000
Equipment( net
) 220,000 86,000
Patents(net) -
0- 20,000
Tot
al asset
s P1
,408,000 P679,000

Li
abil
i
ti
es P390,000 P159,000
Commonst ock 300,000 100,000
Retai
nedearni
ngs,December31
,201
3 713,000 420,000
Tot
alli
abi
l
it
iesandequit
ies P1
,408,000 P679,000

Whati
stheconsol
i
dat
edbal
anceofr
etai
nedear
nings
,December31
,201
3?

a.P612,
000
b.P602,
000
c.P620,
000
d.Noneoft
heabove

ANSWER:B

Consol
i
datedRet ainedEar ni
ngs,December31 ,2013
Ret
ainedear nings,Jan.1,201 3 Apex P 690,000
Amor t
izati
onofpat ents2007t o201 3(P10,
000x6) ( 60,000)
Unreal
izedpr ofi
toninventory,2013-Downst r
eam (10,000)
Unreal
izedgai nonsaleofbui l
ding,12/
31/13-Upstr
eam (
P30,
000x60%) ( 1 8,
000)
Consolidat
edr etai
nedearnings,Dcember31 ,201
3. P 602,000

27.Gr
ayCorporat
ionisa90% ownedsubsi
diar
yofGreenCorporat
ionacquir
edseveral
yearsagoat
bookval
ueequalt
of ai
rval
ue.Fort
heyears2015and2016,Prot
oandSi l
verrepor
tthef
oll
owing:

201
5 201
6

Gr
een’
ssepar
atei
ncome………………………………………… P250,
000 P350,
000
 Gr
ay’
sneti
ncome………………………………………………… 1
00,
000 80,
000

Theonlyint
ercompanytransact
ionbet
weenGreenandGraydur
ing201
5and201 6wast
heJanuar
y1,
2015saleofland.Thel
andhadabookval ueofP20,
000andwassoldi
nter
companyf
orP30,
000,i
ts
appr
aisedvalueatthet
imeofsal e.

I
fthel
andwassol
dbyGr eentoGrayandthatGrayst
il
lownsthel
andatDecember31
,201
6,
comput
ethepr
ofi
tat
tr
ibutabl
etoequi
tyholder
sofparentf
or2015and2016.

a. P340,
000;P422,
000
b. P330,
000;P422,
000
c. P340,
000;P480,
000
d. P330,
000;P480,
000

Answer
:B

201
5 201
6

Gr
een’
sneti
ncomef
rom ownoper
ati
on P250,
000 P350,
000

Unr
eal
i
zedgai
nonsal
eofl
and (1
0,000) -

Tot
al P240,
000 P350,
000

Gr
ay’
sneti
ncomeat
tr
ibut
abl
etopar
ent
:

201
5(P80,
000x90%) 90,
000

201
6(P60,
000x90%) 72,
000

Tot
alneti
ncomeat
tr
ibut
abl
etopar
ent P330,
000 P422,
000

28.OnJanuar
y1,2016,Ki
ngCompanypurchases80% oft
heoutst
andi
ngstockofStarCompanyats
costofP800,
000.Onthatdat
e,St
arCompany’sshar
ehol
der’
sequi
tyamountedtoP800,000.

OnApr i
l1,2016,Ki
ngCompanysoldequi pmentwi
thabookval
ueofP50,000t
oStarCompanyf or
P90,000.Thegainincl
udedint
he201 6netincomeofKi
ngCompany.Theequi
pmentisexpect
edto
havearemai ni
ngusefull
i
feoff
iveyears.

For201
6,t
heneti
ncomef
rom ownoper
ati
onsar
e:

Ki
ngCompany P500,
000

St
arCompany 262,
500
 Ki
ngCompanyusedt
heequi
tymet
hodt
oaccountf
ori
tsi
nvest
menti
nSt
arCompany.

For201
6,whati
sthebal
anceofI
nvest
menti
ncomeaccounti
nthebooksofKi
ngCompany?

a. P1
72,
000
b. P1
76,
000
c. 271
,000
d. P1
70,
000
Answer
:B

Shar
einSt
ar’
sincome(
P262,
500x80%) P21
0,000

Unr
eal
i
zedgai
n(P90,
000–P50,
000) (40,
000)

Real
i
zedgai
n(P40,
000/
5)x9/
12 6,
000

I
nvest
mentI
ncomeaccountbal
ance,1
2/31
/16 P1
76,
000

29.Basil
ioCor porat
ionowns1 00% ofLongalong’sCor porat
ionscommonst ock.OnJanuary1 ,201
6,
Basi
li
osol dtoLongal ongf orP440, 000machi nerywiththecarryi
ngamountofP30, 000.Longal
ongis
depreci
atingtheacqui redmachi neryoverafi
veyearl i
febyst rai
ght
-li
nemethod.Thenetadjust
ments
tocomput e201 6and201 7Pr ofi
tAt r
ri
butabl
et oEquit
yHol dersofParentorCNIAtt
ribut
abl
eto
Control
l
ingI nt
erestbef orei ncomet axwoul dbeani ncrease(decrease):
201 6 201 7
a. P( 8,000) P2, 000
b. P( 8,000) -0-
c. P( 10,000) P2,000
d. P( 10,000) -
0-

ANSWER;A
Rat
ional
e
201 6 2017
Unreal
izedGainonsal
eofmachi
nery P(
10,000)
Reali
zedGainonsaleofm,
achi
nery(
10,
000/
5) 2,
000 P2,
000
NetAdjustment
s P(
8,000) P2,000

30.OnJanuary1,2016Yell
owCompanypur chase80% oft heoutst
andi
ngshar esofOr ange
CompanyatacostofP1 ,000,000.Onthatdate,OrangeCo.hadP400, 000ofcapi tal
stockand
P600,000ofret
ainedearni
ngs.
OnJuly1,201
6Or angeCompanysol danequipmentwi thabookvalueofP60,000t oYellowCo.f
or
P80,000
For2016and201 7,t
heresult
softhei
roperati
onsar e:
201
6 2017
Yel
low Or ange Yel
low Or ange
 Netincomefr
om ownoper
ati
ons P400,
000 P200,
000 P300,
000 P1 50,
000
Di
videndspai
d 1
00,
000 50,
000 80,
000 20,
000

Theint
ercompanygai
nisincl
udedint
heneti
ncomeofOr
angeCo.
.Theequi
pmentsol
disexpect
ed
tohaveauseful
li
feoff
iveyearsf
rom t
hedat
eofsal
e.

Thenon-
cont
rol
l
ingi
nter
estonDecember31
:

201
6 2017
a. P226,
400 P256,
800
b. P226,
400 P253,
200
c. P226,
000 P252,
400
d. P230,
000 P256,
000

ANSWER: B
Rat
ional
e
201
6 201
7
Capitalst
ock- Orange1 2/ 31 P400,
000 P400,
000
Retai
nedEar nings,Or ange1 2/31:
Retai
nedEar nings,Or ange1 /
1P600, 000 P750,000
Add:NetI ncome 200,000 150,000
Total P800,000 P900,000
Less:Dividends 50,
000 750, 000 20,000 880,000
Stockholder’
sEqui ty-Or ange,1 2/31 P1,150,000 P1
,280,000
Less:Unreali
zedGai n( Upst ream Sal es) 20,
000 18,
000
Total P1,130,000 P1,262,000
Add:Real i
zegaint hruDepr eci
ation
(upst
ream sales):P20, 000/5x6/ 12) 2,
000 4,
000
Reali
zedSt ockhol der’
sEqui ty-Or ange,12/31 P1,
132,000 P1,266,000
Multi
pli
edby:Non- control l
i
ngI nterest% 20% 20%
Non- contr
oll
ingInt er
est s,December31 P226, 400 P253,
200

31.OnJanuar y1,2016,PCompanypur chased80per centoft heoutstandingsharesofSCompanybypayi ng

P700,000.Ont hatdate,SCompanyhadP300, 000capi talstockandP500, 000ofr etai
nedear
nings.An
undervaluedassetat t
ri
butabletobuil
dingamount ingt oP75, 000wi t
har emainingl
ifeof25years.All
other
assetsandl i
abil
it
iesofSCompanyhasbookval ueappr oximat edtheirfairmarketvalue.
OnJanuar y1 ,
201 7,P’
scommonst ockandr etainedear ningsamount edt oP1,000,000ANDP800, 000,
respect
ively,whileSCompany’ sretai
nedear ni
ngsi sP600, 000.
The201 7neti ncomeanddi videndsusingcost( i
niti
al value)model wasasf ol
l
ows:
NetIncome Dividends
PCompany P340,000 P100, 000
SCompany P150,000 P50, 000

OnApril1,
2017,SCompanysol dequi
pmentwi thabookval
ueofP30, 000toPCompanyf orP60,000.The
gainonthesal
eisincl
udedi nthenetincomeofSCompanyi ndi
catedabove.Theequipmentisexpectedto
havearemainingusefull
if
eoff i
veyearsfr
om thedateoft
hesal
e.
OnSeptember30, 2017,PCompanysol dmachiner
ywithabookvalueofP40,000t
oSCompanyf orP75,
000.
Thegainonthesaleisalsoincl
udedinthenetincomeofPCompanyi ndicat
edabove.Themachiner yi
s
expect
edtolastfort
enyear sfr
om thedateofsale.
Thenon- control
li
ngint
eresti
nNetIncomefor2017:
a. P30, 000 c.P24,900
b. P25, 500 d.P24,300
Solution:
ANS:D
Neti ncomeofSubsi diar
y P1
50,
000
Less:Unr eali
zedgainonsal eofequi
pment(upst
ream)
-
yearofsale 30, 000
Amor t
izati
onofall
ocatedexcess 3,000
P117,000
Add:Real
i
zedgai
nonsal
eofequi
pment(
upst
ream)–201
7 4,500
P121,500
Mult
ipl
i
edby:Non-Cont
rol
li
ngInter
est
s 20%
Non-cont
rol
l
ingi
nter
est
sinnetincome P 24,300

FVofSubsi di
ary:
Consi derati
ont ransferred P700,000
Less:Bookval ueofSHE- S,1/
1/2016
[(P300, 000+P500, 000)x80%] 640,
000
Allocatedexcess P 60,000
Less:Over /UnderVal uati
onofAandL:
Increasei nBui l
dings:P75,000x80% 60,000
Goodwi ll P 0
Note:Asaconsequencet odet ermineexcess,ther
eisnogoodwil
l(f
ull
orpar t
ial
)ari
si
ngther
efr
om.
Amor ti
zationofal l
ocat edexcess :P75,000/25year s P3,
000
Upstream sal eofEqui pment( dateofsale-
4/1/2017):
Sal es P60,000
Less:BookVal ueofequi pment 30,
000
Unr ealizedGai n( onsal eofequi pment) P30,000
Real i
zedgai nonsal eofequi pment:
201 7:P30,000/ 5years=P6, 000x9/ 12
(4/1/201 7-12/31/2017) P 4,500

2018 P 6,
000
Downstr
eam saleofmachiner
y( dat
eofsal
e-9/30/
2017)
:
Sales P75,
000
Less:BookValueofmachinery 40,
000
Unreali
zedGain(onsal
eofmachi ner
y) P35,
000
Reali
zedgainonsaleofmachi ner
y:
2017:
P35,000/1
0years=P3,500x3/12
(9/
30/2017-1
2/31/
201 7) P 875

2018 P 3,500
32.OnJanuary1,2016,EdiCompanypurchased80per
centoft
heout
standi
ngshar
esofLynCompanyata
costofP1,
000,000.Ont hatdat
e,LynCompanyhadP400,
000ofcapi
talst
ockandP600,
000ofret
ained
earni
ngs.

OnJuly1,2016,LynCompanysoldanequi
pmentwi thabookval
ueofP60,000t oEdi
CompanyforP80,
000.
For20161 nd2017,t
heresul
tsoft
hei
roperat
ionsare:
2016 2017
Edi
Co. LynCo. EdiCo. LynCo
Netincomef r
om ownoperat
ions P400,000 P200,000 P300,
000
P150,000
Divi
dendspaid 100,
000 50,
000 80,000 20,
000

Thei
nter
companygai
nisi
ncl
udedi
ntheneti
ncomeofLynCompany.Theequi
pmentsol
disexpect
edt
o
haveausefull
i
feoffi
veyearsfr
om t
hedateofsal
e.
TheNon-contr
oll
i
nginter
estsonDecember31:
2015 2016
a. P226,400 P256,800
b. P226,400 P253,200
c. P226,000 P252,400
d. P230,000 P256,000
sol
uti
on:
ANS:B
2016 201 7
Capitalst
ock- Lyn,December31 P400,000 P400,
000
Retai
nedear ni
ngs- Lyn,December31 :
Retainedear nings- Lyn, Januar y1 P600, 000 P750,
000
Add:NetI ncome 200,
000 150,
000
Total P800,000 P900,000
Less:Di vidends 50,
000 750, 000 20,
000 880,000
Stockholder s;’
equity- Lyn,12/ 31 P1,
150,000 P1,280, 000
Less:Unreal izedgai n( upstream sal es) 20,000 1
8, 000
P1,
130,000 P1,262, 000
Add:Real i
zedgai nt hrudepr eci at
ion
(upstream sal es):P20, 000/ 5x6/ 12 2,000 4,000
Reali
zedSt ockhol dersÉqui ty- Lyn,12/31 P1,132,000 P1,
266,000
Muti[l
iedby:Non- cont rol
li
ngI nter
est% 20% 20%
Non- controlli
ngint erests,December31 P 226,400 P253, 000

Therei
snostep-
upvalueofnetasset
s,soadj
ust
mentwoul
dnotbenecessar
y.Theexcessofcostoverbook
repr
esent
sgoodwil
lwhichhavenobeari
ngint
hecomputat
ionofmi
nori
tyint
erest
s.

Ther
ewasagoodwi l
lari
si
ngfrom acquisit
ionamounti
ngt oP200,
000[ P1,
000,000-
(80% xP1,
000,000)]
,any
i
mpairmentl
ossesar
isi
ngfrom thisgoodwill
shoul
dbei gnor
edforpurposesofcomputi
ngminori
tyi
nter
ests.
Butanyadj
ustment
storefl
ectfairval
uelessamorti
zat
ionshouldberecognized.

I
nanupst r
eam sal
es,theunreal
i
zedgainonsaleofequi
pmentamounti
ngt
oP20,000wasincl
udedi
nthe
P200,000neti
ncomeandsi nceitwasanint
ercompanygai
n,sother
eisaneedt
oeli
minat
esuchgai
nfrom
consol
idat
edpointofview.

However,i
nsubsequentyear2017,t
heRetainedEarni
ngsofLynf orJanuary1,
2017i
ncl
udesthenet
unreal
i
zedgainofP18,
000(P20,000-P2,
000)f orr
easonthatP200,000netincomeof2016wascarri
edover
to2017,t
heref
ore,t
her
eisaneedt orefl
ectsuchdeducti
onofP1 8,000forconsol
i
dat
ionpoi
ntofvi
ew.

33.OnJanuar
y1,201
6,RedInc.soldequipmentwit
haf our
- yearr
emaini
ngusef ull
i
feandabookvalueof
P350,
000toit
s65%- ownedsubsidiar
yforapriceofP530,000.Inconsoli
dat
ionwor ki
ngpaper
sfortheyear
endedDecember31,
2016,t
heel i
minati
onentryconcer
ningt hi
str
ansact
ionwill
incl
ude:

A.
Adebittoequipmentf orP180,
000
B.
Acreditt
odepr eciat
ionexpenseforP1
80,
000
C.
Adebittocashf orP350,000
D.
Adebittogainonequi pmentforP180,
000

Answer
:D

1
00% unr
eal
izedgai
nandr estoretheorigi
nalbookvalue, dat
eofsal
e1/
1/1
6
Gainonsale.
..
..
..
..
..
..
..
..
..
..
...
...
..
..
..
..
..
...
..
..
..
..
..
..
..
..P180,000
Equipment.
..
..
..
..
..
..
..
...
..
..
...
..
..
..
...
..
..
. P180,000
Theent
rymadei nthebooksofsubsidiaryonthedat eofsale:
Equi
pment .
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
...
..
..
..
..
..
..
..
..
...
P530, 000
Cash...
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
...
..
..
..
. P530,000
Theent
rymadei nthebooksofpar entonthedateofsale:
Cash.
..
..
..
...
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
.P530,000
Equipment...
..
..
..
..
..
..
..
..
..
..
..
..
...
..
..
..
. P350,000
GainonSal e..
..
..
..
..
..
..
..
..
..
..
..
...
..
..
..
. 180,000

From consol
i
datedpoi
ntofvi
ew,ther
eshouldbenogai
n.Ther
efor
e,t
oel
i
minat
ethegai
nshoul
dbedebi
ted
andequipmentshoul
dbereduceaccordi
ngl
y.

Fordepreci
ati
on:
Accumulateddepreci
ati
on.
..
..
..
..
..
..
...
..
..
..
..
..
..
..
..
.P45,
000
Depreci
ati
onexpense(P180,000/4years) P45,
000

34.TheReyesCo. acqui
redequipmentonJanuary1,
2015atacostofP1 ,500,000,depreciat
ingitover7years
withanilresi
dualval
ue.OnJanuar y1,
2018.TheSantosCo.acqui
red1 00% ofReyesandest imat
edthef ai
r
valueoftheequipmentatP900,000,wi
tharemaini
nglif
eof4year s.Thisfairvaluewasnoti ncorporat
edinto
Reyes’booksandt hedepreciati
onexpenseconti
nuedt obecalculatedbyr eferencetoor igi
nalcost.The
carryi
ngamountoft hestat
ementoff i
nanci
alposi
ti
oninprepari
ngt heconsol i
datedfinancialst
atementfor
theyearendedDecember31 ,2019:

A.
Incr
easebyP418,000
B.
DecreasebyP418,000
C.
DecreasebyP225,000
D.
Incr
easebyP225,000A

Answer
:B

Netcarryi
ng/bookval
ue12/31/
17:
ReyesCo.’sbookval
ue[
P1 ,
500,000-(
P1,
500,000/7year
sx4years)
]..
..
..
..
..
..
..
..
..
..
P643,
000
SantosCo;sbookval
ue[P900,000-(
P900,000/
4yearsx3year
s)]
...
..
..
..
..
..
..
..
..
..
..225,
000

Decr
ease.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..P41
8,000(
B)

35.
Kestr
elCompanyacqui r
edan80% int
erestinRepti
leCorporati
ononJanuary1,2004.On
January1 ,2005,Rept i
l
esold abuil
ding wit
habookval ueof$50,000 to Kestrelf
or
$80,000.Thebui l
dinghadaremaini
ngusef ull
if
eoftenyear sandnosalvagevalue.The
separate bal
ance sheetsofKest
reland Rept i
l
e on December31 ,2005 incl
uded the
fol
l
owi ngbalances:

Kest
rel Rept
il
e

Bui
l
dings $ 400,
000 $ 250,
000

Accumul
atedDepr
eci
ati
on- 1
20,
000 75,
000

Bui
l
dings
 Theconsol
i
datedamountsforBui
ldi
ngsandAccumulatedDepr
eciat
ion-Bui
l
dingst
hat
appear
ed,r
espect
ivel
y,ont
hebal
ancesheetatDecember31
,2005,were

a.$620,
000and$1
92,
000.

b.$620,
000and$1
95,
000.

c.$650,
000and$1
92,
000.

d.$650,
000and$1
95,
000.

ANSWER:
Combinedbuildi
ngamount
s $ 650,
000
Less:I
nter
companygain ( 30,
000 )
Consoli
datedbui
ldi
ngamount
s $ 620,
000

Combi nedAccumulat
edDepreci
ati
on $ 1
95,
000
Less:Piecemeal
recogni
ti
onofgai
n
( 3,
000 )
Consol
i
dat
edaccumul
ateddepr
eci
ati
on
$ 1
92,
000

 36.TheRoelCompanyacqui r
edequipmentJanuary1,201 3ataccostof800,000,depreciat
ingi
t
over8year swithanil
resi
dualval
ue.OnJanuary1,2016.TheMul donCompanyacqui red100% ofRoel and
est
imat edthefai
rval
ueoftheequipmentat460,000,wit
haremai ningl
if
eof5year s.Thi
sfairval
uewasnot
i
ncor porat
edintoRoel
’sbookandthedepreci
ati
onexpensecontinuedtobecal cul
atedbyreferenceto
ori
ginalcost.

Whatadj
ust
mentshoul
dbemadetothedepreci
ati
onex
pensefortheyearandt
hest
atementoff
inanci
al
posi
ti
oncar
ryi
ngamounti
npr
epar
ingtheconsol
idat
edf
inanci
alst
atement
sfort
heyearendedDecember31
,
2017?

Depreci
ati
onExpense Carr
yingAmount
a.I
ncreaseby8,000 Incr
easeby24,000
b.I
ncreaseby8,000 Decreaseby24,
000
c.Decreaseby8,000 I
ncreaseby24,
000
d.Decreaseby8,000 Decreaseby24,000

ANS:D
Fai
rval
ueadj
ust
ment
sunderPFRS3par
.36notr
efl
ect
edi
nthebooksmustbeadj
ust
edf
oronconsol
i
dat
ion.

Annualdepreci
ati
onexpense:
Roel’
sdepreci
ati
on:(800,000-0)
/8year
s 100,
000
Muldon’
sdepreciat
ion(460,000/
5) 92,000
8,
000

Netcar
ryi
ng/
bookval
ue,1
2/31
/201
7:
Roel’
sbookvalue(800,
000-(800,000/
8year
sX5yr
s) 300,
000
Muldon’sbookval
ue(note)(
460,000-(
460,
000/
5X3year
s)276,000
Decrease 24,000

37.Salesoffi
xedasset
sbetweenmember sofanaff
il
i
atedgroupmayresul
ti
ntherecogni
ti
onofgainorl
oss
bythesell
er.
Stat
ement1 :Foreachper
iod,adj
ustdepr
eci
ati
onexpenseandaccumulat
eddepr
eciati
ont
or ef
lectt
he
ori
ginalBVoftheasset
.

St
atement2.
Forper
iodssubsequentt
otheyearofsal
e,r
est
oret
hecar
ryi
ngamountoft
heassett
oit
sor
igi
nal
BVandeli
minat
ethegain(l
oss)r
ecordedbythesel
ler
.

A.
Stat
ement1i
sfal
se;St
atement2i
str
ue

B.
Bot
hst
atement
sar
ecor
rect

C.
Stat
ement1i
str
ue;St
atement2i
sfal
se

D.
Bot
hst
atement
sar
efal
se

Answer
:C

38.Marcelino’
sCo.:Downed80% ofSarah’sCorp.Duri
ng2016,Marceli
no’
ssoldtoSarah’
slandwi
thabook
val
ueof48, 000.Theselli
ngpri
cewas70,000.I
ni t
saccount
ingrecor
ds,Mar cel
i
no’sshoul
d.
a.Notrecognizedagainont hesal
eoft
helandsinceitwasmadet oarelat
ivepart
y.
b.Recognizedagai nof17,600
c.Deferrecognit
ionofthegainunt
il
Sar
ah’ssel
lsthel
andtoat hi
rdpart
y.
d.Recognizeagai nof22,000

ANS:D
I
tshouldbenot
edt hatt
hegai
nof22,
000(70,
000-48,
000)shoul
dber ecor
dedi
ntheMar
cel
i
no’
s(Par
ent
)
accounti
ngr
ecords,butel
i
minat
edi
ntheConsol
i
datedFi
nanci
alStat
ement.

39.
Inr
efer
encet
othedownst
ream orupst
ream sal
eofdepr
eci
abl
easset
s,whi
choft
hef
oll
owi
ngs
tat
ement
s
i
scor
rect
?

a.Upst
ream sal
esf
rom t
hesubsi
diar
ytot
hepar
entcompanyal
waysr
esul
ti
nunr
eal
i
zedgai
nsorl
osses.

b.Thei
nit
ial
eff
ectofunr
eal
i
zedgai
nsandl
ossesf
rom downst
ream sal
esofdepr
eci
abl
easset
sisdi
ff
erent
f
rom t
hesal
eofnon-
depr
eci
abl
easset
s.

c.Gai
ns,butnotl
osses,appeari
nthepar
ent
-companyaccount
sint
heyearofsal
eandmustbeel
i
minat
ed
byt
hepar
entcompanyi
ndet
ermi
ningi
tsi
nvest
menti
ncomeundert
heequi
tymet
hodofaccount
ing.
d.Gai
nsandl
ossesappeari
nthepar
ent
-companyaccount
sint
heyearofsal
eandmustbeel
i
minat
edbyt
he
par
entcompanyi
ndet
ermi
ningi
tsi
nvest
menti
ncomeundert
heequi
tymet
hodofaccount
ing.

ANSWER:D

HOMEOFFI
CE,
BRANCHANDAGENCYACCOUNTI
NG

1.
Lacost ePhi
l
ippi
neshast womer chandi
seout l
ets,i
tsmainstorei
nMani l
aandinCebuCi t
ybranch.For
contr
ol pur
poses,al
lpurchasesaremadebyt hemainstore,andshipmentst
otheCebuCitybranchareat
costplus10%.OnJanuar y01 ,201
6,theinventor
iesofthemai nst
oreandCebuCi t
ybranchwereP1 3,
600
andP3, 960,r
especti
vel
y.Dur i
ng2016,themai noffi
cepurchasedmer chandi
zecosti
ngP40,000and
shi
pped40% oft hesetotheCebuCi tybranch.

AtDecember31 ,2016,t
hef
oll
owi
ngj
our
nal
ent
rywasmadet
opr
epar
etheCebuCi
tybr
anchbooksf
ort
he
nextaccount
ingperi
od:

Sal
es 32,000
I
nvent
ory 4,
840
I
nventory 3,960
Shipmentsfrom t
hemainstore 17,600
Expenses 10,480
Mainstore 4,800
[1]
whatwast heactualbr
anchi
ncomeof201 6onacostbasi s,assumingt
heuseoft
heprovi
sionsoft
hePAS,
and[2]i
fthemainst or
ehasP11,200worthofinvent
oryonhandatt heendof201
6,t
hetotal
invent
orythat
shoul
dappearont hecombinedbalancesheetatDecember31 ,2016?

a.[
1]P4,
800[
2]P1
5,600 c.[
1]P6,
320[
2]P1
5,600

b.[
1] 6,
320[
2] 1
5,1
60 d.[
1]6,
480 [
2] 1
6,040

Ans:C

[
1] actualbranchincome:
Sales……………………………………………………………………………. .32,
000
Less:CostsofGoodsSol d
I
nventory,Jan.1
,atbi
ll
edpri
ce…………………..P3,960
Shipmentsfrom Mai
nstor
e,atbi
l
ledpr
ice……… 1 7,
600

Costofgoodsavai l
abl
eforsal
e,atbil
l
ed
Price………………………………………. .P21,
560
Less:i
nventory,December31,atbi
l
led
Price………………………………………. 4, 840

Costofgoodssol
datbi
l
ledpr
ice……………….
..
.P1
6,720
 Mult
ipl
i
edby:costr
ati
o…………………………….100/
110 1
5,200
GrossProfi
t……………………………………………………………………P1 6,800
Less:Expenses……………………………………………………………….1 0,480
TrueBranchNetIncome…………………………………………………….P 6,320(c)

[
2]Endi
ngI nventoryatCost:
Homeof f
ice………………………………………………. P11,
200
Branch:(P4,840x1 00/1
1 0)
……………………………. 4, 400
Combi nedendinginventoryatcost
……………………P15,600(
c)

2.BarrosCor porati
onsshipmentstoandfrom it
sBr azi
lCitybrancharebi l
l
edat120% ofcost.OnDecember
31,Br azi
lbranchr epor
tedthefol
lowingdataatbill
edpr i
ces:invent
ory,January1of33,600;shi
pments
receivedfrom homeof f
iceof840,000;shi
pmentr eturnedof48, 000;andinvent
ory;December31,of36,
000.
Whati sthebal anceoftheall
owancef orovervaluati
onofbr anchinventoryonDecember31bef or
e
adjustments?
a.5,600
b.137, 600
c.6000
d.145, 600

ANS:B
I
nventory,January1 33,600
Add:Shipment sfr
om off
ice,netoret
urns
(840,
000- 48,000) 792,000
Costofgoodsavai l
abl
eforsale 825,600
Multi
pli
edby:Mar kup 20/120
All
owancef oroverval
uat
ionbeforeadjust
ment
s 1 37,600

3.Phil
i
ppineOverseasCorporat
ionhasoper
atedabranchi
nJor danforoneyear.shi
pment sarebi
l
ledt
othe
branchatcost
.Thebr anchcarr
iesi
tsownexpenses.Thet
ransacti
onsf
ortheyeararegiveneff
ectt
ointhe
tr
ialbal
ancebelow:
Accounts Debit Credi
t

Cash P4,
200

Homeof
fi
ceCur
rent P1
7,500

Shi
pment
sFr
om HomeOf
fi
ce 67,
680

Account
sRecei
vabl
e 1
2,800

Expenses 6,
820

Sal
es 74,
000

P91
,500 P91
,500

Thebranchrepor
tedoninvent
oryonDecember31,20x5ofP9,180.
Thenetprofi
toft
heJordanBranchfor20x5was:
a. P8,680 c.P6,
718
b. P9,180 d.Someot heranswer
.

ANSWER:A
Sal
es P74,
000
Less:Costofgoodssold:
SFHO P67,
680
Less:I
nventory,endi
ng 9,
180 58,
500
Grossprofit P15,500
Less:Expenses 6,820
NetProfit P8, 680

4.
TheCl
arkbr
anchofFr
eepor
tCor
p.submi
tt
edt
hef
oll
owi
ngt
ri
albal
anceasof30June201
6:

Debi
t Cr
edi
t

Cash P28,
600

Account
sRecei
vabl
e 1
73,
800

Shi
pment
sfr
om homeof
fi
ce 462,
000

Home-
off
icecur
rent P324,
500

Sal
es 369,
600

Expenses __29,
700 ________

Tot
al P694,
100 P694,
100
Clar
kr eportedanendi
nginventoryofP1
38,
600,Shi
pment
sar
ebi
l
ledatamar
k-upof40% oncost
.Whati
s
thereal neti
ncomeofClar
kBr anch?
a.P70,000
b.P92, 400
c.P100, 000
d.P108, 900

ANS:D

Sales P369,
600
Less:CostofGoodsSol d
Shipmentsf r
om HomeOf fice,
atcost(P462,000x1 00/1
40)P330,
000
Less:EndingInvent
ory,
atcost(
P1 38,600x100/140) 99,
000 231,
000
GrossProf i
t P138,
600
Less:Expenses 29,700
RealNetIncomeoft heBranch P108,
900

5.Till
manTexti
leCo.hasasi nglebranchinBul acan.Onmar ch1 ,2016,theHomeOf f
iceaccount
ingrecords
i
ncl udedanAllowancef orOver val
uati
onofI nventori
es-Bul
acanBr anchledgeraccountwi t
hacredi
tbalance
ofP32, 000.DuringMar ch,mer chandisecosti
ngP36, 000wasshi ppedt otheBulacanBranchandbill
edata
price.OnMar ch31 ,2016,thebr anchpreparedani ncomest atementindicat
inganetlossofP11,
500f or
mar chandendi nginventori
esatabi l
ledpricesofP25, 000.Whati st
heamountofadj ust
mentforAll
owance
forOver val
uat
ionofInventoriestorefl
ectthetruebr anchnetincome?

a. P39,257debit
b. P46,000credi
t
c. P39,333debit
d. P46,000debit
ANS:D
MerchandiseInventory,Mar ch1,201
6 P32,
000
Add:Shipment s(P36,000/60% =60,000x40%)
Note:Mar k-upisbasedonbi l
l
edprice 24,
000
CostofGoodsavai lableforsale P56,
000
Less:Merchandiseinventory,March31,2016
(25,000x40%) 1
0,000
Overval
uati
onofCGS/ Real
izedtheGrossProf
itonBr
anchSal
es P46,
000

6.Asyoubegintoauditt
hebooksoft
heFIL-EM Company.YOUnot
iceadiscr
epancybetweenthebal
ance
i
ntheInvest
mentinBranch(P1
36,020Dr
.)andtheHomeOf fi
ce(
P175,400Cr.
)account
s.Thefol
lowmg
I
nfor
mat i
onisavai
l
abl
e:

A.Thehomeof f
icebill
sgoodsshippedt othebranchat150% ofcost.Atthebeginni
ngoftheyear,branch
i
nventorywasstatedatP7S, 000aft
ertheannual physi
calcount,andthehomeof fi
ceunreal
izedprofi
t
accounthadacr editbalanceofPS,000.Youf i
ndthatashipmentwithabill
edvalueofP60,000madet owar
d
theendoft hepri
oryearhadnotbeenr ecordedbythehomeof f
ice.
B.OnDecember31oft heyearunderreview,thebranchmai l
edtothehomeof fi
ceacheckf or925,000and
anoti
cet hatt
hebr anchhadcollect
edP4, 380onahomeof f
iceaccountr
eceivabl
e.Theseit
emshadnot
beenrecordedbythehomeoffi
ce..
C.Thebr anchwasopeneddur
ingtheprecedi
ngyearandit
soperat
ingl
ossofP42,
800f
ort
heyearwas
capi
tal
izedbythebranchasastar
t-upcost
sbythefol
l
owingentr
y:

St
art
-upCost(I
ntangi
bleAsset
)42,800
IncomeSummar y'42,
800

Theaccounti
snotbei
ngamor
ti
zedbyt
hebr
anch,andnoent
rywasmadebyt
hehomeof
fi
cet
orecor
dthe
netl
oss.

Howmuchmustbet
headj
ust
edbal
anceofr
eci
procal
account
s

A.P1 75,400
B.P1 92,600
C.P1 15,400
D.P1 32,600
Answer :D
I
nvestmentlnBr anch HomeOf fi
ce
Unreconci l
edbalance P1 36,020 P175,400
1)Unr ecordedshipment 60, 000
2)Unr ecordedremittance (25,000)
2)Account scoll
ected 4380
3)Netl oss (42,800) (42,
800)
Adjustedbalance P132,600 P132,
600

7.OnSept ember1 ,201 4,RickyCompanyest abli

shedtwobr anches:NagaandCebuCi tybranches.The
homeof f
icet ransfer
redP80, 000wor thofcashandP350, 000wor thofi
nvent orytoi
tsNagabr anchand
i
nstructedNagat otr
ansf er3/4oft hegoodsandcashr ecei
vedt oCebuCity.Inadditi
on,onNovember1 ,
2014,shipment sfrom homeof f
icewer ereceivedbyNagaamount i
ngtoP1 25,000andt hebranchpaid
fr
eightcost samount i
ngt oP6, 500.3/ 5ofthesaidshipmentswer esoldtoout si
ders.OnDecember1 ,2014,
Nagat ransferredhal fofther emainingNovembershi pmentsf rom thehomeof fi
cetoCebuCi ty,wit
hCebu
Cit
ybr anchpayi ngfreightcostsofP2, 500.Hadt hemerchandi sebeenshippedf rom t
hehomeof fi
ceto
CebuCi tybr anch,onl yP1 ,900wor t
hoff r
eightwouldhavebeeni ncur
red.Howmuchi sthebalanceofthe
CebuCi tybr anchaccounti nthehomeof f
icebooks?
a.349,400
b.348,800
c.206,200
d.346,900
Answer :D
Soluti
on:
BranchCur r
ent-Naga
9/1 430, 000
9/1( 322, 500)
11/11 25,000
12/1.(26,300)
Balance206, 200
BranchCur r
ent-Cebu,Ci t
y
9/1. 322, 500
12/1. 24, 400
Bal
ance346,
900

8.TheRayCompanywasorganizedin201 4.Shor
tl
yafteropeni
ngitsdoor
stot
hepubli
ctthemai
nst
ore,Ray
Companyest
abli
shbranchinanotherci
ty.Attheendofthesecondyearofoper
ati
ons,t
hehomeoff
ice
recei
vedt
hefol
l
owingcondensedincomest atementf
rom thebranch:

Revenues 140,
000
CostofGoodsSol
d 1
1 0,
000
GrossMargi
n 30,000
Sell
i
ngandAdmini
str
ati
veexpenses 25,000

NetIncome 5,
000
Themanagementatthehomeof f
icequesti
onedtheaccur
acyofthesefi
guresandassi
gnedyout
het
ask
ofver
if
yingthebr
anchdata.Yourr
evi
ewoft herecor
dsuncoveredt
hefoll
owingfact
s:

1.Thebegi nni
ngoft heyearbal anceinUnr eali
zedPr ofi
ttoBr anchwas6, 000
2.Dur i
ngtheper i
od,thehomeof f
iceshi
ppedgoodst othebr anchtahthadcostt hemainstoreP75,000.
However ,yourrevi
ewoft hebr anchreceivi
ngr eport
sr evealedthatanumberof shipmentsfrom thehome
off
icehadbeenr ecordedt wicebyt hebranchaccount ant.
3.Thebr anchisbil
ledauni f
orm 25% abovecost andr eceivesinventor
yonlyfrom tehomeof f
ice.
4.Thebr anchendingi nventorywascor r
ect l
yreportedatabi l
l
edpr i
ceofP21,750.
5.Whenr econci
li
ngr eciprocalaccounts,youfoundt hatthebr anchhadnotrecor ded2,000ogser vi
ces
performedbyt hehomeof fi
ceandbi l
l
edt othebr anch.Allothersell
i
ngandadmi nit
rat
iveexpenseswere
correctl
yreport
edbyt hebr anch.

Comput ethecor
rectneti
ncomeoft
hebr
anch.
a.31,
400
b.33,400
c.25,
400
d.11,
000

Answer :A.
CorrectNetIncome
Revenue 1
40,
000
COGS
Beg.Inv.atcost(60,000/25%)24,000
Add:Shipment satcost 75,000
Less:End.Inv.atcost
(21,
750/125%) (
17,
400) (81,600)
GrossMar gin 58,400
Sell
i
ngandAdmi n.Exp(25,000+2,
000) (27,000)
NetIncome 31,400

9.Theaf terclosingbalancesofDeniseCor por

ati
on'
shomeof f
iceandi
tsbr
anchatJanuar
y1,
201
4wer
eas
foll
ows:
HomeOf fi
ce Branch
Cash P7, 000 P2,000
Account sRecei vabl
e-net 10,000 3,500
I
nvent ory. 15,000 5,500
PlantAsset s,net 45, 000 20,000
Branch 28,000 -
TotalAsset s P105, 000 P 31 ,000
Account sPayabl e P4, 500 P2, 500
Otherl i
abi l
iti
es 3,000 500
Unr eali
zedPr ofi
t-Branchinv. 500 -
HomeOf fice - 28,000
Capi
talStock 80,000 -
Ret
ainedEar ni
ngs 17,
000 -
TotalEqui
ti
es P1
05,000 P31
,000

Asummar yoftheoper ati

onsoft hehomeof fi
ceandbr anchf or2014f ol
l
ows:
HomeOf fi
cesales:P1 00,000,including,P33, 000t ot hebr anch.Ast andard10% markuponcostappli
est
o
al
lsalestothebranch.Br anchsal estoiyscust omer stot al
edP50, 000.
Purchasesfrom outsi
deent it
ies:HomeOf fice,P50, 000;Br anchP7, 000
Coll
ecti
onsf r
om sales:HomeOf f
iceP98, 000( i
ncludingP30, 000from branch)
;BranchCol
l
ect
ions;P
51,
000
Payment sonaccount ;HomeOf f
ice,P51 ,000;Br anchP4, 000
Operati
ngexpensespai d;HomeOf f
ice,P20, 000;Br anchP6, 000
Depreciati
ononPl antAssets;HomeOf fi
ce,P4, 000;Br anchP1 ,000
HomeOf fi
ceexpensesal locatedtot hebranch,P2, 000

AtDecember31,201
4,t
heHomeOffi
cei
nvent
oryi
sP11
,000andtheBranchinventor
yisP1
1,000andt
he
Branchi
nvent
oryisP6,
000ofwhi
chP1,
050wasacqui
redf
rom out
sidesuppl
iers.

Thecombinedneti
ncomeamount
edt
o
a.0
b.4,
550
c.21,
000
d.25,
550

Answer:D.
Sal
es 117,
500
CostofSal
es(20,000+57,000-16,000) (60,450)
GrossProf
it 56,
550
Operat
ingExpenses(26,000+5,000) (31
,000)
Consoli
datedNetIncome 25,
550

10.ReaCompanyoperatesabranchinPangasi
nan.Shipmentsar
ebil
ledtot
hebranchatcost
.Thebr
anch
carr
iesit
sownaccount
srecei
vable,makesit
sowncollect
ionsandpaysit
sownexpenses.OnDecember31,
2015,thebr
anchbooksshowsthef ol
l
owingbal
ances:

Cash P6,500
HomeOf fi
ce 33,000
Shipmentsf
rom HomeOffi
ce 133,
000
AccountsRecei
vabl
e 23,
000
Sales 145,000
Expenses 11,
500

Thebranchinvent
oryonDecember31,201
5isP1 6,500.Whati
sthebal
anceoft
hei
nvest
menti
nBr
anch
accounti
nthebooksoftheHomeOf f
iceonJanuary1,2016?

a.P33,
000 b.P52,
000 c.P50,
000 d.P53,
000

Answer
:c.P50,
000

Sol
uti
on:
HomeOf fi
ce P33,
000
NetIncome:
Sales P1
45,000
Shipment sfr
om HomeOf
fi
ce P133,000
I
nvent or
y,End (16,500) 116,500
GrossPr ofi
t 28,500
Less:Expenses (
11 ,
500) 1 7,
000
I
nvestmenti nBr
anch P50,
000

1
1.Capi
str
anoCor
por
ati
onshi
psmer
chandi
set
oit
sbr
anchat25% abovecost
.Oni
ts

booksthebr anchshowsabeginni
ngi nvent
oryofhomeof fi
cemerchandi
seamount
ingtoP20, 000and
shipmentsfrom HomeOf fi
ceofP1 1
5,000.It
sendinginventor
yofHomeOf f
iceMer
chandiseisP1 0,
000.
Whatamountshoul dthehomeoff
ice,Capist
ranoCorporati
onadj
ustt
heall
owanceforoverval
uat
ionof
branchinventoryaccount
?

a.P20,
000 b.P25,
000 c.P1
00,
000 d.P50,
000

Answer
:b.P25,
000

Sol
uti
on:
HomeOfficeMer chandi
se,beg. P20,
000/125%=P16,
000 P4, 000
Shi
pmentsfrom HomeOf fi
ce 1
15,
000/125%= 92,
000 23,000
P27,
000
Less:HomeOf
fi
ceMer
chandi
se,end. 1
0,000/1
25%= 8,
000 (
2,000)
P25,000

12.TheBestacousti
c.bi
l
lsmer chandi
seshipmentsi
tsCavi
teCit
ybranchat125% ofcost
.Thebr
anch,intur
n,
sell
sthemerchandi
seitr
eceivesfrom homeoffi
ceat25% abovethebil
l
ingpri
ce.OnAugust@,2016,all
the
branch'smerchandi
sestockwasdest royedbyf
ir
e.Thebranchrecor
dthatwererecover
edshowedthe
fol
lowing:

I
nventory,Jan1 ,2016. P1
65,
000
Shi
pment sr eceivedfr
om homeof fi
ce,
Januar yt oJuly(
atbil
ledpri
ce 1
10,
000
Purchaseatcost ,f
rom outsi
desources
,
allresoldata20% mar k-up 10,
200
Sales 1
69,000
Salesr eturnsandallowances 3,
750

TheBestCo.wi
l
lfi
l
eani
nsur
ancecl
aim.Howmuchi
stheest
imat
edcostoft
hemer
chandi
sedest
royedby
fi
re?

a.P1
20,000. c.P1
40,000
b.P130,
000. d.P150,000

Answer
:A

I
nventory,Jan.1,atbil
ledpr i
ce. P165,000
Shipmentsreceivedfrom homeof f
iceatbil
ledpr
ice 1
10,000
Costofgoodavai labl
ef orsaleatbi
ll
edprice. P275,000
Less:costofgoodsol d,ffr
om homeof fi
ce
atbil
ledprice
 Sal
es. P169,000
Less:salesret
urnandal lowance. 3,750
Sal
espr iceofmerchandi sepurchased
f
rom outsi
ders(P7,500x1 20%) . 9,000
Netsalesofmer chandiseacquired
from homeof fi
ce. P156,250
Mul t
ipl
iedby:I
ntercompanycostr ati
o.1
00/
125 125,000
I
nventory,Aug.1,201 6,atbil
ledpri
ce. P150,000
Multi
pli
edbycostr ati
o. 100/150

Mer
chandi
sei
nvent
oryatcostdest
royedbyf
ir
e. P1
20,
000

1
3.Thehomeoff
iceofIr
byCompanybil
lsmerchandiset
obr anchesat20% abovehomeof
fi
cecost
.
I
nfor
mat
iont
akenfrom t
heaccount
ingr
ecor
dsofKi ppBranchisasfoll
ows:

Begi
nni
ngInventor
ies(atbi
l
ledpr
ices
)P1
7,000Shi
pmnl
ent
sfr
om homeof
fi
ceP42,
500Endi
ngi
nvent
ori
es
P20,
000NetlossP1 ,
500

Theneti
ncomeornetl
ossofKi
ppBr
anch,basedonhomeof
fi
cecostofbr
anchmer
chandi
se,i
s:

a.P7,
900neti
ncome
b.P9,
400netl
oss
c.P6,
400neti
ncome
d.P7,
000neti
ncome

Answer
:C

Costofsale P39,500
Mar kup%. 20%
Total P7, 900
Less:netl
oss 1 ,500
Netincome P 6,400

Forquestionno.14-15
RubyCor porat
ionshippedinventor
ytoitsLicabbranch,cost
ingP375, 000pl
usfrei
ght.Rubybi
l
lsi
nvent
oryto
i
tsbranchesat1 20% ofori
ginalcost
,plustheactualamountofshippingcharges.Att
heendoftheyear
,the
Li
cabbr anchhadr esol
d50% oft heinvent
or yf
rom thehomeof f
ice.Shippi
ngcostpaidbyRubywereP2,000.

14.Whatamountshoul
dthei
nvent
orywi
l
lber
epor
tedi
nthebr
anchst
atementoff
inanci
alposi
ti
on?
a. P197,
500
b. P188,
500
c. P377,
000
d. P287,
500

Ans.B
Cost P375,000
Add:shi
ppi
ngcostP2,000
Tot
al P377,000
Mult
ipl
yby: 50%
P188,500

15.Usi
ngthedataabove,whatamountshouldt
hebr
anchi
nvent
oryf
rom t
hehomeof
fi
ceber
epor
tedi
nthe
fi
nanci
alposi
ti
onofRubyCorp.Asawhol e?
a. P157,
250
b. P188,
500
c. P198,
500
d. P377,
000

Ans.A

Cost P375,
000
Di
videdby: 120%
P312,500
Add:shippi
ngcost P2,000
Total P314,
000
Less:Resol
d P157,
250
P157,
250

16.OnJuly31,2013,thehomeoff
icei
nManil
aest
abli
shesasal
esagencyi
nBul
acan.Thef
oll
owi
ngasset
s
aresentt
otheagency:
Cash(worki
ngfundt obeoper
atedundert
hei
mprestsyst
em) P22,000
Samplesofmer chandi
se 36,000

Duri
ngthemont hofAugust
,thefoll
owingtr
ansact
ionsoccur
red:
Thesal
esagencysubmi t
ssalesorderofP272,000,sal
esperinvoi
cewasbi
l
ledatP268,000.Costofsal
es
tocust
omersisP124,000.
Coll
ect
ionsdur
ingthemonthamountt oP58,200,netof3% discount
.

Homeof f
icedisbursement
schar
geabl
et otheagencyar
easf
oll
ows:
Fur
nit
ure P40,000.
Sal
ari
esforthemont h 21,600
Annualr
entofof f
icespace 36,000

OnAugust31,thesalesagencyworki
ngfundisrepleni
shed.Paidvoucher
ssubmitt
edbyt
hesalesagency
amounti
ngtoP1 7,925.Samplesar
eusefulunt
il
December31 ,2013,whi
chatthi
sti
me,ar
ebel
ievedtohave
asal
vagevalueof1 5% ofcost
.Fur
nit
urei
sdepreciatedat18% perannum.

Whatisthetot
alcompr
ehensi
vei
ncomeoft
hesal
esagencyf
ort
hemont
hofAugust
?
a.P91,425
b.P93,225
c.P92,955
d.P58,425

Ans.:C
Soluti
on:
Sales P268,000
Salesdiscount(P58,200÷97%)x3% 1800
Netsales 266,200
Costofexpenses:
Costofsal es P1
24,000
Salari
es 21 ,600
Rentexpense( P36,000x1 /
12) 3000
Expenses 17,925
Sampl es(P36,000x85%)x1 /
5 6,120
Depreciation(
P40,000x1 8% x1/
12)
60 173,245
Netincome P92,955

17.Theaccountbal
ancesshownbelowwer
etakenf
rom t
het
ri
albal
ancessubmi
tt
edt
oBon-
Apet
it
Corporat
ionbyit
sAlabangBranch:
 201 5 2016
Pettycashfund P1500 P1500
Accountsreceivabl
e 43,800 49,140
I
nventory- 37,170
Sales 1
73,1 80 1
95,120
Shipmentsfrom home(
140% ofcost
) 107,450 136,080
Expenses 51,260 57,930
Accountswr i
tt
enoff 1
,220 1,920

All
br anchcoll
ect
ionsareremit
tedtothehomeof f
ice.Al
lbr
anchexpensesar
epaidoutofthepettycashf
und.
Whent hepett
ycashf undi
srepleni
shed,t
hebranchdebit
sappropr
iat
eexpenseaccount
sandcr edi
tsHome
Offi
ceCur rent
.Thepet t
ycashi
scount edever
yDecember31 ,andi
tscomposi
ti
onwasasf ol
lows:
12/31/1512/31
/16
CurrencyandcoinsP580P860
Expensevoucher s920640

Thebranchinvent
oryonDecember31
,201
6wasP41
,370.Thecor
rectbr
anchneti
ncomef
or201
6was:
a.P3,390
b.P3,670
c.P41,070
d.P41,350

Ans.:D
Soluti
on:
Sales P1
95,1
20
Less:Costofgoodssol d:
I
nventor y,1/1/
16,atcost( 37,170x100/140) 26,550
Add:Shi pment s,atcost(P136,080x1 00/140) 97,200
Costofgoodsavai lableforsal
e P1
23,750
Less:Inventory,12/31/16,atcost(
P41,370x1 00/1
40) 29,550 94,
200
Grosspr ofit 1
00,920
Less:Expenses( P57,930+P1 ,920*–P280* *) 59,570
Correctbr anchneti ncome P41
,350

*Directwrit
e-of
fwasusedinrecor
dingdoubt
ful
account
ssincether
eisnoall
owanceaccountgi
veninthe
tr
ialbalance.
**TherewasP280r educt
iononunreimbur
sedpett
ycashexpensevoucher
s,i
nci
dental
l
y,theent
ryfort
he
adjustmentwouldbe:
Pettycash 280
Expense 280

1
8.Abr
anch’
sendi
ngi
nvent
oryofmer
chandi
seshi
ppedbyt
hehomeof
fi
ceandpur
chasedf
rom out
side
vendor
’samount
stoP1
00,
000.Thepostcl
osi
ngbal
ancei
ntheunr
eal
i
zedgr
osspr
ofi
tinbr
anchi
nvent
ory
accounti
sP1
2,000duet
othehomeof
fi
cepr
act
iceofshi
ppi
ngmer
chandi
seat20% abovecost
.The
mer
chandi
sepur
chasedf
rom out
sidevendor
scont
ainedi
ntheendi
ngi
nvent
oryoft
hebr
anchamount
sto:

a. 38,
000

b. 30,
000

c. 1
4,000
 d. 28,
000

Ans.D

Unrealizedgrossprof
it12,
000/20% = 60,000
Unrealizedgrossprof
it 1 2,000
TotalInventorycost 72, 000
BranchEndi ngInvent
ory 100,000
Less:Invent
orycost 72,000
Totalbranchendinginvent
ory 28,000

19.Itemsbelowaret akenf r
om t
heunadjust
edtri
albal
anceofAnj i
eCompanyandi tsbr
anchonDecember
31,
2015.
Homeof ficebooks Br anchbooks
Shipmenttobranch 500,000
All
owancef orovervaluati
onofbranchi
nventor
y 99,900
Shipmentsfrom homeof f
ice 590,000
Mer chandi
seInventory,Jan.1 64,500
Mer chandi
seInventory,Dec.31 48,750
Sales 600,000
Expenses 81,
000

I
tist
hecompany’
spoli
cyt
obill
allbr
anchesf
ormerchandi
seshipmentsat30% abovecost
.
Howmuchofthebranchi
nventor
yonJanuary1r
epresent
spurchasesfr
om outsi
des?

a. 11,
700
b. 42,
000
c. 12,
870
d. 27,
600

Ans.D
Inventory,Jan.
1 64.
500
Less:(
99, 900-(
590,
000-
500,
000) 9, 900
(9,900/30%) 33,000
TotalI
nventory 27,
600

20.OnDecember3,201
6.t
hehomeorr
ecor
dedashi
pmentofmer
chandi
set
oit
sDavaoBr
anchasf
oll
ows,

DavaoBr
anch.
..
..
..
..
..
...
..
..
..
..
...
...
..
..
..
..
..
..
..
..
..
..
..
..
..30,000
Shi
pment stoBr anch...
..
..
..
..
..
..
..
..
...
...
..
..
..25,
000
Unreali
zedPr ofi
tinBranchinventory………4,000
Cash(forfr
eightcharges)……………………. 1,
000

TheDavaobr
anchsel
l
s40% ofthemerchandi
setoout
sideent
it
iesdur
ingt
her
estofDecember201
6.The
booksatt
hehomeoff
iceandKathyOf
fi
ceSupplyarecl
osedonDecember31ofeachyear.

OnJanuary5,201
7,theDavaobranchtr
ansf
er'
hal
foft
heor
igi
nal
shi
pmentt
otheBagui
obr
anch,andt
he
Davaobr
anchpaysP500astheshipment
.

Atwhatamountshouldthe60% ofthemerchandiseremai
ningunsol
datDecember31 ,2016bei
ncl
udedin
(1)i
nventor
yoftheDavaobranchatDecmbr31 ,2016and(2)thepubl
ishedbal
ancesheetofKat
hyoff
ice
supplyCompanyatDecember31 ,2016showsinventor
yat:
A.(1)
P15,600(
2)P18,000
B.(1)
P17,400(
2)P15,
000
C.(1)P1
8,000(
2)P15,
600
D.(
1)P1
8,400(
2)P1
6,000

ANSWER:C
[
1]InventoryofDavaobr anchatDecember31 ,2016:
Shipmentf rom homeof f
iceatbilledpri
ce…………………………………. .P29,000
Mul t
ipli
edby:endi nginventory……………………………………………… 60%
P17,400
Add:f rei
ghtin(
1 000x60%)………………………………………………… 600
P18,000( c)
[
2]inventoryatpublished(externalreport
ing)bal
ancesheetatcost
:
Shipmentatcost ………………………………………………………………P25, 000
Mul t
ipli
edby:endi nginventory……………………………………………… 60%
P15,000
Add:freighti
n(1000x60%)………………………………………………… 600
P15,600( c)

21.Macoystart
sabranchoperat
iononJanuar y1
,201 3.I
nvent
orycost
ingP72,000isshippedt
ot hi
sbranch
atatr
ansferpri
ceofP1 00,
000.Frei
ghtisanaddit
ionalP6,
000.Thebranchsel
ls70percentoft
hisinvent
ory
forP110,
000andr emitsP70,
000i ncashtothehomeof fi
ce.OnMacoy'sfi
nanci
alst
atementsforthi
speriod,
whatappropri
ateCostofGoodsSoldfi
gure?

a.P50,
400
b.P54,
600
c.P70,
000
d.P74,
200

Answer
:b

Shipmenttobranch,atcost P72,000
Endinginvent
ory,atcost(
P72,000x30%) (21600)
Costofgoodssol d P50,400
Freight(
P6000xP50, 400/P72,000) P4,200
Total P54,600

22.PowerCorpor at
ionshi
ppedinvent
orytoit
sBacolodbranch,cost i
ngP375,000plusfr
eight.Powerbi l
l
s
i
nventor
ytoit
sbr anchesat120percentofori
ginal
cost,pl
ustheact ualamountofshi
ppi
ngchar ges.Atthe
endoftheyear,theBacolodbranchhadresol
d50per centoftheinventoryf
rom thehomeoffi
ce.Shi ppi
ng
cost
spaidbyPowerwer eP2,000.Whatamountshoul dtheinventorybereport
edinthebranch'sstatement
offi
nanci
alposit
ion?

a.P187,
500
b.P188,
500
c.P226,
000
d.P377,
000

Answer
:b

Shi
pmenttobranch,atbi
l
ledpr
ice P375, 000
Shi
ppingcost P2,000
Tot
alcost P377,000
Sol
d(50%) P1 88,500
I
nventor
y P188,500

23.Lobst
erTr
adi
ngbi
l
lsi
tsNuevaEci
j
abr
anchf
orshi
pment
sofgoodsat25% abovecost
.Al
lthecl
oseof
busi
nessonOct
ober31 ,20x6,afi
regutt
edt
hebranchwar
ehouseanddest
royed60% oft
hemer
chandi
se
st
ockstor
edt
her
ein.Theref
ore,t
hefol
lowi
ngdat
aweregat
hered:

Januar
y1invent
ory,atbi
l
ledpri
ce
Shipment
sfrom homeoffi
cetoOct.31
Notsal
estoOct.31

I
fundamagedmerchandi
ser
ecover
edar
emar
kedt
osell
forP30,000,t
heest
imat
edcostoft
hemer
chandi
se
dest
royedbyf
ir
ewas:
a.P14,
400 c.P24,000
b.21 ,
600 d.27,500

Ans:b

I
nventor
y,January1atbi l
l
edprice P 50,
000
Add:Shipmentsfrom homeof f
ice,atbil
ledpr
ice 1
30,000
CostofGoodsAvai l
ableforSal
eatbi l
ledpri
ce P1
80,
000
Divi
dedby:CostofGoodsAvai lableforsal
e
atsal
espr i
ce:
NetSales P225,
000
Add: I nventorybefor
et hefir
e:
Undamagedmer chandise P 30,
000
Di
videdby:Recover yPercent
age 40% 75,
000 300,
000
Percent
ageofBi l
l
ingPricetoSell
ingPr i
ce 60%

Est
imat
edcostofmer chandisedestr oyedbyf i
re:
Invent
orybeforethef i
reatsel l
ingpr i
ce( P30,
000/
40%) P 75,000
x:% ofdamagedmer chandise 60%
Damagedmer chandiseatsel li
ngpr ice P 45,000
x:% ofBil
l
ingPricetoSel l
ingPr ice 60%
DamagedMer chandiseatBi ll
edPr ice P 27,000
x:CostRati
o 100/125
CostofMer chandisedestroyedbyf ire P21,600

24.OnAugust31,20x6,af
ir
edestr
oyedtot
all
yther
ent
ed“
bodega”orst
ockr
oom ofAdoboCompany.The
fol
l
owingaresomeofthedat
aofthecompany:

MerchandiseInventor
y,Dec.31,20x5 P1
10,
000
Fort
heper iodJan.1–Aug.31 ,20x6:
Purchases 560,500
FreightI
n 5,
600
Purchasesr et
urns 10,
200
Sales 695,000
Salesreturnsandall
owances 7,
500

Usi
nga20% grosspr
ofi
trat
e,t
hecostoft
hemer
chandi
sel
ostinthef
ir
ewas:
a.P 90,700 c.P88,
400
b.11 5,
900 d.63,200

Ans:b
Merchandi
seinventory,1
2/31
/20x5 P1
10,
000
Add: NetPur chases
Purchases P560,
500
Add:Freight
-in 5,
600
Tot
al P566,
100
 Less:Pur
chaser etur
ns 1
0,200 555,
900
CostofGoodsAvailableforSal
e P665,
900
Less: CostofGoodsSol d:
NetSales(P695,000–P7, 500) P687,
500
x:CostRati
o 80% 550,
000
Merchandisei
nventory,8/31
/20x6
l
ossduet ofir
e P1
15,
900

25.TheLewisCo.bi
ll
smer chandiseshipmentsi
nit
sQuezonCi t
ybranchat120% ofcost.Thebranch,
i
nt ur
n,sel
lst
hemerchandiseitr
eceivesfrom t
hehomeof f
iceat20% abovethebi
ll
i
ngpr ice.OnJuly
31,2016,al
loft
hebranch’
smer chandisestockwasdest
royedbyfir
e.Thebranchrecordsthatwere
recover
edshowedthefoll
owing:

I
nvent
ory,Januar
y1,201
6(atbi
l
ledpr
ice)
……………….
. P330,
000

Shi
pment
srecei
vedf
rom homeof
fi
ce,

Januar
ytoJune(
atbi
l
ledpr
ice)
………………………. 220,
000

Pur
chases,atcost
,fr
om out
sidesour
ces
,

Al
lre-
sol
data25% mar
k-up………………………….
. 1
5,000

Sal
es………………………………………………………….
. 338,
000

Sal
esr
etur
nandal
l
owances……………………………….
.. 7,
500

TheLewisCo.wil
lfi
leani
nsur
ancecl
aim.Howmuchi
stheest
imat
edcostoft
hatmer
chandi
se
dest
royedbythefi
re?

a. P290,
792

b. P259,
792

c. P232,
166

d. P230,
166

ANSWER:(
c)

I
nvent
ory,Januar
y1,atbi
l
ledpr
ice………………………………………. P330,
000

Shi
pment
srecei
vedf
rom homeof
fi
ceatbi
l
ledpr
ice…………………… 220,
000

Costofgoodsavai
l
abl
eforsal
eatbi
l
ledpr
ice………………………….
. P550,
000

Less:Costofgoodssol
d,f
rom homeof
fi
ceatbi
l
ledpr
ice

Sal
es…………………………………………………….
. P338,
000

Less:Sal
esr
etur
nandal
l
owances
………………….
. 7,
500

Sal
espr
iceofmer
chandi
sepur
chased
 f
rom out
sider
s(P1
5,000x1
25%)
………… 1
8,750

Netsal
esofmer
chandi
seacqui
red

Fr
om homeof
fi
ce………………………………………. P31
1,750

Mul
ti
pli
edby:I
nter
companycostr
ati
o……………………… 1
00/
120 259,792

I
nvent
ory,Jul
y31
,201
6,atbi
l
ledpr
ice…………………….
. 290,
208

Mul
ti
pli
edby:Costr
ati
o………………………………………. 1
00/
120

Mer
chandi
sei
nvent
oryatcostdest
royedbyf
ir
e………….
. P232,
166

26.PascualBranchwasbill
edbyHomeOf f
iceformerchandi
seat1
40% ofcost
.Att
heendofi
tsf
ir
st
month,Pascualbranchsubmit
tedamongotherthi
ngsthefol
l
owi
ngdat
a:

Mer
chandi
sef
rom HomeOf
fi
ce(
atbi
l
ledpr
ice)
…………… P1
96,
000

Mer
chandi
sepur
chasedl
ocal
l
ybybr
anch…………………. 80,
000

I
nvent
ory,December31ofwhi
chP1
4,000ar
eof

Local
pur
chase………………………………………….
. 56,
000

Netsal
esf
ormont
h…………………………………………… 360,
000

Thebranchi
nvent
oryatcostandt
hegr
osspr
ofi
toft
hebr
anchasf
arast
hehomeof
fi
cei
sconcer
ned
are:

Gr
ossPr
ofi
t Endi
ngI
nvent
oryofBr
anchatCost

a. P1
84,
000 P1
54,
000

b. P1
84,
000 P1
76,
000

c. P1
40,
000 P1
76,
000

d. P1
54,
000 P1
40,
000

ANSWER:(
b)

Netsal
es P360,
000

Less:Costofgoodsol
d:

Pur
chases P 80,
000
 Shi
pment
sfr
om homeof
fi
ce,atcost

(
P196,
000x1
00/
140) 1
40,
000

Costofgoodsavai
l
abl
eforsal
e P220,
000

Less:I
nvent
ory,December31

[
(P56,
000–P1
4,000)x1
00/
140+1
4,000] P 44,
000 (
b) 1
76,
000

Gr
osspr
ofi
t P1
84,
000 (
b
)

27.RyderCor porat
ionhasonebr anchoperationlocated500mi lesawayf r
om thehomeof fi
ce.Thebranch
off
icesel
lsmer chandisewhichisshippedtoitfrom t
hehomeof fice.Themer chandiseistr
ansferr
edatcost
butthe branch paysr easonabl
ef rei
ghtchar ges.The branch offi
ce makessal esand i ncursand pays
operat
ingexpenses .Attheendoft hecurrentaccountingperiodt het r
ueadjustedbalancef orthehome
off
iceaccountont hebranch’sbooksandthebr anchoffi
ceaccountont hehomeof fi
ce’sbooksisP500,000.

Thefol
l
owi ngitemsmayormaynotber econcili
ngit
ems .
 Thecur rentyeari s20x4.
 Thehomeof ficehasshi ppedmer chandisetot hebr anchof fi
cewhi chcostP1 O,000andwhi ch
i
ncur sP500f reightchar gespai dbyt hehomeof ficebutchar gedtot hebr anch.Thismer chandi
seis
receivedbyt hebr anchonJanuar y5,20x5.
 Thebr anchhast ransmi tt
edP1 7,000i ncashbackt othehomeof fi
ceasapar ti
alpaymentonsuch
purchas edmer chandi se.Thi scashi sr ecei
vedbyt hehomeof f
iceonJanuar y6th,20x5.
 Thebr anchof ficer eturnssomedef ect i
vemer chandi setothehomeof fi
ce.Thecostoft heret
urned
mer chandisei sP750.Thebr anchof fi
cepaysP25off rei
ghtcostswhi chwi l
lbechar gedbackt othe
homeof fi
ce.
 OnDecember1 ,20x 4,t hehomeof f
icesendsacheckf orP25,000t or epl
enishthebr anch’
swor ki
ng
capital
.Thechecki srecei vedonJanuar y4,20x5.
 Thebr anchpaysanadver ti
singexpenseofP800t hatshouldhavebeenpai dbyt hehomeof fi
ce
sinceitappliedt oadver tisingf eesincur r
edbyt hehomeof fi
ceforit
sownbenef i
t.
 Thehomeof ficeal l
ocatedP1 2,000ofgener alandadmi ni
str
ati
veexpensest othebranch.Thebr anch
hadnotent eredt heallocat ionasoft heendoft heyear .
 Thehomeof ficepaysi nsur ancepr emi umsont hebr anchstore.Theamountpai dbyt hehomeof fi
ce
i
sP1 ,
000butt hebr ancher roneousl yrecordsItasP776. 00
Computet heunadj ustedbal ancesf ort hebranchandhomeof f
iceaccountsasofDecember31 ,20x4.

HomeOffi
ceCurr
ent Br
anchCur r
ent
a. P481,
425 P433,701
b. P500,000 P500,000
c. P452,276 P51
8,575
d. P518,575 P452,276

ANSWER:C

HomeOffi
ceBooks Br
anchBooks
(
BranchCur
rent-Dr
.Bal
) (
HomeOf
ficeCurr
ent-Cr
.Bal
)
Unadj
ustedbal
ance( SQUEEZED) P518,
575 P452,
276
Add(deduct
)adjust
ments:
 I
nt ransi
t 1
0,500
Remi tt
ance (
17,
000)
Returns ( 775)
Cashi ntransi
t 25,
000
Expenses-HO ( 800)
Expenses-Br anch 12,
000
Error 224
Adj
ustedbal ance P500,
000 P500,
000

28.AtDecember31 ,20x5,thefol
l
owingi
nfor
mati
onhasbeencol
l
ect
edbyMaxwel
lCompany'
sof
fi
ceand
branchf
orreconci
l
ingthebranchandhomeoffi
ceaccount
s.

 Thehomeof f
ice'sbranchaccountbal anceatDecember31 ,20x5i sP590,000.Thebr anch’shome
offi
ceaccountbalancei sP506, 700.
 OnDecember30,20x5,t hebr anchsentacheckf orP40,000t ot
hehomeof fi
cetosettl
eitsaccount.
Thecheckwasnotdel iveredtot hehomeof ficeunti
lJanuar
y3,20x6.
 OnDecember27,20x5,t hebr anchr eturnedP1 5,
000ofseasonal merchandisetothehomeof f
icefor
theJanuaryclearancesal e.Themer chandisewasnotr eceivedbythehomeof f
iceunti
lJanuar y6,
20x6.
 Thehomeof f
iceallocatedgener alexpensesofP28, 000tothebranch.Thebr anchhadnotent ered
theall
ocat
ionattheyear -end.
 Branchstoreinsurancepr emiumsofP900wer epaidbyt hehomeof f
ice.Thebr anchrecordedt he
amountatP600.
Thecor
rectbal
anceofther eciprocalaccountamount edt
o:

a.P575,
000
b.P535,
000
c.P534,
700
d.P501,
000

ANSWER:B
HomeOf f
iceBooks Br
anchBooks
(
BranchCurrent-Dr
.Bal
) (
HomeOf
fi
ceCurr
ent-Cr
.Bal
)
Unadj
ustedbalance P590,000 P506,
700
Add(deduct)adjustments:
Remi t
tance (
40,000)
Returns (
15,
000)
Errorbythebr anch 300
Expenses-Br anch 28,000
Adj
ustedbalance P535,
000 P535,000

29.Tar
lacBranchofQuezonCi
tyCompany,att
heendofi
tsf
ir
stquar
terofoper
ati
ons,submi
tt
edt
he
fol
l
owingstatementofcompr
ehensi
vei
ncome:

Sal
es P300,
000

Costofsal
es:

Shi
pment
sfr
om HomeOf
fi
ce P280,
000
 Local
Pur
chases 30,
000

Tot
al P31
0,000

I
nvent
oryatend 50,
000 260,
000

Gr
ossMar
ginonSal
es P40,
000

Expenses 35,
000

Compr
ehensi
veI
ncome P5,
000

Shipment
stotheBranchwerebil
l
edat140% ofcost.Thebranchinvent
oryasatSeptember30
amountedtoP50,000ofwhichP6,600wasl
ocall
ypur chased.Markuponlocal
purchasesi
s20%
overcost
.Branchexpensesi
ncur
redbyHeadOf f
iceamount edtoP2,500.

OnSeptember30,theinventor
yatcostandt
heneti
ncomer
eal
i
zedbyt
hehomeof
fi
cef
rom t
he
Tar
lacbranchoper
ati
onar e:

Br
anchi
nvent
oryatcost Neti
ncomer
eal
i
zed

a. P37,
600 P72,
600
b. P50,
000 P55,
000
c. P31
,600 P5,
000
d. P37,
600 P70,
100

Answer
:D

Acqui
redf
rom HomeOf
fi
ce:

Bi
l
ledpr
ice(
P50,
000-
P6,
600) P43,
400

Di
vi
debybi
l
li
ngper
cent
ageoncost 1
40% P31
,000

Local
Pur
chases 6,
600

Br
anchi
nvent
oryatcost(
Sept
ember30) P37,
600

Br
anchneti
ncome(
P5,
000-P2,
500expenses
) P2,
500

Add:Over
val
uat
ionofBr
anchCostofSal
es:

Shi
pmentf
rom HomeOf
fi
ce:

Bi
l
ledpr
ice P280,
000

Cost(
P280,
000/
140%) 200,
000 P80,
000

Less:I
nvent
oryend
 Bi
l
ledpr
ice(
P50,
000–P6,
600) P43,
400

Cost(
P43,
400/
140%) 31
,000 1
2,400 67,
600

Br
anchneti
ncomer
eal
i
zedbyHomeOf
fi
ce P70,
100

30.NarizaCompanyopeneditsTuguegaraobranchonJanuar y1.Merchandi
seshi pmentsf
rom
homeof fi
ceduri
ngthemonth,bi
ll
edat1 20% ofcost
,isP1 25,000.Br
anchr et
urneddamaged
merchandisewort
hP15,620.OnJanuary31,thebranchr eportedanetlossof(P2,270)andan
I
nventoryofP84,
000.Whatisthenetincome( l
oss)ofthebr anchtobetakenupi nthebooksofthe
HomeOf fi
ce?
a. (P1,690)
b. P6,500
c. (P2,270)
d. P1,960

ANSWER:D
Rat
ionale
Netincome( loss)perbranchbooks P(
2,270)
Add:Real i
zedpr of
itf
rom salemadebybr anch/
Over valuationofcostofgoodssol d:
Begi nningInventory P -
Add:Shi pment s 125, 000
Less:Ret ur
ns 1 5,
620
Costofgoodsavai l
ableforsaleatbi
ll
edpri
ce P1 09,380
Less:Endi ngInventory,atbil
l
edpr i
ce 84,000
Cos tofgoodssol datbill
edpr i
ce P25, 380
Multi
pliedby:Mar k-up 20/1 20
AdjustedBr anchNetI ncome P1 ,
960

31.TheZGCor p.establ
i
shedi t
sBul acanBranchinJanuary2016.Duri
ngit
sfir
styearofoperat
ions,
homeof f
iceshi
ppedt oit
sBulacanbr anchmer chandi
sewor t
hP130,000whichincl
udedamar kupof
15% oncost.Sal
esonaccountt ot
all
edP250, 000whil
ecashsalesamountedtoP80, 000.Bul
acan
repor
tedoperati
ngexpensesofP38, 000andendi ngi
nventor
yofP15,000,atbil
l
edpr i
ce.I
nsof aras
thehomeof f
iceisconcerned,therealneti
ncomeofBul acanis:
a. P82,000
b. P147,000
c. P177,000
d. P192,000

ANSWER:D
Rational
e
Sales(P250,000+P80, 000) P330,
000
Less:Costofgoodssold:
Shipmentsfr
om off
ice P130,000
Less:Endi
ngInvent
ory 15,000
Costofgoodssoldatbil
ledpr
ice P115,000
Multi
pli
edby:Costrat
io 100/115 1
00,
000
 GrossPr of
it P230,000
Less:Operati
ngExpenses 38,
000
NetIncomeoft hebranchinsofarast
he
Homeof f
iceisconcer
ned P1
92,
000

32.Sel ectedaccount sf r
om theDecember31 ,
2016t
ri
albalanceofSarangTr
adi
ngCo.Andi
t’
sBagui
o
Branchf ollow:
Debi t
s Mani l
a Bagui oBranch
I
nvent ory,Januar y1,2016 P25,000 P1 1,
550
Bagui obranch 58,300 -
Purchases 200,000 105,000
Freightinf rom homeof f
ice - 5,500
Expenses 40,000 27,500
Credits
Homeof f
ice P - P 53,300
Sales 160,000 150,000
Salestobr anch 110,000 -
All
owancef orovervaluati
onof
br
anchi nvent
oryatJan.1 ,
2016 1,
000 -

Addi t
ional I
nf ormat ion:
1. TheBagui oCi t
ybr anchgetsal lofitsmerchandi sefrom thehomeof f
ice.Thehomeof f
icebil
l
sthe
goodsatcostpl usa1 0% mar k-up.AtDecember31 ,
201 6ashi pmentwi thabill
edamountofP5,000
wasst il
li
nt ransi t
.Freightont hisshi pmentwasP300andi stobet r
eat edaspartoft
heinventor
y.
2. Invent ori
esonDecember31 ,201 6,excludingtheshi pmenti ntransi
t,foll
ow:
Homeof fi
ce,atcost P30,000
Br anch.Atbi ll
edprice( excludingfrei
ghtofP520) 10,
000
Comput et he( 1)neti ncomeoft hehomeof ficefr
om ownoper ati
ons,and( 2)t
heneti ncomeofthebranchin
sofarashomeof f
icei sconcer ned.
a. ( 1)
P25, 000;( 2)P 770
b. ( 1)
P20, 000;( 2)P1 0,470
c. ( 1)
P20, 000;( 2)P 770
d. ( 1)
P25, 000;( 2)P20, 970
SOLUTI ON:
ANS:D
(1)Neti ncomeoft hehomeof ficef rom ownoper ations:
Sales P160,000
Less:Costofgoodssol d:
Invent ory,Januar y1 ,
201 6 P 25,000
Add:Pur chases 200, 000
Costofgoodsavai lableforsale P225,000
Less:Shi pment stobr anchatcost 100,000
Costofgoodsavai lableforhomeof fi
ce
Sal e P125,000
Less:i nvent ory,December31 ,201 6 30,000 95, 000
GrossPr ofit P65, 000
Less:Expenses 40,000
NetI ncome P25, 000
(2)Tr ueBr anchI ncome:
Sales P1 50,000
Less:Costofgoodssol d:
Invent ory,Jan. 1,201 6,atcost
(P11 ,
550- P1 ,
000mar k-up) P1 0,550
 Add:Pur chasesf rom homeof fi
ce,atcost
(P105,000+P5, 000i ntr
ansit)x
100/110 1
00,
000
Frei
ght- I
n( P5,500+P300f r
eight-
in
t
ransit
) 5,
800
Costofgoodsavai lableforsale P11
6,350
Less:I
nvent or
y,Dec.31 ,2016,atcostfrom
HomeOf f
ice:(
P1 0,400+P5, 000)
X1 00/1
10 P14,000
Add:Fr ei
ght -I
n(P520+P300) 820 1
4,820 1
01 ,
530
GrossPr ofi
t P 48,470
Less:Expenses 27,500
NetIncomeoft hebr anchi nsof arasthe
HomeOf f
iceisconcer ned P 20,
970

33.OnDecember31 ,201 6,theI nvestmenti nBr anchaccountont hehomeof fi

ce’sbookshasabal anceof
P175,000.I nanal yzingt heact ivityineachoft heseaccount sforDecember ,youfindt hefoll
owi ngdifferences:
1. AP1 4,000br anchr emittancet ot hehomeof ficeinit
iatedonDecember28, 201 6,wasr ecordedont he
homeof ficebooksonJanuar y2,201 7.
2. Ahomeof fi
cei nvent oryshi pmentt ot hebranchonDecember27, 201 6wasr ecordedbyt hebr anch
onJanuar y4, 201 7;thebi l
li
ngofP26, 000wasatcost .
3. Thehomeof f
icei ncurredP1 3,
500ofadver t
isingexpensesandal locat edP5, 500oft hisamountt o
thebr anchonDecember1 5,201 6.Thebr anchhasnotr ecordedthist r
ansact i
on.
4. Abr anchcust omerer roneousl yr emi t
tedP3, 600t othehomeof fi
ce.Thehomeof fi
cer ecordedt his
cashcol lect i
ononDecember23, 201 6.Meanwhi l
e,backatt hebranch,noent ryhasbeenmadeyet .
5. I
nvent orycost ingP51 ,
600wassentt othebr anchbyt hehomeof ficeonDecember1 1,201 6.The
bil
l
ingwasatcost ,butt hebr anchr ecordedt het r
ansact i
onatP40, 800.
Comput ethebal anceasofDecember31 ,201 6:
Unadj ust edBal ance Adjusted
OfTheHomeOf f
iceAccount Bal anceOfTheReci procal Account
a. P84, 300 P143,000
b. P1 22, 300 P 96, 000
c. P1 51,200 P139, 200
d. P1 22, 300 P161,000
Soluti
on:
ANS:D
I
nvest mentin HomeOf f
ice
BranchAccount Current
Unadjustedbal ance( s),December31 ,
201 6 P1 75,000 P122,300*
Add( deduct );adj ustment s:
1. Branchr emi ttancenotyetr ecordedby
thehomeof fi
cei n201 6 (14,000)
2. Shipment snotyetr ecor dedbyt he
Branchi n201 6 26,000
3. Unr ecor dedbr anchexpenses 5,500
4. Branchcust omer s’remittancer ecor ded
byt hehomeof fi
cenutnotyetr ecor ded
byt hebr anch (3,600)
5. Erroneousr ecor di ngofbr anchshi pment s
(P51 ,600–P40, 800) 10,800
AdjustedBal ance( s)December31 ,2016 P161,000 P161,
000

*
TheP52,
800i
scomput
edbysi
mpl
ywor
kingbackwi
thP90,
000adj
ust
edbal
anceast
hest
art
ingpoi
nt

34.NuevaEci
j
aBranchofMal
abonCompany,att
heendofi
tsf
ir
stquar
terofoper
ati
onshast
hef
oll
owi
ng
i
ncomestat
ement
:
Sal
es..
..
..
..
...
..
...
..
...
..
..
..
...
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
...
.. P650,
000
CostofSales:
Shipment sfrom HomeOf fi
ce...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P285,000
LocalPurchases. .
..
..
...
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..50,000

Tot
al.
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P335,000
I
nventoryend..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 80,
000 255,
000

Grossprof
itonsales.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. P395,
000
Expenses.
..
..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. 1
50,000

NetI
ncome.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
. P245,
000

Shi
pment st
ot hebranchwer ebi
ll
edat140% ofcost
.Thebr
anchi nvent
oryatSeptember30amount
edto
P50,000ofwhi chP6, 600wasl ocal
lypur
chased.Mar kuponl ocalpurchases,20% overcost
.Br
anch
expensesincurr
edbyheadof f
iceamountedtoP2, 500notyetrecordedbyt hebr anch.I
nthecombi
ned
i
ncomest atement,tr
uebr anchneti
ncome:

A.
P245,
000
B.
P314,
029
C.
P311,
529
D.
P314,
029

Answer
:C

Branchnetincomeasr epor
ted.
..
..
..
..
...
..
..
...
..
..
...
..
..
..
...
..
...
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.P245,
000
Add(Deduct):
Overval
uati
onofcostofgoodssol d/reali
zedpr ofi
t
Fr
om salesmadebybr anch:
Shipment sfr
om homeof fi
ce...
..
..
...
..
..
...
..
..
...
..
.P285,000
Less:Endinginvent
ory,
atbil
ledprice
(50,000-6600)..
..
..
..
..
..
...
..
..
..
...
..
..
..
...
..
...
..
..
.43,400

Costofgoodssoldfrom homeof f
iceat
Bi
ll
edprice.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
...
..
..
..
..
..
P241 ,
600
Multi
pli
edby:Mark-up..
..
..
..
..
..
..
..
..
...
..
..
..
..
..
..
..
.40/140 69,
029
Unr
ecordedbranchexpenses..
..
..
..
..
..
..
...
..
..
..
..
..
..
..
..
..
..
..
...
..
. (2,
500)

Tr
ueBr
anchNetI
ncome.
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
..
.. P31
1,529(
C)

i
.35.Whi
chrepresent
stheproperj
our
nalentr
yforaper
iodi
cinvent
orysyst
em t
hatshouldbemadeont he
booksofthehomeof f
icewhengoodsthatcostt
hehomeoffi
ce$100,000tomanufactureareshi
ppedtoa
branchatatr
ansferpr
iceof$125,
000andthebill
edpr
icei
snotrecordedi
ntheshi
pment stobranchaccount
?

A. Br
anchof
fi
ce $1
00,
000

Shi
pment
stobr
anch $1
00,
000
 B. Br
anchof
fi
ce $1
25,
000

Shi
pment
stobr
anch $1
25,
000

C. Br
anchof
fi
ce $1
25,
000

Shi
pment
stobr
anch $1
00,
000

Unr
eal
i
zedpr
ofi
t 25,
000

D. Shi
pmentt
obr
anch $1
00,
000

Unr
eal
i
zedpr
ofi
t 25,
000

Shi
pment
sfr
om homeof
fi
ce $1
25,
000

i
i
36.Whichrepr
esentst
heproperj
ournalent
ryf
oraper
iodi
cinventor
ysyst
em t
hatshoul
dbemadeonthe
booksofthebranchwhengoodsthatcostt
hehomeoff
ice$100,000tomanuf
acturear
eshi
ppedt
othe
branchatapri
ceof$125,
000?

A. Shi
pment
sfr
om homeof
fi
ce $1
00,
000

Homeof
fi
ce $1
00,
000

B. Shi
pment
sfr
om homeof
fi
ce $1
25,
000

Homeof
fi
ce $1
25,
000

C. Shi
pment
sfr
om homeof
fi
ce $1
25,
000

Unr
eal
i
zedpr
ofi
t $25,
000

Homeof
fi
ce 1
00,
000

D. Shi
pment
stobr
anch $1
00,
000

Unr
eal
i
zedpr
ofi
t 25,
000

Shi
pment
sfr
om homeof
fi
ce $1
25,
000
i
. 35.REQUIRED:Thehomeof f
icejournalentrytoref l
ectmer chandiseshipment satcostpl usamar kup.
DISCUSSION:( C) Whengoodsar es hi
ppedf rom ahomeof f
icet oabr anchatat r
ansferpr i
cet hat
ref
lect
soriginalcostplusamar kup,t hebranchmus trecordtheshipmentatt hetransferprice.Thehome
off
icemostof t
enr ef
lectst heshipment stobr anchator i
ginalcost.Tomai ntai
nar eciprocalrel
ationship
betweent hehomeof fi
ceandt hebranchof f
iceaccount s,anunr ealizedpr ofi
tinbr anchi nventories
accountrefl
ectsthemar kup.
Answers( A)and( B)arei ncorrectbecausenei therr efl
ectstheunr eali
zedpr ofi
t.Answer( A)isincorrect
because the branch of fi
ce shoul d be recorded at$1 25,000. Answer( B)i sincorrectbecause t he
shipment
st obr anchshoul dber ecordedator i
ginal costof$1 00,
000. Answer( D)isincorrectbecausei t
i
st hewor ksheetent r
ynecessar ytoeli
mi natet hi
si nt
ercompanyt ransact
ioni nthepr eparati
onoft he
fi
nanci
alstatement s.
Answer()isincorrectbecause
i
i
. 36.REQUI RED:Thej ournalentr
yont hebr anchbookst or efl
ectther eceiptofmer chandiseshipmentsat
atransferpri
cet hatrefl
ectscostplusamar kup.
DISCUSSI ON:(B)I naper i
odicsystem,whenmer chandiseisr eceivedbyabr anchf rom thehomeof fi
ce,
themer chandiseshoul dber ef
lectedasashi pmentf r
om t hehomeof f
icei nt heamountoft hetr
ansfer
pri
ce,wi t
hacor respondingent r
ytot hehomeof ficeaccountt oindicatet heequi tyofthehomeof f
icein
thenetassetsoft hebr anch.
Answer( A)isincor rectbecauset heshipment sshouldber efl
ectedatt het ransferpri
ce.Answer( C)is
i
ncorrectbecause t he home of fi
ce equityshould be refl
ect ed att he transf erpri
ce. Ans wer( D)is
i
ncorrectbecause i tist he worksheetent ryused to eli
mi natet hisint ercompanyt ransact
ion i
nt he
preparati
onoft heent erpri
se’
sfinancial
statements.

37.Agai
nshoul
dber
epor
tedonanacqui
si
ti
oni
f:

a.Thefairval
ueoft heconsiderati
onpaidislessthanthebookval ueoft
henetassetsacquired.
b.Thefairval
ueoft heconsiderati
onpaidplusthepr esentval
ueofanyearningsconti
ngencyislesst
han
t
hebookvalueoft henetassetsacquired.
c.Thefairval
ueoft heconsiderati
onpaidislessthanthefairval
ueofnetassetsacquir
edplusthefai
r
valueofidenti
fi
abl
ei nt
angiblesacquir
ed.
d.Thefai
rvalueoftheconsi derat
ionpaidplusthepresentvalueofanyearni
ngscontingencyisl
essthan
thefai
rvalueofidentif
iabl
enetassetsacquired.

ANS:D

38.Inaccountingforbrancht ransacti
ons,itisimpr
operforhomeof f
iceto,
A.Creditcashreceivedfrom abr ancht otheinvest
mentinBranchledgeraccount.
B.Maintaincommonst ockandr etai
nedear ningsl
edgeraccountsf
oronlythehomeoffi
ce
C.Debitshipmentsofmer chandisetothebr anchfrom t
hehomeof fi
cetotheInvest
mentinBr
anchLedger
account.
D.Creditshipmentsofmer chandisetothebr anchtothesal
esledgeraccount.
Answer:D

39.Aca,Inc.hasseveralbranches.Goodscosti
ngP1 0,000wer etr
ansfer
redbytheheadoffi
ceto
CebuBr anchwi t
ht helat
terpayi
ngP600f orf
reightcost.Subsequent
ly,t
heheadoffi
ceauthori
zed
CebuBr anchtotransferthegoodstoDavaobr anchforwhi chthewasbill
edf
ottheP10,000costof
thegoodsandf reightchargeofP200f ort
hetransfer
.Iftheheadoffi
cehadshippedthegoods
di
rect
lyt
oDavaobranch,t
hef
rei
ghtchar
gewoul
dhavebeenP700.TheP1
00di
ff
erencei
nfr
eight
costwoul
dbedi
sposedofasfol
l
ows:

a.Consider
edassavi
ngs
b.ChargedtoCebuBranch
c.ChargedtoDavaoBranch
d.Chargedtot
heHeadOf fi
ce

ANS:D

I
nar ri
vingatthecostoft hemer chandisei nventoryattheendoft heperiod,fr
eightcharges
areproper l
yrecogni zedaspartapar tofthecost .Butabr anchshouldnotbechar gedwith
excessivefreightchargeswhen,becauseofi ndir
ectrouting,excessivecostareincurred.
Undersuchci rcumstances,t
hebr anchacqui r
ingthegoodsshoul dbechar gedf ornomor e
thanthenor mal fr
eightfr
om theusual shippingpoi nt
.Theof f
icedir
ecti
ngt heint
erbranch
transf
ersarer esponsibl
efortheexcessivecostshoul dabsor btheexcessasanexpense
becaus eitrepresentsmanagementmi stakesori neff
iciencies.

40.
JayhawkCompanyhasnumer ousbranchesinthestateofKansas.Thehomeoffi
cepurchases
merchandiseandmakesshi
pmentst
obr anchesfr
om acent r
alwarehouseatther
equestofbranch
managers.Whichoft
hefoll
owi
ngwouldbeani mpr operaccount
ingpract
ice?

a. TheI nvest
mentinBranchledgeraccounti
sdebi
tedi
ntheaccount
ingrecor
dsofthehomeof f
ice
whenmer chandi
sei
sshi ppedtoabranch,andt
heShipment
stoBranchaccounti
scredi
ted
(assumeuseoft heperiodi
cinvent
orysyst
em).
b. Thehomeof
fi
cedebit
sTr
adeAccount
sRecei
vabl
eandcr
edi
tsSal
eswhenmer
chandi
sei
s
shi
ppedt
oabranch.
c. Cashr
ecei
vedf
rom abr
anchi
scr
edi
tedt
otheI
nvest
menti
nBr
anchl
edgeraccountbyt
hehome
of
fi
ce.
d. Onlythehomeof
fi
cemai
ntai
nsaCommonSt
ockl
edgeraccountandaRet
ainedEar
nings
account.
Answer
:B