POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY AND FINANCE

ACCO 3083 ADVANCED ACCOUNTING 2 MIDTERM EXAMINATION
2nd SEMESTER / AY 2017-2018

Instructions: Choose your best answer and shade the letter of your choice in the answer sheet provided. Erasures are
not allowed. Show all supporting computations in the worksheet provided. Always observe HONESTY during the
examination. Any form of cheating is equivalent to 5 on the final rating. GOODLUCK!!!— from GSJ+GC+JB., January
2017

1. PFRS 3 – Business Combinations does not apply to which of the following?

I. Formation of a joint arrangement.

II. Combination of entities or businesses under common control.
III. Acquisition of an asset or a group of assets that constitute a business.
IV. Acquisition by an investment entity of an investment in a subsidiary
V. Not-for-profit organizations.

a. I, II and III b. I, II, III and c. I, II, III and V d. I, II, III, IV
only IV only only and V

2. Group A has acquired the following. Which of the following acquisitions are business combinations under IFRS 3?

A. Land and a vacant building from Company B. No processes, other assets or employees are acquired.
Group A does not enter into any of the contracts of Company B.
B. An operating hotel, the hotel’s employees, the franchise agreement, inventory, reservations system and
all “back office” operations.
C. All of the outstanding shares in Biotech D, a development stage company that has a license for a
product candidate. Phase I clinical trials are currently being performed by Biotech D employees. Biotech
D’s administrative and accounting functions are performed by a contract employee.

a. All three acquisitions are business combinations under PFRS 3.

b. A and B acquisitions are business combinations under PFRS 3.
c. A and C acquisitions are business combinations under PFRS 3.
d. B and C acquisitions are business combinations under PFRS 3.

3. Under PFRS 10, what factor/s should an investor consider in assessing whether it has de facto control over an
entity?

a. Voting patterns at future shareholders meetings

b. Size of the investor’s holding of voting rights relative to the size of dispersion of other vote holders
c. Non-voting rights held by the investor or other vote holder
d. All of the above.

4. HFR Ltd. has a 12% holding in the shares of ABC Ltd. In addition, HFR has, through one of its subsidiaries, an option
to buy 13% more shares in ABC. Although the exercise price is in the money, HFR does not have the intention and the
financial ability to exercise this option.
a. A subsidiary b. An Associate c. A Joint Arrangement d. None of these categories

5. Entity A acquired Entity B. On the acquisition date, Entity B had an operating lease as a lessee with a remaining
period of two years out of the original four years. Due to significant changes in the market, Entity B is paying less than
what you would expect to currently pay for a similar lease. The value of the existing lease based on the current terms
is 10,000 and that of a lease based on relative market terms is 13,000. How should Entity A account for this?

a. Entity A should disregard this, as this is an operating lease of Entity B and no asset or liability is
recognized related to operating leases.
b. Entity A determines whether the terms of each operating lease in which Entity B is the lessee are
favorable or unfavorable. Entity A should account for the difference between the value of the existing
lease terms and the market terms in profit or loss.
c. Entity A determines whether the terms of each operating lease in which Entity B is the lessee are
favorable or unfavorable. Entity A should recognize an intangible asset separate from goodwill for the
favorable portion of the operating lease relative to market terms.
d. None of the above.

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6. Binfathi Group acquired an 80% interest in Entity B. The consideration for the 80% interest in Entity B was P36,000
in shares in Binfathi and P12,000 in cash. To issue the shares, Binfathi incurred a cost of P2,000 and incurred costs
of P1,400 associated with legal fees and the valuation of Entity B. The fair value of the net assets of Entity B
amounted to P64,000. How should Binfathi account for this acquisition?

a. Binfathi shall book a gain (negative goodwill) through profit or loss of 3,200 related to the acquisition,
recognize expenses of 1,400 and deduct from equity 2,000 relative to the cost of issuing the shares.
b. Binfathi shall book goodwill as an asset of 200.
c. Binfathi shall book a gain (negative goodwill) through profit or loss of 1,200 and recognize the costs of
legal fees of 1,400 as expenses in profit or loss.
d. Binfathi shall book a gain (negative goodwill) though profit or loss of 3,200 and recognize expenses of
3,400, relative to the costs of issuing shares, paying legal fees and performing the valuation of Entity B,
in profit or loss.

7. The consideration transferred in the business combination was P55,000. Transaction costs amount to P1,000. The
fair value of the acquiree’s net assets at the acquisition date was P63,000. The acquirer has not yet decided
whether to measure the 20% non-controlling interest (NCI) in the acquiree at the NCI’s proportionate share of the
fair value of the acquiree’s net assets, which is P12,600, or at the NCI’s fair value, which is P13,000. Does the
choice of measuring the NCI impact the determination of goodwill at the acquisition date?
a. No, the accounting policy choice for NCI does not impact goodwill at the acquisition date.
b. Yes, it does. If the acquirer values the NCI at its proportionate share of the fair value of the acquired
business, the goodwill amounts to P4,600; if the acquirer values the NCI at its fair value, then the
goodwill amounts to P5,000.
c. Yes, it does. If the acquirer values the NCI at its proportionate share of the fair value of the acquired
business, the goodwill amounts to P5,600; if the acquirer values the NCI at its fair value, then the
goodwill amounts to P6,000.
d. No, it does not. However, the accounting policy choice for NCI impacts the fair value of the acquiree’s
net assets. If the acquirer values the NCI at its proportionate share of the fair value of the acquired
business, the acquiree’s net assets amount to P63,000; if the acquirer values the NCI at its fair value,
then the acquiree’s net assets amount to P63,400.

8. Entity A had several business acquisitions during the reporting period and after the reporting period. Entity A will
disclose, among other information, the following:
 The name and a description of the acquire
 The acquisition date
 The percentage of voting equity interests acquired
 The primary reasons for the business combination and a description of how the acquirer obtained control
of the acquiree

a. These disclosures shall be done for each business combination that occurred in the reporting period only,
but are not required for business combinations that occurred after the end of the reporting period.
b. These disclosures shall be done for each material business combination that occurred both in the
reporting period and after the end of the reporting period, but before the financial statements are
authorized for issue. The information is disclosed in aggregate for individually immaterial business
combinations.
c. These disclosures are optional for each business combination that occurred both in the reporting period
and after the end of the reporting period, but before the financial statements are authorized for issue.
d. These disclosures shall be done for each business combination that occurred both in the reporting period
and after the end of the reporting period, but before the financial statements are authorized for issue.

9. Entity A acquired Entity B, which is a material business combination, during the reporting period. Among the assets
acquired, trade accounts receivable were provisionally accounted for at fair value of 1,736. Which of the following
information shall be provided additionally to the fair value amount of the trade accounts receivable? Select all that
apply.
I Entity A does not need to disclose any further information.
II Entity A must disclose that the fair value of the accounts receivable was determined provisionally.
III Entity A must disclose the nominal value of the accounts receivable.
IV Entity A must disclose the amount of the contractual cash flows that it does not expect to collect.

a. I, II, III b. I, II and c. II, III and IV d. I and II only

and IV III only only

10. The goodwill resulting from the acquisition of Entity C by Entity B amounts to 50,000. Which disclosures does
Entity B provide relating to the goodwill? Select all that apply.

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 I. Entity B shall describe the factors that make up the goodwill to be recognized.
II. Entity B shall disclose the total amount of goodwill deductible for tax purposes.
III. Entity B shall disclose the amortization period of goodwill for tax purposes.

a. I, II and b. I and II c. I and III d. I only

III only only

11. Which of the following statements is/are TRUE?

a. According to PFRS #3: Revised, cost directly attributable in effecting the business combination (e.g.
finders’ fee and other direct cost) must be “expensed as incurred”.
b. Gain on bargain purchase (gain on combination) is immediately recognized in the Profit or Loss of the
acquirer if the consideration transferred is less than the fair value of assets acquired.
c. IFRS 3 (Revised) is applied prospectively to business combinations occurring in the first accounting
period beginning on or after 1 July 2009. It can be applied early but ONLY to an accounting period
beginning on or after 30 June 2007. IFRS 3 (Revised) and IAS 27 (Revised) are applied at the same
time. Retrospective application to earlier business combinations is permitted.
d. Transaction costs directly related to the issue of debt instruments are deducted from the fair value of
the debt on initial recognition and are amortized over the life of the debt as part of the effective
interest rate. Directly attributable transaction costs incurred issuing equity instruments are recycled in
the PnL.
e. All of the above

12. Which of the following statements is/are FALSE?

a. PFRS #10 uses control as the single basis for the preparation of the parent of the consolidated financial
statements.
b. The non-controlling interest (NCI) should be presented in the consolidated statement of financial position
within equity, but separate from the parent’s shareholders’ equity.
c. In a stock acquisition, after reassessment, any remaining gain on bargain purchase (discount on acquisition)
is immediately recognize in the profit or loss of the acquirer (parent).
d. The business combination must involve the acquisition of a business, which generally has three elements –
Inputs, Process and Output.
e. None of the above.

13. If an investment ceases to fall within the definition of a subsidiary, it should be accounted for as
a. Associate under PAS 28
b. Joint arrangement under PFRS 11
c. Fair value investment under PAS 39
d. Any of the above as appropriate
e. Either a or c

14. The SEC defines an SME for financial reporting purposes as an entity: (choose the incorrect response)
a. That is not a public utility.
b. That is not a holder of a secondary license issued by a regulatory agency
c. With total assets of between P3 million and P350 million or total liabilities of between P3 million and P250
million
d. That is in the process of filing its financial statements for the purpose of issuing any class of instruments in
a public market

15. The SEC has approved the exemption from the mandatory adoption of the Philippine Financial Reporting
Standard for Small and Medium-sized Entities (PFRS for SMEs) SMEs that meet certain criteria. Which of the
following is most likely to use PFRS for SME?
a. It is a subsidiary of a parent company reporting under the full PFRS
b. It has a subsidiary that is mandated to report under the full PFRS
c. It has concrete plans to conduct an initial public offering within the next two years
d. It has long-term projections that show that it will breach the quantitative thresholds set in the criteria for an
SME
e. It has been preparing financial statements using full PFRS and has decided to liquidated its assets

16. Two companies (A and B) set up Happy Joint Venture Company. The companies sign a joint operating agreement.
The Board contains three directors from each company. The Joint Operating Arrangement (JOA) set up an
Operating Committee which is the main decision making body of the company and contains three representative
from each company. Decisions are made by simple majority. In the event of a deadlock, the Chairman of the
Committee (a director of company B) has the casting vote. The JOA specifies each party must contribute 50%
funding to the arrangement, is entitled to 50% of the output produced, and on liquidation would be entitled to
50% of the assets and liable for 50% of the liabilities. Which of the following is CORRECT?

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 a. Company B does not have control over Happy Joint Venture Company.
b. Company B has control over Happy Joint Venture Company.
c. Neither Company A nor Company B has control over Happy Joint Venture Company because there is a “joint
control”.
d. Company A has control over Happy Joint Venture Company.

17. Goodwill arising from business combination is (applying the PFRS for SME)
a. Charged to Retained Earnings after the acquisition is completed
b. Amortized over 10 years in the absence of its useful life
c. Amortized over 10 years or its useful life, whichever is shorter
d. Never amortized but tested for Impairment
e. At the discretion of management, either tested for impairment or amortized.

18. Which of the following is CORRECT?

a. The parent and the subsidiary always share in the impairment loss on goodwill for the purpose of determining
the consolidated net income
b. When the fair value of acquiree’s (subsidiary) inventory is higher than its book value on the date of acquisition,
the elimination entry at the end of the period will have a decreasing effect in the reported profit of the parent
from its own operation.
c. In business combination achieved in stages, the acquirer should measure its previously recognized equity interest
in the acquiree at fair value on the date of subsequent purchase
d. The declaration of dividend of a wholly owned subsidiary will reduce the equity of non-controlling interest
e. All of the above.

19. How is the portion of consolidated net income to be assigned to non-controlling interest in consolidated
financial statements determined?

a. The net income of parent is subtracted from the subsidiary’s net income to determine the NCI
b. The subsidiary’s net income, as adjusted, is extended to NCI
c. The amount of subsidiary’s net income, as adjusted, is multiplied by non-controlling’s percentage ownership
d. The amount of consolidated net income, as adjusted, is multiplied by the non-controlling’s percentage ownership

20. The working paper elimination entry for dividends declared by a wholly subsidiary includes a debit entry to:

a. Dividends
b. Non-Controlling Interest
c. Dividend Income
d. Both b and c

21. Prosperity Company holds 45% of the voting rights of MNO Co. Eleven other shareholders each hold 5% of the
voting rights. None of the shareholders has contractual arrangement to consult any of the others or make collective
decisions. Which of the following is true regarding the above situation? (select the best answer)

a. Prosperity has power over MNO Co. because its holding is sufficient rights to give power.
b. Prosperity does not have power over MNO Co. because its holding is not sufficient rights to give power.
c. The 45% interest above is presumed to have a de-facto control over MNO Co.
d. Prosperity does not power over MNO because it holds only protective right.

22. Activities of the investee that significantly affect the investee's returns is called _____________

a. Operating Activities
b. Major Activities
c. Relevant Activities
d. Inter-company Transactions

23. Investment Entity is:

a. an entity obtains funds from one or more investors for the purpose of providing those investor(s) with
investment management service
b. commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation,
investment income, or both
c. measures and evaluates the performance of substantially all of its investments on a fair value basis
d. all of the above

24. A revised version of IFRS 3 was issued in _____________ and applies to business combinations occurring in an
entity's first annual period beginning on or after ____________.

a. January 2008; January 1, 2009

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 b. July 2008; January 1, 2009
c. January 2008; July 1, 2009
d. July 2008; July 1, 2009

25. An integrated set of activities and assets that is capable of being conducted and managed for the purpose of
providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other
owners, members or participants.

a. Transactions b. Business Combination c. Investment d. Business

26. I. All business combinations within the scope of the standard must be accounted using the acquisition method.
II. Statutory consolidation occurs when two or more consolidate and form a new corporation from then on.

a. Both are true b. Both are false c. Only I is true d. Only II is true

27. I. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from
its activities.
II. The control date is the date on which the acquirer obtains control of the acquiree.

a. Both are true b. Both are false c. Only I is true d. Only II is true

28. I. Under fair value method to account NCI, there no non controlling interest share in the goodwill.
II. Gain from Bargain Purchase is recognized in the profit or loss.

a. Both are true b. Both are false c. Only I is true d. Only II is true

29. I. Changes in a parent's ownership interest in a subsidiary that do not result in loss of control are accounted for
an equity transactions and goodwill is remeasured.
II. Changes in a parent's ownership interest in a subsidiary that do not result in loss of control are accounted for
an equity transactions and gain or loss is recognized on such transactions.

a. Both are true b. Both are false c. Only I is true d. Only II is true

30. I. A parent can lose control of a subsidiary through a sale.

II. When investor loses joint control over a jointly controlled entity, a gain or loss is also recognized.

a. Both are true b. Both are false c. Only I is true d. Only II is true

31. Advanced Company acquired the net assets of Cost Company on July 1, 2016, and made the following entry
to record the acquisition (both using PFRS for SME):

Current and Non-current assets 3,600,000

Goodwill 600,000
Liabilities 480,000
Ordinary share capital, P1 par 600,000
Share Premium 3,120,000

Included in the goodwill computation and liabilities above is the fair value of the contingent consideration which was
estimated to be P150,000 as of July 1, 2016, although assessed as only 20% probable at this date. What should be
the carrying amount of Goodwill on December 31, 2017?

a. P382,500 b. P510,000 c. P408,000 d. P484,500

32. The statement of financial position of Humility Company as of December 31, 2016, is as follows:

Assets Liabilities and Shareholders’ Equity

Cash P 175,000 Current liabilities P 250,000

Accounts receivable 250,000 Mortgage payable 450,000

Inventories 725,000 Ordinary share capital 200,000

Property, plant and equipment 950,000 Share premium 400,000

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 Accumulated profits 800,000

P 2,100,000 P 2,100,000

On December 31, 2016, the Faithful Inc. bought all of the outstanding shares of Humility Company for P 1,700,000
cash. On the date of acquisition, the fair market value of Humility’s inventories was P 675,000, while the fair value of
Humility’s property, plant equipment was P 1,100,000. The fair value of all other assets and liabilities of Humility were
equal to their book values. The amount of goodwill recorded in the books of Faithful Inc. amounted to:

a. P300,000 b. P200,000 c. P150,000 d. P-0-

33. Power Company acquires 15% of Sower Company’s ordinary share for P500,000 cash and carries the investment
as a financial asset. A few months later. Power purchase another 60% of Sower for P2,160,000. At that date, Sower
reports identifiable asset with book value of P4,900,000 and fair value of P5,100,000, and it has liabilities with fair
value of P1,800,000 and book value of P2,000,000. The fair value of 25% NCI is P900,000.

Of the goodwill arising from combination (using the fair value method), the amount attributable to the non-controlling
interest is:

a. P225,000 b. P150,000 c. P75,000 d. P125,000

34. On July 1, 2016, Ryan Company acquired the net assets of Jem Company for a consideration transferred of
P40,000,000. At the acquisition date, the carrying amount of Jem’s net assets was P38,000,000 and a temporary
appraisal of P37,000,000 was attributed to the net assets. At December 31, 2016, a provisional fair value of
P36,000,000 was attributed to the net assets. An additional valuation received on March 31, 2017 increased this
provisional fair value by P2,000,000 and on July 31, 2017 this fair value was finalized with a decreased by P1,000,000
from the last valuation date. What amount should the surviving company present for goodwill in its separate
statement of financial position at December 31, 2017?

a. P2,000,000 b. P1,000,000 c. P3,000,000 d. P-0-

35. Leonard Company acquired 80% of Sheila Company’s ordinary share for P750,000 cash. At that date, Sheila
reports identifiable assets with book value of P1,240,000 and a fair value of P1,350,000, and it has liabilities with book
value and fair value of P600,000. How much is the goodwill arising on combination if NCI is measured at fair value and
that control premium of P30,000 is included in the purchase price?
a. P150,000 b. P187,500 c. P290,000 d. P180,000

36. On January 1, 2016, William Corp. (qualifies as SME) paid cash of P600,000 for all the outstanding shares of
Kate Company. The carrying value of the assets and liabilities of Kate on January 1, 2016 follow:

Accounts Receivable P90,000

Inventory 180,000

Plant & Equipment (net of Accumulated

Depreciation of P220,000) 320,000

Goodwill 100,000

Liabilities 120,000

On January 1, 2016 Kate inventory had a fair value of P150,000 and plant & equipment (net) had a fair value of
P380,000. Cost of arranging the combination are as follows: legal fees for combination, P30,000; finder’s fee, P50,000;
other miscellaneous indirect costs, P20,000.

Net income of William and Kate for 2016 amounts to P158,000 and P60,000, respectively. William received dividend of
P18,000 from Kate during 2016. The PPE has original useful life of 10 years and was already held for 4 years as of
date of acquisition.

On December 31, 2016, what is the consolidated net income?

a. P220,000 b. P210,000 c. P202,000 d. P200,000

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37. On January 1, 2016, P Corp. purchased 80% of S Co.’s P10 par ordinary shares for P986,000. On this date, the
carrying amount of S’s net assets was P1,000,000. The fair values of S Co.’s identifiable assets and liabilities were the
same as their carrying amounts except for plant assets (net), which were P120,000 in excess of the carrying amount.
The estimated remaining life of the asset is 5 years. For the year ended December 31, 2016, S had net income of
P290,000 and paid cash dividends totaling P125,000. Loss on impairment of goodwill in 2016 amounted to P20,000.
P Corp. uses the proportionate method in measuring non-controlling interest. Determine the non-controlling interest in
net income on December 31, 2016.

a. P53,200 b. P54,000 c. P49,200 d. P62,800

38. MAKRO Company acquired a 70% interest in the SM Company for P 1,420,000 when the fair value of SM’s
identifiable assets and liabilities was P 1,200,000. Makro acquired a 65% interest in the Robinsons Company for P
300,000 when the fair value of Robinson’s identifiable assets and liabilities was P 640,000. Makro measures non-
controlling interests at the relevant share of the identifiable net assets at the acquisition date. Neither SM nor
Robinsons had any contingent liabilities at the acquisition date. Neither SM nor Robinsons had any contingent liabilities
at the acquisition date and the above fair values were the same as the carrying amounts in their financial statements.
Annual impairment review has not resulted in any impairment losses being recognized.

Under PFRS 3 Business combinations, what figures in respect of goodwill and of gains on bargain purchases should be
included in Makro’s separate statements of financial position and comprehensive income, respectively?

a. Goodwill: P 580,000; Gains on the bargain purchases: P 116,000

b. Goodwill: Nil or zero; Gains on the bargain purchases: P 116,000
c. Goodwill: Nil or zero; Gains on the bargain purchases: Nil or zero
d. Goodwill: P 580,000; Gains on the bargain purchases: Nil or zero

39. PG Corporation purchased a 10% interest in GDL Company on January 2, 2012, as an available for sale
investment for price of P200,000. On January 2, 2016, PG purchases 17,500 additional shares of GDL from existing
shareholders for P1,575,000. The purchase raised PG’s interest to 80%. GDL had the following statement of financial
position just prior to PG’s second purchase:
Assets Liabilities & Equity

Current Assets P825,000 Liabilities P325,000

Land & building (net) 700,000 Ordinary Share, P20 par 500,000

Equipment (net) 500,000 Retained Earnings 1,200,000

Total Assets P2,025,000 Total Liab. & Equity P2,025,000

On the date of second purchase, PG determines that GDL’s equipment was undervalued by P250,000 and had a 5-year
remaining life. All other book values approximate fair values. Any remaining excess is attributable to goodwill.

What is the estimated fair value of 20% NCI on January 2, 2016?

a. P221,875 b. P170,000 c. P450,000 d. P475,000

40. Using the information above, what is the amount of goodwill to be reported in consolidated FS on January 2,
2016?

a. P275,000 b. P150,000 c. P134,375 d. P300,000

41. GOT Company acquired all of the outstanding shares of Spring Company by issuing its own P15 par value ordinary
shares totaling 46,667 shares at market price of P 15.70. GOT Company had the following expenditures incurred:

Finder’s fee paid P 50,000

Pre-acquisition audit fee/accounting due diligence, 40,000

30% was paid

General administrative costs 15,000

Legal fees for the combination paid 32,000

Audit and legal fees for SEC registration of share issue 46,000

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 Listing fees paid for the shares issued 10,000

Other share issuance costs paid (inclusive of any tax 10,000

cost)

Other indirect costs paid 16,000

Documentary stamp tax (DST) paid on the original 3,500

issuance

Based on the foregoing, determine the following:

The total amount debited to expense should be

a. P 153,000 b. P 163,000 c. P 176,333 d. P 179,833

42. Based on number 41, The total amount debited to share premium and share issue cost account in accordance with
PAS 32 should be

a. P32,667 b. P56,000 c. P66,000 d. P69,500

43-45. On January 2, 2016, GCC Corporation purchase 80% of VIP Company’s outstanding shares for P19,000,000.
Included in the price paid is control premium amounting to P500,000. The direct cost (acquisition related) amounted to
P45,000 was debited as part of the investment in subsidiary account since GCC opted to use the cost method of
accounting its investment in accordance with PAS 27. NCI is measured at the present ownership instruments'
proportionate share in the recognized amounts of the VIP's identifiable net assets.At that date, VIP had P16M of ordinary
shares outstanding and accumulated profits of P6.40M. GCC’s accumulated profits at the date of acquisition was
P13.80M.

VIP’s equipment with remaining life of 5 years had a book value of P9.00M and a fair value of P10.52M. VIP’s remaining
assets had book value equal their fair values. All intangible assets except goodwill are expected to have remaining lives
of 8 years. The income and dividend figures on the separate financial statements (SFS) for both GCC and VIP are as
follows: Net income of GCC in 2016 is P3.60M; 2017 is P4.40M. Net income of VIP in 2016 is P1.36M; 2017 is P2.04M.
Dividends declared by GCC in 2016 is P0.88M; 2017 is P1.56M. Dividends declared by VIP in 2016 is P0.28M; 2017 is
P0.52M.

Based on the foregoing, determine the following:

43. Non-controlling interest in net income (NCINIS) in 2016

a. P211,200 b. P238,400 c. P272,000 d. P347,200

44. Consolidated net income in 2017

a. P5,720,000 b. P5,856,000 c. P5,372,800 d. P5,752,000

45. Non-controlling interest in net assets (NCINAS) in 2017

a. P5,000,000 b. P5,209,600 c. P5,158,000 d. P5,182,400

46-48. On May 31, 2016, TVD Company, a subsidiary of CWPhilippines Corporation, through TO Inc., completed the
purchase of the net assets (including certain contracts) of Archie Company. The transaction between TVD Company
and Archie Company qualifies for recognition under PFRS 3 since it involves acquisition of group of assets qualifying as
a business. The total purchase price paid for said acquisition is P2 M.Based on the guidance provided for under IFRS
3, below are the fair values of Archie Company’s assets and liabilities:

Real Property Leases [nil]

Personal Properties (BV is 800,000

P600,000)

Business Contracts [nil]

Customer and Supplier List [nil]

Transportation and Warehouse

Management System
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 [nil]

Unearned Revenues [nil]

Key employees [nil]

Entities involved are all subject to the 30% regular corporate income tax (RCIT). Based on the tax rules in the
Philippines for this type of acquisition, TVD Companycan depreciate the acquisition cost of the assets other than land
(if any) acquired over the remaining life thereof and claim the same as a deduction for income tax purposes. TVD
Company is expected to be in net income/taxable income position in the future and is not expected to incur any losses
for both accounting and tax purposes.

Based on the foregoing, determine the following:

46. The amount that will be recorded in the books of TVD Company in relation to the Personal Properties

a. P b. P600,000 c. P800,00 d. P2,000,000 since acquisition of assets

0 0 only

47. The amount of deferred tax asset (DTA) or deferred tax liability (DTL) to be recognized related to the personal
properties

a. P0 since arising from business combination c. P360,000

b. P0 since TVD is expected to have taxable income d. P420,000

48. The amount of goodwill to be recognized

P0 P780,000 P840,000 P980,000

49-50. On January 1, 2016, Bruno Co. acquired all of the identifiable assets and assumed all liabilities of Mars, Inc. by
paying P1,000,000. On this date, identifiable assets and liabilities assumed have fair value of P1,600,000 and
P900,000, respectively. Terms of the agreement are as follows:

 30% of the price shall be paid on January 1, 2016

 the balance on December 31, 2017 (the prevailing market rate on the same date is 12%);

The acquirer shall also transfer its piece of land with book and fair value of P500,000 and P300,000, respectively.
Included in the liabilities assumed is an estimated liability for deficiency taxes. The carrying amount and fair value of this
provision amounted to P120,000 and P97,500, respectively. The acquiree guarantees that this provision would only be
settled for P90,000.

Based on the foregoing, determine the following:

49. Total amount of consideration
P1,500,000 P1,300,000 P1,225,030 P1,158,040

50. The goodwill (gain on bargain purchase) on the business combination

P495,030 P450,540 P428,040 P517,530

51-53. On December 31, 2016, the following figures were taken from the trial balances of 2ne1 Company and
BigBang Company:
2ne1 BigBang
Current assets P 175,000 P 65,000
Noncurrent assets 725,000 425,000

Liabilities 65,000 35,000

Ordinary Share Capital, P20 par 550,000 300,000
Share Premium 35,000 25,000
Accumulated profits (losses) 250,000 130,000

On January 1, 2017, 2ne1 issues 35,000 shares with a market value of P25/share for the net assets of BigBang.The
book value reflects the fair value of the assets and liabilities, except that the noncurrent assets of BigBang have fair
value of
P630,000 and 2ne1 discovered an error on its books that resulted into an overstated noncurrent asset of P30,000.
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 Contingent consideration payable after 2 years if profit target will be achieved, which is determinable, have an
expected value of P18,151. Applicable discount rate on this type of agreement is 10%. 2ne1 also paid for the share
issuance costs worth P34,000 and other acquisition related costs amounting to P19,000.

Based on the foregoing, determine the following:

51. Total consideration transferred for purposes of computing the goodwill

a. P875,000 b. P893,151 c. P890,000 d. P946,151

52. The amount of gain on bargain purchase recognized

a. P215,000 b. P233,151 c. P230,000 d. P0

53. Combined total assets after the merger

a. P1,742,000 b. P1,745,151 c. P1,775,151 d. P1,772,000

54-55. On January 5, 2014, Arrow Corporation acquired 80% of CEO Company’s ordinary shares for P3,240,000.
P150,000 of the excess is attribute to goodwill and the balance to a depreciable asset with economic life of ten years.
Non-controlling interest is measured at fair value. On the date of acquisition, stockholders’ equity section of the two
companies were as follows:
Arrow Corporation CEO Company
Ordinary Shares 5,250,000 1,200,000
Retained Earnings 7,800,000 2,100,000

On December 31, 2014,CEO Company reported net income of P525,000 and paid dividends of P180,000.Arrow
reported net income of P1,425,000 and paid dividends of P690,000. Goodwill had been impaired and should be
reported at P30,000 on December 31, 2014.

54. How much is the consolidated net income on December 31, 2014

a. P1,626,000 b. P1,788,750 c. P1,770,000 d. P1,860,000

55. What amount of non-controlling interest is presented in the consolidated statement of financial position on
December 31, 2014?

a. P772,500 b. P834,000 c. P821,250 d. P843,000

56. Accountancy Company acquired 75% of outstanding ordinary shares of Finance Company for P900,000.Book value
of Finance Company’s net assets is P1,000,000. Upon re-measurement of acquiree’s net assets, it shows that
inventory has a fair value lower by P40, 000 than its book value and equipment held for 3 years has a fair value and
book value of P450,000 and P360,000, respectively. The original cost of Finance Company’s equipment is P567,000
with no residual value. Accountancy opt to measure NCI at fair value of P275,000. During the year Accountancy
reported net income from own operation of P300,000 and received P30,000 dividend from Finance Company’s net
income amounts to P120,000. Goodwill, if partial, is impaired by P13,5000.

Compute the consolidated net income.

a. P424,000 b. P439,000 c. P427,000 d. P394,000

57. Refer to #56, Non-Controlling Interest in Net Assets of Subsidiary (NCINAS) at the end is:

a. P296,000 b. P298,500 c. P299,000 d. P286,500

58-60. On July 1, 2014, G Corp acquired most of the outstanding common stock of SANJO Corp for cash. The
incomplete working paper elimination entries on the date of the consolidated statement of financial position of G
Corp and its subsidiary are
shown below: Stockholders Equity-SANJO 2,437,500.00
Investment in Subsidiary 1,584,375
Non controlling interest 853,125.00

Inventories 62,500.00
Equipment 312,500.00
Patent 61,250.00
Goodwill ????
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Investment in Subsidiary 468,750.00
Non controlling interest ???

Included in the purchase price is the control premium of P 68,750.00

Questions:
58. What is the amount of goodwill to be recognized in consolidated financial position on July 1, 2014 assuming NCI is
measured at fair value?
a. P 179,135 b. P 247,885 c. P 284,904 d. P 185,188

59. What is the amount of goodwill to be recognized in consolidated financial position on July 1, 2014 assuming NCI is
measured at proportionate or relevant share?
a. P 185,188.00 b. P 253,938.00 c. P 284,904.00 d. P 0

60. What is the amount of goodwill to be recognized in consolidated financial position on July 1, 2014 assuming NCI is
measured at fair value and the fair value is P 1,150,000.00?
a. P 260,625.00 b. P 398,125.00 c. P 329,375.00 d. P 0

61-62. The following are the condensed balance sheet of GM and SR on January 1, 2014:

GM SR

Total Assets P 10,250,000 P 3,057,500

Liabilities P 2,775,000 P 800,000
Ordinary Shares P 3,100,000 P 1,295,000
Share premium P 1,250,000 P 100,000
Retained earnings P 3,125,000 P 862,500

SD acquired the net assets of both GM and SR. Paying cash in the amount of P185,000 and by issuing 198,500 shares
to GM. Paying cash in the amount of P 72,000 and by issuing 54,350 shares to SR. The par value of these shares is P
35 per share and market value of P 40 per share as of Jan 1, 2014. SD Corp also incurred the following unpaid
expenses:
GM SR
Indirect cost P 93,750 P 101,250
Finder’s fee P 66,250 P 35,000
Accounting and legal fees for SEC registration P 343,750 P 362,500
Printing cost of stock certificates P 125,000 P 93,750

SD’s retained earnings has a balance of P 10,750,000 on Jan 1,2014 immediately before the acquisition.

61. As a result of merger, what is the goodwill-net?

a. P 560,000 b. P 638,500 c. P 650,000 d. P 11,500

62. Based on number 61, as a result of merger, what is the Gain on bargain purchase-net?
a. P 560,000 b. P 638,500 c. P 650,000 d. P 11,500

63. . POTTER Corp., an SME, acquired 90% of outstanding shares of SNOWY Corp in exchange of: two (2) ordinary
shares of Potter PLUS P 2.10 for every shares held. On this date Potter ordinary shares are quoted at P 4.20 per
share. Potter paid P 25,000 for direct cost and P another P 25,000 for indirect cost.

The balance sheet of SNOWY on this date is as follows:

Current Assets P 120,000
PPE-net 123,000

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 Land and Building 203,000
Shares in other companies at cost 80,000
Liabilities 30,000
Equity, 130,000 ordinary shares 260,000
RE 236,000

Additional data are as follows:

 The market value of shares in other companies is P 190,000
 The FV of PPE-net is lower by P 20,000 compared to CV.
 Land value increased by P 120,000
 2 outstanding debts had not been recorded as follows: utilities payable of P 6,000 and AP of P 20,000

Based on the give data, what is the goodwill?

a. P 641,500 b. P 658,500 c. P 650,000 d. P 621,500

64. Based on number 63, what is the total amount of consideration?

a. P 1,253,500 b. P 1, 453,500 c. P 1,250,000 d. P 1,221,500

65. . Parent A hold stakes in subsidiaries S1 and S2 which both operate in the same industry sector. Parent A holds a
controlling interest S1 and a 35% interest in S2. The remaining 65% interest in S2 is held by Parent B. S1 is much
larger than S2 in terms of market share. Its products account for a market share of 40% whereas S2 only accounts for
15%. Parent A also holds options to acquire a further 40% interest in S2 from Parent B. The options are in the money
but the competition authority has stated that it would only permit A to acquire the additional 40% share in s2 if A
disposes of its controlling interest in S1. Who have control over S2? Why?
a. Parent B, because the option of Parent A to purchase additional 40% interest over S2 is not substantial.
b. Parent A, because the option of parent A to purchase additional 40% interest over S2 is substantial.
c. Parent B, because the Parent A holds only a protective right and not substantial right.
d. Parent A, because the option of Parent A to purchase additional 40% interest over S2 is in the money

__________________________THANK YOU!!!____________________________

“Challenges are what make life interesting and overcoming them is what makes life meaningful!!!”

When you get into a tight place and everything goes against you, till it seems as though you could not
hang on a minute longer, never give up then, for that is just the place and time that the tide will turn.

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