PROBLEM 1

On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair
value of P30 per share and par value of P20 per share. The financial statements of ABC Co. and XYZ,
Inc. immediately after the acquisition are shown below:

  Jan. 1, 20x1
  ABC Co. XYZ, Inc.
Cash 20,000 10,000
Accounts receivable 60,000 24,000
Inventory 80,000 46,000
Investment in subsidiary 150,000
Equipment 400,000 100,000
Accumulated depreciation (40,000) (20,000)
Total assets 670,000 160,000

Accounts payable 40,000 12,000

Bonds payable 60,000 -
Share capital 340,000 100,000
Share premium 130,000 -
Retained earnings 100,000 48,000
Total liabilities and equity 670,000 160,000

On January 1, 20x1, the fair value of the assets and liabilities of XYZ, Inc. were determined by
appraisal, as follows:
Carrying Fair Fair value
XYZ, Inc.
amounts values increment
Cash 10,000 10,000 -
Accounts receivable 24,000 24,000 -
Inventory 46,000 62,000 16,000
Equipment 100,000 120,000 20,000
Accumulated depreciation (20,000) (24,000) (4,000)
Accounts payable (12,000) (12,000) -
Net assets 148,000 180,000 32,000

The equipment has a remaining useful life as of 4 years from January 1, 20x1. ABC Co. elects to
measure non-controlling interest as its proportionate share in XYZ’s net identifiable assets.
1. Compute the goodwill
2. Compute the Consolidated Stockholders Equity
3. Compute the Consolidated Assets
PROBLEM 2
On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair
value of ₱60 per share and par value of ₱40 per share.
XYZ’s shareholders’ equity as of January 1, 20x1 comprises the following:
  (at carrying amounts)
Share capital 200,000
Retained earnings 96,000
Total equity 296,000
On January 1, 20x1, the fair values of the assets and liabilities of XYZ, Inc. were determined by
appraisal, as follows:
XYZ, Inc. Carrying amounts Fair values Fair value increment
Cash 20,000 20,000 -
Accounts receivable 48,000 48,000 -
Inventory 92,000 124,000 32,000
Equipment 200,000 240,000 40,000
Accumulated depreciation (40,000) (48,000) (8,000)
Accounts payable (24,000) (24,000) -
Net assets 296,000 360,000 64,000
The remaining useful life of the equipment is 4 years. During 20x1, no dividends were declared by
either ABC or XYZ. There were also no inter-company transactions.
The group determined that goodwill is impaired by ₱4,000.
ABC’s and XYZ’s individual financial statements at year-end are shown below:

Statements of financial position

As at December 31, 20x1

ABC Co. XYZ, Inc.

ASSETS
Cash 92,000 228,000
Accounts receivable 300,000 88,000
Inventory 420,000 60,000
Investment in subsidiary 300,000 -
Equipment 800,000 200,000
Accumulated depreciation (240,000) (80,000)
TOTAL ASSETS 1,672,000 496,000
LIABILITIES AND EQUITY
Accounts payable 172,000 120,000
Bonds payable 120,000 -
Total liabilities 292,000 120,000
Share capital 680,000 200,000
Share premium 260,000 -
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000
Statements of profit or loss
 For the year ended December 31, 20x1

ABC Co. XYZ, Inc.

Sales 1,200,000 480,000
(660,000
(288,000)
Cost of goods sold )
Gross profit 540,000 192,000
(160,000
(40,000)
Depreciation expense )
(128,000
(72,000)
Distribution costs )
(12,000
-
Interest expense )
Profit for the year 240,000 80,000

Case #1: On acquisition date, ABC Co. elected to measure non-controlling interest as its
proportionate share in XYZ, Inc.’s net identifiable assets.
1. How much is the consolidated profit for 20x1?
2. How much is the consolidated total assets as of December 31, 20x1?
3. How much is the consolidated total equity as of December 31, 20x1?

Case #2:
On acquisition date, ABC Co. elected to measure non-controlling interest at fair value. A value of
₱75,000 is assigned to the non-controlling interest.

4. How much is the consolidated profit for 20x1?

5. How much is the consolidated total assets as of December 31, 20x1?
6. How much is the consolidated total equity as of December 31, 20x1?