Correction: Research and Development Should Be P5,000 Not P50,000

Chapter 2
Problem I (Correction: Research and development should be P5,000 not P50,000)

1. Case 1: Date of Acquisition -
Investment in SS Company 315,000
Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000

Cash 10,000
Case 2: Date of Acquisition -

Cash 237,500

Cash 239,400

Cash 229,500

Cash 205,200
Cash 205,000
2. Schedule of Determination and Allocated Excess: (Correction: Research and development

should be P5,000 not P50,000)
Fair value of Subsidiary:
Consideration transferred:
Cash P300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100% _190,000
Allocated excess P125,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100% (P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100% 26,000
Increase in Customer list (P5,000 x 100%) 5,000
Increase in Favorable lease agreement (P3,000 x 100%) 3,000
Increase in Customer contract (P2,000 x 100%) 2,000
Increase in Purchased IPRD (P5,000 x 100%) 5,000 __31,000
Goodwill P 94,000

a. Proportionate Basis (Partial-goodwill Approach)
Consideration transferred – cash P 237,500 (80%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 80% _152,000 (80%)
Allocated excess P 85,500 (80%)
Decrease in Inventory (P20,000 – P30,000) x 80% (P 8,000)
Increase in Purchased IPRD (P5,000 x 80%) _4,000 24,800 (80%)
Goodwill – partial P 60,700 (80%)
b. Fair Value Basis (Full-goodwill Approach)
Consideration transferred – cash (P237,500 / 80%) P 296,875 (100%)
Increase in Purchased IPRD (P5,000 x 100%) _5,000 __31,000 (100%)
Goodwill – full P 75,875 (100%)

Consideration transferred - cash P 239,400 (60%)
Increase in Purchased IPRD (P5,000 x 60%) __3,000 __18,600 (60%)

Consideration transferred – cash P 239,400 ( 60%)
Fair value of NCI (given)** _152,000 ( 40%)
Fair value of Subsidiary P 391,400 (100%)
Goodwill – full P 170,400 100%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage............................................................... 40%
P 88,400
Therefore, the given amount of P152,000 is higher compared to P88,400. In the event that the
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)
should be used to determine the FV of Subsidiary.

Fair value of Subsidiary

Fair value of Subsidiary – given P 322,525 (100%)
Case 5: Date of Acquisition – Step-Acquisition

Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15% ___51,300 (15%)
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75% _142,500 (75%)
BV FV
Identifiable Assets P370,500 P484,500 P114,000
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 75% P 85,500 ___85,500 (75%)

Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15% 51,300 ( 15%)
Fair value of NCI (given)* __85,500 ( 25%)
BV FV
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 100% **P114,000 _114,000 (100%)
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000**
P 76,000
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
Case 6: Date of Acquisition – Bargain Purchase Gain

BV FV
Liabilities 172,000 172,000 P - 0-
Bargain purchase gain – partial (P 12,500) (75%)

BV FV
Liabilities 172,000 172,000 P - 0-
Increase in Net Assets (P190,000 – P290,000 x 100% **P100,000 _100,000 (100%)
Bargain purchase gain – full (P 10,800)(100%)
P 72,500
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000)
3. Working Paper Eliminating Entries

Common stock – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Additional paid-in capital – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Retained earnings – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease agree0ments….………………………………………………………. 3,000
Customer contract…………………………………………………………… 2,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,000
Inventory…………………………………………………………………….. 10,000
Eliminate investment against allocated excess
Schedule of Determination and Allocated Excess: (Correction: Research and
development should be P5,000 not P50,000)
Cash P300,000
Fair value of Subsidiary P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100% _190,000
Increase in Purchased IPRD (P5,000 x 100%) 5,000 __31,000
Goodwill P 94,000
Case 2: Date of Acquisition –

Common stock – SS Co ............................ . . . . . . . . . . . . . . . . . . . . . . 90,000
Additional paid-in capital – SS Co . ……………………. . . . . . . . . . . . 80,000
Retained earnings – SS Co …………………... . . . . . . . . . . . . . . . . . . . . 20,000
NCI/NCINAS (NCI in Net Assets) – (190,000 x 20%)…………………. 38,000

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease agreements….………………………………………………………. 3,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,700
NCI/NCINAS (NCI in Net Assets): P31,000 x 20%.............................. 6,200
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW (or P38,000 + P6,200)...………………………………………………………..P 44,200

Proportionate Basis (Partial-goodwill Approach)
Increase in Purchased IPRD (P5,000 x 80%) _4,000 24,800 (80%)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,875
NCI: (P31,000 x 20%) + (P75,875 – P60,700)…………………………... 21,375
Inventory…………………………………………………………………….. 10,000
NCI:
Add: NCI on Full-GW (P75,875 – P60,700)………………………………………………………… 15,175
FV-NCI - Full GW………………………………………………………………………………………..P 59,375

Fair Value Basis (Full-goodwill Approach)
Consideration transferred – cash (P237,500 / 80%) P 296,875 (100%)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,800
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW (or P76,000 + P12,400)...………………………………………………………P 88,400



Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,400
NCI: (P31,000 x 40%) + (P170,400 – P106,800)………….……………... 76,000
Inventory…………………………………………………………………….. 10,000
NCI:
Add: NCI on Full-GW (P170,400 – P106,800)…………………………………………………….. 63,600
FV-NCI - Full GW………………………………………………………………………………………..P 152,000

Fair value of NCI (given)** _152,000 ( 40%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
P 88,400
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,750
Inventory…………………………………………………………………….. 10,000
NCI:

Fair value of Subsidiary


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,525
NCI: (P31,000 x 25%) + (P101,525 – P63,750)………….……………... 45,525
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW…………………………...………………………………………………………..P 55,250
Add: NCI on Full-GW (P101,525 – P63,750)………………………………………………………. 37,775
FV-NCI - Full GW (P47,500 + P45,525)……………………………………………………………….P 93,025

Fair value of Subsidiary - given P 322,525 (100%)
Case 5: Date of Acquisition – Step-Acquisition

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,500
NCI/NCINAS (NCI in Net Assets): (P304,000-P190,000) x 25%......... 28,500
NCI:
FV-NCI Partial GW (P47,500 + P28,500)….....……………………………………………………..P 76,000
Schedule of Determination and Allocated Excess:

Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15% ___51,300 (15%)
BV FV
Liabilities 180,500 180,500 P -0-

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
NCI [(P304,000-P190,000) x 25%] + (P38,000 – P28,500)…………….. 38,000
NCI:
FV-NCI Partial GW………………………….. ...………………………………………………………P 76,000
Add: NCI on Full-GW (P38,000 – P28,500)………………………………………………………... 9,500
FV-NCI - Full GW (P47,500 + P38,000) - the NCI given per problem is the same………P 85,500

Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15% 51,300 ( 15%)
BV FV
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 100% **P114,000 _114,000 (100%)
P 76,000
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
Case 6: Date of Acquisition - – Bargain Purchase Gain

a. Proportionate Basis (Partial-goodwill Approach) refer to Page 169 for reference
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Retained earnings (bargain purchase gain –closed to RE since
only BS or real accounts are being examined)………………… 12,500
NCI (P290,000-P190,000) x 25%........................................................... 25,000
NCI:
FV-NCI-Partial Gain (P47,500 + P25,000).....………………………………………………………P 72,500

BV FV
Liabilities 172,000 172,000 P - 0-
Bargain purchase gain – partial (P 12,500) (75%)
b. Fair Value Basis (Full-goodwill Approach) – refer to Page 169 for reference
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Retained earnings (bargain purchase gain –closed to RE since
only BS or real accounts are being examined)………………… 10,800
NCI (P74,200, given – P47,500).......................................................... 26,700
Investment in SS Co . . . . . . . . . . . . 62,500
NCI:
FV-NCI Partial Gain……………………….......………………………………………………………P 72,500
Add: NCI on Full-Gain)- P12,500 – P10,800……………………………………………………….. 1,700
FV-NCI-Full, Gain (P47,500 + P62,500) – given …………………………………………………...P 74,200

BV FV
Liabilities 172,000 172,000 P - 0-
Increase in Net Assets (P190,000 – P290,000 x 100% **P100,000 _100,000 (100%)
Bargain purchase gain – full (P 10,800)(100%)
P 72,500
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000)
Problem II
1. Schedule of Determination and Allocation of Excess
Case 1: Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred P 408,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%) 24,000
Retained earnings (P96,000 x 100%) 96,000 360,000
Allocated excess (excess of cost over book value) P 48,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment (P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair value) P 12,000
Case 2: Date of Acquisition - January 1, 20x4

Cash P 288,000
Common stock: 12,000 shares x P12 _ 144,000
Fair value of Subsidiary P 432,000
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%)... 24,000
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred……………………………….. P 360,000
Common stock (P240,000 x 80%) P 192,000
Positive excess: Partial-goodwill (excess of cost over fair value) P 43,200
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Consideration transferred (P360,000 / 80%) P 450,000
Common stock (P240,000 x 100%) P 240,000
Decrease in buildings and equipment
(P12,000 x 100%) ( 12,000)
Positive excess: Full -goodwill (excess of cost over fair value) P 54,000

Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)………………... 24,000 360,000
Allocated excess (excess of cost over book value)…… P 72,000
Add: Existing Goodwill of SS Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess P 78,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
Consideration transferred (P408,000 – P6,000)…….. P 402,000
Common stock (P240,000 x 100%) P 240,000
2. Consolidated Balance Sheet – Date of Acquisition, January 1, 20x4

Case 1
a. P1,602,000
b. P642,000
c. P600,000
d. P60,000
e. P300,000
f. P960,000
g. None, since it is wholly-owned
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Accounts receivables (P90,000 + P60,000) 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000) 828,000
Goodwill (refer to Requirement 1- Case1) 12,000
Total Assets (a) P1,602,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable (P120,000 + P120,000) P 240,000
Bonds payable (P240,000 + P210,000) P 360,000
Premium on bonds payable (P162,000 - P120,000) 42,000 402,000
Total Liabilities (b) P 642,000
Stockholders’ Equity
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
Total Stockholders’ Equity P 960,000
Total Liabilities and Stockholders’ Equity P1,602,000
Case 2
a. P1,725,600
b. P642,000
c. P720,000
d. P75,600
e. P288,000
f. P1,083,600
Assets
Cash (P420.000 – P288,000 – P12,000 – P8,400) + P60,000 P 171,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Liabilities
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.
Case 3
A. Proportionate Basis (Partial-goodwill Approach)
a. P1,666,800
b. P642,000
c. P600,000
d. P60,000
e. P285,600
f. P1,024,800
g. P79,200
Assets
Cash (P420,000 – P360,000 – P14,400 = P45,600) + P60,000 P 105,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (P480,000 + P360,000 – P12,000) 828,000
Goodwill – partial 43,200
Total Assets P1,666,800
Liabilities
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings (P300,000 – P14,400 ) 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600
Non-controlling interest* 79,200
Total Stockholders’ Equity (Total Equity) P 1,024,800
*Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities)…………………………………………. 36,000
Fair value of stockholders’ equity of subsidiary………………… P 396,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 79,200
B. Fair Value Basis (Full-goodwill Approach)

a. P1,677,600
b. P642,000
c. P600,000
d. P60,000
e. P285,600
f. P1,035,600
g. P90,000
Assets
Cash (P420,000 – P360,000 – P14,400 = P45,600) + P60,000 P 105,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (P480,000 + P360,000 – P12,000) 828,000
Goodwill – full 54,000
Liabilities
Retained earnings (P300,000 – P14,400) 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600
Non-controlling interest 90,000
*Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Non-controlling interest (partial) – refer to Case 3A……………….. P 79,200
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
Case 4
a. P1,725,600
b. P642,000
c. P720,000
d. P75,600
e. P288,000
f. P1,083,600
Assets
Cash (P420,000 – P288,000 – P12,000 – P8,400 = P111,600 + P54,000) P 165,600
Accounts receivables 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000 828,000
Goodwill (P6,000 + P36,000) 42,000
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Common stock, P10 par (P600,000 + P120,000 (12,000 shares x P10 par) P 720,000
Paid-in capital in in excess of par {P60,000 + 12,000 x [P12-P10] – P8,400} 75,600
Retained earnings (P300,000 – P12,000) 288,000
Case 5
a. P1,596,000
b. P636,000
c. P600,000
d. P60,000
e. P300,000
f. P960,000
Assets
Cash (P420,000 – P408,000 + P60,000) P 72,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000 828,000
Goodwill 6,000
Liabilities
Dividends payable (P6,000 – P6,000) -0-
Paid-in capital in in excess of par 60,000
Retained earnings 300,000
For Case 1
3.
January 1, 20x4
Investment in S Company…………………………………………… 408,000
Cash…………………………………………………………………….. 408,000
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 1)
Date of Acquisition – January 1, 20x4
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 12,000
4. WPEN
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity-S Co
(E2)
Inventory…………………………………………………………. 18,000
Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 48,000
Eliminate investment against allocated excess.
5.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*…………………………. P 12,000 P 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
Total Assets P1,320,000 P600,000 P1,602,000
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
6.
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case1) 12,000
Liabilities
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
For Case 2
3.
January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
Cash…………………………………………………………………….. 288,000
Common stock, P10 par…………………………………………….. 120,000
Paid-in capital in excess of par……………………………………. 24,000
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)…………………………………………………………… 12,000
Cash……………………………………………………………………. 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. 8,400
Cash……………………………………………………………………. 8,400
Costs to issue and register stocks.
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 2)
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess…………………………………. P 78,000
Increase in inventory (P18,000 x 100%)…………….. P 18,000
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
value)…………………………………………………….. P 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
value)…………………………………………………………………………… P 42,000
4.
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity of S Co.
(E2) Inventory…………………………………………………………. 18,000

Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 42,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 78,000
5.
Eliminations
Cash*………………………….. P 111,600 P 54,000 P 165,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (1) 360,000
(2) 72,000 -
Total Assets P1,443,600 P600,000 P1,725,600
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par**…..… 720,000 720,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity of Sky Co.
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
**P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
***P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
****P300,000 – P12,000 = P288,000.
6.
Assets
Cash (P420.000 – P288,000 – P12,000 – P8,400) + P60,000 P 171,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Liabilities
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.
For Case 3
7. The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company………………………………………… 360,000
Cash……………………………………………………………….. 360,000
Acquisition of Sia Company.
(2) Retained earnings (acquisition-related expense - close to
examined)…………………………………………………………… 14,400
Cash……………………………………………………………………. 14,400
Acquisition- related costs.

Partial-goodwill Approach
Common stock (P240,000 x 80%)……………………. P 192,000
Paid-in capital in excess of par (P96,000 x 80%).... 76,800
Retained earnings (P24,000 x 80%)……………….... 19,200 288,000
Allocated excess (excess of cost over book value)….. P 72,000
Increase in inventory (P18,000 x 80%)……………… P 14,400
Increase in land (P72,000 x 80%)……………………. 57,600
(P12,000 x 80%)……………………………………..... ( 9,600)
Increase in bonds payable (P42,000 x 80%)………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sia Co. Sia Co. Over/ Under
Book value Fair value Valuation
Inventory………………….…………….. 72,000 90,000 18,000
Land……………………………………… 48,000 120,000 72,000
Buildings and equipment (net)......... 360,000 348,000 ( 12,000)
Bonds payable………………………… (120,000) (162,000) 42,000
Net……………………………………….. 360,000 396,000 36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sia Co. Sia Co.
Book value Fair value (Decrease)
Buildings and equipment .................. 720,000 348,000 ( 372,000)
Less: Accumulated depreciation….. 360,000 - ( 360,000)
Net book value………………………... 360,000 348,000 ( 12,000)
Full-goodwill Approach
Consideration transferred (P360,000 / 80%)………….. P 450,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P240,000 x 100%)…………………. P 240,000
Retained earnings (P24,000 x 100%)…………….... 24,000 360,000
Allocated excess (excess of cost over book value)….. P 90,000
Increase in inventory (P18,000 x 100%)…………… P 18,000
Increase in land (P72,000 x 100%)…………………. 72,000
(P12,000 x 100%)…………………………………..... ( 12,000)
Increase in bonds payable (P42,000 x 100%)……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over
fair value)………………………………………………... P 54,000

Partial Goodwill
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky Co……..………………………………………. 240,000
Additional paid-in capital – Sky Co…………………………………. 24,000
Retained earnings – Sky Co…………………………………………... 96,000
Investment in Sky Co………………………………………………… 288,000
Non-controlling interest (P300,000 x 20%)……………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…..……………………………………………………………. 18,000

Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 43,200
Buildings and equipment………………………………………….. 12,000
Premium on bonds payable……………………………………… 42,000
Investment in Sky Co……………………………………………….. 72,000
Full-Goodwill
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky Co……………………………………………. 240,000
Additional paid-in capital – Sky Co……………………………. 24,000
Retained earnings – Sky Co……………………………………... 96,000
Investment in Sky Co…………………………………… 288,000
Non-controlling interest (P300,000 x 20%)………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory……………………………………………………………. 18,000

Land……………………………………………………………………. 72,000
Goodwill……………………………………………………………. 54,000
Buildings and equipment………………………………….. 12,000
Premium on bonds payable…………………………… 42,000
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – P36,000)]……………………………. 18,000
Investment in Sky Co……………………………………….. 72,000
10. Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,305,600 P600,000 P 1,666,800
Accounts payable…………… P 120,000 P120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
Retained earnings…………… 96,000 (1) 96,000
Non-controlling interest………… (1 ) 72,000
_________ _______ _________ (2) 7,200 _79,200
Equity P1,305,600 P600,000 P 493,200 P 493,200 P1,666,800
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.
 Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Full-goodwill)
Eliminations
Assets Per Co. Sia Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Goodwill…………………… (2) 54,000 54,000
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,305,600 P600,000 P 1,677,600
Accounts payable…………… P120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
_________ _______ _________ (2) 18,000 _90,000
Equity P1,305,600 P600,000 P 504,000 P 504,000 P1,677,600
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

follows:
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
11. The balance sheet: Partial-Goodwill

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 828,000
Goodwill 43,200
Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
The balance sheet: Fulll-Goodwill

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 828,000
Goodwill 54,000
Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the P 945,600
Owners of the Parent
Problem III
1. The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
Investment in S Company…...…………………………………… 300,000
Common stock, P1 par…………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par).. 288,000
Acquisition of S Company.

a. Partial-goodwill Approach (Proportionate Basis)
Common stock: 12,000 shares x P25 per share…... P 300,000
Common stock (P12,000 x 80%)……………………. P 9,600
Retained earnings (P72,000 x 80%)……………….... 57,600 153,600
Increase in land (P36,000 x 80%)……………………. 28,800
Increase in buildings and equipment
(P150,000 x 80%)…………………………………...... 120,000
Increase in copyrights (P60,000 x 80%)…………….. 48,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 80%)……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:
S Co. S Co. Over/Under
Book value Fair value Valuation
Inventory………………….……………... P 60,000 P 66,000 P 6,000
Land………………………………………. 48,000 84,000 36,000
Buildings and equipment (net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000
Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)
Net undervaluation……………………. P 330,000 P 576,000 P246,000
b. Full-goodwill Approach (Fair Value Basis)

Common stock: 12,000 x P25 (80%)……………… P 300,000
Fair value of NCI (given) (20%)………………………. 90,000
Fair value of subsidiary (100%)………………………. P 390,000
Common stock (P12,000 x 100%)……………………. P 12,000
Paid-in capital in excess of par (P108,000 x 100%). 108,000
Increase in buildings and equipment
(P150,000 x 100%)………………………………….... 150,000
Increase in copyrights (P60,000 x 100%)…………… 6,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 100%)…….. ( 6,000) 246,000
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 48,000)
a. Partial-goodwill Approach (Proportionate Basis)
The schedule of determination and allocation of excess provides complete guidance for
the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P246,000 x 20%)………………………. 49,200
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 50,400
b. Full-goodwill Approach (Fair Value Basis)

The schedule of determination and allocation of excess provides complete guidance for
the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P90,000 given – P38,400)…………… 51,600
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 48,000
5. Consolidated Workpaper
Subsidiary (Proportionate Basis)
Eliminations
Consolidate
Assets P Co. S Co. Dr. Cr. d
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for contingencies (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of
par** 723,840 723,840
Paid-in capital in excess of par 108,000(1) (1) 108,000
Retained earnings 577,200 (2) 50,400 627,600
_________ _______ _________ (2) 49,200 _87,600
Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
follows:
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Retained earnings – S Co……………………………………… 72,000
Book value of stockholders’ equity – S Co…………………. P 192,000
Subsidiary (Fair Value Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of par** 723,840 723,840
Paid-in capital in excess of par 108,000(2) (1) 108,000
Retained earnings 577,200 (2) 48,000 625,200
_________ _______ _________ (2) 51,600 _90,000
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
6. Consolidated Balance Sheet

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

Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,393,200
Total Stockholders’ Equity (Total Equity) P1,483,200
Problem IV
1. P297,462 (Full-goodwill approach)
Fair value of subsidiary (100%):
Consideration transferred: Cash (P1,901,250 + P562,500) P2,463,750
Less: Control premium…………………………………………. ( 82,500)
P2,381,250/65% P3,663,462
Add: Control premium…………………………………………. ____82,500
Fair value of subsidiary ………………………………………… P3,745,962
Less: Book value of stockholders’ equity
(net assets) – Guidance Company – given per problem 2,925,000
Allocated excess………………………………………………... P 820,962
Less: Over/undervaluation of assets and liabilities:
(P75,000 + P375,000 + P73,500) 523,500
Positive excess: Goodwill P 297,462
2. P222,225 (Partial/Proportionate goodwill approach)

(net assets) – Guidance Company
(P2,925,000 x 65%)…………………………………………… 1,901,250
(P75,000 + P375,000 + P73,500) x 65% 340,275
3. P395,250 (Full-goodwill approach)

FV of NCI…………………….……………………………………. _1,380,000
Fair value of subsidiary ………………………………………… P3,843,750
(net assets) – Guidance Company – given per problem 2,925,000
(P75,000 + P375,000 + P73,500) 523,500
Problem V - None
Problem VI
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
Fair value of consideration given P 576,000

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

investment account is eliminated.
Problem VII
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are
a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired.
1. Inventory = P670,000 (P's book value plus SS fair value)

2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem VIII
1. Inventory (P120,000 + P20,000) P140,000
2. Land (P70,000 – P10,000) P 60,000
3. Buildings and Equipment (P480,000 + P70,000) 550,000
4. Full-Goodwill, P57,500
Consideration transferred P470,000
Add: FV of NCI 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Inventory P 20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
Goodwill – full P 57,500
or,
Fair value of consideration given by Ford P470,000
Fair value of noncontrolling interest 117,500
Total fair value P587,500
Book value of Slim’s net assets P450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Buildings and equipment (net) 70,000
Fair value of identifiable net assets (530,000)
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
Goodwill – partial P 46,000
5. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
6. P830,000
Total assets:
Unadjusted total assets P750,000
Add (deduct): adjustments
Increase in inventory 20,000
Decrease in land ( 10,000)
Increase in buildings and equipment 70,000
Adjusted assets P830,000
7. P300,000 (no adjustments)

8. No available data
9. Noncontrolling Interest (P587,500 x .20) P117,500
or,
BV – SHE of SS P450,000
Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000
FV of SHE of SS P530,000
Multiplied by: NCI % 20%
NCI – partial goodwill P106,000
Add: NCI on full-goodwill (P57,500 – P46,000) 11,500
NCI – full goodwill P117,500
10. Incomplete data
Problem IX
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem X
1. P57,000 = (P120,000 - P25,000) x .60
2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XI
1. Investment in Craig Company ........................................................... 950,000
Cash ................................................................................................... 950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Allocated excess P 230,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value P 50,000
Building (P700,000 fair – P600,000 book value) 100,000
Discount on bonds payable P280,000 fair – P300,000
book value) 20,000
Deferred tax liability (P40,000 fair – P50,000 book value) 10,000
Buildings and equipment (net) 180,000
Goodwill P 50,000
3. Adjustments on Craig books:

Land......................................................................................................... 50,000
Building.................................................................................................... 100,000
Discount on Bonds Payable ................................................................ 20,000
Goodwill.................................................................................................. 50,000
Deferred Tax Liability ............................................................................ 10,000
Retained Earnings ................................................................................. 420,000
Paid-In Capital in Excess of Par ..................................................... 650,000
4. Elimination entries:
Common Stock ..................................................................................... 300,000
Paid-In Capital in Excess of Par .......................................................... 650,000
Investment in Craig Company...................................................... 950,000
Problem XII
1.
* Man Mask
(Public Co.) (Private Co.)
Currently issued…………………… 10 M 40% 4 M 40%
Additional shares issued……….. 15 M 60% ** 6 M / 60%
Total shares………………………… 25 M 10 M
**15M/25M
FV of net assets………………………P 18 M P30 M
BV of net assets (same with FV)…. 18 M ?
Fv per share of stock……………….P 8 P 6
2.
Consideration transferred (4,000,000 shares* x P6)…………………………..P24,000,000
Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess …………………………………………………………………..P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)……………………………………………… 0
Goodwill………………………………………………………………………………P 6,000,000
Problem XIII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting
and tax purposes for this stock acquisition.
1. Investment in Seely Company 570,000

Common Stock*** 95,000
Additional Paid-in-Capital 475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of common
stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely 80,000
Other Contributed Capital – Seely 132,000
Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000
Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
Problem XIV
 HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.
 TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

a. The purpose of consolidated financial statements is to present the financial position
and results of operations of a group of businesses as if they were a single entity. They
are designed to provide information useful for making business and economic
decisions—especially assessing amounts, timing, and uncertainty of prospective cash
flows. Consolidated statements also provide more complete information about the
resources, obligations, risks, and opportunities of an enterprise than separate
statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
 The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
 The equity investors in the VIE lack any one of the following three characteristics of
a controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g.,
another firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has
one or both of the characteristics that would require consolidation of the variable
interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
 At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
to 85% of the project's cost. Thus, a potential 15% risk.
 During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
 Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
 If lease is not renewed, TPC must either purchase the facility or sell it on behalf of
the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
 Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decision-
making ability (end of five-year lease term)
 Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
 Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XV
1. Implied valuation and excess allocation for SP.
FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000)
+ P40,000 – P120,000) __100,000
Excess net asset value fair value/Bargain purchase gain P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All SP’
assets and liabilities are recognized at their individual fair values.
Cash P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
- 0-
2. Implied valuation and excess valuation for SP.

FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000)
+ P40,000 – P120,000) __60,000
Excess fair value over net assets/ Goodwill P 20,000
Noncontrolling interest fair value 60,000

Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash P20,000
Marketing software 120,000
Computer equipment 40,000
Goodwill (excess business fair value) 20,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
PT equity interest (20,000)
-0-
Multiple Choice Problems
1. c -
Cash consideration transferred P 300,000
Fair value of Subsidiary P 315,000
Less: Book value of SS Company (P90,000 + P100,000) 190,000
Increase in building: P40,000 x 100% P 40,000
Increase in customer list: P22,000 x 100% 22,000
Increase in R&D: P30,000 x 100% 30,000 __92,000
Goodwill P 33,000
Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000
Cash 10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4
would be:
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
Capitalized R&D 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
2. d - P600,000 - P15,000 - P255,000 = P330,000

3. c - P475,000 - P300,000 = P175,000 debit
4. d
Less: Book value of SHE of S (P40,000 + P52,000) 92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 58,000
5. b – [P150,000 – (P173,000 – P40,000 – P5,000)]
6. d
Book value of Assets (P80,000 + P50,000 + P200,000) P330,000
Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000
P 65,000
7. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
8. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
9. c
10. a
[P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
11. c – at fair value
12. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
13. d
Less: Book value of SHE of S (P100,000 + P115,000) 215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 85,000
14. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.
15. b
P’s acquisition entry is:
Investment in Silicon 2,500,000
Merger expenses 250,000
C/S (100,000@P1) 100,000
APIC [(100,000@P24) – P400,000] 2,000,000
Cash (P400,000 + P250,000) 650,000
Eliminating entries are:

Capital stock 560,000
AOCI 195,000
Treasury stock 35,000
Customer lists 700,000

Goodwill 800,000
16. b – refer to No. 15

17. a – refer to No. 15
18. a – refer to No. 15
19. b – refer to No. 15
20. b
21. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000
22. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE –
P300,000 – P500,000) = P550,000
23. a
24. d (P1,000,000 + P250,000) = P1,250,000 P only.
25. d - A total of P210,000 (P120,000 + P90,000) should be reported.
26. a - As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS.
The amount paid was P30,000 greater than the book value of the net assets of SS and is
reported as goodwill in the consolidated balance sheet at January 1, 20X5.
27. c - In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for
P25,000 (P10,000 + P15,000).
28. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
29. c- P100,000, the par value of B's stock outstanding is P100,000
30. a
(net assets) – Son Company
(P180,000 + P165,000 + P90,000) x 80% __348,000
Increase in land (P420,000 – P264,000) x 80% P124,800
Increase in building: P96,000 x 80% __76,800 __201,600
31. b
FV of NCI 147,300
Control premium 27,600
P 774,900
(P180,000 + P165,000 + P90,000) x 100% __435,000
32. c
Less: Control premium 44,400
P555,600/80% P 694,500
Add: Control premium __44,400
P 738,900
(P180,000 + P165,000 + P90,000) x 100% __435,000
33. b
FV of S: CT - Acquisition cost P 13,000,000
Less: Book value (P20,000,000 + P36,000,000) 56,000,000
Allocated Excess of book value over cost P(43,000,000)
Add: Existing goodwill 40,000,000
Adjusted Allocated excess P( 3,000,000)
Less: Over/undervaluation of A & L __________-0-
Bargain purchase gain/Gain on acquisition P( 3,000,000)
34. b - Proportionate Basis (Partial-goodwill Approach)

 Partial-goodwill
Consideration transferred: Cash……………………….....P 7,560,000 (60%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P6,000,000 x 60%................................ 3,600,000 (60%)
Allocated Excess.……………………………………………….... P 3,960,000 (60%)
(P8,400,000 – P6,000,000) x 60%................................... 1,440,000 (60%)
Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
35. c - Fair Value Basis (Full-goodwill Approach)

 Full-goodwill
Consideration transferred: Cash ………………………...P 7,560,000 ( 60%)
Fair value of NCI (given)………………………………….. 4,800,000 ( 40%)
Fair value of subsidiary…………………………………………...P12,360,000 (100%)
– S Company: P6,000,000 x 100%........................... 6,000,000 (100%)
Allocated Excess.…………………………………………………..P 6,360,000 (100%)
(P8,400,000 – P6,000,000) x 100%................................ 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 3,960,000 (100%)
The full – goodwill of P3,960,000 consists of two parts:

Full-goodwill……………………………………………...P 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill (No. 34)………………. 2,520,000
NCI on full-goodwill……………………………………..P 1,440,000
36. b
 Non-controlling interest (refer to No. 34)
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary…………….P 8,400,000
Multiplied by: Non-controlling Interest percentage........... 40%
Non-controlling interest (partial)………………………………..P 3,360,000
37. c -
 Non-controlling interest
Non-controlling interest (partial) – refer to No. 36…………P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
38. d - Proportionate Basis (Partial-goodwill Approach)

Consideration transferred: Cash………………………..P 9,000,000 (75%)
– S Company: P7,200,000 x 75%............................... 5,400,000 (75%)
Allocated Excess.………………………………………………....P 3,600,000 (75%)
(P9,600,000 – P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)

 Full-goodwill
Fair value of subsidiary…………………………………………. P 11,640,000 (100%)
– S Company: P7,200,000 x 100%............................. 7,200,000 (100%)
Allocated Excess.………………………………………………….P 4,440,000 (100%)
(P9,600,000 – P7,200,000) x 100%.............................. 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)
The full – goodwill of P2,040,000 consists of two parts:

Full-goodwill……………………………………………...P 2,040,000
or partial-goodwill……………………………. 1,800,000
NCI on full-goodwill…………………………………….P 240,000
40. b -
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage........... 25%
Non-controlling interest (partial)……………………………….P 2,400,000
41. c -
Non-controlling interest (partial) – refer to No. 40…………P 2,400,000
(P2,040,000 – P1,800,000 partial-goodwill)………..... 240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
42. b - Proportionate Basis (Partial-goodwill Approach)

Consideration transferred: Cash………………………..P 2,592,000 ( 60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%..... 648,000 ( 15%)
Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%)
– S Company: (P4,680,000 – P2,280,000) x 75%......... 1,800,000 .(75%)
Allocated Excess.……………………………………………….....P1,440,000 (75%)
[(P6,120,000 -P4,680,000] x 75%................................ 1,080,000 (75%)
Positive excess: Goodwill (partial)……………………………...P 360,000 (75%)
 Full-goodwill
Consideration transferred: Cash………………………..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%..... 648,000 (15%)
Fair value of NCI (given)………………………………… 1,080,000 (25%)
Fair value of subsidiary…………………………………………. P 4,320,000 (100%)
– S Company: P4,680,000 – P2,280,000x 100%.................2,400,000 (100%)
Allocated Excess.…………………………………………………P 1,920,000 (100%)
(P6,120,000 -P4,680,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full)…………………………………..P 480,000 (100%)
The full – goodwill of P480,000 consists of two parts:

Full-goodwill……………………………………………...P 480,000
or partial-goodwill……………………………... 360,000
NCI on full-goodwill……………………………………..P. 120,000
44. b
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
Fair value of stockholders’ equity of subsidiary……………P 3,840,000
Multiplied by: Non-controlling Interest percentage............ 25%
Non-controlling interest (partial)………………………………P 960,000
45. c
Non-controlling interest (partial) –refer to No. 44.…………P 960,000
(P480,000 – P360,000 partial-goodwill)…………....... 120,000
Non-controlling Interest (full)……………………………………P 1,080,000
46. b – fair value

47. d – fair value
48. d – fair value
49. c -
Full-goodwill:
Add: FV of NCI 100,000 P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000
Inventory (P65,000 – P70,000) x 100% P( 5,000)
Land (P100,000 – P90,000) x 100% 10,000
Buildings and equipment (P300,000 – P250,00) x 100% 50,000 __55,000
If partial-goodwill, no answer available, computed as follows:

Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000
Inventory (P65,000 – P70,000) x 75% P( 3,750)
Land (P100,000 – P90,000) x 75% 7,500
Buildings and equipment (P300,000 – P250,00) x 75% 37,500 __41,250
50. a – Investment in Silver will be eliminated in the consolidated balance sheet
51. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ……………………………… 55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%.................................................................... 25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P 100,000
* same with the NCI given per problem
52. b – P135,000 = P90,000 + P45,000

53. d
Full-goodwill:
Add: FV of NCI _40,000 P200,000
Less: BV of SHE of Silver (P40,000 + P120,000) x 100% _160,000
Inventory (P45,000 – P40,000) x 100% P 5,000
Land (P60,000 – P40,000) x 100% 20,000 25,000
54. a
Total Assets of Gulliver (Jonathan) P610,000
Less: Investment in Sea-Gull Corp. (160,000)
P 450,000
Book value of assets of Sea Corp. 230,000
Book value reported by Gulliver/Jonathan and Sea P 680,000
Increase in inventory (P45,000 – P40,000) 5,000
Increase in land (P60,000 – P40,000) 20,000
Goodwill (full)* 15,000
Total assets reported P 720,000
55. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
56. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) -
(P40,000 + P40,000)………….……………………………… 25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%.................................................................... 20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)……………….. 3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Less: BV of SHE of S (P40,000 + P120,000) x 80% _128,000
Inventory (P5,000 x 80%) P 4,000
Land (P20,000 x 80%) 16,000 __20,000
57. a - The amount reported by Jonathan Corporation

58. a
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19…………………………………….. 40,000
Consolidated stockholders’ equity……………………………………. P445,000
59. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
60. b
Total Assets of P. P1,278,000
Less: Investment in Swimmer Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (full)* 26,667
Total assets reported P1,566,667
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
If partial-goodwill:
Total Assets of P. P1,278,000
Less: Investment in S Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (partial)* 20,000
*[P440,000 – (P702,000 – P142,000) x 75%]
61. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)
62. a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
63. c
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)… 35,000
FV of SHE of SS……………………………………………… P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)……………………………………………..P 52,500
64. b
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (full) 40,000
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (partial) 28,000
65. D P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
66. a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
67. D
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000
FV of NCI (full)…………………………………………………..P 64,500
68. D P205,000 = The amount reported by Power Corporation
69. C P419,500 = (P150,000 + P205,000) + P64,500

Stockholders’ equity: P419,500
Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
70. b
Consideration transferred ........................................................................................ P60,000
Less: Strand's book value (P50,000 x 80%) .............................................................. (40,000)
Fair value in excess of book value ......................................................................... P20,000
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ........................................................... P 8,000
71. c
Consideration transferred (P60,000 ÷ 80%) ............................................................ P75,000
Less: Strand's book value .......................................................................................... (50,000)
Fair value in excess of book value ......................................................................... P25,000
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ........................................................... P10,000
72. a
Park current assets ....................................................................................................... P 70,000
Strand current assets ................................................................................................... 20,000
Excess inventory fair value ......................................................................................... 15,000
Consolidated current assets ...................................................................................... P105,000
73. c
Park noncurrent assets ............................................................................................... P 90,000
Strand noncurrent assets ........................................................................................... 40,000
Excess fair value to goodwill (partial) ..................................................................... ___8,000
Consolidated noncurrent assets .............................................................................. P140,000
74. d
Park noncurrent assets ................................................................................................ P 90,000
Strand noncurrent assets ............................................................................................ 40,000
Excess fair value to goodwill (full) ............................................................................. __10,000
Consolidated noncurrent assets ............................................................................... P140,000
75. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
76. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
77. b
Park stockholders' equity ........................................................................................... P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%........................................................................ 20% 13,000
Total stockholders' equity ......................................................................................... P93,000
78. c
Park stockholders' equity .......................................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%......................................................................... 20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)………… 15,000
Total stockholders' equity P95,000
79. d [P99,000 + P26,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000

80. a [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
81. a - P only
82. d – (P960,000 – P330,000) + P565,000 = P1,195,000
83. a - P15,000 = (P115,000 + P46,000) - P146,000
84. b - P65,000 = (P148,000 - P98,000) + P15,000
85. a. BB, P70,000; SS, P24,000,
SS: P24,000 = P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000 = P94,000 - P24,000
86. d - P259,000,
Fair value of SS as a
whole:
P200,000 Book value of SS shares
10,000 Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000 Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000 Differential assigned to goodwill
P259,000 Fair value of SS
87. c - 65 percent = 1.00 – (P90,650 / P259,000)

88. a
Capital Stock = P120,000
Retained Earnings = P115,000
89. b – full-goodwill
FV of S: P600,000/70%...........................................................................................P 857,143
Less: BV – SHE of Stork …………………………………………………………………. 640,000
Allocated excess………………………………………………………………………..P 217,143
Less: Increase in equipment………………………………………………………….. 40,000
+ Excess: Goodwill (full)………………………………………………………………...P 177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
90. a – P150,000 + P500,000

91. a – at fair value
92. b
FV, stocks issued………………………………………………… P 4,200,000
Less: Par value of stocks issued (500,000 shares x P5)…….. __2,500,000
APIC P 1,700,000
Add: APIC of P 7,500,000
Less: Stock issuance cost ___100,000
P 9,100,000
93. a – at fair value

94. c**/d* - Please read the discussion below
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity,
does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are
considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant
and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of investment in
associate, joint venture or subsidiary but it is possible that the scope of the project might be expanded in future.
(IGAAP 2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as
expenses in the consolidated accounts.
Revised PAS 27 does not define what is meant by “cost”, but in the glossary to PFRS provides an over-riding definition
of “cost” as “the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction”
As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the
acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction
costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not
separately define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements.
Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate financial statements includes any
costs incurred even if such costs are expensed in the consolidated financial statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate
Financial Statements” not consolidated statements; therefore PFRS 3 which is a standard for business
combination/consolidation will not be the basis for the definition of “cost”). Unlike before the revision of PAS 27 and
implementation of PFRS 10, the basis of the old PAS 27, which is “Consolidated and Separate Statements”, is PFRS 3,
wherein the definition of “cost” was clearly defined. That is why the general rule in the definition of “cost” was
applied. This view is also as suggest by the IASB since they introduced the requirement to expense acquisition costs
within PFRS 3, it only applies to financial statements in which a business combination is accounted for under PFRS 3. It
follows that this requirement does not extend to the individual (or separate) financial statements of the investing or
parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38
(Intangible Assets) wherein the direct costs is capitalized in the books of parent entity and eventually become
expense through eliminating entry to prepare consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to
any acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal
costs, due diligence costs – such as finder’s fee are expensed off and not included in the consideration transferred.
The key reasons given for this approach are provided in paragraph BC366:
 Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
 They are separate transactions for which the buyer pays the fair value for the services received.
 These amounts do not generally represent assets of the acquirer at acquisition date because the benefits
obtained are consumed as the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and
liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at
cost. The following items are worth noting to justify the use of this approach:
1. This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7th
Edition (2013) which is an IFRS based discussion, in the solution they presented in one of their end-of-chapter
problems, they expensed the direct costs in recording the investment in subsidiary in the book of parent
company
2. Similar with No. 1 above, in the book Applying IFRS, 3rd edition (2013), by Picker, et al (which is also Ernst and
Young book, which seems to contradict their position in the discussion above) in chapter 24 end-of-the
chapter problems, the direct costs (or “costs incurred in undertaking taking the acquisition” as the term
used in the book) were not part of the investment in subsidiary as evidenced by the amount in the
eliminating entry.
3. One respected author in accounting even commented that, despite the above analysis capitalizing the
direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and
PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it may be a
problem when there will be an impairment test which will reveal the costs are in fact unrecoverable and
thus that there must be an impairment charge at the parent level (in which the direct costs is included as
part the investment), which would have the effect of bringing the parent’s accounting (with the impairment
investment including the direct costs) in line with what would later appear on the consolidated financial
statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of
“costs” in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be
part of the investment in the books of parent entity. But because of the three reasons mentioned above, the author
believes that the direct costs still be considered as expenses applying PFRS 3, aside from the fact that in substance
the ultimate objective is to consolidate, even though there was a separation of standard between Revised PAS 27
and PFRS 10.
95. a
96. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be
made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
97. d
98. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in full.
99. a
100. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
101. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.
102. c
An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 2010 ...................................................... P36,000
103. a
PP - building .................................................................................................................. P510,000
TT building acquisition-date fair value P300,000
Amortization for 3 years (10-year life) (90,000) 210,000
Consolidated buildings ............................................................................................... P720,000
-OR-
PP - building ................................................................................................................... 510,000
TT building 12/31/x4 P182,000
Excess acquisition-date fair value allocation 40,000
Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000
Consolidated buildings ............................................................................................... P720,000
104. b
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
105. c
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
106. c
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.
107. d
Cost of Investment (40 shares* x P40)………………………………………………………P 1,600
Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%...................................... 1,100
Allocated excess………………………………………………………………………………P 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%..................... 140
Goodwill………………………………………………………………………………………….P 360
100%
* Pedro Ltd Santi Ltd
Currently issued…………………… 100 40% 40 40%
Additional shares issued……….. 150 60%** 60 / 60%
Total shares………………………… 250 100
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M P ?
BV of net assets (same with FV)……….. 1.1 M ?
Fv per share of stock……………………… P 16 P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
½) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger
and 150 new shares held by former shareholders in Santi Ltd. In essence, the former
shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi
Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there
has been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal
parent. The usual circumstance creating a reverse acquisition is where an entity (the legal
parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of
the exchange transaction, it issues enough voting equity as consideration for control of the
combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the
assets and liabilities of Santi Ltd to be valued at fair value.
108. b – building account in the books of subsidiary at fair value

109. e – building account in the books of subsidiary at book value
110. d – push-down accounting: equipment account in the books of subsidiary is at fair value
111. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance
from P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1. c 6. B 11. c 16. d 21. b 26. D 31 c 36. d
2. a 7. b 12. c 17. c 22. a 27. C 32. d 37. d
3. e 8. A 13. d 18. b 23. a 28. C 33. b 38. c
4. e 9. D 14. d 19. c 24. b 29. D 34. d 39. b
5. b 10, a 15, b 20. c 25. c 30. B 35. d 40. c
41. c 46. b 51. c 56. c

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

Correction: Research and Development Should Be P5,000 Not P50,000

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Correction: Research and Development Should Be P5,000 Not P50,000

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Chapter 2

Problem I (Correction: Research and development should be P5,000 not P50,000)

Acquisition Expense (or Retained earnings) 10,000

Case 2: Date of Acquisition -

Case 3: Date of Acquisition -

Case 4: Date of Acquisition -

Case 5: Date of Acquisition -

2. Schedule of Determination and Allocated Excess: (Correction: Research and development

Case 2: Date of Acquisition -

Case 3: Date of Acquisition -

b. Fair Value Basis (Full-goodwill Approach)

Case 4: Date of Acquisition -

b. Fair Value Basis (Full-goodwill Approach)

Case 5: Date of Acquisition – Step-Acquisition

b. Fair Value Basis (Full-goodwill Approach)

Case 6: Date of Acquisition – Bargain Purchase Gain

b. Fair Value Basis (Full-goodwill Approach)

3. Working Paper Eliminating Entries

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Case 2: Date of Acquisition –

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 3: Date of Acquisition -

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 4: Date of Acquisition -

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 5: Date of Acquisition – Step-Acquisition

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Schedule of Determination and Allocated Excess:

b. Fair Value Basis (Full-goodwill Approach)

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Schedule of Determination and Allocated Excess:

Case 6: Date of Acquisition - – Bargain Purchase Gain

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Schedule of Determination and Allocated Excess:

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Schedule of Determination and Allocated Excess:

Case 2: Date of Acquisition - January 1, 20x4

Case 4: Date of Acquisition - January 1, 20x4

2. Consolidated Balance Sheet – Date of Acquisition, January 1, 20x4

B. Fair Value Basis (Full-goodwill Approach)

(E2) Inventory…………………………………………………………. 18,000

8. Schedule of Determination and Allocation of Excess

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

9. Working Paper Eliminating Entries

(E2) Inventory…..……………………………………………………………. 18,000

(E2) Inventory……………………………………………………………. 18,000

Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Buildings and equipment 480,000 360,000 (2) 12,000 828,000

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

11. The balance sheet: Partial-Goodwill

The balance sheet: Fulll-Goodwill