ORAL QUIZ:

Use the following information for the next three questions:

Rainy Afternoon Co. owns 80% interest in Sunny Morning Co. During 20x1, Rainy sold
inventories costing ₱200,000 to Sunny for ₱300,000. One-fourth of the inventories were unsold
as of December 31, 20x1 and were included in Sunny’s year-end statement of financial position
at the purchase price from Rainy. The individual financial statements of Rainy and Sunny on
December 31, 20x1 show the following information:

  Rainy Sunny
Inventory 1,260,000 380,000

Sales 6,700,000 2,700,000

Cost of
(3,015,000) (1,755,000)
sales
Gross profit 3,685,000 945,000

There are no fair value adjustments arising from the business combination date.

1. How much is the consolidated inventory on December 31, 20x1?

a. 1,615,000
b. 1,590,000
c. 1,665,000
d. 1,585,000

2. How much is the consolidated sales?

a. 9,400,000
b. 9,100,000
c. 9,375,000
d. 9,700,000

3. How much is the consolidated cost of sales?

a. 4,695,000
b. 4,495,000
c. 4,565,000
d. 4,545,000

Use the following information for the next two questions:

On January 1, 20x1, Horse Co. acquired 80% interest in Colt Co. by issuing bonds with fair
value of ₱250,000. NCI is measured at proportionate share. The following information was
determined immediately before the acquisition:

  Horse Co. Colt Co. Colt Co.

  Carrying amount Carrying amount Fair value
Total assets 1,000,000 400,000 430,000
Total liabilities (600,000) (200,000) (200,000)
Net assets 400,000 200,000 230,000

Included in Colt’s liabilities is an account payable to Horse amounting to ₱20,000.

4. How much is the total assets in Horse’s separate financial statements immediately after the
combination?
a. 1,000,000
b. 1,400,000
c. 1,250,000
d. 1,430,000

5. How much is the total assets in the consolidated financial statements?

a. 1,476,000
b. 1,580,000
c. 1,465,000
d. 1,528,000

Use the following information for the next two questions:

Lion Co. acquired 80% of Cub Co. on January 1, 20x1 for ₱100,000. The following information
was determined at acquisition date:

  Lion Co. Cub Co. Cub Co.

  Carrying amt. Carrying amt. Fair value
Equipment 1,000,000 500,000 400,000
Accumulated depreciation (200,000) (100,000) (80,000)
Net 800,000 400,000 320,000

Remaining useful life, 1/1/ x1 10 yrs. 5 yrs. 5 yrs.

6. How much is the consolidated “Equipment – net” in the December 31, 20x2 financial
statements?
a. 880,000
b. 846,000
c. 852,000
d. 832,000

7. The consolidation journal entry for the depreciation of the fair value adjustment on
December 31, 20x2 includes which of the following?
a. 16,000 debit to depreciation expense
b. 12,800 credit to retained earnings of Lion
c. 32,000 credit to accumulated depreciation
d. 16,000 credit to depreciation expense

8. On January 1, 20x1, Kangaroo Co. acquired 75% of Joey Co. At that time, Joey’s equipment
has a carrying amount of ₱100,000 and a fair value of ₱120,000. The equipment has a
remaining useful life of 10 years. On December 31, 20x2, Kangaroo and Joey reported
equipment with carrying amounts of ₱500,000 and ₱300,000, respectively. How much is the
consolidated “equipment – net” in the December 31, 20x2 financial statements?
a. 800,000
b. 816,000
c. 784,000
d. 826,000
9. On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares
with fair value of ₱15 per share. On this date, XYZ’s equity comprised of ₱50,000 share
capital and ₱24,000 retained earnings. NCI was measured at its proportionate share in
XYZ’s net identifiable assets.

XYZ’s assets and liabilities on January 1, 20x1 approximate their fair values except for the
following:
Carryin
g Fair value
XYZ, Inc.
amount Fair adjustments
s values (FVA)
Inventory 23,000 31,000 8,000
Equipment (4 yrs.
remaining life) 50,000 60,000 10,000
Accumulated (12,000
depreciation (10,000) ) (2,000)
Totals 63,000 79,000 16,000

XYZ, Inc. declared and paid dividends of ₱6,000 during 20x1. There was no impairment in
goodwill. The year-end individual statements of profit or loss are shown below:

Statements of profit or loss

For the year ended December 31, 20x1
ABC Co. XYZ, Inc.
Sales 300,000 120,000
Cost of goods sold (165,000) (72,000)
Gross profit 135,000 48,000
Depreciation expense (40,000) (10,000)
Distribution costs (32,000) (18,000)
Interest expense (3,000) -
Dividend income 4,800 -
Profit for the year 64,800 20,000

How much is the profit attributable to

Owners of the parent NCI
a. 68,000 2,000
b. 64,800 5,200
c. 52,000 18,000
d. 57,200 12,800

10. ABC Co. owns 80% interest in XYZ, Inc. The individual statements of financial position of
the entities as of December 31, 20x1 are shown below:

Statements of financial position

As at December 31, 20x1
ABC Co. XYZ, Inc.
ASSETS
Cash 23,000 44,000
Accounts receivable 75,000 22,000
Inventory 105,000 15,000
 Investment in subsidiary (at cost) 75,000 -
Investment in bonds - 13,000
Equipment 200,000 50,000
(60,000
Accumulated depreciation ) (20,000)
TOTAL ASSETS 418,000 124,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000
Bonds payable (at face amount) 30,000 -
Total liabilities 73,000 30,000
Share capital 170,000 50,000
Share premium 65,000 -
Retained earnings 110,000 44,000
Total equity 345,000 94,000
TOTAL LIABILITIES AND
EQUITY 418,000 124,000

On December 31, 20x1, XYZ, Inc. purchased 50% of the outstanding bonds of ABC Co. from
the open market for ₱13,000. There were no other intercompany transactions during the year.

The consolidation journal entry to eliminate the intercompany bond transaction includes which of
the following?
a. debit to bonds payable for ₱30,000
b. credit to gain on extinguishment of debt for ₱4,000
c. credit to investment in bonds for ₱15,000
d. credit to gain on extinguishment of debt for ₱2,000

11. Consolidated financial statements are typically prepared when one company has a
controlling financial interest in another unless:
a. The subsidiary is a finance company.
b. The fiscal year-ends of the two companies do not coincide.
c. The two companies are in unrelated industries, such as manufacturing and real estate.
d. The parent is in itself a subsidiary of another entity, its debt or equity instruments are not
traded in a public market, and its ultimate parent produces consolidated general-purpose
financial statements that comply with PFRSs.

12. If the impairment of the value of goodwill is seen to have reversed, then the company
may
a. Reverse the impairment charge and credit income for the period.
b. Reverse the impairment charge and credit retained earnings.
c. Not reverse the impairment charge.
d. Reverse the impairment charge only if the original circumstances that led to the
impairment no longer exist and credit retained earnings.

13. When NCI is measured at proportionate share,

a. goodwill is attributed only to the owners of the parent.
b. goodwill is attributed to both the owners of the parent and NCI.
 c. goodwill impairment is allocated to both the owners of the parent and NCI.
d. b and c

14. On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000
shares with fair value of ₱15 per share. On this date, XYZ’s total equity was ₱74,000.
The investment in subsidiary is measured at cost.

XYZ’s assets and liabilities approximate their fair values on January 1, 20x1 except for the
following:
Carrying Fair value
XYZ, Inc. amount Fair adjustment
s values s
Inventory 23,000 31,000 8,000
Equipment (4 yrs.
remaining life) 40,000 48,000 8,000
Total 63,000 79,000 16,000

There were no intercompany transactions during 20x1. However, it was determined that
goodwill is impaired by ₱1,000.

How much is the goodwill attributable to NCI as of December 31, 20x1?

a. 550
b. 2,220
c. 620
d. 1,280

15. On January 1, 20x2, ABC Co. sells 60% out of its 80% interest in XYZ, Inc. for
₱100,000. ABC’s remaining 20% interest in XYZ has a fair value of ₱25,000. This gives
ABC significant influence over XYZ. The statements of financial position immediately
before the sale are shown below:

Statements of financial position

As at January 1, 20x2
Consolidate
ABC Co. XYZ, Inc.
d
ASSETS
Cash 23,000 57,000 80,000
Accounts receivable 75,000 22,000 97,000
Inventory 105,000 15,000 120,000
Investment in subsidiary 75,000 - -
Equipment 200,000 50,000 260,000
Accumulated
(60,000) (20,000)
depreciation (84,000)
Goodwill - - 3,000
TOTAL ASSETS 418,000 124,000 476,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000
Bonds payable 30,000 - 30,000
Total liabilities 73,000 30,000 103,000
 Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000
Retained earnings 110,000 44,000 118,000
Non-controlling interest - - 20,000
Total equity 345,000 94,000 373,000
TOTAL LIAB. & EQTY. 418,000 124,000 476,000

How much is the gain (loss) on the disposal?

a. 38,000
b. 42,000
c. 62,000
d. 78,000

16. On January 1, 20x1, Subsidiary One acquires 60% interest in Subsidiary Two. On January
1, 20x3, Parent acquires 80% interest in Subsidiary One. Identify the acquisition dates of
Subsidiary One and Subsidiary Two.
Subsidiary One Subsidiary Two
a. January 1, 20x1 January 1, 20x1
b. January 1, 20x3 January 1, 20x3
c. January 1, 20x1 January 1, 20x3
d. January 1, 20x3 January 1, 20x1

17. Parent acquires 80% interest in Subsidiary One on January 1, 20x1. Parent acquires 25%
interest in Subsidiary Two on January 1, 20x2. Subsidiary One acquires 30% interest in
Subsidiary Two on January 1, 20x3.
Subsidiary One Subsidiary Two
a. January 1, 20x1 January 1, 20x1
b. January 1, 20x3 January 1, 20x3
c. January 1, 20x1 January 1, 20x3
d. January 1, 20x3 January 1, 20x1

18. Which of the following statements is true regarding push-down accounting?

a. The Philippine SEC requires push-down accounting if a subsidiary is “substantially
wholly-owned,” i.e., parent’s ownership interest is at least 95%.
b. The Philippine SEC encourages push-down accounting if a parent’s ownership interest
is 80% to less than 95%.
c. The Philippine SEC prohibits push-down accounting if a parent’s ownership interest is
less than 80%.
d. All of these are incorrect