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Chapter 6
Consolidated Financial Statements (Part 3)
NAME: Date:
Professor: Section: Score:

QUIZ:

1. 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.

2. 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.

3. 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

4. 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 Fair value
XYZ, Inc.
amounts values adjustments
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
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c. 620
d. 1,280

5. 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
XYZ, Consolidate
ABC Co.
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

“We are shaped by our thoughts; we become what we think. When the mind is pure, joy follows like a shadow
that never leaves.” - (Buddha)
- end -
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SOLUTIONS:
1. D
2. C
3. A

4. A Solution:
Consideration transferred (5,000 sh. x ₱15) 75,000
Less: Previously held equity interest in the acquiree -
Total 75,000
Less: Parent's proportionate share in the net assets of subsidiary (₱90,000 acquisition-
date fair value* x 80%) (72,000)
Goodwill attributable to owners of parent – Jan. 1, 20x1 3,000
Less: Parent’s share in goodwill impairment (₱1,000 x 80%) (800)
Goodwill attributable to owners of parent – Dec. 31, 20x1 2,200

Fair value of NCI (see given) 18,750

Less: NCI's proportionate share in the net assets of subsidiary (₱90,000 acquisition-date
fair value x 20%) (18,000)
Goodwill attributable to NCI – Jan. 1, 20x1 750
Less: NCI’s share in goodwill impairment (₱1,000 x 20%) (200)
Goodwill attributable to NCI – Dec. 31, 20x1 550

Goodwill, net – Dec. 31, 20x1 2,750

* 74,000 + 16,000 FVA = 90,000 fair value

5. B Solution:

Step 1: We will identify the carrying amounts of XYZ’s assets and liabilities in the consolidated financial
statements as at the date control was lost.

Statements of financial position

As at January 1, 20x2
Carrying amount of XYZ’s
ABC Co. XYZ, Inc. Consolidated
net assets
ASSETS (a) (b) (c) = (b) – (a)
Cash 23,000 57,000 80,000 57,000
Accounts receivable 75,000 22,000 97,000 22,000
Inventory 105,000 15,000 120,000 15,000
Investment in subsidiary 75,000 - -
Equipment 200,000 50,000 260,000 60,000
Accumulated depreciation (60,000) (20,000) (84,000) (24,000)
Goodwill - - 3,000
TOTAL ASSETS 418,000 124,000 476,000 130,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000 30,000
Bonds payable 30,000 - 30,000 -
Total liabilities 73,000 30,000 103,000 30,000
Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000 -
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Retained earnings 110,000 44,000 118,000 -*

Non-controlling interest - - 20,000 -
Total equity 345,000 94,000 373,000 100,000
TOTAL LIAB. & EQTY. 418,000 124,000 476,000

*The consolidated retained earnings pertains to the parent only. Thus, no retained earnings is allocated to XYZ.

Step 2: We will prepare the deconsolidation journal entries (DJE):

DJE #1: To recognize the gain or loss on the disposal of controlling interest.
Jan. 1, Cash – ABC Co. (Consideration received) 100,000
20x2
Investment in associate (Investment retained) 25,000
Accounts payable – XYZ, Inc. 30,000
Accumulated depreciation – XYZ, Inc. 24,000
Non-controlling interest 20,000
Cash – XYZ, Inc. 57,000
Accounts receivable – XYZ, Inc. 22,000
Inventory – XYZ, Inc. 15,000
Equipment – XYZ, Inc. 60,000
Goodwill 3,000
Gain on disposal (squeeze) 42,000