ACCOUNTING FOR BUSINESS COMBINATIONS

FINAL TERM EXAMINATION

PROBLEM 1
Use the following information for the next six questions:
Goo Co. sold inventory to a foreign entity for 100, 000 FCUs. Relevant information follows:

Date Particulars Exchange rates (1FCU to LCUs)

December 1, 20x1 Receipt of order 13.70 LCUs
December 22, 20x1 Date of shipment 13.75
December 31, 20x1 End of reporting period 13.80
January 8, 20x2 Settlement date 13.50

1. How much total sale revenue from the transaction is included in Goo’s 20x1 statement of profit or loss?
1,380,000
2. How much total sale revenue from the transaction is included in Goo’s 20x2 statement of profit or loss?
1,350,000
3. How much is the foreign exchange gain (loss) is recognized in Goo’s 20x1 statement of profit or loss?
5,000
4. How much account receivable from the transaction is included in Goo’s 20x1 statement of profit or
loss? 1,375,000
5. How much is the foreign exchange gain (loss) is recognized in Goo’s 20x2 statement of profit or loss?
(30,000)
6. How much is the total foreign exchange gain (loss) recognized from the transaction? (25,000)

PROBLEM 2
Silver Spoon Co. acquired a fixed asset for $36, 000 on November 1, 20x1 when the exchange rate was $1.00 =
P23.00. At December 31, 20x1, the entity’s year end, the supplier of the fixed assets has not been paid and the
exchange rate at that time was $1.00 = P25.00. On December 31, 20x1 statement of financial position, what will
be the value for fixed asset and the creditor who was unpaid?
Fixed Asset: 828,000
Creditor: 900,000

PROBLEM 3
Little Boy Blue Co. acquired inventory from foreign entity on November 28, 20x1 for 10, 000 foreign currency
units. Little Boy Blue paid the bill on January 2, 20x2 when the spot rate was P0.45. The spot rate was P0.60 on
November 28, 20x1 and was P0.55 on December 31, 20x1. For the year ended December 31, 20x2, Little Boy
Blue should report a foreign exchange gain of 1,000

PROBLEM 4
Bull Co. sold goods worth $10, 000 to a foreign entity. On January 30, 20x1, Bull Co.’s reporting cut-off date,
the exchange rate was P26.60. On August 15, 20x1, payment was received through bank transfer whereby Bull
Co.’s account was credited P265, 400 before any changes. At the time foreign entity accepted the merchandise,
the exchange rate was P26.75. At what exchange rate is the sale from the transaction would most likely be
recognized? 26.54 (round your answer into two decimal places)

PROBLEM 5
Glass Co. had the following foreign currency transactions during 20x1:
 Merchandise was purchased from a foreign supplier on January 20, 20x1, for the Philippine peso
equivalent of P90, 000. The invoice was paid on March 20, 20x1, at the Philippine peso equivalent of
P96, 000.

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  On July 1, 20x1, Glass Co. borrowed the Philippine peso equivalent of P500, 000 evidenced by a note
that was payable in the lender’s local currency on July 1, 20x2. On December 31, 20x1, the Philippine
peso equivalents of the principal amount and accrued interest were P520, 000 and P26, 000,
respectively. Interest on the note is 10% per annum.

In Glass’ profit or loss, what amount should be included as foreign exchange loss? 27,000

PROBLEM 6
On October 1, 20x1, a local importer contracted to purchase foreign goods requiring payment of 100,000
German marks one month after their receipt at the local importer’s business place. Title to the goods passed on
the date of shipment on December 1, 20x1. On December 1, 20x1 the goods were still in transit. The following
exchange rates were made available:

October 1, 20x1 P 22.00

December 1, 20x1 P 20.00
December 31, 20x1 P 26.00

How should the exchange fluctuation in 20x1 be accounted by this local importer?

Transaction gain(loss) (400,000)

Translation adjustment 0

PROBLEM 7
On November 30, 20x0, a local entity executed a contract with a foreign entity providing for payment of 10%
royalties on sales of the latter. Payment is to be made in U.S dollars every January 10 for the previous year’s
sales. Sales for the year ended December 31, 20x1 totalled P 50,000. The local entity paid for the foreign entity
the 20x1 royalties on January 10, 20x2. The local entity’s 20x1 financial statements were issued on February 1,
20x2. The spots rates are as follows:

November 30, 20x0 P 27.87

January 1, 20x1 P 27.88
December 31, 20x1 P 27.89
January 10, 20x2 P 27.90

How much should the local entity accrue for royalties payable at December 31, 20x1? 139,450

Use the following information for the next nine question:

ABC Co. owns 80% of the ordinary shares of a foreign subsidiary, XYZ, Inc., a company based in Korea. XYZ,
Inc.’s functional currency is won. The subsidiary was acquired at the start off the reporting period of 6,000,000
wons, when the subsidiary’s retained earnings were 3,200,000 wons.

At the date of the acquisition the fair value of the net assets o the subsidiary were 5,600,000 wons. This
included a fair value adjustment in respect of land.

ABC Co. elected to measure non-controlling interest at the NCI’s proportionate share of the fair value of the
subsidiary’s net assets. The group determined at year-end that goodwill is not impaired. There were no
changes in the share capital of the subsidiary during the year.

The relevant exchange rates are as follows:

Date: Exchange rates
Jan. 1, 20x1……………………………………..P 0.03: KRW 1
Average for the year………………………….P 0.04: KRW 1
Dec. 31, 20x1…………………………………...P 0.05: KRW 1

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A summary of the individual financial statements of the entities at the end of reporting period are shown
below:
Statements of financial position
As at December 31, 20x1

ABC Co. XYZ, Inc.

ASSETS
(pesos) (wons)
Investment in subsidiary 180,000
Other assets 8,000,000 5,200,000
TOTAL ASSETS 8,180,000 5,200,000
LIABILITIES AND EQUITY
Liabilities 1,600,000 240,000
Share capital 4,000,000 800,000
Retained earnings 2,580,000 4,160,000
Total equity 6,580,000 4,960,000
TOTAL LIABILITIES AND EQUITY 8,180,000 5,200,000

Statements of profit or loss

For the year ended December 31, 20x1
ABC Co. XYZ, Inc.
(pesos) (wons)
Revenues 3,600,000 2,400,000
Expenses (2,160,000) (1,440,000)
Profit for the year 1,440,000 960,000

1. How much is the goodwill as of December 31, 20x1? 76,000

2. How much is the non-controlling interest in the net assets of the subsidiary (NCI) as of December 31,
20x1? 65,600
3. How much is the consolidated retained earnings as of December 31, 20x1? 610,720
4. How much is the total translation gain (loss) to be recognized in other comprehensive income in 20x1?
152,000
5. How much is the consolidated profit in 20x1? 1,478,400
6. How much is the consolidated total comprehensive income in 20x1? 1,630,400
7. How much is the comprehensive income attributable to owners of the parent? 1,592,320
8. How much is the consolidated total assets as of December 31, 20x1? 8,416,000
9. How much is the equity attributable to owners of the parent as of December 31, 20x1? 6,676,320

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