AFAR

CONSOSOLIDATED STATEMENTS

ILLUSTRATIVE CASES
PARENT SUBSIDIARY
Case 1. Working Paper Elimination Entries (WPEEs) Cash P 109,000 P 15,000
at Date of Acquisition. Accounts receivable 300,000 35,000
On January 1, 2020, PULLET COMPANY (a non-SME) Inventories 140,000 40,000
purchased interest in HENNY ENTERPRISES. On this date,
HENNY has 80,000 outstanding shares with a fair value per Land - 150,000
share of P55. The book values and the fair values of Buildings - 200,000
HENNY’s net assets were as follows: Equipment 250,000 450,000
Book Values Fair Values Difference Investment in 756,000
Cash P 368,640 P 368,640 -- Subsidiary
Accounts receivable 221,184 221,184 - Totals P 1,555,000 P 890,000
Inventory 884,736 1,105,920 221,184
Buildings, net 2,285,568 2,359,296 73,728 Accounts payable P 175,000 P 190,000
Equipment, net 737,280 589,824 (147,456) Share capital, P50 par 200,000
LTI 1,474,560 2,138,112 663,552 Share capital, P10 par 300,000
P 5,971,968 P6,782,976 Share premium 400,000
Current liabilities P 737,280 P 737,280 - Retained earnings, 780,000 400,000
Bonds payable 1,548,288 1,908,928 (360,640) January 1
Ordinary shares 1,474,560 Totals P 1,555,000 P 890,000
Retained profit 2,211,840 4,136,768 450,368
P 5,971,968 P 6,782,976 At the acquisition date, the following net asset items of
SUBSIDIARY, INC. had carrying values that were different
Assume PULLET COMPANY acquires an 100% interest in from their respective fair values:
DOME ENTERPRISES for P5,570,000. Carrying Fair Values
Amount
Required: Inventories P 40,000 P 70,000
1. Calculate the control premium paid by PULLET. Land 150,000 200,000
2. Calculate the goodwill from the acquisition. Buildings 200,000 270,000
3. Prepare WPEE for the consolidated balance sheet at Equipment 450,000 470,000
January 1, 2020 (DOA). Patent - 40,000
P 840,000 P1,050,000

Case 2. Alternative amounts assigned to NCI and
goodwill/income from acquisition at date of acquisition.
ALBANY COMPANY acquired 80% of the issued share
capital of BUTCHER ENTERPRISES on December 31, 2020
for a total consideration of P1,440,000 (at P17.60 per
share plus control premium). At this date, the identifiable
net assets of BUTCHER ENTERPRISES which were carried in
its books at P1,200,000, were deemed to have a fair value
of P1,600,000. Share capital of BUTCHER ENTERPRISES
comprised 100,000 shares, which were traded at the stock
exchange on 31 December 2020 at P17.60 per share.
Required: Determine the allowed alternative amounts that
may be assigned to NCI at date of acquisition.
a. Based on fair value of shares acquired, and
b. Based on fair value of identifiable net assets of the
subsidiary.
c. Determine goodwill or income from acquisition over
each of the alternative assumptions.
Case 3. Using the data in Case 1 for the PULLET
COMPANY and HENNY ENTERPRISES, assume PULLET
acquires an 80% interest in HENNY for P3,560,000.
Required:
a. How much is the control premium paid by PULLET?
b. Prepare WPEE at the date of acquisition under each
of the alternative amounts that can be assigned to
NCI. Show supporting computations in good form.
All other assets and liabilities had carrying values
approximately equal to their respective fair values. On
January 1, 2019, the building had a remaining useful life of
20 years. Equipment and the patent had remaining useful
lives of 10 years each.
Looking farther ahead, assume that goodwill was impaired
by P5,000 in 2019 and by P8,000 in 2020.
Requirements:
1. Prepare preliminary computations for the following:
a. Percentage of control
b. Non-controlling interest (under each of 2 methods
of measuring NCI) at date of acquisition (DOA)
c. Goodwill or gain from bargain purchase under each
of 2 methods of measuring the NCI.
2. Prepare working paper elimination entries (WPEEs) at
January 1, 2019 (DOA)
3. Prepare working papers for the consolidated balance
sheet at DOA, using WPEEs.
4. Prepare a schedule of amortization of EXCESS:
business combination valuation reserves (BCVR) for
years 2019 and 2020. Include impairment losses on
goodwill.
5. Prepare a schedule of unamortized EXCESS as of
January 1, 2019, December 31, 2019, and December
31, 2020.
6. Prepare a consolidated balance sheet on January 1,
2019, using BCVR balances as of that date.

Case 4. Consolidated FS at the date of Acquisition. Case 5. Consolidated Financial Statements

On January 1, 2019, PARENT COMPANY purchased 24,000 subsequent to date of acquisition.
shares of SUBSIDIARY, INC. in the open market for PARENT accounts for its investment under the COST
P756,000. The balance sheets of PARENT and SUBSIDIARY method.
as at this date are presented below:

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Continuing with Case 5, financial data for the two INC. P 201,600, 25% of the transferred merchandise
companies under the cost method for the years ended remained in PUREHATCH COMPANY’s ending inventory.
December 31, 2019 and 2020 are as follows. STAREX’s gross profit has been the same rate over the
2019 2020 past three (3) years. On January 1, 2020, PUREHATCH has
Comprehensive P S P S P9,600 worth of merchandise purchased from STAREX in
Income COMPANY COMPANY COMPANY COMPANY 2019. For the year 2020, STAREX, INC. reported a net
Sales 1,200,000 700,000 1,500,000 900,000
income of P 288,000 and PUREHATCH COMPANY reported
Dividend 48,000 92,000
income net income (including dividend income of P 115,200) of P
Cost of sales (500,000) (250,000) (600,000) (315,000) 528,000.
Expenses (400,000) (252,000) (480,000) (300,000)
Net income P 348,000 P198,000 P 512,000 P285,000 Requirements:
Retained Earnings 1. Calculate Purehatch Company’s investment income
R. E. , Jan 1 780,000 400,000 978,000 538,000 from Starbucks, Inc. in 2020.
Dividend paid (150,000) (60,000) (210,000) 115,000) 2. Determine non-controlling interests in the net income
Net income 348,000 198,000 512,000 285,000
of the subsidiary for 2020.
R. E., Dec 31 P 978,000 P538,000 P1,280,000 P708,000
3. Show consolidated net income for 2020, and allocate to
Balance sheet Controlling interests and to Non-controlling interests.
Cash P 233,600 P 48,000 P 224,400 P 98,000 4. Working paper elimination entries for 2020.
Accounts 240,000 70,000 300,000 160,000
receivable Case 8 (Downstream Land Transfer)
Inventories 150,000 80,000 180,000 150,000 During 2018 PRIME COMPANY sold land with a cost of
P230,400 to its 80% owned subsidiary, SPEAR, INC., for P
Land 150,000 150,000
307,200. The subsidiary sold the land in 2020 to an
Buildings 190,000 180,000
Equipment 349,000 405,000 500,000 360,000 outsider for P430,080. The subsidiary and the parent
Investment in 756,000 756,000 reported net income as follows:
Subsidiary PRIME CO SPEAR, INC
Totals P1,728,600 P943,000 P1,960,400 1,098,000 2018 P539,136 236,544
Accounts P 150,600 P105,000 P 80,400 90,000 2019 514,560 228,864
payable 2020 606,720 253,440
Share capital,
P50 par 200,000 200,000
The reported income of the parent company includes
Share capital,
P10 par 300,000 300,000P78,336 of dividend income each year.
Share Requirements:
premium 400,000 400,000 1. Calculate Prime Company’s investment income from
Spear Company in 2018, 2019, and 2020.
Retained 2. Determine non-controlling interest in the net income of
earnings, Dec. the subsidiary in 2018, 2019 and 2020.
31 978,000 538,000 1,280,000 708,000 3. Show the consolidated net income for 2018, 2019 &
Totals P1,728,600 P943,000 P1,960,400 1,098,000
2020. Allocate each to Controlling and non-controlling
Requirements for Years 2019 and 2020
interests.
1. Calculate the parent’s investment income
4. Elimination entries for 2018, 2019, and 2020.
2. Calculate the NCI’s share in the consolidated net Case 9. (Upstream depreciable asset transfer)
income. On January 1, 2019, Satellite, INC. a 90% owned
3. Calculate the subsidiary of PORT COMPANY transferred equipment to its
a. Consolidated net income parent in exchange for P115,200 cash. At the date of
b. Consolidated net income attributable to owners of transfer, the subsidiary’s record carried the equipment at a
cost of P162,816 less accumulated depreciation of
Parent Company.
P69,120. The equipment has an estimated remaining life
c. Non-controlling interest in consolidated net income of 7 years. The subsidiary reported net income for 2019
4. Prepare consolidated financial statements for 2019 and and 2020 of P 202,752 and P302,592, respectively. The
2020 using WPEEs. parent company reported income of P 337,920 (including
5. Prepare consolidated financial statements for 2019 and dividend income of P 69,120) and P453,120 (including
2020 using BCVR balances. dividend income of 69,120) for 2019 and 2020,
6. Prepare analytical check on the NCI amount in the respectively.
consolidated balance sheet for 2019 and 2020.
Requirements
1 Calculate Port Company’s investment income from
Case 6. Separate FS of the parent company under the Satellite Company in 2019 and in 2020.
equity method. 2. Determine non-controlling interest in the net income of
the subsidiary for 2019 and for 2020.
Using the cost method FS in Case 6 above, recalculate the 3. Show the consolidated net income for 2019 and 2020.
following balances for 2019 and 2020 (in the separate FS Allocate each to Controlling and Non-controlling
interests.
of PARENT COMPANY) if the parent used the equity method
4. Elimination entries for 2019 and for 2020.
in accounting for the investment account:
a. Net income Case 10. (Intercompany Transactions)
b. Investment in Subsidiary On January 1, 2019, PRIMARY COMPANY acquired 75% of
c. Retained earnings. the outstanding shares of SECONDARY, INC. at a fair value
differential of P25,600 represented by understated plant
assets with a 10-year remaining life. During 2020,
Case 7 (Upstream Merchandise Transfer) PRIMARY COMPANY purchased merchandise from
STAREX, INC., a 75% owned subsidiary of PUREHATCH secondary, inc. in the amount of P 204,800 at billed prices.
COMPANY, sold merchandise during 2020 to its parent SECONDARY, INC. shipped the merchandise at 40% above
company for P 288,000. The merchandise cost STAREX, its cost, and this pricing policy was also used for shipments

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made in 2019 to PRIMARY COMPANY. The inventories of PRIMARY SECONDARY
PRIMARY COMPANY included merchandise at billed prices Sales P1,024,000 P512,000
from SECONDARY, INC. as follows: Cost of sales 409,600 256,000
Gross profit 614,400 256,000
Operating expenses 368,640 163,840
January 1, 2020 57,344 Operating income 245,760 92,160
December 31, 2020 43,008 Gain on sale of land 15,360
Gain on sale of equipment _________ 7,168
Net income P 245,760 P 114,688
Also, in 2019 PRIMARY COMPANY sold land to SECONDARY,
INC. for P102,400. The cost of the land to PRIMARY was
P76,800. SECONDARY sold the land to an outsider for
P117,760 in 2020. Requirements:
1. Calculate the non-controlling interests in the
Furthermore, on January 1, 2020 SECONDARY, INC. sold consolidated net income in 2020.
equipment to PRIMARY COMPANY for P38,400 cash. At the 2. Calculate the controlling interest in the consolidated
date of the transfer, the equipment is carried at a cost of net income in 2020.
P54,272 less accumulated depreciation of P23,040. The 3. Prepare working paper elimination entries for the
equipment has an estimated remaining life of 7 years. above information at December 31, 2020.
4. Prepare a consolidated income statement for the year
ended December 31, 2020.
Income statements for the two companies for the year
2020 are as follows: - end –

MULTIPLE CHOICE

English Dom Corporation owns 100% of Purebreed value. In the consolidated balance sheet on December 31,
Enterprises. On July 1, 2020, English Dom sold Purebreed 2020.
delivery equipment at a gain. English Dom had owned the 3. The amount of total stockholders’ equity to be reported will
equipment for two years and used a five-year straight-line be
depreciation rate with no residual value. Purebreed is using a a. P 440,000 c. P 600,000
three-year straight-line depreciation rate with no residual b. P 488,000 d. P 492,000
value for the equipment.
1. In the consolidated income statement, Purebreed’s 4. The amount of non-controlling interest will be
recorded depreciation expense on the equipment for 2020 a. P 40,000 c. P 88,000
will be decreased by: b. P 48,000 d. P 52,000
a. 16.67% of the gain on sale
b. 33.33% of the gain on sale On January 1, 2020. SHELLFISH CORPORATION purchased
c. 50% of the gain on sale 75% of the common stock of SQUIDBALL COMPANY. Separate
d. 100% of the gain on sale balance sheet data for the companies at the combination date
are given below:
Parker Corporation sells equipment with a book value of Shellfish Squidball
P64,000 to Sheaffer Enterprises, its 75%-owned subsidiary, Cash 9,600 82,400
for P80,000 on January 1, 2020. Sheaffer determines that the Accounts Receivables 57,600 10,400
remaining useful life of the equipment is four years and that Inventory 52,800 15,200
straight-line depreciation is appropriate. The December 31, Land 31,200 12,800
2020 separate company financial statements of Parker and Plant Assets 280,000 120,000
Sheaffer show equipment-net of P400,000 and P240,000, Accum. Depreciation (96,000) (24,000)
respectively. Invesment in Squidballl 156,800 _______-
2. The consolidated equipment-net will be: Total Assets 492,000 216,800
a. P 640,000 c. P624,000 Accounts Payable 82,400 56,800
b. P 628,000 d P520,000 Capital Stock 320,000 120,000
Retained Earnings 89,600 40,000
Balance sheet data for P Corporation and S Company on Total Equities. 492,000 216,800
December 31, 2020, are given below: At the date of combination the book values of Squidball’s net
P Corporation S Company assets was equal to the fair value of the net assets except for
Cash P 56,000 P 72,000 Squidball’s inventory which has a fair value of P24,000.
Merchandise 5. What amount of goodwill will be reported?
Inventory 80,000 48,000 a. P12,534 c. P48,800
Property and b. P30,200 d. P40,267
equipment (net) 400,000 200,000
Investment in S 6. What amount of total liability will be reported?
Company 208,000 ________ a. P139,200 c. P170,400
Total assets P 744,000 P320,000 b. P227,466 d. P 72,534

Current liabilities P144,000 P 48,000 7. What is the amount of total assets?

Long term liabilities 160,000 72,000 a. P 501.334 c. P 601,066
Common stock 240,000 80,000 b. P 548,800 d. P 591,000
Retained earnings 200,000 120,000
Total liabilities & SE P 744,000 P320,000 On January 1, 2020, Pelican Company purchased 90% of the
common stock of Bryan Company for P51,840 over the book
P Corporation purchased 80% interest in S Company on value of the shares acquired. All of the differential was related
December 31, 2020 for P208,000. S Company’s property and to land held by Bryan. On May 1, 2020, Bryan sold the land
equipment had a fair value of P40,000 more than the book at a gain of P92,800. For the year 2020, Bryan reported net
value shown above. All other book values approximated fair income of P211,840 and paid dividends of P51,200. Pelican

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reported income from its own separate operations of merchandise to S for P62,720 at a profit of P15,360. One-
P421,760 and paid no dividends. fourth of the merchandise was resold by S to outsiders for
8. Consolidated net income for 2020 was P19,200 during 2020.
a. P 527,360 c. P 643,456 10. Non-controlling- interest net income in 2019 is
b. P 560,576 d. P 576,000 a. P 73,664 c. P 71,366
b. P 96,710 d. P 70,726
On January 1, 2020 the Parent Corporation sold equipment to 11. Non-controlling- interest net income in 2020 is
its wholly-owned subsidiary, Subsidiart Enterprises, for a. P 88,794 c. P 86,259
P1,152,000. The equipment cost Parent b. b. 92,077 d. P 88,218
CompanyP1,280,000; accumulated depreciation at the time
of the sale of P320,000. The parent was depreciating the CORN Corporation sells equipment with a book value of
equipment on the straight-line-method over twenty years P128,000 to BEANS Company, its 75% owned subsidiary for
with no salvage value, a procedure that the subsidiary P102,400 on April 1, 2020. BEANS determines that the
continued. remaining useful life of the equipment is four years and that
9. On the consolidated balance sheet at December 31, 2020 the straight-line depreciation is appropriate. The December
the cost and accumulated depreciation, respectively, 31, 2020 separate financial statements of CORN and BEANS
should be: show equipment-net of P 640,000 and P384,000,
a. P 960,000 and P384,000 respectively.
b. P1,152,000 and P 64,000 12. Consolidated equipment-net will be
c. P1,152,000 and P320,000 a. P 791,360 c. P1,044,800
d. P1,280,000 and P384,000 b. P 848,960 d. P 975,040

P Company acquired a 65% interest in S company in 2017.

For years ended December 31, 2019 and 2020, S reported
net income of P208,000 and P249,600, respectively. During
2019, S sold merchandise to P for P44,800 at a cost of
P34,560. Two-fifths of the merchandise was later resold by P
to outsiders for P24,320 during 2020. In 2020, P sold

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