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AFAR PROF. HERMOSILLA/PROF. CASTAÑEDA

WEEK 8

ACCOUNTING REQUIREMENTS
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

A parent prepares consolidated financial statements using uniform accounting policies for like transactions and
other events in similar circumstances.
However, a parent need not present consolidated financial statements if it meets all of the following conditions:
o it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and its other
owners, including those not otherwise entitled to vote, have been informed about, and do not
object to, the parent not presenting consolidated financial statements
o its debt or equity instruments are not traded in a public market (a domestic or foreign stock
exchange or an over-the-counter market, including local and regional markets)
o it did not file, nor is it in the process of filing, its financial statements with a securities commission
or other regulatory organisation for the purpose of issuing any class of instruments in a public
market, and
o its ultimate or any intermediate parent of the parent produces consolidated financial statements
available for public use that comply with IFRSs.
Investment entities are prohibited from consolidating particular subsidiaries (see further information below).
Furthermore, post-employment benefit plans or other long-term employee benefit plans to which IAS
19 Employee Benefits applies are not required to apply the requirements of IFRS 10.

Consolidation procedures
Consolidated financial statements:
o combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with
those of its subsidiaries
o offset (eliminate) the carrying amount of the parent's investment in each subsidiary and the
parent's portion of equity of each subsidiary (IFRS 3 Business Combinations explains how to
account for any related goodwill)
o eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating
to transactions between entities of the group (profits or losses resulting from intragroup
transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in
full).
A reporting entity includes the income and expenses of a subsidiary in the consolidated financial statements
from the date it gains control until the date when the reporting entity ceases to control the subsidiary. Income
and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the
consolidated financial statements at the acquisition date.
The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional
financial information prepared by subsidiary, unless impracticable. Where impracticable, the most recent
financial statements of the subsidiary are used, adjusted for the effects of significant transactions or events
between the reporting dates of the subsidiary and consolidated financial statements. The difference between
the date of the subsidiary's financial statements and that of the consolidated financial statements shall be no
more than three months.

Non-controlling interests (NCIs)

A parent presents non-controlling interests in its consolidated statement of financial position within equity,
separately from the equity of the owners of the parent.

A reporting entity attributes the profit or loss and each component of other comprehensive income to the
owners of the parent and to the non-controlling interests. The proportion allocated to the parent and non-
controlling interests are determined on the basis of present ownership interests. [IFRS 10:B94, IFRS 10:B89]
The reporting entity also attributes total comprehensive income to the owners of the parent and to the non-
controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in ownership interests

Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the
subsidiary are equity transactions (i.e. transactions with owners in their capacity as owners). When the
proportion of the equity held by non-controlling interests changes, the carrying amounts of the controlling and
non-controlling interests area adjusted to reflect the changes in their relative interests in the subsidiary. Any
CRC-ACE/AFAR: Week 8 Page 2

difference between the amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and attributed to the owners of the parent.

If a parent loses control of a subsidiary, the parent :

o derecognises the assets and liabilities of the former subsidiary from the consolidated statement of
financial position
o recognises any investment retained in the former subsidiary at its fair value when control is lost and
subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance
with relevant IFRSs. That fair value is regarded as the fair value on initial recognition of a financial
asset in accordance with IFRS 9 Financial Instruments or, when appropriate, the cost on initial
recognition of an investment in an associate or joint venture.
o recognises the gain or loss associated with the loss of control attributable to the former controlling
interest.

Investment entities consolidation exemption

[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31
October 2012 and effective for annual periods beginning on or after 1 January 2014.]

IFRS 10 contains special accounting requirements for investment entities. Where an entity meets the definition
of an 'investment entity' (see above), it does not consolidate its subsidiaries, or apply IFRS 3 Business
Combinations when it obtains control of another entity.

An entity is required to consider all facts and circumstances when assessing whether it is an investment entity,
including its purpose and design. IFRS 10 provides that an investment entity should have the following typical
characteristics:
o it has more than one investment
o it has more than one investor
o it has investors that are not related parties of the entity
o it has ownership interests in the form of equity or similar interests.

The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified
as an investment entity.

An investment entity is required to measure an investment in a subsidiary at fair value through profit or loss in
accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.
However, an investment entity is still required to consolidate a subsidiary where that subsidiary provides
services that relate to the investment entity’s investment activities.
Because an investment entity is not required to consolidate its subsidiaries, intragroup related party transactions
and outstanding balances are not eliminated
apply where an entity becomes, or ceases to be, an investment entity.

The exemption from consolidation only applies to the investment entity itself. Accordingly, a parent of an
investment entity is required to consolidate all entities that it controls, including those controlled through an
investment entity subsidiary, unless the parent itself is an investment entity.

IFRS 11: JOINT ARRANGEMENTS

Joint An arrangement of which two or more parties have joint control

arrangement

Joint control The contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the
parties sharing control

Joint operation A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to
the arrangement

Joint venture A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement

Joint venturer A party to a joint venture that has joint control of that joint venture

Party to a joint An entity that participates in a joint arrangement, regardless of whether that entity
arrangement has joint control of the arrangement
CRC-ACE/AFAR: Week 8 Page 3

Separate vehicle A separately identifiable financial structure, including separate legal entities or
entities recognised by statute, regardless of whether those entities have a legal
personality

Joint arrangements
A joint arrangement is an arrangement of which two or more parties have joint control.

A joint arrangement has the following characteristics:

o the parties are bound by a contractual arrangement, and
o the contractual arrangement gives two or more of those parties joint control of the arrangement.

A joint arrangement is either a joint operation or a joint venture.

Joint control
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control.

Before assessing whether an entity has joint control over an arrangement, an entity first assesses whether the
parties, or a group of the parties, control the arrangement (in accordance with the definition of control in IFRS
10 Consolidated Financial Statements).

After concluding that all the parties, or a group of the parties, control the arrangement collectively, an entity
shall assess whether it has joint control of the arrangement. Joint control exists only when decisions about the
relevant activities require the unanimous consent of the parties that collectively control the arrangement.

The requirement for unanimous consent means that any party with joint control of the arrangement can prevent
any of the other parties, or a group of the parties, from making unilateral decisions (about the relevant
activities) without its consent.

Types of joint arrangements

Joint arrangements are either joint operations or joint ventures:
o A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
Those parties are called joint operators.
o A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called joint
venturers.

Classifying joint arrangements

The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and
obligations of the parties to the arrangement. An entity determines the type of joint arrangement in which it is
involved by considering the structure and form of the arrangement, the terms agreed by the parties in the
contractual arrangement and other facts and circumstances.

Regardless of the purpose, structure or form of the arrangement, the classification of joint arrangements
depends upon the parties' rights and obligations arising from the arrangement.

A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle
can be either a joint venture or a joint operation.

A joint arrangement that is not structured through a separate vehicle is a joint operation. In such cases, the
contractual arrangement establishes the parties' rights to the assets, and obligations for the liabilities, relating
to the arrangement, and the parties' rights to the corresponding revenues and obligations for the corresponding
expenses.

Financial statements of parties to a joint arrangement

Joint operations
A joint operator recognises in relation to its interest in a joint operation:
o its assets, including its share of any assets held jointly;
o its liabilities, including its share of any liabilities incurred jointly;
o its revenue from the sale of its share of the output of the joint operation;
o its share of the revenue from the sale of the output by the joint operation; and
o its expenses, including its share of any expenses incurred jointly.

A joint operator accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint
operation in accordance with the relevant IFRSs.
CRC-ACE/AFAR: Week 8 Page 4

A party that participates in, but does not have joint control of, a joint operation shall also account for its interest
in the arrangement in accordance with the above if that party has rights to the assets, and obligations for the
liabilities, relating to the joint operation.

Joint ventures
A joint venturer recognises its interest in a joint venture as an investment and shall account for that investment
using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures unless the
entity is exempted from applying the equity method as specified in that standard.

A party that participates in, but does not have joint control of, a joint venture accounts for its interest in the
arrangement in accordance with IFRS 9 Financial Instruments unless it has significant influence over the joint
venture, in which case it accounts for it in accordance with IAS 28 (as amended in 2011).

Separate Financial Statements

The accounting for joint arrangements in an entity's separate financial statements depends on the involvement
of the entity in that joint arrangement and the type of the joint arrangement:
o If the entity is a joint operator or joint venturer it shall account for its interest in
o a joint operation in accordance with paragraphs 20-22;
o a joint venture in accordance with paragraph 10 of IAS 27 Separate Financial Statements.
o If the entity is a party that participates in, but does not have joint control of, a joint arrangement
shall account for its interest in:
o a joint operation in accordance with paragraphs 23;
o a joint venture in accordance with IFRS 9, unless the entity has significant influence over the joint
venture, in which case it shall apply paragraph 10 of IAS 27 (as amended in 2011).

CONSOLIDATED FINANCIAL STATEMENTS - AT DATE OF ACQUISITION

PROBLEMS
1. PARENT COMPANY purchased 75% of the voting common stock of SUBSIDIARY COMPANY On January 1,
2021 for P2,500,000 and issuing 1,000 of their voting shares. On this date the shares of PARENT and
SUBSIDIARY were trading at P50 and P15 each respectively. On this date before the combination, the book
and fair values of PARENT and SUBSIDIARY were as follows:

PARENT SUBSIDIARY SUBSIDIARY

COMPANY COMPANY COMPANY
BOOK VALUE BOOK VALUE FAIR VALUE
Cash 3,000,000 75,000 75,000
Receivables 800,000 200,000 200,000
Inventories 1,200,000 450,000 500,000
Other current assets 800,000 150,000 175,000
Land 3,000,000 750,000 1,200,000
Building-net 6,000,000 1,250,000 1,000,000
Equipment-net 3,500,000 300,000 275,000
Total 18,300,000 3,175,000

Accounts payable 500,000 100,000 100,000

Other liabilities 2,000,000 75,000 70,000
Share capital, P10 15,000,000 2,500,000
Retained earnings 800,000 500,000
Total 18,300,000 3,175,000
The 25% non-controlling interest is to be stated at fair value. PARENT also paid P25,000 for direct costs
related to the business combination.

Determine the following balances that would appear in the consolidated financial statements of PARENT
COMPANY and its 75% owned subsidiary:
1. Current Assets
2. Non-current Assets
3. Total Liabilities
4. Stockholders’ Equity
 CRC-ACE/AFAR: Week 8 Page 5

2. P COMPANY acquired 2,000 voting shares of S COMPANY at P100 per share. Balance
sheet of both companies on January 1, 2020, immediately after the acquisition follow:
P COMPANY S COMPANY S COMPANY
BOOK VALUE BOOK VALUE FAIR VALUE
Cash 130,000 60,000 60,000
Inventories 195,000 75,000 70,000
Ppe 250,000 300,000 325,000
Investment in S Company 200,000
Total 775,000 435,000

Liabilities 75,000 200,000 220,000

Common stock, P20 par 250,000 50,000
Excess over par 250,000 100,000
Retained Earnings 200,000 85,000
Total 775,000 435,000
The non-controlling interest is to be valued at its’ proportionate share in the fair value of
S COMPANY’s net assets.

Determine the following balances that would appear in the consolidated financial statements of
P COMPANY and S COMPANY:
1. Total Assets
2. Total Liabilities
3. Equity

3. Portland Corporation purchased 80% of the voting common stock of Sidney Corporation for P2,760,000
cash on January 2, 2020. On this date, before combination, the book value and fair value of Portland and
Sidney were as follows:
Portland Corporation Sidney Corporation
Book value Fair value Book value Fair value
Cash P 3,000,000 P 3,000,000 P 60,000 P 60,000
Receivables - net 800,000 800,000 200,000 200,000
Inventories 1,100,000 1,200,000 400,000 500,000
Other current assets 900,000 900,000 150,000 200,000
Land 3,100,000 4,000,000 500,000 600,000
Buildings - net 6,000,000 8,000,000 1,000,000 1,800,000
Equipment - net 3,500,000 4,500,000 800,000 600,000
P18,400,000 P22,400,000 P3,110,000 P3,960,000
Accounts payable P 400,000 400,000 200,000 200,000
Other liabilities 1,500,000 1,600,000 610,000 560,000
Share capital, P10 P15,000,000 2,000,000
Retained earnings 1,500,000 300,000
P18,400,000 P3,110,000

Determine the following asset balances that would appear in the consolidated financial statements
of Portland and its 80% owned subsidiary:
1) Current Assets
2) Land
3) Building and Equipment
4) Goodwill
5) Investment in Sidney Corporation
6) Ordinary shares
7) Retained earnings
8) Minority interest
9) Goodwill and minority interest assuming that Sydney’s shares are traded in the stock market
at P 20/share.

4. Corporation PX acquired 2,000 shares of the voting stock of Corporation SX in the open market at P 50 per
share. Balance sheets of both companies on January 1, 2020, immediately after the acquisition of shares of
PX, are as follows:
Corporation PX Corporation SX
Cash P 50,000 P 10,000
Temporary investments 80,000 40,000
Receivables (net) 95,000 10,000
Investment in Corporation SX 100,000
Machinery and equipment (net) 100,000 45,000
Land 50,000 20,000
Total assets P 475,000 P 125,000
 CRC-ACE/AFAR: Week 8 Page 6

Accounts payable P 75,000 P 25,000

Common stock (P 20 par) 250,000 50,000
Excess over par 90,000 30,000
Retained earnings 60,000 20,000
Total liabilities and SHE P 475,000 P 125,000

The fair values of PX and SX assets on January 1, 2020, are presented below. Liabilities of both companies are prop
valued at their respective book value:
PX SX
Cash P 50,000 P 10,000
Temporary investment 100,000 50,000
Receivables (net) 95,000 8,000
Investment in Corporation SX 100,000
Machinery and equipment (net) 110,000 40,000
Land 100,000 30,000
P 555,000 P 138,000

1) In the consolidated balance sheet, the total temporary investment should be reported at:
2) In the consolidated balance sheet, the receivables should be reported at:
3) In the consolidated balance sheet, goodwill should be reported at:
4) The total consolidated assets must be:
5) In the consolidated balance sheet, net assets should be reported at:

CONSOLIDATED FINANCIAL STATEMENTS: SUBSEQUENT TO DATE OF ACQUISITION

(INTERCOMPANY TRANSACTIONS)

1. Puff Corporation acquired a 60% interest in Scot Corporation for P200,000 cash on January 1, 2019 when
the stockholders’ equity of Scot consisted of P200,000 capital stock and P25,000 retained earnings. The
books and fair values of Scot’s assets liabilities are equal except of PPE which is undervalued by P 50,000.
The undervalued machinery is being depreciated over four years and goodwill is not amortized.

Financial statements for Puff and Scot Corporations for 2020 are summarized as follows:
Puff Scot
Combined Income and Retained Earnings Statement
for the Year Ended December 31, 2020
Net sales P900,000 P300,000
Dividends from Scot 6,000
Cost of goods sold ( 600,000) ( 150,000)
Operating expenses ( 190,000) ( 90,000)
Net income 116,000 60,000

Add: Retained earnings January 1, 2020 112,000 50,000

Deduct: Dividends ( 100,000) ( 20,000)
Retained earnings December 31, 2020 P128,000 P 90,000
Balance Sheet at December 31, 2020
Cash P 26,000 P 15,000
Accounts receivables - net 26,000 20,000
Inventories 82,000 60,000
Other current assets 80,000 5,000
Land 160,000 30,000
Plant and equipment - net 340,000 230,000
Investment in Scot 200,000 -
Total assets P914,000 P360,000
Accounts payable P 24,000 P 15,000
Dividends payable 10,000
Other liabilities 62,000 45,000
Share capital 700,000 200,000
Retained earnings 128,000 90,000
Total liabilities and stockholders’ equity P914,000 P360,000

Additional information:
1. A P10,000 dividend was declared by Scot on Dec. 30, 2020 but not recorded by Puff.
2. Puff’s accounts receivable includes P5,000 due from Scot.
 CRC-ACE/AFAR: Week 8 Page 7

Determine the following account balances that would appear in the consolidated Financial Statements of
Puff its 60% owned subsidiary on December 31, 2020:
1) Operating expenses
2) Net Income
3) Non-Controlling Interest in the Subsidiary NI
4) Dividends
5) Current Assets
6) Non-current assets
7) Total Liabilities
8) Share Capital
9) Non-controlling interest in the subsidiary net assets
10) Total Stockholders’ Equity

2. On January 2, 2019, Parent Corporation purchased 80% of Subsidiary Company’s common stock for
P810,000. P37,500 of the excess is attributable to goodwill and the balance to a depreciable asset with an
economic life of ten years. Non-controlling interest is measured at its fair value on the date of acquisition.
On the date of acquisition, stockholders’ equity of the two companies were as follows:
Parent Corp. Subsidiary Co.
Ordinary shares P1,312,500 P 300,000
Retained earnings 1,950,000 525,000

On December 31, 2019, Subsidiary Company reported net income of P131,250 and paid dividends of
P45,000 to Parent. Parent reported earnings from its separate operations of P356,250 and paid dividends
of P172,500. Goodwill if any had not been impaired.

Required:
1) How much is the consolidated profit attributable to parent on December 31, 2019?
2) How much is the consolidated profit on December 31, 2019?
3) How much is the non-controlling interest in profit of Subsidiary Company on December 31, 2019?
4) What amount of non-controlling interest is to be presented in the consolidated statement of
financial position on December 31, 2019?
5) How much is the consolidated retained earnings attributable to parent’s shareholder equity on
December 31, 2019?

3. Sony Company a wholly owned subsidiary of Philip Corporation. The following are excerpts from the 2020
condensed income statements of the two companies:
Philip Corp. Sony Co.
Sales to Sony P 500,000
Sales to others 2,000,000 P1,500,000
Cost of goods sold from Philip 400,000
Cost of goods sold from others 1,750,000 950,000
Gross profit P 750,000 P 150,000

The sales of Philip to Sony are made on the same terms as those made to others.

Required: Prepare the consolidated income statement of Philip and Subsidiary for 2020.

4. SALLY is a 70% owned subsidiary of PAUL COMPANY. The transactions of both companies are
summarized below for 2020
PAUL SALLY
Sales 800,000 600,000
Cost of sales 500,000 300,000
Net income 150,000 75,000
Dividends paid 50,000 25,000
Inventory-end 150,000 75,000
During the year, SALLY sold to PAUL merchandise for P100,000. 25% of these goods remain unsold at
the end of the year. The beginning inventory of PAUL includes P30,000 worth of goods purchased from
SALLY at a 40% mark-up.

Determine:
1) Consolidated sales
2) Consolidated cost of sales
3) The non-controlling interest in net income.
4) The profit attributable to equity holders of parent.
5) Consolidated ending inventory
 CRC-ACE/AFAR: Week 8 Page 8

5. Steeple Corp. is a 90% subsidiary of Peake Corp. acquired by Peake at book value on January 1, 2020.
Separate income statements for Peake and Steeple for 2020 and 2021 are as follows:
Peake Steeple
2020 2021 2020 2021
Sales P1,000,000 P1,200,000 P500,000 P700,000
Cost of sales (600,000) (720,000) (250,000) (350,000)
Other expenses (200,000) (250,000) (100,000) (200,000)
Net income (own operations) P 200,000 P 230,000 P150,000 P150,000
Intercompany sales were P80,000 during 2020 and P120,000 during 2021. 20% of the 2020
intercompany sales were still unsold at the end of 2020 and 30% of the intercompany sales in 2021
were still unsold at the end of 2021.

Part A: Assume that all intercompany sales are from Steeple to Peake, determine:
1) Consolidated cost of sales for 2020.
a. P776,400 b. P960,000 c. P782,000 d. P778,000
2) Minority interest income for 2020.
a. P15,000 b. P14,200 c. P13,800 d. P14,400
3) Consolidated net income for 2020 attributable to the owners of the parent.
a. P328,600 b. P356,000 c. P327,800 d. P324,200

Part B: Assume that all intercompany sales are from Peake to Steeple, determine:
4) Consolidated cost of sales for 2021.
a. P776,400 b. P960,000 c. P958,000 d. P956,000
5) Minority interest income for 2021.
a. P15,000 b. P14,000 c. P14,400 d. P14,200
6) Consolidated net income for 2021 attributable to the owners of the parent.
a. P328,600 b. P357,000 c. P356,000 d. P359,000

6. During 2019 Tas Trans Company sold land with a cost of P150,000 to its 80% owned subsidiary, Jac
Company, for P 200,000. The subsidiary sold the land in 2021 to an outsider for P280,000. The subsidiary
and the parent reported net income as follows:
Parent Subsidiary
2019 351,000 154,000
2020 335,000 149,000
2021 315,000 165,000
The reported income of the parent company includes P 51,000 of dividend income each year.

Required:
1. Calculate Tas Trans Company’s investment income from Jac Company in 2019, 2020, and 2021.
2. Elimination entries for 2019, 2020, and 2021
3. Determine non-controlling interest in the net income of the subsidiary in 2019, 2020 and 2021
4. Determine the consolidated net income attributed to the parent for 2019, 2020 & 2021.

7. LITTLE COMPANY is a 70% subsidiary of BIG COMPANY. The separate books of the two companies on
December 31, 2020 follow:

BIG COMPANY LITTLE COMPANY

Machinery (net) 350,000 250,000
Land 1,200,000 350,000
Net Income 550,000 250,000

LITTLE sold to BIG a machine on July 1, 2018 with a remaining 5-year life. LITTLE reported a gain of
P30,000 for this sale. On January 5, 2020, BIG sold a machine to LITTLE for P200,000. The machine had
a book value of P300,000 and accumulated depreciation of P120,000 on the date of the sale. The
machine has a 4-year remaining life. On November 1, 2020, LITTLE sold land to BIG for P400,000. The
land cost LITTLE P350,000.

Determine:
1) Consolidated machine as of December 31, 2020.
2) Consolidated land as of December 31, 2020.
3) The non-controlling interest in net income for 2020.
4) The profit attributable to equity holders of parent for 2020.
 CRC-ACE/AFAR: Week 8 Page 9

8. On January 1, 2019, Sonny Company, a 90% owned subsidiary of Papa Company transferred equipment to
its parent in exchange for P75,000 cash. At the same date of transfer, the subsidiary’s record carried the
equipment at cost of P106,000 less accumulated depreciation of P45,000. The equipment has an
estimated remaining life of 7 years. The subsidiary reported net income for 2019 and 2020 of P132,000
and P197,000, respectively. The parent company reported income of P220,000 (including dividend income
of P45,000) and P295,000 (including dividend income of P45,000) for 2019 and 2020, respectively.

Required:
1. Calculate Papa Company’s investment income from Sonny Company in 2019 and in 2020.
2. Elimination entries for 2019 and 2020.
3. Determine non-controlling interest in the net income of the subsidiary for 2019 and 2020.
4. Determine the consolidated net income attributed to the parent for 2019 and 2020.

9. C Corporation acquired 90% of the outstanding P10 par value voting common stock of F, Inc., on January
1, 2019 in exchange for 25,000 shares of its P10 par value common stock. On December 31, 2018, C’s
common stock had a closing market price of P30 per share on the national stock exchange.
On December 31, 2019, the companies had condensed financial statements as follows:

C Corp F Inc
Income and Retained Earnings Statement
Net sales P3,800,000 P1,500,000
Dividends from F 36,000
Gain on sale of warehouse 30,000
Cost of goods sold (2,360,000) (870,000)
Operating expenses (including depreciation) (1,100,000) (440,000)
Net Income 406,000 190,000
Retained Earnings, January 1, 2019 440,000 156,000
Dividends paid - (40,000)
Retained earnings, December 31, 2019 P 846,000 P 306,000

Balance Sheet
Cash P 566,000 P 150,000
Accounts receivable (net) 860,000 350,000
Inventories 1,060,000 410,000
Land, plant and equipment 1,320,000 680,000
Accumulated depreciation (370,000) (210,000)
Investment in F (at cost) 750,000
Total assets P4,186,000 P1,380,000
Accounts payable & accrued expenses P1,340,000 P 594,000
Common stock (P10 par) 1,700,000 400,000
Additional paid-in capital 300,000 80,000
Retained earnings 846,000 306,000
Total liabilities and stockholders’ equity P4,186,000 P1,380,000

Additional information:
• There were no changes in the common stock and additional paid-in capital accounts during 2019 except
the one necessitated by C’s acquisition of F.

• At the acquisition date, the fair value of F’s machinery exceeded its book value by P54,000. The excess
cost will be amortized over the estimated average remaining life of six years. The fair values of all
of F’s other assets and liabilities were equal to their book values. Any goodwill resulting from the
acquisition will not be amortized.

• On July 1, 2019, C sold a warehouse facility to F for P129,000 cash. At the date of sale, C’s book values
were P33,000 for the land and P66,000 for the undepreciated cost of the building. Based on a real
estate appraisal, F allocated P43,000 of the purchase price to land and P86,000 to building. F is
depreciating the building over its estimated five-year remaining useful life by the straight-line method
with no salvage value.

• During 2019, C purchased merchandise from F at an aggregate invoice price of P180,000, which
included a 100% mark-up on F’s cost. At December 31, 2019, C owed F P86,000 on these purchases
and P36,000 of this merchandise remain in C’s inventory.

Required:
Prepare the consolidated financial statement of C Corporation and Subsidiary F Inc. at and for the year
ended December 31, 2019 and the working paper entries.
CRC-ACE/AFAR: Week 8 Page 10

PARTNERSHIP JOINT VENTURE

Definition:
Joint Venture is a general commercial undertaking by two or more individuals or business units that is
terminated upon the fulfilment of the established objective.

Two methods of accounting joint venture:

1. Separate books for the joint venture maintained.
2. Separate books are not maintained.

Problems:
1. Barnes and Carter join in a venture for the sale of football souvenirs at the Rose Bowl Games Partners
agree to the following: (1) Barnes must be allowed a commission of 10% on net purchases, (2) members
shall be allowed commissions of 25% on the respective sales, (3) any remaining profit shall be shared
equally, Venture transactions follows:

December 20 Barnes make cash purchases, P9,500.

January 1 Carter pays venture expenses, P1,500
January 1 Sales are as follows: Barnes, P8,000; Carter, P6,000 (members kept their own
cash receipts.
January 6 Barnes returns unsold merchandise and receives cash of P2,500 on the return.
January 6 The partners make cash settlement.

Required: Separate books for the venture are not kept. What entries would be made on the books of
Barnes and Carter?

2. APPLE and BANANA formal joint arrangement for the sale of certain goods. The joint operators agree on
the following: APPLE shall be allowed a commission of 15% on his net purchases; the joint operators shall
be allowed commissions of 20% on their respective sales; and APPLE and BANANA shall divide the profit or
loss in 3:2 ratio, respectively. Joint arrangement transactions for the month of October follow:

Oct 1 APPLE makes a cash purchase of P57,000.

5 BANANA pays joint arrangement expenses of 9,000.
7 Sales are as follows: APPLE, P48,000; BANANA, P36,000. The
operators keep their own cash.
11 APPLE returns unsold merchandise and receives P15,000 cash
14 The operators make cash settlements.

1) How much will APPLE and BANANA receive in the distribution of the balance of the net profit of the
joint arrangement?
2) How much will APPLE receive from BANANA in the final cash settlement?

3. Jose and Rizal decided to form a joint venture by contributing P300,000 each in order to purchase goods
to be sold by them. They agreed to divide their profits equally and each shall record his purchases, sales
and expenses in his own books. After selling almost all of the canned goods, they wind up their venture.
The following data relate to the venture transactions:
• Joint venture credit balance of Jose was 240,000 and Rizal was 210,000.
• Expenses paid from the joint venture cash was 30,000 by Jose and 39,000 by Rizal.
• Cost of unsold goods, which Jose and Rizal agreed to assume and had recorded were 9,000 and
14,000 each respectively.

What was the total sales of the joint venture?

4. A,B and C formed a joint venture. A is to act as manager and is designated to record the joint venture
transactions in his books. As manager, he is allowed a management fee of 336,000. Profits and losses are
to be divided equally. The following balances appear at the end of 2016 before adjustments for venture
inventory and distribution of profits and losses: Joint venture cash (Dr.), 1,344,000; B, Capital (Dr.),
84,000, and C, Capital (Cr.), 756,000. The venture is terminated on December 31, 2016 with unsold
merchandise costing 291,200.

Assuming that the joint venture profit is 140,000, what is the balance of the joint venture account before
distribution of profit?

Assume that the joint venture incurs a loss of 28,000, what is the balance of joint venture account before
the distribution of the loss?

reh/cde