FATHER SATURNINO URIOS UNIVERSITY

ACCOUNTANCY PROGRAM

Accountancy In-House Review

Cluster 3 – Level 2 & 3
Drill 5 – Business Combination/Consolidated FS/ForEx Lyndon P. Regodon, CPA

1. The statement of financial position of L Corporation on June 30, 2013 is presented below:
Current assets P32,500
Land 220,000
Building 110,000
Equipment 87,500
Total assets P450,000

Liabilities 87,500
Capital stock, P5 par 150,000
Additional paid-in capital 137,500
Retained earnings 75,000
Total equities P450,000

All the assets and liabilities of L assumed to approximate their fair values except land and building. It is
estimated that the land have a fair value of 350,000 and the fair value of the building increased by P80,000.
K Corporation acquired 80% of L’s capital stock forP500,000.
a. Assuming the consideration paid includes control premium of P142,000, how much is the goodwill/gain on
acquisition) on the consolidated financial statements?

b. Assuming the consideration paid excludes control premium of P32,000 and the fair value of the non-
controlling interest is P122,750, how much is the goodwill/(gain on acquisition) on the consolidated financial
statements?

c. Assuming the consideration pain includes control premium of P37,000, how much is the goodwill/(gain on
acquisition) on the consolidated financial statements?

2. On January 2, 2013, the statement of financial position of P company and S Company prior to the combinations
are:

P Co. S Co.

Cash P450,000 P15,000

Inventories 300,000 30,000
PPE 750,000 105,000
Total P1,500,000 P150,000

Current liabilities P90,000 P15,000

Common stock 150,000 15,000
APIC 450,000 30,000
Retained earnings 810,000 90,000
Total Liabilities and SHE P1,500,000 P150,000
The fair value of the S Co.’s equipment is P153,000.

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 a. Assuming P Co. acquired 70% of the outstanding common stock of S Co. for P105,000 and the NCI is
measured at fair value of P61,000, how much is the goodwill/(gain on acquisition)?

b. Assuming P Co. acquired 80%of the outstanding common stock of S Co. for P136,800 and NCI is measured at
non-controlling interest’s proportionate share of S Co.’s identifiable net assets, how much is the
consolidated SHE on the date of acquisition?

c. Assuming P Co. acquired 90% of the outstanding common stock of S Co. for P243,000 and NCI is measure
using fair value, how much is the total consolidated assets on the date of acquisition?

3. On January 1, 2009, Paul Corporation pays P500,000 cash and also issue 2 shares for every share of Marie Corp.
the following balance sheet of Paul Corporation and Marie Corporation before they entered into a business
combination:
Paul Corp. Marie Corp.
Book value Fair value Book value Fair value
Cash P 550,000 P 550,000 P 50,000 P 50,000
Accounts receivable 50,000 50,000 40,000 40,000
Inventory 150,000 280,000 350,000 500,000
Land 5,000,000 5,500,000 1,000,000 1,200,000
Building 3,000,000 3,500,000 1,800,000 1,780,000

Accumulated depreciation (800,000) (250,000)

Total assets P7,950,000 P9,880,000 P2,990,000 P3,570,000

Accounts payable P 450,000 P430,000 P 380,000 P 380,000

Bonds payable 500,000 530,000 400,000 420,000

Common stock
P20 par P2,000,000
P40 par P1,200,000
Additional paid in capital 1,500,000 1,200,000
Retained earnings 3,500,000 460,000
Total liabilities and SHE P7,950,000 P2,990,000
Paul shares were selling at P45 and Marie shares were selling at P58. Additional cash payment made by Paul
Corp. in completing the acquisition were:
Stock registration fee for new shares of Paul P13,000
Professional fees paid to accountant 25,000
Cost issuance of Paul shares 15,000
Payment to stock broker and consultants 50,000

What is the total assets after combination?

a. 11,520,000 b. 11,423,000 c. 11,358,000 d. 11,347,000
What is the total stockholder’s equity after combination?
a. 9,597,000 b. 10,480,000 c. 10,388,000 d. 9,608,000
What is the balance of additional paid in capital immediately after the combination?
a. 2,973,000 b. 3,523,000 c. 2,972,000 d. 3,753,000

4. Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value of Entity S’s net
assets in Entity P’s consolidated financial statements is P450,000 and the carrying amount attributable to the
noncontrolling interest’s in Entity S is P45,000. On January 1, 2011, Entity sells 80% of the share in Entity S to a

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 third party for cash proceeds of P540,000. As a result of the sale, Entity P loses control of Entity S but retains a
10% non-controlling interest in Entity S. The fair value of the retained interest on that date is P54,000.
Determine the gain or loss on disposal (deconsolidation).
a. 144,000 gain b. 144,000 loss c. 189,000 gain d. 189,000 loss

5. On July 1, 2011, the Venus Company acquired the net assets of Cupid Company for a consideration transferred
of P16,000,000. At the acquisition date, the carrying amount of Cupid’s net assets was P10,000,000.
At the acquisition date, a provisional fair value of P12,000,000 was attributed to the net assets. An additional
valuation received on May 31, 2012 increased this provisional fair value to P13,000,000 and on July 30, 2012 this
fair value was finalized at P14,000,000.
What amount should Venus present for goodwill in its statement of financial position at December 31, 2012?
a. 6,000,000 c. 4,000,000
b. 3,000,000 d. 2,000,000

6. Atlas Corporation acquired an 80% interest in Rogets Company on January 1, 2012 for P1,225,000. On this date
the capital stock and retained earnings of the two companies were as follows;
Atlas Rogets
Capital stock P3,150,000 P875,000
Retained earnings 1,400,000 175,000
The assets and liabilities of Rogets were stated at their fair values when Atlas acquired its 80% interest and the
proportionate share in net identifiable assets was used to initially measure the non-controlling interest. Atlas
uses the cost method to account for its investment in Rogets
Net income and dividends for 2012 for the affiliated companies were:
Atlas Rogets
Net income P525,000 P157,500
Dividends declared 315,000 87,500
Dividends payable on December 31, 2012 157,500 43,750
End of year evaluation indicates P12,000 impairment in goodwill.
The consolidated retained earnings at December 31, 2012:
a. 2,041,400 c. 1,656,400
b. 1,969,000 d. 1,654,000

7. Papa Co. purchased 70% ownership of Mama Co. on January 1,2009 at underlying book value. While each
company has its own sales forces and independent product lines, there are substantial inter-corporate sales
inventory each period. The following inter-corporate sales occurred during 2010 and 2011:

Year Seller Cost of Goods Sold Buyer Sales Unsold at year-end Year sold to outsiders
2010 Papa P 448,000 Mama P 640,000 P140,000 2011
2011 Mama P 312,000 Papa P 480,000 P 77,000 2012
2011 Papa P 350,000 Mama P 437,500 p 63,000 2012

The following data summarized the results of their financial operations for the year ended, Dec. 31, 2011:
Papa Co. Mama Co.
Sales P 3,580,000 P 1,860,000
Gross profit 1,904,000 504,000
Operating expense 770,000 280,000
Ending inventories 336,000 280,000
Dividend received from affiliate 126,000 --
Dividend received from non-affiliate -- 70,000

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 For the year ended 2011, compute:

 Consolidated Cost of goods sold _______________

 Consolidated net income attributable to parent’s SHE _______________

8. On January 2, 2012, D Corporation purchased 80% of the outstanding shares of C Company for P4,750,000. At
that date, C had P4,000,000 of ordinary shares outstanding and retained earnings of P1,600,000.
 C’s equipment with the remaining life of 5 years had a book value of P2,250,000 and a fair value of
P2,630,000. C’s remaining assets had a book value equal to their fair values.
 All intangibles except goodwill are expected to have remaining lives of 8 years
 The income and dividend figures for both D and C are as follows: net income of D in 2012 is P900,000; 2013
is P1,100,000. Net income of C in 2012 is P340,000; 2013 is P510,000.
 Dividends of D in 2012 is P220,000; 2013 is P390,000. Dividends of C in 2012 is P70,000; 2013 is P130,000.
 D’s retained earnings balance at the date of acquisition was P3,450,000.
a. How much is the consolidated retained earnings attributable to controlling interest in 2013?

b. How much is the consolidated profit on 2013?

c. How much is the NCI in net assets in 2013?

9. Barako Company acquired a heavy equipment for $ 14,100 from a supplier in Detroit, USA on December 1, 2013.
Payment in US dollars was due on March 31, 2014. On the same date, to hedge this foreign currency exposure,
Barako entered into a futures contract to purchase $14,100 from Citibank for delivery on March 31, 2014. Direct
exchange rates for dollars on different dates were as follows:
Spot rates
Bid Offer
December 1, 2013 41.6 41.4
December 31, 2013 42.5 42.3
March 31, 2014 43.4 43.7

Forward rates
Dec. 1 Dec. 31 March 31
30-day futures 42.3 41.8 43.2
60-day futures 41.8 42.2 42.6
90-day futures 40.6 42.5 43.4
120-day futures 42.2 42.8 42.9

What is the reported value of the liability to the vendor at December 31, 2013?
a. 596,430 b. 599,250 c. 596,340 d. 599,520

Using the same information in no. 18, what was the net impact in Barako Company’s income in 2013 as a result
of this hedging activity?

a. 8,460 gain b. 8,460 loss c. 8,640 loss d. 8,640 gain

10. Manila Company sold merchandise for 325,000 pounds to a customer in London on November 1, 2013.
Collection in British pounds was due on January 30, 2014. On the same date, Manila entered into 90-day futures
contract to sell 325,000 pounds to a bank. Exchange rate for pound on different dates are as follows:
Nov. 1 Dec. 31 Jan. 31
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 Spot rate P51.3 P52.6 P51.8
30-day futures 52.2 52.4 53.1
60-day futures 51.7 52.1 52.5
90-day futures 50.5 52.5 53.3
How much is the net foreign exchange gain or loss on January 30, 2014?

11. On October 1, 2008, R corporation purchased goods from a U.S. based corporation worth $2,500. Payment is
due in 120 days on January 30, 2009. In view of the sale, r corporation enters into a forward contract to buy
$2,500 from Philippine National Bank (PNB) in 120 days. The relevant exchange rates are as follows:
10/01/08 12/3108 10/30/09
Spot Rate P43 P47 P50
Forward Rate 44 46 50

Which of the following is correct?

a. Forward Contract Receivable on Dec. 31, 2008 is P110,000
b. Net forex loss settlement date is P2,500
c. Forex gain on the forward contract on the transaction date is P5,000
d. Forex loss on the purchase transaction on the Balance Sheet date is P10,000

12. On October 31, 2013, Pointers Philippines took delivery from a British firm inventory costing £1,450,000.
Payment is due on January 31, 2014. At the same time, Pointers paid P16,500 cash to acquire a 90-day call
option for £1,450,000
October 31, 2013 December 31, 2013 January 31, 2014
Strike Price P12.60 P12.60 P12.60

Spot rate 12.61 12.62 12.64

Forward rate 12.72 12.77 12.78
FV on call option ? P34,000 ?
Given the following information above, compute for the following:
Foreign exchange gain or loss on option contract due to change in time value on December 31, 2013, and foreign
exchange gain or loss due to change in intrinsic value on January 31, 2014.
____________; ____________

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