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    Chapter 4 (With Problems) - Removed

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    a eweweGme—— 167 PROBLEMS: pROBLEM 1: TRUE OR FALSE 1, The bas! for consolidation is power. fF Creo > Entity A acquires Entity B on November 1, 20x1. The 20x1 consolidated profit includes Entity B’s profit from January 1 to December 31, 20x1 - it is as if control had existed for the entire year. F ; Trem NOW 4 1 V awoke Goodwill is remeasured to fair value at each reporting date. ¢ ' py F en “DBT Fy LESS w Shecomyc ned Mh VaeD Lass Use the, following information for the next two items: Entity A acquired 90% interest in Entity B on January 1, 20x1 when Entity B’s net assets had a fair value of #100. On December 31, 20x2, Entity B’s net assets increased to 200 after adjustments for acquisition-date fair values, net of depreciation. The NCI on December 31, 20x2 is 20. ¥ Before consolidation, Entity A’s retained earnings balance is 1,000. The consolidated retained earnings is P 1,090. ¢ x 6. NCI in the net assets of a subsidiary is presented in the consolidated financial statements as a mezzanine item. ' 7. Goodwill is attributed both to the owners of the parent and non-controlling interests only if the non-controlling interests are measured at fair value. ~ 8. The amount of goodwill attributed to non-controlling interests is included in the measurement of non-controlling interests in gn the subsidiary’s net assets. 7 Use the following information for the next two items: wy Co. owns 80% of Night Co. Day and Night reported profits of fa and 100, respectively, in 20x1. There is no depreciation of ‘air value adjustment. 9, ‘ * Pe consolidated profit is P300, 7 Cart" ' The profit attributable to the owners of Day Co. is P280. * [20+ & win] ° 25 aaSSQQx>__—_ i — Chapter 4 168 PROBLEM 2: FOR CLASSROOM pIsCUSSION Consolidation at acquisition date 1. On January 1, 20x1, Health Co acquired 70% interes; Wealth Co. The finanei@ ai stacemen's of the combining enti right after the business combination are as follows: Health Co- Weailtirg Cy, Cash 100.00 nt " 00 Accounts receivable O ra c ay Inventory y 4 Investment in subsidiary 560,000 | 4 30,000 10 py 400m) Prepaid assets 5700) Building, net ! f Total assets 2ALY 70,000 90,0 Accounts payable ) Share capital ! 1,000,000 20000 Share premium d 350,000 50.00 Retained earings 990,000 230.05) 2,410,000 570.000 Total liabilities and equity, of Wealth’s assets and liabilities ate fair values, exce ot as follows: Fair value The carrying) amounts approximate the acquisition-d Carrying amount ‘Accounts receivable 40,000 20,000 7 400,000 540,000 Building, net Health measured the NCI at ‘proportionate share’. Requirement: °] . quirements Prepare the consolicated statement of financial position. ‘proportionate’ ea consolidation subsequent to acquisition date - ary 2. Pink Co. acqui: I% i a quired 90% interest in Floyd, Inc. on Janu sancial Statements (Part 1) sion on Jan. 1, 20x1: net identifiable assets have a carrying amount i ni and fair value of P600,000. The difference is due S * plovd’s psd, 000 . 5 the following: : Carrying amount Fair value .** Tentory 100,000 Building, net 400,000 The remaining pink measure Information’ on Dec. 31, 20x1: ‘d the NCI at ‘prop 110,000 *% 510,000 1'¢ ugafal life of the building is 5 years. ortionate share’. statements of) ‘financial position “ysat December 31, 20x1 ASSETS Pink Co. Floyd Co. Cash . 620,000 120,000 ‘Accounts receivable me ans Nee bad 56000 ; Investment in subsidiary (at cost) PaO j a Prepaid assets D paling et 1,100,000 350,000 Total assets 2,660,000. 658,000, Accounts payable 50,000 90,000 Share capital 1,000,000 200,000 Share premium 350,000 50,000 Retained earnings 1,260,000 318,000 Bs Teta iabltes and equity 2,660,000 658,000. Statements of profit or loss For the year ended December 31, 20x1 : Sales Pink Co. Floyd Co. Cost of 600,000 200,000 Gispat sold (200,000) (60,000) Depreciation o 400,000 140,000 ee (100,000) 60,000) 170 Chaptery Distribution costs Profit for the year no dividends declared, 0° intercom, goodwill in 201 7 e There were ment of transactions and no impair Requirement: Prepate the December 31, 20x1 consolidated finang, statements. Solution: quisition date - ‘fair value’ receding problem except that Pi £965,000. mn subsequent toa Consolidatio formation in the p 3, Use the ink measured the NCTat a fair palue 0} the December 31, 20x1 consolidated finané: Requirement: Prepare statements. PROBLEM 3: EXERCISES 4. On January 1, 20x1, Sunny Co. acquired 60% interest in Rai Co. for 300,000. The financial statements of Sunny Co. i ght after the business combination follows: Sunny CO. Rainy Co- i! Carrying Carrying amt. amt. Inventory 400,000 Investment in subsidiary 300,000 600,000 Accounts payable Share capital Retained earnings ted Financial Sta 1 Chis measured uneler the proportionate share metho Requirement: Prepare the consolidated statement. of financial position on January 1, 20x1. On January 1, 20x1, Hammer Co. acquired 80% interest in Volk Co. The financial statements of the combining entities right Cash 160,000 70,000 ‘Accounts receivable 200,000 110,000 Inventory 400,000 80,000 Investment in subsidiary 520,000 2 Building, net 1,000,000 300,000 Total assets - 2,280,000 500,000 Accounts payable 100,000 20,000 Share capital 1,000,000 200,000 Share premium 300,000 100,000 Retained earnings 880,000 180,000 Total liabilities and equity 2,280,000 500,000 bilities approximate their fair values, + Folk’s assets and lial 100,000) and building (fair except inventory (fair value is value is ®400,000). + Hammer measured the NCI at ‘proportionate share’. Requirement: Prepare the consolidated statement of financial position. 3. On January 1, 20x1, Run Co. acquired 80% interest in Walk Co. Information on Jan. 1, 20x1: ©. Walk 1. 1 20x pare net identifiable assets have a carrying amount of ,000 and fair value of P600,000. The difference is due to the following: inventory (carrying amount, g; 00 100,000) and building (carrying amount, 300,009 fap 400,000). a «The remaining useful life of the building ig 10 Year « Runmeasured the NCI at ‘proportionate Share’, * Information on Dec. 31, 20x1: 7 Statements of financial position As at December 31, 20x1 ASSETS Run Co, +) Cash 750,000 k Accounts receivable 260,000 Inventory 200,000 Investment in subsidiary (at cost) 520,000 ant Total assets 2,680,000 al = Accounts payable 80,000 ir Share capital 1,000,000 2ang Share premium 300,000 Retained earnings 1,300,000 Total liabilities and equity 2,680,000 Statements of profit or loss For the year ended December 31, 20x1 Run Co. Sales 800,000 Cost of goods sold (200,000) Gross profit 600,000 Depreciation expense (50,000) Distribution Costs (130,000) 420,000 : . cai There were no dividends declared, no interc™! transactions and no impairment of goodwill in 20x1- yr sted Finacial Statements (Part 1) yuo Prepare the December 31, 20x1 consolidated financial gqatementS: information in #3 above except that Run Co. use the same ata fair value of P130,000. ? red the NCI meas Requirement? Prepare the December 31, 20x1 consolidated financial e statements. 20x1, Joy Co. acquired 60% interest in Axion, 5. On January 1, Information on Axion’s financial position on Inc. for £300,000. this date follows: . + The identifiable assets and liabilities approximated their fair values except for inventories with carrying amount of 120,000 and. fair value of P80,000 and building with carrying amount of P200,000 and fair value of ?250,000. The building has a remaining useful life of 5 years. + Axion’s equity comprises only share capital and retained earnings with carrying amounts of P250,000 and P40,000, respectively. « NClis measured at ‘proportionate share’. All the inventories on January 1, 20x1 were sold during 20x1. No dividends were declared by either entity during 20x1. There were also no intercompany transactions and no impairment of goodwill. The individual financial statements of the entities on December 31, 20x1 are shown below: Statements of financial position 4s at December 31, 20x1 JoyCo. Axion Co. —_ foy Co. ‘ion Co. “ash 4 143,000 60,000 Wentory msn 440,000 160,000 ment in subsidiary (at cost) 300,000 ial =net 560,000 160,000 TAL ASSET: : = SS 1,443,000 380,000 >, 14 LIABILITIES AND EQUITY ble 200,000 1,000,000 243,000 1,243,000 1,443, 000 apital Retained earnings TOTAL LIABILITIES AND EQUITY Statements of profit or loss For the year ended December 31, 20x1 Joy Co. Sales 300,000, Cost of goods sold (165,000) Gross profit . 135,000 Depreciation expense (40,000) Distribution costs (32,000) Profit for the year__ Reguirement: Prepare the consolidated financial statements as December 31, 20x1. 6. Use the same information in #5 except that Joy Co. measu the NCI at fair value of ®132,000. Requirement: Prepare the consolidated financial statements as a December 31, 20x1. Consolidated Financial Statements (Part 1) 17 5 pROBLEM 4: MICROSOFT EXCEL - NOTE: This activity is OPTIONAL as the learner will need to have access to a COMPUTER with a Microsoft Excel _® tion installed in it. applica Open a Microsoft Excel® Worksheet and copy the following: fa feat, | fa Parent Subsidiary 2) Cash 40,000 5,000 3 | Accounts receivable 50,000 20,000 4, Inventory 10,000 25,000 5 investment in subsidiary 180,000 ra} Land 800,000 250,000 7 8 | Accounts payable 90,000 130,000 “9 | Share capital 500,000 80,000 10) Share premium 100,000 “1| Retained earnings 390,000 90,000 > To place commas on the amounts or increase/decrease decimal places, use these buttons. Dao ae 7 FI ee rete temas 0s trv Bec re a ee Mere, Be Bee Rupioe SA Boor hdd Aoret c SS 2. Make your table look like this: 5 Investment in subsidiary 180,000 S,oqy 6 | Land 300,000 250,000 7 | Goodwill 7,100,099 8 Totals 7,080,000 __300,000 fl ae 9 10. Accounts payable 90,000 130,000 200% 11. Share capital 500,000 80,000 Sony 12. Share premium 100,000 100.0%, 13. Retained earnings 390,000 90,000 390,009 14 | NCL 00t9 15 | Totals 7,080,000 300,000 7,260,000" Print the file and submit it to your teacher for grading. PROBLEM 5: MULTIPLE CHOICE - THEORY 1. According to PFRS 10 a. a parent entity is required to consolidate its subsidiaries. b, a parent entity is encouraged but not required to consolidate its subsidiaries. c. a parent need not consolidate a subsidiary if the subsidiary’s business is different from that of the parent. d. a parent entity is required to consolidate its subsidiaries only for internal reporting purposes. 2. Which of the following is not an element of control? a. Power b. Exposure, or rights, to variable returns ©) Major holdings d. Ability to affect return 8 ithe essential elements of control ig yne oF s wows cd $ peRS 10, an investor has power if

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