PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

Advanced Financial Accounting and Reporting

BUSINESS COMBINATION:

PROBLEM A The following Statement of Financial Position were prepared for BEEDEEYOW and YUNYUN BANK
Company on January 1, 2021 just before they entered into business combination:

BEEDEEYOW Company YUNYUN BANK Company

Book Value Fair Value Book Value Fair Value
Cash and Receivables 450,000 500,000 225,000 250,000
Inventory 900,000 1,000,000 150,000 250,000
Building and Equipment 1,687,500 1,500,000 450,000 525,000
Accounts Payable 225,000 200,000 60,000 45,000
Bond's payable 675,000 450,000 75,000 105,000
Common Stocks
P 20 par value 1,200,000
P 10 par value 300,000
Additional Paid in Capital 225,000 75,000
Retained Earnings 712,500 315,000

BEEDEEYOW Company acquired YUNYUN BANK Company by issuing 15,000 shares of common stocks
and paying Cash amounting to P 450,000. In addition, the following were incurred: Legal fees, Costs of SEC
registration, Cost of issuing stock certificates and General administrative costs were incurred and paid costing the
BEEDEEYOW Company of P 37,500; 37,500, 15,000 and 22,500 respectively.

If the market stock price of the BEEDEEYOW and YUNYUN BANK Company are P 25 and P 14, respectively at
the time of acquisition,
1. How much is the Goodwill or (Income from Acquisition)
a. P 25,000
b. (P 25,000)
c. P 50,000
d. (P50,000)

2. How much is the Combined Common Stock after the acquisition?

a. P 1,200,000
b. P 1, 500,000
c. P 1,522,500
d. P 1,575,000

3. How much is the Combined Additional Paid In Capital after the acquisition?
a. P 247,500
b. P 300,000
c. P 305,000
d. P 322,500

4. How much is the Combined Total Retained Earnings after the acquisition?
a. P 652,500
b. P 702,500
c. P 712,500
d. P 1,027,500

5. How much is the Combined Total Liabilities after the acquisition?

a. P 900,000
b. P 1,000,000
c. P 1,050,000
d. P 1,052,500

6. How much is the Combined Total Assets after the acquisition?

a. P 3,037,500
b. P 3, 500,000
c. P 3,525,000
d. P 3,550,000

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 1

Email Address: coach.atty.iysb@gmail.com
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 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

7. How much is the gain or (loss) on sale?

a. (P50,000)
b. P 50,000
c. P 135,000
d. (P 135,000)

If the market stock price of the BEEDEEYOW and YUNYUN BANK Company are P 40 and P 15, respectively at
the time of acquisition:

8. How much is the Goodwill or (Income from Acquisition)

a. P 125,000
b. (P 125,000)
c. P 175,000
d. (P175,000)

9. How much is the Combined Common Stock after the acquisition?

a. P 1,200,000
b. P 1, 500,000
c. P 1,522,500
d. P 1,575,000

10. How much is the Combined Additional Paid In Capital after the acquisition?
a. P 247,500
b. P 300,000
c. P 322,500
d. P 472,500

11. How much is the Combined Total Retained Earnings after the acquisition?
a. P 652,500
b. P 702,500
c. P 712,500
d. P 1,027,500

12. How much is the Combined Total Liabilities after the acquisition?
a. P 900,000
b. P 1,000,000
c. P 1,050,000
d. P 1,052,500

13. How much is the Combined Total Assets after the acquisition?
a. P 3,037,500
b. P 3, 500,000
c. P 3,525,000
d. P 3,675,000

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 2

Email Address: coach.atty.iysb@gmail.com
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 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

PROBLEM B: The January 1, 2021 statement of Financial Position of Solo Corporation at book and market
values were as follows:
BOOK VALUE FAIR VALUE
Current Assets P 1,200,000 P 1,125,000
Property and Equipment 1,350,000 1,500,000

Current Liabilities P 450,000 P 450,000

Long Term Liabilities 750,000 690,000
Common Stock, Par P 1 150,000
Additional Paid In Capital 300,000
Retained Earnings 900,000
Polo Corporation paid P 1,425,000 in cash for 80% of Solo Corporation’s common stock.

A. If the fair value of NCI(Non-Controlling Interest) is assessed to be P 345,000:

1. Prepare the working paper elimination entries.
2. How much is the allocated excess?
a. P 297,000
b. P 372,000
c. P 420,000
d. P 431,250

3. How much is the Full Goodwill?

a. P 237,000
b. P 285,000
c. P 297,000
d. P 420,000

4. How much is the Partial Goodwill?

a. P 237,000
b. P 285,000
c. P 297,000
d. P 420,000

5. How much of the total goodwill (income from acquisition) is attributable to Parent?
a. P 48,000
b. P 237,000
c. P 285,000
d. P 420,000

6. How much of the total goodwill (income from acquisition) is attributable to non-controlling interest?
a. P 48,000
b. P 237,000
c. P 285,000
d. P 420,000

II. If the fair value of NCI (Non-Controlling Interest) is assessed to be P 295,000:

1. Prepare the working paper elimination entries.
2. How much is the allocated excess?
a. P 297,000
b. P 372,000
c. P 420,000
d. P 431,250

3. How much of the total goodwill (income from acquisition) is attributable to Parent?
a. P 0
b. P 237,000
c. P 285,000
d. P 420,000

4. How much of the goodwill (income from acquisition) is attributable to Non-controlling Interest?
a. P 0
b. P 237,000
c. P 285,000
d. P 420,000

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 3

Email Address: coach.atty.iysb@gmail.com
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 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

III. If the there is no available fair value of NCI(Non-Controlling Interest):

1. Prepare the working paper elimination entries.
2. How much is the allocated excess?
a. P 297,000
b. P 345,000
c. P 420,000
d. P 431,250
3. How much is the Full Goodwill?
a. P 237,000
b. P 285,000
c. P 296,250
d. P 420,000
4. How much is the Partial Goodwill?
a. P 237,000
b. P 285,000
c. P 297,000
d. P 420,000
5. How much of the total goodwill (income from acquisition) is attributable to Parent?
a. P 48,000
b. P 237,000
c. P 285,000
d. P 420,000
6. How much of the total goodwill (income from acquisition) is attributable to non-controlling interest?
a. P 48,000
b. P 59,250
c. P 285,000
d. P 420,000

Problem C: On January 5, 2016, BMW Company acquires 10% of AUDI Company’s common stock for 500,000
cash and carries the investment as a fair value through OCI investment. On March 3, 2016, BMW purchases additional
70 percent of AUDI Company’s stock for P 3,780,000. At that date, AUDI Company reports identifiable asset with book
and fair value of 5,900,000 and 7,300,000. While the Liabilities with book and fair value of 2,600,000. The fair value of
non-controlling interest is P 950,000.

1. How much is the amount of Fair value net assets of the subsidiary?
a. P 3,300,000
b. P 4,700,000
c. P 4.320,000
d. P 5,400,000

2. How much is the allocated excess?

a. P 1,430,000
b. P 1,930,000
c. P 1,960,000
d. P 1,970,000

3. How much is the amount of gain or (loss) recognized due to additional shares acquired?
a. P0
b. P 40,000 loss
c. P 35,000 gain
d. P 40,000 gain

4. How much is the amount of goodwill under full fair value basis or full goodwill?
a. P 530,000
b. P 560,000
c. P570,000
d. P 1,970,000
5. How much is the amount of goodwill under proportionate share basis or partial goodwill?
a. P 530,000
b. P 560,000
c. P570,000
d. P 1,970,000

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 4

Email Address: coach.atty.iysb@gmail.com
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 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

PROBLEM D. The following Statement of Financial Position were prepared for Popoy and SaSha Company on
January 1, 2021 just before they entered into business combination:
POPOY Company SASHA Company
Book Value Fair Value Book Value Fair Value
Cash and Receivables 900,000 900,000 160,000 160,000
Inventory 600,000 800,000 100,000 130,000
Building (5 year life) 1,125,000 1,400,000 300,000 400,000
Equipment (5 year life) 300,000 400,000 250,000 200,000
Accounts Payable 450,000 400,000 50,000 50,000
Bond's payable 750000 750,000 40,000 40,000
Common Stocks
P 20 par value 750,000
P 10 par value 200,000
Additional Paid in
Capital 150,000 50,000
Retained Earnings 825,000 470,000

On the same day, Popoy purchased 70 percent common shares outstanding of SaSha for P 500,000. On December
31, Popoy Company and SaSha Company show the result of their own operations:

Popoy Company SaSha Company

2021 P262,500 P200,000

Additional Information:
▪ The fair value of Non-controlling interest (30%) is assessed at P 220,000.
▪ Popoy declared dividends amounting to P 80,000 while SaSha Declared and paid dividends of P 50,000.

1. How much is the amount of goodwill (income from acquisition) to be presented in the 2021
consolidated financial statement?
a. P 40,000
b. P 50,000
c. (P 60,000)
d. (P 80,000)

2. How much is the Non-Controlling Interest in the Net Income of Subsidiary in 2021?
a. P 48,000
b. P 50,000
c. P 60,000
d. P 72,000

3. How much is the consolidated net income in 2021?

a. P 387,500
b. P 422,500
c. P447,500
d. P 482,500

4. How much of the consolidated net income is attributable to Non-Controlling Interest in 2021?
a. P 48,000
b. P 50,000
c. P 50,500
d. P 60,000

5. How much of the consolidated net income is attributable to Controlling Interest in 2021?
a. P 339,500
b. P 374,500
c. P 399,500
d. P 434,500

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 5

Email Address: coach.atty.iysb@gmail.com
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

6. How much is the amount of NCI in Net assets of the subsidiary as of December 31, 2021?
a. P 253,000
b. P 257,500
c. P273,000
d. P290,500

7. How much is the consolidated retained earnings in 2021?

a. P1,084,500
b. P 1,119,500
c. P1,144,500
d. P1,179,500

8. How much is the consolidated shareholder’s equity in 2021?

a. P 2,292,500
b. P 2,352,500
c. P2,372,500
d. P2,502,000

9. How much is the consolidated liabilities in 2021?

a. P 1,290,000
b. P 1,315,000
c. P1,340,000
d. P1,370,000

10. How much is the consolidated assets in 2021?

a. P 3,322,000
b. P 3,612,000
c. P3,662,500
d. P3,722,500

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 6

Email Address: coach.atty.iysb@gmail.com
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 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION (PSBA) -MANILA

PROBLEM E: Sub Company sells all its output at 20 percent above cost to Par Corporation. Par purchases all its
inventory from Sub. The incomes reported by the companies over the past three years are as follows:
2018: Net Income of Sub amounted to P150,000 while operating income of Par amounted to P225,000
2019: Net Income of Sub amounted to P135,000 while operating income of Par amounted to P360,000
2020: Net Income of Sub amounted to P240,000 while operating income of Par amounted to P450,000

Sub Company sold inventory for P300,000, P262,500 and P337,500 in the years 2018, 2019, and 2020 respectively.
Par Company reported ending inventory of P105,000, P157,500 and P180,000 for 2018, 2019, and 2020 respectively.
Par acquired 70 percent of the ownership of Sub on January 1, 2018, at underlying book value. The fair value of the
non-controlling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company.

1. Based on the information given above, what will be the consolidated net income for 2018?
a. P357,500
b. P 375,000
c. P 486,250
d. P 490,000

2. Based on the information given above, what will be the consolidated net income for 2019?
a. P317, 750
b. P 375,000
c. P 486,250
d. P 490,000

3. Based on the information given above, what will be the income assigned to controlling interest for
2019?
a. P448,375
b. P 486,250
c. P 495,000
d. P 615,000

4. Based on the information given above, what will be the income to noncontrolling interest for 2019?
a. P37, 875
b. P 39,750
c. P 65,875
d. P 70,875

5. Based on the information given above, what will be the income to controlling interest for 2019?
a. P615, 375
b. P 686,250
c. P 690,000
d. P 694,000

“Therefore I tell You, Whatever you ask for through prayers believe that
you have received it and it will be yours” -Mark11:24

ATTY. IVAN YANNICK S. BAGAYAO CPA, MBA 7

Email Address: coach.atty.iysb@gmail.com
AFAR Quicknotes 2023 EDITION