Goodwill arising from a business combination is

never amortized.

In a business combination, when the fair value exceeds the investment cost, which of the
following statements is correct?

A gain from a bargain purchase is recognized for the amount that the fair value of the
identifiable net assets acquired exceeds the acquisition price.

On December 31, Year 2, Saxe Corporation was acquired by Poe Corporation. In the
business combination, Poe issued 200,000 shares of its 10 par common stock, with
a market price of 18 a share, for all of Saxe’s common stock. The stockholders’
equity section of each company’s balance sheet immediately before the
combination was
 
  Poe Saxe
Common stock 3,000,000 1,500,000
Additional paid-in 1,300,000 150,000
capital
Retained earnings 2,500,000 850,000
  6,800,000 2,500,000
 
In the December 31, Year 2 consolidated balance sheet, additional paid-in capital
should be reported at 

2,900,000

In a business combination accounted for as an acquisition the appraised values of the

identifiable assets acquired exceeded the acquisition price. How should the excess
appraised value be reported?

As a gain in net income for the period.

On April 1, Year 1, Dart Co. paid 620,000 for all the issued and outstanding common
stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, Year
1, follow:
Cash 60,000
Inventory 180,000
Property and equipment (net of 320,000
accumulated 
 depreciation of 220,000)
Goodwill 100,000
 Liabilities (120,000)
Net assets 540,000
 
On April 1, Year 1, Wall’s inventory had a fair value of 150,000, and the property and
equipment (net) had a fair value of 380,000. What is the amount of goodwill resulting
from the business combination?

150,000

A parent entity is acquiring a majority holding in an entity whose shares are dealt in on a
recognised market. Under IFRS3 Business combinations, which of the following measurement
bases may be used in measuring the non-controlling interest at the acquisition date?

The fair value of the shares in the acquiree not acquired

On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:
 
Inventories P100, 000 (sold in Year 2)
Building P200, 000 (5- year remaining life)
 
During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.

What is the consolidated total comprehensive income attributable to parent on

December 31, Year 2, if Carlito’s net income for Year 2 is P600,000?

808,000

On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:
 
Inventories P100, 000 (sold in Year 2)
Building P200, 000 (5- year remaining life)
 
During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.
What is the NCI in net assets of subsidiary on December 31, Year 2?

P552,000
On January 1, Year 2, Carlito Company acquired 80% interests in Harries Company for
P2,000,000 cash. The stockholder’s equity of Harries at the time of acquisition is
P1,875,000. On January 1, Year 2, NCI is measured at its implied fair value. The excess
of cost over books value of interest acquired is allocated to the following assets:
 
Inventories P100, 000 (sold in Year 2)
Building P200, 000 (5- year remaining life)
 
During Year 2, Harries Company reported total comprehensive income of P500,000 and
paid dividend for P100,000.

What was the fair value of NCI on January 1, Year 2?

P500,000

Wilmslow acquired 80% of the equity shares of Zeta on 1 April Year 1 when Zeta’s
retained earnings were P200,000. During the year ended 31 March Year 2, Zeta
purchased goods from Wilmslow totalling P320,000. At 31 March Year 2, one
quarter of these goods were still in the inventory of Zeta. Wilmslow applies a mark-
up on cost of 25% to all of its sales. At 31 March Year 2, the retained earnings of
Wilmslow and Zeta were P450,000 and P340,000 respectively.
 
What would be the amount of retained earnings in Wilmslow’s consolidated
statement of financial position as at31 March Year 2?

P546,000

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:
 
Year Sub Company’s Net Income Par Corporation’s Operating Income
Year 1 150,000 225,000
Year 2 135,000 360,000
Year 3 240,000 450,000
 
Sub Company sold inventory for P300,000, P262,500 and P337,500 in the years Year 1,
Year 2, and Year 3 respectively. Par Company reported ending inventory of P105,000,
P157,500 and P180,000 for Year 1, Year 2, and Year 3 respectively. Par acquired 70
percent of the ownership of Sub on January 1, Year 1, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.
 
What will be the income assigned to controlling interest for Year 2? 
 

P448,375

On January 1, Year 1, Wilhelm Corporation acquired 90 percent of Kaiser Company's

voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, Year 2, the trial
balances of the two companies are as follows:
  Wilhelm Corporation Kaiser Company
  Debit Credit Debit Credit
Current Assets 200,000   140,000  
Depreciable Assets 350,000   250,000  
Investment in Kaiser Company 162,000      
Stock
Depreciation Expense 27,000   10,000  
Other Expenses 95,000   60,000  
Dividends Declared 20,000   10,000  
Accumulated Depreciation   118,000   80,000
Current Liabilities   100,000   80,000
Long-Term Debt   100,000   50,000
Common Stock   100,000   50,000
Retained Earnings   150,000   100,000
Sales   250,000   110,000
Income from Subsidiary   36,000    
 
Based on the preceding information, what amount would be reported as retained
earnings in the consolidated balance sheet prepared at December 31, Year 2? 

294,000

Novy Corporation purchased at book value 70 percent of the ownership of Meiji

Corporation and 90 percent of the ownership of Cecille Corporation in Year 1. There are
frequent intercompany transfers among the companies. Activity relevant to Year 4 is
presented below.
Productio Transfe Unsold at
Year Producer n Cost Buyer r Price End of Year Year Sold
Year 3 Meiji Corp. 24,000 Novy Corp. 30,000 10,000 Year 4
Year 3 Cecille Corp. 60,000 Meiji Corp. 72,000 18,000 Year 4
Year 4 Novy Corp. 15,000 Meiji Corp. 35,000 7,000 Year 5
Cecille
Year 4 Meiji Corp. 63,000 Corp. 72,000 12,000 Year 5
Year 4 Cecille Corp. 27,000 Novy Corp. 45,000 15,000 Year 5
 
For the year ended December 31, Year 4, Novy Corporation reported P80,000 of income
from its separate operations (excluding income from intercorporate investments). Meiji
Corp. reported net income of P37,500, and Cecille Corporation reported net income of
P20,000.
 
Compute the amount reported as consolidated net income for Year 4.

P 117,900

BaduyCorp. owns 80 percent of the stock of Hiphop Company. At the end of Year 2,
Baduy Corp. and Hiphop Company reported the following partial operating results and
inventory balances:
  Baduy Corp. Hiphop Co.
Total sales 658,000 510,000
Sales to Hiphop Co. 140,000  
Sales to Baduy Corp.   240,000
Profit   20,000
Operating Profit (excluding income from Hiphop 70,000  
Co.)
Inventory, December 31, Year 2:    
Purchases from Hiphop Co. 48,000  
Purchases from Baduy Corp.   42,000
 
Baduy Corporation regularly prices its products at cost plus a 40 percent mark-up for
profit. Hiphop Company prices its sales at cost plus a 20 percent mark-up. The total
sales reported by Baduy and Hiphop include both intercompany sales and sales to
nonaffiliates.
 
The consolidated cost of sales for Year 2 must be:
 
 496,333

A subsidiary made sales of inventory to its parent at a profit this year. The parent, in turn,
sold all but 20 percent of the inventory to unaffiliated companies, recognizing a profit. The
amount that should be reported as cost of goods sold in the consolidated income statement
prepared for the year should be:

the amount reported as intercompany sales by the subsidiary minus unrealized profit in the
ending inventory of the parent.

On January 1, Year 1 SST Company purchased a computer with an expected life of 5

years. On January 1, Year 3 SST Company sold the computer to PMN corporation and
recorded the following entry:
Cash P39, 000
Accumulated Depreciation 16, 000
Computer Equipment 40, 000
Gain on sale of equipment 15, 000
 
PMN Corporation holds 60% of the voting shares of SST Company. SST Company and
PMN Corporation reported income from its own operations of P45, 000 and P85, 000 for
Year 3 respectively. There is no change in the estimated life of the equipment as a result
of intercompany sale.

What is the consolidated total comprehensive income attributable to parent for Year 3?

P106, 000

BigBang Company owns an 80% controlling interest in Sheldon Company. Sheldon

regularly sells merchandise to BigBang, which then sells to outside parties. The gross
profit on all such sales is 40%. On January 1, Year 1, BigBang sold land and a building to
Sheldon. The value of the parcel is 20% to land and 80% to structures. Pertinent data for
the companies is summarized below.
  BigBang Sheldon
Internally generated net income, Year 2 340, 000 235, 000
Internally generated net income, Year 1 P520, 000 P250, 000
Intercompany merchandise sales, Year 2 120, 000
Intercompany merchandise sales, Year 1 100, 000
Intercompany inventory, December 31, Year 2 20, 000
Intercompany inventory, December 31, Year 1 15, 000
Cost of real estate sold on January 1, Year 1 600, 000
Sales price of real estate on January 1, Year 1 800, 000
 Depreciable life of building 20 years.
 
For Year 2, what is the consolidated comprehensive income attributable to controlling
interest?

534, 400

On January 1, Year 1 SST Company purchased a computer with an expected life of 5

years. On January 1, Year 3 SST Company sold the computer to PMN corporation and
recorded the following entry:
Cash P39, 000
Accumulated Depreciation 16, 000
Computer Equipment 40, 000
Gain on sale of equipment 15, 000
 
PMN Corporation holds 60% of the voting shares of SST Company. SST Company and
PMN Corporation reported income from its own operations of P45, 000 and P85, 000 for
Year 3 respectively. There is no change in the estimated life of the equipment as a result
of intercompany sale.

How much is the income attributable to the Non-Controlling Interest for Year 3?

14,000

Which of the following may not qualify as a joint arrangement:

Entities X and Y established a new corporation Z and agrees to a joint control owning 45%
and 35% with the remaining 20% issued in a public offering. Subsequently, Z acquires 80%
ownership of entity A that has a 90% ownership in Y.

On July 1, Year 1, Eliza, Rochie and Jessa formed a joint arrangement for the sale of
merchandise. Eliza was designated as the managing joint operator. Profits or losses
are to be divided as follows: Eliza, 50%; Rochie, 25%; and Jessa, 25%. On October 1,
Year 1, though the joint operation is still uncompleted, the participants agreed to
recognize profit or loss on the venture to date. The cost of inventory on hand is
determined at P25,000. The investment in Joint Operation account has a debit
balance of P15,000 before distribution of profit and loss. No separate set of books is
maintained for the joint operation and the participants record in their individual
books all venture transactions.
 The joint operation profit (loss) on October 1, Year 1 is:

10,000

A party to a joint operation sells an asset to the operation. The profit it can realise is:

100% - the party’s share, until the asset is sold by the operation

On January 2, Year 1, Abnoy Company and Sibuyas Company formed the DILAWAN
Company, a merchandising joint venture intended to prevent any political identity to
sit in the government without their approval. Each invested P200,000 for a 50%
interest in the joint venture with the agreement that the managing group is awarded
first to Abnoy. The venture’s operation went smoothly as nobody noticed their
scheme.
The condensed financial statements for Abnoy Company, Sibuyas Company and for
the joint venture, Dilawan Company are presented below:
Dilawan Company
Abnoy Co. Sibuyas Co. (a joint venture)
Profit or Loss:
Sales P3,000,000 P2,000,000 P1,000,000
Investment income      125,000       125,000                   –
     Total 3,125,000 2,125,000 1,000,000
Cost and expense    1,500,000    1,200,000       750,000
Net income P1,625,000 P   925,000 P    250,000
 
Financial Position:
Assets P3,550,000 P2,850,000 P2,000,000
Investment in Dilawan Company       325,000        325,000                   –
     Total assets P3,875,000 P3,175,000 P2,000,000
Liabilities P2,100,000 P1,900,000 P1,350,000
Capital stock 1,200,000 P1,000,000 –
Retained earnings 575,000 275,000 –
Ventures, Capital                     –                    –       650,000
    Total liabilities and capital P3,875,000 P3,175,000 P2,000,000
 
How much would be the total liabilities to be reported by Sibuyas Company on
December 31, Year 1 is:

P1,900,000
 On January 1, Year 1, two real estate companies, Woodsgate and Deca, set up a
separate vehicle, Royal Pines Company, for the purpose of acquiring and operating a
shopping center. The contractual arrangement between the parties establishes joint
control of the activities that are conducted in Royal Pines Company. The main
feature of Royal Pines’ Legal form is that the entity, not the parties, has rights to the
assets, and obligations for the liabilities, relating to the arrangement. These
activiites include the rental of the retail units, managing the car park, maintaining the
center and its equipment, such as lifts, and building the reputation and customer
base for the center as a whole.
As a result, Woodsgate Company paid P1.6 million for 50,000 shares of Royal Pines’
voting common stock, which represents a 40% investment. No allocation to goodwill
or other specific account was mad the joint control over Royal Pines is achieved by
this acquisition and so Woodsgate applies the equity method. Royal Pines’
distributed a dividend of P2 per share during the year and reported net income of
P560,000. What is the balance in the Investment in Royal Pines account found in
Woodsgate’s financial records as of December 31, Year 1?

1,724,000

Apple Inc. and Samsung Inc. Incorporated an entity named Sample Inc. where in the parties will
have voting rights in the decision affecting the relevant activities of the arrangement. The
contract provides that unanimous consent by the parties is necessary for the validity of
Sample’s corporate act. The purpose of the arrangement is for Sample Inc. to manufacture
parts for the parties own manufacturing processes. The assets and liabilities held in Sample
Inc. are in are name of Sample Inc. what is the classification of the interest of Apple Inc. and
Samsung Inc. in Sample Inc. based on Sample Inc.’s Legal form only.

It shall be classified as Joint Arrangement accounted for as Investment in Joint Venture under
Equity Method because Sample Inc. holds title over the assets of the venture.

KEV Corporation’s stockholder’s equity at December 31, Year 2 included the

following:
8% Preferred stock, 10 par value P 3,500,000
Common stock, no par   20,000,000
Additional paid-in capital   6,500,000
Retained earnings   8,000,000
  P 38,000,000
     
ROF Corporation purchased a 30% interest in KEV’s common stock from other
shareholders on January 1, Year 3 for 11,600,000. What was the book value of ROF’s
investment in KEV?
10,3500,000

On December 31, Year 1, Neal Co. issued 100,000 shares of its 10 par value common
stock in exchange for all of Frey Inc.’s outstanding stock. The fair value of Neal’s
common stock on December 31, Year 1, was 19 per share. The carrying amounts
and fair values of Frey’s assets and liabilities on December 31, Year 1, were as
follows:
 
  Carrying amount Fair value
Cash 240,000 240,000
Receivables 270,000 270,000
Inventory 435,,000 405,000
Property, plant, and 1,305,000 1,440,000
equipment
Liabilities (525,000) (525,000)
Net assets 1,725,000 1,830,000
 
What is the amount of goodwill resulting from the business combination? 

70,000

Three joint operators are involved in a joint operation that manufactures ships chandlery. At the
beginning of the year the joint operation held P50,000 in cash. During the year the joint
operation incurred the following expenses: Wages paid P20,000, Overheads accrued P10,000.
Additionally, creditors amounting to P40,000 were paid and the joint operators contributed
P15,000 cash each to the joint operation. The balance of cash held by the joint operation at the
end of the year is:

P35,000

K and L[1] join in a venture for the sale of certain merchandise. The participants agree to
the following:
·       K shall be allowed a commission of 10% on his net purchase.
·       The participants shall be allowed commissions of 25% on their respective sales.
·       K and L shall divide the profit or loss 60% and 40%, respectively.
Joint arrangement transactions follows:
Dec.
1 K makes cash purchase of P57,000
3 L pays venture expenses of P9,000.
5 Sales are as follows: K P48,000; L P36,000. The participants keep
 their own cash receipts.
6 K returns unsold merchandise and receives P15,000 cash.
15 The participants make cash settlement.

In the distribution of the net profit of the venture, what are the shares of K and L,
respectively?

4,680 3,120

A contingent consideration agreement was made on Jan. 1, Year 1, wherein an additional cash

payment would be made on Jan. 1, Year 3, equal to twice the amount by which average annual
earnings of the Hanes Division exceed P25,000 per year, prior to January 1, Year 3. Net income
was P50,000 in Year 1 and P60,000 in Year 2. How much adjustment will be made to goodwill
on January 1, Year 3?

none