Quiz No.

3: ACCO 30023 – Accounting for Business Combination

Instructions: Refer to this pdf file for the questionnaire and use the Microsoft Forms as your answer
sheet. Use a separate paper for your solutions in the problem solving and upload it when you submit
your quiz. Always observe HONESTY during the examination. God Bless you all!

(For your answers in straight problems, do not use peso sign or decimal point; Ex. 100,000)

On January 1, 2020, Parent Company acquired 90% control of Subsidiary Company by paying P3,500,000
cash. On this date, the balance sheet of both companies are as follows:

Parent Subsidiary
Cash 3,500,000 1,300,000
Accounts Receivable 1,700,000 450,000
Inventories 1,150,000 800,000
Equipment 3,000,000 1,050,000
Patents 200,000 50,000
Total 9,550,000 3,650,000

Accounts Payable 600,000 200,000

Bonds Payable 2,000,000 -
Share Capital 5,000,000 2,000,000
Share Premium 750,000 600,000
Retained Earnings 1,200,000 850,000
Total 9,550,000 3,650,000

The identifiable assets and liabilities of Subsidiary Company are fairly valued except for Inventories which
are undervalued by P75,000 while Equipment is over depreciated by P50,000. The equipment has a
remaining useful life of 5 years.

Compute for the following as of date of acquisition:

1. Goodwill on combination
2. Consolidated assets
3. Consolidated equity

On January 2, 2018, P Company purchased 80% of S Company’s ordinary shares for P3,240,000. The
P150,000 of the total excess (excess of FV of consideration and NCI over the book value of identifiable
assets acquired) is attributable to goodwill and the balance to a depreciable asset with remaining useful life
of 10 years. NCI is at its FV at the date of acquisition. On the date of acquisition, shareholders’ equity of
both companies are as follows:

P Company S Company
Share Capital 5,250,000 1,200,000
Retained Earnings 7,800,000 2,100,000

On December 31, 2018, S Company had retained earnings of P2,400,000 after paying dividends of
P180,000 to the acquirer. P Company reported earnings from its own operation of P1,425,000 and paid
dividends of P690,000. Goodwill has been impaired and should be reported at P30,000.
 Determine the following:
4. Non-controlling interest in net income of subsidiary
5. Consolidated Retained Earnings
6. Consolidated equity

On January 1, 2019, Parent Company purchased 80% of the outstanding shares of Subsidiary Company by
paying P340,000. The Subsidiary Company’s Share Capital and Retained Earnings on this date amounted
to P150,000 and P230,000 respectively. Also, on this date, an equipment was undervalued by P20,000 with
remaining useful life of 10 years. On the same date, Parent Company had P1,000,000 of Share Capital and
P700,000 of Retained Earnings. Below are the additional information:

Parent Subsidiary
Sales 300,000 150,000
Cost of Sales 165,000 100,000
Gross Income 135,000 50,000
Expenses 35,000 20,000
Net Income 100,000 30,000

Dividends paid 60,000 10,000

Determine the following:

7. Parent Investment as of December 31, 2019
8. Net Income Attributable to Parent
9. Net Income Attributable to NCI
10. Consolidated Equity

On January 2, 2020, Honesty Corporation purchased 80% of the outstanding shares of Character Company
for a consideration of P19,000,000. Included in the price paid is control premium in the amount of
P500,000. The acquisition-related cost amounts to P45,000. At that date, Character had P16,000,000 of
ordinary shares outstanding and retained earnings of P6,400,000

Character’s equipment with a remaining life of 5 years had a book value of P9,000,000 and a fair value of
P10,520,000. Character’s remaining assets had book values equal to their fair values.

The income and dividend figures for both Honesty and Character are as follows: Net income of Honesty
in 2020 is P3,600,000; 2021 is P4,400,000. Net income of Character in 2020 is P1,360,000; 2021 is
P2,040,000. Dividends declared by Honesty in 2020 is P880,000; 2021 is P1,560,000. Dividends declared
by Character in 2020 is P280,000; 2021 is P520,000. Honesty’ retained earnings at the date of acquisition
was P13,800,000.

Required:
11. What is the consolidated profit in 2021?
12. What is the non-controlling interest in net assets in 2021?
On January 1, 2020, P Corp. purchased 80% of S Co.’s P10 par ordinary shares for P986,000. On this date,
the carrying amount of S’s net assets was P1,000,000. The fair values of S Co.’s identifiable assets and
liabilities were the same as their carrying amounts except for plant assets (net), which were P150,000 in
excess of the carrying amount. The estimated remaining life of the asset is 5 years.

For the year ended December 31, 2020, S had net income of P290,000 and paid cash dividends totaling
P125,000. Loss on impairment of goodwill in 2020 amounted to P20,000. P Corp. uses the proportionate
method in measuring non-controlling interest.

13. Determine the non-controlling interest in net income on December 31, 2020.

In January 2, 2019, Palawan Company purchased 80% of the outstanding stock of Samar Company for P
5,600,000. Palawan opted to measure NCI proportionate to their share on the identifiable net assets. At
that date, the stockholder’s equity of Palawan Company and Samar Company is composed of the following:
Palawan Company Samar Company
Ordinary Shares P 20,000,000 P 4,600,000
APIC 5,200,000 1,400,000
Retained Earnings 6,000,000 1,480,000

The carrying values of the assets and liabilities of Samar Company are equal to their fair values, except for
the following:
 Equipment with a five years remaining life had a fair value which is lower than the carrying
amount by P240,000.
 The fair value of Samar Company’s loan payable is to be adjusted upward by P 80,000.

The Net income reported and dividends paid by Palawan and Samar for 2019 follows:
Palawan Samar
Net Income P 1,840,000 P 450,000
Dividends 1,200,000 300,000

14. The total Stockholders Equity in the consolidated balance sheet on January 2,2019 is:
15. The NCI on December 31,2019 is:

Plum Corporation acquired 80% of Slum Co. for P 5,000,000 on January 2, 2019. On this date, Slam Co.
reported Ordinary share capital of P 3,000,000 and Retained Earnings of P2,000,000 Change in assets to
fair values were undervaluation of P 300,000 and P 400,000 in Equipment and Building respectively. Both
assets have 10-year remaining useful life. An annual review revealed that goodwill has not been impaired.

Slam Co. earned income and paid dividends as follows:

2019 2020 2021

Net Income 1,200,000 1,500,000 1,8000,000
Dividends 500,000 500,000 750,000

16. The Non-Controlling interest in the net income of Slam Co. at December 31, 2020 is:
17. The NCI at December 31, 2021 assuming Plum Corp. opted to measure NCI at fair Value is:
Accountancy Company acquired 75% of outstanding ordinary shares of Finance Company for P900,000.
Book value of Finance Company’s net assets is P1,000,000. Upon re-measurement of acquires net assets,
it shows that inventory has a fair value lower by P40,000 than its book value and equipment held for 3 years
has a fair value and book value of P450,000 and P360,000, respectively. The original cost of Finance
Company’s equipment is P576,000 with no residual value. Accountancy opt to measure NCI at fair value
of P275,000. During the year Accountancy reported net income from own operation of P300,000 and
received P30,000 dividend from Finance. Finance Company’s net income amounts to P120,000. Goodwill
is impaired by P13,500.

18. Compute the consolidated net income.

19. Non-Controlling Interest in Net Assets of Subsidiary at the end is:
20. Net income attributable to Accountancy Company is:

YSL Corporation acquired 80% of the outstanding ordinary shares of GBX Company on June 30, 2020 for
P586,250. GBX Company’s shareholder’s equity components at the end of this year were as follows:
Ordinary shares, P100 par, P250,000; Share premium, P112,500 and Retained earnings, P222,5000.

Non-controlling interest (NCI) is measured at fair value. All the assets of GBX were fairly valued, except
for inventories, which is overstated by P15,000 and equipment, which is understated by P20,000.
Remaining useful life of equipment is 4 years. Both companies use straight line method for depreciation
and amortization. Shareholder’s equity of YSL on January 1, 2020 is composed of Ordinary shares,
P750,000; Share premium, P175,000 and Retained earnings, P525,000.

Fair value of NCI on the date of acquisition is P117,500. Goodwill, if any, should be written down by
P14,225 at year end. Net income for the first year of parent and subsidiary are P75,000 and P42,500 (from
date of acquisition), respectively. Dividends declared at the end of the year amounted to P20,000 and
P15,000. There was no issuance of new shares during the year.

21. What is the amount of non-controlling interest in net assets of GBX Company as of December 31,
2020?
22. What is the amount of consolidated equity at the end of the year?

On January 2, 2020, Perfect Corporation purchase 80% of Seldom Company’s ordinary shares for
P3,240,000. P150,000 of the total excess is attributable to goodwill and the balance to a depreciable asset
with an economic life of 10 years. NCI is measured at its fair value on the date of acquisition.

On the date of acquisition, shareholder’s equity of the two companies follows:

Perfect Seldom
Ordinary share P 5,250,000 P 1,200,000
Accumulated Profits (losses) 7,800,000 2,100,000

On December 31, 2020, Seldom Company reported net income of P525,000 and paid dividends of P225,000
to its shareholders. Perfect Co. reported net income of P1,605,000 and paid dividends of P690,000.
Goodwill had been impaired and should be reduced by P120,000 for the current year.

23. On December 31, 2020, what is the consolidated net income?

a. P1,770,000
b. P1,788,750
c. P1,800,000
d. P1,893,750
24. On December 31, 2020, what is the net income attributable to parent?
a. P1,680,000
b. P1,701,000
c. P1,782,000
d. P1,800,000

25. On December 31, 2020, what is the consolidated accumulated profits (losses) attributable to parent?
a. P8,787,000
b. P8,790,000
c. P8,811,000
d. P10,398,750

26. On January 2, 2020, Galatians Company acquired 80% investment in Philippians Company. The
acquisition cost was equal to Galatians equity in Philippians net assets on that date. The retained
earnings of Galatians and Philippians are P500,000 and P100,000, respectively. During 2020,
Galatians had net income of P200,000, which included its equity in Philippians earnings, and
declared dividends of P50,000; Philippians had net income of P40,000 and declared dividends of
P20,000.

On December 31, 2020, the consolidated retained earnings must be:

a. P650,000
b. P666,000
c. P770,000
d. P766,000

27. Patriotism Company purchased 70% of Strength Company on January 2, 2020 for P420,000. At
that date Strength had inventory and plant assets with market values greater than book values in the
amount of P50,000 and P90,000, respectively. The inventory and plant assets were assigned to have
a remaining life of six months and five years, respectively. Strength Company has 2020 income
and dividends of P160,000 and P60,000, respectively and 2021 income and dividends of P210,000
and P80,000, respectively.

The balance of non-controlling interest account on December 31, 2021 must be:
a. P223,200
b. P276,000
c. P169,200
d. P136,800

28. Jenny Company acquired 80% of the equity share capital of Smith Company on October 1, 2020.
The consideration was P2,000,000 in cash and 400,000 equity shares of Jenny Co. On that date, the
market value of each Jenny Company’s shares was P3 and the fair value of Smith Company’s net
tangible assets was P2,000,000. The non-controlling interest was measured at the proportionate
share of acquiree’s net assets. Due to poor trading conditions the goodwill arising on the acquisition
of Smith Co. was determined to be impaired by 25% as of the reporting date, March 31, 2021.

The amount of goodwill reported in Jenny Company’s consolidated account as of March 31, 2021
is:
a. P300,000
b. P900,000
c. P1,200,000
d. P-0-
29. Michael Company acquired 60% of Scott Company for P300,000 when Scott’s book value was
P400,000. The newly comprised 40% non-controlling interest had an assessed fair value of
P180,000. Also, at that date, Scott had a trademark (10-year life) that was undervalued by P60,000.
Also, patented technology (5-year life) was undervalued by P40,000. Two years later, the following
figures are reported by these two companies (shareholders equity accounts have been omitted)
Michael Scott Scott
(@BV) (@BV) (@FV)
Current assets 620,000 300,000 320,000
Trademarks 260,000 200,000 280,000
Patents 410,000 150,000 150,000
Liabilities 390,000 120,000 120,000
Revenues 900,000 400,000
Expenses 500,000 300,000

How much is the consolidated net income?

a. P451,600
b. P486,000
c. P500,000
d. P514,000

30. How much is the non-controlling interest in net income of subsidiary (NCINIS)?
a. P26,000
b. P28,800
c. P40,000
d. P34,400