Solution Chapter 15

Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)]
Cash
Common Stock
Other Contributed Capital (P40 - P2) 15,000
Other Contributed Capital
Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable
3,100,000
2,500,000
30,000
570,000
30,000
67,000
90,000
7,000
Problem II
Cash: P74,000 = P44,000 + P30,000
Accounts receivable: P155,000 = P110,000 + P45,000
Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 P70,000)]
Land: P125,000 = [P80,000 + P25,000 + (P45,000 P25,000)]
Buildings and equipment: P900,000 = P500,000 + P400,000
Accumulated depreciation: P388,000 = P223,000 + P165,000
Goodwill (full-goodwill) = P40,000*
Total Assets = P1,121,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000
P388,000 + P40,000, or:
Total Assets of Power Corp.
P 791,500
Less: Investment in Silk Corp.
(150,500)
P 641,000
Book value of assets of Silk Corp.
405,000
Book value reported by Power and
Silk
P1,046,000
Increase in inventory (P85,000 - P70,000)
15,000
Increase in land (P45,000 - P25,000)
20,000
Goodwill
40,000
Total assets reported (based on fullgoodwill)
P1,121,000
Accounts payable: P89,500 = P61,500 + P28,000
Taxes payable P132,000 = P95,000 + P37,000
Bonds payable: P480,000 = P280,000 + P200,000
Total liabilities: P701,500 = P89,500 + P132,000 + P480,000
Common stock: P150,000, parent only
Retained earnings: P205,000, the amount reported by parent
Non-controlling interest (full-goodwill): P64,500*
Stockholders equity: P419,500
Consolidated SHE:
Common stock
P150,000
Retained Earnings
205,000
Parents SHE or Equity Attributable to Parent
P355,000
NCI (full-goodwill)
64,500
Consolidated SHE
P419,500
Computation of Goodwill:
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full
P150,500
**64,500
P 15,000
20,000
P215,000
140,000
P 75,000
35,000
P 40,000
**given amount, but it should not be lower than the fair value of SHE subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000).P 140,000

Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SS
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
or,
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Inventory (P15,000 x 70%)
Land (P20,000 x 70%)
Goodwill partial
P150,500
__98,000
P 52,500
P 10,500
14,000
24,500
P 28,000
If partial-goodwill:
Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000
P388,000 + P28,000,
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%

Consolidated SHE:
Common stock
Retained Earnings
NCI (partial-goodwill)
Consolidated SHE
Problem III
1.
A.
Investment in Sewell
Cash
B.
C.
P150,000
205,000
P355,000
52,500
P404,500
675,000
675,000
Cash
675,000
Cash
318,000
675,000
318,000
2.
A.
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full
P675,000
705,000
P( 30,000)
(P10,000)
__20,000
__10,000
(P 40,000)
B.
Partial Goodwill
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90%
Allocated excess
Inventory (P30,000 P20,000) x 90%
Land (P50,000 P70,000) x 90%
Goodwill partial
P675,000
634,500
P 40,500
(P9,000)
__18,000
__9,000
P 31,500
Full-Goodwill
Consideration transferred (P675,000/90%)
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Goodwill full
P750,000
705,000
P 45,000
(P10,000)
__20,000
__10,000
P 35,000
C.
Partial Goodwill
Allocated excess
Inventory (P30,000 P20,000) x 80%
Land (P50,000 P70,000) x 80%
Bargain Purchase Gain partial (parent only)
P318,000
624,000
(P306,000)
(P 8,000)
__16,000
Full-Goodwill
FV of NCI*
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI
__8,000
(P314,000)
P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
__20,000
_10,000
(P314,000)
P780,000
10,000
P790,000
20%
P158,000
3.
A.
Common Stock Sewell
Other Contributed Capital Sewell
Retained Earnings Sewell
Land
Inventory
Retained earnings (gain) Parent (since
balance sheet accounts are being
examined)
450,000
180,000
75,000
20,000
10,000
675,000
40,000
B.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
450,000
180,000
75,000
Land
20,000
Goodwill
31,500
Inventory
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
10,000
675,000
71,500
Full-Goodwill (Fair Value Basis)

Common Stock Sewell
Land
Goodwill
Inventory
BV SHE of Sewell
(P450,000 + P180,000 + P75,000)
FV of SHE of Sewell
x: NCI%
FV of NCI (partial)
NCI on Full-Goodwill
(P35,000 P31,500)
FV of NCI (full)
450,000
180,000
75,000
20,000
35,000
10,000
675,000
75,000
P705,000
10,000
P715,000
10%
P 71,500
3,500
P 75,000
C.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
10,000
318,000
314,000
158,000
Full-Goodwill (Fair Value Basis)

Common Stock Sewell
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (full)
P158,000
10,000
318,000
314,000
158,000
Problem IV
1.
January 1, 20x4
Investment in S Company
Cash..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
408,000
408,000
Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 100%)..
Paid-in capital in excess of par (P24,000 x 100%)...
Retained earnings (P96,000 x 100%)...
Allocated excess (excess of cost over book value)
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment
(P12,000 x 100%)...
Increase in bonds payable (P42,000 x 100%)..
Positive excess: Goodwill (excess of cost over fair
value)..
3.
P 408,000
P 240,000
24,000
96,000
P
360,000
48,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 12,000
(E1) Common stock S Co.

Additional paid-in capital S Co.
Retained earnings S Co...
Investment in S Co
240,000
24,000
96.000
360,000
Eliminate investment against stockholders equity of S Co.
(E2) Inventory.
Land.
Goodwill.
Buildings and equipment..
Premium on bonds payable
Investment in S Co..
18,000
72,000
12,000
12,000
42,000
48,000
Eliminate investment against allocated excess.
4.
Eliminations
Assets
Cash*.
Accounts receivable..
P Co.
S Co.
12,000
P 60,000
Dr.
Consolidated
P
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Buildings and equipment (net)
480,000
360,000
Goodwill
Investment in S Co.
408,000
Total Assets
Cr.
72,000
150,000
210,000
330,000
(2)
12,000
828,000
(2) 12,000
12,000
(1) 360,000
(2) 48,000
P1,320,000
P600,000
P1,602,000
Accounts payable
P 120,000
P120,000
P 240,000
Bonds payable
240,000
120,000
Liabilities and Stockholders Equity

360,000

Common stock, P10 par
(3)
600,000
240,000
(1) 240,000
60,000
Paid in capital in excess of par.

Retained earnings
42,000
600,000

42,000
60,000
24,000
(1) 24,000
300,000
Retained earnings
_________
96,000
Total Liabilities and Stockholders
Equity
P1,320,000
P600,000
(1) Eliminate investment against stockholders equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 P408,000 = P12,000.
300,000
(1) 96,000
__________
_________
P 462,000
P 462,000
P1,602,000
5.
Assets
Cash
Accounts receivables
Inventories
Land
Goodwill
Total Assets
72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000

Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000
Problem V
1.
January 1, 20x4
(1) Investment in S Company

Cash..
Common stock, P10 par..
Paid-in capital in excess of par.
432,000
(2) Retained earnings (acquisition-related expense - close to

retained earnings since only balance sheets are being
examined)
Cash.
288,000
120,000
24,000
12,000
12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par..

Cash.
8,400
8,400
Costs to issue and register stocks.
2.
Cash.
Common stock: 12,000 shares x P12 per share..
Paid-in capital in excess of par (P96,000 x 100%)..
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)
Adjusted allocated excess.
(P12,000 x 100%)...
value)..
P 288,000
144,000
P 240,000
96,000
24,000
P 432,000
360,000
72,000
6,000
P 78,000
P
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition January 1, 20x4 (refer to previous table for details of computation)
Less: Book value of stockholders equity of S..
Allocated excess (excess of cost over book value).
Less: Over/under valuation of assets and liabilities
Positive excess: Goodwill (excess of cost over fair value)...
Add: Existing Goodwill
value)
P 432,000
360,000
P 72,000
36,000
P 36,000
6,000
P
42,000
3.
Eliminations
Assets
P Co.
S Co.
111,600
P 54,000
P 165,600
90,000
60,000
150,000
Inventory.
120,000
72,000
(2) 18,000
210,000
Land.
210,000
48,000
(2) 72,000
330,000
480,000
360,000
Cash*..
Goodwill
Investment in S Co.
Total Assets
6,000
Dr.
Cr.
(2)
Consolidated
12,000
828,000
(2) 36,000
432,000
42,000
(4) 360,000
(5) 72,000
P1,443,600
P600,000
P1,725,600
Accounts payable
P 120,000
P120,000
P 240,000
Bonds payable
240,000
120,000
360,000

Common stock, P10 par**..
(6)
42,000
720,000

Additional paid in capital***
42,000
720,000
240,000
(1) 240,000
75,600
Additional paid in capital
75,600
24,000
(1) 24,000
Retained earnings
_________
96,000
Equity
P1,443,600
P600,000
(1) Eliminate investment against stockholders equity of Sky Co.
* P420,000 P288,000 P12,000 P8,400 = P111,600.
* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
*** P50,000 + P20,000 P7,000 = P63,000.
****P300,000 P12,000 = P288,000.
(1) 96,000
__________
_________
P 486,000
P 486,000
P1,725,600
Retained earnings****
288,000
288,000
4.
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Additional paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600
Problem VI
1.

Consideration transferred (P408,000 P6,000)..
P 402,000
P 240,000
96,000
24,000
P
360,000
42,000

(P12,000 x 100%)...
value)..
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P
6,000
2. Goodwill, P6,000
Problem VII
1.

Consideration transferred:
Common stock: 24,000 shares x P14 per share
Less: Book value of stockholders equity of Sky:
Allocated excess (excess of book value over cost)
(P12,000 x 100%)...
Increase in patent (P24,000 x 100%)...
Increase in contingent liability (P18,000 x 100%).
Negative excess: Bargain Purchase Gain (excess of
fair value over cost)
P 336,000
P 240,000
96,000
24,000
360,000
(P 24,000)
P 18,000
72,000
( 12,000)
24,000
( 18,000)
( 42,000)
42,000
(P 66,000)
2. Gain on acquisition, P66,000

Problem VIII
Case 1:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash.......P12,000,000 (80%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 80%.................................
5,760,000 (80%)
Allocated excess.........P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 80%....................................... 1,920,000 (80%)
Positive excess: Goodwill (partial)..... P 4,320,000 (80%)
Non-controlling interest
Book Value of stockholders equity of subsidiary.
P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000)..
2,400,000
Fair value of stockholders equity of subsidiary
P 9,600,000
Multiplied by: Non-controlling interest percentage............
20%
Non-controlling Interest (partial)..
P1,920,000
Fair Value Basis (Full-goodwill Approach)

Full-goodwill
Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)
S Company: P7,200,000 x 100%..............................
7,200,000 (100%)
Allocated excess...
P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 100%.................................... 2,400,000 (100%)
Positive excess: Goodwill (full)........P 5,400,000 (100%)
The full goodwill of P5,400,000 consists of two parts:

Full-goodwill....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill... 4,320,000
NCI on full-goodwill.......P 1,080,000
Non-controlling interest (partial).......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)*...... 1,080,000
Non-controlling interest (full)........P3,000,000
* applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Case 2:
Partial-goodwill
Consideration transferred: Cash.....P 7,560,000 (60%)
S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess...... P 3,960,000 (60%)
(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial).... P 2,520,000 (60%)
Book value of stockholders equity of subsidiary. P 6,000,000
of assets and liabilities): (P8,400,000 P6,000,000). 2,400,000
Fair value of stockholders equity of subsidiary.P 8,400,000
Multiplied by: Non-controlling Interest percentage............
40%
Non-controlling interest (partial).P 3,360,000

Full-goodwill
Consideration transferred: Cash ...P 7,560,000 ( 60%)
Fair value of NCI (given).. 4,800,000 ( 40%)
Fair value of subsidiary...P12,360,000 (100%)
S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess...P 6,360,000 (100%)
(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)......P 3,960,000 (100%)
Full-goodwill...P 3,960,000
or partial-goodwill. 2,520,000
NCI on full-goodwill..P 1,440,000
Non-controlling interest (partial)P 3,360,000
(P3,960,000 P2,520,000 partial-goodwill).. 1,440,000
Non-controlling Interest (full)..P 4,800,000
Case 3;
Partial-goodwill
Consideration transferred: Cash..P 9,000,000 (75%)

S Company: P7,200,000 x 75%..........................
5,400,000 (75%)
Allocated Excess....P 3,600,000 (75%)
(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial).P 1,800,000 (75%)
Book value of stockholders equity of subsidiary..P 7,200,000
Fair value of stockholders equity of subsidiaryP 9,600,000
25%
Non-controlling interest (partial).P 2,400,000

Full-goodwill
Fair value of subsidiary. P 11,640,000 (100%)
S Company: P7,200,000 x 100%...........................
7,200,000 (100%)
Allocated Excess..P 4,440,000 (100%)
(P9,600,000 P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full).....P 2,040,000 (100%)
Full-goodwill...P 2,040,000
or partial-goodwill.... 1,800,000
NCI on full-goodwill. .P 240,000
Non-controlling interest (partial)P 2,400,000
(P2,040,000 P1,800,000 partial-goodwill)....... 240,000
Non-controlling Interest (full)..P 2,640,000
Case 4:
Partial-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%)
Fair value of Subsidiary ... P 3,240,000 (75%)
S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%)
Allocated Excess.....P 1,440,000 (75%)
[(P6,120,000 P2,280,000)
(P4,680,000 P2,280,000)] x 75%................................ 1,080,000 (75%)
Positive excess: Goodwill (partial)... P 360,000 (75%)
Book value of stockholders equity of subsidiary..P 2,400,000
Fair value of stockholders equity of subsidiaryP 3,840,000
25%
Non-controlling interest (partial)P 960,000

Full-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......
648,000 (15%)
Fair value of NCI (given). 1,080,000 (25%)
Fair value of subsidiary.P 4,320,000 (100%)
S Company: P2,400,000 x 100%........................ 2,400,000 (100%)
Allocated Excess...P 1,920,000 (100%)
(P3,840,000 P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full)...P 480,000 (100%)
The full goodwill of P480,000 consists of two parts:
Full-goodwill...P 480,000
or partial-goodwill. 360,000
NCI on full-goodwill..P 120,000
Non-controlling interest (partial)P 960,000
(P480,000 P360,000 partial-goodwill)....... 120,000
Non-controlling Interest (full)P 1,080,000
Problem IX
Partial-goodwill (Proportionate Basis)
Consideration transferred: Cash..
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x 75%.......................................
Allocated excess...
[(P612,000 P228,000) (P480,000 P228,000) x 75%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only).
Full-goodwill (Fair Value Basis)

Consideration transferred: Cash..
Fair value of non-controlling interest (given)
Fair value of subsidiary
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x 100%.....................................
Allocated excess...
[(P612,000 P228,000) (P480,000 P228,000) x 100%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only).
P270,000 (75%)
189,000 (75%)
P 81,000 (75%)
99,000 (75%)
(P18,000) (75%)
P270,000 ( 75%)
98,400 ( 25%)
P368,400 (100%)
252,000 (100%)
P116,400 (100%)
132,000 (100%)
(P15,600) (100%)
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred..
P 360,000

Common stock (P240,000 x 80%).
Paid-in capital in excess of par (P96,000 x 80%)....
P 192,000
76,800
Retained earnings (P24,000 x 80%)....
19,200
288,000
Allocated excess (excess of cost over book value)..
72,000

Increase in inventory (P18,000 x 80%)
P 14,400
Increase in land (P72,000 x 80%).

(P12,000 x 80%).....
57,600
Increase in bonds payable (P42,000 x 80%).

Positive excess: Partial-goodwill (excess of cost over
fair value)...
9,600)
( 33,600)
28,800
P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sky Co.
Book value
Sky Co.
Fair value
Over/ Under
Valuation
72,000
90,000
18,000
Land
48,000
120,000
72,000
Buildings and equipment (net).........
360,000
348,000
( 12,000)
Bonds payable
(120,000)
(162,000)
42,000
Net..
360,000
396,000
36,000
Inventory...
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co.
Book value
Sky Co.
Fair value
Buildings and equipment ..................
720,000
Less: Accumulated depreciation..

Net book value...
(Decrease)
348,000
( 372,000)
360,000
( 360,000)
360,000
348,000
12,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company
Cash..
Acquisition of Sky Company.
360,000

examined)
Cash.
360,000
14,400
14,400
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock Sky Co.
Additional paid-in capital Sky Co.
Retained earnings Sky Co...
Investment in Sky Co
Non-controlling interest (P300,000 x 20%)..
240,000
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2) Inventory.
Accumulated depreciation.
Land.
Goodwill.
Investment in Sky Co..
18,000
360,000
72,000
43,200
372,000
42,000
7,200
72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets
Cash*.
Peer Co.
Sky Co.
45,600
P 60,000
Dr.
Cr.
Consolidated
P
105,600
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
150,000
210,000
Land.
210,000
48,000
(2) 72,000
330,000
Buildings and equipment
960,000
Goodwill
Investment in Sky Co.
360,000
720,000
(2) 372,000
1,308,000
(2) 43,200
Total Assets
43,200
(1) 288,000
(2) 72,000
P1,785,600
P960,000
P 2,146,800

Accumulated depreciation
P 480,000
P360,000
Accounts payable
120,000
120,000
Bonds payable
240,000
120,000
(2) 360,000
360,000
(3)
42,000
42,000
600,000
600,000
240,000
(1) 240,000
60,000

Retained earnings**
60,000
24,000
(1) 24,000
96,000
(1) 96,000
285,600
Retained earnings
480,000
240,000
_________
285,600
_______

Equity
P1,785,600
P960,000
* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.
_________
P 853,200
(1 ) 72,000
(2) 7,200
P 853,200
_79,200
P2,146,800
Incidentally, the non-controlling interest on the date of acquisition is computed as

follows:
Common stock Sky company
Paid-in capital in excess of par Sky co
Book value of stockholders equity Sky Co....
of assets and liabilities).
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)..
P 240,000
24,000
80,000
P 360,000
36,000
P 396,000
20
P 79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Total Stockholders Equity (Total Equity)
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P 1,024,800
P1,666,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Consideration transferred (P360,000 / 80%)..
Paid-in capital in excess of par (P96,000 x 100%)..
Allocated excess (excess of cost over book value)..
(P12,000 x 100%).....
Increase in bonds payable (P42,000 x 100%).
Positive excess: Full -goodwill (excess of cost over
fair value)...
P 450,000
P 240,000
96,000
24,000
P
360,000
90,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 54,000
January 1, 20x4
(1) Investment in Sky Company
Cash..
360,000
360,000
Acquisition of Sky Company.

examined)
Cash.
14,400
14,400
240,000
(E1) Common stock Sky Co.

Additional paid-in capital Sky Co.
Investment in Sky Co
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2) Inventory.
Accumulated depreciation.
Land.
Goodwill.
Non-controlling interest [(P30,000 x 20%) +
(P45,000 P36,000)].
Investment in Sky Co..
18,000
360,000
72,000
54,000
372,000
42,000
18,000
72,000
Subsidiary (Full-goodwill)
Eliminations
Assets
Cash*.
Sky Co.
Dr.
Cr.
Consolidated
45,600
P 60,000
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
210,000
Land.
210,000
48,000
(2) 72,000
330,000
960,000
720,000
Goodwill
Investment in Sky Co.
360,000
Total Assets
Peer Co.
(2) 372,000
(2) 54,000
P1,785,600
1,308,000
54,000
(1) 288,000
(2) 72,000
P960,000
105,600
150,000
P 2,157,600

P 480,000
P360,000
(2) 360,000
Accounts payable
120,000
120,000
240,000
Bonds payable
240,000
120,000
360,000
480,000
(2) 42,000
42,000
600,000

600,000
240,000
(1) 240,000
60,000

60,000
24,000
(1) 24,000
285,600
Retained earnings**
Retained earnings
285,600
96,000
_________
_______

Equity
P1,785,600
P960,000
* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.
(1) 96,000
_________
P 864,000
(1 ) 72,000
(2) 18,000
_90,000
P 864,000
P2,157,600

follows:
Add: Non-controlling interest (P54,000, full P43,200, partial).
Non-controlling interest (full).
79,200
10,800
P 90,000
The balance sheet;

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P 1,035,600
P1,677,600
Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Common stock: 12,000 shares x P25 per share...
P 300,000

9,600
86,400
57,600
153,600
P 146,400


Increase in buildings and equipment
(P150,000 x 80%)......
4,800
28,800
120,000
Increase in copyrights (P60,000 x 80%)..

Increase in contingent liabilities estimated
liability for contingencies (P6,000 x 80%).....
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)..
48,000
(
4,800)
196,800
(P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book value
Inventory....
S Co.
Fair value
60,000
Land.
Over/Under
Valuation
66,000
6,000
48,000
84,000
36,000
Buildings and equipment (net).........
222,000
372,000
150,000
Copyright..
-0-
60,000
60,000
Estimated liability for contingencies..
Net undervaluation.
P 330,000
6,000)
P 576,000
6,000)
P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company...
Paid-in capital in excess of par (P300,000 P12,000 par)..
300,000
12,000
288,000
Acquisition of S Company.
Retained earnings S Co
Investment in S Co
12,000
108,000
72,000
153,600
38,400
Eliminate investment against stockholders equity of S Co
(E2) Inventory..
Land..
Copyright....
Investment in S Co...
Non-controlling interest (P246,000 x 20%).
Retained earnings (bargain purchase gain - closed to
examined).............................................................................
6,000
36,000
150,000
60,000
6,000
146,400
49,200
50,400
Subsidiary (Proportionate Basis)
Eliminations
Assets
Cash
Inventory.
P Co.
S Co.
Dr.
Cr.
P 334,800
Consolidated
P
86,400
P 24,000
334,800
110,400
96,000
60,000
(2)
6,000
162,000
Land
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright...
Total Assets
(2) 60,000
300,000
__________
_________
P1,681,200
354,000
60,000
(1) 153,600
(2) 146,400
P1,987,200
Accounts payable
Estimated liability for
contingencies
Bonds payable
Common stock, P1 par*..
Paid-in capital in excess of
par**
96,000
42,000
240,000
120,000
(2)
6,000
360,000
44,160
12,000
(1) 12,000
723,840
723,840
108,000(1) (1) 108,000
577,200
Retained earnings
_________
72,000
(1) 72,000
_______
_________

Equity
P1,681,200
P354,000
(1) Eliminate investment against stockholders equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
6,000
44,160

Retained earnings
P 138,000
P 444,000
(2) 50,400
627,600
(1 ) 38,400
(2) 49,200
_87,600
P 444,000
P1,987,200

follows:
Common stock S Co.
Paid-in capital in excess of par S Co..
Book value of stockholders equity S Co.
of assets and liabilities).
Multiplied by: Non-controlling Interest percentage...
P 12,000
108,000
72,000
P 192,000
246,000
P 438,000
20
P 87,600
The balance sheet:

Assets
Cash
Inventories
Land
Copyright
Total Assets
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
627,600
P1,395,600
87,600
P1,483,200
P1,987,200
Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Common stock: 12,000 x P25 (80%)
Fair value of NCI (given) (20%).
Fair value of subsidiary (100%).
Paid-in capital in excess of par (P108,000 x 100%).
P
P
P 12,000
108,000
72,000
300,000
90,000
390,000
192,000
P 198,000

Increase in buildings and equipment
(P150,000 x 100%)....
Increase in copyrights (P60,000 x 100%)
Increase in contingent liabilities estimated
liability for contingencies (P6,000 x 100%)..
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)..
6,000
36,000
150,000
6,000
6,000)
246,000
(P 48,000)
January 1, 20x4
(1) Investment in S Company...
Paid-in capital in excess of par (P300,000 P12,000 par)..
Acquisition of S Company.
300,000
12,000
288,000
Investment in S Co
Eliminate investment against stockholders equity of S Co
12,000
108,000
72,000
(E2) Inventory..
Land..
Copyright....
Investment in S Co...
Non-controlling interest (P90,000 given P38,400)
Retained earnings (bargain purchase gain - closed to
examined).............................................................................
6,000
36,000
150,000
60,000
153,600
38,400
6,000
146,400
51,600
48,000
Subsidiary (Fair Value Basis)
Eliminations
Assets
Cash
P Co.
S Co.
Dr.
Cr.
P 334,800
Inventory.
Consolidated
P
86,400
P 24,000
334,800
110,400
96,000
60,000
(2)
6,000
162,000
Land
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright...
Total Assets
(2) 60,000
60,000
300,000
__________
(1) 153,600
(2) 146,400
_________
P1,681,200
P354,000
P1,987,200
42,000
P 138,000

Accounts payable
Estimated liability for
contingencies
Bonds payable
Common stock, P1 par*..
96,000
(2)
240,000
44,160
12,000
(2) 12,000
723,840
108,000(2) (1) 108,000

577,200
Retained earnings
6,000
360,000
723,840

Retained earnings
120,000
44,160

Paid-in capital in excess of par**
6,000
_________
72,000
(1) 72,000
_______
_________
(2) 48,000
625,200
(1 ) 38,400
_90,000
(2) 51,600
Equity
P1,681,200
P354,000
(1) Eliminate investment against stockholders equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
P 444,000
P 444,000
P1,987,200
The balance sheet:

Assets
Cash
Inventories
Land
Copyright
Total Assets
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
P 138,000
6,000
360,000
P 504,000
P
P1,393,200
90,000
P1,483,200
P1,987,200
Problem XII
1. Inventory
2. Land
3. Buildings and Equipment
4. Goodwill
5.
44,160
723,840
652,200
P 140,000
P 60,000
P 550,000
Fair value of consideration given

P 576,000
Less; Book value of SHE
450,000
Allocated excess:
P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory
P 20,000
Land
(10,000)
70,000
80,000
Goodwill
P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the
investment account is eliminated.
Problem XIII
1. Inventories (P110,000 + P180,000 P10,000) = P280,000
2. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
3. Investment in DD stock will be fully eliminated and will not appear in the consolidated
balance sheet

Less: BV of SHE of DD (P100,000 + P200,000 P40,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Inventory
P280,000
260,000
P 20,000
(P 10,000)
25,000
15,000
5,000
30,000
P 35,000
Add: Existing goodwill (to be eliminated

Goodwill to be reported
or, (Approach used in business combination statutory merger/consolidation)

Fair value of consideration given
P280,000
Fair value of Decibel's net assets:
Cash and receivables
P 40,000
Inventory
170,000
375,000
Accounts payable
(90,000)
Notes payable
(250,000)
Fair value of net identifiable
assets
(245,000)
Goodwill to be reported
P 35,000
Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the
computation of Decibel's net identifiable assets at the date of acquisition.
5. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)

6. Retained earnings, P`05,000 (parent only, SHE of subsidiary is eliminated)
Problem XIV
1. Inventory (P120,000 + P20,000)
2. Land (P70,000 P10,000)
3. Buildings and Equipment (P480,000 + P70,000)
4. Full-Goodwill, P57,500
Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Inventory
Land
Goodwill full
or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slims net assets
Fair value increment for:
Inventory
Land
Fair value of identifiable net assets
Goodwill - full
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill partial
5.
Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)
P140,000
P 60,000
550,000
P470,000
117,500
P 20,000
(10,000)
70,000
P450,000
20,000
(10,000)
70,000
P587,500
450,000
P137,500
80,000
P 57,500
P470,000
117,500
P587,500
(530,000)
P 57,500
P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000
64,000
P 46,000
P117,500
6.
or,
BV SHE of SS
P450,000
Adjustments to reflect fair value (P20,000 P10,000 +P 70,000)
80,000
FV of SHE of SS
P530,000
Multiplied by: NCI %
20%
NCI partial goodwill
P106,000
Add: NCI on full-goodwill (P57,500 P46,000)
11,500
NCI full goodwill
P117,500
Problem XV
(Overview of the steps in applying the acquisition method when shares have been issued to
create a combination No. 8 includes a bargain purchase.)
1. The fair value of the consideration includes
Fair value of stock issued
P1,500,000
Contingent performance obligation
30,000
Fair value of consideration transferred
P1,530,000
2. Under the acquisition method, stock issue costs reduce additional paid-in capital.
3. The acquisition method records direct costs such as fees paid to investment banks for
arranging the combination as expenses.
4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in the
Common Stock account. The P74 fair value in excess of par value (P75 P1) is an
increase to additional paid-in capital of P1,480,000 (P74 20,000 shares).
5. Fair value of consideration transferred (above)
P1,530,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Goodwill
P 350,000
6. Revenues and expenses of the subsidiary from the period prior to the combination are
omitted from the consolidated totals. Only the operational figures for the subsidiary after
the purchase are applicable to the business combination. The previous owners earned
any previous profits.
7. The subsidiarys Common Stock and Additional Paid-in Capital accounts have no
impact on the consolidated totals.
8. The fair value of the consideration transferred is now P1,030,000. This amount indicates a
bargain purchase:
Fair value of consideration transferred (above)
P1,030,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Gain on bargain purchase
P 150,000
Problem XVI
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are
a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SSs net assets acquired.
1.
2.
3.
4.
5.
6.
Inventory = P670,000 (P's book value plus Sun's fair value)

Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem XVII
1. A total of P210,000 (P120,000 + P90,000) should be reported.
2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The
amount paid was P30,000 greater than the book value of the net assets of SS and is reported
as goodwill in the consolidated balance sheet at January 1, 20X5.
3. In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for
P25,000 (P10,000 + P15,000).
4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
5. The par value of B's stock outstanding is P100,000.
Problem XVIII
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XIX
1.
The investment balance reported by Roof will be P192,000.
2.
Total assets will increase by P310,000.
3.
Total liabilities will increase by P95,000.
4.
The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
5.
Non-controlling interest will be reported at P48,000 (P240,000 x .20).
Problem XX
1.
P57,000 = (P120,000 - P25,000) x .60
2.
P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3.
P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XXI
1. Investment in Craig Company ...........................................................
Cash ...................................................................................................
950,000
950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value
Building (P700,000 fair P600,000 book value)
Discount on bonds payable P280,000 fair P300,000
book value)
Deferred tax liability (P40,000 fair P50,000 book value)
Goodwill
3. Adjustments on Craig books:
Land.........................................................................................................
Building....................................................................................................
Discount on Bonds Payable ................................................................
Goodwill..................................................................................................
Deferred Tax Liability ............................................................................
Retained Earnings .................................................................................
Paid-In Capital in Excess of Par .....................................................
4.
Elimination entries:
Common Stock .....................................................................................
Paid-In Capital in Excess of Par ..........................................................
Investment in Craig Company......................................................
P950,000
720,000
P 230,000
P 50,000
100,000
20,000
10,000
180,000
P 50,000
50,000
100,000
20,000
50,000
10,000
420,000
650,000
300,000
650,000
950,000
Problem XXII
Full-Goodwill
Consideration transferred (200 shares x P25)
Less: BV of SHE of Public (P200 + P800 + P1,000)
Allocated excess
Fixed assets (P3,000 fair P2,000 book value)
Goodwill full
P 5,000
_2,000
P 3,000
_1,000
P2,000
or,
Consideration transferred (200 shares x P25)
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000)
Goodwill full
P 5,000
_3,000
P2,000
Note: The currently issued shares of Public Company and its fair value were used for the following
reasons (refer to Illustration 15-15 for comparison):
Total number of shares for Public Company after acquisition not given
The fair value of share of Private Company not given.
Fair value of net assets.

Fair value of common stock per share
Currently issued
Additional shares issued
Public
Company
P3,000
P25
Public
200
300
500
Private
Company
?
Private
60%**
40%
?
100
/60%
/40%
15,000 shares / 25,000 shares = 60%
Values are prior to acquisition (200 shares P25 market value).

Subsequent to acquisition, Private Company is the parent with 60% ownership; prior to
acquisition, Private Company has 0% ownership of Public Company.
Prior to acquisition, this represents 100% ownership of Public Company; subsequent to
acquisition, these holders of 100 shares of Public Company become the 40% NCI.
Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on fullgoodwill amounted to P800 (P2,000 P1,200 or P2,000 x 40%). This approach to determine
partial goodwill is acceptable as long as there is FV of NCI in the acquirer.
Problem XXIII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting
and tax purposes for this stock acquisition.
1. Investment in Seely Company
Common Stock***
Additional Paid-in-Capital
570,000
95,000
475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of common
stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely
Other Contributed Capital Seely
Retained Earnings - Seely
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*
Investment in Seely Company
Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
80,000
132,000
160,000
52,000
25,000
71,000
20,000
127,200
67,200
570,000
30,000
Problem XXIV
HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Medias losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.
TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

a. The purpose of consolidated financial statements is to present the financial position
and results of operations of a group of businesses as if they were a single entity. They
are designed to provide information useful for making business and economic
decisionsespecially assessing amounts, timing, and uncertainty of prospective cash
flows. Consolidated statements also provide more complete information about the
resources, obligations, risks, and opportunities of an enterprise than separate
statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
The equity investors in the VIE lack any one of the following three characteristics of
a controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g.,
another firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has
one or both of the characteristics that would require consolidation of the variable
interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
to 85% of the project's cost. Thus, a potential 15% risk.
During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
If lease is not renewed, TPC must either purchase the facility or sell it on behalf of
the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decisionmaking ability (end of five-year lease term)
Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XXV
1. Implied valuation and excess allocation for S.
Noncontrolling interest fair value
Consideration transferred by P.
Total business fair value
Fair value of VIE net assets
Excess net asset value fair value
P 60,000
20,000
80,000
100,000
P20,000
The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase.
All SoftPlus assets and liabilities are recognized at their individual fair values.
Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase
2.
Implied valuation and excess valuation for Softplus.

Noncontrolling interest fair value
Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill
P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
-060,000
20,000
80,000
60,000
P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
Noncontrolling interest
(60,000)
Pantech equity interest
(20,000)
-0Multiple Choice Problem
1. c
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]
3. d
P300,000
Less: Book value of SHE of S (P100,000 + P115,000)
215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 85,000
4. a Investment in subsidiary in the consolidated statements is eliminated in its entirety.
5. d
P150,000
Less: Book value of SHE of S (P40,000 + P52,000)
92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 58,000
6. b [P150,000 (P173,000 P40,000 P5,000)]
7. d [P132,000 + (P38,000 + {P60,000 P38,000}] or P132,000 + P60,000
8. b
Total Assets of P.
P1,278,000
(440,000)
P 838,000
Book value of assets of S Corp.
542,000
Book value reported by P and S
P1,380,000
Increase in inventory (P60,000 P38,000)
22,000
Increase in land (P60,000 P32,000)
28,000
Increase in plant assets [P350,000 (P300,000 P60,000)]
110,000
Goodwill (full)*
26,667
Total assets reported

*(P440,000/75%) (P702,000 P142,000) = P26,667
P1,566,667
Total Assets of P.
Less: Investment in S Corp.
9.
10.
Book value of assets of S Corp.

Increase in land (P60,000 P32,000)
Goodwill (partial)*
*[P440,000 (P702,000 P142,000) x 75%]
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
d
a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Land (P20,000 x 70%)
Goodwill partial
11.
c
Full-goodwill:
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full
P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000
P150,500
__98,000
P 52,500
P 10,500
14,000
P150,500
**64,500
P 15,000
20,000
24,500
P 28,000
P215,000
140,000
P 75,000
35,000
P 40,000
**given amount, but it should not be lower than the fair value of SHE subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
35,000
FV of SHE of SS
P 175,000
30%
12. b
Silk
Goodwill (full)
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000
P 791,500
(150,500)
P 641,000
405,000

Silk
Goodwill (partial)
13.
14.
P701,500
P1,046,000
15,000
20,000
28,000
P1,109,000
(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)

NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
15.
d
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
Add: NCI on full-goodwill (P40,000 P12,000)... 12,000
FV of NCI (full)..P 64,500
16.
P205,000
The amount reported by Power Corporation
17.
c
P419,500
= (P150,000 + P205,000) + P64,500
Consolidated SHE:
Common stock
Retained Earnings
NCI (partial-goodwill)
Consolidated SHE
P150,000
205,000
P355,000
52,500
P404,500
18. b
Consideration transferred ........................................................................................
Less: Strand's book value (P50,000 x 80%) ..............................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ....................................... P 8,000
P60,000
(40,000)
P20,000
Consideration transferred (P60,000 80%) ............................................................

Less: Strand's book value ..........................................................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ....................................... P10,000
P75,000
(50,000)
P25,000
19. c
20. a
Park current assets .......................................................................................................
Strand current assets ...................................................................................................
Excess inventory fair value .........................................................................................
Consolidated current assets ......................................................................................
P 70,000
20,000
15,000
P105,000
21. c
Park noncurrent assets ...............................................................................................
Strand noncurrent assets ...........................................................................................
Excess fair value to goodwill (partial) .....................................................................
Consolidated noncurrent assets ..............................................................................
P 90,000
40,000
___8,000
P140,000
Park noncurrent assets ................................................................................................

Strand noncurrent assets ............................................................................................
Excess fair value to goodwill (full) .............................................................................
Consolidated noncurrent assets ...............................................................................
P 90,000
40,000
__10,000
P140,000
22. d
23. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
24. b
Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
25. b
Park stockholders' equity ...........................................................................................
NCI (partial):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory). 15,000
FV of SHE SP65,000
x: Multiplied by: NCI%........................................................................
20%
Total stockholders' equity .........................................................................................
P80,000
13,000
P93,000
26. c
Park stockholders' equity .......................................................................... . P80,000
NCI (full):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory). 15,000
FV of SHE SP65,000
x: Multiplied by: NCI%.........................................................................
20%
NCI (partial)P13,000
Add: NCI on full-goodwill (P10,,000 P8,000) 2,000
Non-controlling interest at fair value (20% P75,000)
15,000
Total stockholders' equity
P95,000
27. b
28. a P150,000 + P500,000
29. a at fair value
30. d
(1) NCI measured at its share of net assets (Partial Goodwill)
Consideration transferredP 100 million
Less: Fair value of identifiable assets and liabilities of Loco
(80% x P85 million).. 68 million
Goodwill (partial)....P 32 million
(2) NCI is measured at its fair value (Full Goodwill)
Consideration transferredP 100 million
Fair value of NCI [(P100 million P24 million = P76 million / 80% =
P95 million] x 20%.................................................................................... 19 million
Fair value of Subsidiary...P 119 million
Less: Fair value of identifiable assets and liabilities of Oak.
85 million
Goodwill (full)...P 34 million
Under PFRS3 par. 32, goodwill is measured at the consideration transferred plus
the non-controlling interest (however measured) less net assets acquired. The
non-controlling interest may be measured at its share of net assets or its fair value,
per PFRS3 par. 19.
Note: Fair value is assumed to be the same with the carrying/book value.
31.
Fair value of Subsidiary - Swan

Consideration transferredP 1,420,000
Less: Fair value of identifiable assets and liabilities of Swan
(70% x P1.2 million).
840,000
Goodwill (partial)....P 580,000
Goodwill is carried as an asset in the consolidated statement of financial position.
Fair value of Subsidiary - Homer
Consideration transferredP 300,000
Less: Fair value of identifiable assets and liabilities of Homer
(65% x P640,000)...
416,000
Gain on bargain purchaseP ( 116,000)
Gain on a bargain purchase is recognized in profit or loss not on the statement of
financial position.
Notes:
1. Moon measures non-controlling interests at the relevant share of the
identifiable net assets at the acquisition date; therefore partial goodwill is in
effect.
2. Fair value is assumed to be the same with the carrying/book value.
32.
a See PFRS 3 par. 32.

Consideration transferredP1,960,000
Less: Fair value of identifiable assets and liabilities of Oak
(P700,000 x 70%).
490,000
Goodwill (partial).. P1,470,000
Or, alternatively:
Consideration transferredP1,960,000
Less: Book value of SHE of Oak (P100,000 + P300,000 + P1,400,000) x 70%.......... 1,260.000
Allocated excess..P 700,000
Less: Over/under valuation of assets and liabilities
(P1,800,000 P700,000) x 70%...................................................................... 770,000
Goodwill (partial)..P1,470,000
Note: Since the company elected to measure NCI at its share of the identifiable net assets
instead of fair value, therefore the partial goodwill approach should be used.
33.
d - P592,000 = P300,000 + P270,000 + P22,000
34.
a P26,667
Partial Goodwill
Less: BV of SHE of S (P400,000 x 75%)
Allocated excess
Current assets (P22,000 x 75%)
Land, buildings and equipment (P138,000 x 75%)
Goodwill partial
Full-goodwill:
Consideration transferred (P440,000 / 75%)
Less: BV of SHE of S (P400,000 x 100%)
Allocated excess
Current assets (P22,000 x 100%)
Land, buildings and equipment (P138,000 x 100%)
Goodwill full
P440,000
__300,000
P140,000
P 16,500
103,500
120,000
P 20,000
P586,667
__400,000
P186,667
P 22,000
138,000
160,000
P 26,667
35. b
Consolidated Total Assets:
Current assets (No. 32)
Land, buildings and equipment
[P538,000 + P272,000 + P138,000 + P26,667, full-goodwill]
592,000
974,667
P 1,566,667
36 c
FV of SHE of SS:
Book value of SHE of S.P 400,000
Adjustments to reflect fair value . 160,000
FV of SHE of S..P 560,000
Multiplied by: NCI%..............................................................
25%
Add: NCI on full-goo dwill (P26,667 P20,000)....
6,667
FV of NCI (full-goodwill)...P 146,667
37. d
Consolidated Total Liabilities:
Liabilities: P Co. (P300,000 + P538,000 + P440,000 P348,333)..P 929,667
S Co..
142,000
P1,071,667
38. d
Consolidated Stockholders Equity
Parents stockholders equityP 348,333
Add: NCI (full-goodwill) (No. 36).. 146,667
P 495,000
39. b
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5)..
APIC
Add: APIC of P
Less: Stock issuance cost
P 4,200,000
__2,500,000
P 1,700,000
7,500,000
___100,000
P 9,100,000
40. c
41. a
42. No answer available
43. a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000
44. a
45. c
46. a
[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
47. b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in PPE
P300,000 P500,000) = P550,000
48. a
49. d (P1,000,000 + P250,000) = P1,250,000 P only.
50. d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
51. b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
52. a P only
53. d
Total Assets of P
P 960,000
Less: Investment in S
(330,000)
P 630,000
Book value of assets of S
405,000
P1,035,000
19,000
21,000
120,000
Goodwill (full)
_____0
P1,195,000
If partial-goodwill same answer with full-goodwill approach, since there is no gain.
54. b step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value
30% FV of previously held equity interest: 30,000 shares x P5, fair value
10% FV of NCI (100,000 60,000 30,000) x P, fair value
100% Fair value of subsidiary
Less: Fair value of net assets (SHE) of subsidiary
P360,000
150,000
40,000
P560,000
500,000
P 60,000
55. b
56. a
57. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
58. d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)
P330,000
395,000
P 65,000
59. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
60. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
61. d Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be
made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
62. d
63. a
64. c In the combined financial statements (which normally used to described financial
statements in a common control situation), intercompany accounts are eliminated in full.
65. d In consolidating the subsidiary's figures, all intercompany balances must be eliminated in
their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
66. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parents percentage ownership.
67. d refer to62
In consolidating the subsidiary's figures, all intercompany balances must be eliminated in
their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
68. d refer to No. 61
69. c
An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 .......................................................................
Amortization for 2 years (10 year life) .....................................................................
Patent reported amount December 31, 2010 ......................................................
P45,000
(9,000)
P36,000
70. a
PP - building ..................................................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ...............................................................................................
-ORPP - building ...................................................................................................................
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000)
Consolidated buildings ...............................................................................................
P510,000
210,000
P720,000
510,000
210,000
P720,000
71. No answer available P60,000

AA, Inc. Fair value at January 1, 20x7:
30% previously owned fair value (30,000 shares P5) ........................................
60% new shares acquired (60,000 shares P6) ....................................................
10% NCI fair value (10,000 shares P5) ..................................................................
Acquisition-date fair value .......................................................................................
Net assets' fair value...................................................................................................
Goodwill ...................................................................................................................
P150,000
360,000
50,000
P560,000
500,000
P60,000
72. d
Cost of Investment (40 shares* x P40)P 1,600
Less: Book value of SHE Pedro Ltd (P300 + P800) x 100%......................... 1,100
Allocated excessP 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 P1,300) x 100% x 70%........
140
Goodwill.P 360 (d)
*
100%
Pedro Ltd
Currently issued 150 60% **
Additional shares issued.. 100 40%
Total shares 250
Santi Ltd
60 60%
40 / 40%
100
**150/250
Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltds
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 )
for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in
Pedro Ltd shows that it consists of the 100 shares existing prior to the merger and 150 new shares
held bye former shareholders in Santi Ltd. In essence, the former shareholders of Santi Ltd now
control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd shareholders have a 60% interest
in Pedro Ltd [150/(100+150]. The IASB argues that there has been a reverse acquisition, and that
Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent.
The usual circumstance creating a reverse acquisition is where an entity (the legal parent) obtains
ownership of the equity of another entity (the legal subsidiary) but, as part of the exchange
transaction, it issues enough voting equity as consideration for control of the combined entity to pass
to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of
Pedro ltd are to be valued at fair value. This is contrary to normal acquisition accounting, based on
Pedro Ltd being the legal parent of Santi Ltd, which would require the assets and liabilities of Santi
Ltd to be valued at fair value.
73. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance
from P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1.
2.
3.
4.
5.
41.
42.
43.
44.
45.
c
a
e
e
b
c
c
c
c
c
6.
7.
8.
9.
10,
46.
47.
48.
49.
50,
b
b
A
D
a
b
a
c
d
b
11.
12.
13.
14.
15,
51.
52.
53.
54.
55,
c
c
d
d
b
c
b
a
a
c
16.
17.
18.
19.
20.
56.
57.
58.
59.
60.
d
c
b
c
c
d
21.
22.
23.
24.
25.
b
a
a
b
c
26.
27.
28.
29.
30.
d
c
c
d
b
31
32.
33.
34.
35.
c
d
b
d
d
36.
37.
38.
39.
40.
d
d
c
b
c

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What are the steps to compute for goodwill?

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What are the differences between full and partial goodwill?

Chapter 15

Book value of SHE of SS (P50,000 + P90,000).P 140,000

Stockholders equity: P419,500

Full-Goodwill (Fair Value Basis)

Full-Goodwill (Fair Value Basis)

(E1) Common stock S Co.

Eliminate investment against stockholders equity of S Co.

Eliminate investment against allocated excess.

Buildings and equipment (net)

Liabilities and Stockholders Equity

Premium on bonds payable

Paid in capital in excess of par.

Common stock, P10 par

Liabilities and Stockholders Equity

(1) Investment in S Company

(2) Retained earnings (acquisition-related expense - close to

Acquisition- related costs.

(3) Paid-in capital in excess of par..

Costs to issue and register stocks.

Buildings and equipment (net)

Liabilities and Stockholders Equity

Premium on bonds payable

Common stock, P10 par

Additional paid in capital

Fair value of Subsidiary (100%)

Less: Over/under valuation of assets and liabilities:

Fair value of Subsidiary (100%)

2. Gain on acquisition, P66,000

Fair Value Basis (Full-goodwill Approach)

The full goodwill of P5,400,000 consists of two parts:

Fair Value Basis (Full-goodwill Approach)

Consideration transferred: Cash..P 9,000,000 (75%)

Fair Value Basis (Full-goodwill Approach)

Fair Value Basis (Full-goodwill Approach)

Full-goodwill (Fair Value Basis)

Less: Book value of stockholders equity of Sky:

Retained earnings (P24,000 x 80%)....

Allocated excess (excess of cost over book value)..

Less: Over/under valuation of assets and liabilities:

Increase in land (P72,000 x 80%).

Increase in bonds payable (P42,000 x 80%).

The over/under valuation of assets and liabilities are summarized as follows:

Buildings and equipment (net).........

Buildings and equipment ..................

Less: Accumulated depreciation..

(2) Retained earnings (acquisition-related expense - close to

Acquisition- related costs.

Eliminate investment against stockholders equity of Sky Co.

Buildings and equipment

Liabilities and Stockholders Equity

Common stock, P10 par

Common stock, P10 par

Paid in capital in excess of par.

Paid in capital in excess of par.

Premium on bonds payable