Consolidated Financial Statements on the Date of Acquisition

On January 2, 2020, the Statement of Financial Position of JKL Company and STU Company
immediately before the combination are:

JKL Co. STU Co.

Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.

Required:

1. Compute for the Consolidated Total Assets, Consolidated Total Liabilities and
Consolidated SHE on the date of acquisition

2. Prepare the necessary journal entry and working paper entries

 Assume the following independent cases:

1. Assuming JKL Company acquired 90% of the outstanding shares of STU

Company for P630,000 and non-controlling interest is measured at fair
value.

Aggregate amount of:

Price paid P630,000 (90%)

Recognized amount of NCI 70,000 (10%) P700,000

SHE of STU Co./BV of identifiable Net Assets:

Ordinary shares P145,000
Share premium 90,000
Retained earnings 255,000 P490,000
Less: pre-existing Goodwill of STU (70,000)
Less: Undervalued excess of property & equip 125,000
Identifiable NA at FV 545,000
545,000 * 10%=54,500 minimum/proportionate share

Goodwill (Full/Total) 155,000 x 90%=139,500

Determination and Allocation of Excess:(D&A)

Controlling Non-Controlling
Aggregate amount: P630,000 P70,000
Identifiable NA at FV (490,500) (54,500)
Goodwill P139,500 + P15,500=155,000
Entry in the Books of JKL:

Investment in STU 630,000

Cash 630,000

Working Paper Entries: (Date of Acquisition)

1. To eliminate the SHE of the acquired company:

Ordinary Shares 145,000

Share Premium 90,000
Retained Earnings 255,000
Investment in STU 441,000
NCI 49,000

2. To recognize FV differentials

Property and Equipment 125,000

Investment in STU 112,500
NCI 12,500

3. To eliminate the pre-existing goodwill of STU

Investment in STU 63,000

NCI 7,000
Goodwill 70,000

4. To recognize the resulting goodwill

Goodwill 155,000
Investment in STU 139,500
NCI 15,500
 JKL Co. STU Co.
Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.

Consolidated Assets:

Total Assets of Acquirer per books P4,900,000

Add: Total Assets of Acquired per books 550,000

Add/Deduct: WP items
Less: Investment in STU Co. (WP#1,2 & 4) (693,000)
Add: Investment in STU Co. (WP#3) 63,000
Add: Undervalued excess in P&E (WP#2) 125,000
Less: Pre-existing GW (WP#3) (70,000)
Add: Resulting GW (WP#4) 155,000 P 5,030,000

Consolidated Liabilities:

Total Liabilities of Acquirer per books P 270,000

Add: Total Liabilities of Acquired per books 60,000

Add/Deduct: WP items ____ -___ P 330,000

Consolidated SHE:

SHE of Acquirer per books P4,630,000

Add: SHE of Acquired per books 490,000

Add/Deduct: WP items
Less: SHE of Acquired Co. (WP#1) (490,000)
Add: NCI (WP#1, 2 & 4) 77,000
Less: NCI (WP#3) (7,000) P 4,700,000
 2. Assuming JKL Company acquired 80% of the outstanding shares of STU
Company for P520,000 and non-controlling interest is measured at the
proportionate share of STU Company’s identifiable net assets.

Aggregate amount of:

Price paid P520,000 (80%)

Recognized amount of NCI 109,000 (20%) P629,000

SHE of STU Co./BV of Identifiable Net Assets:

Ordinary shares P145,000
Share premium 90,000
Retained earnings 255,000 P490,000
Less: pre-existing Goodwill of STU (70,000)
Add: Undervalued excess of property & equip 125,000
Identifiable NA at FV 545,000
545,000 * 20%=109,000 guaranteed share

Goodwill (Partial) 84,000

Determination and Allocation of Excess:

Controlling Non-Controlling
Aggregate amount: P520,000 P109,000
Identifiable NA at FV (436,000) (109,000)
Goodwill P 84,000 P 0
Entry in the Books of JKL:

Investment in STU Co. 520,000

Cash 520,000

Working Paper Entries:

1. To eliminate the SHE of the acquired company:

Ordinary Shares 145,000

Share Premium 90,000
Retained Earnings 255,000
Investment in STU 392,000
NCI 98,000

2. To recognize FV differentials

Property and Equipment 125,000

Investment in STU 100,000
NCI 25,000

3. To eliminate the pre-existing goodwill of STU

Investment in STU 56,000

NCI 14,000
Goodwill 70,000

4. To recognize the resulting goodwill

Goodwill 84,000
Investment in STU 84,000
 JKL Co. STU Co.
Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.

Consolidated Assets:

Total Assets of Acquirer per books P4,900,000

Add: Total Assets of Acquired per books 550,000

Add/Deduct: WP items
Less: Investment in STU Co. (WP#1,2 & 4) (576,000)
Add: Investment in STU Co. (WP#3) 56,000
Add: Undervalued excess in P&E (WP#2) 125,000
Less: Pre-existing GW (WP#3) (70,000)
Add: Resulting GW (WP#4) 84,000 P 5,069,000

Consolidated Liabilities:

Total Liabilities of Acquirer per books P 270,000

Add: Total Liabilities of Acquired per books 60,000

Add/Deduct: WP items ____ -___ P 330,000

Consolidated SHE:

SHE of Acquirer per books P4,630,000

Add: SHE of Acquired per books 490,000

Add/Deduct: WP items
Less: SHE of Acquired Co. (WP#1) (490,000)
Add: NCI (WP#1 & 2) 123,000
Less: NCI (WP#3) (14,000) P 4,739,000
 3. Assuming JKL Company acquired 60% of the outstanding shares of STU
Company for P300,000 and non-controlling interest is measured at the
proportionate share of STU Company’s identifiable net assets. The
fair value of the NCI amounted to P240,000.

Aggregate amount of:

Price paid P300,000 (60%)

Recognized amount of NCI 218,000 (40%) P518,000

SHE of STU Co./BV of Identifiable Net Assets:

Ordinary shares P145,000
Share premium 90,000
Retained earnings 255,000 P490,000
Less: pre-existing Goodwill of STU (70,000)
Add: Undervalued excess of property & equip 125,000
Identifiable NA at FV 545,000
545,000 * 40%=218,000 relevant share

Gain from Bargain Purchase 27,000

Determination and Allocation of Excess:

Controlling Non-Controlling
Aggregate amount: P300,000 P218,000
Identifiable NA at FV (327,000) (218,000)
Gain from Bargain Purchase P 27,000 P 0
Entry in the Books of JKL:

Investment in STU 300,000

Cash 300,000

Working Paper Entries:

1. To eliminate the SHE of the acquired company:

Ordinary Shares 145,000

Share Premium 90,000
Retained Earnings 255,000
Investment in STU 294,000
NCI 196,000

2. To recognize FV differentials

Property and Equipment 125,000

Investment in STU 75,000
NCI 50,000

3. To eliminate the pre-existing goodwill of STU

Investment in STU 42,000

NCI 28,000
Goodwill 70,000

4. To recognize the resulting gain from bargain purchase

Investment in STU 27,000

Gain from Bargain Purchase 27,000
 JKL Co. STU Co.
Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.

Consolidated Assets:

Total Assets of Acquirer per books P4,900,000

Add: Total Assets of Acquired per books 550,000

Add/Deduct: WP items
Less: Investment in STU Co. (WP#1 & 2) (369,000)
Add: Investment in STU Co. (WP#3 & 4) 69,000
Add: Undervalued excess in P&E (WP#2) 125,000
Less: Pre-existing GW (WP#3) (70,000) P 5,205,000

Consolidated Liabilities:

Total Liabilities of Acquirer per books P 270,000

Add: Total Liabilities of Acquired per books 60,000

Add/Deduct: WP items ____ -___ P 330,000

Consolidated SHE:

SHE of Acquirer per books P4,630,000

Add: SHE of Acquired per books 490,000

Add/Deduct: WP items
Less: SHE of Acquired Co. (WP#1) (490,000)
Add: NCI (WP#1 & 2) 246,000
Less: NCI (WP#3) (28,000)
Add: Gain from Bargain Purchase 27,000_ P 4,875,000
 4. Assuming JKL Company acquired 75% of the outstanding shares of STU
Company for P450,000 and non-controlling interest is measured at fair
value in the amount of P140,000.

Aggregate amount of:

Price paid P450,000 (75%)

Recognized amount of NCI 140,000 (25%) P590,000

SHE of STU Co./BV of Identifiable Net Assets:

Ordinary shares P145,000
Share premium 90,000
Retained earnings 255,000 P490,000
Less: pre-existing Goodwill of STU (70,000)
Add: Undervalued excess of property & equip 125,000
Identifiable NA at FV 545,000
545,000 * 25% =136,250

Goodwill (Full) 45,000

Determination and Allocation of Excess:

Controlling Non-Controlling
Aggregate amount: P450,000 P140,000
Identifiable NA at FV (408,750) (136,250)
Goodwill P 41,250 P 3,750

Controlling Non-Controlling
Aggregate amount: P450,000 P140,000
NA at FV (461,250) (153,750)=615,000
Goodwill P (11,250) P (13,750)
Add: Pre-existing Goodwill 52,500 17,500
P 41,250 P 3,750
 Entry in the Books of JKL:

Investment in STU 450,000

Cash 450,000

Working Paper Entries:

1. To eliminate the SHE of the acquired company:

Ordinary Shares 145,000

Share Premium 90,000
Retained Earnings 255,000
Investment in STU 367,500
NCI 122,500

2. To recognize FV differentials

Property and Equipment 125,000

Investment in STU 93,750
NCI 31,250

3. To eliminate the pre-existing goodwill of STU

Investment in STU 52,500

NCI 17,500
Goodwill 70,000

4. To recognize the resulting goodwill

Goodwill 45,000
Investment in STU 41,250
NCI 3,750

*Instead of WP #3 and 4

Investment in STU 11,250

NCI 13,750
Goodwill 25,000
 JKL Co. STU Co.
Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.

Consolidated Assets:

Total Assets of Acquirer per books P4,900,000

Add: Total Assets of Acquired per books 550,000

Add/Deduct: WP items
Less: Investment in STU Co. (WP#1,2 & 4) (502,500)
Add: Investment in STU Co. (WP#3) 52,500
Add: Undervalued excess in P&E (WP#2) 125,000
Less: Pre-existing GW (WP#3) (70,000)
Add: Resulting GW (WP#4) 45,000 P 5,100,000

Consolidated Liabilities:

Total Liabilities of Acquirer per books P 270,000

Add: Total Liabilities of Acquired per books 60,000

Add/Deduct: WP items ____ -___ P 330,000

Consolidated SHE:

SHE of Acquirer per books P4,630,000

Add: SHE of Acquired per books 490,000

Add/Deduct: WP items
Less: SHE of Acquired Co. (WP#1) (490,000)
Add: NCI (WP#1, 2 & 4) 157,500
Less: NCI (WP#3) (17,500) P 4,770,000
 5. Assuming JKL Company acquired 85% of the outstanding shares of STU
Company for P720,000 and non-controlling interest is measured at fair
value in the amount of P68,000.

Aggregate amount of:

Price paid P720,000 (85%)

Recognized amount of NCI 81,750 (15%) P801,750

SHE of STU Co./BV of Identifiable Net Assets:

Ordinary shares P145,000
Share premium 90,000
Retained earnings 255,000 P490,000
Less: pre-existing Goodwill of STU (70,000)
Add: Undervalued excess of property & equip 125,000
Identifiable NA at FV 545,000
545,000 * 15% =81,750

Goodwill (partial) 256,750

Determination and Allocation of Excess:

Controlling Non-Controlling
Aggregate amount: P720,000 P81,750
Identifiable NA at FV (463,250) (81,750)
Goodwill P256,750 P -
 Entry in the Books of JKL:

Investment in STU 720,000

Cash 720,000

Working Paper Entries:

1. To eliminate the SHE of the acquired company:

Ordinary Shares 145,000

Share Premium 90,000
Retained Earnings 255,000
Investment in STU 416,500
NCI 73,500

2. To recognize FV differentials

Property and Equipment 125,000

Investment in STU 106,250
NCI 18,750

3. To eliminate the pre-existing goodwill of STU

Investment in STU 59,500

NCI 10,500
Goodwill 70,000

4. To recognize the resulting goodwill

Goodwill 256,750
Investment in STU 256,750

Use the proportionate share in recognizing the NCI if the given or assumed fair value is lower than
the relevant or minimum share. This is to avoid a negative share in the NCI
 JKL Co. STU Co.
Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.

Consolidated Assets:

Total Assets of Acquirer per books P4,900,000

Add: Total Assets of Acquired per books 550,000

Add/Deduct: WP items
Less: Investment in STU Co. (WP#1,2 & 4) (779,500)
Add: Investment in STU Co. (WP#3) 59,500
Add: Undervalued excess in P&E (WP#2) 125,000
Less: Pre-existing GW (WP#3) (70,000)
Add: Resulting GW (WP#4) 256,750 P 5,041,750

Consolidated Liabilities:

Total Liabilities of Acquirer per books P 270,000

Add: Total Liabilities of Acquired per books 60,000

Add/Deduct: WP items ____ -___ P 330,000

Consolidated SHE:

SHE of Acquirer per books P4,630,000

Add: SHE of Acquired per books 490,000

Add/Deduct: WP items
Less: SHE of Acquired Co. (WP#1) (490,000)
Add: NCI (WP#1, 2 & 4) 92,250
Less: NCI (WP#3) 10,500) P 4,711,750
 6. Assuming JKL Company acquired 95% of the outstanding shares of STU
Company for P500,000 and non-controlling interest is measured at fair
value in the amount of P30,000.

Aggregate amount of:

Price paid P500,000 (95%)

Recognized amount of NCI 30,000 (5%) P530,000

SHE of STU Co./BV of Identifiable Net Assets:

Ordinary shares P145,000
Share premium 90,000
Retained earnings 255,000 P490,000
Less: pre-existing Goodwill of STU (70,000)
Add: Undervalued excess of property & equip 125,000
Identifiable NA at FV 545,000
545,000 * 5% = 27,250

Gain from Bargain Purchase ( 15,000)

Determination and Allocation of Excess:

Controlling Non-Controlling
Aggregate amount: P500,000 P30,000
Identifiable NA at FV (517,750) (27,250)
Gain from BP P(17,750) P 2,750
Entry in the Books of JKL:

Investment in STU 500,000

Cash 500,000

Working Paper Entries:

5. To eliminate the SHE of the acquired company:

Ordinary Shares 145,000

Share Premium 90,000
Retained Earnings 255,000
Investment in STU 465,500
NCI 24,500

6. To recognize FV differentials

Property and Equipment 125,000

Investment in STU 118,750
NCI 6,250

7. To eliminate the pre-existing goodwill of STU

Investment in STU 66,500

NCI 3,500
Goodwill 70,000

8. To recognize the resulting goodwill

Investment in STU 17,750

Gain from Bargain Purchase 15,000
NCI 2,750
 JKL Co. STU Co.
Cash P 1,350,000 P 75,000
Inventories 900,000 90,000
Property and equipment (net) 2,250,000 315,000
Goodwill 400,000 70,000
Total Assets P 4,900,000 P 550,000

Current Liabilities P 270,000 P 60,000

Ordinary shares, P100 par 650,000 145,000
Share premium 1,350,000 90,000
Retained Earnings 2,630,000 255,000
Total Liabilities and Stockholders’ Equity P 4,500,000 P 550,000

The fair value of STU Company’s property & equipment is P440,000.