Download - Solution Chapter 15
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Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)] 3,100,000
Cash 2,500,000
Common Stock 30,000
Other Contributed Capital (P40 - P2) 15,000 570,000
Other Contributed Capital 30,000
Acquisition Expense 67,000
Deferred Acquisition Charges 90,000
Acquisition Costs Payable 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 full-
goodwill)
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
P150,500
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Allocated excess P 75,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100% P 15,000
Land (P25,000 P45,000) x 100% 20,000 35,000
Goodwill full 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:
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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
Fair value of Subsidiary:
Consideration transferred
P150,500
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Allocated excess P 52,500
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
Goodwill partial 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:
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 SSD P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)..P 52,500
Stockholders equity: P419,500 Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parents SHE or Equity Attributable to Parent P355,000 NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
Problem III
1.
A. Investment in Sewell 675,000
Cash 675,000
B. Investment in Sewell 675,000
Cash 675,000
C. Investment in Sewell 318,000
Cash 318,000
2.
A.
Fair value of Subsidiary:
Consideration transferred
P675,000
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000
Allocated excess P( 30,000)
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100% (P10,000)
Land (P50,000 P70,000) x 100% __20,000 __10,000
Bargain Purchase Gain full (P 40,000)
B.
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
P675,000
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% 634,500
Allocated excess P 40,500
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 90% (P9,000)
Land (P50,000 P70,000) x 90% __18,000 __9,000
Goodwill partial P 31,500
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Full-Goodwill
Fair value of Subsidiary:
Consideration transferred (P675,000/90%)
P750,000
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000
Allocated excess P 45,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100% (P10,000)
Land (P50,000 P70,000) x 100% __20,000 __10,000
Goodwill full P 35,000
C.
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
P318,000
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80% 624,000
Allocated excess (P306,000)
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 80% (P 8,000)
Land (P50,000 P70,000) x 80% __16,000 __8,000
Bargain Purchase Gain partial (parent only) (P314,000)
Full-Goodwill
Fair value of Subsidiary:
Consideration transferred
P 318,000
FV of NCI* _158,000
P 476,000
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100% 780,000
Allocated excess (P304,000)
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100% (P10,000)
Land (P50,000 P70,000) x 100% __20,000 _10,000
Bargain Purchase Gain full (parent only) (P314,000)
*BV of SHE of S P780,000
Adjustments to reflect fair value 10,000
FV of SHE of S P790,000
x: NCI% 20%
FV of NCI P158,000
3.
A.
Common Stock Sewell 450,000 Other Contributed Capital Sewell 180,000 Retained Earnings Sewell 75,000 Land 20,000
Inventory 10,000
Investment in Sewell 675,000
Retained earnings (gain) Parent (since balance sheet accounts are being
examined) 40,000
B.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell 450,000 Other Contributed Capital Sewell 180,000 Retained Earnings Sewell 75,000 Land 20,000
Goodwill 31,500
Inventory 10,000
Investment in Sewell 675,000
Non-controlling Interest 71,500
BV SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000
Adjustments to reflect fair value 10,000
FV of SHE of Sewell P715,000
x: NCI% 10%
FV of NCI (partial) P 71,500
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Full-Goodwill (Fair Value Basis)
Common Stock Sewell 450,000 Other Contributed Capital Sewell 180,000 Retained Earnings Sewell 75,000 Land 20,000
Goodwill 35,000
Inventory 10,000
Investment in Sewell 675,000
Non-controlling Interest 75,000
BV SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000
Adjustments to reflect fair value 10,000
FV of SHE of Sewell P715,000
x: NCI% 10%
FV of NCI (partial) P 71,500
NCI on Full-Goodwill
(P35,000 P31,500) 3,500 FV of NCI (full) P 75,000
C.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell 620,000 Other Contributed Capital Sewell 140,000 Retained Earnings Sewell 20,000 Land 20,000
Inventory 10,000
Investment in Sewell 318,000
Retained earnings (gain)Parent (refer to 3A) 314,000 Non-controlling Interest 158,000
BV SHE of Sewell (P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value 10,000
FV of SHE of Sewell P790,000
x: NCI% 20%
FV of NCI (partial) P158,000
Full-Goodwill (Fair Value Basis)
Common Stock Sewell 620,000 Other Contributed Capital Sewell 140,000 Retained Earnings Sewell 20,000 Land 20,000
Inventory 10,000
Investment in Sewell 318,000
Retained earnings (gain)Parent (refer to 3A) 314,000 Non-controlling Interest 158,000
BV SHE of Sewell (P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value 10,000
FV of SHE of Sewell P790,000
x: NCI% 20%
FV of NCI (full) P158,000
Problem IV
1.
January 1, 20x4
Investment in S Company 408,000 Cash.. 408,000
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4 Fair value of Subsidiary (100%)
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Consideration transferred.. P 408,000 Less: Book value of stockholders equity of S: Common stock (P240,000 x 100%).. P 240,000 Paid-in capital in excess of par (P24,000 x 100%)... 24,000
Retained earnings (P96,000 x 100%)... 96,000 360,000 Allocated excess (excess of cost over book value) P 48,000 Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%).. P 18,000 Increase in land (P72,000 x 100%) 72,000 Decrease in buildings and equipment
(P12,000 x 100%)... ( 12,000) Increase in bonds payable (P42,000 x 100%).. ( 42,000) 36,000 Positive excess: Goodwill (excess of cost over fair
value).. P 12,000
3. (E1) Common stock S Co. 240,000 Additional paid-in capital S Co. 24,000 Retained earnings S Co... 96.000 Investment in S Co 360,000 Eliminate investment against stockholders equity of S Co.
(E2) Inventory. 18,000 Land. 72,000 Goodwill. 12,000 Buildings and equipment.. 12,000 Premium on bonds payable 42,000 Investment in S Co.. 48,000 Eliminate investment against allocated excess.
4.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*. P 12,000 P 60,000 P 72,000
Accounts receivable.. 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
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill (2) 12,000 12,000
Investment in S Co. 408,000
(1) 360,000
(2) 48,000 -
Total Assets P1,320,000 P600,000 P1,602,000
Liabilities and Stockholders Equity
Accounts payable P 120,000 P120,000 P 240,000
Bonds payable 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings 300,000 300,000
Retained earnings _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders equity of S Co. (2) Eliminate investment against allocated excess.
* P420,000 P408,000 = P12,000.
5. Assets
Cash P 72,000
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment (net) 828,000
Goodwill 12,000
Total Assets P1,602,000
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Liabilities and Stockholders Equity
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Stockholders Equity
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings 300,000
Total Stockholders Equity P 960,000
Total Liabilities and Stockholders Equity P1,602,000
Problem V
1.
January 1, 20x4
(1) Investment in S Company 432,000 Cash.. 288,000 Common stock, P10 par.. 120,000 Paid-in capital in excess of par. 24,000
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)
12,000
Cash. 12,000 Acquisition- related costs.
(3) Paid-in capital in excess of par.. 8,400 Cash. 8,400 Costs to issue and register stocks.
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4 Fair value of Subsidiary (100%)
Consideration transferred
Cash. P 288,000 Common stock: 12,000 shares x P12 per share.. 144,000 P 432,000 Less: Book value of stockholders equity of S: Common stock (P240,000 x 100%).. P 240,000 Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)... 24,000 360,000 Allocated excess (excess of cost over book value) P 72,000 Add: Existing Goodwill of Sky Co. (P6,000 x 100%) 6,000 Adjusted allocated excess. P 78,000 Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%).. P 18,000 Increase in land (P72,000 x 100%) 72,000 Decrease in buildings and equipment
(P12,000 x 100%)... ( 12,000) Increase in bonds payable (P42,000 x 100%).. ( 42,000) 36,000 Positive excess: Goodwill (excess of cost over fair
value).. 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) Fair value of Subsidiary (100%)
Consideration transferred P 432,000 Less: Book value of stockholders equity of S.. 360,000 Allocated excess (excess of cost over book value). P 72,000 Less: Over/under valuation of assets and liabilities 36,000 Positive excess: Goodwill (excess of cost over fair value)... P 36,000 Add: Existing Goodwill 6,000 Positive excess: Goodwill (excess of cost over fair
value) P 42,000
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3.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*.. P 111,600 P 54,000 P 165,600
Accounts receivable.. 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
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill 6,000 (2) 36,000 42,000
Investment in S Co. 432,000
(4) 360,000
(5) 72,000 -
Total Assets P1,443,600 P600,000 P1,725,600
Liabilities and Stockholders Equity
Accounts payable P 120,000 P120,000 P 240,000
Bonds payable 240,000 120,000 360,000
Premium on bonds payable (6) 42,000 42,000
Common stock, P10 par**.. 720,000 720,000
Common stock, P10 par 240,000 (1) 240,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders equity of Sky Co. (2) Eliminate investment against allocated excess.
* 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.
4. Assets
Cash P 165,600
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment (net) 828,000
Goodwill 42,000
Total Assets P1,725,600
Liabilities and Stockholders Equity
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Stockholders Equity
Common stock, P10 par P 720,000
Additional paid-in capital in excess of par 75,600
Retained earnings 288,000
Total Stockholders Equity P 1083,600
Total Liabilities and Stockholders Equity P1,725,600
Problem VI
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4 Fair value of Subsidiary (100%)
Consideration transferred (P408,000 P6,000).. P 402,000 Less: Book value of stockholders equity of S: Common stock (P240,000 x 100%).. P 240,000 Paid-in capital in excess of par (P96,000 x 100%)... 96,000
Retained earnings (P24,000 x 100%)... 24,000 360,000 Allocated excess (excess of cost over book value) P 42,000
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Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%).. P 18,000 Increase in land (P72,000 x 100%) 72,000 Decrease in buildings and equipment
(P12,000 x 100%)... ( 12,000) Increase in bonds payable (P42,000 x 100%).. ( 42,000) 36,000 Positive excess: Goodwill (excess of cost over fair
value).. P 6,000
2. Goodwill, P6,000
Problem VII
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4 Fair value of Subsidiary (100%)
Consideration transferred:
Common stock: 24,000 shares x P14 per share P 336,000
Less: Book value of stockholders equity of Sky: Common stock (P240,000 x 100%).. P 240,000 Paid-in capital in excess of par (P96,000 x 100%)... 96,000
Retained earnings (P24,000 x 100%)... 24,000 360,000 Allocated excess (excess of book value over cost) (P 24,000) Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%).. P 18,000 Increase in land (P72,000 x 100%) 72,000 Decrease in buildings and equipment
(P12,000 x 100%)... ( 12,000) Increase in patent (P24,000 x 100%)... 24,000 Increase in contingent liability (P18,000 x 100%). ( 18,000) Increase in bonds payable (P42,000 x 100%).. ( 42,000) 42,000 Negative excess: Bargain Purchase Gain (excess of
fair value over cost) (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
Fair value of subsidiary (100%):
Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)
Less: Book value of stockholders equity (net assets) 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%)
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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
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:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (60%):
Consideration transferred: Cash.....P 7,560,000 (60%) Less: Book value of stockholders equity (net assets) S Company: P6,000,000 x 60%................................ 3,600,000 (60%) Allocated Excess...... P 3,960,000 (60%) Less: Over/undervaluation of assets and liabilities:
(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%) Positive excess: Goodwill (partial).... P 2,520,000 (60%)
Non-controlling interest
Book value of stockholders equity of subsidiary. P 6,000,000 Adjustments to reflect fair value (over/ undervaluation
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
Fair Value Basis (Full-goodwill Approach)
Full-goodwill
Fair value of subsidiary (100%):
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%) Less: Book value of stockholders equity (net assets) S Company: P6,000,000 x 100%........................... 6,000,000 (100%) Allocated Excess...P 6,360,000 (100%) Less: Over/undervaluation of assets and liabilities:
(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%) Positive excess: Goodwill (full)......P 3,960,000 (100%)
The full goodwill of P3,960,000 consists of two parts: Full-goodwill...P 3,960,000 Less: Controlling interest on full-goodwill
or partial-goodwill. 2,520,000 NCI on full-goodwill..P 1,440,000
Non-controlling interest
Non-controlling interest (partial)P 3,360,000 Add: Non-controlling interest on full -goodwill
(P3,960,000 P2,520,000 partial-goodwill).. 1,440,000 Non-controlling Interest (full)..P 4,800,000
Case 3;
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (75%):
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Consideration transferred: Cash..P 9,000,000 (75%) Less: Book value of stockholders equity (net assets) S Company: P7,200,000 x 75%.......................... 5,400,000 (75%) Allocated Excess....P 3,600,000 (75%) Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%) Positive excess: Goodwill (partial).P 1,800,000 (75%)
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 subsidiaryP 9,600,000 Multiplied by: Non-controlling Interest percentage............ 25%
Non-controlling interest (partial).P 2,400,000
Fair Value Basis (Full-goodwill Approach)
Full-goodwill
Fair value of subsidiary. P 11,640,000 (100%) Less: Book value of stockholders equity (net assets) S Company: P7,200,000 x 100%........................... 7,200,000 (100%) Allocated Excess..P 4,440,000 (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 2,040,000 (100%)
The full goodwill of P2,040,000 consists of two parts: Full-goodwill...P 2,040,000 Less: Controlling interest on full-goodwill
or partial-goodwill.... 1,800,000 NCI on full-goodwill. .P 240,000
Non-controlling interest
Non-controlling interest (partial)P 2,400,000 Add: Non-controlling interest on full -goodwill
(P2,040,000 P1,800,000 partial-goodwill)....... 240,000 Non-controlling Interest (full)..P 2,640,000
Case 4:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (75%):
Consideration transferred: Cash..P 2,592,000 (60%) 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%) Less: Book value of stockholders equity (net assets) S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%) Allocated Excess.....P 1,440,000 (75%) Less: Over/undervaluation of assets and liabilities:
[(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%)
Non-controlling interest
Book value of stockholders equity of subsidiary..P 2,400,000 Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P3,840,000 P2,400,000). 1,440,000 Fair value of stockholders equity of subsidiaryP 3,840,000 Multiplied by: Non-controlling Interest percentage............ 25%
Non-controlling interest (partial)P 960,000
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Fair Value Basis (Full-goodwill Approach)
Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash..P 2,592,000 (60%) 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%) Less: Book value of stockholders equity (net assets) S Company: P2,400,000 x 100%........................ 2,400,000 (100%) Allocated Excess...P 1,920,000 (100%) Less: Over/undervaluation of assets and liabilities:
(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 Less: Controlling interest on full-goodwill
or partial-goodwill. 360,000 NCI on full-goodwill..P 120,000
Non-controlling interest
Non-controlling interest (partial)P 960,000 Add: Non-controlling interest on full -goodwill
(P480,000 P360,000 partial-goodwill)....... 120,000 Non-controlling Interest (full)P 1,080,000
Problem IX
Partial-goodwill (Proportionate Basis)
Fair value of subsidiary (75%):
Consideration transferred: Cash.. P270,000 (75%)
Less: Book value of stockholders equity (net assets) S Company: (P480,000 P228,000) x 75%.......................................
189,000 (75%)
Allocated excess... P 81,000 (75%)
Less: Over/undervaluation of assets and liabilities:
[(P612,000 P228,000) (P480,000 P228,000) x 75%
99,000 (75%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only).
(P18,000) (75%)
Full-goodwill (Fair Value Basis)
Fair value of subsidiary (100%):
Consideration transferred: Cash.. P270,000 ( 75%)
Fair value of non-controlling interest (given) 98,400 ( 25%)
Fair value of subsidiary P368,400 (100%)
Less: Book value of stockholders equity (net assets) S Company: (P480,000 P228,000) x 100%.....................................
252,000 (100%)
Allocated excess... P116,400 (100%)
Less: Over/undervaluation of assets and liabilities:
[(P612,000 P228,000) (P480,000 P228,000) x 100%
132,000 (100%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only).
(P15,600) (100%)
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred.. P 360,000
Less: Book value of stockholders equity of Sky:
Common stock (P240,000 x 80%). P 192,000
Paid-in capital in excess of par (P96,000 x 80%).... 76,800
-
Retained earnings (P24,000 x 80%).... 19,200 288,000
Allocated excess (excess of cost over book value).. P 72,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 80%) P 14,400
Increase in land (P72,000 x 80%). 57,600 Decrease in buildings and equipment
(P12,000 x 80%)..... ( 9,600)
Increase in bonds payable (P42,000 x 80%). ( 33,600) 28,800 Positive excess: Partial-goodwill (excess of cost over
fair value)... 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
Inventory... 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
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co.
Book value
Sky Co.
Fair value
(Decrease)
Buildings and equipment .................. 720,000 348,000 ( 372,000)
Less: Accumulated depreciation.. 360,000 - ( 360,000)
Net book value... 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 360,000 Cash.. 360,000 Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)
14,400
Cash. 14,400 Acquisition- related costs.
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. 240,000 Additional paid-in capital Sky Co. 24,000 Retained earnings Sky Co... 96,000 Investment in Sky Co 288,000 Non-controlling interest (P300,000 x 20%).. 72,000 Eliminate investment against stockholders equity of Sky Co.
(E2) Inventory. 18,000 Accumulated depreciation. 360,000 Land. 72,000 Goodwill. 43,200 Buildings and equipment.. 372,000 Premium on bonds payable 42,000 Non-controlling interest (P30,000 x 20%).. 7,200 Investment in Sky Co.. 72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*. P 45,600 P 60,000 P 105,600
Accounts receivable.. 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
-
Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000
Goodwill (2) 43,200 43,200
Investment in Sky Co. 360,000
(1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,146,800
Liabilities and Stockholders Equity
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings** 285,600 285,600
Retained earnings 96,000 (1) 96,000
Non-controlling interest _________ _______ _________
(1 ) 72,000
(2) 7,200 _79,200
Total Liabilities and Stockholders Equity P1,785,600 P960,000 P 853,200 P 853,200 P2,146,800
(1) Eliminate investment against stockholders equity of Sky Co. (2) Eliminate investment against allocated excess.
* P420,000 P360,000 P14,400 = P45,600. **P300,000 P14,400 = P285,600.
Incidentally, the non-controlling interest on the date of acquisition is computed as
follows: Common stock Sky company P 240,000 Paid-in capital in excess of par Sky co 24,000 Retained earnings Sky Co... 80,000 Book value of stockholders equity Sky Co.... P 360,000 Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities).
36,000
Fair value of stockholders equity of subsidiary P 396,000 Multiplied by: Non-controlling Interest percentage... 20 Non-controlling interest (partial).. P 79,200
The balance sheet:
Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4 Assets
Cash P 105,600
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 43,200
Total Assets P1,666,800
Liabilities and Stockholders Equity
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Stockholders Equity
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings 285,600
Parents Stockholders Equity/Equity Attributable to the Owners of the Parent
P 945,600
Non-controlling interest 79,200
Total Stockholders Equity (Total Equity) P 1,024,800
Total Liabilities and Stockholders Equity P1,666,800
-
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred (P360,000 / 80%).. P 450,000 Less: Book value of stockholders equity of Sky: Common stock (P240,000 x 100%). P 240,000 Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%).... 24,000 360,000 Allocated excess (excess of cost over book value).. P 90,000 Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000 Increase in land (P72,000 x 100%). 72,000 Decrease in buildings and equipment
(P12,000 x 100%)..... ( 12,000) Increase in bonds payable (P42,000 x 100%). ( 42,000) 36,000 Positive excess: Full -goodwill (excess of cost over
fair value)... P 54,000
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company 360,000 Cash.. 360,000 Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)
14,400
Cash. 14,400 Acquisition- related costs.
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. 240,000
Additional paid-in capital Sky Co. 24,000 Retained earnings Sky Co... 96,000 Investment in Sky Co 288,000 Non-controlling interest (P300,000 x 20%).. 72,000 Eliminate investment against stockholders equity of Sky Co.
(E2) Inventory. 18,000 Accumulated depreciation. 360,000 Land. 72,000 Goodwill. 54,000 Buildings and equipment.. 372,000 Premium on bonds payable 42,000 Non-controlling interest [(P30,000 x 20%) +
(P45,000 P36,000)].
18,000
Investment in Sky Co.. 72,000 Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Full-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*. P 45,600 P 60,000 P 105,600
Accounts receivable.. 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
Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000
Goodwill (2) 54,000 54,000
Investment in Sky Co. 360,000
(1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,157,600
-
Liabilities and Stockholders Equity
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Premium on bonds payable (2) 42,000 42,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings** 285,600 285,600
Retained earnings 96,000 (1) 96,000
Non-controlling interest _________ _______ _________
(1 ) 72,000
(2) 18,000 _90,000 Total Liabilities and Stockholders Equity P1,785,600 P960,000 P 864,000 P 864,000 P2,157,600
(1) Eliminate investment against stockholders equity of Sky Co. (2) Eliminate investment against allocated excess.
* P420,000 P360,000 P14,400 = P45,600. **P300,000 P14,400 = P285,600.
Incidentally, the non-controlling interest on the date of acquisition is computed as
follows: Non-controlling interest (partial).. P 79,200 Add: Non-controlling interest (P54,000, full P43,200, partial). 10,800 Non-controlling interest (full). P 90,000
The balance sheet;
Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4 Assets
Cash P 105,600
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 54,000
Total Assets P1,677,600
Liabilities and Stockholders Equity
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Stockholders Equity
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings 285,600
Parents Stockholders Equity/Equity Attributable to the Owners of the Parent
P 945,600
Non-controlling interest 90,000
Total Stockholders Equity (Total Equity) P 1,035,600
Total Liabilities and Stockholders Equity P1,677,600
Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred:
Common stock: 12,000 shares x P25 per share... P 300,000
Less: Book value of stockholders equity of S:
Common stock (P12,000 x 80%). P 9,600
Paid-in capital in excess of par (P108,000 x 80%)... 86,400
Retained earnings (P72,000 x 80%).... 57,600 153,600
Allocated excess (excess of cost over book value) P 146,400
-
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%) P 4,800
Increase in land (P36,000 x 80%). 28,800 Increase in buildings and equipment
(P150,000 x 80%)...... 120,000
Increase in copyrights (P60,000 x 80%).. 48,000 Increase in contingent liabilities estimated liability for contingencies (P6,000 x 80%)..... ( 4,800) 196,800 Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only).. (P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
Book value
S Co.
Fair value
Over/Under
Valuation
Inventory.... P 60,000 P 66,000 P 6,000
Land. 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.. 0 ( 6,000) ( 6,000)
Net undervaluation. P 330,000 P 576,000 P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company... 300,000 Common stock, P1 par 12,000 Paid-in capital in excess of par (P300,000 P12,000 par).. 288,000 Acquisition of S Company.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4: (E1) Common stock S Co. 12,000 Additional paid-in capital S Co. 108,000 Retained earnings S Co 72,000 Investment in S Co 153,600 Non-controlling interest (P192,000 x 20%).. 38,400 Eliminate investment against stockholders equity of S Co
(E2) Inventory.. 6,000 Land.. 36,000 Buildings and equipment 150,000 Copyright.... 60,000 Estimated liability for contingencies.. 6,000 Investment in S Co... 146,400 Non-controlling interest (P246,000 x 20%). 49,200 Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are being
examined).............................................................................
50,400 Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Proportionate Basis)
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash P 334,800 P 334,800
Accounts receivable.. 86,400 P 24,000 110,400
Inventory. 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... (2) 60,000 60,000
Investment in S Co.. 300,000 __________
_________
(1) 153,600
(2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Liabilities and Stockholders Equity
-
Accounts payable P 96,000 42,000 P 138,000
Estimated liability for
contingencies (2) 6,000 6,000
Bonds payable 240,000 120,000 360,000
Common stock, P1 par*.. 44,160 44,160
Common stock, P1 par 12,000 (1) 12,000
Paid-in capital in excess of
par** 723,840 723,840
Paid-in capital in excess of par 108,000 (1) (1) 108,000
Retained earnings 577,200 (2) 50,400 627,600
Retained earnings 72,000 (1) 72,000
Non-controlling interest _________ _______ _________
(1 ) 38,400
(2) 49,200 _87,600
Total Liabilities and Stockholders Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders equity of Scud Co. (2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
Incidentally, the non-controlling interest on the date of acquisition is computed as
follows: Common stock S Co. P 12,000 Paid-in capital in excess of par S Co.. 108,000 Retained earnings S Co 72,000 Book value of stockholders equity S Co. P 192,000 Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities).
246,000
Fair value of stockholders equity of subsidiary P 438,000 Multiplied by: Non-controlling Interest percentage... 20 Non-controlling interest (partial).. P 87,600
The balance sheet:
Assets
Cash P 334,800
Accounts receivables 110,400
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Total Assets P1,987,200
Liabilities and Stockholders Equity
Liabilities
Accounts payable P 138,000
Estimated liability for contingencies 6,000
Bonds payable 360,000
Total Liabilities P 504,000
Stockholders Equity
Common stock, P1 par P 44,160
Paid-in capital in excess of par 723,840
Retained earnings 627,600
Parents Stockholders Equity/Equity Attributable to the Owners of the Parent
P1,395,600
Non-controlling interest 87,600
Total Stockholders Equity (Total Equity) P1,483,200
Total Liabilities and Stockholders Equity P1,987,200
Full-goodwill Approach (Fair Value Basis)
Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Date of Acquisition January 1, 20x4 Fair value of Subsidiary (100%)
Consideration transferred:
Common stock: 12,000 x P25 (80%) P 300,000 Fair value of NCI (given) (20%). 90,000 Fair value of subsidiary (100%). P 390,000 Less: Book value of stockholders equity of S: Common stock (P12,000 x 100%). P 12,000 Paid-in capital in excess of par (P108,000 x 100%). 108,000
Retained earnings (P72,000 x 100%)... 72,000 192,000 Allocated excess (excess of cost over book value) P 198,000
-
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%) P 6,000 Increase in land (P36,000 x 100%) 36,000 Increase in buildings and equipment
(P150,000 x 100%).... 150,000 Increase in copyrights (P60,000 x 100%) 6,000 Increase in contingent liabilities estimated liability for contingencies (P6,000 x 100%).. ( 6,000) 246,000 Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only).. (P 48,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in S Company... 300,000 Common stock, P1 par 12,000 Paid-in capital in excess of par (P300,000 P12,000 par).. 288,000 Acquisition of S Company.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4: (E1) Common stock S Co. 12,000 Additional paid-in capital S Co. 108,000 Retained earnings S Co 72,000 Investment in S Co 153,600 Non-controlling interest (P192,000 x 20%).. 38,400 Eliminate investment against stockholders equity of S Co
(E2) Inventory.. 6,000 Land.. 36,000 Buildings and equipment 150,000 Copyright.... 60,000 Estimated liability for contingencies.. 6,000 Investment in S Co... 146,400 Non-controlling interest (P90,000 given P38,400) 51,600 Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are being
examined).............................................................................
48,000
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Fair Value Basis)
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash P 334,800 P 334,800
Accounts receivable.. 86,400 P 24,000 110,400
Inventory. 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... (2) 60,000 60,000
Investment in S Co.. 300,000 __________
_________
(1) 153,600
(2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Liabilities and Stockholders Equity
Accounts payable P 96,000 42,000 P 138,000
Estimated liability for
contingencies (2) 6,000 6,000
Bonds payable 240,000 120,000 360,000
Common stock, P1 par*.. 44,160 44,160
Common stock, P1 par 12,000 (2) 12,000
Paid-in capital in excess of par** 723,840 723,840
Paid-in capital in excess of par 108,000 (2) (1) 108,000
Retained earnings 577,200 (2) 48,000 625,200
Retained earnings 72,000 (1) 72,000
Non-controlling interest _________ _______ _________ (1 ) 38,400 _90,000
-
(2) 51,600
Total Liabilities and Stockholders Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders equity of Scud Co. (2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
The balance sheet:
Assets
Cash P 334,800
Accounts receivables 110,400
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Total Assets P1,987,200
Liabilities and Stockholders Equity
Liabilities
Accounts payable P 138,000
Estimated liability for contingencies 6,000
Bonds payable 360,000
Total Liabilities P 504,000
Stockholders Equity
Common stock, P1 par P 44,160
Paid-in capital in excess of par 723,840
Retained earnings 652,200
Parents Stockholders Equity/Equity Attributable to the Owners of the Parent
P1,393,200
Non-controlling interest 90,000
Total Stockholders Equity (Total Equity) P1,483,200
Total Liabilities and Stockholders Equity P1,987,200
Problem XII
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
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)
Buildings and equipment 70,000 80,000
Goodwill P 46,000
5. 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
Fair value of Subsidiary:
Consideration transferred
P280,000
Less: BV of SHE of DD (P100,000 + P200,000 P40,000) 260,000
Allocated excess P 20,000
Less: Over/under valuation of A and L: Inc (Decrease)
Inventory (P 10,000)
Buildings and equipment (net) 25,000 15,000
-
P 5,000
Add: Existing goodwill (to be eliminated 30,000
Goodwill to be reported P 35,000
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
Buildings and equipment (net) 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) P140,000
2. Land (P70,000 P10,000) P 60,000 3. Buildings and Equipment (P480,000 + P70,000) 550,000
4. Full-Goodwill, P57,500
Fair value of Subsidiary:
Consideration transferred
P470,000
Add: FV of NCI 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Allocated excess P137,500
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory P 20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
Goodwill full P 57,500
or,
Fair value of consideration given by Ford P470,000 Fair value of noncontrolling interest 117,500 Total fair value P587,500 Book value of Slims net assets P450,000 Fair value increment for: Inventory 20,000 Land (10,000) Buildings and equipment (net) 70,000 Fair value of identifiable net assets (530,000) Goodwill - full P 57,500
Partial Goodwill, P46,000
Fair value of Subsidiary:
Consideration transferred
P470,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Allocated excess P110,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
Goodwill partial P 46,000 5. Investment in Slim Corporation: None would be reported;
the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20) 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. Inventory = P670,000 (P's book value plus Sun's fair value)
2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. 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)
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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 ........................................................... 950,000
Cash ................................................................................................... 950,000
2.
Fair value of Subsidiary:
Consideration transferred
P950,000
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Allocated excess P 230,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value P 50,000
Building (P700,000 fair P600,000 book value) 100,000
Discount on bonds payable P280,000 fair P300,000 book value)
20,000
Deferred tax liability (P40,000 fair P50,000 book value) 10,000
Buildings and equipment (net) 180,000
Goodwill P 50,000
3. Adjustments on Craig books:
Land ......................................................................................................... 50,000
Building .................................................................................................... 100,000
Discount on Bonds Payable ................................................................ 20,000
Goodwill.................................................................................................. 50,000
Deferred Tax Liability ............................................................................ 10,000
Retained Earnings ................................................................................. 420,000
Paid-In Capital in Excess of Par ..................................................... 650,000
4. Elimination entries:
Common Stock ..................................................................................... 300,000
Paid-In Capital in Excess of Par .......................................................... 650,000
Investment in Craig Company ...................................................... 950,000
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Problem XXII
Full-Goodwill
Fair value of Subsidiary:
Consideration transferred (200 shares x P25)
P 5,000
Less: BV of SHE of Public (P200 + P800 + P1,000) _2,000
Allocated excess P 3,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Fixed assets (P3,000 fair P2,000 book value) _1,000
Goodwill full P2,000
or,
Fair value of Subsidiary:
Consideration transferred (200 shares x P25)
P 5,000
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000) _3,000
Goodwill full 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.
Public
Company
Private
Company
Fair value of net assets. P3,000 ? Fair value of common stock per share P25
Public Private
Currently issued 200 60%** ? /60%
Additional shares issued 300 40% 100 /40% 500 ?
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 full-
goodwill 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 570,000
Common Stock*** 95,000
Additional Paid-in-Capital 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 80,000
Other Contributed Capital Seely 132,000 Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000
Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
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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 decision-
making 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 P 60,000
Consideration transferred by P. 20,000
Total business fair value 80,000
Fair value of VIE net assets 100,000
Excess net asset value fair value 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 P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
-0-
2. Implied valuation and excess valuation for Softplus.
Noncontrolling interest fair value 60,000
Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill 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)
-0-
Multiple Choice Problem
1. c
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)] 3. d
Consideration transferred 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
Consideration transferred 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
Less: Investment in Silk Corp. (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 P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
If partial-goodwill:
Total Assets of P. P1,278,000
Less: Investment in S Corp. (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 (partial)* 20,000
Total assets reported P1,540,000
*[P440,000 (P702,000 P142,000) x 75%] 9. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)
10. a
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
P150,500
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Allocated excess P 52,500
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
Goodwill partial P 28,000
11. c
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
P150,500
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Allocated excess P 75,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100% P 15,000
Land (P25,000 P45,000) x 100% 20,000 35,000
Goodwill full 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
12. b
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 (full) 40,000
Total assets reported P1,121,000
If partial-goodwill:
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 (partial) 28,000
Total assets reported P1,109,000
13. d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
14. a
Non-controlling interest (partial-goodwill): P52,500
NCI FV of SHE of SSD:
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 SSD P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)..P 52,500
15. d
Non-controlling interest (partial-goodwill): P64,500
NCI FV of SHE of SSD:
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 SSD P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)..P 52,500 Add: NCI on full-goodwill (P40,000 P12,000)... 12,000 FV of NCI (full)..P 64,500
16. d P205,000 = The amount reported by Power Corporation
17. c P419,500 = (P150,000 + P205,000) + P64,500
If partial-goodwill:
Stockholders equity: P419,500 Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parents SHE or Equity Attributable to Parent P355,000 NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
18. b
Consideration transferred ........................................................................................ P60,000
Less: Strand's book value (P50,000 x 80%) .............................................................. (40,000)
Fair value in excess of book value ......................................................................... P20,000
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ....................................... P 8,000
19. c
Consideration transferred (P60,000 80%) ............................................................ P75,000
Less: Strand's book value .......................................................................................... (50,000)
Fair value in excess of book value ......................................................................... P25,000
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ....................................... P10,000
20. a
Park current assets ....................................................................................................... P 70,000
Strand current assets ................................................................................................... 20,000
Excess inventory fair value ......................................................................................... 15,000
Consolidated current assets ...................................................................................... P105,000
-
21. c
Park noncurrent assets ............................................................................................... P 90,000
Strand noncurrent assets ........................................................................................... 40,000
Excess fair value to goodwill (partial) ..................................................................... ___8,000
Consolidated noncurrent assets .............................................................................. P140,000
22. d
Park noncurrent assets ................................................................................................ P 90,000
Strand noncurrent assets ............................................................................................ 40,000
Excess fair value to goodwill (full) ............................................................................. __10,000
Consolidated noncurrent assets ............................................................................... P140,000
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 ........................................................................................... P80,000
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% 13,000
Total stockholders' equity ......................................................................................... 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 P150,0