solution chapter 15

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:

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



P150,500

Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000



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






Parents SHE or Equity Attributable to Parent P355,000 NCI (partial-goodwill) 52,500


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.



P675,000

Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000

Allocated excess P( 30,000)


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



P675,000

Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% 634,500



Inventory (P30,000 P20,000) x 90% (P9,000)

Land (P50,000 P70,000) x 90% __18,000 __9,000


Full-Goodwill


Consideration transferred (P675,000/90%)

P750,000

Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000



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



P318,000


Allocated excess (P306,000)


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



P 318,000

FV of NCI* _158,000

P 476,000


Allocated excess (P304,000)


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)


Goodwill 31,500

Inventory 10,000


Non-controlling Interest 71,500

BV SHE of Sewell (P450,000 + P180,000 + P75,000) P705,000


FV of SHE of Sewell P715,000

x: NCI% 10%

FV of NCI (partial) P 71,500

Full-Goodwill (Fair Value Basis)


Goodwill 35,000

Inventory 10,000


Non-controlling Interest 75,000




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)


Inventory 10,000


Retained earnings (gain)Parent (refer to 3A) 314,000 Non-controlling Interest 158,000




x: NCI% 20%

FV of NCI (partial) P158,000

Full-Goodwill (Fair Value Basis)


Inventory 10,000


Retained earnings (gain)Parent (refer to 3A) 314,000 Non-controlling Interest 158,000




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%)

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


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.




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:



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

3.

Eliminations


Cash*.. P 111,600 P 54,000 P 165,600


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


Accounts payable P 120,000 P120,000 P 240,000

Bonds payable 240,000 120,000 360,000


Common stock, P10 par**.. 720,000 720,000


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 __________ _________


(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


Inventories 210,000

Land 330,000


Goodwill 42,000



Liabilities





Stockholders Equity


Additional paid-in capital in excess of par 75,600


Total Stockholders Equity P 1083,600


Problem VI

1.



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

Less: Over/under valuation of assets and liabilities:



value).. P 6,000

2. Goodwill, P6,000

Problem VII

1.



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:


(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


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%)

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%) 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%)


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


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%) 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 (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;


Partial-goodwill


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%)


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


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 (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:


Partial-goodwill


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%)


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


Full-goodwill


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 (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)


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)


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


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.



examined)

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. 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


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


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






Retained earnings** 285,600 285,600

Retained earnings 96,000 (1) 96,000

Non-controlling interest _________ _______ _________

(1 ) 72,000

(2) 7,200 _79,200



* 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


Inventories 210,000

Land 330,000

Buildings and equipment 1,308,000

Accumulated depreciation ( 480,000)

Goodwill 43,200



Liabilities





Stockholders Equity




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


Full-goodwill Approach

Schedule of Determination and Allocation of Excess (Full-goodwill)



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


January 1, 20x4

(1) Investment in Sky Company 360,000 Cash.. 360,000 Acquisition of Sky Company.



examined)

14,400



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.


Subsidiary (Full-goodwill)

Eliminations

Assets Peer Co. Sky Co. Dr. Cr. Consolidated

Cash*. P 45,600 P 60,000 P 105,600


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


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






Retained earnings** 285,600 285,600



(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


* P420,000 P360,000 P14,400 = P45,600. **P300,000 P14,400 = P285,600.


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


Inventories 210,000

Land 330,000

Buildings and equipment 1,308,000

Accumulated depreciation ( 480,000)

Goodwill 54,000



Liabilities





Stockholders Equity





P 945,600


Total Stockholders Equity (Total Equity) P 1,035,600


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

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


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.


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


examined).............................................................................

50,400 Eliminate investment against allocated excess.


Subsidiary (Proportionate Basis)

Eliminations


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


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


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



(1 ) 38,400

(2) 49,200 _87,600


(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.


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


Inventories 162,000

Land 204,000

Buildings and equipment (net) 1,116,000

Copyright 60,000



Liabilities


Estimated liability for contingencies 6,000

Bonds payable 360,000


Stockholders Equity





P1,395,600


Total Stockholders Equity (Total Equity) P1,483,200


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%) 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


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)


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.


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


examined).............................................................................

48,000

Eliminate investment against allocated excess.


Subsidiary (Fair Value Basis)

Eliminations


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


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


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


Non-controlling interest _________ _______ _________ (1 ) 38,400 _90,000

(2) 51,600


(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


Inventories 162,000

Land 204,000

Buildings and equipment (net) 1,116,000

Copyright 60,000



Liabilities


Estimated liability for contingencies 6,000

Bonds payable 360,000


Stockholders Equity





P1,393,200


Total Stockholders Equity (Total Equity) P1,483,200


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



P280,000

Less: BV of SHE of DD (P100,000 + P200,000 P40,000) 260,000


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


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



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


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



P470,000

Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000

Allocated excess P110,000


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)

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.



P950,000

Less: BV of SHE of Craig (P300,000 + P420,000) 720,000


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


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

Problem XXII

Full-Goodwill


Consideration transferred (200 shares x P25)

P 5,000

Less: BV of SHE of Public (P200 + P800 + P1,000) _2,000



Fixed assets (P3,000 fair P2,000 book value) _1,000

Goodwill full P2,000

or,


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))

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


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


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


*[P440,000 (P702,000 P142,000) x 75%] 9. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)

10. a

Partial Goodwill



P150,500

Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000



Inventory (P15,000 x 70%) P 10,500

Land (P20,000 x 70%) 14,000 24,500


11. c

Full-goodwill:



P150,500

Add: FV of NCI **64,500 P215,000

Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000



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



12. b



P 641,000



Silk P1,046,000



Goodwill (full) 40,000





P 641,000



Silk P1,046,000



Goodwill (partial) 28,000


13. d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)

14. a






15. d





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





Parents SHE or Equity Attributable to Parent P355,000 NCI (partial-goodwill) 52,500


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

solution chapter 15

Documents

goodwill partial p

goodwill p1

computation of goodwill

nci fv

fv of nci partial

book value of assets

allocated excess p

fair value p15