ACC 113 - ACCOUNTING FOR BUSINESS COMBINATIONS SECOND PERIODICAL EXAMINATION

TEST I - 20% (Estimated Time: 20 minuets)

True-False Statements
Directions: Writer the Letter “C” if the statement is true, otherwise write the Word
“INCORRECT”.

1. The consolidation worksheet will always completely eliminate the Investment Income account
2. The consolidation worksheet will only eliminate all of the Investment in Subsidiary account when the
parent owns 100 percent of the subsidiary’s stock
3. Subsequent to the date of acquisition worksheet elimination number 1 will not completely remove the
Investment in Subsidiary account from the consolidated balance sheet.
4. Worksheet elimination number 2 will completely remove the change in the Investment in Subsidiary
account from the consolidated balance sheet only when the parent company has recorded three equity
method journal entries with regard to the parent’s ownership interest in the subsidiary.
5. The parent company will always record three journal entries when accounting for its ownership is a
subsidiary.
6. The dividends paid by the subsidiary are completely eliminated from the consolidated financial
statements because only dividends paid to the parent company stockholders represent a distribution of
consolidated net assets.
7. The worksheet eliminations remove the recognition of the investment in the subsidiary from the
parent’s financial records.
8. Assuming the parent acquired 100 percent of the subsidiary’s stock and there are no purchase
differentials, the investment income recorded by the parent in the current period will equal the
subsidiary’s current net income recognized subsequent to the acquisition date.
9. When the parent acquired 100 percent of the subsidiary’s stock for book value during the current
period, consolidated net income is always the sum of the parent’s net income and the subsidiary’s net
income for the entire reporting period.
10. Worksheet elimination 1 will include only the subsidiary’s stock (par value and additional paid-in
capital), Retained Earnings, and the parent’s Investment in Subsidiary account when the parent has
acquired 100 percent of the subsidiary’s stock at book value at the beginning of the period.
11. Allocated excess/purchase differential amortizations are the allocation over time of the difference
between the market value and the book value of the subsidiary’s assets and liabilities at the acquisition
date.
12. All allocated excess/purchase differentials are amortized.
13. When allocated excess/purchase differentials are amortized, the peso amounts on the subsidiary’s
financial records are changed.
14. Allocated excess/purchase differential amortizations result in the Investment Income account
disclosing the income that would have been allocated to the parent had the subsidiary’s financial
records disclosed the market value of its assets and liabilities.
15. The worksheet eliminations prepared subsequent to acquisition remove the allocated excess/purchase
differential amortizations from the consolidated financial statements.
16. Allocated excess/purchase differential balances (worksheet elimination 1) in a given year can be
determined by subtracting the allocated excess/purchase differential amortization (worksheet
elimination 3) from the balance (worksheet elimination 1) in the preceding year.
17. When a parent consolidates a 100 percent owned subsidiary acquired at an amount more than book
value subsequent to acquisition, there will be no noncontrolling interest account on the balance sheet.
18. Only when a parent acquires a 100 percent ownership in a subsidiary for more than book value will
the allocated excess/purchase differential amortization included in the consolidated income statement
be based on the entire difference between the book value and market value of the subsidiary’s assets
and liabilities.
19. Regardless of the parent’s ownership percentage, the consolidated balance sheet includes 100 percent
of the unamortized allocated excess/purchase differential.
20. When the parent owns less than 100 percent of the subsidiary’s stock, the parent’s journal entries only
represent the parent’s ownership interest in the subsidiary’s income, dividends, and purchase
differential amortizations.

TEST II -80% (Estimated Time: 100 minuets)

Multiple Choice Questions

Directions: Select the best answer by writing the letter of your choice. Write your Answers in Capital Letter.
Provide solutions for item 31 to 55.

1. This is defined as "the financial statements presented by a parent in which the investments are accounted for on
the basis of the direct equity interest".
a. Unconsolidated financial statements
b. Combined financial statements
c. Separate financial statements
d. Consolidated financial statements

2. A "group" for consolidation purposes is

a. A parent and all of the subsidiaries.
b. An entity that has one or more subsidiaries.
c. An entity, including an unincorporated entity such as partnership, controlled by another entity.
d. An entity that obtains control over entities or businesses.

3. It is the entity that controls one or more entities.

a. Investor
b. Parent
c. Associate
d. Affiliate

4. It is an entity that is controlled by another entity.

a. Subsidiary
b. Associate
c. Investee
d. Affiliate

5. Which of the following is not a valid exempt an entity from preparing consolidated financial statements?
a. The parent entity is a wholly owned subsidiary another entity.
b. The parent entity's debt or equity capital is not trader in the stock exchange.
c. The ultimate parent entity produces consolidated financial statements available for public use that
comply with PFRS.
d. The parent entity is in the process of filing financial statements with a securities commission for the
purpose of issuing any class of instruments in a public market.

6. Control is presumed to exist when the parent owns directly or indirectly through subsidiaries
a. More than half of the equity of an entity.
b. More than half of the ordinary shares of an entity.
c. More than half of the preference and ordinary shares of an entity.
d. More than half of the voting power of an entity.
7. Control exists even if the parent owns half or less of the voting power of an entity under all of the following
circumstances, except
a. Power over more than half of the voting rights by virtue of a contractual agreement with other
investors.
b. Power to govern the financial and operating policies of the entity under a statute.
c. Power to appoint or remove the members of the board of the entity or the power to cast the majority
of votes at meetings of the board of directors or equivalent governing body.
d. Under all of these conditions.

8. A parent loses control of a subsidiary under all of the following conditions, except
a. When there is change in absolute or relative ownership level.
b. When a subsidiary becomes subject to the control of a government, court, administrator or regulator.
c. When the loss of control is the result of a contractual agreement.
d. When the subsidiary is operating under severe long-term restrictions that impair the ability to
transfer funds to the parent.

9. What is the initial measurement of an investment in subsidiary retained by the investor when control is lost?
a. Fair value at the date when control is lost
b. Fair value at the beginning of the reporting period
C. Carrying amount at the date when control is lost
d. Management estimate of fair value

10. Consolidated financial statements are typically prepared when one entity has a controlling financial interest in
another unless
a. The subsidiary is a finance entity.
b. The fiscal year-ends of the two entities are more than three months apart.
c. Such control is likely to be temporary.
d. The two entities are in unrelated industries, such as a real estate

11. Consolidated financial statements are typically prepared when one entity has a controlling financial interest i
another unless
a. The subsidiary is a bank.
b. The fiscal year-ends of the two entities are more than three months apart.
c. The investee is in bankruptcy.
d. The two entities are in related industries.

12. A subsidiary shall be excluded from consolidation when

a. The investor is a venture capital organization, mutual fund, unit trust or similar entity.
b. The business activities of the subsidiary are dissimilar from those of the other entities within the
group.
c. The subsidiary is acquired with the intention to dispose of it within twelve months from date
acquisition.
d.The subsidiary is operating under severe long-term restrictions that significantly impair its ability to
transfer funds to the parent.

13. Which of the following conditions is required to exclude a subsidiary from consolidation?
a. The other owners object to the nonconsolidation.
b. The parent makes an election not to consolidate.
c. The other owners do not object to the nonconsolidation and the subsidiary does not have any
publicly traded debt or equity instruments.
d. The parent must own 100% of the subsidiary.

14. A parent may exclude a subsidiary from consolidation only if all of the following conditions exist, except
a. The parent is wholly or partially owned and the other owners do not object to the nonconsolidation.
b. The parent does not have any debt or equity instruments publicly traded.
 c. The parent has one class of share capital.
c. The ultimate parent prepares consolidated financial statements.

15. The subsidiary fiscal year-end is June 30 and the parent fiscal year-end is December 31. What is required in
preparing consolidated financial statements?
a. The subsidiary should be consolidated using more recent interim financial statements.
b. The subsidiary should not be consolidated but the financial results are disclosed in the notes to the
consolidated financial statements.
c. The subsidiary should be consolidated using the June 30 annual financial statements.
d. The subsidiary should not be consolidated but accounted for by the equity method in the
consolidated financial statements.

16. Penn Company, a manufacturing entity, owns 75% of the ordinary shares of Sell Company, an investment
entity. Sell owns 60% of the ordinary shares of Vane Company, an insurance entity. In Penn's consolidated
financial statements, should consolidation accounting or equity method be used for Sell and Vane?
a. Consolidation used for Sell and equity method used for Vane.
b. Consolidation used for both Sell and Vane.
c. Equity method used for Sell and consolidation used for Vane.
d. Equity method used for both Sell and Vane.

17. Perez Company owns 80% of Senior Company. During the current year, Perez sold goods with a 40% gross
profit to Senior. Senior sold all of these goods in the current year. For the consolidated financial statements,
how should the summation of Perez and Senior income statement items be adjusted?
a. Sales and cost of goods sold should be reduced by the intercompany sales.
b. Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
c. Net income should be reduced by 80% of the gross profit on intercompany sales.
d. No adjustment is necessary.

18. Water Company owns 80% of the outstanding ordinary shares of Fire Company. At the end of the current year.
Fire sold equipment to Water at a price in excess of Fire's carrying amount, but less than the original cost. In
the consolidated statement of financial position at the current year-end, the carrying amount of the equipment
should be reported at
a. Water's original cost
b. Fire's original cost
c. Water's original cost less Fire's recorded gain
d. Water's original cost less 80% of Fire's recorded gain

19. Port Company owns 100% of Salem Company. At the beginning of current year, Port sold Salem delivery
equipment at a gain. Port had owned the equipment for two years and used a five-year straight line depreciation
rate with no residual value. Salem is using a three-year straight line depreciation rate with no residual value for
the equipment. In the consolidated income statement, Salem's recorded depreciation expense on the equipment
for the current year should be decreased by
a.20% of the gain on sale
b. 33 1/3% of the gain on sale
c.50% of the gain on sale
d.100% of the gain on sale

20. A parent entity controls 100% of an overseas subsidiary because of exchange controls, it is difficult to transfer
funds out of the country to the parent entity. How should the subsidiary be accounted for?
a. The subsidiary should be excluded from consolidation and the equity method should be used.
b. The subsidiary should be excluded from consolidation and measured at cost.
c. The subsidiary should be excluded from consolidation and accounted for as financial asset.
d. The subsidiary is not permitted to be excluded from consolidation because control is not lost.
21. An entity acquired an investment in a subsidiary with the view to dispose of the investment within six months.
The investment in the subsidiary has been classified as held for sale. How should the investment in the
subsidiary be treated in the financial statements?
a. Acquisition accounting should be used.
b. Equity accounting should be used.
c. The subsidiary should not be consolidated but reported as held for sale.
d. The subsidiary should be derecognized.

22. Aye owns 50% of Bee's voting shares. The board of directors consists of six members. Aye appoints three of
them and Bee appoints the other three. The casting vote at meetings always lies with the directors appointed by
Aye. Does Aye have control over Bee?
a. No, control is equally split.
b. Yes, Aye holds 50% of the voting power and has the casting vote at board meetings in the event there
is no majority decision.
c. No, Aye owns only 50% of the shares.
d. No, control can be exercised only through voting power, not through a casting vote.

23. A manufacturing group has just acquired & controlling rest in a football club that is listed on a stock exchange.
be management of the manufacturing group wishes to Jude the football club from the consolidated financial
statements on the ground that the activities are dissimilar. How should the football club be accounted for?
a. The entity should be consolidated as there is no exemption from consolidation on the ground of
dissimilar activities.
b. The entity should not be consolidated using the acquisition method but should be consolidated using
equity method.
c. The entity should not be consolidated but should appear as a separate investment.
d. The entity should not be consolidated and details should be disclosed in the financial statements.

24. The non-controlling interest should be recorded at what amount?

a. The fair value of the shares held by the acquirer.
b. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net
identifiable assets of the acquiree.
c. The proportionate share of the carrying amount of net identifiable assets of the acquiree
d. The fair value of the shares held by the noncontrolling interest plus goodwill

25. The non-controlling interest shall be presented in the consolidated statement of financial position
a. As part of the parent shareholders' equity
b. As part of current liabilities
c. As part of noncurrent liabilities
d. Within equity, separately from the equity of the owners of the parent

26. What amount of allocated excess/purchase differential amortization is recognized in the parent’s financial
records subsequent to the subsidiary’s acquisition?
a. Allocated excess/purchase differentials are not amortized
b. The noncontrolling interest percentage ownership in the subsidiary
c. The parent percentage ownership in the subsidiary
d. 100 percent of the purchase differential amortization

27. What amount of allocated excess/purchase differential amortization is recognized in the consolidated financial
statements subsequent to the subsidiary’s acquisition?
a. Allocated excess/purchase differentials are not amortized
b. The noncontrolling interest percentage ownership in the subsidiary
c. The parent percentage ownership in the subsidiary
d. 100 percent of the purchase differential amortization

28. In which of the following situations would an investor likely account for stock ownership in an investee using
the equity method?
a. The investor owns 15 percent of the investee’s stock
 b. The investor and the investee have many transactions with each other
c. The investor has significant influence over the investee’s management policies
d. The investor and investee reside in close proximity to each other

29. When the cost model/method is used to account for an investment, which of the following would not result in
an adjustment to the amount recorded in the investment account?
a. The investee declares a regular dividend
b. The investor sells some of the stock
c. The investee declares a liquidating dividend
d. The stock’s market value decreases to a point where is it below the investor’s cost

30. Which of the following is not needed to convert from the cost method of accounting for an investment to the
equity method?
a. Parent’s share of subsidiary income since investment date
b. Parent’s share of subsidiary dividends since investment date
c. Subsidiary’s book value at investment date
d. Parent’s share of purchase differential amortization since investment date

31. On May 1,2013, Pete Corporation acquires 80% of the outstanding common stock of Sure Company for
P2,800,000. Professional fees paid to effect the combination amounts to P70,000. On the date of
acquisition, the stockholders' equity of Sure Company is as follows:
Capital stock P3,000,000
Retained earnings 437,500
On May 1, the book value of the net assets of Sure is equal to their fair values. NCI is measured at
implied fair value.
In the preparation of consolidated statement of financial position on May 1,2013, what is the working
paper elimination entry?

a. Capital stock - Sure P3,000,000

Retained earnings - Sure 437,500
Goodwill 62,500
Investment in Sure P2,800,000
NCI 700,000

b. Capital stock - Sure 2,400,000

Retained earnings - Sure 350,000
Goodwill 120,000
Investment in Sure 2,870,000

c. Capital stock - Sure 2,400,000

Retained earnings - Sure 350,000
Investment in Sure 2,750,000

d. Capital stock - Sure 3,000,000

. Retained earnings - Sure 437,500
Investment in Sure 2,750,000
NCI 687,500

32. On May 1,2013, the separate statement of financial position of Pablo Corporation and Simon Company
are as follows:

Pablo Simon
Cash P145/700 P 15,500
Accounts receivable 120,500 35,800
Inventories 42,500 10,200
Plant assets 185,800 78,000
Total assets P494,500 P139,500
 Liabilities PI 10,400 P 28,800
Capital stock, P100 par value 200,000 50,000
Additional paid in capital 50,000
Retained earnings 134,100 60,700
Total liabilities and stockholders' equity P494,500 P139,500
On May 1, 2013 Pablo acquired 100% of Simon's outstanding capital stock for P100,000. Pablo incurred
additional P32,700 in acquisition-related costs. All the assets of Simon are fairly valued except the plant
assets with a fair value of P90,000 on May 1,2013.

In the consolidated statement of financial position on May 1,2013, what amount of total assets will be
reported?
a. P64 6,000 c. P523,300
b. P49 0,800 d. P 63 4,000

33. Using the same data in No. 2, what amount of stockholders' equity will be reported in the consolidated
statement of financial position on May 1,2013?
a. P384,100. c. P351,400
b. P494,800 d. P472,600

34. The statement of financial position of Sisa Company on December 31,2013 is as follows:

Liabilities and
Assets Stockholders' Equity
Cash P 100,000 Current liabilities P 300,000
Accounts receivable 200,000 Long-term liabilities 500,000
Inventories 500,000 Capital stock, PI par value 100,000
Property and equipment 900,000 Retained earnings 800,000
Total assets P1,700,000 Total liabilities and equity P1,700,000

On December 31,2013, Pluto Corporation purchases all of the outstanding stock of Sisa Company for
PI,500,000 cash. On that date, the fair (market) value of Sisa's inventories and property and equipment
are P450,000'and PI,000,000 respectively. The fair values of all other assets and liabilities were equal to
their book values.

As a result of the acquisition of Sisa's capital stock, Pluto should record goodwill of:
a. P5 00,000 c. P600,000
b. P550,000 d. P-0-

35. Using the same data in No. 4, the consolidated statement of financial position on December 31,2013 of
Pluto and Sisa should report a goodwill in the amount of:
a. P 5 00,000
b. P5 5 0,000
c. P600,000
d. P 650,000

36. On December 31, 2013, Parco Corporation purchased 80% of the outstanding common stock of Stop
Company for P395,000 cash. The condensed statement of financial position of Stop Company as of the
date of the purchase is shown below (in thousands):
Liabilities and
Assets Stockholders' Equity
Cash PI 50 Liabilities P400
Inventories 250 Common stock, P1 par value 50
Property and equipment (net) 450 Additional paid in capital 100
Retained earnings 300
Total P850 Total P850

On December 31,2013, the inventories and property and equipment of Stop had a fair values of P275,000
 and P500,000 respectively. The fair value of NCI on De¬ cember 31,2013 is P100,000.

How much goodwill (gain on acquisition) must be shown in the consolidated state¬ ment of financial position
of Parco Corporation and its subsidiary Stop Company on December 31,2013?
a. P(30,000) c. P(25,000)
b. P 30,000 d. P 25,000

37. On January 2, 2013, Papa, Inc. acquired 80% of the outstanding shares of Son Company for
PI,952,000 cash. At the time of the acquisition, the stockholders' equity section of the two companies is
shown below:
(In thousands)
Papa Inc. Son Company
Common stock P 4,000 PI,600
Additional paid in capital 3,000 480
Retained earnings 6.840 420
Total PI 3,840 P2,500

Assuming NCI is measured at its implied fair value. What is the stockholders' equity on the consolidated
statement of financial position on January 2,2013?
a. P13,840,000 c. P17,264,000
b. PI4,328,000 d. P15,440,000

Use the following information for the next five questions:

On January 1, 20x1, Bass Co. issued equity instruments in exchange for 75% interest in Guitar Co. On
acquisition date, Bass Co. elected to measure non-controlling interest at fair value. Bass Co.’s management
believes that the fair value of the consideration transferred correlates to the fair value of the controlling
interest acquired and that the fair value of the controlling interest is proportionate to the fair value of the
remaining interest.

Guitar Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and ₱360,000,
respectively. The difference is attributable to a building with a remaining useful life of 6 years.

The December 31, 20x1 statements of financial position of Bass Co. and Guitar Co. are summarized below:

Bass Co. Guitar Co.

ASSETS
Investment in subsidiary (at cost) 300,000 -
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000

LIABILITIES AND EQUITY

Trade and other payables 292,000 120,000
Share capital 940,000 200,000
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000

No dividends were declared by either entity during year. There were also no inter-company transactions and
impairment in goodwill.

38. What amount of goodwill is presented in the consolidated statement of financial position on
December 31, 20x1?
a. 40,000 b, 35,000 c. 20,000 d. 15,000
 39. How much is the consolidated total assets as of December 31, 20x1?
a. 1,867,000 b. 1,907,000 c. 1,958,000 d. 1,974,000

40. How much is the non-controlling interest in the net assets of the subsidiary on December 31, 20x1?
a. 106,500 b. 116,500 c. 136,500 d. 146,500

41. How much is the consolidated retained earnings on December 31, 20x1?
a. 489,500 b. 498,500 c. 534,500 d. 543,500

42. How much is the consolidated total equity on December 31, 20x1?
a. 1,546,000 b. 1,564,000 c. 1,642,000 d. 1,624,000

Use the following information for the next three questions:

On January 1, 20x1, Laughter Co. issued equity instruments in exchange for 75% interest in Tears Co. Tears
Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and ₱360,000, respectively.
The difference is attributable to a building with a remaining useful life of 6 years.

The December 31, 20x1 statements of profit or loss of Laughter Co. and Tears Co. are summarized below:

Statements of profit or loss

For the year ended December 31, 20x1
Laughter Co. Tears Co.
Revenues 1,200,000 480,000
Operating expenses (960,000) (400,000)
Profit for the year 240,000 80,000

43. How much is the consolidated profit in 20x1?

a. 301,000 b. 310,000 c. 320,000 d. 336,000

44. How much is the consolidated profit attributable to owners of the parent in 20x1?
a. 292,500 b. 310,000 c. 320,000 d. 232,500

45. How much is the consolidated profit attributable to non-controlling interest in 20x1?
a. 6,500 b. 17,500 c. 57,500 d. 77,500

Use the following information for the next three questions:

Rainy Afternoon Co. owns 80% interest in Sunny Morning Co. During 20x1, Rainy sold inventories costing
₱200,000 to Sunny for ₱300,000. One-fourth of the inventories were unsold as of December 31, 20x1 and
were included in Sunny’s year-end statement of financial position at the purchase price from Rainy. The
individual financial statements of Rainy and Sunny on December 31, 20x1 show the following information:

Rainy Sunny
Inventory 1,260,000 380,000

Sales 6,700,000 2,700,000

Cost of sales (3,015,000) (1,755,000)
Gross profit 3,685,000 945,000

There are no fair value adjustments arising from the business combination date.
46. How much is the consolidated inventory on December 31, 20x1?
a. 1,615,000 b. 1,590,000 c. 1,665,000 d. 1,585,000

47. How much is the consolidated sales?

a. 9,400,000 b. 9,100,000 c. 9,375,000 d. 9,700,000
 48. How much is the consolidated cost of sales?
a. 4,695,000 b. 4,495,000 c. 4,565,000 d. 4,545,000

Use the following information for the next two questions:

On January 1, 20x1, Horse Co. acquired 80% interest in Colt Co. by issuing bonds with fair value of
₱250,000. NCI is measured at proportionate share. The following information was determined immediately
before the acquisition:

Horse Co. Colt Co. Colt Co.

Carrying amount Carrying amount Fair value
Total assets 1,000,000 400,000 430,000
Total liabilities (600,000) (200,000) (200,000)
Net assets 400,000 200,000 230,000

Included in Colt’s liabilities is an account payable to Horse amounting to ₱20,000.

49. How much is the total assets in Horse’s separate financial statements immediately after the
combination?
a. 1,000,000 b. 1,400,000 c. 1,250,000 d. 1,430,000

50. How much is the total assets in the consolidated financial statements?
a. 1,476,000 b. 1,580,000 c. 1,465,000 d. 1,528,000

Use the following information for the next two questions:

Lion Co. acquired 80% of Cub Co. on January 1, 20x1 for ₱100,000. The following information was
determined at acquisition date:

Lion Co. Cub Co. Cub Co.

Carrying amt. Carrying amt. Fair value
Equipment 1,000,000 500,000 400,000
Accumulated depreciation (200,000) (100,000) (80,000)
Net 800,000 400,000 320,000

Remaining useful life, 1/1/ x1 10 yrs. 5 yrs. 5 yrs.

51. How much is the consolidated “Equipment – net” in the December 31, 20x2 financial statements?
a. 880,000 b. 846,000 c. 852,000 d. 832,000

52. The consolidation journal entry for the depreciation of the fair value adjustment on December 31,
20x2 includes which of the following?
a. 16,000 debit to depreciation expense c. 32,000 credit to accumulated depreciation
b. 12,800 credit to retained earnings of Lion d. 16,000 credit to depreciation expense

53. On January 1, 20x1, Kangaroo Co. acquired 75% of Joey Co. At that time, Joey’s equipment has a
carrying amount of ₱100,000 and a fair value of ₱120,000. The equipment has a remaining useful life
of 10 years. On December 31, 20x2, Kangaroo and Joey reported equipment with carrying amounts
of ₱500,000 and ₱300,000, respectively. How much is the consolidated “equipment – net” in the
December 31, 20x2 financial statements?
a. 800,000
b. 816,000
c. 784,000
d. 826,000

54. On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair
value of ₱15 per share. On this date, XYZ’s equity comprised of ₱50,000 share capital and ₱24,000
retained earnings. NCI was measured at its proportionate share in XYZ’s net identifiable assets.
XYZ’s assets and liabilities on January 1, 20x1 approximate their fair values except for the following:
Carrying Fair value
XYZ, Inc.
amounts Fair values adjustments (FVA)
Inventory 23,000 31,000 8,000
Equipment (4 yrs. remaining life) 50,000 60,000 10,000
Accumulated depreciation (10,000) (12,000) (2,000)
Totals 63,000 79,000 16,000

XYZ, Inc. declared and paid dividends of ₱6,000 during 20x1. There was no impairment in goodwill. The
year-end individual statements of profit or loss are shown below:

Statements of profit or loss

For the year ended December 31, 20x1
ABC Co. XYZ, Inc.
Sales 300,000 120,000
Cost of goods sold (165,000) (72,000)
Gross profit 135,000 48,000
Depreciation expense (40,000) (10,000)
Distribution costs (32,000) (18,000)
Interest expense (3,000) -
Dividend income 4,800 -
Profit for the year 64,800 20,000

How much is the profit attributable to

Owners of the parent NCI
a. 68,000 2,000
b. 64,800 5,200
c. 52,000 18,000
d. 57,200 12,800

55. On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair
value of ₱15 per share. On this date, XYZ’s total equity was ₱74,000. The investment in subsidiary is
measured at cost.

XYZ’s assets and liabilities approximate their fair values on January 1, 20x1 except for the following:
Carrying Fair value
XYZ, Inc.
amounts Fair values adjustments
Inventory 23,000 31,000 8,000
Equipment (4 yrs. remaining life) 40,000 48,000 8,000
Total 63,000 79,000 16,000

There were no intercompany transactions during 20x1. However, it was determined that goodwill is
impaired by ₱1,000.

How much is the goodwill attributable to NCI as of December 31, 20x1?

a. 550 b. 2,220 c. 620 d. 1,280

END OF EXAMINATION