BSA E1

AFAR, Review

Activity | Consolidated Financial Statements (PFRS 10), Part 1

A.Y. 2021 – 2022

Name: Dee One Mae C. Mendez Date: March 9, 2022

Instruction: Select the letter of the correct answer by highlighting it to yellow color. Support your
answer with computations.

Use the following information for the next five questions:

1. 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
e. None of the choices

Solution:
75% 25% Total

Cost 300,000 100,000 400,000

Less: carrying amount 225,000 75,000 300,000

Total 75,000 25,000 100,000

Less: increased in FV of Building 60,000

Goodwill 40,000

2. 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
e. None of the choices

Solution:
Bass other assets P 1,372,000
Goodwill 40,000
 Guitar other assets 496,000
FV of building less depreciation 50,000
Total consolidated asset P 1,958,000

Increased in FV of Building 60,000

Depreciation 60,000 x 1/6 (10,000)
Carrying amount 50,000

3. How much is the non-controlling interest in the net assets of the subsidiary on December 31,
20x1?
a. 106,500 c. 136,500 e. None of the choices
b. 116,500 d. 146,500

Solution:
Guitar’s Equity, Jan. 1 P 300,000
Guitar’s Equity, Dec. 31 376,000
Total Equity P 76,000

Net income subsidiary, unadjusted P 76,000

Amortization of FV in Building (60,000 x 1/5) (10,000)
Net income of subsidiary, adjusted P 66,000

FV at acquisition date P 100,000

Share in net income (66,000 x 25%) 16,500
Non-controlling interest P 116,500

4. How much is the consolidated retained earnings on December 31, 20x1?

a. 489,500 c. 534,500 e. None of the choices
b. 498,500 d. 543,500

Solution:
Bass Co. retained earnings P 440,000
Share in net income (66,000 x 75%) 49,500
Consolidated retained earnings P 489,500

5. How much is the consolidated total equity on December 31, 20x1?

a. 1,546,000 c. 1,642,000 e. None of the choices
b. 1,564,000 d. 1,624,000

Solution:
Share capital P 940,000
Retained earnings 489,500
Non-controlling interest 116,500
Total consolidated equity P 1,546,000
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

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

a. 301,000 c. 320,000 e. None of the choices
b. 310,000 d. 336,000

Solution:
Profits of Laughter Co. and Tears Co. (240k + 80k) P 320,000
Depreciation of FVA (60,000 / 6) (10,000)
Consolidated profit P 310,000

7. How much is the consolidated profit attributable to owners of the parent in 20x1?
a. 292,500 c. 320,000 e. None of the choices
b. 310,000 d. 232,500

Solution:
Parents profit (240,000 x 100%) P 240,000
Subsidiary profit (70,000 x 75%) 52,500
Parents share in consolidated profit P 292,500

8. How much is the consolidated profit attributable to non-controlling interest in 20x1?

a. 6,500 c. 57,500 e. None of the choices
b. 17,500 d. 77,500

Solution:

Owners of Parent NCI Consolidated

 Parent’s profit before FVA 240,000 - 240,000

Share in Tears Co. profit

(80,000 x 75,%) 60,000
(80,000 x 25%) 20,000
80,000

Depreciation of FVA
(10,000 x 75%) (7,500)
(10,000 x 25%) (2,500)
(10,000)

Consolidated profit P 292,500 P 17,500 P 310,000

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.

9. 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
e. None of the choices

Solution:
Ending inventory of Rainy P 1,260,000
Ending inventory of Sunny 380,000
Total P 1,640,000
Less: unrealized profit ending inventory (300k – 200k) x ¼ (25,000)
Total Consolidated inventory P 1,615,000

10. How much is the consolidated sales?

a. 9,400,000
b. 9,100,000
c. 9,375,000
d. 9,700,000
e. None of the choices

Solution:
Sales by Rainy P 6,700,000
Sales by Sunny 2,700,000
Less: Intercompany sales (300,000)
Consolidated sales P 9,100,000

11. How much is the consolidated cost of sales?

a. 4,695,000
b. 4,495,000
c. 4,565,000
d. 4,545,000
e. None of the choices

Solution
Cost of sales of Rainy P 3,015,000
COGS to Sunny (200,000)
Cost of sales of Rainy before intercompany transaction P 2,815,000

Cost of sales of Sunny P 1,755,000

Cost of Items from Rainy Sold by Sunny (225,000)
COS of Sunny without intercompany transaction P 1,530,000
300,000 x 1/4 = 75,000
300,000 - 75,000 = 225,000

COS of Rainy before intercompany transaction P 2,815,000

COS of Sunny without intercompany transaction 1,530,000
Cost of Intercompany Transaction Sold 150,000
Consolidated cost of sales P 4,495,000

200,000 x 3/4 = 150,000

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.

12. 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
e. None of the choices

Solution:
Total asset of Horse before the combination P 1,000,000
Investment in subsidiary (FV of bonds issued) 250,000
Total assets of Horse after combination P 1,250,000

13. 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
e. None of the choices

Solution:
Total asset of Horse after combination P 1,250,000
Total asset of Colt 400,000
Investment in subsidiary (250,000)
FVA on asset (430k FV – 400k CA) 30,000
Goodwill [250k + (230k x 20% NCI) – 230k 66,000
Effect of intercompany transactions (20,000)
Consolidated total asset P 1,476,000

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.

14. 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
e. None of the choices

Solution:
Equipment, net – Lion Co. (800,000 x 8/10) P 640,000
Equipment, net – Cub Co. (400,000 x 3/5) 240,000
FVA on equipment, net – decrement [(320k – 400k) x 3/5 (48,000)
Consolidated equipment, net – Dec 31 P 832,000

15. 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
b. 12,800 credit to retained earnings of Lion
c. 32,000 credit to accumulated depreciation
d. 16,000 credit to depreciation expense
e. None of the choices

Solution:
Depreciation of Cub Co.’s Equipment at CA (400,000/5yrs) P 80,000
Depreciation of Cub Co.’s Equipment at FVA (320,000/5yrs) 64,000
Excess of Depreciation using CA over FVA P 16,000

Journal Entry
Accumulated Depreciation (80,000 x 2/5) 32,000
Depreciation expense (80K / 5yrs) 16,000
Retained earnings – Lion Co. 12,800
Retained earnings – Cub Co. 3,200

16,000 x 80% = 12,800

16,000 x 20% = 3,200
16. 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
e. None of the choices

Solution:
Kangaroo equipment P 500,000
Joey equipment 300,000
Add: The excess of 120k over 100k from adjustment to FV 20,000
Annual depreciation of 20k over useful life (20,000/10yrs) year 1 (2,000)
Annual depreciation of 20k over useful life (20,000/10yrs) year 2 (2,000)
Consolidated equipment P 816,000

17. 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:

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
e. None of the choices

Solution:
Parent Subsidiary Consolidated

Profits before adjustment 64,800 20,000 84,800

Consolidation adjustment:
Dividend income from subsidiary (4,800) N/A (4,800)
 Net consolidation adjustment (4,800) (4,800)

Profits before FVA 60,000 20,000 80,000

Depreciation of FVA (8,000) (2,000) (10,000)

Consolidated profit 52,000 18,000 70,000

P 8,000 depreciation of FVA on inventory + 2,000 (10K – 2K) / 4yrs = 10k FVA on equipment

Owners of parent NCI Consolidated

ABC’s profit before FVA 60,000 N/A 60,000

Share in XYZ profit before FVA 16,000 4,000 20,000

Depreciation of FVA (8,000) (2,000) (10,000)

Totals 68,000 2,000 70,000

Shares in XYZ’s profit before FVA (20k x 80%) and (20k x 20%)

18. ABC Co. owns 80% interest in XYZ, Inc. The individual statements of financial position of
the entities as of December 31, 20x1 are shown below:

On December 31, 20x1, XYZ, Inc. purchased 50% of the outstanding bonds of ABC Co. from
the open market for ₱13,000. There were no other intercompany transactions during the year.

The consolidation journal entry to eliminate the intercompany bond transaction includes which of
the following?
a. debit to bonds payable for ₱30,000
b. credit to gain on extinguishment of debt for ₱4,000
c. credit to investment in bonds for ₱15,000
d. credit to gain on extinguishment of debt for ₱2,000
e. None of the choices

Acquisition cost of bonds payable (assumed retirement price) P 13,000

Carrying amount of bonds payable (30,000 x 50%) (15,000)
Gain on extinguishing of bonds P 2,000

Journal entry
Bonds payable 15,000
Investment in bonds 13,000
Gain on extinguishing of debt 2,000
Use the following information for the next two questions:

On April 1, 2022, POL Corporation acquired 80% of the outstanding stocks of SOL Corporation
for P2,500,000.
● SOL Corp.’s stockholder’s equity at the end of 2022 were as follows: Common Stock,
P80 par P2,000,000; Additional paid-in capital P500,000; and Retained Earnings
P750,000.
● The fair value of the non-controlling interest is P685,000.
● All the assets of SOL were fairly valued except for its inventories which are overvalued
by P90,000, Land which is undervalued by P50,000 and Patent which is undervalued by
P125,000. The said patent has a remaining useful life of five years.
● Both companies use the straight-line method for depreciation and amortization
● Shareholder’s equity of POL Corp. on December 31, 2022 is composed of: Common
Stock, P50 par P3,500,000; Additional paid-in capital P750,000; and Retained Earnings
P2,460,000.
● Goodwill, if any, should be decreased by P22,500 at year-end.
● No additional issuance of capital stocks occurred.

For the two years ended, December 31, 2022, and 2023, POL Corp. and SOL Corp. reported
the following:

On December 31, 2022, compute for:

19. Non-controlling interest in the net assets of subsidiary

a. 781,150 c. 788,150 e. None of the choices
b. 701,320 d. 718,510

Solution:

20. Using the same information above, what is the consolidated shareholder’s equity?
a. 7,491,150 c. 7,112,600 e. None of the choices
b. 7,893,750 d. 7,865,750