BSA E1

AFAR, Review
Activity | PFRS 10, Part 2 and PAS 27
A.Y. 2021 – 2022

Name: ________________________________ Date: _________________

Instruction: Select the letter of the correct answer by highlighting it to yellow color.
Support your answer with computations.
1. Consolidated financial statements are typically prepared when one company has a
controlling financial interest in another unless:
a. The subsidiary is a finance company.
b. The fiscal year-ends of the two companies do not coincide.
c. The two companies are in unrelated industries, such as manufacturing and real
estate.
d. The parent is in itself a subsidiary of another entity, its debt or equity instruments
are not traded in a public market, and its ultimate parent produces consolidated
general-purpose financial statements that comply with PFRSs.

2. If the impairment of the value of goodwill is seen to have reversed, then the
company may
a. Reverse the impairment charge and credit income for the period.
b. Reverse the impairment charge and credit retained earnings.
c. Not reverse the impairment charge.
d. Reverse the impairment charge only if the original circumstances that led to the
impairment no longer exist and credit retained earnings.

3. When NCI is measured at proportionate share,

a. goodwill is attributed only to the owners of the parent.
b. goodwill is attributed to both the owners of the parent and NCI.
c. goodwill impairment is allocated to both the owners of the parent and NCI.
d. b and c

4. 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 Fair value
XYZ, Inc.
amounts 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
e. None of the above choices

Solution:

Consideration transferred (5,000 x 15) P 75,000

Less: net assets of subsidiary (90,000 x 80%) (72,000)

Goodwill attribute to owners of parents 3,000

Less: share in goodwill impairment (1,000 x 80%) (800)

Goodwill attributable to owners of parent - beg 2,200

Fair value of NCI (75k / 80%) x 20% 18,750

Less: NCI in the net assets of subsidiary (90,000 x 20%) 18,000

Goodwill attributable to NCI, beg 750

Less: NCI share in goodwill impairment (1,000 x 20%) (200)

Goodwill attributable to NCI, end P550

5. On January 1, 20x2, ABC Co. sells 60% out of its 80% interest in XYZ, Inc. for
₱100,000. ABC’s remaining 20% interest in XYZ has a fair value of ₱25,000. This
gives ABC significant influence over XYZ. The statements of financial position
immediately before the sale are shown below:

Statements of financial position

As at January 1, 20x2
Consolidate
ABC Co. XYZ, Inc.
d
ASSETS
Cash 23,000 57,000 80,000
Accounts receivable 75,000 22,000 97,000
Inventory 105,000 15,000 120,000
Investment in subsidiary 75,000 - -
Equipment 200,000 50,000 260,000
Accumulated
(60,000) (20,000)
depreciation (84,000)
Goodwill - - 3,000
TOTAL ASSETS 418,000 124,000 476,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000
Bonds payable 30,000 - 30,000
Total liabilities 73,000 30,000 103,000
Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000
Retained earnings 110,000 44,000 118,000
Non-controlling interest - - 20,000
Total equity 345,000 94,000 373,000
TOTAL LIAB. & EQTY. 418,000 124,000 476,000

How much is the gain (loss) on the disposal?

a. 38,000
b. 42,000
c. 62,000
d. 78,000
e. None of the above choices

Solution:

Proceed on sale 100,000

Investment in associate 25,000

Non-controlling interest 20,000

Total 145,000

Less: Current assets

Cash 57,000

Accounts receivable 22,000

Inventory 15,000

Equipment 60,000

Goodwill 3,000

Accum. Depreciation (24,000)

Accounts payable (30,000) 103,000

Total gain P42,000

6. This type of group arises when a parent’s subsidiary has its own subsidiary
(sometimes referred to as ‘sub-subsidiary’).
a. Vertical group
b. Horizontal group
c. Simple group
d. D-shaped group

7. This type of group arises when a parent has a direct controlling interest in at least
one subsidiary. In addition, both the parent and the subsidiary together hold a
controlling interest in another entity.
a. Vertical group
b. Horizontal group
c. Complex group
d. D-shaped group

8. On January 1, 20x1, Subsidiary One acquires 60% interest in Subsidiary Two. On

January 1, 20x3, Parent acquires 80% interest in Subsidiary One. Identify the
acquisition dates of Subsidiary One and Subsidiary Two.
Subsidiary One Subsidiary Two
a. January 1, 20x1 January 1, 20x1
b. January 1, 20x3 January 1, 20x3
c. January 1, 20x1 January 1, 20x3
d. January 1, 20x3 January 1, 20x1

9. Parent acquires 80% interest in Subsidiary One on January 1, 20x1. Parent acquires
25% interest in Subsidiary Two on January 1, 20x2. Subsidiary One acquires 30%
interest in Subsidiary Two on January 1, 20x3.
Subsidiary One Subsidiary Two
a. January 1, 20x1 January 1, 20x1
b. January 1, 20x3 January 1, 20x3
c. January 1, 20x1 January 1, 20x3
d. January 1, 20x3 January 1, 20x1

10. Which of the following statements is true regarding push-down accounting?

a. The Philippine SEC requires push-down accounting if a subsidiary is
“substantially wholly-owned,” i.e., parent’s ownership interest is at least 95%.
 b. The Philippine SEC encourages push-down accounting if a parent’s ownership
interest is 80% to less than 95%.
c. The Philippine SEC prohibits push-down accounting if a parent’s ownership
interest is less than 80%.
d. All of these are incorrect

11. These are those presented in addition to consolidated financial statements or the
financial statements of an entity with an investment in associate or joint venture that
is accounted for using equity method in accordance with PAS 28.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements

12. Entity A acquired an investment in associate for ₱1M many years ago. At the end of
the current reporting period, the investment has a fair value of ₱2.9M. If the equity
method is used, the investment would have a current carrying amount of ₱2.6M. In
Entity A’s separate financial statements, the investment should be valued at
a. 1,000,000.
b. 2,600,000.
c. 2,900,000.
d. any of these, as a matter of an accounting policy choice

13. Seminarian Inc. has 100,000 shares of ₱2 par value stock outstanding. Priest
Corporation acquired 30,000 shares of Seminarian’s shares on January 1, 2022. For
₱120,000 when Seminarian’s net assets had a total fair value of ₱350,000. On July
1, 2025, Priest agreed to buy an additional 60,000 shares of Seminarian from single
stockholder for ₱6 per share. Although Seminarian’s share was selling ₱5 range
around July 1, 2025, Priest forecasted that obtaining control of Seminarian would
produce significant revenue synergies to justify the premium price paid. If
Seminarian’s net identifiable assets had a fair value of basis of ₱500,000 on July 1,
2025, how much goodwill on full fair value basis should Priest report in its post-
combination consolidated financial statement?
a. a. 0 c. 90,000 e. None of the above choices
b. b. 60,000 d. 100,000

Solution:

Selling price of share (30k sh. X P5) 150,000

Stock issued (60k sh. X P6) 360,000

NCI [(100k – 60k -30k) x P5] 50,000

Total 560,000

Less: FV of net assets subsidiary 500,000

Total goodwill P60,000

14. Papaya Company has a 90% controlling interest in Saging Company. On December
31, 2022, the carrying value of Saging Company’s net assets in Papaya Company’s
consolidated financial statements is ₱100,000 and the carrying amount attributable
to the non-controlling interest’s in Saging Company (including the non-controlling
interest’s share of accumulated other comprehensive income) is ₱10,000. On
January 1, 2023, Papaya Company sells 80% of the share in Saging Company to a
third party for cash proceeds of ₱120,000. As a result of the sale, Papaya Company
loses control of Saging Company but retains 10% non-controlling interest in Saging
Company. The fair value of the retained interest on that date is ₱12,000. Determine
the gain or loss on disposal:
a. 20,000 gain c. 42,000 gain e. None of the above choices
 b. 32,000 gain d. 42,000 loss

Solution:

Sales proceeds P 120,000

FV of retained NCI 12,000

Carrying value of the NCI 10,000

Total P 142,000

Less: carrying value of net assets 100,000

Gain or loss on disposal P42,000

15. Parent Ltd. has an 80% investment in Subsidiary Ltd. with a carrying amount of
₱80,000,000. The fair value of Subsidiary Ltd. is ₱200,000,000. The following year,
Parent Ltd. decided to sell a 29% interest in Subsidiary Ltd. to a third party in
exchange for cash. Determine the gain or loss on disposal of shares to be recognize
in the profit or loss statement:
a. 0 c. 29,000,000 loss e. None of the above choices
b. 29,000,000 gain d. 3,000,000 loss

Solution:

Cash proceeds (200,000,000 x 29%) P 58,000,000

Less: carrying value of NCI

(80,000,000 / 80% = P 100,000,000 x 29%) 29,000,000

Gain transfer within equity in APIC account P 29,000,000

The correct answer is P0, because no gain or loss is recognized, instead APIC
increases by P 29,000,000.

16. Manila, a private limited company, has arranged for Mandaluyong, a public limited
company, to acquire it as a means of obtaining a stock exchange listing.
Mandaluyong issues 15 million shares to acquire the whole share capital of Manila
(6 million shares). The fair value of the net assets of Manila and Mandaluyong are
₱30 million and ₱18 million, respectively. The fair value of each of the shares of
Manila is ₱6 and the quoted market price of Mandaluyong’s shares is ₱2. The share
capital of Mandaluyong is 25 million shares after the acquisition. Calculate the value
of goodwill in the above acquisition.
a. 16 million c. 10 million e. None of the above choices
b. 12 million d. 6 million

Solution:

Consideration transferred (4, 000, 000 shares x P6) 24, 000, 000

FV of Man net assets 18,000,000

Total Goodwill P6, 000, 000

Additional shares issued 10,000,000 x 40% = 4,000,000

17. Right Corp. has several subsidiaries that are included in its consolidated financial
statements. In its December 31, 2022, trial balance, Right had the following
intercompany balances before elimination:

Debit Credit
Current receivables due from Main Co. ₱32,000
Non-current receivable from Main 114,000
Cash advance to Corn Corp. 6,000
Cash advance from King Co. ₱15,000
Intercompany payable to King 101,000

In its December 31, 2022, consolidated balance sheet, what amount should Right
report as intercompany receivables?
a. 152,000 c. 36,000 e. None of the above choices
b. 146,000 d. 0

Explanation

In a consolidated balance sheet, reciprocal balances, such as receivables and

payables, between a parent and a consolidated subsidiary are eliminated in their entity,
regardless of the portion of the subsidiary’s stock held by the parent. Thus, right
should report 0 as intercompany receivables

18. During 2021, Pards Corp. sold goods to its 80% owned subsidiary, Seed Corp. On
December 31, 2021, one-half of these goods were included in Seed’s ending
inventory. Reported 2021 selling expenses were ₱1,100,000 and ₱400,000 for
Pards and Seed, respectively. Pard’s selling expenses included ₱50,000 in freight-
out costs for goods sold to Seed. What amount of selling expenses should be
reported in Pard’s consolidated income statement?
a. 1,500,000 c. 1,475,000 e. None of the above choices
b. 1,480,000 d. 1,450,000

Solution:

Selling expense (1.1M + 400k) 1,500,000

Less: freight out 50,000

Total P1,450,000

19. Under which of the following theories is the elimination of ALL intercompany profits
called for?
a. The Ownership Theory c. The Proprietary Theory
b. The Entity Theory d. The Parent Theory
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