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Chapter 4
Consolidated Financial Statements (Part 1)
NAME: Date:
Professor: Section: Score:

QUIZ 1:
On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair
value of P30 per share and par value of P20 per share. The financial statements of ABC Co. and XYZ,
Inc. immediately after the acquisition are shown below:

Jan. 1, 20x1
ABC Co. XYZ, Inc.
Cash 20,000 10,000
Accounts receivable 60,000 24,000
Inventory 80,000 46,000
Investment in subsidiary 150,000
Equipment 400,000 100,000
Accumulated depreciation (40,000) (20,000)
Total assets 670,000 160,000

Accounts payable 40,000 12,000

Bonds payable 60,000 -
Share capital 340,000 100,000
Share premium 130,000 -
Retained earnings 100,000 48,000
Total liabilities and equity 670,000 160,000

On January 1, 20x1, the fair value of the assets and liabilities of XYZ, Inc. were determined by
appraisal, as follows:
Carrying Fair Fair value
XYZ, Inc.
amounts values increment
Cash 10,000 10,000 -
Accounts receivable 24,000 24,000 -
Inventory 46,000 62,000 16,000
Equipment 100,000 120,000 20,000
Accumulated depreciation (20,000) (24,000) (4,000)
Accounts payable (12,000) (12,000) -
Net assets 148,000 180,000 32,000

The equipment has a remaining useful life as of 4 years from January 1, 20x1.

Requirement: Prepare the consolidated statement of financial position as at January 1, 20x1. ABC Co.
elects to measure non-controlling interest as its proportionate share in XYZ’s net identifiable assets.

“The roots of education are bitter, but the fruit is sweet.” – Aristotle
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SOLUTION:

Goodwill is computed as follows:

(1) Consideration transferred 150,000
(2) Non-controlling interest in the acquiree (180K* x 20%) 36,000
(3) Previously held equity interest in the acquire -
Total 186,000
Fair value of net identifiable assets acquired (180,000)
Goodwill 6,000

* fair value of net assets (see given table above)

ABC Group
Consolidated statement of financial position
As of January 1, 20x1

ASSETS
Cash (20,000 + 10,000) 30,000
Accounts receivable (60,000 + 24,000) 84,000
Inventory (80,000 + 62,000 fair value) 142,000
Equipment (400,000 + 120,000 fair value) 520,000
Accumulated depreciation (40K + 24K FV) (64,000)
Goodwill (see above) 6,000
TOTAL ASSETS 718,000

LIABILITIES AND EQUITY

Accounts payable (40,000 + 12,000) 52,000
Bonds payable (60,000 + 0) 60,000
Total liabilities 112,000
Share capital (parent’s only) 340,000
Share premium (parent’s only) 130,000
Retained earnings (parent’s only) 100,000
Owners of parent 570,000
Non-controlling interest (see above) 36,000
Total equity 606,000
TOTAL LIABILITIES AND EQUITY 718,000
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NAME: Date:
Professor: Section: Score:

QUIZ 2:

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.

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

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
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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
b. 116,500 d. 146,500

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

a. 489,500 c. 534,500
b. 498,500 d. 543,500

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

a. 1,546,000 c. 1,642,000
b. 1,564,000 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

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

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

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

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

a. 6,500 c. 57,500
b. 17,500 d. 77,500

“Education is too important to be left solely to the educators.” ~ Francis Keppel

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SOLUTIONS:
1. A
Solution:
Consideration transferred (cost of investment in sub.) 300,000
Previously held equity interest in the acquiree -
Total 300,000
Less: Parent's proportionate share in the net assets of
subsidiary (360,000 x 75%) (270,000)
Goodwill attrib. to owners of parent - acquisition date 30,000
Less: Parent's share in goodwill impairment -
Goodwill attrib. to owners of parent 30,000

Fair value of NCI [(300,000 ÷ 75%) x 25%] 100,000

Less: NCI's proportionate share in net assets
(90,000)
of subsidiary (360,000 x 25%)
Goodwill attributable to NCI - acquisition date 10,000
Less: NCI's share in goodwill impairment -
Goodwill attributable to NCI – current year 10,000

Goodwill, net – current year 40,000

2. C
Solution:
Total assets of parent 1,672,000
Total assets of subsidiary 496,000
Investment in subsidiary (300,000)
Fair value adjustments – net* 50,000
Goodwill – net 40,000
Effect of intercompany transactions -
Consolidated total assets 1,958,000

*(360,000 – 300,000) = 60,000 – (60,000 ÷ 6) = 50,000

3. B
Solution:
Analysis of net assets
Consoli-dation
Subsidiary Acquisition date
date
Net change
Net assets at carrying amts. 300,000 376,000
FVA at acquisition 60,000 60,000
Subsequent depn. of FVA NIL (10,000)
Unrealized profits (Upstream only) NIL -
Net assets at fair value 360,000 426,000 66,000

NCI in net assets

XYZ's net assets at fair value – Dec. 31, 20x1 426,000
Multiply by: NCI percentage 25%
Total 106,500
Add: Goodwill to NCI net (see goodwill computation above) 10,000
NCI in net assets – Dec. 31, 20x1 116,500

4. A
Solution:
Consolidated retained earnings
Parent's retained earnings – Dec. 31, 20x1 440,000
Consolidation adjustments:
Parent's share in the net change in Sub.'s net assets (a) 49,500
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Unrealized profits (Downstream only) -

Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable
-
to parent
Net consolidation adjustments 49,500
Consolidated ret. earnings – Dec. 31, 20x1 489,500
(a)
(66,000 net change in net assets x 75%) = 49,500

5. A
Solution:
Share capital of parent 940,000
Consolidated retained earnings – (see above) 489,500
Equity attributable to owners of the parent 1,429,500
Non-controlling interests - (see above) 116,500
Consolidated total equity 1,546,000

6. B
Solution:
Parent Subsidiary Consolidated
Profits before adjustments 240,000 80,000 320,000
Consolidation adjustments:
Unrealized profits ( - ) ( - ) ( - )
Dividend income from subsidiary ( - ) N/A ( - )
Gain or loss on extinguishment
of bonds ( - ) ( - ) ( - )
Net consolidation adjustments ( - ) ( - ) ( - )
Profits before FVA 240,000 80,000 320,000
Depreciation of FVA* (7,500) (2,500) (10,000)
Impairment loss on goodwill ( - ) ( - ) ( - )
Consolidated profit 232,500 77,500 310,000

*(360,000 – 300,000) = 60,000 ÷ 6) = 10,000

(10,000 x 75%) = 7,500;
(10,000 x 25%) = 2,500

7. A
Solution:
Owners Consoli-
of parent NCI dated
Parent's profit before FVA 240,000 N/A 240,000
Sh. in Sub.’s profit before FVA (c) 60,000 20,000 80,000
Depreciation of FVA (7,500) (2,500) (10,000)
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 292,500 17,500 310,000

(c)
The shares in Subsidiary’s profit before FVA are computed as follows:

Profit of Subsidiary before fair value adjustments 80,000

Allocation:
Original’s share (80,000 x 75%) 60,000
NCI’s share (80,000 x 25%) 20,000
As allocated: 80,000
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8. B (See solution in previous question)