Chapter 15

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
Less: Investment in Silk 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 (full)*
26,667
Total assets reported
P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
If partial-goodwill:
Total Assets of P.
Less: Investment in S Corp.

9.
10.

11.

Book value of assets of S Corp.

Book value reported by P and S
Increase in inventory (P60,000 P38,000)
Increase in land (P60,000 P32,000)
Increase in plant assets [P350,000 (P300,000 P60,000)]
Goodwill (partial)*
Total assets reported
*[P440,000 (P702,000 P142,000) x 75%]
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)

d
a
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
Land (P20,000 x 70%)
Goodwill partial

P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000

P150,500
__98,000
P 52,500
P 10,500
14,000

24,500
P 28,000

c
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full

P150,500
**64,500

P 15,000
20,000

P215,000
140,000
P 75,000
35,000
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

12. b
Total Assets of Power Corp.
Less: Investment in Silk Corp.

P 791,500
(150,500)
P 641,000
405,000

Book value of assets of Silk Corp.

Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (full)
Total assets reported

P1,046,000
15,000
20,000
40,000
P1,121,000

If partial-goodwill:
Total Assets of Power Corp.
Less: Investment in Silk Corp.

P 791,500
(150,500)
P 641,000
405,000

Book value of assets of Silk Corp.

Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (partial)
Total assets reported
13.

14.

P701,500

P1,046,000
15,000
20,000
28,000
P1,109,000

(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)

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
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500

15.

d
Non-controlling interest (partial-goodwill): P64,500
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
Multiplied by: NCI%..........................................................
30%
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.

P205,000

The amount reported by Power Corporation

17.

c
P419,500
= (P150,000 + P205,000) + P64,500
If partial-goodwill:
Stockholders equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parents SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE

P150,000
205,000
P355,000
52,500
P404,500

18. b
Consideration transferred .......................................................................................

P60,000

Less: Strand's book value (P50,000 x 80%)............................................................

Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .........................................................P12,000
Excess assigned to goodwill (40%) .......................................P 8,000

(40,000)
P20,000

Consideration transferred (P60,000 80%)............................................................

Less: Strand's book value ......................................................................................
Fair value in excess of book value .........................................................................
Excess assigned to inventory (60%) .........................................................P15,000
Excess assigned to goodwill (40%) .......................................P10,000

P75,000
(50,000)
P25,000

19. c

20. a
Park current assets..................................................................................................
Strand current assets...............................................................................................
Excess inventory fair value.......................................................................................
Consolidated current assets.....................................................................................

P 70,000
20,000
15,000
P105,000

Park noncurrent assets...........................................................................................

Strand noncurrent assets........................................................................................
Excess fair value to goodwill (partial)......................................................................
Consolidated noncurrent assets..............................................................................

P 90,000
40,000
___8,000
P140,000

Park noncurrent assets............................................................................................

Strand noncurrent assets.........................................................................................
Excess fair value to goodwill (full)............................................................................
Consolidated noncurrent assets...............................................................................

P 90,000
40,000
__10,000
P140,000

21. c

22. d

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........................................................................................
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%
Total stockholders' equity.......................................................................................

P80,000

13,000
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 P150,000 + P500,000
29. a at fair value
30. d
(1) NCI measured at its share of net assets (Partial Goodwill)
Fair value of Subsidiary:
Consideration transferredP 100 million
Less: Fair value of identifiable assets and liabilities of Loco
(80% x P85 million).. 68 million
Goodwill (partial)....P 32 million
(2) NCI is measured at its fair value (Full Goodwill)
Fair value of Subsidiary:

Consideration transferredP 100 million

Fair value of NCI [(P100 million P24 million = P76 million / 80% =
P95 million] x 20%.................................................................................... 19 million
Fair value of Subsidiary...P 119 million
Less: Fair value of identifiable assets and liabilities of Oak.
85 million
Goodwill (full)...P 34 million
Under PFRS3 par. 32, goodwill is measured at the consideration transferred plus the
non-controlling interest (however measured) less net assets acquired. The noncontrolling interest may be measured at its share of net assets or its fair value, per
PFRS3 par. 19.
Note: Fair value is assumed to be the same with the carrying/book value.
31.

d
Fair value of Subsidiary - Swan
Consideration transferredP 1,420,000
Less: Fair value of identifiable assets and liabilities of Swan
(70% x P1.2 million).
840,000
Goodwill (partial)....P 580,000
Goodwill is carried as an asset in the consolidated statement of financial position.
Fair value of Subsidiary - Homer
Consideration transferredP 300,000
Less: Fair value of identifiable assets and liabilities of Homer
(65% x P640,000)...
416,000
Gain on bargain purchaseP ( 116,000)
Gain on a bargain purchase is recognized in profit or loss not on the statement of
financial position.
Notes:
1.
Moon measures non-controlling interests at the relevant share of the identifiable net
assets at the acquisition date; therefore partial goodwill is in effect.
2.
Fair value is assumed to be the same with the carrying/book value.

32.

a See PFRS 3 par. 32.

Fair value of Subsidiary:
Consideration transferredP1,960,000
Less: Fair value of identifiable assets and liabilities of Oak
(P700,000 x 70%).
490,000
Goodwill (partial).. P1,470,000
Or, alternatively:
Fair value of Subsidiary:
Consideration transferredP1,960,000
Less: Book value of SHE of Oak (P100,000 + P300,000 + P1,400,000) x 70%.......... 1,260.000
Allocated excess..P 700,000
Less: Over/under valuation of assets and liabilities
(P1,800,000 P700,000) x 70%...................................................................... 770,000
Goodwill (partial)..P1,470,000
Note: Since the company elected to measure NCI at its share of the identifiable net assets instead
of fair value, therefore the partial goodwill approach should be used.

33.

d - P592,000 = P300,000 + P270,000 + P22,000

34.

a P26,667
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P400,000 x 75%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Current assets (P22,000 x 75%)
Land, buildings and equipment (P138,000 x 75%)
Goodwill partial

P440,000
__300,000
P140,000
P 16,500
103,500

120,000
P 20,000

Full-goodwill:
Fair value of Subsidiary:
Consideration transferred (P440,000 / 75%)
Less: BV of SHE of S (P400,000 x 100%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Current assets (P22,000 x 100%)
Land, buildings and equipment (P138,000 x 100%)
Goodwill full

P586,667
__400,000
P186,667
P 22,000
138,000

160,000
P 26,667

35. b
Consolidated Total Assets:
Current assets (No. 32)
Land, buildings and equipment
[P538,000 + P272,000 + P138,000 + P26,667, full-goodwill]

592,000

974,667
P 1,566,667

36 c
FV of SHE of SS:
Book value of SHE of S.P 400,000
Adjustments to reflect fair value . 160,000
FV of SHE of S..P 560,000
Multiplied by: NCI%..............................................................
25%
FV of NCI (partial)..P 140,000
Add: NCI on full-goo dwill (P26,667 P20,000)....
6,667
FV of NCI (full-goodwill)...P 146,667
37. d
Consolidated Total Liabilities:
Liabilities: P Co. (P300,000 + P538,000 + P440,000 P348,333)..P 929,667
S Co..
142,000
P1,071,667
38. d
Consolidated Stockholders Equity
Parents stockholders equityP 348,333
Add: NCI (full-goodwill) (No. 36).. 146,667
P 495,000
39. b
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5)..
APIC
Add: APIC of P
Less: Stock issuance cost

P 4,200,000
__2,500,000
P 1,700,000
7,500,000
___100,000
P 9,100,000

40. c
41. a
42. No answer available
43. a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000
44. a
45. c
46. a
[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
47. b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in PPE
P300,000 P500,000) = P550,000
48. a
49. d (P1,000,000 + P250,000) = P1,250,000 P only.
50. d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
51. b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
52. a P only
53. d
Total Assets of P
P 960,000
Less: Investment in S
(330,000)
P 630,000
Book value of assets of S
405,000
Book value reported by P and S
P1,035,000
Increase in inventory (P45,000 P26,000)
19,000
Increase in land (P45,000 - P24,000)
21,000
Increase in plant assets [P300,000 (P225,000 P45,000)]
120,000

Goodwill (full)
Total assets reported

_____0
P1,195,000

If partial-goodwill same answer with full-goodwill approach, since there is no gain.

54. b step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value
30% FV of previously held equity interest: 30,000 shares x P5, fair value
10% FV of NCI (100,000 60,000 30,000) x P, fair value
100% Fair value of subsidiary
Less: Fair value of net assets (SHE) of subsidiary

P360,000
150,000
40,000
P560,000
500,000
P 60,000

55. b
56. a
57. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
58. d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)

P330,000
395,000
P 65,000
59. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in the
worksheet or eliminating entries.
60. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
61. d Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made.
Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated
subsidiary, so the P300,000 intercompany account will be eliminated.
62. d
63. a
64. c In the combined financial statements (which normally used to described financial statements in a
common control situation), intercompany accounts are eliminated in full.
65. d In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their
entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the
parent nonetheless controls it.
66. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the parents
percentage ownership.
67. d refer to62
In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety
for external reporting purposes. Even though the subsidiary is less than fully owned, the parent
nonetheless controls it.
68. d refer to No. 61
69. c
An asset acquired in a business combination is initially valued at 100% acquisition-date fair value
and subsequently amortized its useful life.
Patent fair value at January 1, 2009........................................................................
Amortization for 2 years (10 year life)......................................................................
Patent reported amount December 31, 2010..........................................................

P45,000
(9,000)
P36,000

70. a
PP - building.............................................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ..............................................................................................
-ORPP - building .............................................................................................................
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000)
Consolidated buildings ..............................................................................................

P510,000
210,000
P720,000
510,000
210,000
P720,000

71. No answer available P60,000

AA, Inc. Fair value at January 1, 20x7:
30% previously owned fair value (30,000 shares P5) .........................................
60% new shares acquired (60,000 shares P6)....................................................
10% NCI fair value (10,000 shares P5)...............................................................
Acquisition-date fair value.......................................................................................
Net assets' fair value...............................................................................................
Goodwill
.............................................................................................................

P150,000
360,000
50,000
P560,000
500,000
P60,000

72. d
Cost of Investment (40 shares* x P40)P 1,600
Less: Book value of SHE Pedro Ltd (P300 + P800) x 100%......................... 1,100
Allocated excessP 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 P1,300) x 100% x 70%........
140
Goodwill.P
360
(d)
*

100%
Pedro Ltd
Santi Ltd
Currently issued 150 60% **
60 60%
Additional shares issued.. 100 40%
40 / 40%
Total shares 250
100
**150/250

Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltds
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 )
for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in
Pedro Ltd shows that it consists of the 100 shares existing prior to the merger and 150 new shares
held bye former shareholders in Santi Ltd. In essence, the former shareholders of Santi Ltd now
control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd shareholders have a 60% interest
in Pedro Ltd [150/(100+150]. The IASB argues that there has been a reverse acquisition, and that
Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent.
The usual circumstance creating a reverse acquisition is where an entity (the legal parent) obtains
ownership of the equity of another entity (the legal subsidiary) but, as part of the exchange
transaction, it issues enough voting equity as consideration for control of the combined entity to pass
to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of
Pedro ltd are to be valued at fair value. This is contrary to normal acquisition accounting, based on
Pedro Ltd being the legal parent of Santi Ltd, which would require the assets and liabilities of Santi
Ltd to be valued at fair value.
73. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from
P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.

Theories
1.
2.
3.
4.
5.
41.
42.
43.
44.
45.

c
a
e
e
b
c
c
c
c
c

6.
7.
8.
9.
10,
46.
47.
48.
49.
50,

b
b
A
D
a
b
a
c
d
b

11.
12.
13.
14.
15,
51.
52.
53.
54.
55,

c
c
d
d
b
c
b
a
a
c

16.
17.
18.
19.
20.
56.
57.
58.
59.
60.

d
c
b
c
c
d

21.
22.
23.
24.
25.

b
a
a
b
c

26.
27.
28.
29.
30.

d
c
c
d
b

31
32.
33.
34.
35.

c
d
b
d
d

36.
37.
38.
39.
40.

d
d
c
b
c