ADVANCE ACCOUNTING

BUSINESS COMBINATION
Business combination- a transaction or other event in which an acquirer obtains control of one or more business. Controls
refers to financial and operation (PFRS 3)
Ways to control a business unit
1. Acquisition of net assets- true merger or merger of equal
2. Acquisition of outstanding shares- business combination/ consolidation (there will be parent- subsidiary
relationship)
Terms used in business combination
Acquiree- the business or business that the acquirer obtains control of a business combination.
Acquirer- the entity that obtains control of the acquiree.
Acquisition date the date on which the acquirer obtains control of the acquire.
Control the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Equity interest- owner of investor-owned entities and owner, member or participant interests of mutual entities.
Fair value- the amount of which an asset could be exchanged or liability settled, between knowledgeable, willing parties in
an arms length transaction.
Goodwill- an asset representing future economic benefits arising from other assets acquired in a business combination that
are not individually identified and separately recognized.
Non-controlling interest- the equity in subsidiary not attributable, directly or indirectly, to a parent.
Steps for business combination
1. Identify the acquirer
2. Determine the acquisition the date where parent obtains control
3. Recognize and measure the identifiable asset acquired, the liabilities assumed and any non-controlling interest in
the acquiree net assets are measured at fair value. Existing goodwill be replaced by a new goodwill. Thus, it is not
included in the computation of net assets acquired. Non-controlling interest are measured at
a. Fair value
b. Proportionate share of the acquirees identifiable net assets.
4. Determination and computation of the consideration given (direct and indirect acquisition cost is charge to profit or
loss statement) inclusive of contingent consideration
a. Cash
b. Non-cash consideration
c. shares of sock
d. Incurrence of a liability
Contingent consideration- is an agreement to issue additional consideration (asset or stock) at the
later date if specified events occur. Measured at its acquisition date fair value.
5. Recognize and measure goodwill or a gain from a bargain purchase (negative goodwill) / gin on acquisition
a. Difference between consideration given and non-controlling interest less fair value net assets acquired.
Important difference in business combination for SMEs.
1. Goodwill will be amortized with estimated life. Assumed to be 10 years if it cannot be estimated reliably. Tested
also for impairment if there are indications that the said goodwill is being impaired.
2. Any direct cost will be part of the consideration given.

Straight Problem 1: Consideration Transferred and Goodwill Computation

Balance sheet information for Amor Corporation at January 1, 2015 is summarized as follows:
Current assets P920,000 Liabilities P 1,200,000
Plant asset 1,800,000 Capital stock P10 par 800,000
Retained earnings 720,000
Amor s assets and liabilities are fairly valued except for plant assets that are undervalued by P200.000. On January 2, 2015
Eduardo Corporation issues 80,000 shares of its P10 par value ordinary shares for all of Amors net assets and Amor is
dissolved. Market Quotations for the two stocks on this date are:
Eduardo ordinary: P28
Amor ordinary: P19
Edwardo pays the following fees and costs in connection with the combination:
Finder s fee, P10,000 (Direct Cost)
Costs of registering and issuing stock, P5,000
Legal and accounting fees, P6,000 (Indirect Cost)
Required:
1. Calculate the amount of consideration transferred.
Calculate any goodwill from the business combination
a. Assuming Full PFRS

BUSINESS COMBINATION 1
b. Assuming SMEs

Straight Problem II: Journal Entries: Goodwill and Bargain Purchase Gain
Duterte Corporation purchased the net assets of Aquino Corporation on January 2, 2015 for P560,000 and also paid P20,000
in direct acquisition costs. Aquinos balance sheet on January 1, 2015 was as follows:
Accounts Receivable, net P180.000
Inventory 360.000
Land 40.000
Buildings (net) 60.000
Equipment(net) 80,000
Current liabilities 70.000
Long-term debt 160.000
Common Stock, P1 par 20.000
Paid-in capital 430,000
Retained Earnings 40,000
Fair values agree with book values except for inventory, land, and equipment, which have fair values of P 400,000, P50.000
and P70.000 respectively. Aquino has patent rights valued at P20,000.
Required:
1. Prepare Dutertes journal entries for the acquisition of Aquinos net assets.
2. Assume Duterte Corporation acquired the net assets of Aquino Corporation for P500,000 rather than P560,000,
prepare
Problem 3. Consideration Transferred: Cash plus Contingent Consideration
Pham Company acquired the assets (except) and assumed the liabilities of Senn Company on January 1, 2012, paying P
720,000 cash. Senn Companys December 1, 2012, balance sheet, reflecting both book values and fair values and fair values,
showed:
Book Value Fair Value
Accounts receivable (net) P72,000 P65.000
Inventory 86,000 99,000
Land 110,000 162,000
Buildings (net) 369,000 450000
Equipment (net) 237,000 288000
Total P874,000 P1,064,000
Accounts payable P 83,000 P 83,000
Note payable 180,000 180,000
Common stock, P2par value 153,000
Other contributed capital 229,000
Retained earnings 229,000
Total 874,000
As part of the negotiations, Pham Company agreed to pay the former stockMang. Inasalers of Senn Company P135,000 cash
if the post combination earnings of the combined company (Pham) reached certain levels during2013 and 2014.
Required:
1. Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2012.It is expected
that the earnings target is likely to be met.
2. Assuming the earnings contingent is met, prepare the journal entry on Pham Companys books to settle the
contingency on January 2, 2014.
3. Assuming the earnings contingency is not met, prepare the necessary journal entry on Pham Companys books on
January 2,2014.
Straight Problem 4: Consideration Transferred: Cash and Stock Plus Contingent Consideration
On January 1 ,2012, Platz Company acquired all the net assets of Sate Company by issuing 75,000 shares of its P10 par value
common stock to the stockholders of Satz Company. During the negotiation Plate Company agreed to issue additional shares
of common stock to the stockholders of Sate if the average post combination earnings over the next three years equaled or
exceeded, P2 500,000. On January 1, 2012 the market value of Platz stock was P50 per share. Based on the information
available at the acquisition date, the additional 10,000 shares are expected to be issued.
Required:
1. Prepare the journal entry on Plate Companys books on January 1,2012It is expected that the earnings target is likely
to be met. Platz Company records goodwill on acquisition.
2. Prepare the journal for Platz Companys books on January 1,2015, when the additional shares are issued. On this
date the market value of Plate stock is valued at P60 per share.
Direct cost and indirect cost

BUSINESS COMBINATION 2
 1. Rivendell paid finders fees of P 40,000, legal fees of P13,000, audit fees related to stock issuance of P10,000, stock
registration fees of P5,000, and stock listing application of P4,000.
Based on the preceding information, under acquisition method, what amount relating to business combination
would be expense?
2. Based on the preceding information, under the acquisition method, amount relating to the business combination
would be charged to paid in Capital?
Fair value of Net Assets
1. ABC Co. is acquiring XYZ Inc. XYZ has the following intangible asset:
Patent on a product that is deemed to have-up useful life P10,000
Customer list with an observable fair value of P50, 000
A 5-year operating lease with favorable terms with a discounted present value of P8,000
Identifiable R & D of P100,000.
ABC will record how much for acquired intangible Assets from the purchase of XYZ Inc.?
2. Plata Corporation paid P100,000 cash for the net assets of Oro Company, which consisted of the following
Book Value Fair Value
Current assets P20,000 P 28, 000
Property and equipment 80,000 110,000
Liabilities assumed 20,000 18,000
The property and equipment acquired in the business combination should be recorded at:
Computation of Goodwill
1. Burrough Corporation concluded that die fair value of Helyar Company was P80, 000 and paid that amount to
acquire all of its net assets. Helyar reported assets with a book value of P60.000 and fair value of P98.000 and
liabilities with a book value and fair value of P23,000 on the date of combination. Burrough also paid P3,000 to a
search firm for finders fees related to the acquisition. What amount Burrough Corporation will record as goodwill?

Computation of Goodwill
1. On June 1, 2015, Clane Company paid P800,000 cash for the assets and liabilities of Renn Corp. The carrying values
for Renns assets and liabilities on June 1, 2015 follow:
Cash 150,000
Accounts receivable 180,000
Capitalized software costs 320,000
Goodwill 100,000
Liabilities (130,000)
Net Assets 620,000
On June 1, 2015, Renns accounts receivable had a fair value of P140,000. Additionally, Renns in process and
development costs was estimated to have a fair value of P200,000. All other items were stated at fair vaues. On
Clanes June 1 balance sheet. How much as reported for goodwill?
Acquisition of Net Assets with Contingent Consideration
On January 1, 2015, the fair values of Pink Conrads net assets were as follows:
Current Asset 100,000
Equipment 150,000
Land 50,000
Buildings 300,000
Liabilities 80,000
On January 1, 2015, blue George Company purchased the net assets of the Pink Conrad by issuing 100,000 shares of its
P1 par value stock when the fair value of the stock was P6.20. It was further agreed that Blue George would pay an
additional amount on January 1, 2017, if the average income during the 2-year period of 2015-2016 exceeded P8000 per
year. The expected value. of this consideration was calculated as P184.000; the measurement is one year. What amount
will be recorded as goodwill on January 1, 2012?

BUSINESS COMBINATION 3
ADVANCED ACCOUNTING: CONSOLIDATED FS @ Date of Acquisition
If the method to obtain control is through acquisition of stocks, the transaction is between the acquirer (parent) and
stockholders of the acquiree (subsidiary). Hence, two legal business entities still exist, but substance over form
concept recognize only one entity, thus consolidated financial statement is deemed necessary.
Acquisition of stocks could either be:
1. 100% (Wholly owned subsidiary-)
With option to dissolve the subsidiary- Same with acquisition of Net Assets
If not dissolve F/S of the combining entities should be consolidated
Acquisition at Book Value More than Book Value Less than Book Value
2. Less than 100% (but generally not less than 50% to obtain control)
Non-Controlling Interest Exist valued at
Fair Value of NCI
Proportionate Share of Fair Value of Net Assets of Subsidiary
Acquisition at Book value More than Book Value Less than Book Value
Straight Problems:
Date of Acquisition- 100% owned Subsidiary
1. PLDT Company acquires all of Sun Companys outstanding shares on January 1, 2015, by paying P408,000 cash, and
immediately prepares a consolidated balance sheet. The separate balance sheets of taxi companies immediately
before the consolidation with acquirees fair value were presented as follows:
PLDT Co. Sun Co. Sun Co.
Assets Book Value Book Value Fair Value
Cash P420,000 P60,000 P60,000
Accounts Receivable 90,000 60,000 60,000
Inventory 120,000 72,000 90,000
Land 210,000 48,000 120,000
Buildings and equipment (net) 480,000 360,000 348,000
Total Assets P 1,320,000 P 1,600,000 P 1,678,000
Liabilities and Stockholders' Equity
Accounts Payable P120,000 P 120,000 P120,000
Bonds Payable 240,000 120,000 162,000
Ordinary Stock,P10 par 600.000 240,000
Paid in capital in excess of par 60,000 24,000
Retained Earning 300,000 96,000
Stockholders Equity P 1,320,000 P 600,000
Required:
1. Prepare journal entry to record investment in books of the acquirer company.
2. Prepare the working paper eliminating entries for purposes of preparing consolidated balance sheet.
3. Prepare a consolidated working paper on January 1,2015.
4. Prepare the consolidated balance immediately after acquisition.

2. Assuming the same data in Problem 1, except that the consideration transferred consists of P288,000 cash plus
12,000 ordinary shares of PLDT Co. with a fair value of P12 per share. The following costs were incurred:
Direct Costs P4 ,800
Indirect Costs 7,200
Costs to issue and register stocks 8,400
The separate balance sheets of Sun Co. immediately before the consolidation with fair values were presented as follows:
Assets Sun Co. Book Value Sun Co. Fair Value
Cash P 54,000 P54,000
Accounts Receivable 60,000 60000
Inventory 72,000 90,000
Land 48,000 120,000
Buildings and equipment (net) 360,000 348,000
Goodwill 6,000 -
Total Assets P 600,000 P 672,000
Liabilities and Stockholders Equity
Accounts Payable P 120,000 P120,000
Bonds Payable 120,000 162,000
Ordinary Stock, PI0 par 240,000

BUSINESS COMBINATION 4
 Paid in capital in excess of par 24,000
Retained Earnings 96,000
Stockholders Equity P600,000

Required:
1. Prepare journal entry to record investment in books of the acquirer company.
2. Prepare the working paper eliminating entries for purposes of preparing consolidated balance sheet.
3. Prepare a consolidated work paper on January 1, 2015.
4. Prepare the consolidated balance immediately after acquisition.

Date of Acquisition less than 100%

3. PLDT Company acquires 80% of Sun Companys outstanding stock on January 1, 2015, by paying P360,000 cash, and
immediately prepares a consolidated balance sheet. PLDT also pays P14,400 in accounting and legal fees to
accomplish the purchase. The separate balance sheets of the two companies immediately before tire consolidation
with acquirees fair value were presented as follows:
Assets PLDT Co. Book Value Sun Co. Book Value Sun Co. Fair Value
Cash P420,000 P60,000 P60,000
Accounts receivable 90,000 60,000 60,000
inventory 120,000 72,000 90,000
Land 210,000 48,000 120,000
Buildings and equipment 960,000 720,000 348,000
Accumulated depreciation (480,000) (360,000)
Total Assets P1,320,000 P600,000 P678,000
Liabilities and Stockholders Equity
Accounts payable P120,000 P120,000 P120,000
Bonds payable 240,000 120,000 162,000
Ordinary stock, P10 par 600,000 240,000
Paid in capital in excess of par 60,000 24,000
Retained earnings 300,000 96,000
Total Liabilities and Stockholders Equity P1,320,000 P600,000
Required:
1. Prepare journal entry to record investment in the books of the parent company.
2. Prepare the working paper eliminating entries for purposes of preparing consolidated balance sheet
a. Partial Goodwill (Proportionate Basis) Approach
b. Full-Goodwill (Fair Value Basis) Approach
3. Prepare a consolidated working paper on January 1, 2015
a. Partial Goodwill (Proportionate Basis) Approach
b. Full-Goodwill (Fair Value Basis) Approach
4. Compute the Non-controlling interest on acquisition
a. Partial Goodwill (Proportionate Basis) Approach
b. Full-Goodwill (Fair Value Basis) Approach
5. Prepare the consolidated balance immediately after acquisition
a. Partial Goodwill (Proportionate Basis) Approach
b. Full-Goodwill (Fair Value Basis) Approach

With Control Premium

4. On July 1, 2014, Giordano, Inc. acquired most of the outstanding ordinary shares of Esprit Company for cash. The
incomplete working paper elimination entries on that date for the consolidated statement of financial position of
Giordano, Inc. and its subsidiary are shown below:
Stockholder s equity Esprit 2,437,500
Investment in Esprit 1,584,375

BUSINESS COMBINATION 5
 Non-controlling interest 853,125

Inventories 62,500
Equipment 312,500
Patent 61,250
Goodwill ?
Investment in Esprit 468,750
Non-controlling interest ?
Included in the price is a control premium of P68,750
Required: The amount of goodwill to be reported in the consolidated statement of financial position on July 1, 2014
a Assuming non-controlling interest is measured at fair value
b. Assuming non-controlling interest is measured at the proportionate share
c. Assuming non-controlling interest is measured at fair value. The fair value of the non-controlling interest is P1,150,000.

Reverse Acquisition
5. The private Company acquired a controlling interest in the Public Company. The Private Company had the following
balance sheet on the acquisition date:
Assets Liabilities and Equity
Current assets P1,000 Long-term liabilities P2,000
Fixed assets 5,000 Common-stock (P1 par), 120 shares 120
Share Premium 880
Retained earnings 3,000
Total Assets P6,000 Total liabilities and equity P6,000

The Public Company had the following book and fair value on the acquisition date
Assets Book Fair Liabilities and Equity Book Value Fair Value
Value Value
Current assets P1,000 P1,000 Long-term liabilities P1,000 P1,000
Fixed assets 2,000 3,000 Common-stock (P1 par), 200 shares 200
Share Premium 800
Retained earnings 1,000
Total Assets 3,000 4,000 Total liabilities and equity 3,000

The shareholders of Private Company request 500 Public Company Shares in exchange for all of their 120 shares. The fair
value of a share of Public and Private Company is P25 and 62.5 respectively.
Required:
1. Compute the goodwill of the acquisition
STEP Acquisition-a business combination achieved in stages
2016
January 1 Luis acquire 10% of the voting shares from Jesse Corporation for P100,000 Trading Securities
December 31 The fair value of the Investment in TS is P120,000
2017
July 1 Luis acquire 20% additional voting shares from Jesse Corporation for P250,000
December 31 Jesse Corporation declares net income and dividends for P600,000
2018
January 1 Luis acquire additional 50% voting shares from Jesse Corporation
Additional data:
On January 1, 2017 the fair values of Jesse corporations Assets and Liabilities are P3,500,000 and 2,000,000
respectively
Required:
1. Prepare Journal Entries
2. Compute the goodwill for consolidation purposes on January 1, 2018
a. Partial method
b. Full Method
CONSOLIDATED FS in Subsequent years
CONSOLIDATED FIANCIAL STATEMENT IN SUBSEQUENT YEARS
Important concepts
1. In preparing consolidated f/s in subsequent years, it is assumed always that it is first time to consolidated. Tus,
previous adjustment and elimination entries in the consolidation are disregarded.
2. The consolidated f/s in subsequent years are composed of Balance Sheet and Income Statement.
BUSINESS COMBINATION 6
 3. The increase in the fair value of the assets is accounted as follows:
Increased in /Excess 1st Year 2nd and subsequent years
Land No depreciation No depreciation
Depreciable Assets Charge to depreciation expense The current depreciation is charge to
(Increase /useful life) P/L statement while previous
depreciation is charge to RE
Inventory Expensed if inventory is sold Expensed if inventory is sold
Goodwill Subject for impairment loss, except if Current impairment is charge to P/L
SME, amortized to a reliable life or statement while previous
10 years (PFRS) impairment is charge to RE
Premium on Bond Amortization reduces interest Current amortization reduces
expense interest expense while previous
amortization is charge to RE
Discount on Bonds Amortization increases interest Current amortization increases
expense interest expense while previous
amortization is charge to RE
Straight Problem 1
PAL Company obtains 100% of the stock of Cebu Pacific Corporation on January 1, 2014, for P3,800 cash. As of that date
Cebu Pacific has the following trial balance:

Debits Credits
Cash P500
Accounts receivable 600
Inventory 800
Equipment (net -2yrs.) 1,000
Buildings (net -5 yrs.) 1,500
Land 900
Accounts payable P400
Long-term liabilities (due2022) 1,800
Ordinary stocks, P10 par 1,000
Share premium 600
Retained earnings 1,500
Total 5,300 5,300

Net income and dividends reported by Cebu Pacific for 2014 and 2015 follows:
2014 2015
Net Income 100 120
Dividends 30 40
The fair value of Cebu Pacifics net assets that differ from their book values:
Fair Value
Inventory P 900
Buildings 1,200
Equipment 1,250
Land 1,300
Long-Term liabilities 1,700
1. Compute for the consideration transferred in excess of book value at January 1, 2014.
2. Compute for goodwill, if any, at January 01, 2014.
3. Compute the amount of Cebu Pacifics building that would be reported on a December 31, 2014, consolidated
financial Position.
4. Compute for the amount of Cebu Pacifics equipment that would be reported on a December 31, 2014, consolidated
financial position.
5. Compute the amount of cebu pacifics equipment that would be reported on a December 31, 2014 consolidated
financial position.
6. Compute the amount of cebu pacifics land that would be reported on a December 31, 2014 consolidated financial
position
7. Compute for the amount of cebu pacifics long-term liabilities that would be reported on a December 31, 2014
consolidated fincnaial position.
8. Compute amount of cebu pacifics building that would be reported ojn December 31,. 2015 consolidated finajcial
position
9. Compute the amount of cebu pacifics equipment that would be reported on a December 31, 2015 consolidtaed
financial position

BUSINESS COMBINATION 7
 10. Compute the amount of cebu pacifics land that would be reported on a December 31, 2015 consolidated fincial
position
11. Compute the amount of cebu pacifics long-term liabilities on a December 31, 2015 consolidated financial position

Problem 2. COMPUTATION OF CONSOLIDATED NET INCOME

On January 1, 2014, Lao Corporation pay's P388,000 for a 60 percent ownership in Borje Corporation. Annual excess fair value
amortization of P15,000 results from the acquisition On December 31, 2015. Lao reports revenues of P400,000 and expenses of P300,000
and Borje reports revenues of P700,000 and expenses of P400.000. The parent figures contain no income from the subsidiary. What is
the consolidated net income attributable to the controlling interest / profit attributable to equity holders of parent?

Next Questions are based on the following information

On January' 1, 2014 Parent Company purchased 80% of the common stock of Subsidiary Company for P316,000. On this date Subsidiary
Company had common stock, other paid-in capital, and retained earnings of P40,000, P 120,000, and P 190,000, respectively. Parent
Company's common stock amounted to P500,000 and retained earnings of P200,000. On January 1, 2014, the only tangible assets of
Subsidiary' that were undervalued were inventory and building Inventory, for which FIFO is used was worth P5 ,000 more than cost. The
inventory was sold in 2014. Building, which was worth P15,000 more than book value has a remaining life of 8 years, and straight-line
depreciation is used. Any remaining excess is hill-goodwill with an impairment for 2014 amounting to P3,000. Subsidiary Company
reported net income of P50,000 and paid dividends of P10,000 in 2014, while the parent's reported net income amounted to PI00,000
and paid Dividends of P20,000.
1. Determine the Consolidated Net Income Attributable to Controlling Interest / Profit Attributable to Equity Holders of Parent
2. Compute the consolidated net income attributable to controlling interest/profit attributable to equity holder of parent
3. Compute the non-controlling in net income / CNI attributable to Non-controlling interest
4. Compute the equity nholder of parent- retained earnings / controlling interest in the consolidated retained earnings
5. Compute the consolidated/ group retained earnings on full goodwill approach

INTERCOMPANY TRANSACTIONS

1. Intercompany sale Land

A. During 2015 Piolo company sold land with a cost of P150,000 to its 80% owned subsidiary, Sarah G Company, for P200,000. The
subsidiary sold the land in 2017 to an outsider for P280,000. The parent and the subsidiary reported net income as follows:
Piolo Sarah G
2015 P351,000 P154,000
2016 335,000 149,000
2017 315,000 165,000
The reported net income of the parent company includes P51,000 of dividend income each year.
Required:
1. Compute Piolo Companys investment income from Sarah G Company in 2015, 2016, and 2017.
2. Elimination entries for 2015, 2016, and 2017
3. Determine non-controlling interest in the net income of the subsidiary in 2015, 2016, and 2017.
4. Show the consolidated net income for 2015, 2016, and 2017. Allocate each to Controlling and non-controlling interests.
B. During 2015 Sarah G company sold land with a cost of P150,000 to its Piolo Company for P200,000. The parent sold the land in
2017 to an outsider for P280,000. The parent interest in subsidiary is 80%. The parent and the subsidiary reported net income as
follows:
Piolo Sarah G
2015 P351,000 P154,000
2016 335,000 149,000
2017 315,000 165,000
The reported net income of the parent company includes P51,000 of dividend income each year.
Required:
5. Compute Piolo Companys investment income from Sarah G Company in 2015, 2016, and 2017.
6. Elimination entries for 2015, 2016, and 2017
7. Determine non-controlling interest in the net income of the subsidiary in 2015, 2016, and 2017.
8. Show the consolidated net income for 2015, 2016, and 2017. Allocate each to Controlling and non-controlling interests.
2. Intercompany sale Depreciable Assets
A. On January 01, 2014, WW Corporation sold to LL Corporation equipment it had purchased for P150,000 and used for 8
years. WW recorded a gain of P14,000 on the sale. The equipment has total useful life of P15 years and its depreciated on
straight line basis. WW holds 70 % of LLs voting shares.
Required:
1. Give the journal entry made by WW on January 1, 2014, to record the sale of equipment.
2. Give the journal entry made by LL during to 2014 to record the purchase of equipment and year-end depreciation
expense

BUSINESS COMBINATION 8
 3. Give the eliminating entries related to the intercompany sale of equipment needed on December 31, 2014, to
prepare full set of consolidated financial statements
4. Give the eliminating entries related to equipment required at January 01, 2014, to prepare a consolidated financial
position only.
B. On January 01, 2014, LL Corporation sold to WW Corporation equipment it had purchased for P150,000 and used for 8
years. LL recorded a gain of P14,000 on the sale. The equipment has total useful life of P15 years and its depreciated on
straight line basis. WW holds 70 % of LLs voting ordinary shares.
Required:
5. Give the journal entry made by WW on January 1, 2014, to record the sale of equipment.
6. Give the journal entry made by LL during to 2014 to record the purchase of equipment and year-end depreciation
expense
7. Give the eliminating entries related to the intercompany sale of equipment needed on December 31, 2014, to
prepare full set of consolidated financial statements
8. Give the eliminating entries related to equipment required at January 01, 2014, to prepare a consolidated financial
position only.
3. Intercompany sale Inventory
A. Par corporation acquired 80% of the outstanding voting share of Sub Company on January 01, 2014, for P240,000 in cash
and other consideration. At the acquisition date, Par assessed Subs assets and liabilities at a collective net fair value of
P525,000 and the fair value of the 20% Non-controlling interest was P105,000. No excess par value over book value
amortization accompanied the acquisition.
The following selected account balances are from the individual financial records of these two companies as of December
31, 2015:
Par Sub
Sales P 640,000 P 360,000
Cost of Goods sold 290,000 197,000
Operating expenses 150,000 105,000
Retained Earnings, 01/01,2015 740,000 180,000
Inventory 346,000 110,000
Buildings (net) 358,000 157,000
Investment income Not Given 0
1. Assume that Par sells Sub inventory at a Mark-up equal to 40% of cost. Intercompany transfer were P90,000 in 2014 and
P110,000 in 2015. Of this inventory, Sub retained and sold P28,000 of the 2014 and held 42,000 of the 2015 transfers until 2016.
Required: Consolidated financial statements for 2015, determine the balances that would appear for the following accounts:
a. Cost of good sold
b. Inventory
c. Controlling interest in Consolidated net income
d. Non-controlling interest in subs net income
2. Assume that Sub sells inventory to Par at a mark up equal to 40% of cost. Intercompany transfers were P50,000 in 2014 and
P80,000 in P2015. Of this inventory, P21,000 of the 2014 transfer were retained and then sold by Par in 2015, whereas P35,000
of the 2015 transfer were held until 2016. On consolidated financial statements for 2015, determine the balances that would
appear for the following accounts:
a. Cost of goods sold
b. Inventory
c. Controlling interest in consolidated net income
d. Non- Controlling interest in Subs Net income
e. Consolidated net income
B. Pine Company Owns an 80% interest in Salad Company and 90% interest in Tuna Company. During 2013 and 2014, all three
companies made intercompany sales of merchandise. Total sales amounted P2,400,000 in 2013 and P2,700,000 in 2014.
The company sold their merchandise at the following percentage above cost.
Pine 15% Salad 20% Tuna 25%
The amount of merchandise remaining in the 2014beginning and ending inventories of the companies from these
Intercompany sales is shown below:
Merchandise remaining in beginning Inventory
SOLD BY Pine Salad Tuna Total
Pine P P 225,000 P 189,000 P 414,000
Salad 180,000 216,000 396,000
Tuna 180,000 135,000 315,000
Merchandise Remaining in Ending Inventory
SOLD BY Pine Salad Tuna Total
Pine P P 207,000 P 138,000 P 345,000
Salad 144,000 198,000 342,000
Tuna 195,000 150,000 345,000
Reported net income (from independent operations including sales to affiliates) of Pine, Salad, and Tuna for 2014 were
P3,600,000, P1,500,000, and P2,400,000, respectively.
Required:

BUSINESS COMBINATION 9
1. Calculate the amount non controlling interest to be deducted from consolidated income in the consolidated income
statement for 2014.
2. Calculate the controlling interest in consolidated net income for 2014.

BUSINESS COMBINATION 10