Partial Goodwill Full Goodwil

Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)]
Cash
Common Stock
Other Contributed Capital (P40 - P2) 15,000
Other Contributed Capital
Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable
3,100,000
2,500,000
30,000
570,000
30,000
67,000
90,000
7,000
Problem II
Cash: P74,000 = P44,000 + P30,000
Accounts receivable: P155,000 = P110,000 + P45,000
Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 P70,000)]
Land: P125,000 = [P80,000 + P25,000 + (P45,000 P25,000)]
Buildings and equipment: P900,000 = P500,000 + P400,000
Accumulated depreciation: P388,000 = P223,000 + P165,000
Goodwill (full-goodwill) = P40,000*
Total Assets = P1,121,000 = (P74,000 + P155,000 + P215,000 + P125,000 +
P900,000 P388,000 + P40,000, or:
Total Assets of Power Corp.
P 791,500
Less: Investment in Silk Corp.
(150,500)
P 641,000
Book value of assets of Silk Corp.
405,000
Book value reported by Power and
Silk
P1,046,000
Increase in inventory (P85,000 15,000
P70,000)
Increase in land (P45,000 - P25,000)
20,000
Goodwill
40,000
Total assets reported (based on fullgoodwill)
P1,121,000
Accounts payable: P89,500 = P61,500 + P28,000
Taxes payable P132,000 = P95,000 + P37,000
Bonds payable: P480,000 = P280,000 + P200,000
Total liabilities: P701,500 = P89,500 + P132,000 + P480,000
Common stock: P150,000, parent only
Retained earnings: P205,000, the amount reported by parent
Non-controlling interest (full-goodwill): P64,500*
Stockholders equity: P419,500
Consolidated SHE:
Common stock
P150,000
Retained Earnings
205,000
Parents SHE or Equity Attributable to Parent
P355,000
NCI (full-goodwill)
64,500
Consolidated SHE
P419,500
Computation of Goodwill:
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%..........................................................
FV of NCI (partial)..P 52,500
or,
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Inventory (P15,000 x 70%)
Land (P20,000 x 70%)
Goodwill partial
30%
P150,500
__98,000
P 52,500
P
10,500
14,000
24,500
P 28,000
If partial-goodwill:
Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 +
P900,000 P388,000 + P28,000,
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%

Consolidated SHE:
Common stock
Retained Earnings
NCI (partial-goodwill)
Consolidated SHE
Problem III
1.
A.
Investment in Sewell
Cash
B.
C.
2.
675,000
Cash
675,000
Cash
318,000
P150,000
205,000
P355,000
52,500
P404,500
675,000
675,000
318,000
A.
Less: BV of SHE of S (P450,000 + P180,000 +
P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full
B.
Partial Goodwill
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)
x 90%
Allocated excess
Inventory (P30,000 P20,000) x 90%
Land (P50,000 P70,000) x 90%
Goodwill partial
Full-Goodwill
P675,000
705,000
P( 30,000)
(P10,000)
__20,000
__10,000
(P 40,000)
P675,000
634,500
P 40,500
(P9,000)
__18,000
__9,000
P 31,500
Consideration transferred (P675,000/90%)

Less: BV of SHE of S (P450,000 + P180,000 +
P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Goodwill full
C.
Partial Goodwill
x 80%
Allocated excess
Inventory (P30,000 P20,000) x 80%
Land (P50,000 P70,000) x 80%
Bargain Purchase Gain partial (parent only)
P750,000
705,000
P 45,000
(P10,000)
__20,000
P318,000
624,000
(P306,000)
(P 8,000)
__16,000
__8,000
(P314,000)
Full-Goodwill
FV of NCI*
x 100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI
3.
A.
B.
Common Stock Sewell

Other Contributed Capital Sewell
Retained Earnings Sewell
Land
Inventory
Retained earnings (gain) Parent (since
balance sheet accounts are being
examined)
450,000
180,000
75,000
20,000
Partial-Goodwill (Proportionate Basis)

Common Stock Sewell
450,000
180,000
75,000
Land
20,000
Goodwill
31,500
Inventory
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
450,000
__10,000
P 35,000
P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
__20,000
P780,000
_10,000
(P314,000)
10,000
P790,000
20%
P158,000
10,000
675,000
40,000
10,000
675,000
71,500

180,000
75,000
Land
20,000
Goodwill
35,000
Inventory
BV SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
NCI on Full-Goodwill
(P35,000 P31,500)
3,500
FV of NCI (full)
P 75,000
C.
Partial-Goodwill (Proportionate Basis)

Common Stock Sewell
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (full)
P158,000
10,000
675,000
75,000
10,000
318,000
314,000
158,000
10,000
318,000
314,000
158,000
Problem IV
1.
January 1, 20x4
Investment in S Company
408,000
408,000
Cash..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 100%)
..
Paid-in capital in excess of par (P24,000 x
100%)...
Retained earnings (P96,000 x 100%)
...
Allocated excess (excess of cost over book value)
Less: Over/under valuation of assets and liabilities:

Increase in inventory (P18,000 x 100%)
..
Increase in land (P72,000 x 100%)
Decrease in buildings and equipment

(P12,000 x 100%)
...
Increase in bonds payable (P42,000 x 100%)
..
Positive excess: Goodwill (excess of cost over fair
value)
..
P 408,000
P 240,000
24,000
96,000
360,000
P
48,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 12,000
3.
(E1) Common stock S Co.
Additional paid-in capital S Co.
Retained earnings S Co...
Investment in S Co
240,000
24,000
96.000
360,000
Eliminate investment against stockholders equity of S Co.
(E2)
Inventory.
18,000
72,000
Land.
Goodwill.
Buildings and
equipment..
Premium on bonds
payable
Investment in S Co..
12,000
12,000
42,000
48,000
Eliminate investment against allocated excess.
4.
Eliminations
Assets
Cash*.
Accounts receivable..
P Co.
P
12,000
S Co.
P
60,000
Dr.
90,000
60,000
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Goodwill
Investment in S Co.
480,000
72,000
150,000
210,000
330,000
(2)
12,000
360,000
(2) 12,000
408,000
Consolidated
P
Inventory.
Buildings and equipment (net)
Cr.
828,000
12,000
(1) 360,000
(2) 48,000
Total Assets
Liabilities and Stockholders
Equity
Accounts payable
Bonds payable
P1,320,00
0
P600,00
0
P1,602,000
P 120,000
P120,00
0
P 240,000
240,000
120,000
360,000
Premium on bonds payable

Common stock, P10 par
(3)
Retained earnings
Total Liabilities and Stockholders
Equity
600,000
240,000
(1)
240,000
24,000
(1) 24,000
60,000
Paid in capital in excess of par.

Retained earnings
42,000
600,000

42,000
60,000
300,000
_________
P1,320,00
0
300,000
96,00
0
P600,00
0
(1) 96,000
P
462,000
__________
P
462,000
_________
P1,602,000
(1) Eliminate investment against stockholders equity of S Co.

(2) Eliminate investment against allocated excess.
* P420,000 P408,000 = P12,000.
5.
Assets
Cash
Accounts receivables
Inventories
Land
Goodwill
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity
72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000
Problem V
1.
January 1, 20x4
(1) Investment in S Company
432,000
288,000
Cash..
Common stock, P10
par..
Paid-in capital in excess of
par.
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
120,000
24,000
examined)
12,000
12,000
Cash.
Acquisition- related costs.
(3) Paid-in capital in excess of

par..
8,400
8,400
Cash.
Costs to issue and register stocks.
2.

Cash.
Common stock: 12,000 shares x P12 per
share..
..
100%)..
...
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)
Adjusted allocated excess.

..

(P12,000 x 100%)
...
..
value)
..
P 288,000
144,000
P 432,000
P 240,000
96,000
24,000
360,000
P
72,000
6,000
78,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition January 1, 20x4 (refer to previous table for details of computation)
Consideration
transferred
Less: Book value of stockholders equity of
S..
.
Less: Over/under valuation of assets and
liabilities
Positive excess: Goodwill (excess of cost over fair value)
...
Add: Existing
Goodwill
value)
P 432,000
360,000
P
72,000
36,000
36,000
6,000
3.
Eliminations
42,000
Assets
Cash*..
P Co.
P
111,600
S Co.
P
54,000
Dr.
90,000
60,000
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Goodwill
Investment in S Co.
Total Assets
Equity
Accounts payable
Bonds payable
480,000
150,000
Retained earnings
Equity
42,000
(4) 360,000
(5) 72,000
P600,00
0
P1,725,600
P 120,000
P120,00
0
P 240,000
240,000
120,000
360,000
(6)
42,000
42,000
720,000
720,000
240,000
(1)
240,000
75,600
Additional paid in capital

Retained earnings****
828,000
P1,443,60
0

Additional paid in capital***
330,000
(2) 36,000
432,000

Common stock, P10 par**..
210,000
(2)
12,000
360,000
6,000
Consolidated
P 165,600
Inventory.
Cr.
75,600
24,000
(1) 24,000
288,000
_________
P1,443,60
0
288,000
96,00
0
P600,00
0
(1) 96,000
P 486,000
__________
P
486,000
_________
P1,725,600
(1) Eliminate investment against stockholders equity of Sky Co.

* P420,000 P288,000 P12,000 P8,400 = P111,600.
* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
*** P50,000 + P20,000 P7,000 = P63,000.
****P300,000 P12,000 = P288,000.
4.
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Additional paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600
Problem VI
1.


Consideration transferred (P408,000 P6,000)
..
..
100%)...
...

..

(P12,000 x 100%)
...
..
value)
..
P 402,000
P 240,000
96,000
24,000
360,000
P
42,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P
6,000
2. Goodwill, P6,000
Problem VII
1.

Consideration transferred:
Common stock: 24,000 shares x P14 per share
Less: Book value of stockholders equity of Sky:
..
100%)...
...
Allocated excess (excess of book value over cost)

..

(P12,000 x 100%)
...
Increase in patent (P24,000 x 100%)
...
Increase in contingent liability (P18,000 x
100%).
..
Negative excess: Bargain Purchase Gain (excess of
fair value over cost)
P 336,000
P 240,000
96,000
24,000
360,000
(P 24,000)
P 18,000
72,000
( 12,000)
24,000
( 18,000)
( 42,000)
42,000
(P 66,000)
2. Gain on acquisition, P66,000

Problem VIII
Case 1:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash.......P12,000,000 (80%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 80%.................................
5,760,000 (80%)
Allocated excess.........P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 80%....................................... 1,920,000 (80%)
Positive excess: Goodwill (partial)..... P 4,320,000 (80%)
Non-controlling interest
Book Value of stockholders equity of subsidiary.
P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000)..
2,400,000
Fair value of stockholders equity of subsidiary
P 9,600,000
Multiplied by: Non-controlling interest percentage............
20%
Non-controlling Interest (partial)..
P1,920,000
Fair Value Basis (Full-goodwill Approach)

Full-goodwill
Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)
S Company: P7,200,000 x 100%..............................
7,200,000 (100%)
Allocated excess...
P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 100%.................................... 2,400,000 (100%)
Positive excess: Goodwill (full)........P 5,400,000 (100%)
The full goodwill of P5,400,000 consists of two parts:
Full-goodwill....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill... 4,320,000
NCI on full-goodwill.......P 1,080,000
Non-controlling interest (partial).......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)*...... 1,080,000
Non-controlling interest (full)........P3,000,000
* applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Case 2:
Partial-goodwill
Consideration transferred: Cash.....P 7,560,000 (60%)
S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess...... P 3,960,000 (60%)
(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial).... P 2,520,000 (60%)
Book value of stockholders equity of subsidiary. P 6,000,000
of assets and liabilities): (P8,400,000 P6,000,000). 2,400,000
Fair value of stockholders equity of subsidiary.P 8,400,000
Multiplied by: Non-controlling Interest percentage............
40%
Non-controlling interest (partial).P 3,360,000

Full-goodwill
Consideration transferred: Cash ...P 7,560,000 ( 60%)
Fair value of NCI (given)..
4,800,000 ( 40%)
Fair value of subsidiary...P12,360,000 (100%)
S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess...P 6,360,000 (100%)
(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)......P 3,960,000 (100%)
Full-goodwill...P 3,960,000
or partial-goodwill. 2,520,000
NCI on full-goodwill..P 1,440,000
Non-controlling interest (partial)P 3,360,000
(P3,960,000 P2,520,000 partial-goodwill).. 1,440,000
Non-controlling Interest (full)..P 4,800,000
Case 3;
Partial-goodwill
Consideration transferred: Cash..P 9,000,000 (75%)
S Company: P7,200,000 x 75%..........................
5,400,000 (75%)
Allocated Excess....P 3,600,000 (75%)
(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial).P 1,800,000 (75%)
Book value of stockholders equity of subsidiary..P 7,200,000
Fair value of stockholders equity of subsidiaryP 9,600,000
25%
Non-controlling interest (partial).P 2,400,000

Full-goodwill
Fair value of subsidiary. P 11,640,000 (100%)
S Company: P7,200,000 x 100%...........................
7,200,000 (100%)
Allocated Excess..P 4,440,000 (100%)
(P9,600,000 P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full).....P 2,040,000 (100%)
Full-goodwill...P 2,040,000
or partial-goodwill.... 1,800,000
NCI on full-goodwill. .P 240,000
Non-controlling interest (partial)P 2,400,000
(P2,040,000 P1,800,000 partial-goodwill)....... 240,000
Non-controlling Interest (full)..P 2,640,000

Case 4:
Partial-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%)
Fair value of Subsidiary ... P 3,240,000 (75%)
S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%)
Allocated Excess.....P 1,440,000 (75%)
[(P6,120,000 P2,280,000)
(P4,680,000 P2,280,000)] x 75%................................ 1,080,000 (75%)
Positive excess: Goodwill (partial)... P 360,000 (75%)
Book value of stockholders equity of subsidiary..P 2,400,000
Fair value of stockholders equity of subsidiaryP 3,840,000
25%
Non-controlling interest (partial)P 960,000

Full-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......
648,000 (15%)
Fair value of NCI (given). 1,080,000 (25%)
Fair value of subsidiary.P 4,320,000 (100%)
S Company: P2,400,000 x 100%........................ 2,400,000 (100%)
Allocated Excess...P 1,920,000 (100%)
(P3,840,000 P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full)...P 480,000 (100%)
The full goodwill of P480,000 consists of two parts:
Full-goodwill...P 480,000
or partial-goodwill. 360,000
NCI on full-goodwill..P 120,000
Non-controlling interest (partial)P
960,000
(P480,000 P360,000 partial-goodwill)....... 120,000
Non-controlling Interest (full)P 1,080,000
Problem IX
Partial-goodwill (Proportionate Basis)

Cash..
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x
75%.......................................
P270,000
(75%)
189,000
(75%)
Allocated
excess...
[(P612,000 P228,000) (P480,000 P228,000)
x 75%
Negative excess: Bargain purchase gain (to
controlling
interest or attributable to parent only)
.
P 81,000
(75%)
99,000
(75%)
(P18,000)
(75%)
Full-goodwill (Fair Value Basis)

Cash..
Fair value of non-controlling interest (given)
Fair value of subsidiary
Less: Book value of stockholders equity

(net assets) S Company:
(P480,000 P228,000) x
100%.....................................
Allocated
excess...
[(P612,000 P228,000) (P480,000 P228,000)
x 100%
Negative excess: Bargain purchase gain (to
controlling
.
P270,000
( 75%)
98,400
( 25%)
P368,400
(100%)
252,000
(100%)
P116,400
(100%)
132,000
(100%)
(P15,600)
(100%)
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration
transferred..
.
80%)....
....
..

.
(P12,000 x 80%)
.....
.
Positive excess: Partial-goodwill (excess of cost over
fair value)
...
P 360,000
P 192,000
76,800
19,200
288,000
P
72,000
P 14,400
57,600
(
9,600)
( 33,600)
28,800
P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sky Co.
Book
value
Inventory.
..
Sky Co.
Fair
value
Over/ Under
Valuation
72,000
90,000
18,000
48,000
120,000
72,000
360,000
348,000
( 12,000)
Bonds payable
(120,000)
(162,000)
42,000
Net..
360,000
396,000
36,000
Land
Buildings and equipment
(net).........
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co.
Book value
Buildings and
equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Sky Co.
Fair value
(Decrease)
720,000
348,000
( 372,000)
360,000
( 360,000)
360,000
348,000
12,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky
Company
360,000
360,000
Cash..
Acquisition of Sky Company.
examined)
14,400
14,400
Cash.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock Sky
Co.
Additional paid-in capital Sky
Co.
Retained earnings Sky
Co...
Investment in Sky
Co
Non-controlling interest (P300,000 x 20%)
..
240,000
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2)
Inventory.
Accumulated depreciation.
18,000
360,000
72,000
Land.
Goodwill.
Buildings and
equipment..
Premium on bonds
payable
..
Investment in Sky
Co..
43,200
372,000
42,000
7,200
72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:

80%-Owned Subsidiary (Partial-goodwill)
Eliminations
Assets
Peer Co.
P
45,600
Sky Co.
P
60,000
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Cash*.

Goodwill
Investment in Sky Co.
960,000
Accounts payable
120,000
P360,00
0
120,00
0
Bonds payable
240,000
120,000
43,200
(2)
360,000
480,000
240,000
360,000
(3)
42,000
600,000
42,000
600,000
240,000
(1)
240,000
24,000
(1) 24,000
60,000

Equity
1,308,000
P 2,146,800
Retained earnings
330,000
(1) 288,000
(2) 72,000
P
480,000
Retained earnings**
210,000
(2)
372,000
360,000
Accumulated depreciation
Consolidated
P
105,600
(2) 43,200
P960,00
0
Cr.
150,000
720,000
P1,785,60
0
Total Assets
Equity
Dr.
60,000
285,600
285,600
96,00
0
_________
P1,785,60
0
_______
P960,00
0
(1) 96,000
_________
P 853,200
(1 ) 72,000
(2) 7,200
P
853,200
_79,200
P2,146,800

* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.
Incidentally, the non-controlling interest on the date of acquisition is computed as

follows:
P 240,000
Common stock Sky company
24,000
Paid-in capital in excess of par Sky co
Retained earnings Sky Co...
Book value of stockholders equity Sky Co....
of assets and liabilities).
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)..
80,000
P 360,000
36,000
P 396,000
20
P 79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Total Stockholders Equity (Total Equity)
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P
1,024,800
P1,666,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Consideration transferred (P360,000 / 80%)
..
.
100%)..
....
..
P 450,000
P 240,000
96,000
24,000
360,000
P
90,000


.
(P12,000 x 100%)
.....
.
Positive excess: Full -goodwill (excess of cost over
fair value)
...
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P 54,000
January 1, 20x4
(1) Investment in Sky
Company
360,000
360,000
Cash..
Acquisition of Sky Company.

examined)
14,400
14,400
Cash.
240,000
(E1) Common stock Sky
Co.
Additional paid-in capital Sky
Co.
Retained earnings Sky
Co...
Investment in Sky
Co
..
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2)
Inventory.
Accumulated depreciation.
Land.
Goodwill.
Buildings and
equipment..
Premium on bonds
payable
Non-controlling interest [(P30,000 x 20%) +
(P45,000 P36,000)]
.
Investment in Sky
Co..
18,000
360,000
72,000
54,000
372,000
42,000
18,000
72,000

80%-Owned Subsidiary (Full-goodwill)
Eliminations
Assets
Peer Co.
P
45,600
Sky Co.
P
60,000
90,000
60,000
Inventory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Cash*.
960,000
Goodwill
Investment in Sky Co.
Dr.
Cr.
Consolidated
P
105,600
150,000
210,000
330,000
(2)
372,000
720,000
1,308,000
(2) 54,000
360,000
P1,785,60
0
P960,00
0
P
480,000
Accounts payable
120,000
P360,00
0
120,00
0
Bonds payable
240,000
120,000
Total Assets
Equity
54,000
(1)
288,000
(2)
72,000
P 2,157,600
(2)
360,000
480,000
240,000
360,000
(2) 42,000
600,000

42,000
600,000
240,000
(1)
240,000
24,000
(1) 24,000
60,000

60,000
285,600
Retained earnings**
285,600
96,00
0
Retained earnings
_________

Equity
P1,785,60
0
_______
P960,00
0
(1) 96,000
_________
(1 )
72,000 (2)
18,000
P 864,000
P
864,000
_90,000
P2,157,600

* P420,000 P360,000 P14,400 = P45,600.
**P300,000 P14,400 = P285,600.

follows:
Add: Non-controlling interest (P54,000, full P43,200, partial).
Non-controlling interest (full).
The balance sheet;

Peer Company and Subsidiary
79,200
10,800
P 90,000
Consolidated Balance Sheet

January 1, 20x4
Assets
Cash
Inventories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P
1,035,600
P1,677,600
Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Common stock: 12,000 shares x P25 per
share...
.
80%)...
....


.
Increase in buildings and equipment
(P150,000 x 80%)
......
Increase in copyrights (P60,000 x 80%)
..
Increase in contingent liabilities estimated
liability for contingencies (P6,000 x 80%)
.....
Negative excess: Bargain purchase gain to
controlling
..
P 300,000
9,600
86,400
57,600
153,600
P 146,400
4,800
28,800
120,000
48,000
4,800)
The over/under valuation of assets and liabilities are summarized as follows:
196,800
(P 50,400)
S Co.
Book value
Inventory.
...
Land
.
(net).........
Copyright..
Estimated liability for
contingencies..
Net
undervaluation.
S Co.
Fair value
60,000
Over/Under
Valuation
66,000
6,000
48,000
84,000
36,000
222,000
372,000
150,000
-0-
60,000
60,000
0
P 330,000
6,000)
P 576,000
6,000)
P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company...
Common stock, P1
par
Paid-in capital in excess of par (P300,000 P12,000 par)
..
300,000
12,000
288,000
Acquisition of S Company.
Retained earnings S Co
Investment in S Co
..
12,000
108,000
72,000
153,600
38,400
Eliminate investment against stockholders equity of S Co
(E2)
Inventory..
6,000
36,000
Land..
Buildings and
equipment
150,000
60,000
Copyright....
contingencies..
Investment in S Co...
.
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are
being
6,000
146,400
49,200
50,400
examined).............................................................................

80%-Owned Subsidiary (Proportionate Basis)
Eliminations
Assets
P Co.
P
334,800
Cash
86,400
Inventory.
Land
Buildings and equipment (net).
Copyright...
Total Assets
Equity
Dr.
Cr.
Consolidated
P
P
24,000
334,800
110,400
96,000
60,000
(2)
6,000
162,000
120,000
744,00
0
48,000
222,00
0
(2) 36,000
204,000
(2) 150,000
1,116,000
(2) 60,000
300,000
__________ _________
P1,681,20
0
354,000
P
96,000
42,000
Accounts payable
contingencies
60,000
(1)
153,600
(2)
146,400
P1,987,200
P 138,000
(2)
6,000
Bonds payable
240,000
Common stock, P1 par*..
6,000
120,000
360,000
44,160

Paid-in capital in excess of
par**
44,160
12,000
(1) 12,000
108,000
(1) (1)
108,00
0
723,840

Retained earnings
723,840
(2)
50,400
577,200
Retained earnings
Equity
S Co.
72,000
_________
P1,681,20
0
_______
P354,00
0
627,600
(1) 72,000
_________
P
444,000
(1 ) 38,400
(2) 49,200
P
444,000
_87,600
P1,987,200
(1) Eliminate investment against stockholders equity of Scud Co.

* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.

follows:
P 12,000
Common stock S Co.
108,000
Paid-in capital in excess of par S Co..
Book value of stockholders equity S Co.
of assets and liabilities).
Multiplied by: Non-controlling Interest percentage...
The balance sheet:
72,000
P 192,000
246,000
P 438,000
20
P 87,600
Assets
Cash
Inventories
Land
Copyright
Total Assets
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
627,600
P1,395,600
87,600
P1,483,200
P1,987,200
Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Common stock: 12,000 x P25 (80%)
Fair value of NCI (given) (20%)

.
Fair value of subsidiary (100%)
.
.
100%).
...

Increase in buildings and equipment

(P150,000 x 100%)
....
Increase in copyrights (P60,000 x 100%)
Increase in contingent liabilities estimated

liability for contingencies (P6,000 x 100%)
..
Negative excess: Bargain purchase gain to
controlling
..
300,000
90,000
390,000
P 12,000
108,000
72,000
192,000
P 198,000
6,000
36,000
150,000
6,000
6,000)
246,000
(P 48,000)
January 1, 20x4
(1) Investment in S Company...
Common stock, P1
par
300,000
12,000
Paid-in capital in excess of par (P300,000 P12,000 par)
288,000
..
Acquisition of S Company.
Investment in S Co
..
Eliminate investment against stockholders equity of S Co
12,000
108,000
72,000
153,600
38,400
(E2)
Inventory..
6,000
36,000
Land..
Buildings and
equipment
150,000
60,000
Copyright....
contingencies..
Investment in S Co...
Non-controlling interest (P90,000 given P38,400)
Retained earnings (bargain purchase gain - closed to

retained earnings since only balance sheets are
being
6,000
146,400
51,600
48,000
examined).............................................................................

80%-Owned Subsidiary (Fair Value Basis)
Eliminations
Assets
Cash
Inventory.
Land
Buildings and equipment (net).
Copyright...
Total Assets
Equity
Accounts payable
contingencies
Bonds payable
Common stock, P1 par*..
P Co.
P
334,800
86,400
S Co.
Dr.
Cr.
Consolidated
P
P
24,000
334,800
110,400
96,000
60,000
(2)
6,000
162,000
120,000
744,00
0
48,000
222,00
0
(2) 36,000
204,000
(2) 150,000
1,116,000
(2) 60,000
300,000
__________ _________
P1,681,20
0
P354,00
0
P
96,000
42,000
60,000
(1)
153,600
(2)
146,400
P1,987,200
P 138,000
(2)
6,000
240,000
44,160
120,000
6,000
360,000
44,160

Paid-in capital in excess of par**
(2) 12,000
108,000
(2) (1)
108,00
0
723,840

Retained earnings
723,840
577,200
Retained earnings
_________
Total Liabilities and
Stockholders
Equity
12,000
P1,681,20
0
72,000
(1) 72,000
_______
_________
P354,00
0
P
444,000
(2)
48,000
625,200
(1 ) 38,400
(2) 51,600
_90,000
P
444,000
P1,987,200
(1) Eliminate investment against stockholders equity of Scud Co.

* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 P1)] = P723,840.
The balance sheet:
Assets
Cash
Inventories
Land
Copyright
Total Assets
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Problem XII
1 Inventory
.
2 Land
.
3 Buildings and Equipment
.
4 Goodwill
.
Fair value of consideration given
Less; Book value of SHE
Allocated excess:
Increase / decrease in fair value (Fair value
increment) for:
Inventory
Land
Goodwill
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
652,200
P1,393,200
90,000
P1,483,200
P1,987,200
P 140,000
P 60,000
P 550,000
P 576,000
450,000
P126,000
P 20,000
(10,000)
70,000
80,000
P 46,000
5
.
Investment in AA Corporation: Nothing would be reported; the balance in the

investment account is eliminated.
Problem XIII
1. Inventories (P110,000 + P180,000 P10,000) = P280,000
2. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
3. Investment in DD stock will be fully eliminated and will not appear in the consolidated
balance sheet

Less: BV of SHE of DD (P100,000 + P200,000
P40,000)
Allocated excess
Less: Over/under valuation of A and L: Inc
(Decrease)
Inventory
P280,000
260,000
P 20,000
(P
10,000)
25,000
15,000
5,000
30,000
P 35,000
P
Add: Existing goodwill (to be eliminated

Goodwill to be reported
or, (Approach used in business combination statutory merger/consolidation)

Fair value of consideration given
P280,000
Fair value of Decibel's net assets:
Cash and receivables
P 40,000
Inventory
170,000
375,000
Accounts payable
(90,000)
Notes payable
(250,000)
Fair value of net identifiable
assets
(245,000)
Goodwill to be reported
P 35,000
Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the
computation of Decibel's net identifiable assets at the date of acquisition.
5. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)

6. Retained earnings, P`05,000 (parent only, SHE of subsidiary is eliminated)
Problem XIV
1 Inventory (P120,000 + P20,000)
.
2 Land (P70,000 P10,000)
.
3 Buildings and Equipment (P480,000 + P70,000)
.
4.
Full-Goodwill, P57,500
Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Inventory
Land
Goodwill full
or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slims net assets
P140,000
P 60,000
550,000
P470,000
117,500
P 20,000
(10,000)
70,000
P587,500
450,000
P137,500
80,000
P 57,500
P470,000
117,500
P587,500
P450,000
Fair value increment for:

Inventory
Land
Fair value of identifiable net assets
Goodwill - full
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill partial
5
.
20,000
(10,000)
70,000
(530,000)
P 57,500
P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000
64,000
P 46,000
Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)
P117,500
6
.
or,
BV SHE of SS
P450,000
Adjustments to reflect fair value (P20,000 P10,000 +P 70,000)
80,000
FV of SHE of SS
P530,000
Multiplied by: NCI %
20%
NCI partial goodwill
P106,000
Add: NCI on full-goodwill (P57,500 P46,000)
11,500
NCI full goodwill
P117,500
Problem XV
(Overview of the steps in applying the acquisition method when shares have been issued to
create a combination No. 8 includes a bargain purchase.)
1. The fair value of the consideration includes
Fair value of stock issued
P1,500,000
Contingent performance obligation
30,000
Fair value of consideration transferred
P1,530,000
2. Under the acquisition method, stock issue costs reduce additional paid-in capital.
3. The acquisition method records direct costs such as fees paid to investment banks
for arranging the combination as expenses.
4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in
the Common Stock account. The P74 fair value in excess of par value (P75 P1) is
an increase to additional paid-in capital of P1,480,000 (P74 20,000 shares).
5. Fair value of consideration transferred (above)
P1,530,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Goodwill
P 350,000
6. Revenues and expenses of the subsidiary from the period prior to the combination
are omitted from the consolidated totals. Only the operational figures for the
subsidiary after the purchase are applicable to the business combination. The
previous owners earned any previous profits.
7. The subsidiarys Common Stock and Additional Paid-in Capital accounts have no
impact on the consolidated totals.
8. The fair value of the consideration transferred is now P1,030,000. This amount
indicates a bargain purchase:
Fair value of consideration transferred (above)
P1,030,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
Gain on bargain purchase
(400,000)
1,180,000
P 150,000
Problem XVI
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated
(there are a limited number of exceptions). Goodwill is reported as P80,000, the amount that
the P760,000 consideration transferred exceeds the P680,000 fair value of SSs net assets
acquired.
1.
2.
3.
4.
5.
6.
Inventory = P670,000 (P's book value plus Sun's fair value)

Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related
costs are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem XVII
1. A total of P210,000 (P120,000 + P90,000) should be reported.
2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of
SS. The amount paid was P30,000 greater than the book value of the net assets of SS and
is reported as goodwill in the consolidated balance sheet at January 1, 20X5.
3. In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to
SS for P25,000 (P10,000 + P15,000).
4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
5. The par value of B's stock outstanding is P100,000.
Problem XVIII
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XIX
1. The investment balance reported by Roof will be P192,000.
2. Total assets will increase by P310,000.
3. Total liabilities will increase by P95,000.
4. The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
5. Non-controlling interest will be reported at P48,000 (P240,000 x .20).
Problem XX
1. P57,000 = (P120,000 - P25,000) x .60
2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XXI
1. Investment in Craig Company...............................................
Cash..................................................................................
950,000
950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value
Building (P700,000 fair P600,000 book value)
P950,000
720,000
P 230,000
P 50,000
100,000
Discount on bonds payable P280,000 fair

P300,000
book value)
Deferred tax liability (P40,000 fair P50,000 book
value)
Goodwill
3. Adjustments on Craig books:
Land......................................................................................
Building.................................................................................
Discount on Bonds Payable...................................................
Goodwill................................................................................
Deferred Tax Liability.............................................................
Retained Earnings.................................................................
Paid-In Capital in Excess of Par..........................................
4.
Elimination entries:
Common Stock......................................................................
Paid-In Capital in Excess of Par..............................................
Investment in Craig Company...........................................
Problem XXII
Full-Goodwill
Consideration transferred (200 shares x P25)
Less: BV of SHE of Public (P200 + P800 + P1,000)
Allocated excess
Fixed assets (P3,000 fair P2,000 book value)
Goodwill full
20,000
10,000
180,000
P 50,000
50,000
100,000
20,000
50,000
10,000
420,000
650,000
300,000
650,000
950,000
P 5,000
_2,000
P 3,000
_1,000
P2,000
or,
Consideration transferred (200 shares x P25)
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000)
Goodwill full
P 5,000
_3,000
P2,000
Note: The currently issued shares of Public Company and its fair value were used for the
following reasons (refer to Illustration 15-15 for comparison):
Total number of shares for Public Company after acquisition not given
The fair value of share of Private Company not given.
Public
Company
Private
Company
P3,000
Fair value of net assets.

Fair value of common stock per share
P25
Public
Currently issued
200
Additional shares issued
300
500
Private
60%*
*
40%
?
100
/
60%
/
40%
15,000 shares / 25,000 shares = 60%
Values are prior to acquisition (200 shares P25 market value).

Subsequent to acquisition, Private Company is the parent with 60% ownership;
prior to acquisition, Private Company has 0% ownership of Public Company.
Prior to acquisition, this represents 100% ownership of Public Company; subsequent
to acquisition, these holders of 100 shares of Public Company become the 40% NCI.
Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on

full-goodwill amounted to P800 (P2,000 P1,200 or P2,000 x 40%). This approach to
determine partial goodwill is acceptable as long as there is FV of NCI in the acquirer.
Problem XXIII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for
accounting and tax purposes for this stock acquisition.
1. Investment in Seely Company
Common Stock***
Additional Paid-in-Capital
570,000
95,000
475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of
common stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely
Other Contributed Capital Seely
Retained Earnings - Seely
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*
Investment in Seely Company
Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
80,000
132,000
160,000
52,000
25,000
71,000
20,000
127,200
67,200
570,000
30,000
Problem XXIV
HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest
that will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Medias losses are limited by contract, and (2) Hillsborough has the
right to receive the residual benefits of the sales generated on the HCO Media internet
site above P500,000, Hillsborough should consolidate HCO Media.
TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

a. The purpose of consolidated financial statements is to present the financial position
and results of operations of a group of businesses as if they were a single entity.
They are designed to provide information useful for making business and economic
decisionsespecially assessing amounts, timing, and uncertainty of prospective
cash flows. Consolidated statements also provide more complete information about
the resources, obligations, risks, and opportunities of an enterprise than separate
statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the
following conditions exist.
The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases,
if equity at risk is less than 10% of total assets, the risk is deemed insufficient.
The equity investors in the VIE lack any one of the following three characteristics of
a controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities
through voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g.,
another firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the
investors' return may be capped by the entity's governing documents or other
arrangements with variable interest holders).
Consolidation is required if a parent has a variable interest that will

Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results
of the activities of a variable interest entity is a strong indication that an enterprise
has one or both of the characteristics that would require consolidation of the
variable interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners
of the VIE
At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay
up to 85% of the project's cost. Thus, a potential 15% risk.
During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
If lease is not renewed, TPC must either purchase the facility or sell it on behalf of
the VIE with a guarantee of Investors' (debt and equity) balances representing a
risk of decline in market value of asset
Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decisionmaking ability (end of five-year lease term)
Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XXV
1. Implied valuation and excess allocation for S.
Noncontrolling interest fair value
Consideration transferred by P.
Total business fair value
Fair value of VIE net assets
Excess net asset value fair value
P 60,000
20,000
80,000
100,000
P20,000
The P20,000 excess net asset fair value is recognized by PanTech as a bargain
purchase. All SoftPlus assets and liabilities are recognized at their individual fair
values.
Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase
2.
Implied valuation and excess valuation for Softplus.

Noncontrolling interest fair value
Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill
P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
-060,000
20,000
80,000
60,000
P20,000
When the business fair value of a VIE (that is a business) is greater than assessed
asset values, all identifiable assets and liabilities are reported at fair values (unless a
previously held interest) and the difference is treated as a goodwill.
Cash
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
Noncontrolling interest
(60,000)
Pantech equity interest
(20,000)
-0Multiple Choice Problem
1. c
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]

3. d
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
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
(440,000)
P 838,000
Book value of assets of S Corp.
542,000
Book value reported by P and S
P1,380,00
0
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
110,00
P60,000)]
0
Goodwill (full)*
26,667
Total assets reported
P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
Total Assets of P.
Less: Investment in S Corp.
Book value of assets of S Corp.
9.
10
.

Increase in land (P60,000 P32,000)
P60,000)]
Goodwill (partial)*
*[P440,000 (P702,000 P142,000) x 75%]
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
d
a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Land (P20,000 x 70%)
Goodwill partial
11.
P1,278,000
(440,000)
P 838,000
542,000
P1,380,00
0
22,000
28,000
110,00
0
20,000
P1,540,000
Full-goodwill:
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
P150,500
__98,000
P 52,500
P
10,500
14,000
P150,500
**64,500
24,500
P 28,000
P215,000
140,000
P 75,000
Inventory (P70,000 P85,000) x 100%

Land (P25,000 P45,000) x 100%
Goodwill full
P 15,000
20,000
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:
35,000
FV of SHE of SS
P 175,000
30%
12. b
Silk
Increase in inventory (P85,000 - P70,000)
Goodwill (full)
Silk
Increase in inventory (P85,000 - P70,000)
Goodwill (partial)
13
.
14.
P701,500
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
28,000
P1,109,000
= (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)

NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
15
.
d
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
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
.
P419,500
= (P150,000 + P205,000) + P64,500
Consolidated SHE:
Common stock
Retained Earnings
NCI (partial-goodwill)
Consolidated SHE
18. b
P150,000
205,000
P355,000
52,500
P404,500
Consideration transferred .......................................................................

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
P60,000
(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
21. c
22. d
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
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
25. b
13,000
26. c
Add the two book values and include 90% (the P54,000 noncurrent portion) of the
loan taken out by Polk to acquire Strand.
Park stockholders' equity.......................................................................
P80,000
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......................................................................
P93,000
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)
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)
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 non-controlling 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.

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:
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
Less: BV of SHE of S (P400,000 x 75%)
Allocated excess
Current assets (P22,000 x 75%)
Land, buildings and equipment (P138,000 x 75%)
Goodwill partial
Full-goodwill:
Consideration transferred (P440,000 / 75%)
Less: BV of SHE of S (P400,000 x 100%)
Allocated excess
Current assets (P22,000 x 100%)
Land, buildings and equipment (P138,000 x 100%)
Goodwill full
P440,000
__300,000
P140,000
P
16,500
103,500
120,000
P 20,000
P586,667
__400,000
P186,667
P
22,000
138,000
160,000
P 26,667
35. b
36 c
Consolidated Total Assets:

Current assets (No. 32)
P 592,000
Land, buildings and equipment
[P538,000 + P272,000 + P138,000 + P26,667, full-goodwill]
974,667
P 1,566,667
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%
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
39. b
Consolidated Stockholders Equity

Parents stockholders equityP 348,333
Add: NCI (full-goodwill) (No. 36)..
146,667
P 495,000
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5)

..
APIC
Add: APIC of P
Less: Stock issuance cost
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
4,200,000
__2,500,00
0
P
1,700,000
7,500,000
___100,000
P
9,100,000
c
a
No answer available
a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000
a
c
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
b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in
PPE P300,000 P500,000) = P550,000
a
d (P1,000,000 + P250,000) = P1,250,000 P only.
d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
a P only
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
P1,035,000
19,000
21,000
120,000
P45,000)]
Goodwill (full)
_____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
55.
56.
57.
58.
b
a
a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)
P360,000
150,000
40,000
P560,000
500,000
P 60,000
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% acquisitiondate fair value and subsequently amortized its useful life.
70. a
Patent fair value at January 1, 2009........................................................

Amortization for 2 years (10 year life).....................................................
Patent reported amount December 31, 2010..........................................
PP - building............................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings .............................................................................
-ORPP - building..............................................................................................
510,000
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 .............................................................................
P45,000
(9,000)
P36,000
P510,000
210,000
P720,000
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
.
6.
11.
16.
21.
26.
31
36.
7.
12.
17.
22.
27.
32.
37.
8.
13.
18.
23.
28.
33.
38.
9.
14.
19.
24.
29.
34.
39.
10,
15,
20.
25.
30.
35.
40.
c
c
c
c
c
46
.
47
.
48
.
49
.
50
,
b
a
c
d
b
51
.
52
.
53
.
54
.
55
,
c
b
a
a
c
56
.
57
.
58
.
59
.
60
.

Partial Goodwill Full Goodwil

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Partial Goodwill Full Goodwil

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Chapter 15

Stockholders equity: P419,500

Consideration transferred (P675,000/90%)

Common Stock Sewell

Partial-Goodwill (Proportionate Basis)

Other Contributed Capital Sewell

Partial-Goodwill (Proportionate Basis)

Less: Over/under valuation of assets and liabilities:

Decrease in buildings and equipment

Eliminate investment against stockholders equity of S Co.

Eliminate investment against allocated excess.

Buildings and equipment (net)

Premium on bonds payable

Paid in capital in excess of par.

Common stock, P10 par

(1) Eliminate investment against stockholders equity of S Co.

(3) Paid-in capital in excess of

Schedule of Determination and Allocation of Excess

Add: Existing Goodwill of Sky Co. (P6,000 x 100%)

Adjusted allocated excess.

Decrease in buildings and equipment

Additional paid in capital

Common stock, P10 par

Premium on bonds payable

Buildings and equipment (net)

(1) Eliminate investment against stockholders equity of Sky Co.

Schedule of Determination and Allocation of Excess

Fair value of Subsidiary (100%)

Less: Over/under valuation of assets and liabilities:

Decrease in buildings and equipment

Fair value of Subsidiary (100%)

Less: Over/under valuation of assets and liabilities:

Decrease in buildings and equipment

2. Gain on acquisition, P66,000

Fair Value Basis (Full-goodwill Approach)

Fair Value Basis (Full-goodwill Approach)

Fair Value Basis (Full-goodwill Approach)

Non-controlling Interest (full)..P 2,640,000

Fair Value Basis (Full-goodwill Approach)

Partial-goodwill (Proportionate Basis)

Full-goodwill (Fair Value Basis)

Fair value of subsidiary

Less: Book value of stockholders equity

Increase in land (P72,000 x 80%)

The over/under valuation of assets and liabilities are summarized as follows:

Eliminate investment against stockholders equity of Sky Co.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition:

Buildings and equipment

Common stock, P10 par

Paid in capital in excess of par.

Total Liabilities and Stockholders

Premium on bonds payable

Paid in capital in excess of par.

Common stock, P10 par

(1) Eliminate investment against stockholders equity of Sky Co.

Incidentally, the non-controlling interest on the date of acquisition is computed as

The balance sheet:

Total Liabilities and Stockholders Equity

Less: Over/under valuation of assets and liabilities:

Increase in land (P72,000 x 100%)

(2) Retained earnings (acquisition-related expense - close to

Eliminate investment against stockholders equity of Sky Co.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: