MODADV2 – Lecture Cases

Consolidation

Problem 1

On January 3, 2015, Natsu Corporation purchased 80% of Dragneel Corporation’s ordinary shares for P810,000.
P37,500 of the excess is attributable to goodwill while the remaining balance is attributable to a depreciable asset
with an economic life of ten years. Non-controlling interest is measured at its fair value on date of acquisition. On
the date of acquisition, shareholders’ equity of the two corporations are as follows:

Natsu Dragneel
Ordinary shares P1,312,500 P300,000
Retained earnings 1,950,000 525,000

On December 31, 2015, Dragneel Corporation reported net income of P131,250 and paid dividends of P45,000 to
Natsu Corporation. Natsu reported earnings from its separate operations of P356,250 and paid dividends of
P172,500. Goodwill had been impaired and it was determined that goodwill should be reported at P7,500 on
December 31, 2015.

1. What is the consolidated net income attributable to parent shareholders on December 31, 2015?
2. What is the Non-controlling interest in net income of Dragneel Corporation on December 31, 2015?
3. What is the consolidated retained earnings attributable to parent’s shareholders’ equity on December 31, 2015?
4. What amount of NCI is to be presented in the consolidated statement of financial position on December 31,
2015?

Problem 2

Erza Company acquired 55% of the outstanding ordinary shares of Scarlet Company on August 1, 2015 at a total
cost of P5,050,000. At acquisition date, Scarlet Company ordinary shares and retained earnings amounted to
P200,000 and P4,800,000, respectively. All of Scarlet’s assets and liabilities had fair values equal to carrying values
as of the acquisition date except for building which had a fair value of P1,800,000 and a carrying value of P400,000.
The building has a remaining useful life of five years. For the year 2015, Scarlet had the following earnings and
dividends:

August-
January-July
December
Net income P500,000 P1,100,000
Dividends paid 300,000 1,200,000

How much is the net income attributable to the non-controlling interest for the year 2015?
Problem 3

On January 4, 2015, Gray Company acquired 80% interest in Fullbuster Company for P2,062,500 cash. On this
date, the outstanding common stock and retained earnings of Gray Company and Fullbuster Company are as
follows:

Gray Fullbuster
Common stock P1,125,000 P656,000
Share premium 750,000 -
Retained earnings 2,625,000 1,593,750

There was no issuance of capital stock during the year. Non-controlling interest is measured at its fair value. Fair
values of the following assets exceeded their carrying values as follows: Inventories, P105,000; Equipment with
useful life of ten years, P63,750. All other assets and liabilities are fairly valued. Goodwill if any is not impaired.
On December 31, 2015, the two companies reported the following operating results:

Gray Fullbuster
Net income P892,500 P487,500
Dividends paid 262,500 131,250

1. What is the consolidated net income attributable to parent on December 31, 2015?
2. What is the consolidated shareholders’ equity to be reported in the consolidated statement of financial position
on December 31, 2015?

Problem 4

Lucy Corporation acquired 80% of the outstanding common stock of Heartfilia Corporation on June 1, 2015 for
P586,250. The following information were also ascertained for the year 2015:

a. Heartfilia Corporation’s shareholders’ equity components at the end of the year include of Common stock,
P100 par, P250,000, Share premium, P112,500 and Retained earnings P222,500.
b. All of the assets of Heartfilia were fairly valued, except for inventories, which are overstated by P11,000 and
equipment, which was understated by P15,000. Remaining useful life of equipment is four years.
c. NCI is measured at fair value.
d. Goodwill, if there is any, should be written down by P14,225 at year-end.
e. Both corporations use the straight line method for depreciation and amortization purposes. Shareholders’ equity
of Lucy on January 1, 2015 is composed of Ordinary shares P750,000, APIC P175,000 and Retained earnings
P525,000.
f. Fair value of NCI on the date of acquisition is P117,500.
g. Net income for the first year of parent and subsidiary are P75,000 and P42,500, respectively from the date of
acquisition.
h. Dividends declared at the end of the year amounted to P20,000 and P15,000, respectively. During the year,
there was no issuance of new ordinary shares.

1. What is the balance of the NCI in net assets of subsidiary on December 31, 2015?
2. What is the amount of consolidated stockholders’ equity?
Problem 5

On January 4, 2015, Laxus Company purchased 80% of Dreyar Company’s P10 ordinary shares for P487,500. On
this date, the book value of Dreyar’s net assets was P500,000. The fair value of Dreyar’s identifiable assets and
liabilities were the same as their book values except for plant assets (12 years original useful life), purchased on
December 31, 2012, which were P50,000 in excess of the carrying amount. For the year ended December 31, 2015,
Dreyar’s net income amounted to P95,000 and paid cash dividends totaling P50,000 to Laxus Company.

In the December 31, 2015 consolidated statement of financial position, how much should be the non-controlling
interest?