282 Chapter 6

PROBLEMS:

PROBLEM 1: MULTIPLE CHOICE - THEORY

1. Goodwill acquired in a business combination is initially and

subsequently measured using which of the following
standards?
Initial measurement Subsequent measurement
a. PFRS 3 PFRS 10
b. PAS 36 PFRS 3
c. PFRS 3 PAS 36
d. PFRS 3 PFRS 5

2. The impairment goodwill is attributed

of to both the
controlling and non-controlling interests if
a. goodwill is measured at fair value.
b. goodwill is measured at proportionate share.
c. the amount of impairment is deemed material.
d. the non-controlling interest is measured at fair value.

3. After the acquisition date, the amount of goodwill reported in

the consolidated financial statements is

a. the excess of the sum of consideration transferred, non-

controlling interest in the acquiree and previously held

equity interest in the acquiree over the fair value of net
identifiable assets acquired.
b. the amount determined on acquisition date. less
accumulated impairment losses.
c. the amount determined on acquisition date less
accumulated amortization and impairment losses.
d. the amount determined on acquisition date plus the NCI's
share in the net change in the subsidiary's net assets minus
impairment losses.

4. A parent disposes a portion of its interest in asubsidiary. The

parent's remaining interest after the disposal still gives the
parent control over the subsidiary. How should the parent
account for the transaction?
Consolidated Financial Statements (Part 3) 283

a. As an equity transaction; no gain or loss is recognized in

the consolidated financial statements.

b. As a sale of ownership interest; any gain or loss is

attributed to the controlling interest.
c. As a sale of investment; any gain or loss is attributed to

both controlling and non-controlling interests.

d. As deconsolidation.

5. If a change in the parent's ownership interest in a subsidiary is

accounted for as an equity transaction, the difference between
the adjustment to the NCI and the fair value of the
consideration paid received is or

a. recognized directly in equity and attributed to the owners

of the parent. No gain or loss is recognized.

b. recognized directly in equity and attributed to both the
parent and NCI.
c. recognized in profit or loss and attributed to both the
parent and NCI.
d. ignored.

6. When a parent loses control subsidiary, the parent

over a

a. derecognizes the former subsidiary's net identifiable assets

from the consolidated financial statements and recognizes
gain or loss.
b. restates the prior year's
consolidated financial statements.
c. derecognizes the former subsidiary's net identifiable
assets,, recognizes the consideration transferred, and
recognizes the net adjustment directly within equity.
d. b and c

7. When control is lost, the parent derecognizes amounts

previously recognized in other comprehensive income and
transfers them

a. directly to retained earnings. c. a or b

b. to profit or-loss. d. to NCI.
284 Chapter 6

8. The consolidation theory used in current standards is the

a. Proprietary theory. c. Entity theory.
b. Parent company theory. d. Hybrid theory.

9. The consolidated financial statements prepared after a reverse

acquisition are

a. issued under the name of the legal parent (accounting

acquiree) but described in the notes continuation of
as a

the financial statements of the legal subsidiary (accounting

acquirer).
b. the exact opposites of the consolidated financial
statements for a regular acquisition.

c. presented in a reverse fashion.

d. b and c

10. The amount of issued equity instruments reported in the

consolidated financial statements after a reverse acquisition
are

a. the issued equity instruments of the legal parent before the

acquisition.
b. the issued equity instruments of the legal subsidiary
before the acquisition.
C.
the issued equity instruments of the legal subsidiary after
the acquisition.
d. the issued equity instruments of the accounting acquirer
outstanding before the business combination plus the fair
value of the consideration effectively transferred.

PROBLEM 2: MULTIPLE CHOICE – COMPUTATIONAL

Impairment of Goodwill
Use the following information for the next two questions:

On January 1, 20x1, Rooster Co. acquired 75% interest in Cockerel

Co. for P150,000. On this dąte, Cockerel's net identifiable assets
have a carrying amount of P180,000, which approximates fair
value. NCI was assigned a fair value of P55,000.
 Consolidated Financial Statements (Part 3) 285

Duting 20x1, Rooster sold goods to Cockerel for P150,000, having

bought them for P120,000. A quarter of these goods remain unsold
at year-end. During the year; goodwill was tested for impairment
and was found to be impaired by P8,000. Information at year-end
is as follows:
Rooster Co. Cockerel Co.
Revenue P1,000,000 P700,000
Cost of sales (400,000) (300,000)
Gross profit 600,000 400,000
Dividend income from Cockerel Co. 10,000
Distribution costs (200,000) (100,000)
Administrative costs (80,000) (50,000)
Profit before tax 330,000 250,000
Income tax expense (96,000) (75,000)
Profit after tax 234,000 175,000
Other comprehensive income 74,000 25,000
Comprehensive income P308,000 P200,000

1. How much are the consolidated sales and cost of sales?

Sales Cost of sales Sales Cost of sales
a. 1,550,000 557,500 c. 1,550,000 592,500
b. 1,700,000 842,500 d. 1,700,000 592,500

2. What amounts of the consolidated comprehensive income are

attributed to the following?

Owners of parent NCI Owners of parent NCI
a. 341,750 41,750 c. 434,500 46,500
b. 342,750 40,750 d. 434,500 48,000

Subsidiary's outstanding cumulative preference shares

3. Bear Co. owns 75% of Cub Co.'s ordinary shares. Cub Co. has
12%, P400,000 outstanding cumulative preference shares, none
of which are held by Thẹ carrying amount of Cub's
Bear Co.
net identifiable assets at acquisition date approximated the fair
value. NCI was measured at fair value. In 20x1, Bear and Cub
reported individual profits of P936,000 and P700,000,
respectively. Neither company declared dividends. There
286 Chapter 6

were 3-year dividends in arrears on the outstanding

cumulative preference shares of Cub Co. Goodwill was
impaired by P20,000. How much is the profit attributable to
owners of the parent and NCI, respectively?
Owners of Parent NCI Owners of Parent NCI
a. 1,405,000 211,000 c. 1,425,000 211,000
b. 1,410,000 206,000 d. 1,441,000 175,000

Impairment of Goodwill
4. Pacquired 80% interest in S for P100,000 several years earlier.
On acquisition date, S's identifiable assets were P110,000,
net

equal to fair value. The NCI was measured at a fair value of

P25,000.

On the current reporting date P's and S's equity structures are as

follows:
P Co. S Co.

Share capital 120,000 80,000

Retained earnings 150,000 52,000
Total equity 270,000 132,000

Goodwill has been impaired by 20%. How much are the

consolidated retained earnings and non-controlling interest in net
assets as of the current reporting date?
Retained earnings NCI Retained earnings NCI
a. 152,600 22,800 c. 165,200 28,800
b. 156,200 28,200 d. 172,600 28,200

Intercompany in-transit items and other restatements

5. Breathe Co. 90% of Love Co. On the reporting date, the
owns

individual accounts of the entities include the following:

Accounts receivable Accounts payable
Breathe Co. 360,000 504,000
Love Co. 216,000 302,400
 Consolidated Financial Statements (Part 3) 287

Breathe Co.'s accounts receivable include P33,120 from Love Сo.

What amolınts of accounts receivable (A/R) and accounts payable
(A/P) should be reported in the group's financial statements?
A/R A/P A/R A/P
a. 542,880 773,280 c. 546,192 776,592
b. 542,880 776,592 d. 576,000 806,400

Changes in ownership interest - No loss of control

Use the following information for the next two independent scenarios:
On January 1, 20x1, Pine Co. acquired 80% interest in Tree Co.
Goodwill under each of the available measurement options under
PFRS 3 is computed as follows:
Case 1 Case 2
(proportionate (fair value)
share)
Consideration transferred 75,000 75,000
NCI (90K x 20%); [(75K +80%) x 20%] 18,000 18,750

Previously held equity interest in the acquiree

Total 93,000 93,750
Fair value of net identifiable assets acquired (90,000) (90,000)
Goodwill - Jan. 1, 20x1 3,000 3,750

During 20x1, Tree Co.'s net assets increased by P10,000 after fair
value adjustments.

6. How much are the NCI in net assets as of December 31, 20x1?
Case 1 Case 2 Case 1 Case 2
a. 20,000 20,750 c. 20,800 20,750
b. 20,000 21,550 d. 20,800 21,550

7. Scenario 1: On January 1, 20x2, Pine Co. acquires all the

, remaining 20% NCI in Tree Co. for P30,000. How much is the

gain (loss) on the transaction?

Case 1 Case 2 Case 1 Case 2
a. 20,000 20,750 c. 10,000 9,250
b. (20,000) (20,750) d. 0 이