Sol. Man. Chapter 6 Consolidated Fs Part 3 Acctg For Bus. Combinations
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Chapter 6
Consolidated Financial Statements (Part 3) PROBLEM 1: MULTIPLE CHOICE - THEORY 1. B 2. A 3. C 4. A 5. D
PROBLEM 2: FOR CLASSROOM DISCUSSION 1.
Solutions:
Step 1: Analysis of effects of intercompany transaction There were no inter-company transactions during the year.
Step 2: Analysis of net assets Acquisition Consolidation Net date date change Total net assets at carrying amounts 160,000 210,000 Fair value adjustments at acquisition date Subsequent depreciation of FVA NIL Unrealized profits (Upstream only) NIL Subsidiary's net assets at fair value 160,000 210,000 50,000 Subsidiary Co.
Step 3: Goodwill computation Formula #2 - NCI measured at fair value Consideration transferred 180,000 Less: Previously held equity interest in the acquiree Total 180,000 Less: Parent's proportionate share in the net assets of (120,000 subsidiary (₱160,000 acquisition-date fair value x 75%) ) Goodwill attributable to owners of parent – Jan. 1, 20x1 60,000 Less: Parent’s share in goodwill impairment (₱10,000 x 75%) (7,500) Goodwill attributable to owners of parent – Dec. 31, 20x1 52,500 Fair value of NCI (see given) Less: NCI's proportionate share in the net assets of subsidiary (₱160,000 acquisition-date fair value x 25%) Goodwill attributable to NCI – Jan. 1, 20x1 Less: NCI’s share in goodwill impairment (₱10,000 x 25%)
1
60,000 (40,000 ) 20,000 (2,500 )
Goodwill attributable to NCI – Dec. 31, 20x1
17,500
Goodwill, net – Dec. 31, 20x1
70,000
Step 4: Non-controlling interest in net assets Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment
210,000 25% 52,500 17,50 0
losses
Non-controlling interest in net assets – Dec. 31, 20x1
Step 5: Consolidated retained earnings Parent's retained earnings – Dec. 31, 20x1 Consolidation adjustments:
70,000
110,000
Parent's share in the net change in Sub.'s net assets 37,50
0
(a)
-
Unamortized deferred gain (Downstream only)
Gain or loss on extinguishment of bonds
-
Impairment loss on goodwill attributable to Parent
30,00 0
Net consolidation adjustments Consolidated retained earnings – Dec. 31, 20x1 (a)
(7,500 )
140,000
Net change in Sub.’s net assets (Step 2) of ₱50,000 x 75% = ₱37,500.
Step 6: Consolidated profit or loss Parent Profits before adjustments Consolidation adjustments: Unamortized def. gain - (Step
240,000 (
-
Dividend income from subsidiary Gain or loss on extinguishment of bonds
(
-
(
-
Net consolidation adjustments
(
-
)
1)
Profits before FVA
Subsidiar y Consolidated 50,000
(
) ) ) 240,00
2
- ) N/A
(
- )
( - ) 50,000
290,000
(
- )
(
- )
(
- )
( - ) 290,000
0
Depreciation of FVA
(
-
) (7,500 Impairment loss on goodwill ) Consolidated profit 232,500
(
- )
(
(2,500) 47,500
- )
(10,000) 280,000
Step 7: Profit or loss attributable to owners of parent and NCI Owners Consoli of parent NCI dated Parent's profit before FVA (Step 6) 240,000 N/A 240,000 Share in Sub.’s profit before FVA (c) 37,500 12,500 50,000 Depreciation of FVA ( - ) ( - ) ( - ) Share in impairment loss on goodwill
Totals (c)
(7,500)
(2,500)
(10,000)
270,000
10,000
280,000
Shares in Sub.’s profit before FVA (Step 6): (50,000 x 75%); (50,000 x 25%)
Requirement (d): Consolidated ASSETS Investment in subsidiary (at cost) – eliminated Other assets (600,000 + 235,000) Goodwill – net (Step 3) TOTAL ASSETS
835,000 70,000 905,000
LIABILITIES AND EQUITY Liabilities (70,000 + 25,000) Share capital (Parent's only) Retained earnings (Step 5) Equity attributable to owners of the parent Non-controlling interest (Step 4) Total equity TOTAL LIABILITIES AND EQUITY
95,000 600,000 140,000 740,000 70,000 810,000 905,000
Revenues (300,000 + 80,000) Operating expenses (60,000 + 30,000) Impairment loss on goodwill Profit for the year
3
Consolidated 380,000 (90,000) (10,000) 280,000
270,00 0 10,00 0 280,00 0
Profit attributable to owners of the parent (Step 7) Profit attributable to NCI (Step 7) Profit for the year
2.
D
3.
D
4. C Solution:
Before transaction
% the
Owners of parent 112,50
%
75% 0
25% 5 %
0
)
142,50 After the transaction
95%
Change – Inc./ (Decrease)
0 30,000
NCI 37,50 7,50 0 (30,000
Net assets of XYZ 150,000 a
150,000 -
a
The fair value of Plastic Co.’s net assets on January 1, 20x1 is computed as follows: Rubber Plastic, FV of net Co. Inc. Consolidated assets (a) (b) (c) (d) = (c) - (a) Investment in sub. 112,500 Other assets 514,500 186,000 709,500 195,000 Goodwill 12,000 TOTAL ASSETS 627,000 186,000 721,500 195,000 Accounts payable NET ASSETS
109,500
45,000
154,500
45,000
517,500
141,000
567,000
150,000
ANSWER: NCI in net assets after the additional acquisition = 7,500 5.
B
4
Solution:
The entry in Rubber’s separate books is as follows: Jan. Investment in subsidiary 100,00 1, Cash in bank 0 20x2
to record the acquisition of additional interest in Plastic, Inc.
100,00 0
The consolidation journal entry is as follows: Jan. 1, 20x2
NCI (the decrease computed above) Retained
earnings
–
Rubber
Co.
(squeeze)
Investment in subsidiary
30,000 70,00 0
Consolidated retained earnings before additional acquisition Decrease in retained earnings Consolidated retained earnings after additional acquisition
100,00 0 177,000 (70,000) 107,000
6. A Solution: The fair value of Plastic’s net identifiable assets is computed as follows: Rubber Plastic, FV of net Co. Inc. Consolidated assets (a) (b) (c) (d) = (c) - (a) Investment in sub. 112,500 Other assets 514,500 186,000 709,500 195,000 Goodwill 12,000 TOTAL ASSETS 627,000 186,000 721,500 195,000 Accounts payable NET ASSETS
109,500
45,000
154,500
45,000
517,500
141,000
567,000
150,000
The gain or loss on the sale is computed as follows: Jan. 1, 20x2
Cash (Consideration received) Held for trading securities* Accounts payable – Plastic, Inc. Non-controlling interest Other assets – Plastic, Inc. 5
120,00 0 30,000 45,000 37,500
195,00
Goodwill
0 12,000 25,500
Gain on disposal (squeeze)
*(120,000 ÷ 60%) x 15% = 30,000 OR
Consideration received Investment retained in the former subsidiary (at fair
120,000 30,000
value) NCI (carrying amount - see consolidated financial statements)
37,500 187,500
Total Less: Plastic’s net identifiable assets (see computation above)
(150,000)
Goodwill (see consolidated financial statements) Gain or loss on disposal of controlling interest
(12,000) 25,500
PROBLEM 3: EXERCISES 1.
Solutions:
Step 1: Analysis of effects of intercompany transaction There were no intercompany transactions during the period.
Step 2: Analysis of net assets Acquisition Consolidation Net date date change Total net assets at carrying amounts 192,000 252,000 Fair value adjustments at acquisition date Subsequent depreciation of FVA NIL Unrealized profits (Upstream only) NIL Subsidiary's net assets at fair value 192,000 252,000 60,000 Night Co.
Step 3: Goodwill computation Formula #2 - NCI measured at fair value Consideration transferred Less: Previously held equity interest in the acquiree Total
6
216,000 216,000
Less: Parent's proportionate share in the net assets of (144,000 subsidiary (₱192,000 acquisition-date fair value x 75%) ) Goodwill attributable to owners of parent – Jan. 1, 20x1 72,000 Less: Parent’s share in goodwill impairment (₱8,000 x 75%) (6,000) Goodwill attributable to owners of parent – Dec. 31, 20x1 66,000 Fair value of NCI (see given) Less: NCI's proportionate share in the net assets of subsidiary (₱192,000 acquisition-date fair value x 25%) Goodwill attributable to NCI – Jan. 1, 20x1 Less: NCI’s share in goodwill impairment (₱8,000 x 25%) Goodwill attributable to NCI – Dec. 31, 20x1
72,000 (48,000 ) 24,000 (2,000 ) 22,000
Goodwill, net – Dec. 31, 20x1
88,000
Step 4: Non-controlling interest in net assets Night's net assets at fair value – Dec. 31, 20x1 (Step 2) Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment
252,000 25% 63,000 22,00 0
losses
Non-controlling interest in net assets – Dec. 31, 20x1
Step 5: Consolidated retained earnings Day's retained earnings – Dec. 31, 20x1 Consolidation adjustments: Day's share in the net change in Night's net assets (a)
85,000
45,000 -
Unamortized deferred gain (Downstream only)
Gain or loss on extinguishment of bonds Impairment loss on goodwill attributable to Parent Net consolidation adjustments Consolidated retained earnings – Dec. 31, 20x1 (a)
132,000
(6,000) 39,00 0
171,000
Net change in Night’s net assets (Step 2) of ₱60,000 x 75% = ₱45,000.
Step 6: Consolidated profit or loss Parent 7
Subsidiar y Consolidated
Profits before adjustments Consolidation adjustments: Unamortized def. gain Dividend income from subsidiary Gain or loss on extinguishment of bonds
288,000 (
-
(
-
(
-
(
-
60,000
)
(
)
348,000
- ) N/A
(
- )
(
- )
)
(
- )
(
- )
) 288,00 Profits before FVA 0 ( Depreciation of FVA ) (6,000 Impairment loss on goodwill ) Consolidated profit 282,000
(
- )
(
- )
Net consolidation adjustments
60,000 (
348,000
- )
(
(2,000) 58,000
- )
(8,000) 340,000
Step 7: Profit or loss attributable to owners of parent and NCI Owners Consoli of parent NCI dated Day's profit before FVA (Step 6) 288,000 N/A 288,000 Share in Night’s profit before FVA (c) 45,000 15,000 60,000 Depreciation of FVA ( - ) ( - ) ( - ) Share in impairment loss on goodwill
Totals (c)
(6,000)
(2,000)
(8,000)
327,000
13,000
340,000
Shares in Night’s profit before FVA (Step 6): (60,000 x 75%); (60,000 x 25%)
Requirement (d): Consolidated ASSETS Investment in subsidiary (at cost) – eliminated Other assets (720,000 + 282,000) Goodwill – net (Step 3) TOTAL ASSETS LIABILITIES AND EQUITY Liabilities (84,000 + 30,000)
1,002,000 88,000 1,090,000 114,000
8
Share capital (Day's only) Retained earnings (Step 5) Equity attributable to owners of the parent Non-controlling interest (Step 4) Total equity TOTAL LIABILITIES AND EQUITY
Revenues (360,000 + 96,000) Operating expenses (72,000 + 36,000) Impairment loss on goodwill (Step 3) Profit for the year Profit attributable to owners of the parent (Step 7) Profit attributable to NCI (Step 7) Profit for the year
9
720,000 171,000 891,000 85,000 976,000 1,090,000 Consolidated 456,000 (108,000) (8,000 ) 340,000 327,00 0 13,00 0 340,00 0
PROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL 1. B Solution:
Accounts receivable of Parent Accounts receivable of Subsidiary Less: Intercompany receivable/payable (squeeze) Consolidated accounts receivable
52,000 38,000 (12,000) 78,000
2.
D
3.
D The receivable from Winn will be eliminated in the consolidation. The receivable from Carr will not be eliminated (Carr is not a subsidiary), thus, it remains. Grey reports accounts receivable from affiliates (Carr) of ₱200,000 in its consolidated balance sheet.
4.
C
5.
A The purchase by the member of a consolidated group of stock of another member of the consolidated group is treated as a treasury stock transaction. This follows the theory of consolidated financial statements presenting one economic entity. (You cannot make money selling stock to yourself.)
6.
D
7.
D
8. A Solution:
Before transaction
% the
Owners of parent 192,00
80% 0
% 20%
NCI 48,00 0
216,00 After the transaction
90%
Change – Inc./ (Decrease)
0
24,00 0 (24,000
10% 24,000
a
)
Net assets of XYZ 240,000 a
240,000 -
The fair value of Round Co.’s net assets on January 1, 20x1 is computed as follows:
10
Oblong Co. Round, Inc. (a)
Investment in sub. Other assets Goodwill TOTAL ASSETS Accounts payable NET ASSETS
Consolidate d
(b)
(c)
FV of net assets (d) = (c) - (a)
180,000 823,200 1,003,200 175,200
297,600 297,600 72,000
1,135,200 7,200 1,142,400 247,200
312,000 312,000 72,000
828,000
225,600
895,200
240,000
ANSWER: NCI in net assets after the additional acquisition = 24,000 9. C Solution:
The entry in Oblong’s separate books is as follows: Jan. Investment in subsidiary 100,00 1, Cash in bank 0 20x2
to record the acquisition of additional interest in Round, Inc.
100,00 0
The consolidation journal entry is as follows: Jan. 1, 20x2
NCI (the decrease computed above) Retained
earnings
–
Oblong
(squeeze)
Investment in subsidiary
Co.
24,000 76,00 0
Consolidated retained earnings before additional acquisition Decrease in retained earnings Consolidated retained earnings after additional acquisition
100,00 0 283,200 (76,000) 207,200
10. B Solution: The fair value of Round’s net identifiable assets is computed as follows:
11
Oblong Co. Round, Inc. (a)
Investment in sub. Other assets Goodwill TOTAL ASSETS Accounts payable NET ASSETS
Consolidate d
(b)
(c)
FV of net assets (d) = (c) - (a)
180,000 823,200 1,003,200
297,600 297,600
1,135,200 7,200 1,142,400
312,000 312,000
175,200
72,000
247,200
72,000
828,000
225,600
895,200
240,000
The gain or loss on the sale is computed as follows: Jan. 1, 20x2
Cash (Consideration received) Held for trading securities* Accounts payable – Round, Inc. Non-controlling interest Loss on disposal Other assets – Round, Inc. Goodwill
120,00 0 40,000 72,000 48,000 39,200
312,00 0 7,200
*(120,000 ÷ 60%) x 20% = 40,000 OR
Consideration received Investment retained in the former subsidiary (at fair value) NCI (carrying amount - see consolidated financial statements)
Total Less: Round’s net identifiable assets (see computation above)
Goodwill (see consolidated financial statements) Gain or loss on disposal of controlling interest
12
120,000 40,000 48,000 208,000 (240,000) (7,200) (39,200)
13
Consolidated Financial Statements (Part 3) PROBLEM 1: MULTIPLE CHOICE - THEORY 1. B 2. A 3. C 4. A 5. D
PROBLEM 2: FOR CLASSROOM DISCUSSION 1.
Solutions:
Step 1: Analysis of effects of intercompany transaction There were no inter-company transactions during the year.
Step 2: Analysis of net assets Acquisition Consolidation Net date date change Total net assets at carrying amounts 160,000 210,000 Fair value adjustments at acquisition date Subsequent depreciation of FVA NIL Unrealized profits (Upstream only) NIL Subsidiary's net assets at fair value 160,000 210,000 50,000 Subsidiary Co.
Step 3: Goodwill computation Formula #2 - NCI measured at fair value Consideration transferred 180,000 Less: Previously held equity interest in the acquiree Total 180,000 Less: Parent's proportionate share in the net assets of (120,000 subsidiary (₱160,000 acquisition-date fair value x 75%) ) Goodwill attributable to owners of parent – Jan. 1, 20x1 60,000 Less: Parent’s share in goodwill impairment (₱10,000 x 75%) (7,500) Goodwill attributable to owners of parent – Dec. 31, 20x1 52,500 Fair value of NCI (see given) Less: NCI's proportionate share in the net assets of subsidiary (₱160,000 acquisition-date fair value x 25%) Goodwill attributable to NCI – Jan. 1, 20x1 Less: NCI’s share in goodwill impairment (₱10,000 x 25%)
1
60,000 (40,000 ) 20,000 (2,500 )
Goodwill attributable to NCI – Dec. 31, 20x1
17,500
Goodwill, net – Dec. 31, 20x1
70,000
Step 4: Non-controlling interest in net assets Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment
210,000 25% 52,500 17,50 0
losses
Non-controlling interest in net assets – Dec. 31, 20x1
Step 5: Consolidated retained earnings Parent's retained earnings – Dec. 31, 20x1 Consolidation adjustments:
70,000
110,000
Parent's share in the net change in Sub.'s net assets 37,50
0
(a)
-
Unamortized deferred gain (Downstream only)
Gain or loss on extinguishment of bonds
-
Impairment loss on goodwill attributable to Parent
30,00 0
Net consolidation adjustments Consolidated retained earnings – Dec. 31, 20x1 (a)
(7,500 )
140,000
Net change in Sub.’s net assets (Step 2) of ₱50,000 x 75% = ₱37,500.
Step 6: Consolidated profit or loss Parent Profits before adjustments Consolidation adjustments: Unamortized def. gain - (Step
240,000 (
-
Dividend income from subsidiary Gain or loss on extinguishment of bonds
(
-
(
-
Net consolidation adjustments
(
-
)
1)
Profits before FVA
Subsidiar y Consolidated 50,000
(
) ) ) 240,00
2
- ) N/A
(
- )
( - ) 50,000
290,000
(
- )
(
- )
(
- )
( - ) 290,000
0
Depreciation of FVA
(
-
) (7,500 Impairment loss on goodwill ) Consolidated profit 232,500
(
- )
(
(2,500) 47,500
- )
(10,000) 280,000
Step 7: Profit or loss attributable to owners of parent and NCI Owners Consoli of parent NCI dated Parent's profit before FVA (Step 6) 240,000 N/A 240,000 Share in Sub.’s profit before FVA (c) 37,500 12,500 50,000 Depreciation of FVA ( - ) ( - ) ( - ) Share in impairment loss on goodwill
Totals (c)
(7,500)
(2,500)
(10,000)
270,000
10,000
280,000
Shares in Sub.’s profit before FVA (Step 6): (50,000 x 75%); (50,000 x 25%)
Requirement (d): Consolidated ASSETS Investment in subsidiary (at cost) – eliminated Other assets (600,000 + 235,000) Goodwill – net (Step 3) TOTAL ASSETS
835,000 70,000 905,000
LIABILITIES AND EQUITY Liabilities (70,000 + 25,000) Share capital (Parent's only) Retained earnings (Step 5) Equity attributable to owners of the parent Non-controlling interest (Step 4) Total equity TOTAL LIABILITIES AND EQUITY
95,000 600,000 140,000 740,000 70,000 810,000 905,000
Revenues (300,000 + 80,000) Operating expenses (60,000 + 30,000) Impairment loss on goodwill Profit for the year
3
Consolidated 380,000 (90,000) (10,000) 280,000
270,00 0 10,00 0 280,00 0
Profit attributable to owners of the parent (Step 7) Profit attributable to NCI (Step 7) Profit for the year
2.
D
3.
D
4. C Solution:
Before transaction
% the
Owners of parent 112,50
%
75% 0
25% 5 %
0
)
142,50 After the transaction
95%
Change – Inc./ (Decrease)
0 30,000
NCI 37,50 7,50 0 (30,000
Net assets of XYZ 150,000 a
150,000 -
a
The fair value of Plastic Co.’s net assets on January 1, 20x1 is computed as follows: Rubber Plastic, FV of net Co. Inc. Consolidated assets (a) (b) (c) (d) = (c) - (a) Investment in sub. 112,500 Other assets 514,500 186,000 709,500 195,000 Goodwill 12,000 TOTAL ASSETS 627,000 186,000 721,500 195,000 Accounts payable NET ASSETS
109,500
45,000
154,500
45,000
517,500
141,000
567,000
150,000
ANSWER: NCI in net assets after the additional acquisition = 7,500 5.
B
4
Solution:
The entry in Rubber’s separate books is as follows: Jan. Investment in subsidiary 100,00 1, Cash in bank 0 20x2
to record the acquisition of additional interest in Plastic, Inc.
100,00 0
The consolidation journal entry is as follows: Jan. 1, 20x2
NCI (the decrease computed above) Retained
earnings
–
Rubber
Co.
(squeeze)
Investment in subsidiary
30,000 70,00 0
Consolidated retained earnings before additional acquisition Decrease in retained earnings Consolidated retained earnings after additional acquisition
100,00 0 177,000 (70,000) 107,000
6. A Solution: The fair value of Plastic’s net identifiable assets is computed as follows: Rubber Plastic, FV of net Co. Inc. Consolidated assets (a) (b) (c) (d) = (c) - (a) Investment in sub. 112,500 Other assets 514,500 186,000 709,500 195,000 Goodwill 12,000 TOTAL ASSETS 627,000 186,000 721,500 195,000 Accounts payable NET ASSETS
109,500
45,000
154,500
45,000
517,500
141,000
567,000
150,000
The gain or loss on the sale is computed as follows: Jan. 1, 20x2
Cash (Consideration received) Held for trading securities* Accounts payable – Plastic, Inc. Non-controlling interest Other assets – Plastic, Inc. 5
120,00 0 30,000 45,000 37,500
195,00
Goodwill
0 12,000 25,500
Gain on disposal (squeeze)
*(120,000 ÷ 60%) x 15% = 30,000 OR
Consideration received Investment retained in the former subsidiary (at fair
120,000 30,000
value) NCI (carrying amount - see consolidated financial statements)
37,500 187,500
Total Less: Plastic’s net identifiable assets (see computation above)
(150,000)
Goodwill (see consolidated financial statements) Gain or loss on disposal of controlling interest
(12,000) 25,500
PROBLEM 3: EXERCISES 1.
Solutions:
Step 1: Analysis of effects of intercompany transaction There were no intercompany transactions during the period.
Step 2: Analysis of net assets Acquisition Consolidation Net date date change Total net assets at carrying amounts 192,000 252,000 Fair value adjustments at acquisition date Subsequent depreciation of FVA NIL Unrealized profits (Upstream only) NIL Subsidiary's net assets at fair value 192,000 252,000 60,000 Night Co.
Step 3: Goodwill computation Formula #2 - NCI measured at fair value Consideration transferred Less: Previously held equity interest in the acquiree Total
6
216,000 216,000
Less: Parent's proportionate share in the net assets of (144,000 subsidiary (₱192,000 acquisition-date fair value x 75%) ) Goodwill attributable to owners of parent – Jan. 1, 20x1 72,000 Less: Parent’s share in goodwill impairment (₱8,000 x 75%) (6,000) Goodwill attributable to owners of parent – Dec. 31, 20x1 66,000 Fair value of NCI (see given) Less: NCI's proportionate share in the net assets of subsidiary (₱192,000 acquisition-date fair value x 25%) Goodwill attributable to NCI – Jan. 1, 20x1 Less: NCI’s share in goodwill impairment (₱8,000 x 25%) Goodwill attributable to NCI – Dec. 31, 20x1
72,000 (48,000 ) 24,000 (2,000 ) 22,000
Goodwill, net – Dec. 31, 20x1
88,000
Step 4: Non-controlling interest in net assets Night's net assets at fair value – Dec. 31, 20x1 (Step 2) Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment
252,000 25% 63,000 22,00 0
losses
Non-controlling interest in net assets – Dec. 31, 20x1
Step 5: Consolidated retained earnings Day's retained earnings – Dec. 31, 20x1 Consolidation adjustments: Day's share in the net change in Night's net assets (a)
85,000
45,000 -
Unamortized deferred gain (Downstream only)
Gain or loss on extinguishment of bonds Impairment loss on goodwill attributable to Parent Net consolidation adjustments Consolidated retained earnings – Dec. 31, 20x1 (a)
132,000
(6,000) 39,00 0
171,000
Net change in Night’s net assets (Step 2) of ₱60,000 x 75% = ₱45,000.
Step 6: Consolidated profit or loss Parent 7
Subsidiar y Consolidated
Profits before adjustments Consolidation adjustments: Unamortized def. gain Dividend income from subsidiary Gain or loss on extinguishment of bonds
288,000 (
-
(
-
(
-
(
-
60,000
)
(
)
348,000
- ) N/A
(
- )
(
- )
)
(
- )
(
- )
) 288,00 Profits before FVA 0 ( Depreciation of FVA ) (6,000 Impairment loss on goodwill ) Consolidated profit 282,000
(
- )
(
- )
Net consolidation adjustments
60,000 (
348,000
- )
(
(2,000) 58,000
- )
(8,000) 340,000
Step 7: Profit or loss attributable to owners of parent and NCI Owners Consoli of parent NCI dated Day's profit before FVA (Step 6) 288,000 N/A 288,000 Share in Night’s profit before FVA (c) 45,000 15,000 60,000 Depreciation of FVA ( - ) ( - ) ( - ) Share in impairment loss on goodwill
Totals (c)
(6,000)
(2,000)
(8,000)
327,000
13,000
340,000
Shares in Night’s profit before FVA (Step 6): (60,000 x 75%); (60,000 x 25%)
Requirement (d): Consolidated ASSETS Investment in subsidiary (at cost) – eliminated Other assets (720,000 + 282,000) Goodwill – net (Step 3) TOTAL ASSETS LIABILITIES AND EQUITY Liabilities (84,000 + 30,000)
1,002,000 88,000 1,090,000 114,000
8
Share capital (Day's only) Retained earnings (Step 5) Equity attributable to owners of the parent Non-controlling interest (Step 4) Total equity TOTAL LIABILITIES AND EQUITY
Revenues (360,000 + 96,000) Operating expenses (72,000 + 36,000) Impairment loss on goodwill (Step 3) Profit for the year Profit attributable to owners of the parent (Step 7) Profit attributable to NCI (Step 7) Profit for the year
9
720,000 171,000 891,000 85,000 976,000 1,090,000 Consolidated 456,000 (108,000) (8,000 ) 340,000 327,00 0 13,00 0 340,00 0
PROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL 1. B Solution:
Accounts receivable of Parent Accounts receivable of Subsidiary Less: Intercompany receivable/payable (squeeze) Consolidated accounts receivable
52,000 38,000 (12,000) 78,000
2.
D
3.
D The receivable from Winn will be eliminated in the consolidation. The receivable from Carr will not be eliminated (Carr is not a subsidiary), thus, it remains. Grey reports accounts receivable from affiliates (Carr) of ₱200,000 in its consolidated balance sheet.
4.
C
5.
A The purchase by the member of a consolidated group of stock of another member of the consolidated group is treated as a treasury stock transaction. This follows the theory of consolidated financial statements presenting one economic entity. (You cannot make money selling stock to yourself.)
6.
D
7.
D
8. A Solution:
Before transaction
% the
Owners of parent 192,00
80% 0
% 20%
NCI 48,00 0
216,00 After the transaction
90%
Change – Inc./ (Decrease)
0
24,00 0 (24,000
10% 24,000
a
)
Net assets of XYZ 240,000 a
240,000 -
The fair value of Round Co.’s net assets on January 1, 20x1 is computed as follows:
10
Oblong Co. Round, Inc. (a)
Investment in sub. Other assets Goodwill TOTAL ASSETS Accounts payable NET ASSETS
Consolidate d
(b)
(c)
FV of net assets (d) = (c) - (a)
180,000 823,200 1,003,200 175,200
297,600 297,600 72,000
1,135,200 7,200 1,142,400 247,200
312,000 312,000 72,000
828,000
225,600
895,200
240,000
ANSWER: NCI in net assets after the additional acquisition = 24,000 9. C Solution:
The entry in Oblong’s separate books is as follows: Jan. Investment in subsidiary 100,00 1, Cash in bank 0 20x2
to record the acquisition of additional interest in Round, Inc.
100,00 0
The consolidation journal entry is as follows: Jan. 1, 20x2
NCI (the decrease computed above) Retained
earnings
–
Oblong
(squeeze)
Investment in subsidiary
Co.
24,000 76,00 0
Consolidated retained earnings before additional acquisition Decrease in retained earnings Consolidated retained earnings after additional acquisition
100,00 0 283,200 (76,000) 207,200
10. B Solution: The fair value of Round’s net identifiable assets is computed as follows:
11
Oblong Co. Round, Inc. (a)
Investment in sub. Other assets Goodwill TOTAL ASSETS Accounts payable NET ASSETS
Consolidate d
(b)
(c)
FV of net assets (d) = (c) - (a)
180,000 823,200 1,003,200
297,600 297,600
1,135,200 7,200 1,142,400
312,000 312,000
175,200
72,000
247,200
72,000
828,000
225,600
895,200
240,000
The gain or loss on the sale is computed as follows: Jan. 1, 20x2
Cash (Consideration received) Held for trading securities* Accounts payable – Round, Inc. Non-controlling interest Loss on disposal Other assets – Round, Inc. Goodwill
120,00 0 40,000 72,000 48,000 39,200
312,00 0 7,200
*(120,000 ÷ 60%) x 20% = 40,000 OR
Consideration received Investment retained in the former subsidiary (at fair value) NCI (carrying amount - see consolidated financial statements)
Total Less: Round’s net identifiable assets (see computation above)
Goodwill (see consolidated financial statements) Gain or loss on disposal of controlling interest
12
120,000 40,000 48,000 208,000 (240,000) (7,200) (39,200)
13
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