Narag, Richmond B.

BSMA-3
Chapter 6:
PROBLEM 1

1. B

2.A

3. C

4. A

5. D

PROBLEM 2

1. Solutions:
Analysis of net assets

Acquisition Consolidation Net

Subsidiary Co. 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

Goodwill computation
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 (P160,000 acquisition-date fair value x 75%)
Goodwill attributable to owners of parent- Jan. 1, 20x1 60,000
Less: Parent's share in goodwill impairment (P10,000 x 756) (7,500)
Goodwill attributable to NCI-Dec. 31, 20x1 17,500
Goodwill, net-Dec. 31, 20x1 70,000

Non-controlling interest in net assets

Sub.'s net assets at fair value - Dec. 31, 20x1 210,000
Multiply by: NCI percentage 25%
Total 52,500
Add: Goodwill to NCI net of accumulated impairment 17,500
Non-controlling interest in net assets - Dec. 31,20x1 70,000

Consolidated retained earnings

Parent's retained earnings Dec. 31, 20x1 110,000
Consolidation adjustments:
Parent's share in the net change in Sub.'s net assets 37,500
(Unamortized deferred gain (Downstream only) -
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to Parent (7500)
Net consolidation adjustments 30,000
Consolidated retained earnings- Dec. 31,20x1 140,000

Consolidated profit or loss

Parent Subsidiary Consolidated

Profits before adjustments 240,000 50,000 290,000
Consolidation adjustments:
Unamortized def.gain - - -
Dividend Income from subsidiary - N/A -
Gain or loss on extinguishment of bonds - - -
Net consolidation adjustments - - -
Profits before FVA 240,00 50,000 290,000
Depreciation of FVA - - -
Impairment loss on goodwill (7,500) (2,500) (10,000)
Consolidated profit 232,500 47,500 280,000

Profit or loss attributable to owners of parent and NC

Owners of Parent NCI Consolidated

Parent's profit before FVA 240,000 N/A 240,000
Share in Sub.'s profit before FVA 37,500 12,500 50,000
Depreciation of FVA (- ) (- ) (- )
Share in impairment loss on goodwill (7,500) (2,500) (10,000)
Total 270,000 10,000 280,000
Narag, Richmond B.
BSMA-3
Requirement (d):
Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated -
Other assets (600,000 +235,000) 835,000
Goodwill-net 70,000
TOTAL ASSET 905,000

LIABILITIES AND EQUITY

Liabilities (70,000+25,000) 95,000
Share capital (Parent's only) 600,000
Retained earnings 140,000
Equity attributable to owners of the parent 740,000
Non-controlling interest 70,000
Total equity 810,000
TOTAL LIABILITIES AND EQUITY 905,000

Consolidated
Revenues (300,000+ 80,000) 380,000
Operating expenses (60,000 + 30,000) (90,000)
Impairment loss on goodwill (10,000)
Profit for the year 280,000

Profit attributable to owners of the parent 270,000

Profit attributable to NCI 10,000
Profit for the year 280,00

2. D

3. D

4. C

Solution:
A. The fair value of Plastic Co.'s net assets on January 1, 20x1 is computed as follows
Rubber Co. Plastic Inc. Consolidated FV of net 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 109,500 45,000 154,500 45,000
NET ASSETS 517,500 141,000 567,000 150,000

5. B
Solution:
The entry in Rubber's separate books is as follows:

Jan. 1, 20x2 Investment in subsidiary 100,000

Cash in bank 0 100,00
to record the acquisition of additional interest in Plastic, Inc. 0

The consolidation journal entry is as follows:

Jan. 1, 20x2 NCI (the decrease computed above) 30,000

Retained earnings- Rubber Co. (squeeze) 70,000 100,00
Investment in subsidiary 0 0
Narag, Richmond B.
BSMA-3

1,
Consolidated retained earnings before additional acquisition 177,000
Decrease in retained earnings (70,000)
Consolidated retained earnings after additional acquisition 107,000

6. A

PROBLEM 3: EXERCISES

1. Solution:
Step 1: Analysis of effects of intercompany transaction
There were no intercompany transactions during the period.

Step 2: Analysis of net assets

Acquisition Consolidation Wet
Night Co. Acquisition date Consolidation date Net 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

Step 3: Goodwill computation

Formula #2- NCI measured at fair value

Consideration transferred 216,000
Less: Previously held equity interest in the acquiree ---
Total 216,000
Less: Parent's proportionate share in the net assets of (144,000 subsidiary (P192,000 acquisition-date fair value x 75%)
Goodwill attributable to owners of parent- Jan. 1, 20x1 72,000
Less: Parent's share in goodwill impairment (P8,000 x 75%) (6,000)
Goodwill attributable to owners of parent- Dec. 31, 20x1 66,000

Fair value of NCI 72,000

Less: NCI's proportionate share in the net assets of subsidiary
(P192,000 acquisition-date fair value x 25%) (48,000)
Goodwill attributable to NCI-Jan. 1, 20x1 24,000
Less: NC/'s share in goodwill impairment (P8,000 x 25%) (2,000)
Goodwill attributable to NCI- Dec. 31, 20x1 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 252,000
Multiply by: NCI percentage 25%
Total 63,000
Add: Goodwill to NCI net of accumulated impairment 22,000
Losses
Non-controlling interest in net assets - Dec. 31, 20x1 85,000

Step 5: Consolidated retained earnings

Day's retained earnings - Dec. 31, 20x1 132,000
Narag, Richmond B.
BSMA-3
Consolidation adjustments:
Day's share in the net change in Night's net assets 45,000

Unamortized deferred gain (Downstream only) ----

Gain or loss on extinguishment of bonds ----
Impairment loss on goodwill attributable to
Parent 6,000
Net consolidation adjustments 39,000
Consolidated retained earnings - Dec. 31, 20x1 171,000

Requirement (d):
Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated ---
Other assets (720,000 + 282,000) 1,002,000
Goodwill-net 88,000
TOTAL ASSETS 1,090,000

LIABILITIES AND EQUITY

Liabilities (84,000 +30,000) 114,000
Share capital (Day's only) 720,000
Retained earnings 171,000
Equity attributable to owners of the parent 891,000
Non-contrlling interest (Step 4) 85,000
Total equity 976,000
TOTAL LIABILITIES AND EQUITY 1,090,0000

Consolidated
Revenues (360,000+96,000) 456,000
Operating expenses (72,000 + 36,000) (108,000)
Impairment loss on goodwill (8,000)
Profit for the year 340,000

Profit attributable to owners of the parent 327,000

Profit attributable to NCI 13,000
Profit for the year 340,000

PROBLEM 4:

1. B
Solution:
Accounts receivable of Parent 52,000
Accounts receivable of Subsidiary 38,000
Less: Inter company receivable/payable (squeeze) (12,000)
Consolidated accounts receivable 78,000

2. D
Narag, Richmond B.
BSMA-3
3. D 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.
4. C
5. A.
6. D
7. D
8. A
9. C
Solution:
The entry in Oblong's separate books is as follows:

Jan. 1, 20x2 Investment in subsidiary 100,00

Cash in bank 0 100,00
to record the acquisition of additional interest in Round, 0
Inc.

The consolidation journal entry is as follows:

Jan. 1, 20x2 NCI (the decrease computed above) 24,000

Retained earnings - Oblong Co. (squeeze) 76,000 100,00
Investment in subsidiary 0 0

Consolidated retained earnings before additional acquisition 283,200

Decrease in retained earnings (76,000)
Consolidated retained earnings after additional acquisition 207,200

10. B
Consideration received 120,000
Investment retained in the former subsidiary (at fair value) 40,000
NCI (carrying amount - see consolidated financial statements) 48,000
Total 208,000
Less: Round's net identifiable assets (see computation above) (240,000)
Goodwill (see consolidated financial statements) (7,200)
Gain or loss on disposal of controlling interest (39,200)