COLLEGE OF ACCOUNTING EDUCATION COMPETENCY APPRAISAL COURSE

ADVANCED FINANCIAL ACCOUNTING & REPORTING FEBRUARY 9, 2020

Problem 1

The following Statement of Financial Position were prepared for AC

and DC Bank Company on January 1, 2015 just before they entered
into business combination:

AC Company DC Bank Company

BV FV BV FV
Cash and Receivables 450,000 500,000 225,000 250,000
Inventory 900,000 1,000,000 150,000 250,000
Building & Equipment 1,687,500 1,500,000 450,000 525,000
Accounts Payable 225,000 200,000 60,000 45,000
Bonds Payable 675,000 450,000 75,000 105,000
Common Stocks, P20 par 1,200,000
Common Stocks, P10 par 300,000
APIC 225,000 75,000
Retained Earnings 712,500 315,000

AC Company acquired DC Bank Company by issuing 15,000 shares of

common stocks and paying cash amounting to P 450,000. In addition,
the following were incurred: legal fees, costs of SEC registration,
cost of issuing stock certificates and general administrative costs
were incurred and paid costing the AC Company of P 37,500, P
37,500, P 15,000 and P 22,500 respectively. The market stock price
of the AC Company and DC Bank Company are P 40 and P 15,
respectively at the time of acquisition

1. How much is the goodwill or (income from acquisition)?

a. P 125,000
b. P (125,000)
c. P 175,000
d. P (175,000)

2. How much is the combined common stock after the acquisition?

a. P 1,200,000
b. P 1,500,000
c. P 1,522,500
d. P 1,575,000

3. How much is the combined additional paid-in capital after the

acquisition?
a. P 247,500
b. P 300,000
c. P 322,500
d. P 472,500

4. How much is the combined total retained earnings after the

acquisition?
a. P 652,500
b. P 702,500
c. P 712,500
d. P 1,027,500

5. How much is the combined total liabilities after the

acquisition?
a. P 900,000
b. P 1,000,000
c. P 1,050,000
d. P 1,052,500

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6. How much is the combined total assets after the acquisition?

a. P 3,037,500
b. P 3,500,000
c. P 3,525,000
d. P 3,675,000

Problem 1

Total Consideration
Issuance of shares (15,000 shares x P 40) 600,000
Cash paid 450,000
1,050,000
Less: Fair Value of the Net Assets of DC Bank Company
Cash and Receivables 250,000
Inventory 250,000
Building & Equipment 525,000
Accounts Payable (45,000)
Bonds Payable (105,000) 875,000
Goodwill on Acquisition 175,000

AC Company Common Stock before acquisition of DC 1,200,000

Additional shares on acquisition of DC (15,000 x P 20 par) 300,000
Total Combined Common Stock after acquisition 1,500,000

AC Company APIC before acquisition of DC 225,000

Additional APIC on acquisition of DC (15,000 x P 20 excess over par) 300,000
Less: Share issuance costs (P 37,500 SEC registration + P 15,000 stock certs.) 52,500
Total Combined APIC after acquisition 472,500

AC Company Retained Earnings before acquisition of DC 712,500

Less: Legal Fees and General Administrative Costs (P 37,500 + P 22,500) 60,000
Total Combined Retained Earnings after acquisition 652,500

Accounts Payable (P 225,000 + P 45,000) 270,000

Bonds Payable (P 675,000 + P 105,000) 780,000
Total Combined Liabilities after acquisition 1,050,000

Cash & Receivables (P 450,000 + P 250,000 – P 450,000 – P 52,500 – P 60,000) 137,500

Inventory (P 900,000 + P 250,000) 1,150,000
Building & Equipment (P 1,687,500 + P 525,000) 2,212,500
Goodwill on Acquisition 175,000
Total Combined Assets after acquisition 3,675,000

7. Which of the following statements is NOT a key feature of the

acquisition method?
a. Goodwill is measured as the consideration transferred plus
the amount of any non-controlling interest, plus the fair
value of any previously held equity interest in the
acquire, less the fair value of the identifiable net assets
acquired
b. The measurement of acquired identifiable assets at fair
value
c. Cost of the business combination is measured at the fair
value of the net assets received from the acquire
d. An acquirer being identified for each business combination

8. Which of the following statements is NOT in accordance with IFRS

3, Business Combinations?

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a. An entity shall account for each business combination by

applying the acquisition method
b. For each business combination, one of the combining
entities shall be identified as the acquirer
c. The acquirer is required to recognize, separate from
goodwill, the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquire
d. The acquirer shall measure the identifiable assets acquired
and the liabilities assumed at their acquisition date
agreed values

9. At the acquisition date, which of the following is NOT required

to be recognized by the acquirer?
a. Liabilities assumed
b. Non-controlling interest in the acquire
c. Goodwill separately from the identifiable assets acquired
d. Retained earnings of the acquiree

10. With respect to the allocation of the cost of a business

acquisition, PFRS 3 requires
a. Cost to be allocated to the assets based on their carrying
values
b. Cost to be allocated based on fair value
c. Cost to be allocated based on original costs
d. None of the above

Problem 2

On January 2, 2016, GINEBRA Corporation purchased 80% of the

outstanding shares of NSD Company for a consideration of P
19,000,000. Including in the price paid is control premium in the
amount of P 500,000. The acquisition-related cost amount to P
45,000. At that date, NSD had P 16,000,000 of ordinary shares
outstanding and retained earnings of P 6,400,000. NSD’s equipment
with a remaining life of 5 years had a book value of P 9,000,000
and a fair value of P 10,520,000. NSD’s remaining assets had book
values equal to their fair values. All intangibles except goodwill
are expected to have remaining lives of 8 years. The income and
dividend figures for both GINEBRA and NSD are as follows: Net
income of GINEBRA in 2016 is P 3,600,000; 2017 is P 4,400,000. Net
income of NSD in 2016 is P 1,360,000; 2017 is P 2,040,000. Dividends
declared by GINERBA in 2016 is P 880,000; 2017 is P 1,560,000.
Dividends declared by NSD in 2016 is P 280,000; 2017 is P 520,000.
GINEBRA’s retained earnings balance at the date of acquisition was
P 13,800,000

11. What is the consolidated retained earnings attributable to

controlling interest in 2017?
a. P 20,953,600
b. P 20,929,600
c. P 21,089,600
d. P 21,332,800

12. What is the consolidated profit in 2017?

a. P 5,720,000
b. P 5,856,000
c. P 5,372,800
d. P 5,752,000

13. What is the non-controlling interest in net assets in 2017?

a. P 5,000,000
b. P 5,209,600
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c. P 5,158,000
d. P 5,182,400

14. What is the non-controlling interest in net income in 2016?

a. P 211,200
b. P 238,400
c. P 272,000
d. P 347,200

Problem 2

Purchase price for 80% 19,000,000

FV of 80% (16,000,000 + 6,400,000 + 1,520,000 x 80%) 19,136,000
Gain on acquisition 136,000

GINEBRA net income, 2016 3,600,000

Gain on acquisition 136,000
Less: Dividend income from NSD (280,000 x 80%) 224,000
Adjusted GINEBRA net income, 2016 3,512,000

NSD net income, 2016 1,360,000

Amortization of excess (1,520,000/5) 304,000
Adjusted NSD net income, 2016 1,056,000

Consoldiated Net Income (3,512,000 + 1,056,000) 4,568,000

RE, Beginning 2016 13,800,000

Add: Consolidated NI Attributable to CI, 2016
CNI, 2016 4,568,000
NCI Net Income, 2016 (211,200) 4,356,800
Less: GINEBRA, dividends declared 2016 880,000
Add: Consolidated NI Attributable to CI, 2017
CNI, 2017 5,720,000
NCI Net Income (347,200) 5,372,800
Less: GINEBRA, dividends declared 2017 1,560,000
Consolidated Retained Earnings, 2017 21,089,600

GINEBRA net income, 2017 4,400,000

Less: Dividend income from NSD (520,000 x 80%) 416,000
Adjusted GINEBRA net income, 2017 3,984,000

NSD net income, 2017 2,040,000

Less: Amortization of excess (1,520,000/5) 304,000
Adjusted NSD net income, 2017 1,736,000

Consolidated Net Income (3,984,000 + 1,736,000) 5,720,000

NCI Net Income (1,736,000 x 20%) 347,200

FV of NCI (16,000,000 + 6,400,000 + 1,520,000 x 20%) 4,784,000

Add: NCI net income, 2016 211,200
Less: Share of NCI in Dividends declared (280,000 x 20%) (56,000)
Add: NCI net income ,2017 347,200
Less: Share of NCI in Dividends declared (520,000 x 20%) (104,000)
NCI, 2017 5,182,400

Net income of NSD 1,360,000

Amortization of excess (1,520,000/5) 304,000
Adjusted net income of NSD 1,056,000
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NCI share in the net income of NSD (1,056,000 x 20%) 211,200

15. IFRS 10, Consolidated Financial Statements set out how to

determine whether one entity has control over another entity.
Which of the following statements is in accordance with the IFRS
10 requirements and guidance for control to exist over another
entity?
a. The investor must have greater than 50% of the voting rights
in the other entity
b. The investor must be the only party that receives variable
returns from the investee
c. The investor must have existing rights that give it the
current ability to direct relevant activities
d. The investor must be represented on the board of directors
or governing body of the other entity

Problem 3

LAKERS Corporation acquired an 80% interest in LA Company on

January 2, 2016 for P 10,080,000. On this date, the share capital
and retained earnings of the two companies follow:
LAKERS Corporation LA Company
Share Capital P 24,000,000 P 9,000,000
Retained Earnings 12,000,000 1,800,000

On January 2, 2016, the assets and liabilities of LA Company were

stated at their fair values except for machinery which is
undervalued by P 900,000 (remaining life is 3 years). On September
30, 2016, LA sold merchandise to LAKERS at an intercompany profit
of P 600,000; ¼ was still unsold at year end. Likewise, on October
1, 2017, LA purchased merchandise from LAKERS for P 14,400,000.
The selling affiliate included a 20% mark-up on cost on this sale.
Only ¾ of these purchases had been sold to unrelated parties as of
December 31, 2017. As of December 31, 2017, goodwill was determined
to be impaired by P 240,000.

The following is the summary of the 2017 transactions of the

affiliated companies:
LAKERS Corporation LA Company
Net Income P 6,000,000 P 2,400,000
Dividends declared and paid 2,400,000 720,000

16. What is the net income attributable to parent shareholders’

equity in the 2017 consolidate financial statements?
a. P 6,432,000
b. P 6,744,000
c. P 6,552,000
d. P 6,834,000

17. What is the non-controlling interest in the net income in the

2017 consolidated financial statements?
a. P 330,000
b. P 342,000
c. P 282,000
d. P 402,000

Problem 3

Amortization of excess fair value of machinery (P 900,000 / 3 years) 300,000

RPBI – Upstream Sales (P 600,000 x ¼) 150,000

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UPEI – Downstream Sales (P 14,400,000 x ¼ x 20/120) 60,000

Impairment of goodwill 240,000

LAKERS LA
Net Income 6,000,000 2,400,000
Less: Amortization of excess fair value of machinery (300,000)
Add: RPBI – Upstream Sales 150,000
Less: UPEI – Downstream Sales (600,000)
Less: Impairment of goodwill (240,000)
Less: Dividends received from subsidiary (P 720,000 x 80%) (576,000) ________
Adjusted Net Income 4,824,000 2,010,000

Consolidated Net Income (P 4,824,000 + P 2,010,000) 6,834,000

Less: NCI Share in the NI of Subsidiary (P 2,010,000 x 20%) (402,000)
CNI Attributable to the Controlling Interest 6,432,000

18. Which of the following statements is consistent with the

principle of control as defined by IFRS 10, Consolidated
Financial Statements?
a. The investor must be exposed to a return from the investee
b. The investor has the ability to use its power over the
investee to affect the investor’s returns from the investee
c. If two or more investors have existing rights to direct
different relevant activities, no investor can have control
over the investee
d. An investor’s power over an investee relates to their
ability to determine the amount of returns received from
the investee

19. Snow White Co. is a wholly owned subsidiary of Fantasy Co.

Both companies have separate general ledgers and prepare
separate financial statements. Snow White Co. requires stand-
alone financial statements. Which of the following statements
is correct?
a. Consolidated financial statements should be prepared for
both snow White and Fantasy
b. Consolidated financial statements should only be prepared
by Fantasy and not by Snow White
c. After consolidation, the accounts of both Fantasy and Snow
White should be changed to reflect the consolidated total
for future ease in reporting
d. After consolidation, the accounts of both Fantasy and Snow
White should be combined together into one general ledger
accounting system for future ease in reporting

20. Which of the following is not a characteristic associated

with intercompany transactions?
a. Intercompany transactions must be eliminated in the
consolidating process
b. Gains and losses must be eliminated in the consolidating
process
c. Transactions that originate with a subsidiary must be
eliminated in the consolidating process
d. Transactions between two subsidiaries to be consolidated
with the same parent do not need to be eliminated

Problem 4

HOPPER Company sells all its output at 20% above cost to JOYCE
Corporation. JOYCE purchases all its inventory from HOPPER. The
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COLLEGE OF ACCOUNTING EDUCATION COMPETENCY APPRAISAL COURSE

incomes reported by the companies over the past three years are as
follows:

2014: Net income of HOPPER amounted to P 150,000 while operating

income of JOYCE amounted to P 225,000

2015: Net income of HOPPER amounted to P 135,000 while operating

income of JOYCE amounted to P 360,000

2016: Net income of HOPPER amounted to P 240,000 while operating

income of JOYCE amounted to P 450,000

HOPPER Company sold inventory for P 300,000, P 262,500 and P

337,500 in the years 2014, 2015, and 2016 respectively. JOYCE
Company reported ending inventory of P 105,000, P 157,500, and P
180,000 for 2014, 2015, and 2016 respectively. JOYCE acquired 70%
of the ownership of HOPPER on January 1 ,2014, at underlying book
value. The fair value of the non-controlling interest at the date
of acquisition was equal to 30% of the book value of HOPPER Company.

21. Based on the information given above, what will be the

consolidated net income for 2014?
a. P 357,500
b. P 375,000
c. P 486,250
d. P 490,000

22. Based on the information given above, what will be the

consolidated net income for 2015?
a. P 317,750
b. P 375,000
c. P 486,250
d. P 490,000

23. Based on the information given above, what will be the income
assigned to controlling interest for 2015?
a. P 448,375
b. P 486,250
c. P 495,000
d. P 615,000

24. Based on the information given above, what will be the income
to noncontrolling interest for 2016?
a. P 37,875
b. P 39,750
c. P 65,875
d. P 70,875

25. Based on the information given above, what will be the income
to controlling interest for 2016?
a. P 615,375
b. P 686,250
c. P 690,000
d. P 694,000

Problem 4

Net Income of Joyce, 2014 225,000

Net Income of Hopper, 2014 150,000
Less: UPEI, 2014 (P 105,000 x 20/120) (17,500)
Consolidated Net Income, 2014 357,500

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Net Income of Joyce, 2015 360,000

Net Income of Hopper, 2015 135,000
Add: RPBI, 2015 17,500
Less: UPEI, 2015 (P 157,500 x 20/120) (26,250)
Consolidated Net Income, 2015 486,250

Consolidated Net Income, 2015 486,250

Less: NCI Net Income in Hopper (P 135,000 + 17,500 – 26,250) x 30% (37,875)
Consolidated Net Income Attributable to Controlling Interest, 2015 448,375

Net Income of Hopper, 2016 240,000

Add: RPBI, 2016 26,250
Less: UPEI, 2016 (P 180,000 x 20/120) (30,000)
Adjusted Net Income of Hopper, 2016 236,250
NCI Net Income in Hopper, 2016 (P 236,250 x 30%) 70,875

Net Income of Joyce, 2016 450,000

Adjusted Net Income of Hopper, 2016 236,250
Less: NCI Net Income in Hopper, 2016 (70,875)
Consolidated Net Income Attributable to Controlling Interest, 2016 615,375

Problem 5

Peanut-Butter Trading Co. operates a branch in Davao City. At close

of the business on December 31, 2017, Davao Branch account in the
Home Office books showed a debit balance of P 484,750. The
interoffice accounts were in agreement at the beginning of the
year. For purposes of reconciling the interoffice accounts, the
following facts were ascertained:
• Furniture and fixtures costing the Home Office, P 19,000 was
picked up by the branch as P 1,900. The branch will maintain
the records of the asset used.
• Freight charge on the merchandise made by the home office for
P 2,700 was recorded in the branch books as P 4,500
• The branch failed to take-up a P 3,000 debit memo from the
home office.
• Home office credit memo for P 2,400 was recorded twice by the
branch
• The Home Office inadvertently recorded a remittance for P
11,000 from its Kalinga branch as remittance from its Davao
Branch.
• On December 30, 2016, the branch sent a check for P 27,000 to
the Home Office to settle its account. The check was not
received by the Home Office until January 4, 2017
• On December 27, 2016, the branch returned P 11,000 of seasonal
merchandise to the home office for the January Clearance sale.
The merchandise was not received by the Home Office until
January 5, 2017.
• The Home Office allocated general expenses of P 5,000 to the
branch. The branch had not entered the allocation at the year
end
• Branch store insurance premiums of P 3,200 were paid by the
Home Office. The branch recorded the amount of P 32,000
• A P 12,000 branch remittance to the home office initiated on
December 28, 2016, was recorded twice by the Home Office on
December 29 and on December 30.
• The Home Office incurred P 18,000 of advertising expenses and
allocated 1/3 of this amount to the branch on December 17,
2016 amounting to P 9,000
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• A branch customer remitted P 7,500 to the Home Office. The

Home Office recorded this cash collection on December 22,
2016. Upon notification on the same year, the branch debited
the amount to Accounts Receivable and credited Home Office
Current
• Inventory costing P 121,900 was sent to the branch by the
home office on December 19, 2016. The billing was at cost,
but the branch recorded the transaction at P 129,100
• A P 32,000 shipment, charged by the Home Office to Davao
Branch was actually sent to and retained by Tagum branch.
• The branch collected a home office accounts receivable of P
9,200 but the home office failed to record such collection
• The branch writes off uncollectible accounts of P 7,500. The
allowance for doubtful accounts is maintained on the books of
the home office. The home office is not yet notified about
the write-off.

26. What is the adjusted balance of branch current account as of

December 31, 2016?
a. P 439,450
b. P 452,750
c. P 467,750
d. P 484,750

27. What is the unadjusted balance of Home Office current account

as of December 31, 2016?
a. P 439,450
b. P 452,750
c. P 467,750
d. P 484,750

28. What is the amount of total adjustments in Home Office current

account?
a. P 17,000 net debit
b. P 28,300 net credit
c. P 28,300 net debit
d. P 45,300 net debit

29. What is the adjusted balance of Home Office current account

as of December 21, 2016?
a. P 439,450
b. P 452,750
c. P 467,750
d. P 484,750

30. What is the amount of total adjustments in Branch current

account?
a. P 45,300 net credit
b. P 28,300 net credit
c. P 28,300 net debit
d. P 45,300 net debit

Problem 5

Furnitures and Fixtures 17,100

Home Office Current Account 17,100

Home Office Current Account 1,800

Freight-in 1,800

Expenses 3,000
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Home Office Current Account 3,000

Receivable 2,400
Home Office Current Account 2,400

Investment in Branch – Davao 11,000

Investment in Branch – Kalinga 11,000

Cash 27,000
Investment in Branch – Davao 27,000

Shipments to Branch 11,000

Investment in Branch – Davao 11,000

Expenses 5,000
Home Office Current Account 5,000

Home Office Current Account 28,800

Prepaid Insurance 28,800

Investment in Branch – Davao 12,000

Cash 12,000

Home Office Current Account 3,000

Advertising Expenses 3,000

Home Office Current Account 15,000

Accounts Receivable 15,000

Home Office Current Account 7,200

Shipments from Home Office 7,200

Investment in Branch – Tagum 32,000

Investment in Branch – Davao 32,000

Investment in Branch – Davao 9,200

Accounts Receivable 9,200

Allowance for Doubtful Accounts 7,500

Investment in Branch – Davao 7,500

Investment in Branch – Davao Home Office Current

Unadj. Bal 484,750 467,750 Unad. Bal
11,000 27,000 1,800 17,100
12,000 11,000 28,800 3,000
9,200 32,000 3,000 2,400
7,500 15,000 5,000
Adj. Bal 439,450 7,200
Adjustment 45,300 439,450 Adj. Bal
28,300 Adjustment

Problem 6

The Home Office in Obrero bills its Catitipan branch for shipments
of goods at 25% above cost. At the close of the business on April
27, 2016, a fire gutted the branch warehouse and destroyed 70% of
the merchandise stock stored therein. Thereafter, the following
data were gathered:
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January 1 Inventory P 672,000

Shipments from Home Office,
January 1 through April 27 1,008,000
Net Sales, January 1 through April 27 1,428,000
Undamaged merchandise recovered
are marked to sell for 378,000

31. What is the amount of inventory destroyed by the fire per

home office records at cost?
a. P 178,500
b. P 273,000
c. P 441,000
d. P 892,500

32. How much is the branch net income as provided by GAAP?

a. P 178,500
b. P 273,000
c. P 441,000
d. P 892,500

Problem 6

Undamaged Merchandise Inventory (30%) 378,000

Total Ending Inventory (378,000/30%) 1,260,000
Total CGAS at SP (1,260,000 + 1,428,000) 2,688,000
Total CGAS (672,000 + 1,008,000) 1,680,000
Mark up on sales (2,688,000 / 1,680,000) 160%
Ending Inventory at Damaged Price (1,260,000 x 70%) 882,000
Ending Inventory at Billed Price (882,000/160%) 551,250
Ending Inventory at Cost (551,250/125%) 441,000

Sales 1,428,000
True Cost of Goods Sold (892,500/125%) 714,000
Gross Profit 714,000
Loss on fire 441,000
Net income 273,000

33. The home office bills its branch for merchandise transfers at
a price in excess of cost. In the home office separate financial
statements, the allowance for unrealized profit in branch
inventory account would appear in the financial statements of
the home office as
a. An operating expense of the current period
b. Deduction from the cost of goods sold
c. Addition to the cost of goods sold
d. Deduction from the investment in branch account

34. Which of the following is the only reason why a home office
cannot report inventory shipments to a branch as sales?
a. The inventory transfer is a transaction with a related
party.
b. There is no practicable means of determining whether the
transfer prices approximate those that would occur in an
arms-length transaction between independent parties
c. Only inventory transaction between the company and outside
third parties can be considered sales
d. The principles of conservatism

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35. An enterprise uses a branch accounting system in which it

establishes separate formal accounting systems for its home
office operations and its branch office operations. Which of
the following statements about this arrangement is false?
a. The home office account on the books of the branch
represents the equity interest of the home office in the
net assets of the branch
b. The branch office account on the books of the home office
represents the equity interest of the branch in the net
assets of the home office
c. The home office and branch office accounts are reciprocal
accounts that must be eliminated in the preparation of the
enterprise’s financial statements that are presented in
accordance with GAAP
d. Unrealized profit from internal transfers between the home
office and a branch must be eliminated in the preparation
of the enterprise’s financial statements that are presented
in accordance with GAAP

END OF ASSESSMENT

NOTHING FOLLOWS

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