Saint Ferdinand College
College of Accountancy
Accounting for Business Combinations – Short Quiz
Name: ______________________________________________________ Score: ___________
Course and Year: _________________________________________ Date_____________
Modified True or False. Write SLAY if the statement is true and if false, underline the part that makes the statement wrong
and place the correction on the adjacent box.
The unrealized profit on ending inventory decreases
1.
consolidated net income.
The realized profit on beginning inventory increases
2.
consolidated merchandise inventory.
The amortization of the fair value differentials affects the
3.
non-controlling interest in net assets.
The intercompany dividend revenue affects the non-
4.
controlling interest in net income.
The gain on bargain purchase resulting from the acquisition
5. of shares affects the total consolidated net income
attributable to controlling interest.
The impairment of goodwill resulting from the acquisition
6.
of shares affects the consolidated operating expenses.
In acquisition of net assets, the resulting goodwill or gain on
7. bargain purchase is recorded in the books of the surviving
company.
In a merger, the stockholders’ equity of the acquired
8.
company is eliminated in its separate books.
Control premium is included in the computation of the
assumed fair value of the previously held securities based
9.
on the price paid involving the new acquisition in a step
acquisition.
The contingent consideration is recognized to the extent
10.
probable on the date of acquisition.
Problem Solving. Give the answers and provide all the relevant solutions.
1. The SB Company owns 90% of the DP Company. On their separate financial statements, SB Company has liabilities
of P27,300,000, including P672,000 due to DP. DP Company has liabilities of P9,184,000, including P924,000
advances from YG. Compute the total liabilities in SB’s consolidated statement of financial position.
2. GV Company acquired 75% of EZ Company’s outstanding shares for P510,000 cash. At that date, EZ reports
identifiable assets with a book value of P1,040,000 and a fair value of P1,280,000, and it has liabilities with a book
value and fair value of P716,000. Compute the goodwill or (gain on bargain purchase) arising on consolidation if
non-controlling interest is measured at fair value and that control premium of P30,000 is included in the purchase
price.
3. KR Corporation paid P4,500,000 for a 90% interest in CK Corporation on January 1, 2024. The excess of the
aggregate amount over the book value of the identifiable net assets of the acquired company amount to P240,000.
The excess was allocated as follows: P160,000 to an undervalued equipment with a five-year remaining useful life
and the balance to goodwill. Non-controlling interest is measured at fair market value. Net income of KR in 2024
is P2,000,000 ; Net income of CK in 2024 is P500,000. Dividends declared by CK to KR amount to P48,000.
Compute the consolidated net income in 2024.
4. MB owns 70% of DW Company’s outstanding ordinary shares. DW Company, in turn, owns 20% investment in
RC Corporation. During 2024, MB earned a net income of P8,015,000 from its own operations while DW
suffered a loss of P1,500,000 excluding its share in the earnings of associates, if any. RC reported a net income of
P1,087,500. DW declared dividends of P625,000 from its accumulated profits in previous years. What is the
consolidated net income for the year 2024 is?
5. DV Corp. owns 70% of PF Corp’s ordinary shares. On August 1, 2024, DV Corp. acquired an equipment from PF
Corp. for P20,300,000. The carrying amount of the equipment is P11,900,000 and has a remaining life of 8 years.
Due to this intercompany transaction, compute the net adjustment (increase/decrease) in the consolidated net
income attributable to controlling interest for 2024.
6. VG Corp. owns 80% of FC Corp’s ordinary shares. On June 1, 2024, FC Corp. sold equipment to VG Corp. for
P10,500,000. The carrying amount of the equipment is P11,400,000 and has a remaining life of 5 years. Due to
this intercompany transaction, compute the net adjustment (increase/decrease) in the noncontrolling interest in net
income 2024.
7. VP Company acquired a 75% interest in JS Company in 2022. For years ended December 31, 2023 and 2024, JS
reported net income of P5,740,000 and P6,500,000, respectively. During 2023, JS sold merchandise to VP for
P1,520,000 at a cost of P1,040,000. Two-fifths of the merchandise was later resold by VP to outsiders for
P700,000 during 2024. In 2024, VP purchased merchandise from JS for P1,760,000 at a profit of P640,000. One-
fourth of the merchandise was resold by VP to outsiders for P540,000 during 2024. Compute the non-controlling
interest in net income in 2024.
8. XY Co. had the following transactions with two subsidiaries, D1 and D2, during 2024: Sales of P5,880,000 to D1,
Inc., resulting in a P1,764,000 gross profit. D1 had P1,470,000 of this inventory on hand at year-end. Purchases of
raw materials totaling P23,520,000 from D2 Corp., a wholly-owned subsidiary. D2’s gross profit on the sale was
P4,704,000. XY had P5,488,000 of this inventory remaining on December 31, 2024. Before working paper
entries, XY had combined current assets of P29,400,000.
9. VP Company acquired a 80% interest in JS Company in 2022. For years ended December 31, 2023 and 2024, JS
reported net income of P5,740,000 and P6,500,000, respectively. During 2023, JS sold merchandise to VP for
P1,520,000 at a cost of P1,040,000. Two-fifths of the merchandise was later resold by VP to outsiders for
P700,000 during 2024. In 2024, VP purchased merchandise from JS for P1,760,000 at a profit of P640,000. One-
fourth of the merchandise was resold by VP to outsiders for P540,000 during 2024. Compute the non-controlling
interest in net income in 2024.
10. DV Corp. owns 75% of PF Corp’s ordinary shares. On August 1, 2024, DV Corp. acquired an equipment from PF
Corp. for P20,300,000. The carrying amount of the equipment is P11,900,000 and has a remaining life of 8 years.
Due to this intercompany transaction, compute the net adjustment (increase/decrease) in the consolidated net
income attributable to controlling interest for 2024.
