Consolidated Financial Statements PART 1 Activity - Floria, Meljeanzen C PDF

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PROBLEMS:PROBLEM 1: TRUE OR FALSE The basis for consolidation is power. FALSE Entity A acquires Entity B on November 1, 20x1. The 20x1 consolidated profit includes Entity B’s profit from January 1 to December 31, 20x1 – it is as if control had existed for the entire year. FALSE Goodwill is remeasure...

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Floria, Meljeanzen C.

AE 120 WSat 7:30-9:30

BSMA 3G

PROBLEMS: PROBLEM 1: TRUE OR FALSE 1. The basis for consolidation is power. FALSE 2. Entity A acquires Entity B on November 1, 20x1. The 20x1 consolidated profit includes Entity B’s profit from January 1 to December 31, 20x1 – it is as if control had existed for the entire year. FALSE 3. Goodwill is remeasured to fair value at each reporting date. FALSE Use the following information for the next two items Entity A acquired 90% interest in Entity B on January 1, 20x1 when Entity B’s net assets had a fair value of P100. On December 31, 20x2, Entity B’s net assets increased to P200 after adjustments for acquisition-date fair values, net of depreciation. 4. The NCI on December 31, 20x2 is P20. FALSE 5. Before consolidation, Entity A’s retained earnings balance is P1,000. The consolidated retained earnings is P1,090. TRUE 6. NCI in the net assets of a subsidiary is presented in the consolidated financial statements as a mezzanine item. FALSE 7. Goodwill is attributed both to the owners of the parent and con-controlling interests only if the non-controlling interests are measured at fair value. TRUE 8. The amount of goodwill attributed to non-controlling interests is included in the measurement of non-controlling interests in the subsidiary’s net assets. FALSE Use the following information for the next two items: Day Co. owns 80% of Night Co. Day and Night reported profits of P200 and P100, respectively, in 20x1. There is no depreciation of fair value adjustment. 9. The consolidated profit is P300. FALSE 10. The profit attributable to the owners of Day Co. is P280. FALSE

PROBLEM 5: MULTIPLE CHOICE – THEORY 1. a. b. c.

According to PFRS 10 a parent entity is required to consolidate its subsidiaries. a parent entity is encouraged but not required to consolidate its subsidiaries. a parent need not consolidate a subsidiary if the subsidiary’s business is different from that of the parent. d. a parent entity is required to consolidate its subsidiaries only for internal reporting purposes.

2. Which of the following is not an element of control? a. Power

Floria, Meljeanzen C.

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b. Exposure, or rights, to variable returns c. Major holdings d. Ability to affect return 3. One of the essential elements of control is power. According to PFRS 10, an investor has power if a. the investor holds more than half of the outstanding shares of the investee. b. the investor has existing rights that give it the current ability to direct the investee’s relevant activities. c. the investor’s interest in the earnings of the investee is not fixed but rather varies depending on the level of the earnings. d. the investor’s Kelly is bad. 4. In which of the following instances does Entity A have control over Entity B? a. Entity A holds a majority of the shares of Entity B. The major holdings entitle Entity A to voting rights that relate solely to administrative tasks. b. Entity A holds 90% interest in Entity B. Entity A’s interest in the earnings of Entity B is fixed at 10% of the aggregate par value of Entity A’s shareholdings. c. Entity A holds a majority of the shares of Entity B and is entitled to a variable return on Entity B’s shares. The relevant activities of Entity B are directed by a third party unrelated to Entity A. d. Entity A is the ultimate boss of Entity B. Entity A makes all the major decisions and earns profit the most if Entity B earns profit, but suffers the most if Entity B incurs loss. 5. In which of the following instances does Entity A have control over Entity B? a. Entity A and Entity B both have unilateral rights in directing the relevant activities of Entity B. Entity A’s rights are considered protective rights. b. Entity A has the rights to direct the relevant activities of Entity B but only in accordance with the directives of Entity C. c. Entity A’s right to direct Entity B’s relevant activities is exercisable only upon the occurrence of a contingency. d. Entity A holds a 30-day forward contract to buy a majority of Entity B’s voting rights. The contract can be cancelled in a shareholders meeting. A shareholders meeting will be held in 3 month’s time. 6. Entity A acquired 80% interest in Entity B on December 31, 20x1. How much of Entity B’s profit will be included in the December 31, 20x1 consolidated statement of profit or loss? a. None b. 80% c. 100% d. b or c

Floria, Meljeanzen C.

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7. Goodwill is attributed to both the owners of the parent and non-controlling interests (NCI) if a. the NCI is measured at ‘proportionate share’. b. the NCI is measured at ‘fair value’. c. in both a and b. d. the goodwill is big. 8. Which of the following is incorrect regarding consolidated financial statements? a. A parent is exempt from consolidation if it is itself a subsidiary, its securities are not traded, and its parent produces PFRS consolidated financial statements. b. Consolidation involves adding similar assets, liabilities, income and expenses of the parent and its subsidiaries. c. The subsidiary’s equity is eliminated and replaced with non-controlling interest. d. The consolidated profit pertains only to the parent. 9. How is the non-controlling interest in the subsidiary’s net assets presented in the consolidated statement of financial position? a. As a mezzanine item between liabilities and equity b. Within equity but separately from the equity of the owners of the parent. c. Within equity as part of the retained earnings d. Any of these as a matter of accounting policy choice 10. How is the non-controlling interest (NCI) in the subsidiary’s profit or loss presented in the consolidated statement of profit or loss? a. As part of the group’s profit or loss. The group’s profit or loss is then attributed to both the owners of the parent and NCI. b. Not presented but disclosed either as a footnote or in the notes. The consolidated profit or loss pertains to the parent only. c. The consolidated profit or loss pertains to the parent only. d. Any of these as a matter of accounting policy choice

PROBLEM 6: MULTIPLE CHOICE – COMPUTATIONAL 1. Jeep Co. acquired 60% interest in Taxi Co. on January 1, 20x1. Information on the combining entities’ accounts right after the business combination follows: Other assets Investment in subsidiary Liabilities Net assets

Jeep Co. (Carrying amount) Taxi Co. (Carrying amount) 1,296,000 444,000 360,000 (240,000) (96,000) 1,416,000 348,000

Floria, Meljeanzen C.

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Taxi’s net assets have a fair value of P310,000. The NCI is measured at a fair value of P240,000.

How much is the consolidated total assets? a. b. c. d.

1,954,000 1,992,000 1,965,000 1,972,000

Other assets[1,296,000+(310,000+96,000) Goodwill (see computations below) Total assets

1,702,000 290,000 1,992,000

CT NCI Total FV of net identifiable assets Goodwill

360,000 240,000 600,000 (310,000) 290,000

Use the following information for the next two questions: Strings Corp. acquired 80% of Wind Corp’s voting rights. The statements of financial position of both entities immediately after the acquisition are shown below: Wind Co.

Investment in subsidiary (at cost) Other assets Assets

Strings Co. 430,000 1,570,000 2,000,000

Liabilities Ordinary share capital Retained earnings Liabilities and stockholders’ equity

750,000 1,000,000 250,000 2,000,000

400,000 310,000 40,000 750,000

750,000 750,000

The fair value of Wind’s assets is P50,000 more than the aggregate carrying amounts. Noncontrolling interest is measured under the proportionate share method. 2. a. b. c. d.

How much is the consolidated total assets? 2,910,000 2,480,000 2,430,000 2,370,000

Floria, Meljeanzen C.

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Other assets[1,570,000+(750,000+50,000) Goodwill (see computations below) Total assets

2,370,000 110,000 2,480,000

CT NCI (400,000*20%) Total FV of net identifiable assets (800,000-400,000) Goodwill

430,000 80,000 510,000 (400,000) 110,000

3. What is the breakdown of the consolidated total equity? a. b. c. d.

Owners of the parent 1,310,000 1,250,000 1,250,000 1.250,000

Share Capital Retained Earnings NCI Total equity

NCI 40,000 80,000 350,000 40,000 Owners of the parent 1,000,000 250,000 1,250,000

NCI

80,000 80,0000

Use the following information for the next nine questions: On January 1, 20x1, Square Co. acquired 80% interest in Circle Co. On acquisition date, Circle’s net identifiable assets have a carrying amount of P296,000. Circle’s identifiable assets approximated their fair values except for inventory with carrying amount of P92,000 and fair value of P124,000 and equipment with carrying amount of P160,000 and fair value of P192,000. The remaining useful life of the equipment is 4 years. Non-controlling interest was measured using the proportionate share method. Information on December 31, 20x1 is as follows: ASSETS Cash Inventory Investment in subsidiary (at cost) Equipment, net TOTAL ASSETS

Square Co.

Circle Co.

392,000 420,000 300,000 560,000 1,672,000

316,000 60,000 120,000 496,000

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LIABILITIES AND EQUITY Trade and other payables Share capital Retained earnings Total equity TOTAL LIABLITIES AND EQUITY

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292,000 940,000 440,000 1,380,000 1,672,000

120,000 200,000 176,000 376,000 496,000

Income 1,000,000 200,000 Expenses (400,000) (120,000) PROFIT FOR THE YEAR 600,000 80,000 No dividends were declared by either entity during 20x1. There were also no intercompany transactions and no impairment of goodwill. 4. How much is the net change in the fair value of the subsidiary’s net assets since the acquisition date? a. 100,000 increase b. 60,000 increase c. 100,000 decrease d. 40,000 increase Net assets at carrying amount Fair value adjustments Net assets at fair value (a) FV at acquisition date Inventory Equipment Totals (b) FV at acquisition date less subsequent depreciation Inventory Equipment Totals

January 1, 20x1 December 31, 20x1 P296,000 P376,000 (a) 64,000 (b) 24,000 360,000 400,000 Carrying Amount 92,000 160,000 252,000

Fair value 124,000 192,000 316,000

FVA 1/1/x1

UL

32,000 32,000 64,000

N/A 4 yrs

Depreciatio n 32,000 8,000 40,000

Net change

40,000 FVA 32,000 32,000 64,000 FVA 12/31/x1 24,000 24,000

5. What amount of goodwill is reported in the December 31, 20x1 consolidated financial statements? a. 12,000 b. 42,000 c. 48,000 d. 84,000

Floria, Meljeanzen C.

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CT NCI (360,000*20%) Total FV of net identifiable assets Goodwill

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300,000 72,000 372,000 (360,000) 12,000

6. What amount of goodwill is attributed to non-controlling interests on December 31, 20x1? a. 12,000 b. 2,400 c. 2,000 d. 0 - since it is measured at proportionate share in non-controlling interest 7. a. b. c. d.

How much is the consolidated total assets on December 31, 20x1? 1,867,000 1,894,000 1,904,000 1,907,000

Cash (392,000+316,000) Inventory (420,000+60,000) Equipment, net (560,000+120,000+24,000) Goowill Total assets

708,000 480,000 704,000 12,000 1,904,000

8. How much is the non-controlling interest in the net assets of the subsidiary on December 31, 20x1? a. 40,000 b. 80,000 c. 120,000 d. 160,000 Non-controlling interest in net assets Subsidiary’s net assets at FV – December 31,20x1) Multiply by: NCI percentage Non-controlling interest in net assets – December 31, 20x1 9. a. b. c. d.

400,000 20% 80,000

How much is the consolidated retained earnings on December 31, 20x1? 378,000 392,000 472,000 522,000

Floria, Meljeanzen C.

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Consolidated R/E Parent’s retained earnings – Dec. 31.20x1 Parent’s share in the net change in subsidiary’s net assets Consolidated retained earnings – Dec. 31, 20x1 Net change in Circle’s net assets Multiply by: Square interest in Circle Square’s share in the net change in Circle’s net assets

440,000 32,000 472,000 40,000 80% 32,000

10. How much is the consolidated total equity on December 31, 20x1 attributed to the following? a. b. c. d.

Owners of the parent 1,417,000 1,328,000 1,412,000 1,492,000

NCI 80,000 72,000 80,000 80,000

Share capital Retained earnings NCI Consolidated total equity Subsidiary net asset @ FV 12/31/20x1 Multiply: NCI % NCI in net asset 12/31/20x1

940,000 472,000 80,000 1,492,000 400,000 20% 80,000

11. How much is the consolidated profit in 20x1? a. 720,000 b. 680,000 c. 640,000 d. 568,000 Profits of Square and Circle Co. (600,000+80,000) Depreciation of FVA Consolidated profit

680,000 (40,000) 640,000

12. How much is the consolidated profit attributed to the following? 13. a. b. c. d.

Owners of the parent 544,000 632,000 454,400 600,000

NCI 136,000 8,000 113,600 80,000

Floria, Meljeanzen C.

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Parent’s profit before FVA Share in Circle’s profit before FVA Depreciation of FVA Totals

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Owners of the parent 600,0000 64,000 (32,000) 632,000

NCI 16,000 (8,000) 8,0000

Use the following information for the next eight questions: On January 1, 20x1, Original Co. acquired 60% interest in Pirated, Inc. for P360,000. Information on Pirated’s financial position on acquisition date follows: 

 

The identifiable assets and liabilities approximated their fair values except for inventories with carrying amount of P144,000 and fair value of P96,000, and building with carrying amount of P240,000 and fair value of P250,000. The building has a remaining useful life of 8 years. Pirated’s retained earnings was P48,000. Non-controlling interest is measured at a fair value of P240,000.

Additional information for 20x1:    

The investment in subsidiary is measured at cost. Pirated Co. did not issue additional shares. All if the inventories on January 1, 20x1 were sold. No dividends, intercompany transactions or impairment of goodwill.

A summary of the individual financial information of the entities on December 31, 20x1 is shown below: Original Co. 1,550,000 34,000

Pirated Co. 550,000 132,000

Share capital Retained earnings Total equity

1,200,000 316,000 1,516,000

300,000 118,000 418,000

Sales Cost of sales Other operating expenses Profit for the year

700,000 (200,000) (400,000) 100,000

350,000 (80,000) (200,000) 70,000

Total assets Total liabilities

14. How much is the goodwill attributable to non-controlling interests as of December 31, 20x1?

Floria, Meljeanzen C.

a. b. c. d.

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124,000 116,000 98,000 0

Net assets at carrying amount Fair value adjustments Net assets at fair value (c) FV at acquisition date Inventory Equipment Totals (d) FV at acquisition date less subsequent depreciation Inventory Equipment Totals

January 1, 20x1 December 31, 20x1 348,000 P418,000 (c) (38,000) (d) 8,750 310,000 426,750 Carrying Amount 144,000 240,000 384,000

Fair value 96,000 250,000 346,000

FVA 1/1/x1

UL

(48,000) 10,000 38,000

N/A 8 yrs

CT NCI Total FV of net identifiable assets Goodwill Goodwill Multiply: NCI % Goodwill attributable to NCI

Depreciatio n 48,000 1,250 49,250

360,000 240,000 600,000 (310,000) 290,000 290,000 40% 116,000

15. How much is the consolidated total assets? a. 1,982,750 b. 2,083,750 c. 2,038,750 d. 2,350,450 Assets (1,550,000+550,000+8,750) Investment in subsidiary

2,108,750 (360,000)

Net change 70,000 46,750 116,750 FVA (48,000) 10,000 (38,000) FVA 12/31/x1 8,750 8,750

Floria, Meljeanzen C.

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Gooswill Total assets

290,000 2,038,750

CT NCI Total FV of net identifiable assets Goodwill

360,000 240,000 600,000 (310,000) 290,000

16. How much is the NCI in net assets as of December 31, 20x1? a. 286,700 b. 170,700 c. 132,700 d. 118,700 Net asset at FV 12/31 Multiply:NCI % NCI in net asset

426,750 40% 170,700

17. How much is the equity attributable to the owners of the parent? a. 1,586,050 b. 1,606,750 c. 1,582,650 d. 1,592.050 Share capital Retained earnings Total Equity attributable to parent

1,200,000 386,050 1,586,050

Parent’s RE Parent’s Share in net change in subsidiary net asset (116,750*60%) Retained earnings 18. How much is the consolidated cost of sales? a. 280,000 b. 232,000 c. 328,000 d. 322,000 Cost of sales (200,000+80,000) Cost of sales (inventory)

280,000 48,000

316,000 70,050 386,050

Floria, Meljeanzen C.

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Consolidated cost of sales

232,000

19. How much is the consolidated other operating expenses? a. 610,250 b. 598,750 c. 604,750 d. 581,250 Other operating expenses (400,000+200,000) Depreciation Consolidated other operating expenses

600,000 1,250 601,250

20. How much is the consolidated profit? a. 216,750 b. 123,250 c. 173,150 d. 124,750 Sales (700,000+350,000) Cost of Sales Gross Profit Other operating expenses Consolidated Profit

1,050,000 232,000 818,000 601,250 216,750

21. How is the consolidated profit attributed to the following? a. b. c. d.

Owners of the parent 103,950 138,650 108,050 170,050

Parent profit before FVA Share in subsidiary profit before FVA Depreciation and COGS FVA Totals

NCI 19,300 34,500 16,700 46,700 Parent 100,000 42,000 28,050 170,050

NCI 28,000 18,700 46,700

Consolidated 280,000 70,000 46,750 216,750...