CTTO

Problem 1. On January 1, 20x1, Laughter Co. issued equity instruments in

exchange for 75% interest in Tears Co. Tears Co.’s net identifiable assets have
carrying amount and fair value of ₱ 300,000 and ₱ 360,000, respectively. The
difference is attributable to a building with a remaining useful life of 6 years.

The December 31, 20x1 statements of profit or loss of Laughter Co. and Tears Co.
are summarized below:

Statement of Profit or Loss

For the year ended December 31, 20x1

Laughter Co. Tears Co.

Revenues 1,200,000 480,000

Operating expenses (960,000) (400,000)

Profit for the year 240,000 80,000

1. How much is the consolidated profit in 20x1?

Answer : P 310,000

SOLUTION:

Profits of Laughter Co. and Tears Co.

(P 240,000 + 80,000) P 320,000

Depreciationof FVA (60,000 / 6) 10,000

Consolidated Profit P 310,000

2. How much is the consolidated profit attributable to owners of the parent in

20x1?

Answer : P 292, 500

3. How much is the consolidated profit attributable to non-controlling interest in

20x1?

Answer : P 17,500

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 SOLUTION FOR No. 2 and 3

Owner’s of Parent NCI Consolidated

Parent’s Profits before FVA 240,000 - 240,000

Share in Tears Co,. profit

( 80,000 x 75% )

( 80,000 x 25% ) 60,000

20,000 80,000

Depreciation of FVA

(10,000 x 75%) (7,500)

(10,000 x 25%) (2,500) (10,000)

Consolidated Profit P 292,500 P 17,500 P 310,000

Problem 2. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on
January 1, 2019. At the date, Glen owns only three assets and has no liabilities:

Book Value Fair Value

Inventory P 40,000 P 50,000

Equipment (10-year life) 80,000 75,000
Building (20-year life) 200,000 300,000

1. If Watkins pays P450,000 in cash for Glen, what amount would be presented as
the subsidiary’s Building in a consolidation at December 31, 2021, assuming the
book value at that date is still P200,000?

Answer : P 285,000

SOLUTION:

Building, book value P 200,000

Increase to fair value (P300,000 – P200,000) 100,000

Amortization of allocated excess (P100,000/20 x 3years) ( 15,000 )

Consolidated building, 12/31/2021 P 285,000

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 2. If Watkins pays P400,000 in cash for Glen, what amount would be presented as
the subsidiary’s Building in a consolidation at December 31, 2021, assuming the
book value at that date is still P200,000?

Answer : P 285,000

SOLUTION:

Building, book value P 200,000

Increase to fair value (P300,000 – P200,000) 100,000

Amortization of allocated excess (P100,000/20 x 3years) ( 15,000 )

Consolidated building, 12/31/2021 P 285,000

3. If Watkins pays P450,000 in cash for Glen, what amount would be presented as
the subsidiary’s Equipment in a consolidation at December 31, 2021, assuming the
book value at that date is still P80,000?

Answer : P 76,500

SOLUTION:

Equipment, book value P 80,000

Decrease to fair value (P 75,000 – P 80,000) ( 5,000 )

Amortization of allocated excess (P 5,000/10 x 3 years) 1,500

Consolidated equipment, 12/31/2021 P 76,500

4. If Watkins pays P450,000 in cash for Glen, what allocation should be assigned to
the subsidiary’s Equipment in preparing for consolidation at December 31, 2021,
assuming the book value at that date is still P80,000?

Answer : P 3,500

SOLUTION:

Decrease to fair value (P 75,000 – P 80,000) ( 5,000 )

Amortization of allocated excess (P 5,000/10 x 3 years) 1,500

Consolidated equipment, 12/31/2021 ( 3,500 )

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 Problem 3: Parlor Company acquires 75% of Saloon Company’s common stock for
P225,000 cash. At the date, the non-controlling interest in Saloon has a book value
of P52,500 and a fair value of P82,000. Also, on that date, Saloon reports
identifiable assets with a book value of P400,000 and a fair value of P510,000 and it
has liabilities with a book value and fair value of P190,000.

1. Gain on bargain purchase arising on consolidation if fair value of net identifiable

assets is to be valued on the proportionate basis.

Answer: (P 15,000)

SOLUTION:

Consideration transferred P 225,000

Previous held equity interest in the acquiree -

TOTAL P 225,000

Less: Parents proportionate share in the net assets of

subsidiary (P510,000 – 190,000) x 75%
240,000

Goodwill (Attributable to owners of bargain on purchase) (P 15,000 )

2. Compute the gain on bargain purchase arising on consolidation if fair value of net
identifiable assets is to be valued on the full (fair value) basis.

Answer : (P 13,000)

SOLUTION:

Consideration transferred P 225,000

Non – controlling interest in the acquiree 82,000

Previously held equity interest in the acquiree P 307,000

Less: FV of net identifiable assets

(P510,000 – 190,000) 320,000

Goodwil (Bargain on Sale) (P 13,000)

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