PROBLEM SOLVINGS FOR ACCOUNTING | Exercises Accounting

CPA REVIEW SCHOOL OF THE PHILIPPINES

Advanced Financial Accounting Guerrero/German/DeJesus/Lim//Ferrer/Laco/Valix

IFRS 10: Consolidated Financial Statements

Part I: Theory of Accounts

1. IFRS 10 defines them as financial statements of a group in which the assets,

liabilites, equity, income, expenses and cash flows of the parent and its

subsidiaries are presented as those of a single economic unit.

a. Consilidated financial statements

b. Separate financial statements

c. Group financial statements

d. Combined financial statements

2. Which of the following statements concerning the preparartion of consolidated

financial statements by a parent is incorrect?

a. The parent corporation, as a general rule, shall present consolidated financial

statements including all its subsidiaries regardless of its industry or

dissimilarity.

b. A subsidiary shall be excluded by a parent from the cosolidation simply

because the investor is a venture capital organiztion, mutual fund, unit trust or

similar entity.

c. An investment entity, which (1) obtains funds from one or more investors, (2)

commits to its investors that its business is to invest funds solely for

returns/capital appreciation, and (3) measures and evaluates the performance

substantially all of its investment on a fair value basis is exempted from

preparing consolidated financial statements.

d. A parent corporation, (1) which is wholly-owned or partially-owned subsidiary,

(2) whose debt or equity instrument are not publicly traded, (3) which is not in

the process of initial public offering, and (4) when its immediate or ultimate

parent produces consolidated financial statements available for public use is

exempted from presenting consolidated financial statements.

3. Under IFRS 10, parent corporation is the entity that controls one or more entities.

How does IFRS 10 define control?

a. An investor controls an investee when it is exposed, or has right to variable

return from the investment with the investee and has the ability to affect those

returns through the power over the investee.

b. An investor controls an investee when it has the power to govern the financial

and operating policies of an entity so as to obtain benefits from its activities.

c. An investor controls an investee when it has the ability to influence the

financial and operating policies of an entity so as to obtain benefits from its

activities.

d. An investor controls an investee when it owns more than 50% of all the

outstanding capital stocks, whether common or preferred.

4. Under IFRS 10, it refers to the term used to describe the ownership of the largest

block of voting rights in a situation where the remaining rights are widely

dispersed even if it is less than the majority interest thereby requiringthe holder of

such interest to prepare consolidated financial statements?

a. De jure control

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Advanced Financial Accounting Guerrero/German/DeJesus/Lim//Ferrer/Laco/Valix IFRS 10: Consolidated Financial Statements Part I: Theory of Accounts

IFRS 10 defines them as financial statements of a group in which the assets, liabilites, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic unit. a. Consilidated financial statements b. Separate financial statements c. Group financial statements d. Combined financial statements
Which of the following statements concerning the preparartion of consolidated financial statements by a parent is incorrect? a. The parent corporation, as a general rule, shall present consolidated financial statements including all its subsidiaries regardless of its industry or dissimilarity. b. A subsidiary shall be excluded by a parent from the cosolidation simply because the investor is a venture capital organiztion, mutual fund, unit trust or similar entity. c. An investment entity, which (1) obtains funds from one or more investors, (2) commits to its investors that its business is to invest funds solely for returns/capital appreciation, and (3) measures and evaluates the performance substantially all of its investment on a fair value basis is exempted from preparing consolidated financial statements. d. A parent corporation, (1) which is wholly-owned or partially-owned subsidiary, (2) whose debt or equity instrument are not publicly traded, (3) which is not in the process of initial public offering, and (4) when its immediate or ultimate parent produces consolidated financial statements available for public use is exempted from presenting consolidated financial statements.
Under IFRS 10, parent corporation is the entity that controls one or more entities. How does IFRS 10 define control? a. An investor controls an investee when it is exposed, or has right to variable return from the investment with the investee and has the ability to affect those returns through the power over the investee. b. An investor controls an investee when it has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. c. An investor controls an investee when it has the ability to influence the financial and operating policies of an entity so as to obtain benefits from its activities. d. An investor controls an investee when it owns more than 50% of all the outstanding capital stocks, whether common or preferred.
Under IFRS 10, it refers to the term used to describe the ownership of the largest block of voting rights in a situation where the remaining rights are widely dispersed even if it is less than the majority interest thereby requiringthe holder of such interest to prepare consolidated financial statements? a. De jure control

b. De facto control c. Legal control d. Nominal control

Parent corporation has 51% interest in listed entity Sub Inc. Sub is highly- leveraged and started making losses. Parent decided to sell 2% to an investment bank. The post-sale structure shows that Parent Corp. has only 49% interest, investment bank has 2% interest and the remaining 49% interest owned by many shareholders other than the investment bank each with less than 1% pf votes and there is no arrangement among them to vote collectively. Upon the sale, Parent corporation can easily reacquire controlling interest in Sub by buying shares in the market and expects to continue managing Sub through election of directors in Sub’s general meeting. Sub Inc. is listed with deep and liquid market for shares. Is the Parent still required to consolidated Sub Inc. in its consolidated financial statements? a. No because it has no control considering it only has 49% interest in Sub. b. Yes because there is de facto control on the part of the Parent Corp. over the relevant activities of Sub Inc. c. No because control is not shown by relevant facts. d. Yes even if the other shareholdrs will connive to gain control.
An investee’s only business activity is to purchase receivables and service them on a day-to-day basis. Servicing involves collection and passing on of principal and interest payments. Upon default, the investee automatically puts the receivable to investor X as agreed separately in a put agreement with investor X. Is investor X required to consolidate investee in its consolidated financial statements? a. Yes because X controls the investee’s relevant activity that is managing the receivables upon default which significantly affects the investee’s returns. b. No because there is no statement as regards to majority ownership of stocks. c. Yes but only if X owns 51% or more of voting stocks of investee. d. No because there is no link of power over the investee to the exposure/right to variable returns of investment.
How shall the parent corporation present the Non-controlling Interest (NCI) in the Consolidated Statement of Financial Position? a. It shall be presented within the Consolidated Stockholders’ Equity, separately from the equity of the owners of the parent. b. It shall be presented as non-current liability. c. It shall be presented as non-current asset. d. It shall be presented as contract equity account like treasure shares and subscription receivable.
Which of the following income items shall not affect both CNI to Parent (CONSORE) and NCINI/(NCINAS)? a. Gain on bargain purchase arising from business combination b. Unrealized/realized income/expense arising from transactions between two subsidiaries owned by the same parent. c. Unrealized/realized income/expense arising from downstream transactions or from parent subsidiary. d. Impairment loss of goodwill from business combination initially measured using proportionate share of fair value of net asset acquired.

separate statement of comprehensive income when its right to receive dividend is established. d. The dividends from a subsidiary, joint venture or associate shall be eliminated through proportionate consolidation in the separate statement of comprehensive income.

When the parent corporation elects to account its investments in subsidiaries, associates or jointly controlled entities in its separate financial statements using equity method, how shall it recognize its dividends from a subsidiary, joint venture or associate? a. The dividends from a subsidiary, joint venture or associate shall be recognized as dividend income as part of profit or loss of separate financial statement of comprehensive income when its right to receive dividend is established. b. The dividends from a subsidiary, joint venture or associate shall be recognized as deduction from investment account when its right to receive dividend is established. c. The dividends from a subsidiary, joint venture or associate shall be recognized as dividend income as part of other comprehensive income of separate statement of comprehensive income when its right to receive dividend is established. d. The dividends from a subsidiary, joint venture or associate shall be eliminated through proportionate consolidation in the separate statement of comprehensive income. PART II: Problem Solving PROBLEM 1. Galaxy Corporation acquired 80% of the outstanding shares of United Company on June 1, 2016 for P3,517,500. United Company’s stockholders equity components at the end of this year as follows: Ordinary shares, P100 par, P1,500,000, Share premium P675,000 and Retained earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of united were fairly valued, except for inventories, which are overstated by P66,000 and equipment which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of Galaxy on January 1, 2016 is composed of ordinary shares P4,500,000, Share Premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year-end. Net income for the first year of parent is P450,000 and the net income of subsidiary from the date of acquisition is P255,000. Dividends declared at the end of the year amounted to P120,000 and P90,000. During the year, there was no issuance of new ordinary shares.
How much is the non-controlling interest in net assets on December 31, 2016? a. 871, b. 763, c. 745, d. 731,
What is the amount of consolidated shareholder’s equity? a. 9,122, b. 9,853, c. 8,773, d. 9,867,

PROBLEM 2. GV Company purchased 70% ownership of DL Company on January 1, 2016 at underlying book value. While each company had its own sales forces and independent product lines, that were substantial intercorporate sales of inventory each period. The following intercoporate sales occurred during 2017 and 2018: Cost of Sales Unsold at Year Sold Year Seller Product Sold Buyer Price End of Year to Outsiders 2017 GV Co. 448,000 DL Co. 640,000 140,000 2018 2018 DL Co. 312,000 GV Co. 480,000 77,000 2019 2018 GV Co. 350,000 DL Co. 437,500 63,000 2019 The following data summarized the results of their financial operations for the year ended December 31, 2018: GV Company DL Company Sales 3,850,000 1,680, Gross Profit 1,904,000 504, Operating Expenses 770,000 280, Ending Inventories 336,000 280, Dividend Received from affiliate 126,000 - Dividend Received from nonaffiliate - 70,

What are the consolidated sales and consolidated cost of goods sold at the end of 2018? a. 4,612,500 and 2,457, b. 4,612,500 and 2,206, c. 4,612,500 and 2,202, d. 5,530,000 and 2,202,
What is the consolidated net income attributable to parent shareholder’s equity and non-controlling interest in net income at the end of 2018? a. 1,301,335 and 59, b. 1,476,335 and 59, c. 1,476,335 and 80, d. 1,350,335 and 80, PROBLEM 3. On January , 2016, RX Company purchased 80% of the shares of MB Corporation at book value. The shareholders’ equity of MB Corporation on this date showed: Ordinary Shares – P570,000 and Retained Earnings – P490,000. On April 30, 2016, RX Company acquired a used machinery for P84,000 from MB Corp. that was being carried in the latter’s books at P105,000. The asset still has a remaining useful life of 5 years. On the other hand, on August 31, 2016, MB Corp. purchased an equipment that was already 20% depreciated from RX Co. for P345,000. The original cost of this equipment was P375,000 and had a remaining life of 8 years. Net income of RX Co. and MB Corp. for 2016 amounted to P360,000 and P155,000. Dividends paid totaled to P115,000 and P52,500 for RX Co. and MB Corp., respectively.

Consolidated Operating Expenses a. 4,340, b. 4,140, c. 4,380, d. 4,300, PROBLEM 5. A summary of the separate income statement of Techno Corporation and its 75% owned subsidiary, Duo Company, for 2017 were as follows: Techno Duo Sales P9,000,000 P5,400, Gain on sale of equipment 180,000 -------------- Cost of goods sold (3,600,000) (2,340,000) Depreciation expense (900,000) (540,000) Other expenses (1,440,000) (720,000) Income from operations P3,240,000 P1,800, There was an upstream sale of equipment with a book value of P720,000 for P1,170,000 on January 2, 2015. At the time of intercompany sale, the equipment had a remaining useful life of 5 years. Techno uses straight-line depreciation. The buying affiliate used the equipment until December 31, 2017, at which time it was sold to Genex for P648,000. What is the amount of net profit attributable to non-controlling interests for 2017? a. P517, b. 472, c. 450, d. 562, PROBLEM 6. On July 1, 2016, Density Company, purchased 80% of the outstanding shares of Evolve Company at cost of P4,000,000. On that date, Evolve had P2,500, of Ordinary Shares and P3,500,000 of Retained Earnings. For 2016, Density had income of P1,400,000 from its separate operations and paid dividends of P750,000. For 2016, Evolve reported income of P325,000 and paid dividends of P150,000. All assets and liabilities of Evolve have a book values equal to their respective market values. On October 1, 2016, there was an upstream sale of machinery for P500,000. The book value of the machinery on that date was P600,000. The machinery is expected to have a useful life of 5 years from the date of sale. In the December 31, 2016 consolidated statement of financial position, how much is the consolidated net income attributable to the controlling interest? a. 1,606, b. 2,326, c. 2,366, d. 2,406,

PROBLEM 7: Superior company owns 60% of Uptown Corporation, which in turn owns 80% of Newton Company. Uptown exercises control over Newton and Superior exercises control over Uptown. The following information is available: Superior Uptown Newton Company Company Company Income from continuing Operations P,3,900,000 P2,600,000 P1,500, Cash dividends declared by: 250,000 180,000 110, Cash dividends from: Associate(s) 75,000 50,000 - nil- Other investments at fair value - nil- 90,000 40, Net unrealized inter-company gains/(losses) P360,000 (220,000) 160, within current year income downstream downstream upstream Amortization relating to excess of fair value over book value/(book value over fair value) of investment (190,000) 140,000 - nil- What is the consolidated net income attributable to Superior Company stockholders? a. 5,939, b. 8,893, c. 5,834, d. 5,901,

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PROBLEM SOLVINGS FOR ACCOUNTING, Exercises of Accounting

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