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Homework answers / question archive / On January 1, 2021, ABC Co

On January 1, 2021, ABC Co

Accounting

On January 1, 2021, ABC Co. acquired 75% interest in XYZ Co. for P180,000. On this date, the carrying amount of XYZ Co. net identifiable assets was P160,000 equal to fair value. Non-controlling interest was measured using the proportionate share method.

The financial statements of the entities on December 31, 2021 show the following information:

ASSETS   ABC Co. XYZ Co.
Investment in subsidiary (at cost)   180,000 -
Equipment - net   400,000 190,000
Other assets   200,000 45,000
TOTAL ASSETS   780,000 235,000
       
LIABILITIES AND EQUITY      
Liabilities   70,000 25,000
Share Capital   600,000 100,000
Retained Earnings   110,000 110,000
Total Equity   710,000 210,000
TOTAL LIABILITIES AND EQUITY   780,000 235,000

 

    ABC Co. XYZ Co.
Revenues   300,000 80,000
Depreciation Expenses   (40,000) (12,000)
Other Expenses   (32,000) (18,000)
Gain on sale of Equipment   12,000 0
Profit for the year   240,000 50,000


Additional information:

  • On January 1, 2021, right after the business combination, ABC Co. sold equipment with a historical cost of P120,000 and accumulated depreciation of P72,000 to XYZ Co. for P60,000. ABC Co. has been depreciating this equipment over a useful life of 10 years using the straight-line method. XYZ Co. decided to continue this accounting policy and depreciate the equipment over its remaining useful life of 4 years.
  • No dividends were declared by either entity during 2021 and there is also no impairment of goodwill


Required:

Prepare a consolidated statement of financial position and consolidated statement of profit or loss.

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Acquisition analysis [Proportionate method]    
     
Net asset book value 160000  
Share of parent [75%] 120000  
Purchase price 180000  
Goodwill 60000  
     
NCI 40000 =160000*0.25
     
Intercompany sales    
     
Cost 120000  
Acc depre 72000  
Carrying value 48000  
Sale price 60000  
Gain on sale 12000  
Useful life 4  
Depreciation 3000  
Consolidated statement of profit and loss            
  ABC XYZ Dr Cr Consolidated  
Revenue 300000 80000     380000  
Depreciation expense 40000 12000   3000 49000  
Other expenses 32000 18000     50000  
Gain on sale of equipment 12000   12000   0  
Net income 240000 50000     281000  
Attributable to NCI         13250  
Net income attributable to controlling interest         267750  
             
Retained earnings            
             
Beginning balance -130000 60000 60000   -130000  
+Net income 240000 50000 25250 3000 267750  
-dividends         0  
End balance 110000 110000     137750  
             
             
Consolidated statements of financial position            
             
Assets            
Investment in Subsidiary 180000 0   180000 0  
Equipment (net) 400000 190000 3000 12000 581000  
Other assets 200000 45000     245000  
Goodwill     60000   60000  
Total assets 780000 235000     886000  
             
Liabilities and equity            
Liabilities 70000 25000     95000  
Share capital 600000 100000 100000   600000  
Retained earnings 110000 110000 85250 3000 137750  
NCI       53250 53250 =40000+13250
Total liabilities and equity 780000 235000     886000

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