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On January 1, 2021, ABC Co
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.
Expert Solution
| 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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