Mark Company acquired 90 percent of Angel Company on January 1, 2011, for P468,000 cash. Angel’s stockholders’ equity consisted of common stock of P320,000 and retained earnings of P160,000. An analysis of Angel’s net assets revealed the following: Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. Book value Fair value Building (10-year life) P 20,000 P16,000 Equipment (4-year life) 28,000 36,000 Land 10,000 24,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Multiple Choice Problems
Mark Company acquired 90 percent of Angel Company on January 1, 2011, for P468,000 cash. Angel’s
Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.
Book value Fair value
Building (10-year life) P 20,000 P16,000
Equipment (4-year life) 28,000 36,000
Land 10,000 24,000
1.) In consolidation at January 1, 2011, what adjustment is necessary for Angel’s Buildings account?
A. P4,000 increase C. P3,600 increase
C. P4,000 decrease D. P3,600 decrease
2.) In consolidation at December 31, 2011, what adjustment is necessary for Angel’s Buildings account?
A. P 3,240 increase C. P 3,600 increase
B. P3,240 decrease D. P3,600 decrease
3.) In consolidation at January 1, 2011, what adjustment is necessary for Angel’s Land account?
A. P14,000 increase C. P12,600 increase
B. P14,000 decrease D. P12,600 decrease
4.) In consolidation at December 31, 2012, what adjustment is necessary for Angel’s Land account?
A. P 0 C. P12,600 increase
B. P14,000 increase D. P12,600 decrease
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