Answered: Requirements: 1. How much is the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

ABC Company paid P2,000,000 for a 70% interest in XYZ Co. on January 1, 2022. ABC Company elected to measure non-controlling interests at its proportionate share in the net asset of XYZ Company. On the date of acquisition, the shareholders' equity of ABC Co. and XYZ Co. are as follows:

	ABC Co.	XYZ Co.
Share capital	P7,500,000	P2,500,000
Share premium	2,000,000	600,000
Retained earnings	1,700,000	600,000

All the assets and liabilities of XYZ Co. approximate their fair values except for the following:

	Carrying value	Fair value
Inventories (all sold in 2022)	P 750,000	P 900,000
Land	1,200,000	1,500,000
Building (5 years remaining life)	1,800,000	2,300,000

Investment in subsidiary is carried using the cost model. During the year. ABC Co. transferred merchandise costing P350,000 to XYZ Co. at a 20% gross profit. XYZ Co. reported that 25% of this shipment was unsold at the end of 2022.

The following financial information at the end of the year are reported in the separate financial statements of both. companies:

	ABC Co.	XYZ Co.
Net income	P450,000	P300,000
Dividends	300,000	225,000

Requirements:

1. How much is the goodwill (gain on bargain purchase) to be reported in the 2022 consolidated financial statements?

2. How much is the initial measurement of the non-controlling interest?

3. How much is the consolidated net income attributable to the parent for 2022?

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