Coverage:

-​ Home office and branch accounting

-​ Business combination (part i & ii)

Numbers 1 and 2 are based on the following information:

Manila Co. has a branch in Quezon City. On December 31, 2024, Quezon City
Branch showed a Home Office Current balance of P450,000. The interoffice
accounts were the same at the beginning of the year. For purposes of
reconciling the reciprocal accounts, the following facts were ascertained:
a. The home office erroneously recorded a remittance for P4,800 from its
Bacolod branch as a remittance from its Quezon City branch.
b. The branch failed to take up a P850 debit memo from the home office
representing the share of the branch in marketing expense.
c. Home office credit memo representing a discount on merchandise for P1,200
was not recorded by the branch.
d. Advertising expense of P1,225 charged by the home office was taken up
twice by the branch.
e. Freight charge on merchandise made by the home office for P1,125 was
recorded in the branch books as P1,215.
f. An asset transfer of equipment costing the home office P2,500 was picked
up by the branch as P250.

1.​ What is the adjusted balance of the reciprocal accounts on December 31,
2024?
A. 449,235
B. 451,285
C. 450,585
D. 453,035

2.​ What is the unadjusted balance of the Investment in Branch account in the
books of the Home Office on December 31, 2024?
A. 448,235
B. 445,785
C. 444,435
 D. 446,485

Numbers 3 - 6 are based on the following information:

During 2024, goods were shipped to the branch with a markup of 120% of cost.
The Shipments-to-branch account in the home office amounted to P237,500.
The balance of the unrealized branch inventory account reports a balance of
P375,000 before adjustment. The beginning inventory of the branch from the
home office at cost is P360,000 and from outsiders, P93,000. The branch
purchased goods from outsiders during the year amounting to P125,200. The
ending inventory of the branch is reported in the combined statement of
financial position at P345,000, 20% of which is purchased from outside
suppliers.

3.​ What is the cost of goods available for sale reported in the branch’s income
statement for the year ended December 31, 2024?
A. 522,500
B. 972,500
C. 1,190,700
D. 218,200
4.​ What is the cost of goods sold to be reported in the branch’s income
statement for the year ended December 31, 2024?
A. 551,075
B. 514,500
C. 790,500
D. 470,700
5.​ What is the cost of goods available for sale reported in the combined income
statement for the year ended December 31, 2024?
A. 597,500
B. 815,700
C. 914,700
D. 905,700

6.​ What is the cost of goods sold reported in the combined income statement for
the year ended December 31, 2024?
A. 470,700
B. 755,700
C. 560,700
D. 461,075

7.​ On June 1, 2024, the Bacolod Main Office established a sales agency in Talisay.
The main office sent samples of its merchandise amounting to P8,400 and a
working fund amounting to P72,000 to be maintained on the imprest basis. The
samples sent were intended to last until January 1, 2025. The agency
transmitted to the home office P364,500 worth of sales orders which have a
cost of P291,600 but the home office was not able to invoice 35% of the said
transmitted sales orders.
 Collections from customers amounted to P82,175, net of 5% sales discount.
Payments made by the agency were annual rent P70,200, advertising
expenses for 3 months P4,650 and utilities also for 3 months P6,300. The
agency also purchased equipment on July 1, 2024 worth P11,000 which will be
depreciated at 15% per annum.

What is the net income of the agency for the three months ended August 31,
2024?
A. 18,610
B. 14,285
C. 14,147.50
D. 10,685

8.​ Which of the following transactions will increase the branch account in the
home office’s separate statement of financial position?
A. Return of inventory from branch to home office
B. Payment by the branch of home office’s liability
C. Receipt by the home office of credit memo from the branch
D. Collection by the home office of branch’s receivable

Ans: C
9.​ What is the main reason for the difference between the reported net income
by the branch and the true net income of the branch computed by the home
office?
A. Because of overstatement of branch’s cost of sales for goods coming from
outsiders
B. Because of overstatement of branch’s cost of sales for goods coming from
home office
C. Because of overstatement of total goods available for sale coming from
home office
D. Because of overstatement of branch’s ending inventory coming from home
office

Ans: B

10.​ On August 31, 2020, Wood Corp. issued 100,000 shares of its P20 par value
common stock for the net assets of Pine, Inc., in a business combination
accounted for by the acquisition method. The market value of Wood's
common stock on August 31 was P36 per share. Wood paid a fee of P160,000 to
the consultant who arranged this acquisition. The cost of registering and
issuing the equity securities amounted to P80,000. No goodwill was involved in
the purchase. What amount should Wood capitalize as the cost of acquiring
Pine's net assets?
a. 3,600,000 ​​ b. 3,680,000 ​​ c. 3,760,000 ​ ​ d. 3,840,000

11.​ The Gem Corp. acquired 100% of the Koala Co. for a consideration transferred
of P112,000,000. At the acquisition date, the carrying amount of Koala's net
assets was P100,000,000 and their fair value was P120,000,000. How should the
 difference between the consideration transferred and the net assets acquired
be presented in Gem's financial statements, according to IFRS 3, Business
Combination?
a. Gain on bargain purchase of P8,000,000 recognized in other comprehensive
income.
b. Gain on bargain purchase of P8,000,000 deducted from other intangible
assets.
c. Gain on bargain purchase of P8,000,000 recognized in profit or loss.
d. Goodwill of P12,000,000 as an intangible asset.

Ans: C

12.​ 100% of the equity share capital of the Roman Co. was acquired by the Sweet
Co. on July 30, 2016. Sweet Co. issued 500,000 new P1 ordinary shares which
had a fair value of P8 each at the acquisition date. In addition, the acquisition
resulted in Sweet incurring fees payable to external advisers of P200,000 and
share issue costs of P180,000. In accordance with IFRS 3, Business Combination,
goodwill at the acquisition date is measured by subtracting the identifiable
assets acquired and the liabilities assumed from
a. 4,000,000 ​​ b. 4,180,000 ​ ​ c. 4,200,000 ​ ​ d. 4,380,000

13.​ On April 7, 2020, Dart Co. paid P620,000 for all the issued and outstanding
common stock of Wall Corp. in a transaction properly accounted as a
purchase. The recorded assets and liabilities of Wall Corp. on April 1, 2020 are:

Cash ​​ ​ ​ ​ ​ ​ ​ ​ ​ 60,000
Inventory ​ ​ ​ ​ ​ ​ ​ ​ 180,000
Property and equipment (net of accumulated
 depreciation of P220,000) ​ ​ ​ ​ ​ 320,000
Goodwill ​ ​ ​ ​ ​ ​ ​ ​ 100,000
Liabilities ​ ​ ​ ​ ​ ​ ​ ​ (120,000)
Net-assets ​ ​ ​ ​ ​ ​ ​ ​ 540,000

On April 1, 2020, Wall's inventory had a fair value of P150,000 and the property
and equipment (net) had a fair value of P380,000. What is the amount of
goodwill resulting from the business combination?
a. 150,000 ​ ​ b. 120,000 ​ ​ c. 50,000 ​ ​ d. 20,000

14.​ The Lamp Co. acquired a 70% interest in the Óhau Co. for P1,960,000 when the
fair value of Ohau's identifiable assets and liabilities was P700,000 and elected
to measure the non-controlling interest at its share of the identifiable net
assets. Annual impairment reviews of goodwill have not resulted in any
impairment losses being recognized. Ohau's current statement of financial
position shows share capital of P100,000, a revaluation reserve of P300,000 and
retained earnings of P1,400,000. Under IFRS 3, Business Combination, what
figure in respect of goodwill should now be carried in Lamp's consolidated
statement of financial position?
a. 1,470,000 ​ ​ b. 160,000 ​ ​ c. 1,260,000 ​ ​ d. 700,000
15.​ The Chief Executive Officer (CEO) of Buy-It Company is contemplating selling
the business to new interests. The cumulative earnings for the past 5 years
amounted to P800,000. The annual earnings, based on an average rate of
return on investment for this industry, would have been P145,000. If excess
earnings are to be capitalized at 8%, what would be the implied goodwill in this
transaction?
a. 937,500 ​ ​ b. 800,000 ​ ​ c. 187,500 ​ ​ d. 52,400

Average earnings (800,000/5) ​ ​ ​ ​ ​ ​ 160,000

Less normal earnings ​ ​ ​ ​ ​ ​ ​ 145,000
Excess earnings ​ ​ ​ ​ ​ ​ ​ ​ 15,000
Multiply by capitalization rate ​ ​ ​ ​ ​ ​ 8%
Goodwill ​ ​ ​ ​ ​ ​ ​ ​ ​ 187,500

16.​ In a business combination accounted for by purchase, Major Corp. issued

non-voting, non-convertible preferred stock with a fair value of P8,000,000 in
exchange for all of the outstanding common stock of Minor Co. On the
acquisition date, Minor had tangible net assets with a carrying amount of
P4,000,000 and a fair value of P5,000,000. In addition, Major issued preferred
stock valued at P800,000 to an individual as a finder's fee in arranging the
transaction. As a result of this transaction, Major should record an increase in
net assets of
a. 4,000,000 ​​ b. 5,000,000 ​​ c. 5,800,000 ​ ​ d. 8,000,000

Fair value of preferred stock issued - Minor Co. ​ ​ ​ 8,000,000

17.​ On January 1, 2020, Dragons Corp. acquired the net assets of Blue Marlins Corр.
in a business combination. At that date, the property, plant and equipment of
Blue Marlins had a book value of P21,000,000 and a fair value of P22,500,000.
These assets were originally acquired at a cost of P30,000,000, but would
presently cost P12,000,000. Using the acquisition method, what amount should
the combined entity report its property, plant, and equipment account?
a. 36,000,000 ​ b. 30,000,000 ​ c. 22,500,000 ​ d. 21,000,000
18.​ An entire acquired entity is sold. The goodwill remaining from the acquisition
should be
a. Included in the carrying amount of the net assets sold.
b. Charged to retained earnings of the current period.
c.Expensed in the period sold.
d. Charged to retained earnings of prior periods.

Ans: A

Numbers 19 to 20 are based on the following information:

The Statement of Financial Position of BK Company as of December 31, 2023
were as follows:
Book Value
Cash ​ ​ ​ ​ ​ P2,000,000
Accounts Receivable ​ ​ 2,500,000
Inventories ​ ​ ​ ​ 4,200,000
Plant & Equipment, net ​ ​ 5,000,000
Goodwill ​ ​ ​ ​ 500,000
Liabilities ​ ​ ​ ​ 7,000,000
Share Capital, P200 par ​ ​ 5,200,000
Retained Earnings ​ ​ ​ 2,000,000

On January 2, 2024, LZ Company acquired all the identifiable net assets of BK

Company for P9,000,000 cash. A contingent consideration of P500,000 is to be
paid to the stockholders of the dissolved company, depending on the
outcome of the specific target. Only 60% of the consideration to be transferred
is probable on the date of acquisition. The fair value of the inventories of BK is
undervalued by 300,000, and P500,000 undervalues its plant & equipment.
Out-of-pocket costs of the business combination were paid in the amount of
P200,000.

On the date of acquisition, the goodwill in the acquirer's books amounted to

P400,000. On August 1, 2024, the amount of contingent consideration was
increased by P150,000 due to improved information regarding relevant facts
 and circumstances on January 2, 2024. On October 31, 2024, the amount of
contingent consideration was decreased by P80,000 due to the massive
destruction brought about by the calamities that recently hit the country.

19.​ Compute the amount of goodwill shown on the statement of financial position
of LZ Company as of August 31, 2024.
A. 1,800,000
B. 2,350,000
C. 1,450,000
D. 1,950,000

20.​Compute the amount of goodwill shown on the statement of financial position

of LZ Company as of December 31, 2024.
A. 2,270,000
B. 1,950,000
C. 2,350,000
D. 1,450,000

NOTE: Since the reason for change of the contingent consideration on October
31, 2024 was due to a massive destruction brought by calamities, meaning it
was based on NEW information, therefore it is not a measurement period
adjustment. No effect in the goodwill

21.​ Statement (1) The unrealized profit on ending inventory decreases

consolidated net income.
 Statement (2) The realized profit on beginning inventory increases
consolidated merchandise inventory.

A. Only the first statement is true

B. Only the second statement is true
C. Both statements are true
D. Both statements are false.

Ans: A

22.​Statement (1) The amortization of the fair value differentials affects the
non-controlling interest in net assets.
Statement (2) The intercompany dividend revenue affects the non-contolling
interest in net income.

A. Only the first statement is true

B. Only the second statement is true
C. Both statements are true
D. Both statements are false

Ans: A

23.​Statement (1) The gain on bargain purchase resulting from the acquisition of
shares affects the total consolidated net income attributable to controlling
interest.
Statement (2) The impairment of goodwill resulting from the acquisition of
shares affects the consolidated operating expenses.
A. Only the first statement is true
B. Only the second statement is true
C. Both statements are true
D. Both statements are false

Ans: C
24.​Statement (1) In acquisition of net assets, the resulting goodwill or gain on
bargain purchase is recorded in the books of the surviving company.
Statement (2) In a merger, the stockholders’ equity of the acquired company
is eliminated in its separate books.
A. Only the first statement is true
B. Only the second statement is true
C. Both statements are true
D. Both statements are false

Ans: C

25.​Statement (1) Control premium is included in the computation of the assumed

fair value of the previously held securities based on the price paid involving
the new acquisition in a step acquisition.
Statement (2) The contingent consideration is recognized to the extent
probable on the date of acquisition.
A. Only the first statement is true
B. Only the second statement is true
C. Both statements are true
D. Both statements are false

Ans: C

26.​The SB Company owns 90% of the DP Company. On their separate financial

statements, SB Company has liabilities of P27,300,000, including P672,000 due
to DP. DP Company has liabilities of P9,184,000, including P924,000 advances
from YG. Compute the total liabilities in SB’s consolidated statement of
financial position
A. 36,484,000
B. 35,812,000
C. 34,888,000
D. 0
27.​GV Company acquired 75% of EZ Company’s outstanding shares for P510,000
cash. At that date, EZ reports identifiable assets with a book value of P1,040,000
and a fair value of P1,280,000, and it has liabilities with a book value and fair
value of P716,000. Compute the goodwill or (gain on bargain purchase) arising
on consolidation if non-controlling interest is measured at fair value and that
control premium of P30,000 is included in the purchase price
A. 106,000
B. 116,000
C. (87,000)
D. 57,000

28.​KR Corporation paid P4,500,000 for a 90% interest in CK Corporation on

January 1, 2024. The excess of the aggregate amount over the book value of
the identifiable net assets of the acquired company amount to P240,000. The
excess was allocated as follows: P160,000 to an undervalued equipment with a
five-year remaining useful life and the balance to goodwill. Non-controlling
interest is measured at fair market value. Net income of KR in 2024 is
P2,000,000 ; Net income of CK in 2024 is P500,000. Dividends declared by CK to
KR amount to P48,000.

Compute the consolidated net income in 2024

A. 2,420,000
 B. 2,468,000
C. 2,340,000
D. 2,383,200

CNI 2024: [2,000,000 + 500,000 - 48,000 - (160,000/5)] = ​ ​ 2,420,000

29.​MB owns 70% of DW Company’s outstanding ordinary shares. DW Company, in

turn, owns 20% investment in RC Corporation. During 2024, MB earned a net
income of P8,015,000 from its own operations while DW suffered a loss of
P1,500,000 excluding its share in the earnings of associates, if any. RC reported
a net income of P1,087,500. DW declared dividends of P625,000 from its
accumulated profits in previous years.

The consolidated net income for the year 2024 is

A. 7,117,250
B. 6,527,500
C. 6,679,750
D. 6,732,500

CNI 2024: [(1,087,500 x 20%) - 1,500,000]+ 8,015,000 = 6,732,500

30.​DV Corp. owns 70% of PF Corp’s ordinary shares. On August 1, 2024, DV Corp.
acquired equipment from PF Corp. for P20,300,000. The carrying amount of the
equipment is P11,900,000 and has a remaining life of 8 years.

Due to this intercompany transaction, compute the net adjustment

(increase/decrease) in the consolidated net income attributable to controlling
interest for 2024

A. 5,573,750 decrease
B. 7,350,000 increase
C. 7,962,500 decrease
D. 5,145,000 increase
 Net Decrease: (20,300,000 - 11,900,000) = (8,400,000)(URG) + [(8,400,000/8) x
5/12] = 437,500(RG) = (7,962,500) x 70% = (5,573,750)

31.​ VG Corp. owns 80% of FC Corp’s ordinary shares. On June 1, 2024, FC Corp. sold
equipment to VG Corp. for P10,500,000. The carrying amount of the equipment
is P11,400,000 and has a remaining life of 5 years.

Due to this intercompany transaction, compute the net adjustment

(increase/decrease) in the non-controlling interest in net income 2024

A. 795,000 decrease
B. 636,000 increase
C. 144,000 decrease
D. 159,000 increase

Net increase: (10,500,000 - 11,400,000) = 900,000(URL) - [(900,000/5) x 7/12] =

105,000(RL) = 795,000 x 20% = 159,000

32.​VP Company acquired a 75% interest in JS Company in 2022. For years ended
December 31, 2023 and 2024, JS reported net income of P5,740,000 and
P6,500,000, respectively. During 2023, JS sold merchandise to VP for P1,520,000
at a cost of P1,040,000. Two-fifths of the merchandise was later resold by VP to
outsiders for P700,000 during 2024. In 2024, VP purchased merchandise from
JS for P1,760,000 at a profit of P640,000. One-fourth of the merchandise was
resold by VP to outsiders for P540,000 during 2024.

Compute the non-controlling interest in net income in 2024

A. 1,553,000
B. 1,657,000
C. 1,577,000
D. 1,673,000
33.​XY Co. had the following transactions with two subsidiaries, D1 and D2, during
2024: Sales of P5,880,000 to D1, Inc., resulting in a P1,764,000 gross profit. D1 had
P1,470,000 of this inventory on hand at year-end. Purchases of raw materials
totaling P23,520,000 from D2 Corp., a wholly-owned subsidiary. D2’s gross
profit on the sale was P4,704,000. XY had P5,488,000 of this inventory
remaining on December 31, 2024. Before working paper entries, XY had
combined current assets of P29,400,000.

Compute the amount XY should report in its December 31, 2024, consolidated
financial position for current assets
A. 22,442,000
B. 29,400,000
C. 27,861,400
D. 30,938,600

Consolidated current assets: 29,400,000 - {[1,764,000 x (1,470/5,880)](UPEI) -

[4,704,000 x (5,488,000/23,520,000)]}(UPEI) = 27,861,400

NOTE: UPEI implies that the cost of goods sold is understated because the
ending inventory is OVERSTATED.

34.​The Home Office in Manila established a branch in Bacolod. At the end of the
year the reciprocal account in the books of Manila was P350,000, however, the
following transactions were not recorded by the receiving party:

a) A debit memo in the amount of P10,000 was sent by Bacolod

b) A credit memo in the amount of P20,000 was sent by Manila
c) A credit memo in the amount of P30,000 was sent by Bacolod
 What is the adjusted balance of the reciprocal account at the end of the year?
A. 350,000
B. 370,000
C. 330,000
D. 390,000

35.​The home office sends merchandise to the branch at a billed price of 150%. In
the separate books of the home office, the allowance for overvaluation
account had a balance of P120,000. In the combined statement, the ending
inventory of the branch was P80,000 of which P20,000 came from outsiders.

What is the overstatement of the cost of goods sold on the branch from the
home office merchandise?
A. 40,000
B. 100,000
C. 90,000
D. 10,000
36.​On January 1, 2024, Parent Corp. and Subsidiary Corp. had the following
condensed statements of financial position:
Parent ​ Subsidiary
Current assets ​ ​ ​ ​ ​ 140,000 ​ ​ 40,000
Noncurrent assets ​ ​ ​ ​ ​ 180,000 ​ ​ 80,000
Total assets ​​ ​ ​ ​ ​ 320,000 ​ 120,000
Current liabilities ​ ​ ​ ​ ​ 60,000 ​ ​ 20,000
Long-term debt ​ ​ ​ ​ ​ 100,000 ​ ​ -
Stockholders’ equity ​ ​ ​ ​ 160,000 ​ 100,000
Total liabilities and stockholders’ equity ​ 320,000 ​ ​ 120,000

On January 2, 2024, Parent borrowed P120,000 and used the proceeds to

purchase 90% of the outstanding common shares of Subsidiary. This debt is
payable in ten equal annual principal payments, plus interest, beginning
December 30, 2024. The excess cost of the investment over Subsidiary’ book
value of acquired net assets should be allocated 60% to inventory and 40% to
goodwill. On January 1, 2024, the fair value of Subsidiary shares held by
noncontrolling parties was P20,000.

On January 2, 2024, stockholders’ equity including noncontrolling interests

should be
A. 160,000
B. 170,000
C. 180,000
D. 260,000
37.​On January 1, 2024, Parent, Inc. purchased 80% of the stock of Subsidiary Corp.
for P8,000,000 Cash. Prior to the acquisition, Subsidiary had 100,000 shares of
stock outstanding. On the date of acquisition, Subsidiary's stock had a fair
value of P104 per share. During the year Subsidiary reported P560,000 in net
income and paid dividends of P100,000.

What is the balance in the noncontrolling interest account on Parent's

statement of financial position on December 31, 2024?
A. 2,000,000
B. 2,080,000
C. 2,172,000
D. 2,192,000

38.​On January 2, 2024, Parent Co. purchased 75% of Subsidiary Co.'s outstanding
common stock. On that date, the fair value of the 25% noncontrolling interest
was P70,000. During 2024, Subsidiary had net income of P40,000. Selected
data at December 31, 2024, are:
Parent ​ ​ Subsidiary
Total assets ​​ ​ ​ ​ ​ 840,000 ​ ​ 360,000
Liabilities ​ ​ ​ ​ ​ ​ 240,000 ​ ​ 120,000
Common stock ​ ​ ​ ​ ​ 200,000 ​ ​ 100,000
Retained earnings ​ ​ ​ ​ ​ 400,000​ ​ 140,000

During 2024 Parent and Subsidiary paid cash dividends of P50,000 and
P10,000, respectively, to their shareholders. There were no other intercompany
transactions.
 In its December 31, 2024 consolidated statement of retained earnings, what
amount should the Parent report as dividends paid?
A. 10,000
B. 50,000
C. 52,500
D. 60,000

39.​Parent Company acquired goods for resale from its manufacturing subsidiary
at Subsidiary's cost to manufacture of P24,000. Parent subsequently resold the
goods to a nonaffiliate for P36,000.

Which one of the following is the amount of the elimination that will be needed
as a result of the intercompany inventory transaction?
A. 0
B. 12,000
C. 24,000
D. 36,000
40.​Parent Co. owns 100% of Subsidiary Co.'s outstanding common stock. Parent's
cost of goods sold for the year totals P300,000, and Subsidiary's cost of goods
sold totals P200,000. During the year, Parent sold inventory costing P30,000 to
Subsidiary for P50,000. By the end of the year, all transferred inventory was
sold to third parties.

What amount should be reported as the cost of goods sold in the

consolidated statement of income?
A. 450,000
B. 470,000
C. 480,000
D. 500,000

41.​ Parent Co. owns 100% of Subsidiary, Inc. On January 2, 2024, Parent sold
equipment with an original cost of P160,000 and a carrying amount of P96,000
to Subsidiary for P144,000. Parent had been depreciating the equipment over a
five-year period using straight-line depreciation with no residual value.
Subsidiary is using straight-line depreciation over three years with no residual
value.

In Parent's December 31, 2024, consolidating worksheet, by what amount

should depreciation expense be decreased?

A. 0
B. 16,000
C. 32,000
D. 48,000
42.​Parent corp. has several subsidiaries that are included in its consolidated
financial statements. In its December 31, 2024 trial balance, Parent had the
following Intercompany balances before eliminations.
Debit​ ​ ​ Credit
Current receivable due from M Co. ​ ​ 64,000
Noncurrent receivable from M Co. ​ 228,000
Cash advance to C Corp ​ ​ ​ ​ 12,000
Cash advance from K Co. ​​ ​ ​ ​ ​ ​ 30,000
Intercompany payable to K Co. ​ ​ ​ ​ ​ 202,000

In its December 31, 2024 consolidated statement of financial position, what

amount should Parent report as intercompany receivables?
A. 304,000
B. 292,000
C. 72,000
D. 0

43.​A company acquires another company for P1,500,000 in cash, P5,000,000 in

stock, and the following contingent consideration:
 ●​ P500,000 after 2024, P500,000 after 2025, and P250,000 after 2026, if
earnings of the subsidiary exceed P5,000,000 in each of the three years.

The fair value of the contingent-based consideration portion is P1,050,000.

What is the total consideration transferred for this business combination?

A. 7,750,000
B. 7,550,000
C. 6,500,000
D. 2,550,000

44.​Parent, Inc. acquired 100% of the voting common stock of Subsidiary Inc. by
transferring the following consideration to Subsidiary’s shareholders:
Cash ​ ​ ​ ​ ​ ​ ​ ​ ​ P200,000
5,000 new shares of Parent’s P20 par common stock (which
is less than 1% of Parent’s outstanding stock) ​ ​ ​ 100,000 (par)

In addition, Parent paid P24,000 direct cost of carrying out the combination.

At the date of the acquisition, Parent's common stock was selling in an active
market for P18 per share. Also, at the date of the acquisition, Subsidiary had the
following assets and liabilities with the book values and fair values shown:

Book Value ​ ​ Market value

Accounts Receivable ​ ​ ​ ​ 40,000 ​ ​ 40,000
Property and Equipment ​ ​ ​ ​ 160,000 ​ ​ 200,000
Land ​ ​ ​ ​ ​ ​ ​ 120,000 ​ ​ 160,000
Other Assets ​ ​ ​ ​ ​ 80,000 ​ ​ 80,000
Total Assets ​​ ​ ​ ​ ​ 400,000 ​ ​ 480,000
Accounts Payable ​ ​ ​ ​ ​ 30,000 ​ ​ 30,000
Other short-term Debt ​ ​ ​ ​ 20,000 ​ ​ 20,000
Long-term Debt ​ ​ ​ ​ ​ 70,000 ​ ​ 70,000
Total Liabilities ​ ​ ​ ​ ​ 120,000 ​ ​ 120,000
 Which one of the following is the fair value of Subsidiary’s net assets at the
date of the business combination?
A. 280,000
B. 360,000
C. 384,000
D. 480,000

45.​Parent Co. issued 200,000 shares of 10 par value common stock to acquire
Subsidiary Co. in an acquisition-business combination. The market value of
Parent's common stock is P24 per share. Legal and consulting fees incurred in
relation to the acquisition are P220,000 paid in cash. Registration and issuance
costs for the common stock are P70,000.

What should be recorded in Parent's additional paid-in capital account for this
business combination?

A. 3,090,000
B. 2,800,000
C. 2,730,000
D. 2,510,000
 Numbers 46 and 47 are based on the following information:
During the first year of operations, the books of Bacolod Branch showed the
following balances:
Sales ​​ ​ ​ ​ ​ ​ 1,200,000
Shipments from home office​ ​ ​ 1,120,000
Purchases ​ ​ ​ ​ ​ ​ 120,000
Ending inventory ​ ​ ​ ​ ​ 200,000
Operating expenses ​ ​ ​ ​ 150,000

Shipments to branch were billed at 140% of cost. The ending inventory of the
branch included P26,400 from outside purchases.

46.​What amount should be reported as ending inventory of the Bacolod branch

at cost?
A. 200,000
B. 173,600
C. 150,400
D. 269,440

47.​What amount should be reported as true net income of Bacolod branch?

A. 280,400
B. 10,000
C. 254,000
D. 270,400
 Numbers 48 and 49 are based on the following information:
On October 1, 2024 the Home Office established a branch and on December 31,
2024, in the books of the Home Office, the balance of the Investment in Branch
account was P132,000. However, there were some errors in recording the
reciprocal accounts. The following were the relevant transactions that were
investigated:
a) The branch purchased for cash P30,000 machine for its use. The policy of
the home office was that the fixed asset accounts were maintained by the
home office. Notification was sent to the home office by the branch, but the
home office did not record the transaction.
b) Cash of P4,000 was received by the branch from the home office, and was
erroneously recorded by the branch as P40,000.
c) Notification was sent by the home office to the branch, informing the
branch that P10,000 worth of expenses were paid on behalf of the branch.
However, the branch did not receive the said notification and the branch had
not recorded the transaction.
d) Merchandise costing P16,000 was sent by the home office to the branch at
a billed price of P18,000. The merchandise is still in transit.
e) Cash of P20,000 was remitted or forwarded to the home office by the
branch. However, the home office did not record the transaction.

48.​What is the adjusted balance of the reciprocal accounts?

A. 82,000
B. 182,000
C. 122,000
D. 142,000

49.​What is the unadjusted balance of the home office account in the branch
books?
A. 174,000
B. 82,000
C. 124,000
D. 90,000
50.​Which of the following reconciling transactions will require a credit to the
home office account in Branch X's books?
A. Credit memo received by Branch X from the home office
B. Collection by Branch X of Branch Y's accounts receivable
C. Reshipment of goods received by Branch X to Branch Y
D. Payment of Branch X of home office's accounts payable

Ans: B