HOME OFFICE AND BRANCH ACCOUNTING

Problem 1

RED Corporation transfers merchandise inventory from its home office to its branch at an amount above cost. The average gross margin on the transfers is 40 percent. At the beginning of the year, the above branch held merchandise purchased from the home office in the amount of P35,000. During the year, the home office made three shipments of inventory to the branch at transfer prices of P30,000, P64,000 and P50,000. At the end of the year, the branch had on hand inventory purchased from the home office at an amount of P40,000. How much intracompany profit that is realized during the year?

Problem 2

The following are the unadjusted trial balances of BLUE Corp and its branch on December 1, 2019:

HOME OFFICE

BRANCH

Shipment to Branch 120,000

Branch Inventory Allowance39,960

Shipment from Home Office 156,000

Purchases 56,580

Inventory, Jan 1 - 21,840

Inventory, Dec 31 - 19,500

Sales 216,000

Expenses 20,400

The branch ending inventory acquired from the home office is P15,600 at billed price. The branch billed for merchandise shipments at 30% above cost. Calculate the overstatement or (understatement) of the branch's cost of sales. (NOTE: Please label properly)

BUSINESS COMBINATION

Problem 3

The YELLOW Co. acquired a 70% interest in the ORANGE Co. for P 1,960,000 when the fair value of ORANGE's identifiable assets and liabilities was P 700,000 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. ORANGE's current statement of financial position shows share capital of P 100,000, a revaluation reserve of P 300,000, and retained earnings of P 1,400,000. Under IFRS 3, Business Combinations, what figure in respect of goodwill should now be carried in YELLOW's consolidated statement of financial position?

Problem 4The PURPLE Corp. acquired 100% of the INDIGO Co. for a consideration transferred of P 112,000,000. At the acquisition date, the carrying amount of INDIGO's net assets was P 100,000,000 and their fair value was P 120,000,000. How should the difference between the consideration transferred and the net assets acquired be presented in PURPLE's financial statements, according to IFRS 3, Business Combination? (NOTE: Please label properly if goodwill or gain on acquisition)

Problem 5

GREEN Co. has a 75% interest in LIME, Inc., which is recorded on a cost basis. For the fiscal year ended June 30, 2016, the following data were taken from the respective books: Net income of GREEN Co. was P 125,000 while net income of LIME, Inc. was P 45,000. There was an intercompany interest on bonds in the amount of P 5,700. LIME, Inc. declared and paid dividend in the amount of P 9,000. The consolidated net income for the fiscal year was:

Problem 6PINK Co. owns 70% of SALMON Co.'s outstanding common stock. PINK's liabilities total P 450,000, and SALMON's liabilities total P 200,000. Included in SALMON's financial statements is a P 100,000 note payable to PINK. What amount of total liabilities should be reported in the consolidated financial statements?

Problem 7In a business combination accounted as purchase, WHITE Corp. issued non-voting, non-convertible preferred stock with a fair value of P 8,000,000 in exchange for all of the outstanding common stock of GRAY Co. On the acquisition date, GRAY had tangible net assets with a carrying amount of P 4,000,000 and a fair value of P 5,000,000. In addition, WHITE issued preferred stock valued at P 800,000 to an individual as a finder's fee in arranging the transaction. As a result of this transaction, WHITE should record an increase in net assets of

Problem 8Redford Corp. has a 90% interest in White Co., while the latter has an 80% interest in Sol Corp. For the year ended December 31, 2016, the net income from own operations of these three companies were: Redford Corp., P 1,000,000; White Corp., P 500,000, Sol Corp., P 250,000. What is the amount of minority interest in net income?

Problem 9The Knight Co. acquired an 80% interest in the Pot Co. when Pot's equity comprised share capital of P 100,000 and retained earnings of P 500,000. Pot's current statement of financial position shows share capital of P 100,000, a revaluation reserve of P 400,000 and retained earnings of P 1,400,000. Under IFRS 10, Consolidated Financial Statements, what figure in respect of Pot's retained earnings should be included in the consolidated statement of financial position?

Problem 10The Elf Co. acquired a 60% interest in the Pea Co. when Pea's equity comprised share capital of P 100,000 and retained earnings of P 150,000. Pea's current statement of financial position shows share capital of P 100,000, a revaluation reserve of P 75,000 and retained earnings of P 300,000. Under IFRS 10, Consolidated Financial Statements, what amount in respect of the non-controlling interest should be included in Elf Co.'s consolidated statement of financial position?