Question

The January 1, 2011 statement of financial position of Skittle Company at book and market values is as follows:

	Book Value		Fair Value
Current Assets	P    800,000		P   750,000
Property and Equipment (net)	900,000		1, 000,000
Total Assets	P 1,700,000		P1,750,000
Current Liabilities	P    300,000		P   300,000
Long-term Liabilities	500,000		460,000
Ordinary Share Capital, P1 par	100,000
Share Premium	200,000
Accumulated Profits	600,000
Total Liabilities and Shareholders’ equity	P1,700,000

Polypeptide Company paid P950,000 in cash for 90% of Skittle Company’s ordinary share capital.

Required:

1. Prepare a journal entry on Polypeptide’s books to record the acquisition of the Skittles share.
2. Prepare a schedule of the allocation of the difference between the consideration given and the book value of interest acquired from Skittle Company.
3. Prepare the elimination entries for the consolidated statements worksheet.

Answer 1

	Amounts in P
a	Acquisition Price paid =	950,000
	% Holding in Skittle	90%
b	Implied Value of Skittle Net Assets =950000/90%=	1,055,556
c	Non Controlling Interest at Fair Value =	105,556

	Schedule of Allocation of Difference between Consideration Given and Book Value
	Net Assets Acquired	Book Value	Fair Value	Difference
	Current Assets	800,000	750,000	(50,000)
	Net P& E	900,000	1,000,000	100,000
d	Total Assets	1,700,000	1,750,000	50,000
	Current Liab	300,000	300,000	-
	LT Liab	500,000	460,000	(40,000)
e	Total Liabilities	800,000	760,000	(40,000)
f	Net Assets d-e=	900,000	990,000	90,000

	Ans b.
	Allocation of Difference	90% Parent	10% NCI	Total
m	Purchase Consideration and Total Implied value	950,000	105,556	1,055,556
	Less Book Value of Equity Acquired
	Ordinary Share Capital P1 par	90,000	10,000	100,000
	Share Premium	180,000	20,000	200,000
	Accumulated Profit	540,000	60,000	600,000
n	Total Book Value	810,000	90,000	900,000
o	Difference between Impied and Book Value=m-n	140,000	15,556	155,556
	Allocation of Difference
	Current Assets	(45,000)	(5,000)	(50,000)
	Net P&E	90,000	10,000	100,000
	LT Liability	36,000	4,000	40,000
	Good Will Recognized	59,000	6,556	65,556
	Total Difference between Impied and Book Value=m-n	140,000	15,556	155,556

Ans a.
	Journal Entry for Acquisition of Skittle in the Book of Polypeptide
	Account Title	Dr $	Cr $
	Current Assets	750,000
	Net P& E	1,000,000
	Goodwill	65,556
	Current Liabilities		300,000
	LT Liabilities		460,000
	NCI (at FV of Net Assets)		105,556
	Cash		950,000
		1,815,556	1,815,556

Ans c.	Elimination Entry
	Account Title	Dr $	Cr $
	Ordinary Share Capital P1 par( Skittle)	100,000
	Share Premium(Skittle)	200,000
	Accumulated Profit(Skittle)	600,000
	Investment		950,000
	NCI		105,556
	Difference between Impied and Book Value	155,556