On January 01, 2025, FFJ Co. acquired 68% of the voting rights in JFF Co.
During the acquisition the accountant Lloyd identified information arises from the
transaction. Based on the recent AFS of JFF Co., the amount of the asset and liability
reflected in the AFS was 1,000,000 and 260,000 respectively. During the acquisition the
accountant noticed some undervalued assets and decided to make an assessment. Upon
investigation the accountant identified the assets with discrepancies in the amount between
carrying value and fair value. See the table below for the assets that the accountant
identified.
Asset Carrying amount Fair Value
Inventories 200,000 300,000
Equipment 400,000 550,000
Building 850,000 650,000
Vehicle 300,000 660,000
The remaining life of the equipment is 5 years
The building has a remaining life of 10 years
The vehicle has the depreciation expense of 60,000
FFJ Co. measured the NCI at a Fair value of 400,000
Information on December 31,2025 (consolidated date)
Statement of Financial Position
As at December 31, 2025
Asset FFJ Co. JFF Co.
Cash 110,000 155,000
Accounts Receivable 335,000 110,000
Inventory 325,000 75,000
Investment in Subsidiary (at cost) 800,000 -
Investment in Bonds 175,000 350,000
Interest Receivable 10,000 20,000
Dividend Receivable 340,000 -
Equipment, net 650,000 150,000
Building 1,000,000 300,000
Vehicle 900,000 100,000
Total Asset 4,645,000 1,260,000
Liabilities and Equity
Accounts Payable 200,000 60,000
Bonds Payable (at face amount) 800,000 350,000
Dividend Payable 325,000 500,000
Interest Payable 20,000 10,000
Total Liabilities 1,345,000 920,000
Share Capital 1,750,000 200,000
Share Premium 350,000 50,000
Retained Earnings 1,200,000 90,000
Total Equity 3,300,000 340,000
Total Liabilities and Equity 4,645,000 1,260,000
Statemen of Profit or Loss
For the year ended December 31, 2025
FFJ Co. JFF Co.
Sales 1,500,000 600,000
Cost of goods sold (725,000) (360,000)
Depreciation expense (200,000) (50,000)
Distribution cost (140,000) (60,000)
Gain on Sale of equipment 20,000 16,000
Dividend Income 340,000 -
Interest expense (15,000) (5,000)
Interest income 10,000 20,000
Profit for the year 790,000 161,000
The following intercompany transactions occurred in 2025:
a. FFJ Co. sold inventory with the unrealized gross profit of P52,000 to JFF Co. for cash at a
mark-up of 40% on selling price. JFF Co. held two-eight of the inventory at year end.
b. JFF Co. sold inventory to FFJ Co. for 100,000 cash basis. JFF Co. uses normal markup of
25% above cost. FFJ Co. ending inventory P50,000 from this purchase.
c. On January 01, 2025, FFJ co. sold Equipment with a historical cost of P50,000 and
accumulated depreciation of 10,000 to JFF Co. for 60,000, on cash basis. The equipment’s
remaining useful life is 4 years.
d. On January 01, 2025, JFF Co. sold Equipment with a historical cost of P40,000 and
accumulated depreciation of 8,000 to FFJ Co. for 48,000, on cash basis. The equipment’s
remaining useful life is 4 years.
e. JFF Co. declared dividends amounting to P500,000 in 2025.
f. FFJ Co. declared dividends amounting to P335,000 in 2025.
g. On January 01, 2025, JFF Co. purchased 50% of the outstanding bonds of FFJ Co. from the
open market for P390,000. JFF Co. measured the bonds at amortized cost and recognized
P20,000 interest income in 2025, including amortization of the bond discount.
h. On January 01, 2025, FFJ Co. purchased 50% of the outstanding bonds of JFF Co. from the
open market for P190,000. FFJ Co. measured the bonds at amortized cost and recognized
P10,000 interest income in 2025, including amortization of the bond discount.
Consolidated Inventory SALES P- 1,500,000
Parent Inventory- 325,000 SALES S- 600,000
Subsidiary- 75,000 LESS: ICT- 23,000(100T+130T)
Less Unrealized Pro- 23,000(13T+10T) NES SALES- 1,870,000
Ending Inventory, net- 377,000
COGS P- 725,000
COGS S- 360,000
LESS: ICT- 230,000
ADD: UP- 23,000
ADD: DEP- 100,000
NET COGS- 978,000
GROSS PROFIT – 892,000
ASSET CARRYING FAIR VALUE NET DEPRECIATIO NET
AMOUNT CHANGE 01 N CHANGE 12
INVENTORY 200,000 300,000 100,000 100,000 -
EQUIPMENT 400,000 550,000 150,000 30,000 120,000
BUILDING 850,000 650,000 (200,000) (20,000) (180,000)
VEHICLE 300,000 660,000 360,000 60,000 300,000
FFJ (BUYER) JFF (SELLER) UNDER (OVER)
HISTORICAL COST 50,000 60,000 (10,000)
ACCU DEP 01 10,000 - 10,000
DEPRECIATION 10,000 15,000 (5,000)
ACCU DEP 12 20,000 15,000 5,000
NET EQUIPMENT 30,000 40,000 15,000
JFF (BUYER) FFJ (SELLER) UNDER (OVER)
HISTORICAL COST 40,000 48,000 (8,000)
ACCU DEP 01 8,000 - 8,000
DEPRECIATION 8,000 12,000 (4,000)
ACCU DEP 12 16,000 12,000 4,000
NET EQUIPMENT 24,000 36,000 (12,000)
EQUIPMENT P- 650,000 DEPRECIATION EXPENSE- 250,000 (200T+50T)
EQUIPMENT S- 150,000 FVA DEPRECIATION- 122,000
FVA,NET DEC- 120,000 LESS: OVERSTATMENT
LESS: IN DEPRECIATION- 9,000
DEFFERED G- 27,000 (20T+16)*3/4 CONSO DEPRECIATION- 363,000
EQUIP,NET- 893,000
CARRYING AMOUNT- 400,000 – (800T*50%)
ACQUISITION COST- 390,000
GAIN ON EXTINGUISH P- 10,000
CARRYING AMOUNT- 175,000 – (350,000*50%)
ACQUISITION COST- 190,000
LOSS ON EXTINGUIH S- (15,000)
STEP 1B: ANALYSIS OF SUBSIDIARY’S NET ASSETS
JFF CO. JAN 01 DEC 31 NET CHANGE
NET ASSET 740,000 901,000
CARRYING AMOUNT
FAIR VALUE 410,000 240,000
ADJUSTMENT
UNREALIZED PROFIT (10,000)
(UPSTREAM)
DEFFERED GAIN (27,000)
(UPSTREAM)
INTEREST INCOME (20,000)
NET ASSET AT FAIR 1,150,000 1,084,000 (66,000)
VALUE
STEP 2: GOODWILL
CONSIDERATION- 800,000
NCI- 368,000
TOTAL- 1,168,000
LESS: NIAA- 1,150,000
GOODWILL ATTRI
TO PARENT- 18,000
FAIRVALUE GIVEN – 400,000
LESS: NCI SHARE IN
NET ASSET
(1,150,000*32)- 368,000
GOODWILL ATTRI
TO NCI- 32,000
TOTAL GOODWILL- 50,000
STEP3: NCI IN NET ASSET
SUBSIDIARY IN NET ASSET AT FV- 1,084,000
MULTIPLY: NCI PERCENTAGE *32%
TOTAL 346,880
ADD: GOODWILL ATTRI TO NCI- 32,000
NCI IN NET ASSET DEC31 378,880
STEP4:
CONSOLIDATED RETAINED EARNINGS
PARENTS RETAINED EARNINGS - 1,200,000
PARENTS SHARE IN THE NET CHANGE - (44,880) - (66,000*.68)
UNREALIZED GROSS PROFIT
(DOWNSTREAM ONLY) - (13,000)
DEFFERED GAIN
(DOWNSTREAM ONLY) - (15,000)
GAIN ON EXTINGUISHMENT
PARENT - 10,000
INTEREST EXPENSE PARENT - 7,500 – (15,000 * 50%)
LOSS ON EXTINGUISMENT
SUBSIDIARY - (10,200) – (15,000 * 68%)
INTEREST EXPENSE SUBSIDIARY - 1,700 - (5,000 * 50% * 68%)
CONSOLIDATED RETAINED
EARNINGS DEC31 - 1,136,120
STEP5: CONSOLIDATED P/L PARENT SUBSIDIARY TOTAL
PROFIT OF PARENT- 790,000 790,000
PROFIT OF SUBSSDIARY- 109,480 51,520 161,000
DEPRECIATION FVA - (123,760) (58,240) (182,000)
UNREALIZED PROFIT P- (13,000) (13,000)
UNREALIZED PROFIT S- (6,800) (3,200) (10,000)
DEFFERED GAIN P- (20,000) (20,000)
DEFFERED GAIN S- (10,880) (5,120) (16,000)
DIVIDEND INCOME- (340,000) (340,000)
GAIN ON EXTINGUISMENT
PARENT - 10,000 10,000
INTEREST INCOME S- (13,600) (6,400) (20,000)
INTEREST EXPENSE P- 7,500-(15,000*50%) 7,500
LOSS ON EXTINGUISHMENT
SUBSIDIARY- (10,200) (4,800) (15,000)
INTEREST INCOME - (10,000) (10,000)
INTEREST EXPENSE S- 1,700 800 2,500
TOTAL 370,440 (25,440) 345,000
TOTAL ASSET
CASH (110,000+155,000) - 265,000
ACCOUNTS RECEIVABLE (335,000+110,000) 445,000
INVENTORY 377,000
EQUIPMENT, NET 893,000
BUILDING (1,000,000 + 300,000 – FVA180,000) 1,120,000
VEHICLE (900,000 + 100,000 + FVA300,000) 1,300,000
GOODWILL 50,000
TOTAL ASSET 4,450,000
LIABILITIES AND EQUITY
ACCOUNTS PAYABLE (200,000 + 60,000) 260,000
BONDS PAYABLE (400,000 + 175,000) 575,000
TOTAL LIABILITIES 835,000
SHARE CAPITAL- 1,750,000
SHARE PREMIUM- 350,000
RETAINED EARNINGS- 1,136,120
NCI 378,880
TOTAL EQUITY 3,615,000