B goodwill if the assets of the investee are fairly

b. Goodwill
If the assets of the investee are fairly valued, accountants frequently attribute the excess
of cost over the carrying amount of the underlying net assets to goodwill .
If the excess is attributable to undervaluation of depreciable asset, it is amortized over
the remaining life of the depreciable asset.
If the excess is attributable to land , it is not amortized because the land is
nondepreciable.
If the excess is attributable to inventory , the amount is expensed when the inventory is
already sold.
If the excess is attributable to goodwill, it is not amortized but the entire investment in
associate is tested for impairment at the end of the reporting period.
31. On January 1, 2013, Mighty Company acquired 20% of the outstanding ordinary shares of an
investee for P7,000,000. This investment gave Mighty Company the ability to exercise
significant influence over the investee. The carrying amount of the acquired net assets was
P6,000,000. The excess of cost over the carrying amount was attributed to an identifiable
intangible asset which was undervalued on investee’s statement of financial position and
which had a remaining useful life of ten years. For the year ended December 31, 2013, the
investee reported net income of P1,800,000 and paid cash dividend of P600,000 on its
ordinary shares. On December 31, 2013, what is the carrying amount of the investment in
associate?
Note:
 When depreciable and intangible assets of the investee are undervalued, depreciation and
amortization are naturally understated resulting to overstatement of the investee’s net
income. Thus, the investor should decrease investment income.
32. On January 1, 2013, Courteous Company purchased 30% of the outstanding ordinary shares
of an investee for P5,160,000. At the date of acquisition, the investee’s net assets had a
carrying amount of P11,800,000. Depreciable assets with an average remaining life of 4
years have a current fair value that is P2,600,000 in excess of carrying amount. The
remaining difference cannot be attributed to any identifiable tangible or intangible asset. At
the end of 2013, the investee reported net income of P3,600,000 and paid cash dividends of
P400,000. What amount should be reported as investment in associate on December 31,
2013?
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33. On January 1, 2013, Magic Company purchased 40% of the outstanding ordinary shares of
an investee paying P2,560,000 when the carrying amount of the net assets of the investee
equaled P5,000,000. The difference was attributed to equipment which had the carrying
amount of P1,200,000 and a fair market value of P2,000,000, and to building with a carrying
amount of P1,000,000 and a fair market of P1,600,000. The remaining useful life of the
equipment and building was 4 years and 12 years, respectively. During the current year, the
investee reported net income of P1,600,000 and paid dividends of P1,000,000. What amount
is the carrying amount of the investment in associate on December 31, 2013?
34. On January 1, 2013, Lopez Company purchased 40% of the ordinary shares outstanding of an
investee for P1,500,000 when the net assets of the investee amounted to P3,000,000.