Advanced Accounting 2 by Guerrero is a textbook that covers various topics in accounting, such as business combinations, consolidated financial statements, foreign currency transactions, partnerships, branches, and liquidations. The book is written by Pedro P. Guerrero and Jose F. Peralta, who are both experienced professors and practitioners in the field of accounting. The book is designed to help students understand the principles and procedures of advanced accounting and apply them to real-world situations.
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The book is divided into two volumes, each containing 10 chapters. The first volume focuses on business combinations and consolidated financial statements, while the second volume deals with other forms of intercompany transactions and special topics. Each chapter includes learning objectives, key terms, illustrative examples, multiple choice questions, problems, and cases. The book also provides solutions to all the multiple choice questions and problems in a separate solutions manual[^1^] [^3^]. The book is available in PDF format for easy access and download[^1^] [^2^].
Advanced Accounting 2 by Guerrero is a comprehensive and updated textbook that covers the latest accounting standards and practices. It is suitable for students who are taking advanced accounting courses or preparing for the CPA examination. It is also a useful reference for accounting professionals who want to refresh their knowledge and skills in advanced accounting.
In this article, we will review some of the main topics covered in Advanced Accounting 2 by Guerrero. We will also provide some examples and tips to help you master the concepts and techniques of advanced accounting.
A business combination is a transaction in which one entity acquires control over another entity. The acquiring entity is called the parent, and the acquired entity is called the subsidiary. A consolidated financial statement is a statement that presents the financial position and results of operations of the parent and its subsidiaries as if they were a single economic entity.
There are two methods of accounting for business combinations: the acquisition method and the pooling of interests method. The acquisition method is the current and preferred method under both Philippine Financial Reporting Standards (PFRS) and International Financial Reporting Standards (IFRS). Under this method, the parent recognizes the assets and liabilities of the subsidiary at their fair values at the date of acquisition, and any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The pooling of interests method is an older and alternative method that is no longer allowed under PFRS and IFRS. Under this method, the parent and the subsidiary combine their historical book values as if they had always been together, and no goodwill is recognized.
Consolidated financial statements are prepared by eliminating intercompany transactions and balances, such as sales, purchases, dividends, receivables, payables, investments, and equity. The purpose of consolidation is to present the financial performance and position of the parent and its subsidiaries as a single reporting entity to external users.
On January 1, 2022, P Company acquired 80% of the outstanding common stock of S Company for P800,000. The fair value of S Company's net assets at that date was P900,000. The book value of S Company's net assets was P700,000. The fair value of the noncontrolling interest was P200,000.
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Using the acquisition method, P Company would record the following journal entry on January 1, 2022:
Investment in S Company 800,000
Cash 800,000
To prepare the consolidated balance sheet as of January 1, 2022, P Company would eliminate the investment in S Company account and recognize the fair value of S Company's net assets and goodwill as follows:
Common stock - S Company 100,000
Retained earnings - S Company 600,000
Noncontrolling interest 200,000
Goodwill 100,000
Investment in S Company 800,000
The goodwill is calculated as follows:
Purchase price 800,000
Fair value of noncontrolling interest 200,000
Total fair value of S Company 1,000,000
Less: Fair value of net assets acquired (900,000)
Goodwill 100,000
The consolidated balance sheet would show the following amounts:
| Assets |
|---|
| Cash | P800,000 |
| Other assets | P900,000 |
| Goodwill | P100,000 |
| Total assets | P1,800,000 |
| Liabilities | |
| Other liabilities | P200,000 |
| Total liabilities | P200,000 |
| Equity | |
| Common stock - P Company | P500,000 |
| Retained earnings - P Company | P600,000 |
| Common stock - S Company | P100,000 |
| Retained earnings - S Company | P600,000 |
| Less: Noncontrolling interest | (P200,000) |
| Total equity | P1,6000, |
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