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Chapter 18

Problem I
1
Equipment
Beginning R/E Prince (P100,000 .80)
Noncontrolling Interest (P100,000 .20)
Accumulated Depreciation

540,000
80,000
20,000

Accumulated Depreciation (P100,000/4) 2


Depreciation Expense
Beginning R/E Prince (P25,000 .80)
Noncontrolling Interest (P25,000 .20)
2

3.

Noncontrolling interest in Serf Company


(.20 845,000)
4.

50,000

Controlling Interest in Consolidated Net Income:


Prince Companys income from its
independent operations
Reported net income of Serf Company
P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
25,000
Reported subsidiary income that has been
realized in transactions with third
parties
845,000
.8
Prince Companys share thereof
Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of Serf Company
Plus: Intercompany profit considered realized
in the current period

640,000
25,000
20,000
5,000

P3,270,000

676,000
P3,946,000

P820,000
25,000
P845,000
P169,000

NCI-CNI (No. 3)
CI-CNI (No. 2)
CNI

P 169,000
3,946,000
P4,115,000

or,

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation*
Son Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..

P 820,000
25,000
P 845,000

P3,270,000
0
P3,270,000
845,000
P4,115,000
0
P4,115,000
169,000
P3,946,000

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation

P3,270,000
0

P Companys realized net income from separate operations...


S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill

1/1/20x4:
Selling price of equipment
Less: BV of equipment
Cost
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years*
Unrealized gain on sales 1/1/20x4

P820,000
25,000
P 845,000
P 169,000
0

P3,270,000
845,000
P4,115,000
169,000
P3,946,000
_169,000
P4,115,000

P 820,000
25,000
P 845,000
0
P845,000
20%
P 169,000

P 740,000
P1,280,000
640,000

640,000
P 100,000

Realized gain depreciation: P100,000 / 4 years


P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
5

Equipment
Beginning R/E Prince
Accumulated Depreciation

540,000
100,000

Accumulated Depreciation (P100,000/4) 2


Depreciation Expense
Beginning R/E Prince
6

50,000

Controlling Interest in Consolidated Net Income:


Prince Companys income from its
independent operations
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
Reported net income of S Company

25,000
25,000

P3,270,000

P820,000
.8

Prince Companys share thereof


Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of S Company
Noncontrolling interest in S Company
(.20 820,000)

640,000

P820,000
P164,000

25,000
P3,295,000
656,000
P3,951,000

NCI-CNI
CI-CNI
CNI

P 164,000
3,951,000
P4,115,000

or,

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation*
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..

P 820,000
0
P 820,000

P3,270,000
____25,000
P3,295,000
820,000
P4,115,000
0
P4,115,000
164,000
P3,951,000

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill

Problem II
1. Journal entry to record sale:
Cash
Accumulated Depreciation
Equipment
Gain on Sale of Equipment
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2.

Journal entry to record purchase:


Equipment
Cash
Journal entry to record depreciation expense:
Depreciation Expense

84,000
80,000

84,000

12,000

P820,000
0
P 820,000
P 164,000
0

P3,270,000
25,000
P3,295,000
820,000
P4,115,000
164,000
P3,951,000
_169,000
P4,115,000

P 820,000
0
P 820,000
0
P820,000
20%
P 164,000

150,000
14,000

84,000

Accumulated Depreciation
3.

Eliminating entry at December 31, 20x4, to eliminate intercompany sale of


equipment:
E(1)

Equipment
Gain on Sale of Equipment
Depreciation Expense
Accumulated Depreciation
Eliminate unrealized profit on equipment.

Adjustment to equipment
Amount paid by WW to acquire building
Amount paid by LL on intercompany sale
Adjustment to buildings and equipment
Adjustment to depreciation expense
Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years)
Depreciation expense recorded by WW
Corporation (P150,000 / 15 years)
Adjustment to depreciation expense
Adjustment to accumulated depreciation
Amount required (P10,000 x 9 years)
Amount reported by LL (P12,000 x 1 year)
Required adjustment
4.

66,000
14,000

2,000
78,000

P150,000
(84,000)
P 66,000

P 12,000
(10,000)
P 2,000
P 90,000
(12,000)
P 78,000

Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment


and prepare a consolidated balance sheet only:
E(1)
Equipment
66,000
Retained Earnings
12,000
Accumulated Depreciation
78,000
Eliminate unrealized profit on equipment.

Problem III
1. Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Depreciation Expense
Accumulated Depreciation
Computation of gain on sale of truck:
Price paid by Minnow
Cost of truck to Frazer
P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years
( 90,000)
Gain on sale of truck
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 4 years]
Reported [(P245,000 / 7 years) x 1 year]
Required increase
2.

12,000

Eliminating entry, December 31, 20x9:

55,000
35,000

P245,000
(210,000)
P 35,000
P120,000
(35,000)
P 85,000

5,000
85,000

E(1)

Truck
Retained Earnings
Depreciation Expense
Accumulated Depreciation

55,000
30,000

Accumulated depreciation adjustment:


Required [(P300,000 / 10 years) x 5 years]
Reported [(P245,000 / 7 years) x 2 years]
Required increase

5,000
80,000

P150,000
(70,000)
P 80,000

Problem IV
a. Eliminating entry, December 31, 20x8:
E(1)

Truck
Gain on Sale of Truck
Accumulated Depreciation

Computation of gain on sale of truck:


Price paid by MM
Cost of truck to FF
Accumulated depreciation
(P300,000 / 10 years) x 4 years
Gain on sale of truck
b.

90,000
30,000

P300,000
(120,000)

120,000

P210,000
(180,000)
P 30,000

Eliminating entry, December 31, 20x9:


E(1)

Truck
Retained Earnings, January 1
Depreciation Expense
Accumulated Depreciation

Accumulated depreciation adjustment:


Required [(P300,000 / 10 years) x 5 years]
Recorded [(P210,000 / 6 years) x 1 year]
Required increase

90,000
30,000

5,000
115,000

P150,000
(35,000)
P115,000

Problem V
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...

P 372,000
P 192,000
96,000
P 4,800
5,760
76,800
( 19,200)
3,840

288,000
84,000

72,000
P 12,000

The over/under valuation of assets and liabilities are summarized as follows:


Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..

S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000

S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000

(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment..................
Less: Accumulated depreciation..
Net book value...

S Co.
Book value
180,000
96,000
84,000

S Co.
Fair value
180,000
180,000

Increase
(Decrease)
0
( 96,000)
96,000

Buildings................
Less: Accumulated depreciation..
Net book value...

S Co.
Book value
360,000
1992,000
168,000

S Co.
Fair value
144,000
144,000

(Decrease)
( 216,000)
( 192,000)
( 24,000)

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

Over/
Under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling interest
and the NCI based on the percentage of total goodwill each equity interest received. For purposes of
allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders equity of S (P360,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20%
computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

The goodwill impairment loss would be allocated as follows


Goodwill impairment loss attributable to parent or controlling

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

Value
P 3,000

% of Total
80.00%

Interest
Goodwill applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill

750

20.00%

P 3,750

100.00%

The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x4
1/2/20x4

Seller
P Co.
S Co.

Selling
Price
P90,000
60,000

Book
Value
P75,000
28,800

Unrealized*
Gain on sale
P15,000
31,200

Remaining
Life
5 years
8 years

* selling price less book value


** unrealized gain divided by remaining life; 20x4 P3,000 x 9/12 = P2,250

Realized gain
depreciation**
P3,000/year
P3,900/year

20x4
P2,250
P3,900

20x4: First Year after Acquisition


Parent Company Cost Model Entry

January 1, 20x4:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.

372,000

28,800

372,000

28,800

No entries are made on the parents books to depreciate, amortize or write-off the portion of the allocated
excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition

(E1) Common stock S Co


Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)..
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
12,000

To eliminate intercompany investment and equity accounts


of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.

To allocate excess of cost over book value of identifiable assets


acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill
To provide for 20x4 impairment loss and depreciation and

6,000
6,000
6,000
1,200
3,000

288,000
72,000

216,000
18,000
84,000

6,000
12,000
1,200
3,000

amortization on differences between acquisition date fair value and


book value of Sons identifiable assets and liabilities as follows:
Cost of
Depreciation/
Goods
Amortization
Amortization
Sold
Expense
-Interest
Total
Inventory sold
P 6,000
Equipment
P 12,000
Buildings
( 6,000)
Bonds payable
_______
_______
P 1,200
Totals
P 6,000
P 6,000
P1,200 13,200

(E4) Dividend income - P.


Non-controlling interest (P36,000 x 20%)..
Dividends paid S

28,800
7,200

(E5) Gain on sale of equipment


Equipment
Accumulated depreciation

15,000
30,000

(E6) Gain on sale of equipment


Equipment
Accumulated depreciation

31,200
12,000

To eliminate intercompany dividends and non-controlling interest


share of dividends.

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation..


Depreciation expense

2,250

(E8) Accumulated depreciation..


Depreciation expense

3,900

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
Net income of subsidiary..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys realized net income from
separate operations
Less: Amortization of allocated excess [(E3)].
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
partial goodwill

P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P

10,140

10,140

36,000

45,000

43,200

2,250

3,900

10,140

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or what
option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment

P Co
P480,000
15,000

S Co.
P240,000
31,200

Dividend income
Total Revenue
Cost of goods sold
Depreciation expense

28,800
P523,800
P204,000
60,000

P271,200
P138,000
24,000

Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

48,000
P312,000
P211,800
P211,800

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total

Cr.

(5) 15,000
(6) 31,200
(4) 28,800

Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850

(3)
(3)

6,000
6,000

18,000
P180,000
P 91,200
P 91,200

(3)

1,200

(3)

3,000

211,800
P571,800

P120,000
91,200
P211,200

(1) 120,000

72,000
-

36,000

P499,800

P175,200

P 495,810

232,800
90,000
120,000
210,000
240,000

P 90,000
60,000
90,000
48,000
180,000

P 322,800
150,000
210,000
265,200

720,000

540,000

P360,000

Dr.

372,000
P1,984,800

P1,008,000

P 135,000

P 96,000

405,000

288,000

105,000
240,000
600,000

88,800
120,000

(7)
(8)

2,250
3,900

P
P
(
P

(9 10,140

P 360,000
207,810
P 567,810
(4)

(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2)
(2)

499,800

240,000
175,200

(1) 240,000

_________
P1,984,800

_________
P1,008,000

__________
P 834,450

(4)

3)

36,000

6,000

(2) 216,000
4,800 (3) 1,200
12,000 (3) 3,000
(1) 288,000
(2) 84,000

(3) 96,000
(7) 2,250
(8) 3,900
(2) 192,000
(3)
6,000

7,200

1,200
66,000
3,000
502,050
217,950
10,140)
207,810

(3) 12,000
(5) 45,000
(6) 43,200

72,000
________

462,000
1,044,000
3,600
9,000
P2,466,600

P229,050
495,000
193,800
360,000
600,000

(1 ) 72,000
(2) 18,000
(9) 10,140
P 834,450

495,810
____92,940
P2,466,600

20x5: Second Year after Acquisition

P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid

No goodwill impairment loss for 20x5.

S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

Parent Company Cost Model Entry


Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
Cash
Dividend income (P48,000 x 80%).
Record dividends from S Company.

38,400

38,400

On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..

48,000

48,000

Consolidation Workpaper Second Year after Acquisition


The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company
Retained earnings P Company

44,160

To provide entry to convert from the cost method to the equity


method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

44,160

P175,200
120,000
P 55,200
80%
P 44,160

Entry (1) above is needed only for firms using the cost method to account for their investments in the subsidiary.
If the parent is already using the equity method, there is no need to convert to equity.
(E2) Common stock S Co
Retained earnings S Co., 1/1/20x5
Investment in S Co (P415,200 x 80%)
Non-controlling interest (P415,200 x 20%)..

240,000
175,200

(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.

6,000
96,000
192,000
7,200
4,800

To eliminate intercompany investment and equity accounts


of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

332,160
83,040

Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
Investment in S Co.

12,000

To allocate excess of cost over book value of identifiable assets


acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings P Company, 1/1/20x5


[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P13,200 x 20%).
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

13,560
2,640
6,000
12,000
1,200

To provide for years 20x4 and 20x5 depreciation and amortization on


differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.

Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560

Depreciation/
Amortization
expense

Amortization
-Interest

P 12,000
( 6,000)
________
P 6,000

P 1,200
P 1,200

(E5) Dividend income - P.


Non-controlling interest (P48,000 x 20%)..
Dividends paid S

38,400
9,600

(E5) Retained Earnings P Company, 1/1/20x5


Equipment
Accumulated depreciation

15,000
30,000

(E6) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)


Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation

24,960
6,240
12,000

To eliminate intercompany dividends and non-controlling interest


share of dividends.

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation..


Depreciation expense (current year)

5,250

216,000
18,000
84,000

6,000
24,000
2,400
3,000

48,000

45,000

43,200

3,000

Retained EarningsP Company, 1/1/20x5 (prior year)

2,250

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation

(E8) Accumulated depreciation..


Depreciation expense (current year)
Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%)
Non-controlling interest (P31,200 x 20%)

7,800

3,900
3,120
780

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..

17,340

17,340

To establish non-controlling interest in subsidiarys adjusted net


income for 20x5 as follows:
Net income of subsidiary..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys Realized net income*
Less: Amortization of allocated excess

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI)
partial goodwill
*from separate transactions that has been realized in transactions
with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold

P Co
P540,000
38,400
P578,400
P216,000

S Co.
P360,000
P360,000
P192,000

(5)

60,000

24,000

(4)

6,000

Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

72,000
P348,000
P230,400
P230,400

54,000
P270,000
P 90,000
P 90,000

(4)

1,200

Statement of Retained Earnings


Retained earnings, 1/1
P Company

P499,800

Depreciation expense

S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet

230,400
P730,200

P 175,200
__90,000
P265,200

72,000
-

48,000

P658,200

P217,200

Dr.

Cr.

38,400
(7)
3,000
(8)
3,900

Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100

P
P
(
P

(9) 17,340

(1)
(5)
(6)
(2)

13,560
15,000
24,960
175,200

(1) 44,160
(7) 2,250
(8) 3,120

1,200
126,000
618,300
281,700
17,340)
264,360

P 495,810
264,360
P 760,170

(5)

48,000

72,000
________
P 688,170

Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest

Total

265,200
180,000
216,000
210,000
240,000

P 102,000
96,000
108,000
48,000
180,000

720,000

540,000

372,000
P2,203,200

P1,074,000

P 150,000

P 102,000

450,000

306,000

105,000
240,000
600,000

88,800
120,000

658,200

240,000
217,200

___ _____
P2,203,200

_________
P1,074,000

(1)
6,000
(3)
7,200
(5) 30,000
(6) 12,000
(3)
(3)
(1)

4,800
12,000
44,160

(3) 96,000
(7) 5,250
(8) 7,800
(3) 192,000
(4) 12,000

(2)

6,000

(3) 216,000
(4) 2,400
(4) 3,000
(2) 332,160
(3) 84,000
(4)
(5)
(6)

24,000
45,000
43,200

462,000
1,044,000
2,400
9,000
P2,749,800

P 255,150
552,000
193,800
360,000
600,000

(2) 240,000
(4) 2,640
(5) 9,600
(6) 6,240
__________
P 979,350

P 367,200
276,000
324,000
265,200

(2 83,040
(3) 18,000
(8)
780
(9) 17,340
P 979,350

688,170

____100,680
P2,749,800

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated
retained earnings, thus:
b.

c.

6.

Consolidated Retained Earnings, January 1, 20x4


Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)

Non-controlling interest (partial-goodwill), January 1, 20x4


Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill),..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P360,000

P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000

P 600,000
360,000
P 960,000
___90,000
P1,050,000

Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI - P
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.

P183,000

Unrealized gain on sale of equipment (downstream sales)


Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.

P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000

(15,000)
2,250
P170,250

63,900
P234,150
26,340
P207,810
_ 10,140
P217,950

b. NCI-CNI P10,140

**Non-controlling Interest in Net Income (NCINI) for 20x4


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) partial goodwill
*that has been realized in transactions with third parties.

P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140

c. CNI, P217,950 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

e.

P360,000
207,810
P567,810
72,000
P495,810

The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on
January 1, 20x4 and December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
Realized stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

P 240,000
P120,000
91,200
P211,200
36,000

175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940

f.

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P 600,000
495,810
P1,095,810
___92,940
P1,188,750

12/31/20x5:
a. CI-CNI P264,360

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

P 90,000
3,90
P 93,900

P192,000
3,000
P195,000
93,900
P288,900
7,200
P281,700
17,340
P264,360

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.

P 90,000
3,900
P 93,900
P 17,340
7,200

P192,000
3,000
P195,000
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700

b. NCI-CNI P17,340

**Non-controlling Interest in Net Income (NCINI) for 20x5


S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill

P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340

c. CNI, P281,700 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties..

P499,800
12,750
P487,050

Adjustment to convert from cost model to equity method for purposes of


consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Upstream - net unrealized gain on sale of equipment prior to
20x5 (P31,200 P3,900)
Multiplied by: Controlling interests %...................

P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P 11,760
3,000

Less: Goodwill impairment loss


__ 8,760
Consolidated Retained earnings, January 1, 20x5
P495,810
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
264,360
Total
P760,170
Less: Dividends paid Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might
be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to
Illustration 15-6).

Or, alternatively:

Consolidated Retained Earnings, December 31, 20x5


Retained earnings - Parent Company, December 31, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000)
Upstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P31,200 P3,900 P3,900)
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x5

e.

Non-controlling interest (partial-goodwill), December 31, 20x5


Common stock Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5
Add: Net income of subsidiary for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of subsidiary, December 31, 20x5
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900)
Realized stockholders equity of subsidiary, December 31, 20x5.

P658,200
9,750
P648,450

P 217,200
120,000
P 97,200
20,400
P
P

23,400
53,400
80%
42,720
3,000

39,720
P688,170

P 240,000
P175,200
90,000
P 265,200
48,000

217,200
P 457,200
90,000

P 13,200
7,200

( 20,400)
P 526,800
23,400
P503,400

Multiplied by: Non-controlling Interest percentage...


Non-controlling interest (partial goodwill)..

f.

20
P 100,680

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x5
NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5

P 600,000
688,170
P1,288,170
__100,680
P1,188,850

Problem VI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (80%)


Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%).
Retained earnings (P120,000 x 100%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
Increase in land (P7,200 x 100%).
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x 100%).....
Decrease in bonds payable (P4,800 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

P 372,000
93,000
P 465,000
P 240,000
120,000
P

6,000
7,200
96,000
( 24,000)
4,800

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

90,000
P 15,000

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

360,000
P 105,000

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

20x4: First Year after Acquisition


Parent Company Cost Model Entry

January 1, 20x4:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.

372,000

28,800

On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid

36,000

372,000

28,800

Cash.
Dividends paid by S Co..

36,000

No entries are made on the parents books to depreciate, amortize or write-off the portion of the allocated
excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition

(E1) Common stock S Co


Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
15,000

To eliminate intercompany investment and equity accounts


of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.

288,000
72,000

216,000
21,000
84,000

To allocate excess of cost over book value of identifiable assets


acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity goodwill and
hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment loss to be pro-rated between
the parent and NCI on the same basis as that on which profit or loss is allocated. In other words, the impairment
loss is not pro-rated in accordance with the proportion of goodwill recognized by parent and NCI.
(E3) Cost of Goods Sold.
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,750

To provide for 20x4 impairment loss and depreciation and


amortization on differences between acquisition date fair value and
book value of Sons identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000
_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

(E4) Dividend income - P.


Non-controlling interest (P36,000 x 20%)..
Dividends paid S

To eliminate intercompany dividends and non-controlling interest


share of dividends.

28,800
7,200

6,000
12,000
1,200
3,750

36,000

(E5) Gain on sale of equipment


Equipment
Accumulated depreciation

15,000
30,000

(E6) Gain on sale of equipment


Equipment
Accumulated depreciation

31,200
12,000

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation..


Depreciation expense

2,250

(E8) Accumulated depreciation..


Depreciation expense

3,900

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..

9,390

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

To establish non-controlling interest in subsidiarys adjusted net


income for 20x4 as follows:
Net income of subsidiary..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys realized net income from
separate operations
Less: Amortization of allocated excess [(E3)].

45,000

43,200

2,250

3,900

9,390

P 91,200
( 31,200)
3,900

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)
Non-controlling Interest in Net Income (NCINI)

P 63,900
13,200
P 50,700
20%
P

10,140

750
9,390

Worksheet for Consolidated Financial Statements, December 31, 20x4.


Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment

P Co
P480,000
15,000

S Co.
P240,000
31,200

Dividend income
Total Revenue
Cost of goods sold
Depreciation expense

28,800
P523,800
P204,000
60,000

P271,200
P138,000
24,000

Dr.

Cr.

(5) 15,000
(6) 31,200
(4) 28,800
(3)
(3)

6,000
6,000

(7)

2,250

Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850

Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

48,000
P312,000
P211,800
P211,800

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co

Accumulated depreciation
- equipment

(3)

3,750

(9)

9,390

211,800
P571,800

P120,000
91,200
P211,200

(1) 120,000

72,000
-

36,000

P499,800

P175,200

P 495,810

232,800
90,000
120,000
210,000
240,000

P 90,000
60,000
90,000
48,000
180,000

P 322,800
150,000
210,000
265,200

720,000

540,000

P1,984,800

P1,008,000

P 135,000

P 96,000

405,000

288,000

105,000
240,000
600,000

88,800
120,000

Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total

1,200

372,000

Total

499,800

240,000
175,200

_________
P1,984,800

_________
P1,008,000

20x5: Second Year after Acquisition


Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid

No goodwill impairment loss for 20x5.

3,900

(3)

P360,000

(8)

18,000
P180,000
P 91,200
P 91,200

P 360,000
207,810
P 567,810
(4)

(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2)
(2)

4,800
15,000

(2) 80,000
(7) 2,250
(8) 3,900
(2) 192,000
(3) 6,000

1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810

3)

36,000

6,000

(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000

72,000
________

462,000
1,044,000
3,600
11,250
P2,468,850

(3) 10,000
(5) 45,000
(6) 43,200

P229,050
495,000
193,800
360,000
600,000

(1) 240,000
(3)

7,200

__________
P 843,690

(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690

P Co.
P 540,000
216000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000

495,810
____95,190
P2,468,850

S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

Parent Company Cost Model Entry

January 1, 20x5 December 31, 20x5:


Cash
Dividend income (P48,000 x 80%).
Record dividends from S Company.

38,400

38,400

On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..

48,000

Consolidation Workpaper Second Year after Acquisition


(E1) Investment in S Company
Retained earnings P Company

44,160

To provide entry to convert from the cost method to the equity


method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

48,000

44,160

P175,200
120,000
P 55,200
80%
P 44,160

(E2) Common stock S Co


Retained earnings S Co., 1/1/20x5
Investment in S Co (P415,200 x 80%)
Non-controlling interest (P415,200 x 20%)..

240,000
175,200

(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
15,000

To eliminate intercompany investment and equity accounts


of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

216,000
21,000
84,000

To allocate excess of cost over book value of identifiable assets


acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings P Company, 1/1/20x5


[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 P3,000 = P750)
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

332,160
83,040

13,560
3,390
6,000
12,000
1,200

6,000
24,000
2,400
3,750

To provide for years 20x4 and 20x5 depreciation and amortization on


differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.

Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560

Depreciation/
Amortization
expense

Amortization
-Interest

P 12,000
( 6,000)
________
P 6,000

P 1,200
P 1,200

(E5) Dividend income - P.


Non-controlling interest (P48,000 x 20%)..
Dividends paid S

38,400
9,600

(E6) Retained Earnings P Company, 1/1/20x5


Equipment
Accumulated depreciation

15,000
30,000

(E7) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)


Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation

24,960
6,240
12,000

To eliminate intercompany dividends and non-controlling interest


share of dividends.

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E8) Accumulated depreciation..


Depreciation expense (current year)
Retained EarningsP Company, 1/1/20x5 (prior year)

5,250

(E9) Accumulated depreciation..


Depreciation expense (current year)
Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%)
Non-controlling interest (P3,900 x 20%)

7,800

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

(E10) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
income for 20x5 as follows:
Net income of subsidiary..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys Realized net income*
Less: Amortization of allocated excess

P 90,000
3,900
P 93,900
( 7,200)

17,340

48,000

45,000

43,200

3,000
2,250

3,900
3,120
780

17,340

P 86,700
Multiplied by: Non-controlling interest %..........
20%
Non-controlling Interest in Net Income (NCINI
P 17,340
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
P 17,340
*from separate transactions that has been realized in transactions
with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.


Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold

P Co
P540,000
38,400
P578,400
P216,000

S Co.
P360,000
P360,000
P192,000

(5)

60,000

24,000

(4)

6,000

Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

72,000
P348,000
P230,400
P230,400

54,000
P270,000
P 90,000
P 90,000

(4)

1,200

Statement of Retained Earnings


Retained earnings, 1/1
P Company

P499,800

(2) 13,560
(6) 15,00
(7) 24,960
P 175,200 (1) 175,200
90,000
P265,200

Depreciation expense

S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable

230,400
P730,200

Dr.

Cr.

38,400
(8)
3,000
(9)
3,900

Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100

P
P
(
P

(10) 17,340

(1) 44,160
(8) 2,250
(9) 3,120

1,200
126,000
618,300
281,700
17,340)
264,360

P 495,810
264,360
P 760,170

72,000
-

48,000

P658,200

P217,200

P 688,170

265,200
180,000
216,000
210,000
240,000

P 102,000
96,000
108,000
48,000
180,000

P 367,200
276,000
324,000
265,200

720,000

540,000

372,000
P2,203,200

P1,074,000

P 150,000

P 102,000

450,000

306,000

105,000
240,000

88,800
120,000

(5)

(3)
(3)
(6)
(7)

6,000
7,200
30,000
12,000

(3)
(3)
(1)

4,800
15,000
44,160

(3) 96,000
(8) 5,250
(9) 7,800
(3) 192,000
(4) 12,000

(4)

48,000

6,000

(3) 216,000
(4) 2,400
(4) 3,750
(2) 332,160
(3) 90,000
(4)
(6)
(7)

24,000
45,000
43,200

72,000
________

462,000
1,044,000
2,400
11,250
P2,752,050

P 255,150
552,000
193,800
360,000

Common stock, P10 par


Common stock, P10 par
Retained earnings, from above
Non-controlling interest

Total

600,000
658,200

240,000
217,200

___ _____
P2,203,200

_________
P1,074,000

600,000

(2) 240,000
(4) 3,390
(5) 9,600
(7) 6,240
__________
P 983,100

(2 ) 83,040
(3) 21,000
(9)
780
(10) 17,340
P 983,100

688,170

____102,930
P2,752,050

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated
retained earnings, thus:
b.

c.

6.

Consolidated Retained Earnings, January 1, 20x4


Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)

P360,000

Non-controlling interest (partial-goodwill), January 1, 20x4


Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill),..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000

P 600,000
360,000
P 960,000
___93,000
P1,053,000

Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI P207,810
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.

b. NCI-CNI P10,140

**Non-controlling Interest in Net Income (NCINI) for 20x4

P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000

P183,000
(15,000)
2,250
P170,250

63,900
P234,150
26,340
P207,810
10,140
P217,950

S Companys net income of Subsidiary Company from its own operations


(Reported net income of S Company)
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) full goodwill
*that has been realized in transactions with third parties.

P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140
750
P 9,390

c. CNI, P217,950 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

e.

f.

Non-controlling interest (partial-goodwill), December 31, 20x4


Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
Realized stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P360,000
207,810
P567,810
72,000
P495,810

P 240,000
P120,000
91,200
P211,200
36,000

175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
2,250
P 95,190

P 600,000
495,810
P1,095,810
___95,190
P1,191,000

12/31/20x5:
a. CI-CNI P281,700

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...

P192,000
3,000
P195,000

S Companys net income from own operations.


Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

P 90,000
3,900
P 93,900

93,900
P288,900
7,200
P281,700
17,340
P264,360

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.

P 90,000
3,900
P 93,900
P 17,340
7,200

P192,000
3,000
P195,000
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700

b. NCI-CNI P17,340

**Non-controlling Interest in Net Income (NCINI) for 20x5


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
0
P 17,340

c. CNI, P281,700 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Upstream - net unrealized gain on sale of equipment prior to
20x5 (P31,200 P3,900)
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, January 1, 20x5

P499,800
12,750
P487,050

P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P 11,760
3,000

__ 8,760
P495,810

Add: Controlling Interest in Consolidated Net Income or Profit attributable to


equity holders of parent for 20x5
264,360
Total
P760,170
Less: Dividends paid Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might
be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to
Illustration 15-6).

Or, alternatively:

Consolidated Retained Earnings, December 31, 20x5


Retained earnings - Parent Company, December 31, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200)
Upstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P31,200 P3,900 P3,900)
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss (full-goodwill)
Consolidated Retained earnings, December 31, 20x5

e.

f.

Non-controlling interest, December 31, 20x5


Common stock Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5
Add: Net income of subsidiary for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of subsidiary, December 31, 20x5
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900)
Realized stockholders equity of subsidiary, December 31, 20x5.
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x5
NCI, 12/31/20x5

P658,200
9,750
P648,450

P 217,200
120,000
P 97,200
20,400
P
P

23,400
53,400
80%
42,720
3,000

39,720
P688,170

P 240,000
P175,200
90,000
P 265,200
48,000

217,200
P 457,200
90,000

P 13,200
7,200

( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
2,250
P 102,930

P 600,000
688,170
P1,288,170
__102,930

Consolidated SHE, 12/31/20x5

Problem VII

1.

20x4

20x5

Noncontrolling interest in P 7,000 (1)


Consolidated net income

P 46,200 (2)

Controlling interest in
290,500 (3)
Consolidated net income

279,300 (4)

(1)
(2)
(3)
(4)
2.

P1,391,100

.4(P70,000 P63,000 + P10,500) = P7,000


.4(P105,000 + P10,500) = P46,200
P280,000 + .6(P70,000 P63,000 + P10,500) = P290,500
P210,000 + .6(P105,000 + P10,500) = P279,300
2014

2015

Noncontrolling interest in P 28,000 (5)


P 42,000 (6)
Consolidated income
Controlling interest in
269,500 (7)
283,500 (8)
Consolidated net income
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500

Problem VIII
(Determine consolidated net income when an intercompany transfer of equipment occurs. Includes an outside
ownership)
a. IncomeST ..........................................................................................................
IncomeBB ..........................................................................................................
Excess amortization for unpatented technology .........................................
Remove unrealized gain on equipment .......................................................
(P120,000 P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 5) .........................................................
Consolidated net income ................................................................................

P220,000
90,000
(8,000)
(50,000)

b. Income calculated in (part a.) .......................................................................


Non-controlling interest in BB's income
IncomeBB ..............................................................................
P90,000
Excess amortization .................................................................
(8,000)
Adjusted net income ..............................................................
P82,000
Non-controlling interest in BBs income (10%).........................................
Consolidated net income to parent company ............................................

P262,000

c. Income calculated in (part a.) .......................................................................


Non-controlling interest in BB's income (see Schedule 1) ........
(4,200)
Consolidated net income to parent company ............................................

P262,000

10,000
P262,000

(8,200)
P253,800

P257,800

Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)


Reported net income of subsidiary ................................................................
P90,000
Excess amortization.............................................................................................
(8,000)
Eliminate unrealized gain on equipment transfer ........................................
(50,000)
Eliminate excess depreciation (P50,000 5) .................................................
10,000
Bennett's realized net income .........................................................................
P42,000
Outside ownership .............................................................................................
10%
Non-controlling interest in subsidiary's income .............................................
P 4,200
d. Net income 20x5ST .........................................................................................
Net income 20x5BB ........................................................................................
Excess amortization.............................................................................................
Eliminate excess depreciation stemming from transfer
(P50,000 5) (year after transfer) .............................................................
Consolidated net income .....................................................................

P240,000
100,000
(8,000)
10,000
P342,000

Problem IX

1.

Consolidated net income as reported


Less: P10,000 deferred gain
Plus: NCI portion of the gain
Plus: Deferred gain
Corrected consolidated net income

2.
Land account as reported
Less: Intercompany profit
Restated land account
3.

20x4
P 750,000
-10,000
3,000

20x5
P 600,000

20x6
P 910,000

P 743,000

P 600,000

7,000
P 917,000

20x4
P 200,000
-10,000
P 190,000

20x5
P 240,000
-10,000
P 230,000

20x6
P 300,000
P 300,000

Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000

Problem X
1. On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry
debited the machine account for P22,000 which must be the amount needed to bring the
machine account up to P120,000, Buzzard must have recorded the machine at P98,000.
Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation
expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account
will be the original amount of annual depreciation, (P12,000) times the number of years the
machine has been depreciated (4), or P48,000.

3.

The non-controlling interest income will be 30% of Tool adjusted net income. Tool reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the
machine and is increased by the piecemeal recognition of the gain, which is P2,000. The
net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the noncontrolling interest.

Problem XI
1.
Consolidated net income for 20x9:
Operating income reported by BW
Net income reported by TW
Amount of gain realized in 20x9
(P30,000 / 12 years)
Realized net income of TW
Consolidated net income
2.

Consolidated net income for 20x9 would be unchanged.

3.

Eliminating entry, December 31, 20x9:


E(1)

Buildings and Equipment


Retained Earnings, January 1
Non-controlling Interest
Depreciation Expense
Accumulated Depreciation
Eliminate unrealized profit on building.

P40,000
2,500

30,000
20,000
5,000

Adjustment to buildings and equipment


Amount paid by TW to acquire building
Amount paid by BW on intercompany sale
Adjustment to buildings and equipment

P300,000
(270,000)
P 30,000

Adjustment to retained earnings, January 1, 20x9


Unrealized gain recorded January 1, 20x4
Amount realized following intercompany sale
(P2,500 x 2)
Unrealized gain, January 1, 20x9
Proportion of ownership held by Baywatch
Required adjustment

P 30,000
(5,000)
P 25,000
x
.80
P 20,000

Adjustment to Noncontrolling interest, January 1, 20x9


Unrealized gain at January 1, 20x9
Proportion of ownership held by non-controlling
interest
Required adjustment

P 25,000
x
P

.20
5,000

Adjustment to depreciation expense


Depreciation expense recorded by BW
Industries (P270,000 / 12 years)
Depreciation expense recorded by TW
Corporation (P300,000 / 15 years)

P 22,500
(20,000)

P100,000

42,500
P142,500

2,500
52,500

Adjustment to depreciation expense

P 2,500

Adjustment to accumulated depreciation


Amount required (P20,000 x 6 years)
Amount reported by BW (P22,500 x 3 years)
Required adjustment

P120,000
(67,500)
P 52,500

Problem XII
1.
The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
2.

3.

The consolidated amount of depreciation expense was the combined amounts of


depreciation expense showing on the separate income statements minus the piecemeal
recognition of the gain on the sale of the equipment. Thus, the consolidated amount of
depreciation expense was P95,000 + P32,000 (P35,000/4 years) = P118,250.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 =
Income from Branch
Plus: Deferred gain on land
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years =
Consolidated net income

Problem XIII

P 98,000
20,000
50,000
8,750
P176,750

Quail Corporation and Subsidiary


Consolidated Income Statement
for the year ended December 31, 20x5

Sales
Gain on land (P20,000 + P25,000)
Cost of sales
Other expenses (see below)
Consolidated Net Income
NCI-CNI (see below)
Consolidated net income

1,100,000
45,000
560,000 )
320,000 )
265,000
20,000 )
245,000

(
(
P
(
P

Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment

320,000

Non-controlling Interest in CNI:


Net income from Savannah x 20%: (P100,000 x 20%) =

20,000

Problem XIV refer to Problem IX


Problem XV
1.
Eliminating entry, December 31, 20x7:
E(1) Gain on Sale of Land

10,000

Land

2.

10,000

Eliminating entry, December 31, 20x8:


E(1) Retained Earnings, January 1
Land

10,000

Eliminating entry, December 31, 20x7:


E(1) Gain on Sale of Land
Land

10,000

Eliminating entry, December 31, 20x8:


E(1)
Retained Earnings, January 1
Non-controlling Interest
Land

6,000
4,000

10,000

10,000

10,000

Problem XVI

1.

2.

Eliminating entry, December 31, 20x4:


E(1) Gain on Sale of Land
Land

45,000

Eliminating entry, December 31, 20x5:


E(1) Retained Earnings, January 1
Non-controlling Interest
Land

31,500
13,500

Eliminating entries, December 31, 20x4 and 20x5:


E (1) Retained Earnings, January 1
Land

30,000

Problem XVII
1.
Downstream sale of land:

20x4
P 90,000
(25,000)
P 65,000
60,000
P125,000

VVs separate operating income


Less: Unrealized gain on sale of land
VVs realized operating income
Spawns realized net income
Consolidated net income
Income to non-controlling interest:
(P60,000 x .25)
(P40,000 X .25)
Income to controlling interest
2.

(15,000)

Upstream sale of land:


VVs separate operating income
SSs net income
Less: Unrealized gain on sale of land
Spawns realized net income
Consolidated net income
Income to non-controlling interest:
(P35,000 x .25)

P60,000
(25,000)

45,000

45,000

30,000

20x5
P110,000
P110,000
40,000
P150,000

P110,000

(10,000)
P140,000

20x4
P 90,000

20x5
P110,000

35,000
P125,000

40,000
P150,000

(8,750)

(P40,000 x .25)
Income to controlling interest

P116,250

(10,000)
P140,000

Problem XVIII
1.
Consolidated net income for 20x4 will be greater than PP Company's income from operations plus SS's
reported net income. The eliminating entries at December 31, 20x4, will result in an increase of P16,000 to
consolidated net income.
2.

As a result of purchasing the equipment at less than Parent's book value, depreciation expense reported
by SS will be P2,000 (P16,000 / 8 years) below the amount that would have been recorded by PP. Thus,
depreciation expense must be increased by P2,000 when eliminating entries are prepared at December
31, 20x5. Consolidated net income will be decreased by the full amount of the P2,000 increase in
depreciation expense.

Problem XIX
1.
Eliminating entry, December 31, 20x9:
E(1) Buildings and Equipment
Loss on Sale of Building
Accumulated Depreciation
Eliminate unrealized loss on building.
2.

36,000
120,000

Consolidated net income and income to controlling


interest for 20x9:
Operating income reported by BB
Net income reported by TT
Add: Loss on sale of building
Realized net income of TT
Consolidated net income
Income to non-controlling interest (P51,000 x .30)
Income to controlling interest

3.

156,000

P 15,000
36,000

Eliminating entry, December 31, 20y0:


E(1)
Buildings and Equipment
Depreciation Expense
Accumulated Depreciation
Retained Earnings, January 1
Non-controlling Interest
Eliminate unrealized loss on building.
Adjustment to buildings and equipment
Amount paid by TT to acquire building
Amount paid by BB on intercompany sale
Adjustment to buildings and equipment
Adjustment to depreciation expense
Depreciation expense recorded by TT
Company (P300,000 / 15 years)
Depreciation expense recorded by BB
Corporation (P144,000 / 9 years)
Adjustment to depreciation expense
Adjustment to accumulated depreciation

156,000
4,000

P300,000
(144,000)
P156,000

P 20,000
P

(16,000)
4,000

P125,000
51,000
P176,000
(15,300)
P160,700

124,000
25,200
10,800

Amount required (P20,000 x 7 years)


Amount reported by BB (P16,000 x 1 year)
Required adjustment

P140,000
(16,000)
P124,000

Adjustment to retained earnings, January 1, 20y0


Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by BB
Required adjustment

P36,000
x
.70
P25,200

Adjustment to Noncontrolling interest, January 1, 20y0


Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by non-controlling
Interest
Required adjustment
4.

P36,000
x
.30
P10,800

Consolidated net income and income assigned to


controlling interest in 20y0:
Operating income reported by BB
Net income reported by TT
Adjustment for loss on sale of building
Realized net income of TT
Consolidated net income
Income assigned to non-controlling interest
(P36,000 x .30)
Income assigned to controlling interest

P150,000

P40,000
(4,000)

36,000
P186,000
(10,800)
P175,200

Problem XX
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...

P 372,000
P 192,000
96,000

P 4,800
5,760
76,800
( 19,200)
3,840

288,000
84,000

72,000
P 12,000

The over/under valuation of assets and liabilities are summarized as follows:


Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..

S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000

S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000

(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co.
Book value

S Co.
Fair value

Increase
(Decrease)

Equipment..................
Less: Accumulated depreciation..
Net book value...

180,000
96,000
84,000

180,000
180,000

0
( 96,000)
96,000

Buildings................
Less: Accumulated depreciation..
Net book value...

S Co.
Book value
360,000
1992,000
168,000

S Co.
Fair value
144,000
144,000

(Decrease)
( 216,000)
( 192,000)
( 24,000)

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

Over/
Under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling interest
and the NCI based on the percentage of total goodwill each equity interest received. For purposes of
allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders equity of S (P360,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20%
computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

The goodwill impairment loss would be allocated as follows


Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

Value
P 3,000

% of Total
80.00%

750

20.00%

P 3,750

100.00%

The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x4
1/2/20x4

P
S

Seller

Selling
Price
P90,000
60,000

Book
Value
P75,000
28,800

Unrealized*
Gain on sale
P15,000
31,200

Remaining
Life
5 years
8 years

* selling price less book value


** unrealized gain divided by remaining life; 20x4 P2,500 x 9/12 = P1,875

The following summary for 20x4 results of operations is as follows:

P Co.

Realized gain
depreciation**
P3,000/year
P3,900/year

S Co.

20x4
P2,250
P3,900

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses

P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
P 207,810

Add: Gain on sale of equipment


Net income from its own separate operations
Add: Investment income
Net income

P 240,000
138,000
P 102,000
24,000
18,000
P 60,000
31,200
P 91,200
P 91,200

20x4: First Year after Acquisition


Parent Company Equity Method Entry

January 1, 20x4:
(1) Investment in S Company
Cash..

372,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash
Investment in S Company (P36,000 x 80%).

28,800

December 31, 20x4:


(3) Investment in S Company
Investment income (P91,200 x 80%)

72,960

Record dividends from Son Company.

Record share in net income of subsidiary.

December 31, 20x4:


(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
Investment in S Company

December 31, 20x4:


(6) Investment income (P31,200 x 80%)
Investment in S Company
To adjust investment income for upstream sales - unrealized gain on
sale of equipment..
December 31, 20x4:
(7) Investment in S Company
Investment income (P2,250 x 100%)
To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:
(8) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales - realized gain on
sale of equipment..

28,800

72,960

13,560
13,560

Record amortization of allocated excess of inventory, equipment,


buildings and bonds payable and goodwill impairment loss.

December 31, 20x4:


(5) Investment income (P15,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales - unrealized gain
on sale of equipment..

372,000

15,000

24,960

2,250

3,120

15,000

24,960

2,250

3,120

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4

Investment in S
372,000
28,800

Dividends S (36,000x 80%)

NI of Son
(91,200 x 80%)
72,960
13,560
Realized gain downstream sale
2,250
15,000
Realized gain upstream sale
3,120
24,960
Investment
Income
Balance, 12/31/x4
368,010
Amortization
&
impairment
13,560
72,960
Unrealized gain downstream sale 15,000
2,250
Unrealized gain upstream sale
24,960
3,120
24,810

Consolidation Workpaper First Year after Acquisition

Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
NI of S
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4

(E1) Common stock S Co


Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120,000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)..
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
12,000

To eliminate investment on January 1, 20x4 and equity accounts


of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.

To eliminate investment on January 1, 20x4 and allocate excess of


cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,000

To provide for 20x4 impairment loss and depreciation and


amortization on differences between acquisition date fair value and
book value of Sons identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000
_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

(E4) Investment income


Investment in S Company
Non-controlling interest (P36,000 x 20%)..
Dividends paid S

288,000
72,000

216,000
18,000
84,000

6,000
12,000
1,200
3,000

Total

14,400

To eliminate intercompany dividends and investment income under


equity method and establish share of dividends, computed as

24,810
3,990
7,200

36,000

follows:

Investment in S
NI of S
28,800 Dividends - S
(91,200
Amortization &
x 80%). 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120 24,960 Unrealized gain **
3,990

Investment Income
Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain **24,960

72,960
2,250
3,120
24,810

NI of S
(91,200
x 80%)
Realized gain*
Realized gain**

*downstream sale (should be multiplied by 100%)


**upstream sale (should be multiplied by 80%)

After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x4
NI of S
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
(E4) Investment Income
and dividends

Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
3,990
372,000

13,560
15,000
24,960
288,000
84,000

Dividends S (36,000x 80%)


Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4

372,000

(E5) Gain on sale of equipment


Equipment
Accumulated depreciation

15,000
30,000

(E6) Gain on sale of equipment


Equipment
Accumulated depreciation

31,200
12,000

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation..


Depreciation expense

2,250

(E8) Accumulated depreciation..


Depreciation expense

3,900

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P26,000/85 years x 1 year = P3,250).

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
Net income of subsidiary..
Unrealized gain on sale of equipment

P 91,200

10,140

45,000

43,200

2,250

3,900

10,140

(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys realized net income from
separate operations
Less: Amortization of allocated excess [(E3)].

( 31,200)
3,900

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI)
partial goodwill

P 63,900
13,200
P 50,700
20%
P

10,140

Worksheet for Consolidated Financial Statements, December 31, 20x4.


Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment

P Co
P480,000
15,000

S Co.
P240,000
31,200

Investment income
Total Revenue
Cost of goods sold

24,810
P519,810
P204,000

P271,200
P138,000

60,000
48,000
P312,000
P207,810
P207,810

Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings

Cr.

(5) 15,000
(6) 31,200
(4) 28,800

Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850

(3)

6,000

24,000

(3)

6,000

18,000
P180,000
P 91,200
P 91,200

(3)

1,200

(3)

3,000

(9)

10,140

207,810
P567,810

P120,000
91,200
P211,200

(1) 120,000

72,000
-

36,000

P495,810

P175,200

P 495,810

232,800
90,000
120,000
210,000
240,000

P 90,000
60,000
90,000
48,000
180,000

P 322,800
150,000
210,000
265,200

720,000

540,000

P360,000

Dr.

368,010
P1,980,810

P1,008,000

P 135,000

P 96,000

405,000

288,000

(7)

P
P
(
P

(2)
(2)

4,800
12,000

(2) 96,000
(7) 2,250
(8)
3,900
(2) 192,000
(3)
6,000

1,0200
66,000
3,000
502,050
217,950
10,140)
207,810

P 360,000
207,810
P567,810
(4)

(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000

2,250
(8)
3,900

(3)

36,000

5,000

(2) 216,000
(3) 1,200
(3) 3,000
(1) 288,000
(2) 84,000
(3) 12,000
(5) 45,000
(6) 43,200

72,000
________

462,000
1,044,000
3,600
9,000
P2,466,600

P229,050
495,000

Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total

105,000
240,000
600,000

88,800
120,000

495,810

240,000
175,200

(1) 240,000

_________
P1,980,810

_________
P1,008,000

__________
P 840,690

20x5: Second Year after Acquisition

(4)

7,200

193,800
360,000
600,000
(1 ) 72,000
(2) 18,000
(9) 10,140
P 840,690

P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid

495,810
92,940
P2,466,600

S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

No goodwill impairment loss for 20x5.


Parent Company Equity Method Entry

January 1, 20x5 December 31, 20x5:


(2) Cash
Investment in S Company (P48,000 x 80%).

38,400

December 31, 20x5:


(3) Investment in S Company
Investment income (P90,000 x 80%)

72,000

Record dividends from S Company.

Record share in net income of subsidiary.

December 31, 20x5:


(4) Investment income (P7,200 x 80%)
Investment in S Company

5,760

Record amortization of allocated excess of inventory, equipment,


buildings and bonds payable

December 31, 20x4:


(5) Investment in S Company
Investment income (P3,000 x 100%)
To adjust investment income for downstream sales - realized gain on
sale of equipment.
December 31, 20x4:
(6) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales - realized gain on
sale of equipment..

3,000

3,120

38,400

72,000

5,760

3,000

3,120

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x5

Investment in S
368,010
38,400
5,760
72,000
3,000
3,120
401,970

Dividends S (48,000x 80%)


Amortization (7,200 x 80%)

Amortization (6,000 x 805)

Investment Income
5,760
NI of S
72,000
(90,000 x 80%)
3,000
Realized gain downstream sale
3,120
Realized gain upstream sale
72,360
Balance, 12/31/x5

Consolidation Workpaper Second Year after Acquisition

(E1) Common stock S Co


Retained earnings S Co, 1/1/x5.
Investment in S Co (P415,200 x 80%)
Non-controlling interest (P415,200 x 20%)..

240,000
175,200

(E2) Accumulated depreciation equipment (P96,000 P12,000)


Accumulated depreciation buildings (P192,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment in Son Co.

84,000
198,000
6,000
3,600
9,000

To eliminate investment on January 1, 20x5 and equity accounts


of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

To eliminate investment on January 1, 20x5 and allocate excess of


cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense..


Accumulated depreciation buildings..
Interest expense
Accumulated depreciation equipment..
Discount on bonds payable

6,000
6,000
1,200

To provide for 20x5 depreciation and amortization on differences


between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

180,000
15,360
70,440

12,000
1,200

Total

P7,200

(E4) Investment income


Non-controlling interest (P48,000 x 20%)..
Dividends paid S
Investment in S Company

72.360
9,600

To eliminate intercompany dividends and investment income under


equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
38,400
Dividends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960

*downstream sale (should be multiplied by 100%)

332,160
83,040

48,000
33,960

Investment Income
Amortization
(P7,200 x 80%)

5,760

72,000
3,000
3,120
72,360

NI of S
(90,000
x 80%)
Realized gain*
Realized gain**

**upstream sale (should be multiplied by 80%)

(E5) Investment in S Company


Equipment
Accumulated depreciation equipment

15,000
30,000

(E6) Investment in S Company


Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation- equipment

24,960
6,240
12,000

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation equipment ..


Depreciation expense (current year)
Investment in S Company (prior year)

5,250

(E8) Accumulated depreciation- equipment..


Depreciation expense (current year)
Investment in S Company (prior year)
Non-controlling interest (P31,200 x 20%)

7,800

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..

17,340

To establish non-controlling interest in subsidiarys adjusted net


income for 20x5 as follows:
Net income of subsidiary..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys Realized net income*
Less: Amortization of allocated excess

45,000

43,200

3,000
2,250

3,900
3,120
780

17,340

P 90,000

3,900
P 93,900
( 7,200)
P 86,700
Multiplied by: Non-controlling interest %..........
20%
Non-controlling Interest in Net Income (NCINI
P 17,340
*from separate transactions that has been realized in transactions
with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.


Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold

P Co
P540,000
72,360
P612,360
P216,000

S Co.
P360,000
P360,000
P192,000

Dr.

(4)

Depreciation expense

60,000

24,000

(3)

6,000

Interest expense
Other expenses

72,000

54,000

(3)

1,200

Cr.

72,360
(7)
3,000
(8)
3,900

Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100

1,200
126,000

Goodwill impairment loss


Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P348,000
P264,360
P264,360

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in Son Co

Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest

Total

P495,810

P270,000
P 90,000
P 90,000

P
P
(
P

(9) 17,340

618,300
281,700
17,340)
264,360

P495,810

_264,360
P760,170

P 175,200
90,000
P265,200

72,000
-

48,000

P688,170

P217,200

P 688,170

265,200
180,000
216,000
210,000
240,000

P 102,000
96,000
108,000
48,000
180,000

P 367,200
276,000
324,000
265,200

720,000

540,000

401,970

P2,233,170

P1,074,000

P 150,000

P 102,000

450,000

306,000

105,000
240,000
600,000

88,800
120,000

(1) 175,200

264,360
P 760,170
(5)

(2)
(5)
(6)

7,200
30,000
12,000

(2)
(2)
(5)
(6)

3,600
9,000
15,000
24,960

(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000

688,170

240,000
217,200

(1) 240,000

___ _____
P2,233,170

_________
P1,074,000

__________
P 930,750

(4)
(6)

9,600
6,240

48,000

(2) 216,000
(3) 1,200
(1) 332,160
(2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(3)
(5)
(6)

12,000
45,000
43,200

72,000
________

462,000
1,044,000
2,400
9,000

P2,749,800

P 255,150
552,000
193,800
360,000
600,000

(1) 69,200
(2) 15,360
(8)
780
(9) 17,340
P 930,750

688,170

____100,680
P2,749,800

5 and 6. Refer to Problem V for computations


Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings,
non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer
to Problem X solution).
Problem XXI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..

P 372,000
93,000

Fair value of Subsidiary (100%).


Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%).
Retained earnings (P120,000 x 100%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
Increase in land (P7,200 x 100%).
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x 100%).....
Decrease in bonds payable (P4,800 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

P 465,000
P 240,000
120,000
P

6,000
7,200
96,000
( 24,000)
4,800

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

The following summary for 20x4 results of operations is as follows:


Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Add: Gain on sale of equipment
Net income from its own separate operations
Add: Investment income
Net income

90,000
P 15,000

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

360,000
P 105,000

P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
P 207,810

S Co.
P 240,000
138,000
P 102,000
24,000
18,000
P 60,000
31,200
P 91,200
P 91,200

20x4: First Year after Acquisition


Parent Company Equity Method Entry

January 1, 20x4:
(1) Investment in S Company
Cash..

372,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash
Investment in S Company (P36,000 x 80%).

28,800

December 31, 20x4:


(3) Investment in S Company
Investment income (P91,200 x 80%)

72,960

Record dividends from Son Company.

Record share in net income of subsidiary.

December 31, 20x4:


(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
Investment in S Company

Record amortization of allocated excess of inventory, equipment,


buildings and bonds payable and goodwill impairment loss.

372,000

28,800

72,960

13,560
13,560

December 31, 20x4:


(5) Investment income (P15,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales - unrealized gain
on sale of equipment..
December 31, 20x4:
(6) Investment income (P31,200 x 80%)
Investment in S Company
To adjust investment income for upstream sales - unrealized gain on
sale of equipment..
December 31, 20x4:
(7) Investment in S Company
Investment income (P2,250 x 100%)
To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:
(8) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales - realized gain on
sale of equipment..

15,000

24,960

2,250

3,120

15,000

24,960

2,250

3,120

Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4

Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale

Investment in S
372,000
28,800
72,960
2,250
3,120
368,010

13,560
15,000
24,960

Investment Income
13,560
15,000
24,960

72,960
2,250
3,120
24,810

Consolidation Workpaper First Year after Acquisition

Dividends S (36,000x 80%)


Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale

NI of S
(76,000 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4

(E1) Common stock S Co


Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000 full
P12,000, partial goodwill)]
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
15,000

To eliminate investment on January 1, 20x4 and equity accounts


of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.

To eliminate investment on January 1, 20x4 and allocate excess of


cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of

288,000
72,000

216,000
21,000
84,000

subsidiary) on date of acquisition.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,750

To provide for 20x4 impairment loss and depreciation and


amortization on differences between acquisition date fair value and
book value of Sons identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

_______
P 6,000

Total

14,400

(E4) Investment income


Investment in S Company
Non-controlling interest (P36,000 x 20%)..
Dividends paid S

24,810
3,990
7,200

To eliminate intercompany dividends and investment income under


equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
28,800 Dividends - S
(91,200
Amortization &
x 80%). 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120 24,960 Unrealized gain **
3,990

6,000
12,000
1,200
3,750

36,000

Investment Income
Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain **24,960

72,960
2,250
3,120
24,810

NI of S
(91,200
x 80%)
Realized gain*
Realized gain**

*downstream sale (should be multiplied by 100%)


**upstream sale (should be multiplied by 80%)

After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x4
NI of S
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
(E4) Investment Income
and dividends

Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
3,990
372,000

(E5) Gain on sale of equipment


Equipment
Accumulated depreciation

13,560
15,000
24,960
288,000
84,000

Dividends S (36,000x 80%)


Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4

372,000

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

15,000
30,000

45,000

(E6) Gain on sale of equipment


Equipment
Accumulated depreciation

31,200
12,000

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation..


Depreciation expense

2,250

(E8) Accumulated depreciation..


Depreciation expense

3,900

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..

9,390

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,120/85 years x 1 year = P3,900).

To establish non-controlling interest in subsidiarys adjusted net


income for 20x4 as follows:
Net income of subsidiary..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys realized net income from
separate operations
Less: Amortization of allocated excess [(E3)].

3,900

9,390

( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P

10,140

750
P

9,390

Worksheet for Consolidated Financial Statements, December 31, 20x4.


Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment

P Co
P480,000
15,000

S Co.
P240,000
31,200

Investment income
Total Revenue
Cost of goods sold

24,810
P519,810
P204,000

P271,200
P138,000

60,000
48,000
P312,000
P207,810
-

Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary

2,250

P 91,200

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)*
Non-controlling Interest in Net Income (NCINI)
full goodwill

Depreciation expense

43,200

Dr.

Cr.

(5) 15,000
(6) 31,200
(4) 28,800
(3)

6,000

24,000

(3)

6,000

18,000
P180,000
P 91,200
-

(3)

1,200

(3)

3,750

(9)

9,390

(7)

2,250
(8)
3,900

Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)

Net Income to Retained Earnings

P207,810

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment

P360,000

Accumulated depreciation
- equipment

P 360,000

207,810
P567,810
72,000
-

36,000

P495,810

P175,200

P 495,810

232,800
90,000
120,000
210,000
240,000

P 90,000
60,000
90,000
48,000
180,000

P 322,800
150,000
210,000
265,200

720,000

540,000

368,010
P1,980,810

P1,008,000

P 135,000

P 96,000

405,000

288,000

105,000
240,000
600,000

88,800
120,000

Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total

P 207,810

P120,000
91,200
P211,200

Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total

P 91,200

495,810

240,000
175,200

_________
P1,980,810

_________
P1,008,000

Second Year after Acquisition


Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid

(1) 120,000

207,810
P 567,810
(4)

(2)
6,000
(2)
6,000
(5) 30,000
(6) 12,000
(2)
(2)

4,800
15,000

(2) 96,000
(7) 2,250
(8) 3900
(2) 192,000
(3) 6,000

(3)

36,000

6,000

(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000

72,000
________

462,000
1,044,000
3,600
11,250
P2,468,850

(3) 12,000
(5) 45,000
(6) 43,200

P229,050
495,000
193,800
360,000
600,000

(1) 240,000
(4)

7,200

__________
P 843,690

(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690

Perfect Co.
P 540,000
1216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000

495,810
____95,190
P2,468,850

Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

No goodwill impairment loss for 20x5.


Parent Company Equity Method Entry

January 1, 20x5 December 31, 20x5:


(2) Cash
Investment in S Company (P48,000 x 80%).
Record dividends from S Company.

38,400

38,400

December 31, 20x5:


(3) Investment in S Company
Investment income (P90,000 x 80%)

72,000

Record share in net income of subsidiary.

December 31, 20x5:


(4) Investment income (P7,200 x 80%)
Investment in S Company

5,760

Record amortization of allocated excess of inventory, equipment,


buildings and bonds payable

December 31, 20x4:


(5) Investment in S Company
Investment income (P3,000 x 100%)
To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:
(6) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales - realized gain on
sale of equipment..

3,000

3,120

72,000

5,760

3,000

3,120

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x5

Amortization (7,200 x 805)

Investment in S
368,010
38,400
5,760
72,000
3,000
3,120
401,970

Dividends S (40,000x 80%)


Amortization (6,000 x 80%)

Investment Income
5,760
NI of S
72,000
(90,000 x 80%)
3,000
Realized gain downstream sale
3,120
Realized gain upstream sale
72,360
Balance, 12/31/x5

Consolidation Workpaper Second Year after Acquisition

(E1) Common stock S Co


Retained earnings S Co, 1/1/x5.
Investment in S Co (P415,200 x 80%)
Non-controlling interest (P415,200 x 20%)..

240,000
175.200

(E2) Accumulated depreciation equipment (P96,000 P12,000)


Accumulated depreciation buildings (P192,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P15,000 P3,900)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co.

84,000
198,000
7,200
3,600
11,250

To eliminate investment on January 1, 20x5 and equity accounts


of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

332,160
83,040

216,000

17,610
70,440

To eliminate investment on January 1, 20x5 and allocate excess of


cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be
situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

(E3) Depreciation expense..


Accumulated depreciation buildings..
Interest expense
Accumulated depreciation equipment..
Discount on bonds payable

6,000
6,000
1,200

To provide for 20x5 depreciation and amortization on differences


between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6000)
_______
P 6,000

P 1,200
P1,200

12,000
1,200

Total

P7,,200

(E4) Investment income


Non-controlling interest (P48,000 x 20%)..
Dividends paid S
Investment in S Company

72,360
9,600

To eliminate intercompany dividends and investment income under


equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
38,400
Dividends S
(90,000
Amortization
x 80%). 72,000
5,760
(P72,000 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960

48,000
33,960

Investment Income
Amortization
(P7,200 x 80%)

5,760

72,000
3,000
3,120
72,360

NI of S
(75,000
x 80%)
Realized gain*
Realized gain**

*downstream sale (should be multiplied by 100%)


**upstream sale (should be multiplied by 80%)

(E5) Investment in S Company


Equipment
Accumulated depreciation equipment

15,000
30,000

(E6) Investment in S Company


Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation- equipment

24,960
6,240
12,000

To eliminate the downstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

To eliminate the upstream intercompany gain and restore to its


original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation equipment ..


Depreciation expense (current year)
Investment in S Company (prior year)

5,250

(E8) Accumulated depreciation- equipment..

7,800

To adjust downstream depreciation expense on equipment sold to


subsidiary, thus realizing a portion of the gain through depreciation

45,000

43,200

3,000
2,250

Depreciation expense (current year)


Investment in S Company (prior year)
Non-controlling interest (P31,200 x 20%)

3,900
3,120
780

To adjust upstream depreciation expense on equipment sold to


parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary


Non-controlling interest ..

17,340

17,340

To establish non-controlling interest in subsidiarys adjusted net


income for 20x5 as follows:
Net income of subsidiary..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys Realized net income*
Less: Amortization of allocated excess

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI)
partial goodwill
P 17,340
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 17,340
*from separate transactions that has been realized in transactions
with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.


Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..

P Co
P540,000
72,360
P612,360
P216,000

S Co.
P360,000
P360,000
P192,000

(4)

60,000

24,000

(3)

6,000

72,000
P348,000
P264,360
P264,360

54,000
P270,000
P 90,000
P 90,000

(3)

1,200

_264,360
P760,170

P 175,200
90,000
P265,200

(1) 175,200

72,000
-

48,000

P688,170

P217,200

P 688,170

265,200
180,000

P 102,000
96,000

P 367,200
276,000

P495,810

Dr.

Cr.

72,360
(7)
3,000
(8)
3,900

Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100

P
P
(
P

(9) 17,340

1,200
126,000
618,300
281,700
17,340)
264,360

P495,810
264,360
P 760,170
(5)

48,000

72,000
________

Inventory.
Land.
Equipment

216,000
210,000
240,000

108,000
48,000
180,000

Buildings
Discount on bonds payable
Goodwill
Investment in S Co

720,000

540,000

Total
Accumulated depreciation
- equipment

401,970

P2,233,170

P1,074,000

P 150,000

P 102,000

450,000

306,000

105,000
240,000
600,000

88,800
120,000

Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest

Total

324,000
265,200

(2)
(5)
(6)

7,200
30,000
12,000

(2)
(2)
(5)
(6)

3,600
11,250
15,000 (1) 332,160
24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120

(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000

688,170

240,000
217,200

(1) 240,000

___ _____
P2,233,170

_________
P1,074,000

__________
P 933,000

(4)
(6)

9,600
6,240

(2) 216,000
(3) 1,200

(3)
(5)
(6)

12,000
45,000
43,200

462,000
1,044,000
2,400
11,250

P2,752,050

P 255,150
552,000
193,800
360,000
600,000

(1) 83,040
(2) 17,610
(8)
780
(9) 17,340
P 933,000

688,170

____102,930
P2,752,050

5 and 6. Refer to Problem VI for computations


Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings,
non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer
to Problem X solution).
Multiple Choice Problems
1. a
Combined equipment amounts
Less: gain on sale
Consolidated equipment balance
Combined Accumulated Depreciation
Less: Depreciation on gain
Consolidated Accumulated Depreciation
2. a

3. a

P1,050,000
25,000
P1,025,000
P 250,000
5,000
P 245,000

Original cost of

P1,100,000

Accumulated depreciation, 1/1/20x4


Add: Additional depreciation (P1,100,000 P100,000) / 20 years
Accumulated depreciation, 12/31/20x4

P 250,000
____50,000
P 300,000

Combined building amounts


Less: Intercompany gain
Consolidated buildings

P650,000
__30,000
P620,000

Combined Accumulated Depreciation


Less: Piecemeal recognition of gain
Consolidated accumulated depreciation

P195,000
___3,000
P192,000

4. a the amount of land that will be presented in the presented in the CFS is the original cost of P416,000 +
P256,000 = P672,000.
5.

6. e

7. d

The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.

Original cost of

Accumulated depreciation, 1/1/20x6 (P100,000 x 50%)


Add: Additional depreciation (P100,000 P50,000) / 5 years
Accumulated depreciation, 12/31/20x6

P 50,000
___10,000
P 60,000

Sales price
Less: Book value
Cost
Less: Accumulated depreciation (50% x P100,000)
Unrealized gain on sale
Less: Realized gain - depreciation (P30,000 / 5 years)
Net unrealized gain, 12/31/20x6

P 80,000
P100,000
__50,000

8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation
Depreciation expense
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 P8,000 = P7,000
Should be in CFS Parent Pylux

Depreciation expense
(P50,000 /5 years)
Acc. Depreciation

10,000

100,000

__50,000
P 30,000
___6,000
P 24,000

6,000

6,000

Recorded as Subsidiary - Sylux


8,000

Depreciation expense
(P80,000 / 5 years)
Acc. depreciation

9. d
Unrealized gain on sales of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years
Net

10. d
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P150,000 / 10 years
Net

11. a
Unrealized gain on sale of equipment (upstream sales) : 50,000 30,000
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years

16,000

16,000

20x4
( 90,000)

20x5

___9,000
( 81,000)

9,000
9,000

20x4
( 150,000)

20x5

___15,000
( 135,000)

20x4
( 20,000)
___4,000

-0-

-0-

15,000
15,000

20x5

-0-

__4,000

Net

( 16,000)

__4,000

12. e
Original cost of

Accumulated depreciation, 1/1/20x6


Add: Additional depreciation (P100,000 P40,000) / 6 years x 2 years
Accumulated depreciation, 12/31/20x4
13. c
Sales price
Less: Book value
Cost
Less: Accumulated depreciation
Unrealized loss on sale
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years
Net unrealized loss, 12/31/20x7

Should be in CFS Parent Poxey


10,000

P 40,000
___20,000
P 70,000
P 48,000

P100,000
__40,000

14. a
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain depreciation
Depreciation expense
Accumulated depreciation
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000
P8,000 = P2,000
Depreciation expense
(P60,000 /6 years)
Acc. Depreciation

100,000

__60,000
P(12,000)
___4,000
P( 8,000)

2,000

2,000

Recorded as Subsidiary - Soxey


10,000

Depreciation expense
(P48,000 / 6 years)
Acc. depreciation

8,000

15. c
Original cost of

P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000)


Add: Additional depreciation (P100,000 P80,000) / 5 years x 2 years
Accumulated depreciation, 12/31/20x7
16. c
Sales price
Less: Book value
Cost
Less: Accumulated depreciation
Unrealized gain on sale
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years
Net unrealized gain, 12/31/20x7
17. b
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation
Depreciation expense

8,000

P 80,000
____8,000
P 88,000
P 45,000

P100,000
__80,000

5,000

__20,000
P 25,000
__10,000
P 15,000

5,000

[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000


P9,000 = P5,000
Should be in CFS Parent Sayex

Depreciation expense
(P20,000 /5 years)
Acc. Depreciation

4,000

Recorded as Subsidiary - Payex


4,000

Depreciation expense
(P45,000 / 5 years)
Acc. depreciation

9,000

9,000

18. c
19. b
20. c (P20,000/20 years = P1,000), the eliminating entry to recognize the gain depreciation would be as
follows:
Accumulated depreciation 1,000
Depreciation expenses..
1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck
3,000
Gain
15,000
Accumulated depreciation
18,000
Seller
Cash
Accumulated
Truck
Gain

50,000
18,000

53,000
15,000

Truck
Cash

Buyer

50,000

50,000

22. b
Correction: On January 1, 20x3 instead of 20x4

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

P 55,000
(15,000)
5,000
P 45,000

P 98,000
___0
P 98,000

45,000
P143,000
0
P143,000
18,000
P125,000

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years)
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to

P 55,000
(15,000)
5,000
P 45,000
P 18,000
____0

P 98,000
___0
P 98,000

45,000
P143,000
18,000

equity holders of parent..


Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.

P125,000
_ 18,000
P143,000

**Non-controlling Interest in Net Income (NCINI) for 20x5


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 55,000
( 15,000)
5,000
P 45,000
0
P 45,000
40%
P 18,000
0
P 18,000

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

23.
24.
25.
26.
27.

a - refer to No. 22 computation


a
a
b
d the entry under the cost model would be as follows ;
Accumulated depreciation. 4,000
Depreciation expenses (current year) P6,000/3 years.
2,000
Retained earnings (prior year 20x4)..
2,000

28. d the entry under the cost model would be as follows ;


Accumulated depreciation. 10,000
Depreciation expenses (current year) P15,000/3 years..
5,000
Retained earnings (prior year 20x5)..
5,000
29. a
30. b
31. c P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll
Total depreciation reported
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years)
Depreciation for consolidated statements
33. e
Depreciation expense:
Parent
Subsidiary
Total
Less: Over-depreciation due to realized gain:
[P115,000 (P125,000 P45,000)] = P35,000/8 years
Consolidated net income
34. c
Unrealized gain on sale of equipment
Realized gain on sale of equipment (upstream sales) through depreciation

P40,000
10,000
P50,000

(3,000)
P47,000

P 84,000
60,000
P144,000
__ 4,375
P139,625
20x6
( 56,000)
___7,000

Net

( 49,000)

Selling price
Less: Book value, 1/1/20x6
Cost, 1/1/20x2
Less: Accumulated depreciation: P420,000/10 years x 2 years
Unrealized gain on sale of equipment
Realized gain depreciation: P56,000/8 years

P 392,000
P420,000
84,000

336,000
P 56,000
P 7,000

35. c (P22,500 x 4/15 = P6,000)


36. a [P50,000 (P50,000 x 4/10) = P30,000]
37. b
The P39,000 paid to GG Company will be charged to depreciation expense by TLK
Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will
debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
38.

TLK Corporation will record the purchase at P39,000, the amount it paid. GG
Company had the equipment recorded at P40,000; thus, a debit of P1,000 will raise
the equipment balance back to its original cost from the viewpoint of the
consolidated entity.

39.

Reported net income of GG Company


Reported gain on sale of equipment
Intercompany profit realized in 20x6
Realized net income of GG Company
Proportion of stock held by
non-controlling interest
Income assigned to non-controlling interests

40.

P15,000
(5,000)

P 85,000
45,000
P130,000

Less: Unrealized gain on sale of equipment


(P15,000 - P5,000)
Consolidated net income

(10,000)
P120,000

41. b
Eliminating entries:
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
Gain
Accumulated depreciation
Parent Books Mortar

390,000
160,000

400,000
150,000

(10,000)
P 35,000
x
.40
P 14,000

Operating income reported by TLK Corporation


Net income reported by GG Company

Cash
Accumulated depreciation
Equipment
Gain

P 45,000

10,000
150,000

Equipment
Cash

160,000

Subsidiary Books Granite


390,000

Mortar

Selling price
Less: Book value, 12/31/20x5
Cost, 1/1/20x2
Less: Accumulated depreciation : P400,000/10 years x 4 years
Unrealized gain on sale of equipment

P390,000
P400,000
160,000

240,000
P 150,000

390,000

Realized gain depreciation: P150,000/6 years

P 25,000

42. a refer to No. 41 for computation


43. b - refer to No. 41 for computation
44. d
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation
Depreciation expense
P150,000 / 6 years or P65,000 P40,000
Should be in CFS Parent Books Mortar

Depreciation expense
(P400,000 / 10 years)
Acc. Depreciation

40,000

40,000

25,000

Recorded as Subsidiary Books - Granite

Depreciation expense
(P390,000 / 6 years)
Acc. depreciation

45. c
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Equipment
Retained earnings (150,000 25,000)
Accumulated depreciation (P160,000 P25,000)

Parent Books Mortar

350,000
120,000

50,000
70,000

400,000
70,000

Selling price
Less: Book value, 12/31/20x5
Cost, 1/1/20x2
Less: Accumulated depreciation : P400,000/10 years x 3 years
Unrealized gain on sale of equipment
Realized gain depreciation: P70,000/7 years

47. a - refer to No. 46 for computation


48. b
Eliminating entries:
12/31/20x5: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation
Depreciation expense
P700,000 / 7 years or P50,000 P40,000
Should be in CFS Parent Books Mortar
40,000

65,000

135,000

120,000

Subsidiary Books - Granite

Equipment
Cash

350,000

Mortar

Depreciation expense
(P400,000 / 10 years)

65,000

10,000
100,000

46. a
Eliminating entries:
1/1/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
Gain
Accumulated depreciation
Cash
Accumulated depreciation
Equipment
Gain

25,000

350,000

P350,000
P400,000
120,000

280,000
P 70,000
P 10,000

10,000

10,000

Recorded as Subsidiary Books - Granite

Depreciation expense
(P350,000 / 7 years)

50,000

Acc. Depreciation

40,000

Acc. depreciation

Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Equipment
Retained earnings (70,000 10,000)
Accumulated depreciation (P120,000 P10,000)

50,000

50,000
60,000

110,000

49. b - refer to No. 48 for computation


50. c - refer to No. 48 for computation
51. a

Consolidated Net Income for 20x9


P Companys net income from own/separate operations.
P 140,000
Realized gain on sale of equipment (downstream sales) through depreciation
___0
P Companys realized net income from separate operations*...
P 140,000
S Companys net income from own operations.
P 30,000
Unrealized loss on sale of equipment (upstream sales)
20,000
Realized loss on sale of equipment (upstream sales) through depreciation
none, since the date of sale is end of the year
(
0)
S Companys realized net income from separate operations*...
P 50,000
50,000
Total
P190,000
Less: Amortization of allocated excess
0
Consolidated Net Income for 20x9
P190,000
Less: Non-controlling Interest in Net Income* *
15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x9..
P175,000
*that has been realized in transactions with third parties.
Selling price
P180,000
Less: Book value, 12/31/20x9
Cost, 1/1/20x4
P500,000
Less: Accumulated depreciation : P500,000/10 years x 6 years
300,000
200,000
Unrealized loss on sale of equipment
P( 20,000)
Realized loss depreciation: P20,000/4 years
P( 5,000)

Or, alternatively

Consolidated Net Income for 20x9


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x9
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x9
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .

P 30,000
20,000
(
0)
P 50,000

P 140,000
___0
P 140,000

50,000
P190,000

P 15,000
____0

15,000
P175,000
_ 15,000
P190,000

P 30,000
(

20,000
0)
P 50,000
0
P 50,000
30%
P 15,000
0

Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

52. b

Consolidated Net Income for 20y0


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20y0
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20y0..
*that has been realized in transactions with third parties.

P 15,000

P 45,000
( 5,000)
P 40,000

P 162,000
___0
P 162,000

40,000
P202,000
0
P202,000
7,500
P194,500

Or, alternatively

Consolidated Net Income for 20y0


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20y0
*that has been realized in transactions with third parties.

P 45,000
( 5,000)
P 40,000
P 7,500
____0

Parent Books Sky

33,000
11,250

7,500

P 30,000
( 5,000)
P 25,000
0
P 25,000
30%
P 7,500
0
P 7,500

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

Cash
Accumulated depreciation
Building

40,000
P202,000

P194,500
_ _ 7,500
P202,000

**Non-controlling Interest in Net Income (NCINI) for 20y0


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess

53. d
Eliminating entries:
1/1/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Building
Gain
Accumulated depreciation

P 162,000
___0
P 162,000

3,000
8,250

11,250

Subsidiary Books - Earth

36,000

Building
Cash

33,000

33,000

Gain

8,250

Sky, 7/1/20x4

Selling price
Less: Book value, 7/11/20x4
Cost, 1/1/20x2
Less: Accumulated depreciation : P36,000/8years x 2.5 years
Unrealized gain on sale of equipment
Realized gain depreciation: P8,250/5.5 years

P33,000
P36,000
11,250

24,750
P 8,250
P 1,500

54. a - refer to No. 53 for computation


55. b
Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain depreciation (July 1, 20x4 December 31, 20x4)
Accumulated depreciation
Depreciation expense
P8,250 / 5.5 x years or P3,000 P2,250
Should be in CFS Parent Books Sky

Depreciation expense
(P24,750 / 5.5 x years)
Acc. Depreciation

2,250

Depreciation expense
(P33,000 / 5.5 years x yrs)
Acc. depreciation

2,250

Should be in CFS Parent Books Sky


4,500

750

Recorded as Subsidiary Books - Earth

56. c
Eliminating entries:
12/31/20x5: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation
Depreciation expense
P8,250 / 5.5 x years or P6,000 P4,500
Depreciation expense
(P24,750 / 5.5 years)
Acc. Depreciation

750

3,000

1,500

3,000

1,500

Recorded as Subsidiary Books - Earth


4,500

57. d
Eliminating entries:
1/1/20x5: subsequent to date of acquisition
Building
Retained earnings (8,250 750)
Accumulated depreciation (P11,250 P750)

Depreciation expense
(P33,000 / 5.5 years)
Acc. depreciation

6,000

3,000
7,500

6,000

10,500

58.
59.
60.
61.
62.

d - P60,000 - P36,000 = P24,000 debit


b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64.

When only retained earnings is debited, and not the non-controlling interest, a gain
has been recorded in a prior period on the parent's books.

65.
66.
67.
68.
69.

d
a
b
b at its original cost or book value.
b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price unrelated party
Less: Original Book value, 9/26/20x5
Accumulated depreciation, 9/26/20x5

70. d P30,000 + P40,000 = P70,000

Selling price
Less: Book value
Gain

71. d P110,000 P30,000 = P80,000

S (Nectar)
P 50,000
_30,000
P 20,000

Selling price
Less: Book value
Gain

Selling price
Less: Book value: Cost
P2,000,000
Accumulated ___200,000
Unrealized gain on sale of
equipment
Realized Gain depreciation
(P180,000/9 x 6 yrs)
Net unrealized gain, 1/1/20x9
Gain on sale
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000

S
P1,980,000
1,800,00

40,000

P 70,000

P (Lorikeet)
P 110,000
__50,000
P 60,000

Consolidated
P 110,000
_30,000
P 80,000

P 1,800,000
**1,200,000

660,000

120,000
P 60,000
P 60,000

P 780,000

Consolidated
P1,440,000
__600,000

S
P 990,000
__900,000

P990,000
*440,000

P 840,000

P 100,000

P1,000,000
100,000

Consolidated

P 180,000

Selling price
Less: Book value
Gain

74. c

P
P1,440,000

P1,980,000
*1,320,000

73. d (P100,000 + P50,000 = P150,000)

Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment,1/1/20x4
Realized Gain depreciation
(P90,000/9 x 4 yrs)
Net unrealized gain, 1/1/20x8
Gain on sale
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000

P 30,000

72. d

P 100,000
__60,000
P 40,000

P
P720,000
550,000

Consolidated

50,000

P 900,000
**400,000

P 150,000

Consolidated
P 720,000
__500,000

P 90,000
40,000
P 50,000
P 50,000

__________
P 170,000

___________
P 220,000

75. d (P30,000 + P15,000)


76. c

Selling price unrelated party


Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years

P 14,000
P20,000
10,000

10,000

Accumulated depreciation, 12/31/20x4

77. b
Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment, 12/30/20x3
Realized Gain depreciation
(P10,000/6 x 3 yrs)
Net unrealized gain, 12/31/20x6
Gain on sale
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000

P 120,000
__30,000

P 4,000

Sort
P 100,000
__90,000

P100,000
**50,000

Fort
P 65,000
50,000

P 90,000
**45,000

Consolidated
P 65,000
__45,000

P 10,000
__ 5,000
P 5,000
P 5,000

__________
P 15,000

_________
P 20,000

78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b

**Non-controlling Interest in Net Income (NCINI) for 20x4


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) (P700,000 P600,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

80. a

**Non-controlling Interest in Net Income (NCINI) for 20y2


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 135,000
(
0)
P 135,000
0
P 135,000
20%
P 27,000
0
P 27,000

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

81. a

Consolidated Net Income for 20y2


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20y2
Less: Non-controlling Interest in Net Income* *(refer to No. 80)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20y2..
*that has been realized in transactions with third parties.

P2,000,000
( 100,000)
10,000
P1,910,000
_
0
P1,910,000
__40%
P 764,000
__
0
P 764,000

P 135,000
(
0)
P 135,000

P 200,800
_ 8,000
P 208,800

135,000
P343,800
0
P343,800
27,000
P316,800

Net income from own operations:


Sales
Less: Cost of goods sold
Other expenses (including depreciation)
Income tax expense
Net income from own operations
Add: Dividend income
Net income
Sexton, 1/1/20y1
Selling price
Less: Book value, 1/1/20y1
Cost, 1/1/20x1
Less: Accumulated depreciation : P400,000/25 years x 10 years
Unrealized gain on sale of equipment
Realized gain depreciation: P120,000/15 years

Prout
P1,475,000
942,000
145,000
__187,200
P 200,800
____80,000
P 280,800

Sexton
P1,110,000
795,000
90,000
____90,000
P 135,000
P 135,000

P360,000
P400,000
160,000

240,000
P120,000
P 8,000

Or, alternatively

Consolidated Net Income for 20y2


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* * (refer to No. 80)
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20y2
*that has been realized in transactions with third parties.

P 135,000
(
0)
P 135,000
P 27,000
____0

P 200,800
_ 8,000
P 208,800

135,000
P343,800
27,000
P316,800
_ _27,000
P343,800

82. a refer to No. 81


83. c

Consolidated Retained Earnings, December 31, 20y2


Retained earnings - Parent Company, January 1, 20y1 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to 20y1
[P120,000 (P8,000 x 1 year)]
Adjusted Retained Earnings Parent 1/1/20y1 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x9
Less: Retained earnings Subsidiary, January 1, 20y1
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x9 to 20y0
Upstream - net unrealized gain on sale of equipment prior to
20y1
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, January 1, 20x5
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
Total
Less: Dividends declared Parent Company for 20y1
Consolidated Retained Earnings, December 31, 20y1

P1,300,000
112,000
P1,188,000

P 800,000
1,040,000
P 240,000
0
0
P 240,000
80%
P192,000
0

_192,000
P1,380,000
316,800
P1,696,800
120,000
P1,576,8000

Or, alternatively:

Consolidated Retained Earnings, December 31, 20y2


Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 P120,000)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20y1 [P120,000 (P8,000 x 2 years)]
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 P100,000)
Less: Retained earnings Subsidiary, January 1, 20x9
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess
Upstream - net unrealized gain on sale of equipment prior to
12/31/20y2
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20y2

84. c

Non-controlling interest (fulll-goodwill), December 31, 20y2


Common stock Subsidiary Company, December 31, 20y2
Retained earnings Subsidiary Company, December 31, 20y2
Retained earnings Subsidiary Company, January 1, 20y2
Add: Net income of subsidiary for 20y2
Total
Less: Dividends paid 20y2
Stockholders equity Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
Fair value of stockholders equity of subsidiary, December 31, 20x5
Less: Upstream - net unrealized gain on sale of equipment prior to
12/31/20y2
Realized stockholders equity of subsidiary, December 31, 20x5.
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..

P1,460,800
104,000
P1,356,800

P 1,075,000
800,000
P 275,000
0
_______0
P 275,000
80%
P 220,000
_____0

220,000
P1,576,800

P 1,200,000
P1,040,000
135,000
P1,175,000
100,000

1,075,000
P 2,275,200
0
0
P2,275,200
_____)0
P 2,275,00
_
20
P 455,000

85. c
Additional information: Gain or loss to outsiders on 1/1/20y3 in the books of Sexton.
Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment, 1/1/20y1
Realized Gain depreciation
(P120,000/15 x 2 yrs)
Net unrealized gain, 1/1/20y3
Gain on sale
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000

P 400,000
*160,000

Prout
P 360,000

__240,000

P360,000
**48,000

Sexton
P300,000
312,000

P 240,000
***32,000

Consolidated
P 300,000
_208,000

P 120,000
__16,000
P 104,000
P 104,000

__________
P( 12,000)

_________
P 92,000

86. b refer to No. 85


Requirement should be: Calculate the book value on January 1, 20y3 from the consolidated point of
view:

87. a refer to No. 85


Requirement should be: Calculate the gain or loss on fixed assets on January 1, 20y3 from the
consolidated point of view:
Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Original Cost
Intercompany Selling Price
Difference

Cost
P400,000
360,000
P 40,000

Accumulated
Depreciation
P160,000
_______
P160,000

Carrying Value
P240,000
360,000
P120,000

Remaining
Life
Depreciation
15 yr
P 16,000
15 yr
24,000
P 8,000

(1) Investment in Sexton Company


Retained Earnings - Prout

192,000

(2) Equipment
Beginning Retained Earnings - Prout
Accumulated Depreciation

40,000
120,000

To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))

192,000

160,000

To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the year, to restate
property and equipment to its book value to Prout Company on the date of the intercompany sale.

(3) Accumulated Depreciation


Depreciation Expense
Beginning Retained Earnings - Prout

16,000

(4) Dividend Income


Dividends Declared

80,000

8,000
8,000

To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount of
intercompany profit as realized

To eliminate intercompany dividends

(5) Beginning Retained Earnings Sexton


Common Stock Sexton
Investment in Sexton Company (P1,600,000 + P192,000)
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20]

1,040,000
1,200,000

To eliminate investment account and create noncontrolling interest account

Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years)
Loss on Sale of Equipment
Plant and Equipment

300,000
48,000
12,000

80,000

1,792,000
448,000

360,000

Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare consolidated
statements:
Beginning Retained Earnings Prout(P120,000 - P16,000)
104,000
Loss on Sale of Equipment
12,000
Gain on Sale of Equipment
92,000
Cost to the Affiliated Companies
Accumulated Depreciation Based on Original Cost ((12/25)x P400,000)
Book Value, 1/1/y3
Proceeds from Sale to Non-affiliate
Gain from consolidated point of view

P400,000
192,000
P 208,000
(300,000)
P 92,000

Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books (P120,000 - P12,000 =
P108,000) is equal to the amount of profit considered realized in the consolidated financial statements
(P8,000 + P8,000 + P92,000) = P108,000.

88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).


Date of Acquisition (1/1/20x4)
Partial
Full
Fair value of consideration givenP 700,000
Less: Book value of SHE - Subsidiary):
(P300,000 + P500,000) x 80%................. 640,000
Allocated Excess..P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%) 60,000
Goodwill ..P
0
P
0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale 4/1/20x5):
Sales.......................................................................................................P 60,000
Less: Book value of equipment.. 30,000
Unrealized Gain (on sale of equipment)..P 30,000
Realized gain on sale of equipment:
20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5).P 4,500
20x6 ....P 6,000
Downstream Sale of Machinery (date of sale 9/30/20x5):
Sales........................................................................................................P75,000
Less: Book value of machinery. 40,000
Unrealized Gain (on sale of machinery)P35,000
Realized gain on sale of machinery:
20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)..P
875
20x6.. ..P 3,500
89. d

90. d

Dividend paid or declared SP 50,000


x: Controlling Interest %.
80%
Dividend income of Parent..P 40,000
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 P875)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

P 300,000

P 150,000
(30,000)
4,500
P 124,500

34,125
P 265,875

124,500
P390,375
3,000
P387,375
24,300
P363,075

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 P875)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.

P 300,000

P 150,000
(30,000)
4,500
P 124,500
P 24,300
3,000

34,125
P 265,875

124,500
P390,375
27,300
P363,075
_ 24,300
P387,375

**Non-controlling Interest in Net Income (NCINI) for 20x5


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

P 150,000
( 30,000)
4,500
P 124,500
3,000
P 121,500
20%
P 24,300
0
P 24,300

91. c refer to No. 90 for computations


92. d refer to No. 90 for computations
93. a
Non-controlling Interests (in net assets):
20x5
20x6
Common stock - S, 12/31...
P 300,000
P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1..P600,000
P 700,000
+: NI-S 150,000
200,000
-: Div S.. 50,000 700,000
70,000 830,000
Book value of Stockholders equity, 12/31....
P1,000,000
P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010....
75,000
75,000
Accumulated amortization (P3,000 per year)*.
(
6,000)
(
9,000)
Fair Value of Net Assets/SHE, 12/31..
P1,069,000
P1,196,000
Unrealized gain on sale of equipment (upstream)
(
30,000)
**(
25,500)
Realized gain thru depreciation (upstream)
4,500
6,000
Realized SHE S,12/31..
P1,043,500
P1,176,500
x: NCI %...........................................................
___
20%
20%
Non-controlling Interest (in net assets) partial...
P 208,700
P 235,300
+: NCI on full goodwill....
0
0
Non-controlling Interest (in net assets) full..
P 208,700
P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE P, 1/1/20x5(beginning
balance of the current year) Retained earnings Parent, 1/1/20x5 (cost)
P 800,000
-: Downstream sale 20x4 or prior to 20x5, Net unrealized gain
0
Adjusted Retained earnings Parent, 1/1/20x5 (cost)
P 800,000
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 1/1/20x5 600,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 100,000
Accum. amortization (1/1/x4 1/1/x5): P2,000 x 1 year( 3,000)
Upstream Sale 2010 or prior to 20x5,
Net unrealized gain....(
0)
P 97,000
X: Controlling Interests %..
80% 77,600
RE P, 1/1/20x5 (equity method) = CRE, 1/1/20x5
P 877,600
+: CI CNI or Profit Attributable to Equity Holders of Parent.
363,075
-: Dividends P..
100,000
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5..
P 1,140,675
Or, if RE P is not given on January 1, 20x5, then RE P on December 31, 20x5 should
be use.
Retained earnings Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, Ps reported NI P100,000)
P1,040,000
-: Downstream sale 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 P875).
34,125
Adjusted Retained earnings Parent, 1/1/20x5 (cost model)..
P1,005,875
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000

Less: Retained earnings Subsidiary, 12/31/20x5


(P600,000 + P150,000 P50,000)...... 700,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P 200,000
Accumulated amortization (1/1/20x4 12/31/20x5):
P 3,000 x 2 years..(
6,000)
Upstream Sale 20x5 or prior to 12/31/20x5,
Net unrealized gain (P30,000 P4,500).( 25,500)
P 168,500
x: Controlling Interests %..
80%
134,800
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5.
P1,140,675
94. c refer to No, 93 computations.
95. b refer to No. 93 for computations
96. d refer to No. 93 for computations
97. b
Consolidated Stockholders Equity, 12/31/20x5:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x5:
Common stock P (P only)..P1,000,000
Retained Earnings P (equity method), 12/31/20x5. 1,140,675
Controlling Interest / Parents Stockholders Equity P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)
208,700
Consolidated Stockholders Equity, 12/31/20x5.P2,349,375
98. d the original cost of land
99. b no intercompany gain or loss be presented in the CFS.
100. a

Consolidated Net Income for 20x4


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S3 Companys net income from own operations.
S2 Companys net income from own operations.
S1 Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
*that has been realized in transactions with third parties.

Sales price
Less: Cost
Unrealized (loss) gain

S3
145,000
160,000
( 15,000)

P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000

P 200,000
___0
P 200,000

205,000
P405,000
0
P405,000
35,600
P369,400

S2
197,000
145,000
52,000

S1
220,000
197,000
23,000

Or, alternatively

Consolidated Net Income for 20x4


P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations*...
S3 Companys net income from own operations.
S2 Companys net income from own operations.
S1 Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
S Companys realized net income from separate operations*
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200)
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20y0

P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
P 35,600
____0

P 200,000
___0
P 200,000

205,000
P405,000
_ 35,600
P369,400
_ _35,600
P405,000

*that has been realized in transactions with third parties.


**Non-controlling Interest in Net Income (NCINI)
S Companys net income of Subsidiary Company from its own
operations (Reported net income of S Company)
Unrealized (gain) loss on sale of land (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

101. b

S3
P 100,000
15,000
P 115,000
0
P 115000
20%
P 23,000
0
P 23,000

S2

S1

70,000
( 52,000)
P 18,000
0
P 18,000
30%
P
5,400
0
P 5,400

Non-controlling Interest in Net Income (NCINI) for 20y2


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) year of sale
Realized gain on sale of equipment (upstream sales) through depreciation
(P14,500 P9,000) / 5 years
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 95,000
( 23,000)
P 72,000
0
P 72,000
10%
P 7,200
0
P 7,200

P 40,000
1,100
P 41,100
0
P 41,100
20%
P 8,220
0
P 8,220

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

102. d the unrealized gain amounted to P15,000 (P60,000 P45,000).


It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method. Since, the cost
model is presumed to be the method used, the unrealized gain of P15,000 (P60,000
P45,000) will not be recorded in the books of parent company, which give rise to no equityadjustments at year-end.
103. c

Cliff reported income


Less: Intercompany gain on truck
Plus: Piecemeal recognition of gain = P45,000/10
years
Cliffs adjusted income
Majority percentage
Income from Cliff

P225,000
45,000
___4,500
P184,500
90%
P166,050

104. c

105 c

Pied Imperial-Pigeons share of Rogers income = (P320,000 x 90%) =


Less: Profit on intercompany sale (P130,000 - P80,000) x 90% =
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% =
Income from Offshore

P288,000
45,000
11,250
P254,250

P30,000 - (1/4 x P30,000) =

P 22,500

106. d - P60,000 P48,000)/4 years = P3,000


107. a
Simon, 4/1/20x4

Selling price
Less: Book value, 4/1/20x4
Cost, 1/1/20x4
Less: Accumulated depreciation : P50,000/10 years x 3/12
Unrealized gain on sale of equipment
Realized gain depreciation: P19,500/9.75 years

108. c P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500


109. c P19,500 / 9.75 years = P2,000
110. c P19,500 / 9.75 years = P2,000
111. d

P68,250
P50,000
__1,250

48,750
P19,500
P 2,000

20x4
90,000
( 19,500)

Share in subsidiary net income (100,000 x 90%)


Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500
Net

_ 1,500
72,000

112. b
Share in subsidiary net income (120,000 x 90%)
Realized gain on sale of equipment (downstream sales) through depreciation
Net

20x5
108,000
_ 2,000
110,000

Share in subsidiary net income (130,000 x 90%)


Realized gain on sale of equipment (downstream sales) through depreciation
Net

20x6
117,000
_ 2,000
119,000

113. d

114. c
Smeder, 1/1/20x4

Selling price
Less: Book value, 1/1/20x4
Cost, 1/1/20x4
Less: Accumulated depreciation
Unrealized gain on sale of equipment
Realized gain depreciation: P12,000/6 years

P84,000
P120,000
__48,000

115. b

20x4
22,400
( 9,600)

Share in subsidiary net income (28,000 x 80%)


Unrealized gain on sale of equipment (upstream sales); 12,000 x 80%
Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80%
Net

_ 1,600
14,400

116. c

20x5
25,600

Share in subsidiary net income (32,000 x 80%)


Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80%
Net

117. d
Eliminating entries:
1/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
Gain
Accumulated depreciation
Parent Smeder

Cash
Accumulated depreciation
Equipment
Gain

84,000
48,000

120,000
12,000

Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation

_ 1,600
27,200

36,000
12,000

Equipment
Cash

48,000

Subsidiary - Collins

84,000

Smeder, 1/1/20x4

Selling price
Less: Book value, 1/1/20x4
Cost, 1/1/20x4
Less: Accumulated depreciation
Unrealized gain on sale of equipment
Realized gain depreciation: P12,000/6 years

72,000
P12,000
P 2,000

P84,000
P120,000
__48,000

72,000
P12,000
P 2,000

2,000

84,000

Depreciation expense
P12,000 / 6 years or P14,000 P12,000
Should be in CFS Parent Smeder

Depreciation expense
(P72,000 /6 years)
Acc. Depreciation

12,000

2,000
Recorded as Subsidiary - Collins

12,000

Depreciation expense
(P84,000 / 6 years)
Acc. depreciation

14,000

14,000

Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of
accumulated depreciation would be a net credit of P46,000 (P48,000 P2,000).
118. c

20x4
( 12,000)
___2,000
( 10,000)

Unrealized gain on sale of equipment


Realized gain on sale of equipment through depreciation
Net

119. d
Eliminating entries:
5/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Cash
Loss
Cash
Loss
Land

Parent Stark

80,000
5,000

85,000

Selling price
Less: Book value, 5/1/20x4
Unrealized gain on sale of equipment

5,000

Land
Cash

5,000

Subsidiary - Parker

85,000

Stark
P 80,000
_85,000
P ( 5,000)

Parker
P 92,000
__80,000
P 12,000

120. b refer to No. 119 for eliminating entry


121. b
Cash
Retained earnings

Consolidated
P 92,000
_85,000
P 7,000

5,000

122. e

85,000

5,000

Share in subsidiary net income (200,000 x 90%)


Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net

20x4
180,000
_ 4,500
184,500

Share in subsidiary net income (200,000 x 90%)


Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net

20x4
180,000
_ 4,500
184,500

123. d

124. b
Selling price
Less: Book value, 5/1/20x4
Unrealized gain on sale of equipment

Stark
P 80,000
_85,000
P ( 5,000)

Parker
P 92,000
__80,000
P 12,000

Consolidated
P 92,000
_85,000
P 7,000

125. a refer to No. 124 for computation


126. e None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but
not in the subsequent years.
127. c
Share in subsidiary net income (220,000 x 90%)
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90%
Net

20x6
198,000
_ ( 4,500)
193,500

Quiz XVIII
1. a

Individual Records after Transfer


12/31/x4
MachineryP40,000
GainP10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect netP2,000 (P10,000 P8,000)
12/31/x5
Depreciation expenseP8,000
Consolidated FiguresHistorical Cost
12/31/x4
MachineryP30,000
Depreciation expenseP6,000 (P30,000/5 years)
12/31/x5
Depreciation expense--P6,000
Adjustments for Consolidation Purposes:
20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)
20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)

2. b

UNREALIZED GAIN
Transfer Price ........................................................................................................
Book Value (cost after two years of depreciation) .....................................
Unrealized Gain ...................................................................................................

P280,000
240,000
P40,000

EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years)...........................
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ........................................................................................
Excess Depreciation ...........................................................................................

P30,000
35,000
P5,000

ADJUSTMENTS TO CONSOLIDATED NET INCOME


Defer Unrealized Gain .......................................................................................
Remove Excess Depreciation ...........................................................................
Decrease to Consolidated Net Income ........................................................
3. Cost, P100,000; Accumulated depreciation, P68,000
Original cost of

Accumulated depreciation, 1/1/20x6 (P100,000 x 60%)


Add: Additional depreciation (P100,000 P60,000) / 5 years
Accumulated depreciation, 12/31/20x6
4. P28,000
Sales price
Less: Book value
Cost
Less: Accumulated depreciation (60% x P100,000)
Unrealized gain on sale
Less: Realized gain - depreciation (P35,000 / 5 years)
Net unrealized gain, 12/31/20x6

P(40,000)
5,000
P(35,000)
100,000

P 60,000
____8,000
P 68,000
P 75,000
P100,000
__60,000

5. credit to depreciation expenses of P7,000


Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain depreciation
Accumulated depreciation
Depreciation expense
[P75,000 - (P100,000 - {P100,000 x 40%])] = P35,000 / 5 years or
P15,000 P8,000 = P7,000

7,000

__40,000
P 35,000
___7,000
P 28,000

7,000

Should be in CFS Parent Palex

6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.

Depreciation expense
(P40,000 /5 years)
Acc. Depreciation

8,000

Recorded as Subsidiary - Salex


8,000

Depreciation expense
(P75,000 / 5 years)
Acc. depreciation

15,000

P40,000 - P25,000 = P15,000 debit


P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
P10,000 credit, entire accumulated depreciation is reestablished
P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
P160,000 - P130,000 = P30,000 credit
P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
P60,000 credit, entire accumulated depreciation is reestablished
P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
P80,000 - P60,000 = P20,000 debit
P30,000 credit, entire accumulated depreciation is reestablished
P60,000 - (P80,000 - P30,000) = P10,000 gain (debit)
P640,000 - P500,000 = P140,000 credit
P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
P350,000 - {(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12)} = P337,750 credit
P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
22. P10,500
Correction: equipment selling price is P120,000.
**Non-controlling Interest in Net Income (NCINI) for 20x2
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125]
S Companys realized net income from separate operations
Less: Amortization of allocated excess

15,000

P 120,000
0
( 15,000)
P 105,000
0
P 105,000
10%
P 10,500
0
P 10,500

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

23. P364,500

Consolidated Net Income for 20x2


P Companys net income from own/separate operations.
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [(P120,000 P80,000 = P40,000 (P40,000/4 years)]
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125]
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x2
Less: Non-controlling Interest in Net Income* * (refer to No. 22)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x2..

P 300,000

P 120,000
(

15,000)
P 105,000

( 30,000)
P 270,000

105,000
P375,000
0
P375,000
10,500
P364,500

Or, alternatively

Consolidated Net Income for 20x2


P Companys net income from own/separate operations.
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [(P120,000 P80,000 = P40,000 (P40,000/4 years)]
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125]
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* * (refer to No. 22)
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..

P 300,000

P 120,000
(

15,000)
P 105,000
P 10,500
____0

( 30,000)
P 270,000

105,000
P375,000
10,500
P364,500

Add: Non-controlling Interest in Net Income (NCINI)


Consolidated Net Income for 20x2
*that has been realized in transactions with third parties.

_ 10,500
P375,000

24. P375,000 refer to No. 23


25. P46,000

**Non-controlling Interest in Net Income (NCINI) for 20x5


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 180,000
(

0)
50,000
P 230,000
0
P 230,000
20%
P 46,000
0
P 46,000

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

26. P434,000

Consolidated Net Income for 20x2


P Companys net income from own/separate operations.
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [P180,000 (P180,000/6)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
(P250,000/5 years)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

P 400,000

P 180,000
(
0)
50,000
P 230,000

( 150,000)
P 250,000

230,000
P480,000
____0
P480,000
46,000
P334,000

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [P180,000 (P180,000/6)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
(P250,000/5 years)
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.

P 400,000

P 180,000
(
0)
50,000
P 230,000
P 46,000
____0

( 150,000)
P 250,000

230,000
P480,000
46,000
P434,000
_ 46,000
P480,000

27. P480,000 refer to No. 26.


28. P1,802,000

Consolidated Retained Earnings, December 31, 20x2


Retained earnings - Parent Company, December 31, 20x2 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x2 [P180,000 (P30,000 x 1 year)]
Adjusted Retained Earnings Parent 12/31/20x2 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x2
Less: Retained earnings Subsidiary, date of acquisition
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess
Upstream - net unrealized gain on sale of equipment prior to

P1,80 0,000
150,000
P1,650,000

P 640,000
300,000
P 340,000
0

12/31/20x2 [P250,000 (P50,000 x 2 years)]

150,000
P 190,000
80%
P 152,000
_____0

Multiplied by: Controlling interests %...................


Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x2

Parent
P180,000

Unrealized gain on sale of equipment


Realized gain through depreciation
P180,000/6 years = P30,000 per year
P250,000/ 5 years = P25,000

152,000
P1,802,000

Subsidiary
P250,000

P 30,000

P 25,000

29. P165,000
For 20x6: Not determinable since data are incomplete.
For 20x7: P110,000 + P55,000 = P165,000
**NCI-CNI - Sloch

Non-controlling Interest in Net Income (NCINI) for 20x7


Sloch Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
Unrealized gain on sale of building (upstream sales) Sloch
Realized gain on sale of building (upstream sales) - Sloch

P 360,000
25,000
( 40,000)
( 75,000)
___5,000
P 275,000
0
P 275,000
40%
P 110,000
0
P 110,000

Less: Amortization of allocated excess


Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

**NCI-CNI - Zeek

Non-controlling Interest in Net Income (NCINI) for 20x7


Zeek Companys net income from own operations.
Less: Amortization of allocated excess

P 275,000
0
P 275,000
20%
P 55,000
0
P 55,000

Multiplied by: Non-controlling interest %..........


Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

Fixed Assets:
Unrealized (loss) gain:
20x5
20x7
Realized gain
P300,000/25 years
P75,000/15 years

Bowen to Zeek
(downstream)

Sloch to Bowen
(upstream)
300,000

12,000/year

Inventory

75,000
5,000/year

Realized profits in inventory from downstream sales (Bowen to Zeek)


Realized profits in inventory from upstream sales (Sloch to Bowen)
Unrealized profits in inventory from downstream sales (Bowen to Zeek)
Unrealized profits in inventory from upstream sales (Sloch to Bowen)

P31,000
P25,000
P35,000
P40,000

30. P943,000
For 20x6: Not determinable since data are incomplete.
For 20x7: P943,000

Consolidated Net Income for 20x7


P Companys net income from own/separate operations
[P750,000 (P200,000 x 60%) (P100,000 x 80%)]
Realized gain on sale of equipment (downstream sales) through depreciation
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
Sloch Companys net income from own operations.
Zeek Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
Unrealized gain on sale of building (upstream sales) Sloch
Realized gain on sale of building (upstream sales) - Sloch
S Companys realized net income from separate operations*...
Total

P360,000
275,000
25,000
( 40,000)
( 75,000)
___5,000
P550,000

P 550,000
12,000
31,000
(_ _35,000)
P 558,000

550,000
P1,108,000

Less: Amortization of allocated excess


Consolidated Net Income for 20x7
Less: Non-controlling Interest in Net Income Sloch* *
Non-controlling Interest in Net Income - Bowen* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x7..
*that has been realized in transactions with third parties.

__
0
P1,108,000
110,000
___55,000
P

943,000

Or, alternatively

Consolidated Net Income for 20x7


P Companys net income from own/separate operations
[P750,000 (P200,000 x 60%) (P100,000 x 80%)]
Realized gain on sale of equipment (downstream sales) through depreciation
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
Sloch Companys net income from own operations.
Zeek Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
Unrealized gain on sale of building (upstream sales) Sloch
Realized gain on sale of building (upstream sales) - Sloch
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* * refer to No. 29
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x7
*that has been realized in transactions with third parties.

P 360,000
275,000
25,000
( 40,000)
( 75,000)
___5,000
P 550,000
P165,000
____0

P 550,000
12,000
31,000
(_ _35,000)
P 558,000

_ 550,000
P1,108,000
_ _165,000
P 943,000
_ _165,000
P1,108,000

31. P1,108,000 refer to No. 30


For 20x6: Not determinable since data are incomplete.
For 20x7: P1,108,000
32. P1,498,000
Correction: the requirement should be Consolidated retained earnings on December 31,
20x7not 20y2.
Consolidated Retained Earnings, December 31, 20x7
Retained earnings - Parent Company, January 1, 20x7 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
- 20x6 (UPEI of S 20x6) or Realized profit in beginning inventory of S
Company (downstream sales) 20x7 (RPBI of S - 20x7).
Downstream - net unrealized gain on sale of equipment prior to
12/31/20x6 or 1/1/20x7 [P300,000 (P12,000 x 2 years)]
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary Sloch, date of acquisition
Less: Retained earnings Subsidiary Sloch, January 1, 20x7
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess
Unrealized profit in ending inventory of P Company (upstream
sales) 20x6 (UPEI of P 20x6) or Realized profit in beginning
inventory of P Company (upstream sales) 20x7 (RPBI of P - 20x7)
Upstream - net unrealized gain on sale of equipment prior to
12/31/20x6 or 1/1/20x7
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Retained earnings Subsidiary Zeek, date of acquisition
Less: Retained earnings Subsidiary Zeek, January 1, 20x7
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, January 1, 20x7

P1,020,000
31,000
__276,000
P 713,000

P330,000
525,000
P195,000
0
25,000
________0
P170,000
60%
P102,000
0
P575,000
875,000
P300,000
_____ 0
P300,000
80%
P240,000
0

102,000

240,000
P1.055,000

Add: Controlling Interest in Consolidated Net Income or Profit attributable to


equity holders of parent for 20x7 (refer to No. 30)
Total
Less: Dividends paid Parent Company for 20x7
Consolidated Retained Earnings, December 31, 20x7

943,000
P1,998,000
500,000
P1,498,000

Or, alternatively:

Consolidated Retained Earnings, December 31, 20x7


Retained earnings - Parent Company, December 31, 20x7 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
- 20x7 (UPEI of S 20x7) or Realized profit in beginning inventory of S
Company (downstream sales) 20x8 (RPBI of S - 20x8).
Downstream - net unrealized gain on sale of equipment prior to
12/31/20x6 or 1/1/20x7 [P300,000 (P12,000 x 3 years)]
Adjusted Retained Earnings Parent 12/31/20x7 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary Sloch, December 31, 20x7
Less: Retained earnings Subsidiary Sloch, date of acquisition
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess
Unrealized profit in ending inventory of P Company (upstream
sales) 20x7 (UPEI of P 20x7) or Realized profit in beginning
inventory of P Company (upstream sales) 20x8 (RPBI of P - 20x8)
Upstream - net unrealized gain on sale of equipment prior to
12/31/20x7 or 1/1/20x8 (P75,000 P5,000)
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss, partial goodwill
Retained earnings Subsidiary Zeek, date of acquisition
Less: Retained earnings Subsidiary Zeek, January 1, 20x7
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess

P1,270,000
35,000
__264,000
P 971,000

P 330,000
685,000
P 355,000
0
40,000
__70,000
P 245,000
60%
P 147,000
____0
P 575,000
1,050,000
P 475,000
______ 0
P 475,000
_
80%
P 380,000
__
0

Multiplied by: Controlling interests %...................


Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x7

147,000

380,000
P1,498,000

33. Increase of P3,000


The requirement and available choices in the problem are on the assumption of the use of
equity method. So, the answer then would be (d) (P60,000 P48,000)/4 years = P3,000
34. P403,200
The requirement equity from subsidiary income and available choices in the problem are
on the assumption of the use of equity method. So, the answer then would be (c)
computed as follows:
20x4
480,000
( 96,000)

Share in subsidiary net income (600,000 x 80%)


Unrealized gain on sale of equipment (upstream sales): 120,000 x 80%
Realized gain on sale of equipment (upstream sales) through depreciation
P120,000 / 5 years = P24,000 x 80%
Net

___19,200
403,200

Theories
1.
2.
3.
4.
5.

d
c
d
d
b

6.
7.
8.
9.
10,

c
c
a
a
c

11.
12.
13.
14.
15,

c
c
d
b
d

16.
17.
18.
19.
20.

b
a
a
c
a

21.
22.
23.
24.
25.

b
d
c
c
b

26.
27.
28.
29.
30.

b
c
b
c
c

31