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Chapter 12

Problem I
(a)Working Fund Agency ..
5,000
Cash .
5,000
(b)Accounts Receivable ..................................... 50,000
Sales-Agency .
50,000
(c)Cash ..................................... 35,000
Accounts Receivable ..
35,000
(d)Expenses-Agency ..
Cash .

4,500

(e)Expenses-Agency ..
Cash .

2,250

4,500

2,250

(f)Cost of Goods Sold-Agency 36,000


Merchandise Shipments-Agency .
36,000

Problem II
(a) Branch Books:
(a) Cash ..
Home Office

42,500

(b) Shipments from Home Office


Home Office ...

50,200

(c) Accounts Receivable .


Sales ..

60,000

(d) Purchases
Accounts Payable

22,500

(e) Home Office ..


Accounts Receivable ..

53,400

(f) Accounts Payable ...


Cash ..

12,250

(g) Furniture & Fixtures


Cash ..

8,000

(h) Expenses ..
Cash ..

18,000

42,500

50,200

60,000

22,500

53,400

12,250

8,000

18,000

(b) Home Office Books:


(a) Branch .
Cash .

42,500

(b) Branch
Shipments to Branch ..

50,200

(c) Accounts Receivable ...


Sales

105,000

(d) Purchases .
Accounts Payable .

122,500

(e) Cash ..
Accounts Receivable

113,600

(f) Accounts Payable .


Cash

124,000

(g) Expenses
Cash

26,600

(h) Cash ..
Branch ...

53,400

(i) Retained Earnings .


Cash ...

10,000

42,500

50,200

105,000

122,500

113,600

124,000

26,600

53,400

10,000

BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets

Liabilities

Cash
Accounts Receivable
Merchandise Inv ...
Prepaid Expenses
Furnitures & Fixtures .
P 8,000
Less accum. Depr
650
Total Assets

P 4,250
12,600
23,500
750
7,350
P48,450

Accounts Payable P 10,250


Accrued Expenses
300
Home Office .. 37,900

Total Liabilities .P48,450

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales
Cost of Goods Sold:
Purchases
Shipments for home office .
Merchandise available for sale

P66,000
P22,500
50,200
P72,700

Less merchandise inv, December 31 ..


Cost of Goods Sold ..
Gross Profit .
Expenses
Net loss ...

23,500
49,200
P16,800
18,200
P 1,400

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Assets
Cash ..
Accounts Receivable ..
Merchandise Inventory
Prepaid Expenses .
Furniture & Fixtures . P 20,000
Less accum. Depr ..
5,580
Branch
Total Assets ...

Liabilities & Stockholders Equity


P 23,200
19,050
48,500
2,050
14,420
37,900
P145,120

Liabilities
Accounts payable P 21,300
Accrued Expenses .
1,350
Stockholders Equity
Capital stock, P20 par P50,000
Retained Earnings .
72,740
Total liabilities and stockholders
equity

P22,650

122,470
P145,120

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales .......
Cost of goods sold:
Merchandise inventory, January 1 .
Purchases ...
Merchandise available for sale
Less shipments to branch ...
Merchandise available for own sale ..
Less merchandise inventory, December 31 .
Cost of Goods Sold .
Gross Profit
Expenses
Net income from own operations ..
Deduct branch net loss .
Total Income .

P105,000
P 40,120
122,500
P162,620
50,200
P112,420
48,500
63,920
P 41,080
27,630
P 13,450
1,400
P 12,050

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales .
Cost of goods sold:
Merchandise inventory, January 1 ..
Purchases
Merchandise available for sale
Less merchandise inventory, December 31 ..
Cost of goods sold .

P171,000
P 40,120
145,000
P185,120
72,000
113,120

Gross profit ..
Expenses ..
Net Income .

P 57,880
45,830
P 12,050

(a) Branch Books:


Expenses .
Accumulated Depreciation F&F .

650

Sales
Merchandise Inventory .
Income summary ..

66,000
23,500

Income Summary
Shipments from Home Office
Purchases
Expenses ..

90,900

Home Office
Income Summary

650

89,500

50,200
22,500
18,200
1,400
1,400

(b) Home Office Books


Expenses .
Accumulated Depreciation F&F .

1,180

Sales
Merchandise Inventory .
Shipments to Branch ..
Income summary ..
Income Summary
Merchandise Inventory
Purchases .
Expenses ..

105,000
48,500
50,200

Branch Income
Branch .

1,400

1,180

203,700
190,250
40,120
122,500
27,630

1,400

Income Summary ..
Branch Income

1,400

Income Summary ..
Retained Earnings ..

12,050

1,400

12,050

Problem III
(a) Branch Books:
Jan.

Cash .
Home Office

1,500
1,500

1-31

1-31

1-31

1-31

1-31

Jan.

1-31

1-31

1-31

1-31

Shipments from home office .


Home Office

10,200

Home Office ..
Cash ..

900

Accts. Rec. Home office .


Home Office

2,600

Accts. Rec.-Home Office .


Sales ..

6,200

Cash ..
Accounts Receivable ..

2,600

Purchases .
Accounts Payable

3,000

Accounts Payable .
Cash ..

1,450

Expenses ..
Cash .

1,250

Cash
Accts. Rec.-Home Office ...

1,600

10,200

900

2,600

6,200

2,600

3,000

1,450

1,250

1,600

Home Office
Accts. Rec.-Home Office .

150

Shipments from Home Office


Home Office .

1,250

Home Office
Cash

1,000

150

1,250

1,000

(b) Home Office Books:


Jan.

1
1

Branch .. 1,500
Cash
Branch .. 10,200
Shipments to Branch ..

10,200

Store Furniture and Fixtures Branch .. 3,000


Store Furniture and Fixtures ...

3,000

1,500

Accumulated Depr. Store F&F .. 750


Accumulated Depr. Store Furniture
And Fixtures, Branch ..
750
Calculation of depreciation: 2.5years at P300, (10% of
P3,000), or P750

1-31

1-31

1-31

1-31

1-31

1-31

1-31

1-31

Store Furniture and Fixtures Branch ..


Branch

900
900

Branch 2,600
Accounts Receivable .........

2,600

Accounts Receivable 34,600


Sales ................................

34,600

Cash . 40,000
Accounts Receivable

40,000

Purchases .31,600
Accounts Receivable .

31,600

Accounts Payable 36,200


Cash ...

36,200

Accrued Expenses Payable .


Expenses .
Cash ..

250
8,950

Allowance for Doubtful Accounts ..


Branch ..

150

Branch .
Shipments to Branch

1,250

Cash
Branch .

1,000

9,200

150

1,250

1,000

EAGLE CO.
Balance Sheet
January 31, 20x4
Assets

Liabilities

Cash ............................
Accounts Receivable ..
Accts. Rec.-home office .
Merchandise Inventory
Merchandise in Transit .
Total assets

P 1,100
3,600
850
9,800
600
P37,200

Accounts Payable . P 2,400


Accrued expenses .
400
Home Office 14,050

Total Liabilities . P37,200

EAGLE CO.
Income Statement for Branch
For Month Ended January 31, 20x4
Sales .
Cost of Goods Sold:

P 6,200

Purchases
P 3,000
Shipments from home office .
11,450
Shipments from home office in transit ..........
600
Merchandise Available for Sale ..
P15,050
Less merchandise inv. Dec 31, 19X9 ................P9,800
Merchandise in transit ..
600
10,400
Cost of Goods Sold .
Gross Profit
Expenses
Net Loss ....

4,650
P 1,550
2,110
P 560

EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash
Accounts Receivable P34,000
Less allowance for doubtful accounts .. 1,050
Merchandise Inventory .
Store furniture and fixtures P12,000
Less accumulated depreciation . 3,950
Store furniture and fixtures-branch P 3,900
Less accumulated depreciation
785
Branch office ...
Total Assets

P 9,100
32,950
44,500
8,050
3,315
14,050
P111,765

Liabilities
Accounts Payable .. P29,150
Accrued Expenses ..
750
Total Liabilities ..

P29,900

Stockholders Equity
Capital Stock P50,000
Retained earnings .. 31,865
Total stockholders equity
Total liabilities and stockholders equity

81,865
P111,765

AGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Sales
Cost of goods sold:
Merchandise inventory, January 1 ..
P46,000
Purchases
31,600
Merchandise available for sale
77,600
Less shipments to branch
12,050
Merchandise available for own sales .
P65,550
Less merchandise inventory, January 31
44,500

P 34,600

Cost of goods sold


Gross Profit
Expenses
Net income from own operations .
Deduct branch net loss
Total Income

21,050
P 13,650
9,325
P 4,225
560
P 3,665

EAGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Assets
Liabiities and Stockholders Equity
Liabilities
Cash .. . P 10,200
Accounts Payable P30,700
Accounts receivable .. P38,450
Accrued Expenses 1,100
P 31,800
Less allow for doubtFul accounts ..
1,050
37,400
Merchandise Inventory .. 54,900
Stockholders Equity
Store furn. & fixtures P15,900
Capital Stocks P50,000
Less accum depr
4,735
11,165
Retained earnings 31,865
81,865
Total assets P113,665
Total liab. And stockholders equity . P113,665

EAGLE CO.
Combined Income Statement for Home Office and Branch
For Month Ended January 31, 20x4
Sales ..
Cost of goods sold:
Merchandise Inventory, January 1 .
P46,000
Purchases ...
34,600
Merchandise available for sale ...
P80,600
Less merchandise inventory, Jan 31 ...
54,900
Cost of goods sold ...............................
Gross profit ...
Expenses
Net Income ..

P 40,800

25,700
P 15,100
11,435
P 3,665

(a) Branch Books


Jan.

31

Shipments from Office-in Transit


Home Office .

600
600

31

Expenses . 475
Home Office .
31
Expenses
35
Home Office ..
1/120 x P3,000, or P25 (depreciation for one month;
Asset life, 10 years); 1/90 x P900, or P10 (depreciation
For one month; asset life, 7.5 years)
31

Merchandise Inventory
Merchandise in Transit ..
Income Summary

475
35

9,800
600
10,400

31

31

31

31

Expenses ..
Accrued Expenses .

350

Sales .
Income Summary ..

6,200

Income Summary .
Shipments from Home Office .
Ship. From Home Office in Trans .
Purchases
Expenses ..

17,160

Home Office ..
Income Summary ...

560

350

6,200

11,450
600
3,000
2,110

560

(b) Home Office Books:


31

31

31

31

31

31

31

31

31

31

Branch .
Shipments to Branch .

600

Branch .
Expenses ...

475

Branch .
Accumulated Depreciation, Store
Furniture and Fixtures Branch ..

35

600

475

35

Expenses .
100
Accumulated Depreciation store
Furniture and Fixtures branch .
1/120 x P12,000, or P100 (depreciation for one
Month; asset life, 10 years)
Income Summary
Merchandise Inventory

46,000

Merchandise Inventory ..
Income Summary ..

44,500

Expenses .
Accrued Expenses .

750

Sales
Purchases
Expenses ..

40,925

Branch Income .
Branch ..

560

Income Summary .
Branch Income ...

560

100

46,000

44,500

750

31,600
9,325

560

560

31

Income Summary .
Retained Earnings ..

3,665
3,665

Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch
Ledger
Account
(Debit)
Balances prior to adjustment
P85,000
Add: Merchandise shipped to branch
Less: Acquisition of office equipment by branch
(carried in accounting records of home office)
(14,500)
Collection of branch trade accounts receivable
Payment of cash by branch
(22,000)
Adjusted balances
P48,500
2.

(a)

Accounting records of home office:


Office Equipment: Plato Branch
Investment in Plato Branch
To record acquisition of office equipment by branch.
Cash in Transit
Investment in Plato Branch
To record cash in transit from branch.

(b)

Home Office
Ledger
Account
(Credit)
P33,500
24,000

14,500
14,500

22,000
22,000

Accounting records of branch:


Home Office
9,000
Trade Accounts Receivable
To record collection by home office of branch accounts
receivable.
Inventories in Transit
Home Office
To record shipment of merchandise in transit from
home office.

Problem V
((a)
Balances before Adjustments ..
Adjustments:
Additions:
Merchandise in transit to branch .
Collection of Home office receivable by Branch
Understatement of branch net income for Nov..

(9,000)
_______
P48,500

9,000

24,000
24,000

BRANCH
ACCOUNT
P 8,400

HOME OFFICE
ACCOUNT
P 9,735

615
2,500
90
P10,990

P10,350

Deductions:
Merchandise return to home office in transit .
Corrected Balances

640
P10,350

(b) Branch Books:


Shipments from Home Office-in Transit .
Home Office ...

615

Home Office Books:


Branch
Accounts Receivable ..

2,500

P10,350

615

2,500

Branch
Retained Earnings .

90

Merchandise Returns from Branch in Transit .


Branch ..

640

90

640

Multiple Choice Problem


1. d
Branch A
Assets:
Inventory, January 1
Imprest branch fund
Accounts receivable, January 1
Total Assets
Less: Liabilities
Home Office Current Account

P 21,000
2,000
55,000
P 78,000
-0P 78,000

Branch B
P 19,000
1,500
43,500
P 64,000
-0P 64,000

2. b
Branch A
Assets:
Inventory, December 31
Imprest branch fund
Accounts receivable, December 31
Total Assets
Less: Liabilities
Home Office Current Account

P 19,000
2,000
70,000
P 91,000
-0P 91,000

Branch B
P 12,000
1,500
53,500
P 67,000
-0P 67,000

3. d incidentally, the entry in the books of the branch would be as follows:


Profit and loss summary xxx
Home Office Current .
Xxx
4. c
January
1,20x4
Assets:
Inventory
Petty cash fund
Accounts receivable
Total Assets
Less: Liabilities
Home Office Current Account

P 37,000
3,000
43,000
P 83,000
_____-0P 83,000

January 1,
20x5
P 41,000
3,000
49,000
P 93,000
_____-0P 93,000

5. a refer to No. 4 for computations


6. a
Sales
Less: Cost of goods sold:
SFHO
Less: Inventory, ending
Gross profit
Less: Expenses
Net Loss ..

P 74,000
P67,680
9,180

58,500
P 15,500
6,820
P 8,680

7. a
January 1,
20x6
Assets:
Cash
Inventory
Accounts receivable
Total Assets
Less: Liabilities
Home Office Current Account

P 4,200
9,180
12,800
P 26,180
_____-0P 26,180

8. a nominal accounts have zero beginning balance.


9. d
Branch
Current

H. Office
Current

Unadjusted balance, 6/30/20x4


P 225,770
P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment
3150
2. Insurance premium recorded twice
(
675)
3. Erroneous recording of freight
(
90)
4. Discount on merchandise
(
800)
5. Failure by the branch to record share in adv ertising
700
6. error by the home office to record remittance of Cebu
3,000
________
Adjusted balance, 6/30/20x4
P 228,770
P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.

P2-07
10. c

Unadjusted balance
Add (deduct) adjustments:
In transit
Remittance
Returns
Cash in transit
Expenses - HO
Expenses branch

Home Office Books


(Branch CurrentDr. balance)
P518,575

Branch Books
(Home Office Current
Cr. balance)
P452,276
10,500

( 17,000)
(
775)
25,000
(

800)
12,000

Error
Adjusted balance

________
P 500,000

_____224
P 500,000

Home Office Books


(Branch CurrentDr. balance)
P515,000

Branch Books
(Home Office Current
Cr. balance)
P495,750

11. d

Unadjusted balance
Add (deduct) adjustments:
Excess freight
Cash in transit
Returns
Expenses branch
Adjusted balance
12.
13.
14.
15.

750)

( 11,000)
( 4,000)
________

5,000

P 500,000

P 500,000

c refer to No. 11 for computations


a refer to No. 11 for computations
No answer available P495,750
d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.

16. b

Unadjusted balance
Add (deduct) adjustments:
Remittance
Returns
Error by the branch
Expenses branch
Adjusted balance

Home Office Books


(Branch CurrentDr. balance)
P590,000

Branch Books
(Home Office Current
Cr. balance)
P506,700

(40,000)
(15,000)
________

300
28,000

P 535,000

P 535,000

Home Office Books


(Branch Current- Dr.
balance)
P150,000

Branch Books
(Home Office Current
Cr. balance)
P117,420

17. c

Unadjusted balance
Add (deduct) adjustments:
In transit
HO A/R collected by br.
Supplies returned
Error in recording Br. NI
Cash sent to branch
to General Expense by HO
Adjusted balance
18. d refer to No. 17 for computation.
19. a

37,500
10,500
( 4,500)
( 1,080)
25,000
P 179,920

25,000
P 179,920

Unadjusted balance
Add (deduct) adjustments:
In transit
HO A/R collected by br.
Cash in transit
Error in recording Br. NI
Adjusted balance

Home Office Books


(Branch Current- Dr.
balance)
P40,000

Branch Books
(Home Office Current
Cr. balance)
P31,100
5,800

500
2,000
( 3,600)
P38,900

2,000
_______
P38,900

Home Office Books


(Branch Current- Dr.
balance)
P49,600

Branch Books
(Home Office Current
Cr. balance)
P44,00

20. a refer to No. 19 for computations


21. a

Unadjusted balance
Add (deduct) adjustments:
Collection of branch A/R
In transit
Purchase of furniture
Return of excess merchandise
Remittance
Adjusted balance

(
( 1,200)
( 1,500)
( 500)
P46,400

800)
3,200

_______
P46,400

22. b refer to No. 21 for computations


23. (C)
Sales (P350,000 + P100,000) .P 450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000) .
P 450,000
Less: Inventory, ending
90,000
360,000
Gross profit
P 90,000
Less: Expenses
Salaries and commission ..
P 70,000
Rent
20,000
Advertising supplies (P10,000 P6,000)
4,000
Other expenses .
5,000
99,000
Net Loss ..
P( 9,000)
24. a
In adopting the imprest system for the agency working fund, the home office writes a check to the
agency for the amount of the fund. Establishment of the fund is recorded on the home office
books by a debit to the Agency working fund and credit cash. The agency will request fund
replenishment whenever the fund runs low and at the end of each fiscal period. Such a request is
normally accomplished by an itemized and authenticated statement of disbursements and the
paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office
debits expense or other accounts for which disbursements from the fund were reported and
credits cash.
25. d

Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.

Theories
1. True
2. True
3. False
4. False
5. True

6.
7.
8.
9.
10,

False
False
False
True
True

11.
12.
13.
14.
15.

False
False
True
True
True

16.
17.
18.
19.
20.

b
c
d
a
c

21.
22.
23.
24.
25.

a
b
b
b
a

26.
27.
28.
29.
30.

c
b
d
d
c

31.
32.
33.
34.
35.
36.

b
b
c
c
c
d

Chapter 13
Problem I

Sales....................................................................................................................... 42,000
Shipments to Newark Branch................................................................
Unrealized Intercompany Inventory Profit...........................................
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Shipments to Newark Branch.............................................................................
Unrealized Intercompany Inventory Profit........................................................
Sales Returns...........................................................................................
Cost of merchandise returned by branch: P750/1.20= P625.
Newark Branch Income.....................................................................................
Newark Branch.......................................................................................

35,000
7,000

625
125
750

2,600

Unrealized Intercompany Inventory Profit........................................................ 4,125


Newark Branch.......................................................................................
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 P125............... P6,875
Balance required in account, 12/31,
P16,500 (P16,500/1.20)........................................................... 2,750
Decrease.................................................................................... P4,125
Newark Branch Income...................................................................................... 1,525
Income Summary....................................................................................
Problem II

a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:

Merchandise transferred by home office at billed price,


35% above cost (P16,200 plus P20,250)............................................. P36,450
Merchandise transferred by home office at cost, P36,450/1.35.... 27,000

2,600

4,125

1,525

Additions to unrealized profit account resulting from transfers


by home office..................................................................................... P9,450
b. Unrealized Intercompany Inventory Profit.................................................. 4,550
Cash.......................................................................................................

4,550

Balance of unrealized profit account at December 31


(as calculated above).......................................................................................................... P 9,450
Required balance, December 31, to reduce inventory to cost:
Ending inventory of merchandise shipped to branch by home office:
At billed price................................................................................................. P 18,900
At cost (P 18,900/1.35).................................................................................. 14,000
4,900
Required decrease in unrealized profit account as a result
of branch sales...................................................................................................................... P4,550

c. Branch Books:
Home Office........................................................................................... 540
Shipments from Home office...................................................
Home Office Books:
Shipments to Branch.............................................................................. 400
Unrealized Intercompany Inventory Profit........................................... 140
Branch........................................................................................
Cost of merchandise returned: P540/1.35, or P400.

540

540

Problem III

a. The branch office inventory as of December 1 considered of:


Shipments from Home Office (see below)............................................................. P 12,000
Purchases from outsiders (balance of inventory)..................................................
3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are calculated as
follows:
Balance of unrealized intercompany inventory profit, December 31.................... P 3,600
Additions to unrealized profit account during December, 20% of
shipments to branch (20% x P8,000)............................................................................. 1,600
Balance of unrealized profit account, December 1.................................................. P 2,000
Balance of unrealized profit account, December 1, P2,000 / 20% markup on
cost equals December 1 inventory at cost................................................................ P 10,000
Add 20% markup...........................................................................................................
2,000
Goods in branch inventory at billed price................................................................. P 12,000
b. Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income............................................................................

2,200

Calculation of reduction in Unrealized Intercompany


Inventory Profit:
Balance of unrealized profit account, December 31.........................P 3,600
Required balance, December 31, to reduce inventory to cost
At billed price................................................................... P8,400
At cost (P8,400/1.20)....................................................... 7,000
1,400
Required decrease in unrealized profit account as a result
of branch sales........................................................................................ P 2,200
Problem IV

(1) Dec.31 Selling Expenses............................................................................ 260


Store Supplies............................................................................
Supplies used: P400 P140, or P260.
31

260

Selling Expenses............................................................................ 80
Accumulated Depreciation-Store Furniture........................
80
Depreciation:1% of P8,000, or P80.

31 Selling Expenses............................................................................
Accrued Expenses Payable.................................................

120
120

31 Prepaid Selling Expenses.............................................................


150
Selling Expenses.....................................................................
31 Income Summary......................................................................... 16,000
Merchandise Summary.........................................................
16,000
31 Merchandise Summary................................................................. 16,950
Income Summary......................................................................
31 Notes Payable..................................................................................1,000
Home Office...............................................................................

150

16,950
1,000

31 Sales.................................................................................................20,500
Income Summary.......................................................................

20,500

31 Income Summary........................................................................... 21,900


Purchases....................................................................................
Shipments from Home Office...................................................
Selling Expenses..........................................................................
General Expenses.......................................................................

5,000
10,500
4,560
1,840

31 Home Office.......................................................................................
Income Summary.......................................................................

450
450

(2) Dec.31 Branch No. 1.................................................................................... 1,000


Cash............................................................................................
Branch No. 1 Income.....................................................................
Branch No. 1...............................................................................

1,000

450
450

31 Unrealized Intercompany Inventory Profit....................................... 2,200


Branch No. 1 Income.................................................................

2,200

Calculations of unrealized profit adjustment on merchandise shipped by home office:


Billing to
Cost
Unrealized
Branch
(Billing/1.1
Profit
/3)
(Billing Price
Minus Cost)
Inventory,
P 12,500
P 9,375
P 3,125
Dec.1............................................................
Shipments during
10,500
7,875
2,625
December......................................
Total in unrealized profit on December
P 5,750
31.................
Inventory,
14,200
10,650
3,550
Dec.31.........................................................
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods
sold.................................................................
P 2,200
31 Branch No. 1 Income............................................................... 1,750
Income Summary.............................................................

1,750

Problems V

(1)
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets
Cash..................................................... P 2,650
4,200
Accounts receivable........................ 12,850
Merchandise inventory..................... 14,600
Store supplies......................................
300
Prepaid expenses...............................
120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation..............
576 3,024

Liabilities____________________
Accounts payable................................... P
Accrued expenses...................................
105
Home office............................................... 29,239

________

Total assets....................................... P 33,544


33,544

Total liabilities............................................ P

SPENCER CO.
Income Statement for Branch
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P 20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P 14,400
Purchases..............................................................................................
4,100
Shipments from home office...............................................................
10,200
Merchandise available for sale.......................................................... P 28,700
Less: Merchandise Inventory, December 31..................................... 14,600
Cost of goods sold....................................................................................................... 14,100
Gross profit................................................................................................................................. P 5,900
Operating expenses:
Advertising expense............................................................................. P 2,800
Salaries and commissions expense.....................................................
2,350
Store supplies expense.........................................................................
280
Miscellaneous selling expense............................................................
1,050
Rent expense........................................................................................
1,500
Depreciation expense furniture and fixtures..................................
36
Miscellaneous general expense.........................................................
905
Total operating expenses..........................................................................................
8,921
Net loss...................................................................................................................................... P 3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Liabilities and Stockholders

Assets
Equity_______
Cash..................................................... P10,350
Cash in transit.....................................
1,500
Accounts receivable........................
26,200
35,660
Merchandise inventory..................... 24,200
Store supplies......................................
380
Prepaid expenses...............................
350
60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany

Liabilities
Accounts payable................ P 35,400
Accrued expenses...............
260 P
Stockholders Equity
Capital Stock......................... P 65,000
Less deficit..............................
4,476

inventory profit............ 1,950 27,289


________
Total assets........................................ P 96,184
96,184

Total liabilities and


stockholders equity............................... P

SPENCER CO.
Income Statement for Home Office
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P 44,850
Cost of goods sold:
Merchandise inventory, December 1................................................ P 31,500
Purchases..............................................................................................
27,600
Merchandise available for sale.......................................................... P 59,100
Less: Shipments to branch...................................................................
8,500
Merchandise available for own sales................................................ P 50,600
Less: Merchandise Inventory, December 31..................................... 24,200
Cost of goods sold.......................................................................................... 26,400
Gross profit................................................................................................................................. P 18,450
Operating expenses:
Advertising expense............................................................................. P 2,850
Salaries and commissions expense.....................................................
4,250
Store supplies expense.........................................................................
560
Miscellaneous selling expense............................................................
1,850
Rent expense........................................................................................
2,700
Depreciation expense furniture and fixtures..................................
85
Miscellaneous general expense.........................................................
2,510
Total operating expenses............................................................................. 14,805
Net income from own operations......................................................................................... P 3,645
Less: Branch net loss................................................................................................................
1,271
Total income............................................................................................................................ P 2,374
2. WORKSHEET refer to a separate sheet

SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4

Assets
Cash .
P 14,500
Accounts Receivable
39,050
Merchandise Inv .
36,850
Store Supplies ..
680
Prepaid Expenses ..
470
Furniture & Fixtures
P12,100
Less accumulated
Depreciation ...
3,161
8,939
Total assets
P100,489

Liabilities and Stockholders Equity


Liabilities
Accounts Payable .. P39,600
Accrued Expenses .
365
Stockholders Equity
Capital Stock P65,000
Less deficit .
4,476

P 39,965

60,524

Total liabilities and


stockholders equity P100,489

SPENCER CO.
Combined Income Statement for Home Office and Branch
For Month Ended December 31, 20x4
Sales P64,850
Cost of goods sold:
Merchandise Inventory, December 1 P43,900
Purchases 31,700
Merchandise available for sale P75,600
Less merchandise inventory, December 31 . 36,850
Cost of goods sold ..
38,750
Gross profit
P26,100
Operating Expenses:
Advertising Expense P 5,650
Salaries and Commissions expense
6,600
Store supplies expense ..
840
Miscellaneous selling expense 2,900
Rent expense
4,200
Depreciation Expense F&F .
121
Miscellaneous general expense . 3,415
Total operating expense . 23,726
Net Income P 2,374

(a)
Dec

Branch Books
31

31

31

Dec.

31

31

31

31

31

Income Summary .. 14,400


Merchandise Inventory ..

14,400

Merchandise Inventory 14,600


Income Summary .

14,600

Store Supplies Expense .


Store Supplies
Store supplies used: P580 P300, or P280

280
280

Prepaid Expenses
Miscellaneous General Expense .

120

Miscellaneous General Expense


Accrued Expenses ..

105

Depreciation Expense F&F ..


Accumulated Depreciation
Depreciation: 1% of P3,600

36

Miscellaneous General Expense ..


Home Office

220

Sales
Income Summary .

20,000

120

105

36

220

20,000

31

31

(b)
Dec

22,221

Home Office .
Income Summary ..

3,021

4,100
10,200
2,800
2,350
280
1,050
1,500
36
905

3,021

Home Office Books


31

31

31

31

31

31

31

31

Dec

Income Summary
Purchases
Shipments from Home Office
Advertising Expense .
Salaries and Commissions Expense .
Store Supplies Expense
Miscellaneous Selling Expense ..
Rent Expense .
Depreciation Expense F&F .
Miscellaneous General Expense .

31

Income Summary .
Merchandise Inventory .

31,500

Merchandise Inventory ...


Income Summary

24,200

Store Supplies Expense .


Store Supplies
Store supplies used: P940 P380, or : 560

560

Prepaid Expense
Miscellaneous General Expense

350

Miscellaneous General Expense ..


Accrued Expenses .

260

Depreciation Expense ..
Accumulated Depreciation F&F .
Depreciation: 1% of P8,500, or P85
Cash in Transit .
Branch
Sales
Shipments to branch .......................
Income Summary .

31,500

24,200

560

350

260
85
85

1,500
1,500
44,850
8,500

Income Summary 42,405


Purchases
Advertising Expense .
Salaries and Commissions Expense .
Store Supplies Expense
Miscellaneous Selling Expense ..
Rent Expense .
Depreciation Expense F&F .

53,350

27,600
2,850
4,250
560
1,850
2,700
85

Miscellaneous General Expense .


31

31

31

31

2,510

Branch Income ..
Branch

3,021

Unrealized Intercompany Inventory Profit .


Branch Income
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 .. P3,700
Inventory merchandise received from
Home office at billed price on
December 31, P11,700
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 P9,750 ....
1,950
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold .. P1,750

1,750

Income Summary
Branch Income .

1,271

Income Summary
Retained Earnings .

2,374

3,021

1,750

1,271

2,374

Problem VI
1.

Unadjusted balance, 12/31/20x4


Add (Deduct): Adjustments
1 Cash in transit
2. Merchandise in transit
3. Branch expenses paid by home office
4. Cash in transit from home office
Adjusted balance, 12/31/20x4

Branch
Current

P 44,000

H. Office
Current

P 9,000

( 10,000)

_______
P 34,000

10,000
12,000
3,000
P34,000

2. Combined Income Statement

Sales [(P350,000 P105,000) + P150,000)....................................................... P395,000


Less: Cost of goods sold [(P220,000 P84,000) +
(P93,000 + P3,600 P21,000 P1,200)]. 210,400
Gross profit................................................................................................................... P184,600
Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000
Net income................................................................................................................... P 61,600
Problem VII

(1)
PAXTON CO.
Income Statement for Dayton Branch

For Year Ended December 31, 20x5


Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5..................
58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500

PAXTON CO.
Income Statement for Cincinnati Home Office
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Merchandise available for sale................................................. P935,000
Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5..................
142,500
582,500
Gross profit..................................................................................................................
P477,500
Expenses......................................................................................................................
382,000
Net income from own operations............................................................................
P 95,500
Add branch net income...........................................................................................
16,650
Total income...............................................................................................................
P112,150
(2)
PAXTON CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
Merchandise available for sale................................................. P970,600
Less: Merchandise Inventory, December 31, 20x5..................
191,250
779,350
Gross profit.................................................................................................................... P595,650
Operating expenses....................................................................................................
483,500
Net income................................................................................................................... P112,150
(3) Merchandise Inventory, December 31................................................................ 58,500
Sales.......................................................................................................................... 315,000

Income Summary............................................................................................
373,500
Income Summary......................................................................................................... 398,000
Merchandise Inventory, January 1................................................................
44,500
Shipments from Home Office.........................................................................
252,000
Operating expenses........................................................................................
101,500
Home Office...............................................................................................................
Income Summary..........................................................................................

24,500
24,500

(4) Branch Income.....................................................................................................


Branch............................................................................................................

24,500
24,500

Unrealized Intercompany Inventory Profit...............................................................


41,150
Branch Income..............................................................................................
41,150
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
at billed price...................................................................................... P 44,500
Less: Cost of inventory (P44,500/1.25)......................................................... 35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000.................................................... 42,000
P 50,900
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................
48,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold..................................................................

9,750

41,150

Branch Income............................................................................................................. 16,650


Income Summary............................................................................................
16,650
Merchandise Inventory, December 31...................................................................... 142,500
Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 210,000
Income Summary.............................................................................................
1,412,500

Income Summary......................................................................................................... 1,317,000


Merchandise Inventory, January 1................................................................
115,000
Purchases.........................................................................................................
820,000
Expenses...........................................................................................................
382,000
Income Summary..........................................................................................................
Retained Earnings............................................................................................
112,150

112,150

Problem VIII
(1)
RUGGLES CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders.................................................
20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold.............................................................................
60,500
Gross profit.................................................................................................................... P 18,000
Operating expenses....................................................................................................
12,500
Net income................................................................................................................... P 5,500
RUGGLES CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 80,000
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Less: Shipments to branch..........................................................
30,000
Merchandise available for own sales....................................... P 260,000
Less: Merchandise Inventory, December 31, 20x4..................
55,000
Cost of goods sold.............................................................................
205,000
Gross profit................................................................................................................... P 51,000
Operating Expenses....................................................................................................
60,000
Net loss from own operations..................................................................................... P 9,000
Add branch net income............................................................................................
13,500
Total income................................................................................................................ P
4,500

(2)
RUGGLES CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 107,500
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4...................
80,000
Cost of goods sold.............................................................................
257,500
Gross profit.................................................................................................................... P 77,000
Operating expenses....................................................................................................
72,500
Net income................................................................................................................... P 4,500

(3) Merchandise Inventory......................................................................................... 31,500


Sales.......................................................................................................................... 78,500
Income Summary............................................................................................
110,000
Income Summary......................................................................................................... 104,500
Merchandise Inventory...................................................................................
32,000
Shipments from Home Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses...........................................................................................................
12,500
Income Summary.........................................................................................................
Home Office.....................................................................................................
(4) Branch......................................................................................................................
Branch Income................................................................................................
Unrealized Intercompany Inventory Profit...............................................................
Branch Income..............................................................................................
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P 24,500
Less: Cost of inventory (P24,500/1.225).................................................... 20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500
Add: Increase in unrealized profit for shipments

5,500
5,500
5,500
5,500
8,000
8,000

made during year, billed price of goods,


P40,000, cost of goods, P30,000....................................................
10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500
6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold...........................
8,000
Branch Income............................................................................................................. 13,500
Income Summary............................................................................................
13,500
Merchandise Inventory................................................................................................ 55,000
Sales............................................................................................................................... 256,000
Shipments to Branch.................................................................................................... 30,000
Income Summary.............................................................................................
341,000
Income Summary......................................................................................................... 350,000
Merchandise Inventory...................................................................................
80,000
Purchases.........................................................................................................
210,000
Expenses...........................................................................................................
60,000
Income Summary..........................................................................................................
Retained Earnings............................................................................................

4,500
4,500

Problem IX
1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Remittance
2. Cash in transit
3. Shipments in transit
Adjusted balance, 12/31/20x4

P 60,000

H. Office
Current
P 51,500

I 1,700)

P 57,300

1,800
5,800
P 57,300

2. Income Statement - Branch

Sales................................................................................................................................ P 140,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4 (P11,550 P1,000)....... P 10,550
Shipments from home office (P105,000 + P5,000 P10,000)........ 100,000
Freight-in (P5,500 + P250)..
5,750

Merchandise available for sale..................................................... P116,300


Less: Merchandise Inventory, December 31, 20x4...................... 14,770
Cost of goods sold.............................................................................
Gross profit....................................................................................................................
Operating expenses....................................................................................................
Net income...................................................................................................................

101,530
P 38,470
24,300
P 14,170

Income Statement Home Office


Sales..............................................................................................................................
P 155,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 23,000
Purchases...................................................................................... 190,000
Merchandise available for sale................................................. P 213,000
Less: Shipments to branch.......................................................... 100,000
Merchandise available for own sales....................................... P 113,000
Less: Merchandise Inventory, December 31, 20x4..................
30,000
Cost of goods sold........................................................................
83,000
Gross profit................................................................................................................... P 72,000
Operating Expenses....................................................................................................
42,000
Net loss from own operations..................................................................................... P 30,000
Add branch net income............................................................................................
14,170
Combined net income.............................................................................................. P 44,170
3.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 295,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 33,550
Purchases...................................................................................... 190,000
Freight-in
5,750
Merchandise available for sale.................................................. P 229,300
Less: Merchandise Inventory, December 31, 20x4...................
44,770
Cost of goods sold........................................................................
184,530
Gross profit.................................................................................................................... P 110,470
Operating expenses....................................................................................................
66,300
Net income................................................................................................................... P 44,170
Problem X

a. The cost of the merchandise destroyed was P30,000.


Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1...................................................................................... P26,400
Shipments from home office, Jan. 1-17....................................................... 20,000
P46,400
Cost of goods sold, January 1-17, at billed price:
Net sales, P13,000/1.25......................................................................................

10,400

Merchandise on hand, January 17, at billed price....................................... P36,000


Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000
b. Branch Books:
Loss from Fire (or Home Office)............................................................ 36,000
Merchandise Inventory............................................................
36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of the fiscal period, when the
branch earnings (including the loss from fire) are recognized and when the balance of the account
Unrealized Intercompany Inventory Profit is adjusted to conform to the branch ending inventory. If it
is desired to recognized the loss from fire on the home office books immediately, the following entry
may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch.........................................................................................
36,000
Problem XI

a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash.........................................................................................

1,500

b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................

1,500

c. Books of Home Office:


Branch B............................................................................................... 1,500
Branch A..................................................................................

1,500

Problem XII
a. Books of Branch No. 1 :
Home Office .
Shipments from Home Office ..
Freight In
b. Books of branch No. 5:
Shipments from Home Office
Freight In
Home Office .
Cash
c. Books of the Home Office
Branch No. 5 ..
Excess Freight on Inter branch Transfer of Merchandise ..
Branch No. 1
Shipments to Branch No. 1 ..
Shipments to Branch No. 5

1,950
1,600
350

1,600
400
1,750
250

1,750
200
1,950
1,600
1,600

Multiple Choice Problems


1. c - P50,400, billed price x 40/140 = P 14,400
2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140
From Outsiders

P 31,000
6,600
P 37,600

3. a
True Branch Net Income
Branch Net Income
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office.
P 280,000
Less: Ending inventory, at billed
price (P50,000 P6,600)
43,400
Cost of goods sold from home
office at billed price
P 236,600
Multiplied by: Mark-up
40/140
Unrecorded branch expenses
True Branch Net Income

5,000

67,600
( 2,500)
P 70,100

4. c
True Branch Net Income
Less: branch Net Income as reported by the branch
Overvaluation of CGS
Less: Cost of goods sold from home office at BP
Inventory, December 1
Shipment from HO
COGAS
Less: Inventory, December 31
CGS from home office, at cost

P156,000
60,000
P 96,000
P 70,000
350,000
P 420,000
84,000

336,000
P 240,000

Billing Price: P336,000 / P240,000 = 140%.


5. c Allowance for overvaluation after adjustment / for December 31 inventory: (refer t o
No. 4 for further computation): P84,000 x 40/140 = P24,000.
6. No answer available P109,000
Net Income as reported by the Branch
Less: Rental expense charged by the home office
(P1,000 x 6 months)
Adjusted NI as reported by the Branch
Add: Overvaluation of CGS
MI, beginning
SFHO
COGAS
Less: MI, ending

P 20,000
6,000
P 14,000
Billed Price
0
550,000
550,000
75,000

CGS, at BP
X: Mark-up ratio
True/Adjusted/Real Branch Net Income

475,000
25/125

95,000
P109,000

7. d
Sales (P537,500 + P300,000) . . P 837,500
Less: Cost of goods sold
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases . 500,000
Cost of Goods Available for Sale ... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)] . 120,000
467,500
Gross profit .
P 370,000
Less: Expenses (P120,000 + P50,000.. .
170,000
Net Income
P 200,000
8. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment .P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120 .. 2,800
Overvaluation of Cost of Goods Sold . .P 4,400
Adjusted branch net income:
Sales P60,000
Less: Cost of goods sold:
Inventory, January 1, 2003 .P 30,000
Add: Purchases ..... 11,000
Shipments from home office ..
19,200
Cost of Goods available for sale P 60,200
Less: Inventory, December 31, 2003 .
20,000
40,200
Gross profit .. P 19,200
Less: Expenses .. 12,000
Unadjusted branch net income .P 7,800
Add: Overvaluation of Cost of Goods Sold .
4,400
Adjusted branch net income ..P 12,000
9. d
Merchandise Inventory, 12/31/2005
Shipments
Cost of goods sold

Billed Price
*P 36,000
28,800

Cost
P 30,000
24,000

Allowance
P 6,000
4,800
P10,800

From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.


From outsiders: P45,000 P36,000 = P9,000
10. d
Billed Price
Merch. Inventory, 12/31/20x4
*P12,000
Shipments
9,600
Cost of Goods Sold
*P2,000 / 20% = P10,000 + P2,000 = P12,000.

Cost
P10,000
8,000

Allowance
P 2,000
1,600
P 3,600

Merchandise inventory, December 1, 20x4 P 15,000


Less: Shipments from home office at billed price* 12,000
Merchandise from outsiders P 3,000
11. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost
P 3,500
Branch: Outsiders, ...........................P 300
From Home Office (P2,500 P300)/110%................. 2,000
2,300 P 5,800
Add Purchases (P240,000 + P11,000) ..
251,000
COGAS
P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost .
P 3,000
Branch: Outsiders . P
150
From Home Office (P1,800 P150)/110%................
1,500
1,650
4,650
Cost of Goods Sold
P252,150
12. d
100%
Billed Price

60%
Cost

40%
Allowance
Merchandise inventory, 1/1/x4
32,000
Shipments
*60,000
36,000
*24,000
Cost of goods available for sale
56,000
Less: MI, 3/31/x4 (25,000 x 40%)
10,000
Overvaluation of CGS**
46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
13. d
Billed
Price
Merchandise inventory, 8/1/x4
Shipments (400,000 x 25%)
Cost of goods available for sale
Less: MI, 8/31/x4 (160,000 x 25%)
Overvaluation of CGS/RPBSales

400,000
160,000

14. b
(1) Sales
Less: Cost of goods sold:
Inventory, 1/1/2003 (P4,950 / 110%)
Add: Shipments
(P22,000 / 110%)
COGAS
Less: Inventory, 12/31/2003 (P6,050 / 110%)
Gross profit
Less: Expenses
Net income from own operations

Cost

Allowance
60,000
*100,,000
160,000
40,000
120,000

P 40,000
P 4,500
20,000
P 24,500
5,500
P
_
P

19,000
21,000
13,100
7,900

(2) Combined Cost of Goods Sold:


Merchandise Inventory, 1/1/2003:
of Home Office, cost ..P 17,000

of Branch, cost: P4,950 / 110% .


4,500
P 21,500
Add Purchases .
50,000
COGAS ..
P 71,500
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost P 14,000
of Branch, cost: P6,050 /100% ..
5,500
19,500
Cost of Goods Sold .
P 52,000
15. a - P48,000 / 120% = P40,000
16. a P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the
ending inventory, so, the allowance related to the CGS, which is P10,00 in t his case is considered
to be the adjustments in the books of Home Office to determine the adjusted branch net income)
120%
100%
20%
Billed Price
Cost
Allowance
Merchandise inventory, 1/1/x4
0
Shipments
108,000
Cost of goods available for sale
108,000
Less: MI, 12/31/x4 (P60,000 x 80%)
48,000
Overvaluation of CGS (60,000 x 20/120)
60,000
10,000*
17. b
Sales (P148,000 + P44,000)
Less: Cost of Sales
Inventory, 1/1/20x4
Purchases
Shipments from home office
Cost of goods available for sale
Less: Inventory, 12/31/20x4
Gross profit
Less: Expenses (P76,000 + P24,000)
Net income, unadjusted
Add: Overvaluation of CGS
Adjusted branch net income

P192,000
P

0
52,000
108,000
P 160,000
60,000

100,000
P 92,000
100,000
P( 8,000)
10,000
P 2,000

18. c

Merchandise inventory, 1/1/x4


Shipments
Cost of goods available for sale
Less: MI, 12/31/x4 (P60,000 x 80%)
Overvaluation of CGS(230,000x 25/125)

19. d P326,000
Sales (P600,000 + P300,000)
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)]

125%
Billed Price
40,000
250,000
290,000
60,000
230,000

100%
Cost

25%
Allowance

46,000*

P 900,000
P132,000

Add: Purchases
Cost of goods available for sale
Less: MI, ending
[P30,000 + (P60,000/1.25)]
Gross profit
Less: Expenses (P120,000 + P50,000)
Net Income

350,000
P482,000
78,000

404,000
P 496,000
_ 170,000
P 326,000

20. b
Sales (P537,500 + P300,000)
Less: Cost of goods sold
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]
Add: Purchases
Cost of goods available for sale
Less: MI, ending
[P70,000 + (P60,000/1.20)]
Gross profit
Less: Expenses (P120,000 + P50,000)
Net Income

P 837,500

P 87,500
500,000
P587,500
120,000

467,500
P 370,000
_ 170,000
P 200,000

21. c
Sales (P120,000 + P60,000)
P 180,000
Less: Cost of goods sold:
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)] P 66,000
Add: Purchases (P70,000 + P11,000)
81,000
Cost of Goods Available for Sale P 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200
89,800
Gross profit
P 90,200
Less: Expenses (P28,000 + P12,000)
40,000
Net Income .
P 50,200
22. d
Sales (P100,000 P33,000 + P50,000)
P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 P500)] P20,000
Add: Purchases (P50,000 + P7,000) 57,000
COGAS .. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%] 16,550
60,450
Gross profit
P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)
31,000
Combined Net income .
P 25,550
23. c
Sales
Less: Cost of Sales
Inventory, 1/1/10
Purchases
Cost of goods available for sale
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)
Cost of goods available for HO

P155,000
P 23,000
190,000
P213,000
100,000

Sale
Less: Inventory, 12/31/10
Gross profit
Less: Expenses
Net income home office

P113,000
30,000

83,000
P 72,000
52,000
P 20,000

24. a
Sales
P140,000
Less: Cost of Sales
Inventory, 1/1/10
P 11,550
Purchases
105,000
Freight-in
5,500
Shipment in transit (P5,000+P250)
5,250
Cost of goods available for sale P127,300
Less: Inventory, 12/31/10
(P10,400 + P520 + P5,250)
16,170 111,130
Gross profit
P 28,870
Less: Expenses
28,000
Net income per branch books/unadjusted
P
870
Add: Overvaluation of CGS*
9,600
Net Income of Davao Branch, adjusted
P 10,470
BP

Cost

Allowance
1,000

100,000

**10,000
11,000
****1,400
9,600

MI. 1/1/2010
Shipments
110,000
Available for sale
-: MI, 12/31/10
***15,400
CGS
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
25. a

Inventory, 1/1 at billed price


P165,000
Add: Shipments at billed price
110,000
Cost of goods available for sale at billed price
P275,000
Less: CGS at BP:
Sales
P169,000
Less: Sales returns and allowances
3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)
9,000
Net Sales of merchandise acquired from
home office
P156,250
x: Intercompany cost ratio
100/125
125,000
Inventory, 8/1/2008 at billed price
P150,000
x: Cost ratio
100/125
Merchandise inventory at cost destroyed by fire
P120,000

26. d
Merchandise inventory, January 1
Shipments from home office
Cost of goods available for sale

P 26,400
__20,000
P 46,400

Less: Cost of goods sold, at BP:


Sales
Less: Sales returns
Net sales
Divided by: SP based on cost
Merchandise inventory, ending at BP
Divided by: Billed price
Merchandise inventory, ending at cost
lost due to fire)

P 15,000
___2,000
P 13,000
____125%

__10,400
P 36,000
____120%
P 30,000

27. d
Freight actually paid by:
Home Office P 500
Branch P
700
Total P 1,200
Less: Freight that should be recorded ..
800
Excess freight P 400
28. d in arriving at the cost of merchandise inventory at the end of the period, freight charges are
properly recognized as a part of the cost. But a branch should not be charged with excessive
freight charges when, because of indirect routing, excessive costs are incurred. Under such
circumstances, the branch acquiring the goods should be charged for no more than the normal
freight from the usual shipping point. The office directing the inter-branch transfers are responsible
for the excessive cost should absorb the excess as an expense because it represents
management mistakes (or inefficiencies.)
29. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................
60%
Ending inventory at billed price .....P 22,620
Add: Freight (P1,300 x 60%) ......
780
P 23,400
Or, P39,000 x 60% = P23,400
30. b
Inventory in the published balance sheet, at cost
Shipments at cost ..........................................P 32,500
X: Ending inventory %....................................................................................
60%
Ending inventory at billed price .P19,500
Add: Freight (P1,300 x 60%) .........
780
P 20,280
31. c
Home Office Books
Davao Branch 39,000
STB, cost .
32,500
Unrealized profit
5,200
Cash (freight) .
1,300
BC Baguio 19,630
Excess freight
520
BC-Davao .
20,150

Davao Branch
SFHO .37,700
Freight-in . 1,300
HOC ..
39,000
HOC .20,150
SFHO(50%)
18,850
Freight-in (50%)
650

Baguio Branch

SFHO 18,850
Freight-in..
780
HOC ...
19,630

Cash ......

650

32. d
(1) Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000
(2) Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600
33.
34.
35.
36.
37.
38.
39.
40.

c (P300,000 x = P75,000, ending inventory x (P300,000 P250,000)/P300,000 = P12,500


d
d
b refer to No. 14
b refer to No. 14
c refer to No. 14
c
d

Theories
1. True
2. False
3. True
4. True
5. False
20.
21.
22.
23

6.
7.
8.
9.
10.

False
False
False
True
True

11.
12.
13.
14.
15.

False
True
False
True
False

16.
17.
18.
19.

True
True
True
False

d
d
a
d

Chapter 14
Problem I
1. Consideration transferred : FMV of shares issued by Robin (80,000 sh P28) = P2,240,000
2. Consideration trasnferred
Less: Fair value of Hopes net assets (P2,720,000+P200,000P1,200, 000)
Goodwill

Problem II
1..

Accounts Receivable
Inventory
Land
Building
Equipment
Patent
Goodwill
Acquisition Expense
Current Liabilities
Long-term Debt
Cash
Consideration trasnsferred : Cash
P560,000
Less : Fair value of Wests net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000

P2,240,000
1,720,000
P 520,000

180,000
400,000
50,000
60,000
70,000
20,000
10,000
20,000
70,000
160,000
580,000

P70,000 - P160,000)
Goodwill
2.

550,000
P 10,000

Acquisition Expense
Accounts Receivable
Inventory
Land
Building
Equipment
Patent
Current Liabilities
Long-term Debt
Cash
Gain on Acquisition

20,000
180,000
400,000
50,000
60,000
70,000
20,000
70,000
160,000
520,000
50,000

Consideration trasnsferred : Cash


P500,000
Less : Fair value of Wests net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
P70,000 - P160,000)
550,000
Bargain Purchase Gain
(P 50,000)

Problem III
Accounts Receivable
Inventory
Land
Buildings and Equipment
Goodwill
Allowance for Uncollectible Accounts (P231,000 P198,000)
Current Liabilities
Bonds Payable
Premium on Bonds Payable (P495,000 - P450,000)
Preferred Stock (15,000 x P100)
Common Stock (30,000 x P10)
Other Contributed Capital (P25 - P10) x 30,000
Cash
Consideration transferred: (P1,500,000 + P750,000
+ P50,000)

Less: Fair value of net assets (198,000 + 330,000 +


550,000 + 1,144,000 275,000 495,000) =

Goodwill

231,000
330,000
550,000
1,144,000
848,000
33,000
275,000
450,000
45,000
1,500,000
300,000
450,000
50,000

P2,300,000
1,452,000

P 848,000

Problem IV

Current Assets
Plant and Equipment
Goodwill

960,000
1,440,000
336,000

Liabilities
Cash

216,000
2,160,00
0
360,000

Estimated Liability for Contingent Consideration


Problem V

The amount of the contingency is P500,000 (10,000 shares at P50 per share)
1.
Goodwill
500,000
Paid-in-Capital for Contingent Consideration Issuable
2.

Paid-in-Capital for Contingent Consideration Issuable


Common Stock (P10 par)
Paid-In-Capital in Excess of Par

500,000

500,000
100,000
400,000

Platz Company does not adjust the original amount recorded as equity.
Problem VI

1. January 1, 20x4
Accounts Receivable
Inventory
Land
Buildings
Equipment
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Note Payable
Cash
Estimated Liability for Contingent Consideration

72,000
99,000
162,000
450,000
288,000
54,000
7,000
83,000
180,000
720,000
135,000

Consideration transferred (P720,000 + P135,000)


P855,000
Total fair value of net assets acquired (P1,064,000 - P263,000)
801,000
Goodwill
P 54,000
2. January 2, 20x6
Estimated Liability for Contingent Consideration
Cash

135,000

3. January 2, 20x6
Estimated Liability for Contingent Consideration
Gain on Contingent Consideration

135,000

Problem VII
1.
Accounts Receivable
Inventory
Land
Buildings
Goodwill

135,000

135,000
240,000
320,000
1,508,000
1,392,000
30,000

Allowance for Uncollectible Accounts


Accounts Payable
Note Payable
Cash

20,000
270,000
600,000
2,600,000

Goodwill
Estimated Liability for Contingent Consideration
Consideration transferred
Fair value of net assets acquired
(P3,440,000 P870,000)
Goodwill
2.

200,000
200,000

P2,600,000
2,570,000
P 30,000

Estimated Liability for Contingent Consideration


Gain on Contingent Consideration

200,000
200,000

Problem VIII

Current Assets
Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000)
Goodwill *
Liabilities
Long-term Debt
Common Stock (144,000 P5)
Other Contributed Capital (144,000 x
P15 - P5))

362,000
2,013,000
395,000
119,000
491,000
720,000
1,440,000

* (144,000 P15) [P362,000 + P2,013,000 (P119,000 + P491,000)] = P395,000


Total shares issued (P700,000 / P5) + P20,000 / P5)
Fair value of stock issued (144,000P15)

144,000
= P2,160,000

Problem IX
Case A
Consideration transferred

P130,000

Less: Fair Value of Net Assets


Goodwill

120,000
P 10,000

Case B

Consideration transferred
Less: Fair Value of Net Assets
Goodwill

P110,000
90,000
P 20,000

Case C

Consideration transferred
Less: Fair Value of Net Assets
Gain

P15,000
20,000
(P 5,000)

Goodwill
Case A
Case B
Case C

P10,000
20,000
0

Assets
Current Assets

Liabilities

Retained
Earnings
(Gain)

Long-Lived Assets

P20,000

30,000
20,000

P130,000
80,000
40,000

P30,000

20,000
40,000

0
5,000

Problem X
1. Fair Value of Identifiable Net Assets
Book values P500,000 P100,000 =

P400,000

Write up of Inventory and Equipment:


(P20,000 + P30,000) =
Consideration transferred above which goodwill would result

2.

50,000
P450,000

Equipment would not be written down, regardless of the purchase price, unless it was reviewed
and determined to be overvalued originally.
3. A gain would be shown if the purchase price was below P450,000.
4. Anything below P450,000 is technically considered a bargain.
5. Goodwill would be P50,000 at a purchase price of P500,000 or (P450,000 + P50,000).

Problem XI

Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 =


Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 =
Total Present value
Par value
Discount on bonds payable
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
Bond Discount (P40,000 + P68,822)
Current Liabilities
Bonds Payable (P300,000 + P600,000)
Gain on Acquisition of Stalton (ordinary)

Computation of Excess of Net Assets Received Over Cost

P187,080
344,098
531,178
600,000
P68,822
114,000
135,000
310,000
315,000
54,900
39,450
108,822
95,300
900,000
81,872

Consideration transferred (P531,178 plus liabilities assumed of P95,300


and P260,000)

Less: Total fair value of assets received


Excess of fair value of net assets over cost

P886,478

P968,350
(P 81,872)

Problem XII
In accounting for the combination of NT and OTG, the fair value of the acquisition is allocated to
each identifiable asset and liability acquired with any remaining excess attributed to goodwill.
Consideration transferred (shares issued)
Fair value of net assets acquired:
Cash
Receivables
Trademarks
Record music catalog
In-process R&D
Equipment
Accounts payable
Notes payabl e
Goodwill
Entry by NT to record combination with OTG:
Cash
Receivables
Trademarks
Record Music Catalog
Capitalized R&D
Equipment
Goodwill
Accounts Payable
Notes Payable
Common Stock (NewTune par value)
Additional Paid-in Capital
(To record merger with OTG at fair value)
Additional Paid-in Capital
Cash
(Stock issue costs incurred)

P750,000
P29,000
63,000
225,000
180,000
200,000
105,000
(34,000)
(45,000)

723,000
P27,000

29,000
63,000
225,000
180,000
200,000
105,000
27,000
34,000
45,000
60,000
690,000

25,000
25,000

Post-Combination Balance Sheet:


Assets
Cash
Receivables
Trademarks
Record music catalog
Capitalized R&D
Equipment
Goodwill
Total

64,000
213,000
625,000
1,020,000
200,000
425,000
27,000
P 2,574,000

Liabilities and Owners Equity


Accounts payable
Notes payabl e

Common stock
Additional paid-in capital
Retained earnings
Total

P 144,000
415,000

460,000
695,000
860,000
P 2,574,000

Problem XIII

Stockholders Equity:
Common Stock, P1 par
Other Contributed Capital
Retained Earnings
Total stockholders Equity

P1,100,000
4,090,000 [P2,800,000 + (100,000 x P13) P10,000]
600,000
P 5,790,000

Problem XIV
Entry to record the acquisition on Pacificas records:

Cash
Receivables and inventory
PPE
Trademarks
IPRD

85,000
180,000
600,000
200,000
100,000

Goodwill
Liabilities
Common Stock (50,000 x P5)
Additional Paid-In Capital (50,000 x P15)
Contingent performance obligation

77,500
180,000
250,000
750,000
62,500

The goodwill is computed as:

Consideration transferred: 50,000 shares x P20


Contingent consideration:

P130,000 payment x 50% probability x 0.961538

P1,000,000
62,500

Total
P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000)
985,000
Goodwill
P 77,500
Acquisition expenses
Cash
APIC
Cash

15,000
15,000
9,000
9,000

Note: The following amounts will appear in the income statement and statement of retained earnings
after business combination:
PP Inc.
Revenues
(1,200,000)
Expenses (P875,000 + P15,000)
890,000
Net income
(310,000)
Retained earnings, 1/1
(950,000)
Net income
(310,000)
Dividends paid
90,000
Retained earnings, 12/31
*(1,170,000)

* or, P1,185,000 P15,000 = P1,170,000

Problem XV
Acquisition MethodEntry to record acquisition of Sampras
Consideration transferred
Contingent performance obligation
Consideration transferred (fair value)
Fair value of net identifiable assets
Goodwill

P300,000
15,000
315,000
282,000
P33,000

Receivables
Inventory
Buildings
Equipment
Customer list
IPRD
Goodwill
Current liabilities
Long-term liabilities
Contingent performance liability
Cash

80,000
70,000
115,000
25,000
22,000
30,000
33,000
10,000
50,000
15,000
300,000

Acquisition expenses
Cash

10,000

Problem XVI
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (cash contingency):
P120,000 x 30% probability
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash
Receivables net
Inventories
Land
Buildings net
Equipment net
In-process research and development

10,000

P 750,000
180,000
36,000
P 966,000

24,000
48,000
72,000
240,000
360,000
300,000
60,000

Accounts payable
Other liabilities
Positive Excess - Goodwill

( 72,000)
( 168,000)

864,000
P
102,000

b. The journal entries by Peter Corporation to record the acquisition is as follows:


Cash
Receivables net
Inventories
Land
Buildings net
Equipment net
In-process research and development
Goodwill
Accounts payable
Other liabilities
Notes payable
Estimated Liability for Contingent
Consideration
Common stock (P10 par x 30,000 shares)
Paid-in capital in excess of par
[(P25 P10) x 30,000 shares]
Acquisition of Saul Company.

24,000
48,000
72,000
240,000
360,000
300,000
60,000
102,000
62,000
168,000
180,000
36,000
300,000
450,000

Acquisition-related expenses
Cash
Acquisition related costs direct costs.

78,000

Paid-in capital in excess of par


Cash
Acquisition related costs costs to issue and
register stocks.

32,400

Acquisition-related expenses
Cash
Acquisition related costs indirect costs.

27,600

78,000

32,400

27,600

c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets

Cash
Receivables net
Inventories
Land
Buildings net
Equipment net
In-process research and development
Goodwill
Total Assets

162,000
144,000
360,000
348,000
840,000
732,000
60,000
102,000
P2,748,000

Liabilities and Stockholders Equity


Liabilities
Accounts payable
Other liabilities
Notes payable
Estimated liability for contingent consideration
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par1
Retained earnings2
Total Stockholders Equity
Total Liabilities and Stockholders Equity
1
P240,000 + P446,400 P32,400
2
P264,000 - P78,000 P27,600

P 288,000
408,000
180,000
36,000
P 912,000
P 1,020,000
657,600
158,400
P1,836,000
P2,748,000

It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.

2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively
adjusted in value during the measurement period for new information that clarifies the
acquisition-date value. The adjustments affect goodwill since the measurement period is still
within one year (i.e., eight months) from the acquisition date. Therefore, the goodwill to be
reported then on the acquisition should be P78,000 (P102,000 P24,000).
b.
Buildings
24,000
Goodwill
24,000
Adjustment to goodwill due to measurement date.

3.
a. The

goodwill to be reported then on the acquisition should be P126,000 (P102,000 + P24,000).

b. The adjustment is still within the measurement period, the entry to adjust the liability would be:

Goodwill
Estimated liability for contingent consideration
Adjustment to goodwill due to measurement date.

24,000
24,000

c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once
(last August 31, 20x5).
c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to
P48,000, the entry to adjust the liability would be:

Estimated liability for contingent consideration


Gain on estimated contingent consideration
Adjustment after measurement date.
In this case, the measurement

12,000
12,000

period ends at the earlier of:

one year from the acquisition date, or


the date when the acquirer receives needed information about facts and circumstances (or
learns that the information is unobtainable) to consummate the acquisition.

c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done only
once (last August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:

Loss on estimated liability contingent


consideration
Estimated liability for contingent consideration

30,000
30,000

Adjustment after measurement date.

c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Sauls average income in 20x5 is P270,000 and 20x6 is
P260,000, which means that the target is met, Peter Corporation will make the
following entry:

Estimated liability for contingent consideration


Loss on estimated contingent consideration
Cash

78,000
42,000
120,000

Settlement of contingent consideration.

4.
a. The amount of goodwill on acquisition will be recomputed as follows:

Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (cash contingency):
P120,000 x 35% probability x (1/[1 + .04]*)

750,000
180,000
40,385

Total
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above)
Goodwill

P 970,385
864,000
P 106,385

b. The journal entries by Pure Corporation to record the acquisition is as follows:


Cash
24,000
Receivables net
48,000
Inventories
72,000
Land
240,000
Buildings net
360,000
Equipment net
300,000
In-process research and development
60,000
Goodwill
106,386
Accounts payable
Other liabilities
Notes payable
Estimated Liability for Contingent
Consideration
Common stock (P10 par x 30,000 shares)
Paid-in capital in excess of par
[(P25 P10) x 30,000 shares]

62,000
168,000
180,000
40,385
300,000
450,000

c.
c.1. Goodwill remains at P106,385.
c.2. The entry for Pure Corporation on December 31, 20x5 to record such occurrence would be:

Estimated liability for contingent consideration


Gain on estimated contingent consideration

40,385
40,385

Adjustment after measurement date.

Since the contingent event does not happen, the position taken by PFRS 3 is that the
conditions that prevent the target from being met occurred in a subsequent period and that
Peter had the information to measure the liability at the acquisition date based on
circumstances that existed at that time. Thus the adjustment will flow through income
statement in the subsequent period.
d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent
consideration would be:

Estimated liability for contingent consideration


Loss on estimated contingent consideration
Cash [(P78,000 + P84,000)/2 P30,000] x 2

36,000
66,000

Settlement of contingent consideration.

5.
a. The amount of goodwill on acquisition will be recomputed as follows:

Consideration transferred;

102,000

Common shares: 30,000 shares x P25


Notes payable
Contingent consideration (cash contingency):
P120,000 x 30% probability
Contingent consideration (stock contingency)
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above)
Positive Excess Goodwill

P 750,000
180,000
36,000
18,000
P 984,000
864,000
P 120,000

b. The journal entries by Pure Corporation to record the acquisition is as follows:


Cash
24,000
Receivables net
48,000
Inventories
72,000
Land
240,000
Buildings net
360,000
Equipment net
300,000
In-process research and development
60,000
Goodwill
120,000
Accounts payable
72,000
Other liabilities
168,000
Notes payable
180,000
Estimated Liability for Contingent
36,000
Consideration
Paid-in capital for Contingent Consideration
18,000
Common stock (P10 par x 30,000 shares)
300,000
Additional paid-in capital [(P25 P10) x 30,000
450,000
shares]
Acquisition of Saul Company.
c. Pure Corporation will make the following entry for the issuance of 1,200 additional shares:

Paid-in capital for Contingent Consideration


Common stock (P10 par x 1,200 shares)
Paid-in capital in excess of par

18,000
12,000
6,000

Settlement of contingent consideration.

6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event occurs).
Thus, the entry record the occurrence of such event to reassign the P750,000 original consideration
to 36,000 shares (30,000 original shares issued + 6,000 additional shares due to contingency) would
be:

Paid-in capital in excess of par


Common stock (P10 par x 6,000 shares)
Settlement of contingent consideration.

60,000
60,000

7. On January 1, 20x7, the contingent event happens since the fair value per share fall below P25.
Thus, the entry record the occurrence of such event to reassign the P750,000 original consideration
to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to contingency)
would be:

Paid-in capital in excess of par


Common stock (P10 par x 7,500 shares)

75,000
75,000

Settlement of contingent consideration.

* Deficiency: (P25 P20) x 25,000 shares issued to acquire..P150,000

Divide by fair value per share on January 1, 20x7.P


Added number of shares to issue.

20

7,500

8. The amount of goodwill on acquisition will be recomputed as follows:

Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (stock contingency):
[(P750,000 P510,000) x 40% probability
x (1/[1 + .04]*)
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above)
Positive Excess Goodwill
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash
24,000
Receivables net
48,000
Inventories
72,000
Land
240,000
Buildings net
360,000
Equipment net
300,000
In-process research and development
60,000
Goodwill
158,308
Accounts payable
Other liabilities
Notes payable
Paid-in capital for Contingent Consideration
Common stock (P10 par x 25,000 shares)
Paid-in capital in excess of par
[(P25 P10) x 30,000 shares]

P 750,000
180,000

92,308
P1,022,308
864,000
P 158,308

62,000
168,000
180,000
92,308
300,000
450,000

On December 31, 20x5, the contingent event occurs, wherein Peters stock price had fallen to P20,
thus requiring Peter to issue additional shares of stock to the former owners of Saul Corporation. The
entry for Peter Corporation on December 31, 20x5 to record such occurrence such event to
reassign the P750,000 original consideration to 37,500 shares (30,000 original shares issued + 7,500*
additional shares due to contingency) would be:

Paid-in capital for Contingent Consideration


Common stock, P10 par
Paid-in capital in excess of par

92,308
75,000
17,308

Settlement of contingent consideration.

* Deficiency: (P25 P20) x 30,000 shares issued to acquire....P150,000

Divide by fair value per share on December 31, 20x5P


Added number of shares to issue

Problem XVII
1. The computation of bargain purchase gain is as follows:
Consideration transferred;
Cash
Common shares: 120,000 shares x P12
Costs of liquidation
Patent
Contingent consideration (P12,000 guarantee
+ P14,400 to vendors)
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Merchandise inventory
Accounts receivable
Copyrights
Equipment
Accounts payable
Loan payable
Negative Excess Bargain Purchase Gain

20
7,500

P 1,800,000
1,440,000
12,000
240,000
26,400
P3,518,400

P1,440,000
900,000
240,000
1.380,000
( 300,000)
( 120,000)

2. The journal entries by Ponder Corporation to record the acquisition is as follows:


Merchandise inventory
1,440,000
Accounts receivable
900,000
Patent
240,000
Equipment
1,380,000
Accounts payable
Loan payable
Cash
Common stock (P10 par x 120,000 shares)
Paid-in capital in excess of par
[(P12 P10) x 120,000 shares]
Gain on sale of Patent
Estimated liability for contingent consideration
Bargain purchase gain
Problem XVIII
1.
Consideration transferred:

3,540,000
P ( 21,600)

300,000
120,000
1,812,000
1,200,000
240,000
240,000
26,400
21,600

Shares: 2/3 x 60,000 x P3.20


Cash
Accounts payable
Mortgage and interest
Debentures and premium
Liquidation expenses
Cash held
Less: Fair value of assets and liabilities acquired:
Accounts receivable
Inventory
Freehold land
Buildings
Plant and equipment
Bargain Purchase Gain

128,000
45,100
44,000
52,500
2,400
144,000
(12,000)

P34,700
39,000
130,000
40,000
46,000

132,000
260,000

289,700
29,700

Homer Ltd

Accounts Receivable
Inventory
Freehold Land
Buildings
Plant and Equipment
Payable to Tan Ltd
Common stock, P1 par x 40,000 shares
Additional paid-in capital
Gain on acquisition
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd
Cash
(Being payment of cash consideration)
Paid-in capital in excess of par
Cash
(Being costs of issuing shares)

34,700
39,000
130,000
40,000
46,000
132,000
40,000
88,000
29,700

132,000
132,000

1,200
1,200

2.
Tan LTD

Accounts Receivable
Inventory
Freehold Land
Buildings
Plant and Equipment
Goodwill
Interest Payable
Liquidation Expenses
Premium on Debentures
Accounts Payable
Shareholders Distribution

Opening Balance
Receivable from Homer Ltd

Shares in Homer Ltd

General Ledger
Liquidation
P
34,700 Additional paid in capital
27,600 Retained earnings
100,000 Receivable from Homer Ltd
30,000
46,000
2,000
4,000
2,400
2,500
1,600
68,000
318,800
Liquidators Cash
P
12,000 Liquidation Expenses
132,000 Mortgage and Interest
Debentures and Premium
Accounts Payable
144,000
Shareholders Distribution
P
128,000 Common stock
Liquidation
128,000

Problem XIX
Cash
Accounts Receivable
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill*
Allowance for Uncollectible Accounts
Accounts Payable
Bonds Payable
Deferred Income Tax Liability
Cash

P
26,800
32,000
260,000

318,800

P
2,400
44,000
52,500
45,100
144,000

P
60,000
68,0000
128,000

20,000
112,000
134,000
55,000
463,000
20,000
127,200
10,000
54,000
200,000
67,200
600,000

Consideration transferred
P600,000
Less: Fair value of net assets acquired
(P784,000 P10,000 P54,000 P180,000 - P67,200*)
472,800
Goodwill
P127,200
* Increase in net assets
Increase inventory, land, and plant assets to fair value
P52,000 + P25,000 + P71,000)
Decrease bonds payable to fair value
Increase in net assets
Establish deferred income tax liability (P168,000 x 40%)

P148,000
( 20,000)
P168,000
P 67,200

Multiple Choice Problems


1. c
Finders fees.P 40,000
Legal fees. 13,000
Total expenses. P53,000
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to effect a
business combination. Those costs include finders fee; advisory, legal, accounting, valuation
and other professional or consulting fees; general administrative costs, including the costs of
maintaining an internal acquisitions department; and costs of registering and issuing debt and
equity securities. Under PFRS 3 (2008), the acquirer is required to recognize acquisitionrelated costs as expenses in the periods in which the costs are incurred and the services are
received, with one exception, i.e. the costs to issue debt or equity securities are recognized in
accordance with PAS 32 (for equity) and PAS 39 (for debt).
2. b refer to No. 1 for further discussion.
Audit fees related to stock issuanceP 10,000
Stock registration fees...... 5,000
Stock listing fees......... 4,000
P19,000
3. b
Consideration transferred (fair value)..
Less: Fair value of net identifiable assets acquired:
Fair value of assets
Less: Present value/ Fair Value of liabilities
Goodwill

P80,000

P 98,000
23,000

75,000
P 5,000

A net identifiable asset means net assets excluding goodwill (unidentifiable asset).
An acquisition-related costs are considered outright expenses.

4. a
5. b
Consideration transferred (fair value)
Fair value of identifiable assets
Cash
A/R
Software
In-process R&D

P800,000
P150,000
140,000
320,000
200,000

Liabilities
Fair value of net identifiable assets acquired
Goodwill

(130,000)
680,000
P120,000

The application of recognition measurements in business combination means that an acquirer


must, in recognizing separately the acquirers intangible assets, recognize intangible assets that
the acquiree has not recognized in its records, such as in-process research and development that
cannot be recognize under PAS 38 as internally generated assets. As noted in par 34, recognition
by an acquirer of an acquirees in-process research and development project only depends
whether the project meets the definition of an intangible asset. It can be seen that intangible
assets in a business combination will be able, and in fact are required, to recognize intangible
assets that are not separately recognizable when acquired by other means. The costs on
individual assets acquired are measured but reference to the fair value of those assets.
Therefore, In-Process Research and Development is capitalized as an asset of the combination
and reported as intangible assets with indefinite lives subject to impairment reviews.
6. c - [(24,000 shares x P30) P686,400] = P33,600
7. d - [(24,000 shares x P30) (P270,000 + P726,000 P168,000)] = P108,000, gain
8. d [P500,000 (P200,000 + P220,000 P110,000)]= P190,000
9. d 10. c
A bargain purchase is a business combination in which the net fair value of the identifiable assets
acquired and liabilities assumed exceeds the aggregate of the consideration transferred.
It should be noted that bargain purchase gain would arise only in exceptional circumstances.
Therefore, before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed. The acquirer should recognize any additional assets or
liabilities that are identified in that review.
2. Any balance should be recognized immediately in profit or loss.
11. d [P1,600,000 P1,210,000] = P390,000
12. d
13. c [(12,000 shares x P30) P343,200 = P16,800
14. b (P863,000 + P363,000) = P1,226,000
15. a
16. d
P215,000
= P130,000 + P85,000
17. b
1
8.

P23,000
P1,109,00
0

= P198,000 (P405,000 - P265,000 + P15,000 +


P20,000)
= Total Assets of TT Corp.
Less: Investment in SS Corp.
Book value of assets of TT Corp.
Book value of assets of SS Corp.
Total book value
Payment in excess of book value

P 844,000
(198,000)
P 646,000
405,000
P1,051,000

(P198,000 - P140,000)
Total assets reported

58,000
P1,109,000

19. c

P701,500

= (P61,500 + P95,000 + P280,000) + (P28,000 +


P37,000
+P200,000)

20. d

P257,500

= The amount reported by TT Corporation

21. a
P407,500 = The amount reported by TT Corporation
22. b [(P47 x 12,000 shares) (P70,000 + P210,000 + P240,000 + P270,000 + P90,000
P420,000)
= P104,000
23. d
APIC: P20,000 + [(P42 P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
24. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
25. b [P480,000 (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 P420,000)] = P20,000
26. c (P50,000 + P8,000 + P100,000 = P158,000)
The acquirer should recognize, separately from goodwill, the identifiable assets acquired in a
business combination. [PFRS 3 (2008).B31]
A patent that have no useful life is not considered an asset.
An intangible is separable if it capable of being separated or divided from the entity and sold,
transferred, licensed, rented or exchanged, either individually together with a related
contract[PFRS 3(2008).B33]
The amount by which the lease terms are favorable compared with the terms of current market
transactions for the same or similar items is an intangible assets that meets the contractual-legal
criterion for recognition separately from goodwill, even though the acquirer cannot sell or
otherwise transfer the lease contract. [PFRS 3 (2008).B32 (a)]
Customer and subscriber lists are frequently licensed and thus meet the separability criterion.
[PFRS 3(2008).B33].
It may seem that the terms research and development, which may be associated with such
assets as patent and software development, are not applicable to all internally intangibles, such as
brand names. However, it needs to be remembered that all intangible assets must meet the
identifiability criterion, one part of which is separability.
27. c [P400 + (40 shares x P10)] = P800
28. d [P1,080 + (P280 + P10) = P1,370
29. b [P1,260 + (P440 + P60) = P1,760
30. a [P600 + (P360 + P40)] = P1,000
31. e [P480 + P100] = P580
32. b [P330 + (40 shares x P1)] = P370

33. d [P1,080 + 40 shares x (P10 - P1)] P15, stock issuance costs = P1,425
34. a [P180 + P40 P20 P15} =P185
35. c [(50,000 shares x P 35) + P5,000] = P1,755,000
36. d [P1,230,000 + P580,000] = P1,810,000
37. c - [P1,800,000 + P250,000] = P2,050,000
38. e (P1,800,000 + P650,000]= P2,450,000
39. c [P1,755,000 (P240,000 + P600,000 + P580,000 + P250,000 + P650,000 + P400,000
- P240,000 P60,000 P1,120,000)] = P455,000
40. e [P660,000 + P400,000} = P1,060,000
41. d
Retained earnings Atwood, January 1, 20x4
P1,170,000
Add: Net income 20-x4
Revenues
P2,880,000
Less: Expenses
2,760,000
Direct costs
10,000
110,000
Retained earnings Atwood, December 31, 20x4
P1,280,000
42. c P2,880,000, parent only on the date of combination
43. c (P2,760,000 + P10,000) = P2,770,000
44. d [(P870,000 P15,000 P10,000) + P240,000] = P1,085,000
45. a
PFRS 3 (2008 requires that, at the acquisition date, the identifiable assets acquired and liabilities
assumed should be designated as necessary to apply other PFRSs subsequently. The acquirer
makes those classifications or designations on the basis of contractual terms, ... as they exist at the
acquisition date [PFRS 3 (2008).15]
Since, the patent was not recorded separately as identifiable intangible asset on the date of
acquisition, and then no amount of patent should be subsequently recognized.
46. c

AA records new shares at fair value


Value of shares issued (51,000 P3)........................................................
Par value of shares issued (51,000 P1) ..................................................
Additional paid-in capital (new shares) .................................................
Additional paid-in capital (existing shares) ............................................
Consolidated additional paid-in capital ................................................

P153,000
51,000
P102,000
90,000
P192,000

At the date of acquisition, the parent makes no change to retained earnings.

47. c
Common stock combinedP 160,000
Common Acquirer Zyxel.. . 100,000
Common stock issued...P 60,000
Divided by: Par value of common stock.P
2
Number of Zyxel shares to acquire Globe Tattoo..... 30,000
48. d
Paid-in capital books of Zyxel (P100,000 + P65,000)........P 165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000). 405,000

Paid-in capital from the shares issued to acquire Globe Tattoo... P 240,000
Divided by: No. of shares issued (No. 31).....
30,000
Fair value per share when stock was issued.... P
8

Or,
Par value of common stock of Zyxel
P
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 P65,000)/30,000............
Fair value per share when stock was issued....... P

2
6
8

49. b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 P50,000
- P250,000).
P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 P75,000 - P350,000).......... 497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition.... P227,000
50. a
Consideration transferred (30,000 shares x P8) P240,000
Less: Fair value of net identifiable assets acquired (No. 49)....
227,000
Goodwill.. P
13,000
51. c
Retained earnings:
Acquirer Zyxel (at book value).... P105,000
Acquiree Globe Tattoo (not acquired)
__
0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs
which may affect retained earnings on the acquisition date.
52. b
Consideration transferred (fair value)
Less: Fair value of net assets acquired
(P60,000 + P175,000 + P200,000 + P225,000 + P75,000 P100,000)
Goodwill

P400,000
385,000
P 15,000

53. a
Only the subsidiarys post-acquisition income is included in consolidated totals.

54. d
Cost
P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs)
18,000
Net book value
P162,000
55. c

Net Assets [P100,000 + P50,000 + P162,000 (No. 54)]


Less: Shares issued at par (15,000 shares x P10 par)
APIC

P312,000
150,000
P162,000

56. b
PFRS No. 3 par. 62 states that: If the initial accounting for business combination can be
determined only provisionally by the end of the period in which the combination is effected because
either the fair values to be assigned to the acquirees identifiable assets, liabilities, or contingent
liabilities or the cost of the combination can be determined only provisionally, the acquirer shall
account for the combination using those provisional values. The acquirer shall recognize any
adjustments to those provisional values as a result of completing the initial accounting:
(a) within twelve months of the acquisition date; and
57. c
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The gain of P8 million results from a bargain purchase and
should be recognized in profit or loss, per PFRS3 par. 34.
58. b
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par 32. When provisional fair values have been identified at the
first reporting date after the acquisition, adjustments arising within the measurement
period (a maximum of 12 months from the acquisition date) should be related back to
the acquisition date. Subsequent adjustments are recognized in profit or loss, unless they
can be classified as errors under PAS8 Accounting policies, changes in accounting
estimates and errors. See PFRS 3 pars. 45 and 50. The final amount of goodwill is P160
million consideration transferred less P135 million fair values on May 31, 20x5 = P25
million.
59. c
Fair value of Subsidiary - Homer
Consideration transferredP 200 million
Add: Fair value of contingent consideration
10 million
Fair value of subsidiary P 210 million
Less: Fair value of identifiable assets and liabilities of Homer............... 116 million
Goodwill P 94
million
Note: The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The contingent consideration should be measured at its fair
value at the acquisition date; any subsequent change in this cash liability comes under PAS
39 Financial instruments: recognition and measurement and should be recognized in profit
or loss, even if it arises within the measurement period. See PFRS3 pars. 39, 40 and 58.
60. b
61. c
62. c

63. b
64. d
Consideration transferred:
Shares: (100,000 shares x P6.20)
P620,000
Contingent consideration .
184,000
Total .
P804,000
Less: Fair value of net identifiable assets acquired:
Current assets P100,000
Equipment 150,000
Land
50,000
Buildings . 300,000
Liabilities . ( 80,000) 520,000
Goodwill.
P284,000

The P184,000 is one classical example of contingencies is where the future income of the
acquirer is regarded as uncertain; the agreement contains a clause that requires the acquirer to
provide additional consideration to the acquiree if the income of the acquirer is not equal to or
exceeds a specified amount over some specified period.
65. d
Goodwill, 1/1/20x4............ P 284,000
Less: Adjustment on contingent consideration (P184,000 P170,000) 14,000
Goodwill, 8/1/20x4............. P 270,000
Changes that are the result of the acquirer obtaining additional information about facts and
circumstances that existed at the acquisition date, and that occur within the measurement
period (which may be a maximum of one year from the acquisition date) are recognized as
adjustments against the original accounting for the acquisition (and so may impact goodwill)
see Section 11.3.[PFRS 3 (2008) par. 58]
Incidentally, the entry to record the revision of goodwill should be:
Estimated liability for contingent consideration. 14,000
Goodwill
14,000
66. a refer to No. 64 and 65 for further discussion.
67. c
Deficiency: (P16 P10) x 100,000 shares issued to acquireP 600,000
Divided by: Fair value of share...... P
10
Added number of shares to issue.....
60,000
68. (b) (P520,000 P60,000 = P460,000)
Changes resulting from events after (post-combination changes) the acquisition date (e.g. meeting
an earnings target, reaching a specified chare or reaching a milestone on research and
development project) are not measurement period adjustments. Such changes are therefore
accounted for separately from the business combination. The acquirer accounts for changes in the
fair value of contingent consideration that are not measurement period adjustments as follows:

1. contingent consideration classified as equity is not remeasured and its subsequent


settlement is accounted for within equity; and
2. contingent consideration classified as an asset or liability
The problem on hand falls within No. 1, so no adjustment would be required to goodwill but
accounted for within the equity section.
Incidentally, the entry would be:
Paid-in capital in excess of par.. 60,000
Common stock, P1 par..
60,000
69. c
Par value of shares outstanding before issuance
Par value of shares outstanding after issuance
Par value of additional shares issued
Divided by: No. of shares issued*
Par value of common stock
*Paid-in capital before issuance (P200,000 + P350,000)
Paid-in capital after issuance (P250,000 + P550,00)
Paid-in capital of share issued at the time of exchange
Divided by: Fair value per share of stock
Shares issued

P200,000
250,000
P 50,000
__12,500
P
4
P 550,000
800,000
P 250,000
P
20
12,500

70. a
Consideration transferred: Shares 12,500 shares
Less: Goodwill
Fair value of identifiable net assets acquired

P250,000
56,000
P194,000

71. c
Depreciation expense:
Building, at book value (P200,000 P100,000) / 10 years
Building, undervaluation (P130,000, fair value
P100,000, book value) / 10 years
Equipment, at book value (P100,000 P50,000) / 5 years
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years
Total depreciation expense

P 10,000
3,000
10,000
5,000
P 28,000

72. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are measured at
their acquisition-date fair values.
73. c
Selling price
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000)

P 110,000
140,000

Loss on sale of business by the acquiree (Comb)

P( 30,000)

74. a
Blue Town:
Stockholders equity before issuance of shares (P700,000 + P980,000) P1,680,000
Issued shares: 34,000 shares x P35
1,190,000
Consolidated SHE/Net Assets
P2,870,000
75. No available answer - P115,000
Cost of Investment (100,000 shares x P1.90)
Less: Market value of net assets acquired:
Cash
Furniture and fittings
Accounts receivable
Plant
Accounts payable
Current tax liability
Liabities
Goodwill

P 190,000
P 50,000
20,000
5,000
25,000
(15,000)
( 8,000)
( 2,000)
75,000
P 115,000

76. b
Cost of Investment [P20,000 + (16,000 shares x P2.50)
+ P500, incidental costs)
P 60,500
Less: Market value of net assets acquired:
Plant
P 30,000
Inventory
28,000
Accounts receivable
5,000
Plant
20,000
Accounts payable
( 20,000)
58,000
Goodwill
P 2,500
When it liquidates, costs of liquidation paid by the acquiree should be for the liquidation
account of the acquiree and will eventually be transferred to shareholders equity account. Any
costs of liquidation paid or supplied by the acquirer should be capitalized as cost of acquisition
which is consistent with the cost model under PFRS No. 3 in measuring the cost of the
combination.
Any direct costs of acquisition should be capitalizable under the cost model reiterated in PFRS
No. 3 Phase I. This model in PFRS No. 3 will be amended under Phase II (pending
implementation possibly until early 2008), wherein all direct costs will be outright expense.
Costs of issuing shares will be debited to share premium or APIC account.
Any costs of liquidation paid or supplied by the acquirer should be capitalized as cost of
acquisition which is consistent with the cost model under PFRS No. 3 in measuring the cost of the
combination.

The fair values of liabilities undertaken are best measured by the present values of future cash
outflows.
Intangible assets are recognized when its fair value can be measured reliably.
Assets other than intangible assets must be recognized if it is probable that the future economic
benefits will flow to the acquirer and its fair value can be measured reliably.
77. c
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20
Cash
Accounts payable
Mortgage and interest
Debentures and premium
Liquidation expenses

128,000
45,100
44,000
52,500
2,400
144,000
(12,000)

Cash held
Less: Fair value of assets and liabilities acquired:
Accounts receivable
Inventory
Freehold land
Buildings
Plant and equipment
Bargain Purchase Gain

P34,700
39,000
130,000
40,000
46,000

132,000
260,000

289,700
29,700

78. d
79. c
CC_____
Total______
Assets, appraised value
Add: Goodwill:
Annual earnings
P150,000
Less: Normal earnings
6% x Assets
Excess earnings
/ capitalized at
Goodwill
Total stock to be issued

Percentage

P375,000

DD_______
P750,000

P41,250

22,500
P18,750
20%
P93,750
P468,750
P468,750
1,800,000
26%

EE
P375,000

P75,000

45,000
P30,000
20% _
P150,000
P900,000
P900,000
1,800,000
50%

P1,500,000
P33,750

22,500
P11,250

90,000
P60,000
20%__
20%__
P56,250
P300,000
P431,250
P1,800,000
P431,250
431,250
24%
(c)

80. a
II ____
Average annual earnings
P 46,080
Divided by: Capitalized at
Total stock to be issued
Less: Net Assets (for P/S)
Goodwill (for Common Stock)
Preferred stock (same with Net Assets):
864,000/P100 par

_____JJ
_
P 69,120

____Total____
P 115,200
_
10%
P1,152,000
864,000
P 288,000
8,640 shares

81. c
Theories
1.
2.
3.
4.
5.

a
a
c
d
d

6.
7.
8.
9.
10,

c
d
d
d
c

11.
12.
13.
14.
15,

d
d
b
d
b

16.
17.
18.
19.
20.

c
c
c
a
d

21.
22.
23.
24.
25.

d
c
b
b
b

Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)]
Cash
Common Stock
Other Contributed Capital (P40 - P2) 15,000

Other Contributed Capital


Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable

26.
27.
28.
29.
30.

d
b
a
d
a

31
32.
33.
34.
35.

c
b
b
b
b

36.
37.
38.
39.
40.

c
b
c
c
c

3,100,000
2,500,000
30,000
570,000

30,000
67,000
90,000
7,000

Problem II
Cash: P74,000 = P44,000 + P30,000
Accounts receivable: P155,000 = P110,000 + P45,000
Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 P70,000)]
Land: P125,000 = [P80,000 + P25,000 + (P45,000 P25,000)]
Buildings and equipment: P900,000 = P500,000 + P400,000
Accumulated depreciation: P388,000 = P223,000 + P165,000
Goodwill (full-goodwill) = P40,000*
Total Assets = P1,121,000 = (P74,000 + P155,000 + P215, 000 + P125,000 + P900,000 P388,000 +
P40,000, or:
Total Assets of Power Corp.
P 791,500
Less: Investment in Silk Corp.
(150,500)
P 641,000
Book value of assets of Silk Corp.
405,000
Book value reported by Power and
Silk
P1,046,000
Increase in inventory (P85,000 - P70,000)
15,000

Increase in land (P45,000 - P25,000)


Goodwill
Total assets reported (based on fullgoodwill)

20,000
40,000
P1,121,000

Accounts payable: P89,500 = P61,500 + P28,000


Taxes payable P132,000 = P95,000 + P37,000
Bonds payable: P480,000 = P280,000 + P200,000
Total liabilities: P701,500 = P89,500 + P132,000 + P480,000
Common stock: P150,000, parent only
Retained earnings: P205,000, the amount reported by parent
Non-controlling interest (full-goodwill): P64,500*
Stockholders equity: P419,500
Consolidated SHE:
Common stock
P150,000
Retained Earnings
205,000
Parents SHE or Equity Attributable to Parent
P355,000
NCI (full-goodwill)
64,500
Consolidated SHE
P419,500
Computation of Goodwill:
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full

P150,500
**64,500

P 15,000
20,000

P215,000
140,000
P 75,000

35,000
P 40,000

**given amount, but it should not be lower than the fair value of SHE
subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SS
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
or,
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
Land (P20,000 x 70%)
Goodwill partial

P150,500
__98,000
P 52,500
P 10,500
14,000

24,500
P 28,000

If partial-goodwill:
Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000 P388,000 +
P28,000,
Non-controlling interest (partial-goodwill): P52,500
NCI

FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
Stockholders equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parents SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE
Problem III
1.
A.
Investment in Sewell
Cash
B.

C.

P150,000
205,000
P355,000
52,500
P404,500

675,000
675,000

Investment in Sewell
Cash

675,000

Investment in Sewell
Cash

318,000

675,000

318,000

2.
A.
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full

P675,000
705,000
P( 30,000)
(P10,000)
__20,000

__10,000
(P 40,000)

B.
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 90%
Land (P50,000 P70,000) x 90%
Goodwill partial
Full-Goodwill

P675,000
634,500
P 40,500
(P9,000)
__18,000

__9,000
P 31,500

Fair value of Subsidiary:


Consideration transferred (P675,000/90%)
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Goodwill full

P750,000
705,000
P 45,000
(P10,000)
__20,000

__10,000
P 35,000

C.
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 80%
Land (P50,000 P70,000) x 80%
Bargain Purchase Gain partial (parent only)

P318,000
624,000
(P306,000)
(P 8,000)
__16,000

Full-Goodwill
Fair value of Subsidiary:
Consideration transferred
FV of NCI*
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI

__8,000
(P314,000)

P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
__20,000

_10,000
(P314,000)

P780,000
10,000
P790,000
20%
P158,000

3.
A.
Common Stock Sewell
Other Contributed Capital Sewell
Retained Earnings Sewell
Land
Inventory
Investment in Sewell
Retained earnings (gain) Parent (since
balance sheet accounts are being
examined)

450,000
180,000
75,000
20,000
10,000
675,000

40,000

B.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
Other Contributed Capital Sewell
Retained Earnings Sewell

450,000
180,000
75,000

Land
Goodwill
Inventory
Investment in Sewell
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000)
Adjustments to reflect fair value
FV of SHE of Sewell
x: NCI%
FV of NCI (partial)
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
Other Contributed Capital Sewell
Retained Earnings Sewell
Land
Goodwill
Inventory
Investment in Sewell
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000)
Adjustments to reflect fair value
FV of SHE of Sewell
x: NCI%
FV of NCI (partial)
NCI on Full-Goodwill
(P35,000 P31,500)
FV of NCI (full)

20,000
31,500
10,000
675,000
71,500
P705,000
10,000
P715,000
10%
P 71,500
450,000
180,000
75,000
20,000
35,000
10,000
675,000
75,000
P705,000
10,000
P715,000
10%
P 71,500
3,500
P 75,000

C.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
620,000
Other Contributed Capital Sewell
140,000
Retained Earnings Sewell
20,000
Land
20,000
Inventory
Investment in Sewell
Retained earnings (gain)Parent (refer to 3A)
Non-controlling Interest
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
Other Contributed Capital Sewell
Retained Earnings Sewell
Land

620,000
140,000
20,000
20,000

10,000
318,000
314,000
158,000

Inventory
Investment in Sewell
Retained earnings (gain)Parent (refer to 3A)
Non-controlling Interest
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (full)
P158,000

10,000
318,000
314,000
158,000

Problem IV
1.
January 1, 20x4

Investment in S
Company

408,000
408,000

Cash..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x
100%)..
Paid-in capital in excess of par (P24,000 x
100%)...
Retained earnings (P96,000 x
100%)...
Allocated excess (excess of cost over book
value)
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)..
Increase in land (P72,000 x
100%)
Decrease in buildings and equipment
(P12,000 x
100%)...
Increase in bonds payable (P42,000 x
100%)..

P
408,000
P 240,000
24,000
96,000 360,000
P
48,000

P 18,000
72,000
( 12,000)
( 42,000)

36,000

Positive excess: Goodwill (excess of cost over fair


P
12,000

value)..
3.

(E1) Common stock S


Co.
Additional paid-in capital S
Co.
Retained earnings S
Co...
Investment in S
Co

240,000
24,000
96.000
360,000

Eliminate investment against stockholders equity of S Co.

(E2)
18,000
Inventory.
72,000
Land.
12,000
Goodwill.
Buildings and
12,000
equipment..
Premium on bonds
42,000
payable
Investment in S
48,000
Co..
Eliminate investment against allocated excess.

4.
Eliminations
Assets
Cash* .
Accounts receiv able..

P Co.

S Co.

12,000

P 60,000

Dr.

Consolidated
P

90,000

60,000

Inv entory.

120,000

72,000

(2) 18,000

Land.

210,000

48,000

(2) 72,000

Buildings and equipment (net)

480,000

360,000

Goodwill
Inv estment in S Co.

408,000

Total Assets

Cr.

72,000
150,000
210,000
330,000

(2)

12,000

(2) 12,000

828,000
12,000

(1) 360,000
(2) 48,000

P1,320,000

P600,000

P1,602,000

Accounts payable

P 120,000

P120,000

P 240,000

Bonds payable

240,000

120,000

360,000

Liabilities and Stockholders Equity

Premium on bonds payable


Common stock, P10 par

(3)
600,000

42,000

42,000
600,000

Common stock, P10 par


Paid in capital in excess of par.

240,000

(1) 240,000

60,000

Paid in capital in excess of par.

60,000
24,000

(1) 24,000

Retained earnings
_________
96,000
Total Liabilities and Stockholders
Equity
P1,320,000
P600,000
(1) Eliminat e invest ment agai nst st ockholders equit y of S Co.
(2) Eliminat e invest ment against allocat ed excess.
* P420,000 P408,000 = P12,000.

(1) 96,000

__________

_________

P 462,000

P 462,000

P1,602,000

Retained earnings

300,000

300,000

5.
Assets
Cash
Accounts receiv ables
Inv entories
Land
Buildings and equipment (net)
Goodwill
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000

P 240,000
P 360,000
42,000

402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000

Problem V
1.
January 1, 20x4

(1) Investment in S
Company

432,000
288,000

Cash..
Common stock, P10
par..
Paid-in capital in excess of
par.
(2) Retained earnings (acquisition-related expense - close
to
retained earnings since only balance sheets are
being
examined)

120,000
24,000

12,000

12,000
Cash.
Acquisition- related costs.

(3) Paid-in capital in excess of


par..

8,400
8,400

Cash.
Cost s t o issue and register stocks.

2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred
Cash.
Common stock: 12,000 shares x P12 per
share..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x
100%)..
Paid-in capital in excess of par (P96,000 x
100%)..
Retained earnings (P24,000 x
100%)...
Allocated excess (excess of cost over book
value)
Add: Existing Goodwill of Sky Co. (P6,000 x
100%)
Adjusted allocated
excess.
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)..
Increase in land (P72,000 x
100%)
Decrease in buildings and equipment
(P12,000 x
100%)...
Increase in bonds payable (P42,000 x
100%)..
Positive excess: Goodwill (excess of cost over fair

P 288,000
P
144,000 432,000
P 240,000
96,000
24,000 360,000
P
72,000
6,000
P
78,000

P 18,000
72,000
( 12,000)
( 42,000)

36,000
P

42,000
value)..
Alternatively, the unrecorded goodwill may also be comput ed by ignoring the existing goodwill in
the books of the subsidiary, thus:
Date of Acquisition January 1, 20x4 (refer to previous table for details of computation)

Fair value of Subsidiary (100%)


Consideration
transferred
Less: Book value of stockholders equity of
S..
Allocated excess (excess of cost over book
value).
Less: Over/under valuation of assets and
liabilities
Positive excess: Goodwill (excess of cost over fair
value)...
Add: Existing
Goodwill
Positive excess: Goodwill (excess of cost over fair

P
432,000
360,000
P
72,000
36,000
P
36,000
6,000

value)

P
42,000

3.
Eliminations
P Co.

S Co.

111,600

P 54,000

P 165,600

90,000

60,000

150,000

Inv entory.

120,000

72,000

(2) 18,000

210,000

Land.

210,000

48,000

(2) 72,000

330,000

Buildings and equipment (net)

480,000

360,000

Assets
Cash* ..
Accounts receiv able..

Goodwill
Inv estment in S Co.
Total Assets

6,000

Dr.

Cr.

(2)

12,000

(2) 36,000

432,000

Consolidated

828,000
42,000

(4) 360,000
(5) 72,000

P1,443,600

P600,000

P1,725,600

Accounts payable

P 120,000

P120,000

P 240,000

Bonds payable

240,000

120,000

360,000

Liabilities and Stockholders Equity

Premium on bonds payable


Common stock, P10 par* *..

(6)
720,000

Common stock, P10 par


Additional paid in capital***

Retained earnings

(1) 240,000

75,600

75,600
24,000

(1) 24,000

96,000

(1) 96,000

288,000
_________

42,000
720,000

240,000

Additional paid in capital


Retained earnings****

42,000

288,000
__________

_________

Total Liabilities and Stockholders


Equity
P1,443,600
P600,000
(1) Eliminat e invest ment against st ockholders equit y of Sky Co.
(2) Eliminat e invest ment against allocat ed excess.
* P420,000 P288,000 P12,000 P8,400 = P111,600.
* * P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
* * * P50,000 + P20,000 P7,000 = P63,000.
* * * * P300,000 P12,000 = P288,000.

P 486,000

P 486,000

P1,725,600

4.
Assets
Cash
Accounts receiv ables
Inv entories
Land
Buildings and equipment (net)
Goodwill
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Additional paid-in capital in excess of par
Retained earnings
Total Stockholders Equity
Total Liabilities and Stockholders Equity

165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600

P 360,000
42,000

P 240,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600

Problem VI
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred (P408,000
P6,000)..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x
100%)..
Paid-in capital in excess of par (P96,000 x
100%)...
Retained earnings (P24,000 x
100%)...
Allocated excess (excess of cost over book
value)
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)..

P
402,000
P 240,000
96,000
24,000 360,000
P
42,000

P 18,000

Increase in land (P72,000 x


100%)
Decrease in buildings and equipment
(P12,000 x
100%)...
Increase in bonds payable (P42,000 x
100%)..
Positive excess: Goodwill (excess of cost over fair

72,000
( 12,000)
( 42,000)

value)..

36,000
P
6,000

2. Goodwill, P6,000
Problem VII
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred:
Common stock: 24,000 shares x P14
per share
Less: Book value of stockholders equity
of Sky:
Common stock (P240,000 x
100%)..
Paid-in capital in excess of par
(P96,000 x 100%)...
Retained earnings (P24,000 x
100%)...
Allocated excess (excess of book value
over cost)
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)..
Increase in land (P72,000 x
100%)
Decrease in buildings and
equipment
(P12,000 x
100%)...
Increase in patent (P24,000 x
100%)...
Increase in contingent liability

P 336,000

P 240,000
96,000
24,000

360,000
(P 24,000)

P 18,000
72,000

( 12,000)
24,000
( 18,000)

(P18,000 x 100%).
Increase in bonds payable (P42,000
x 100%)..
Negative excess: Bargain Purchase Gain
(excess of
fair value over
cost)

( 42,000)

42,000

(P 66,000)

2. Gain on acquisition, P66,000


Problem VIII
Case 1:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash .......P12,000,000 (80%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 80%.................................
5,760,000 (80%)
Allocated excess. ........P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 80%....................................... 1,920,000 (80%)
Positive excess: Goodwill (partial) ..... P 4,320,000 (80%)

Non-controlling interest
Book Value of stockholders equity of subsidiary .
P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000) ..
2,400,000
Fair value of stockholders equity of subsidiary
P 9,600,000
Multiplied by: Non-controlling interest percentage............
20%
Non-controlling Interest (partial) ..
P1,920,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 100%..............................
7,200,000 (100%)
Allocated excess. ..
P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilit ies:
(P9,600,000 P7,200,000) x 100%.................................... 2,400,000 (100%)
Positive excess: Goodwill (full) ........P 5,400,000 (100%)
The full goodwill of P5,400,000 consists of two parts:
Full-goodwill ....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill . .. 4,320,000
NCI on full-goodwill .......P 1,080,000

Non-controlling interest
Non-controlling interest (partial) .......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)* ...... 1,080,000

Non-controlling interest (full) ........P3,000,000


* applicable only when t he fair value of t he non-cont rolling int erest of subsidiary is not given.

Case 2:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (60%):
Consideration transferred: Cash .....P 7,560,000 (60%)
Less: Book value of stockholders equity (net assets)
S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess. ..... P 3,960,000 (60%)
Less: Over/undervaluation of assets and liabilities:
(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial) .... P 2,520,000 (60%)

Non-controlling interest
Book value of stockholders equity of subsidiary . P 6,000,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P8,400,000 P6,000,000) . 2,400,000
Fair value of stockholders equity of subsidiary .P 8,400,000
Multiplied by: Non-controlling Interest percentage............
40%
Non-controlling interest (partial) .P 3,360,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash ...P 7,560,000 ( 60%)
Fair value of NCI (given) ..
4,800,000 ( 40%)
Fair value of subsidiary ...P12,360,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess. ..P 6,360,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full) ......P 3,960,000 (100%)
The full goodwill of P3,960,000 consists of two parts:
Full-goodwill ...P 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill . 2,520,000
NCI on full-goodwill ..P 1,440,000

Non-controlling interest
Non-controlling interest (partial) P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 P2,520,000 partial-goodwill) .. 1,440,000
Non-controlling Interest (full) ..P 4,800,000

Case 3;
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (75%):

Consideration transferred: Cash ..P 9,000,000 (75%)


Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 75%..........................
5,400,000 (75%)
Allocated Excess. ...P 3,600,000 (75%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial) .P 1,800,000 (75%)

Non-controlling interest
Book value of stockholders equity of subsidiary ..P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000) . 2,400,000
Fair value of stockholders equity of subsidiary P 9,600,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial) .P 2,400,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary . P 11,640,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 100%...........................
7,200,000 (100%)
Allocated Excess. .P 4,440,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full) .....P 2,040,000 (100%)
The full goodwill of P2,040,000 consists of two parts:
Full-goodwill ...P 2,040,000
Less: Controlling interest on full-goodwill
or partial-goodwill .... 1,800,000
NCI on full-goodwill . .P 240,000

Non-controlling interest
Non-controlling interest (partial) P 2,400,000
Add: Non-controlling interest on full -goodwill
(P2,040,000 P1,800,000 partial-goodwill) .. ..... 240,000
Non-controlling Interest (full) ..P 2,640,000

Case 4:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (75%):
Consideration transferred: Cash ..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%)
Fair value of Subsidiary .. . P 3,240,000 (75%)
Less: Book value of stockholders equity (net assets)
S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%)
Allocated Excess. ....P 1,440,000 (75%)
Less: Over/undervaluation of assets and liabilities:
[(P6,120,000 P2,280,000)

(P4,680,000 P2,280,000)] x 75%................................ 1,080,000 (75%)


Positive excess: Goodwill (partial) ... P 360,000 (75%)

Non-controlling interest
Book value of stockholders equity of subsidiary ..P 2,400,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P3,840,000 P2,400,000) . 1,440,000
Fair value of stockholders equity of subsidiary P 3,840,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial) P 960,000

Fair Value Basis (Full-goodwill Approach)


Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash ..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......
648,000 (15%)
Fair value of NCI (given) . 1,080,000 (25%)
Fair value of subsidiary .P 4,320,000 (100%)
Less: Book value of stockholders equity (net assets)
S Company: P2,400,000 x 100%........................ 2,400,000 (100%)
Allocated Excess. ..P 1,920,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P3,840,000 P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full) ...P 480,000 (100%)
The full goodwill of P480,000 consists of two parts:
Full-goodwill ...P 480,000
Less: Controlling interest on full-goodwill
or partial-goodwill . 360,000
NCI on full-goodwill ..P 120,000

Non-controlling interest
Non-controlling interest (partial) P
960,000
Add: Non-controlling interest on full -goodwill
(P480,000 P360,000 partial-goodwill) .. ..... 120,000
Non-controlling Interest (full) P 1,080,000

Problem IX
Partial-goodwill (Proportionate Basis)
Fair value of subsidiary (75%):
Consideration transferred: Cash ..
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x 75%.......................................
Allocated excess ...
Less: Over/undervaluation of assets and liabilities:
[(P612,000 P228,000) (P480,000 P228,000) x 75%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) .

P270,000 (75%)

189,000 (75%)
P 81,000 (75%)
99,000 (75%)
(P18,000) (75%)

Full-goodwill (Fair Value Basis)


Fair value of subsidiary (100%):
Consideration transferred: Cash ..
Fair value of non-controlling interest (given)
Fair value of subsidiary
Less: Book value of stockholders equity
(net assets) S Company:
(P480,000 P228,000) x 100%.....................................
Allocated excess ...
Less: Over/undervaluation of assets and liabilities:
[(P612,000 P228,000) (P480,000 P228,000) x 100%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) .

P270,000 ( 75%)
98,400 ( 25%)
P368,400 (100%)

252,000 (100%)
P116,400 (100%)
132,000 (100%)
(P15,600) (100%)

Problem X
Partial-goodwill Approach
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
Sky:
Common stock (P240,000 x
80%).
Paid-in capital in excess of par (P96,000
x 80%)....
Retained earnings (P24,000 x
80%)....
Allocated excess (excess of cost over book
value)..
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
80%)
Increase in land (P72,000 x
80%).
Decrease in buildings and equipment
(P12,000 x
80%).....
Increase in bonds payable (P42,000 x
80%).
Positive excess: Partial-goodwill (excess of
cost over
fair

P
360,000

P 192,000
76,800
19,200

288,000
P
72,000

P 14,400
57,600
(

9,600)

( 33,600)

28,800
P
43,200

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

Sky Co.
Book
value
Inventory...
72,000
Land
48,000
Buildings and equipment (net).........
360,000
Bonds payable (120,000)
Net..
360,000

Sky
Over/
Co.
Under
Fair
value
Valuation
90,000
18,000
120,000
72,000
348,000
( 12,000)
(162,000)
42,000
396,000
36,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:

Buildings and equipment


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

Sky Co.
Book value

Sky Co.
Fair value

720,000

348,000

( 372,000)

360,000

( 360,000)

360,000

348,000

(Decrease)

12,000)

The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4

(1) Investment in Sky


Company

360,000
360,000

Cash..
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close
to
retained earnings since only balance sheets are
being

14,400

examined)
Cash.

14,400

Acquisition- related costs.

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:

(E1) Common stock Sky

240,000

Co.
Additional paid-in capital Sky
Co.
Retained earnings Sky
Co...
Investment in Sky
Co
Non-controlling interest (P300,000 x
20%)..

24,000
96,000
288,000
72,000

Eliminate investment against stockholders equity of Sky Co.

(E2)
18,000
Inventory.
Accumulated
360,000
depreciation.
72,000
Land.
43,200
Goodwill.
Buildings and
372,000
equipment..
Premium on bonds
42,000
payable
Non-controlling interest (P30,000 x
7,200
20%)..
Investment in Sky
72,000
Co..
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets
Cash* .
Accounts receiv able..

Peer Co.

Sky Co.

45,600

P 60,000

Dr.

Cr.

Consolidated
P

105,600

90,000

60,000

Inv entory.

120,000

72,000

(2) 18,000

210,000

Land.

210,000

48,000

(2) 72,000

330,000

Buildings and equipment

960,000

720,000

Goodwill
Inv estment in Sky Co.

360,000

Total Assets

150,000

(2) 372,000

1,308,000

(2) 43,200

43,200
(1) 288,000
(2) 72,000

P1,785,600

P960,000

P 2,146,800

Accumulated depreciation

P 480,000

P360,000

Accounts payable

120,000

120,000

240,000

Bonds payable

240,000

120,000

360,000

Liabilities and Stockholders Equity


(2) 360,000

480,000

Premium on bonds payable

(3)

Common stock, P10 par

42,000

600,000

Common stock, P10 par

600,000
240,000

Paid in capital in excess of par.


Retained earnings**

(1) 240,000

60,000

Paid in capital in excess of par.

60,000
24,000

(1) 24,000

285,600

Retained earnings
Non-controlling interest

285,600
96,000

_________

_______

Total Liabilities and Stockholders


Equity
P1,785,600
P960,000
(1) Eliminat e invest ment against st ockholders equit y of Sky Co.
(2) Eliminat e invest ment against allocat ed excess.
* P420,000 P360,000 P14,400 = P45,600.
* * P300,000 P14,400 = P285,600.

42,000

(1) 96,000
_________
P 853,200

(1 ) 72,000
(2) 7,200

_79,200

P 853,200

P2,146,800

Incidentally, the non-controlling interest on the date of acquisition is computed as follows:


Common stock Sky company

P
240,000
24,000
80,000

Paid-in capital in excess of par Sky co

Retained earnings Sky


Co...
Book value of stockholders equity Sky
Co....
Adjustments to reflect fair value (over/
undervaluation
of assets and
liabilities).
Fair value of stockholders equity of
subsidiary
Multiplied by: Non-controlling Interest
percentage...
Non-controlling interest
(partial)..

P
360,000
36,000
P
396,000
20
P
79,200

The balance sheet:


Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Accounts receiv ables
Inv entories
Land
Buildings and equipment
Accumulated depreciation
Goodwill
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable

105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800

P 240,000

Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

P 360,000
42,000

402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P 1,024,800
P1,666,800

Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full -goodwill)
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred (P360,000 /
80%)..
Less: Book value of stockholders equity of
Sky:
Common stock (P240,000 x
100%).
Paid-in capital in excess of par (P96,000
x 100%)..
Retained earnings (P24,000 x
100%)....
Allocated excess (excess of cost over book
value)..
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)
Increase in land (P72,000 x
100%).
Decrease in buildings and equipment
(P12,000 x
100%).....
Increase in bonds payable (P42,000 x
100%).
Positive excess: Full -goodwill (excess of cost
over
fair
value)...

P
450,000

P 240,000
96,000
24,000

360,000
P
90,000

P 18,000
72,000
( 12,000)
( 42,000)

36,000
P
54,000

The following entry on the date of acquisition in the books of Parent Company:

January 1, 20x4

(1) Investment in Sky


Company

360,000
360,000

Cash..
Acquisition of Sky Company.

(2) Retained earnings (acquisition-related expense - close


to
retained earnings since only balance sheets are
being
examined)

14,400

14,400

Cash.
Acquisition- related costs.

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:

(E1) Common stock Sky


Co.
Additional paid-in capital Sky
Co.
Retained earnings Sky
Co...
Investment in Sky
Co
Non-controlling interest (P300,000 x
20%)..

240,000
24,000
96,000
288,000
72,000

Eliminate investment against stockholders equity of Sky Co.

(E2)
18,000
Inventory.
Accumulated
360,000
depreciation.
72,000
Land.
54,000
Goodwill.
Buildings and
372,000
equipment..
Premium on bonds
42,000
payable
Non-controlling interest [(P30,000 x 20%) +

(P45,000
P36,000)].
Investment in Sky
Co..

18,000
72,000

Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80% -Owned
Subsidiary (Full-goodwill)
Eliminations
Assets

Cash*
.
Accounts
receivable..
Inventory.
Land
.
Buildings and equipment
Goodwill

Investment in Sky
Co.
Total Assets

Peer Co.

Sky Co.

Dr.

Cr.

Consolidated

45,600

P 60,000

90,000

60,000

120,000

72,000

(2) 18,000

210,000

210,000

48,000

(2) 72,000

330,000

960,000

720,000

105,600
150,000

(2) 372,000

1,308,000

(2) 54,000

360,000

54,000
(1) 288,000
(2) 72,000

P1,785,600

P960,000

P 480,000

P360,000

P 2,157,600

Liabilities and Stockholders Equity


Accumulated depreciation

Accounts payable
Bonds payable

120,00
0
240,00
0

(2) 360,000

240,000

120,000

360,000
(2) 42,000

600,00
0

Common stock, P10 par


Paid in capital in excess of par.

Retained earnings**

Non-controlling interest

(1) 240,000

60,000

60,000
24,000

(1) 24,000

285,60
0

Retained earnings

285,600
96,000

_______
__

42,000
600,000

240,000

Paid in capital in excess of par.

480,000

120,000

Premium on bonds payable


Common stock, P10 par

_____
__

(1) 96,000

(1 )
72,000
_______ (2)
__ 18,000

_90,000

Total Liabilities and Stockholders


Equity
P1,785,600
P960,000
(1) Eliminat e invest ment against st ockholders equit y of Sky Co.
(2) Eliminat e invest ment against allocat ed excess.
* P420,000 P360,000 P14,400 = P45,600.
* * P300,000 P14,400 = P285,600.

P 864,000

P 864,000

P2,157,600

Incidentally, the non-controlling interest on the date of acquisition is computed as follows:

Non-controlling interest
(partial)..
Add: Non-controlling interest (P54,000, full
P43,200, partial).
Non-controlling interest
(full).

P
79,200
10,800
P 90,000

The balance sheet;


Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Cash
Accounts receiv ables
Inv entories
Land
Buildings and equipment
Accumulated depreciation
Goodwill
Total Assets

Assets

Liabilities and Stockholders Equity


Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600

P 360,000
42,000

P 240,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P 1,035,600
P1,677,600

Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (80%)


Consideration transferred:
Common stock: 12,000 shares x P25
per share...
Less: Book value of stockholders equity
of S:

P 300,000

Common stock (P12,000 x


80%).
Paid-in capital in excess of par
(P108,000 x 80%)...
Retained earnings (P72,000 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 (P36,000 x
80%).
Increase in buildings and
equipment
(P150,000 x
80%)......
Increase in copyrights (P60,000 x
80%)..
Increase in contingent liabilities
estimated
liability for contingencies (P6,000
x 80%).....
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)..

9,600
86,400
57,600

153,600
P 146,400

4,800
28,800

120,000
48,000

4,800)

196,800

(P 50,400)

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

Inventory....
Land.
Buildings and equipment (net).........
Copyright..
Estimated liability for contingencies..
Net undervaluation.

S Co.
Book
value
P
60,000
48,000

S Co.
Fair
Over/Under
value
Valuation
P
66,000
P
6,000
84,000
36,000

222,000 372,000
-00
P

60,000
(
6,000)
P

150,000
60,000
(

6,000)
P246,000

330,000 576,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4

(1) Investment in S
Company...
Common stock, P1
par
Paid-in capital in excess of par (P300,000
P12,000 par)..

300,000
12,000
288,000

Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidan ce for the
worksheet eliminating entries on January 1, 20x4:

(E1) Common stock S


Co.
Additional paid-in capital S
Co.
Retained earnings S
Co
Investment in S
Co
Non-controlling interest (P192,000 x
20%)..

12,000
108,000
72,000
153,600
38,400

Eliminate investment against stockholders equity of S Co

(E2)
Inventory..

6,000
36,000

Land..
Buildings and
150,000
equipment
60,000
Copyright....
Estimated liability for
6,000
contingencies..
Investment in S
146,400
Co...
Non-controlling interest (P246,000 x
49,200
20%).
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are
being
50,400
examined).............................................................................
Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80% -Owned
Subsidiary (Proportionate Basis)
Eliminations
P Co.

Assets
Cash

S Co.

Dr.

Cr.

Consolidated

P 334,800

Accounts receiv able..


Inv entory.

86,400

P 24,000

334,800
110,400

96,000

60,000

(2)

6,000

162,000

Land

120,000

48,000

(2) 36,000

204,000

Buildings and equipment (net).

744,000

222,000

(2) 150,000

1,116,000

Copyright...
Inv estment in S Co..
Total Assets

(2) 60,000
300,000
__________ _________
P1,681,200

60,000
(1) 153,600
(2) 146,400

354,000

P1,987,200

96,000

42,000

P 138,000

240,000

120,000

Liabilities and Stockholders Equity


Accounts payable
Estimated liability for
contingencies
Bonds payable
Common stock, P1 par* ..
Common stock, P1 par
Paid-in capital in excess of
par* *

(2)

Retained earnings
Non-controlling interest

44,160
12,000

723,840

(1) 12,000

(1)
108,000

_________

723,840

(1)
108,000

577,200
72,000

(1) 72,000

_______

_________

Total Liabilities and Stockholders


Equity
P1,681,200
P354,000
(1) Eliminate inv estment against stockholders equity of Scud Co.
(2) Eliminate inv estment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
* * P435,840 + [12,000 shares x (P25 P1)] = P723,840.

6,000
360,000

44,160

Paid-in capital in excess of par


Retained earnings

6,000

P 444,000

(2) 50,400

627,600

(1 ) 38,400
(2) 49,200

_87,600

P 444,000

P1,987,200

Incidentally, the non-controlling interest on the date of acquisition is computed as follows:


Common stock S Co.
Paid-in capital in excess of par S Co..

Retained earnings S
Co
Book value of stockholders equity S
Co.
Adjustments to reflect fair value (over/
undervaluation
of assets and
liabilities).
Fair value of stockholders equity of
subsidiary
Multiplied by: Non-controlling Interest

P 12,000
108,000
72,000
P
192,000
246,000
P
438,000
20

percentage...
Non-controlling interest
(partial)..

P
87,600

The balance sheet:


Assets
Cash
Accounts receiv ables
Inv entories
Land
Buildings and equipment (net)
Copyright
Total Assets

334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

Liabilities and Stockholders Equity


Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Common stock, P1 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

P 138,000
6,000
360,000
P 504,000
P

44,160
723,840
627,600

P1,395,600
87,600
P1,483,200
P1,987,200

Full-goodwill Approach (Fair Value Basis)


Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred:
Common stock: 12,000 x P25
(80%)
Fair value of NCI (given)
(20%).
Fair value of subsidiary
(100%).
Less: Book value of stockholders equity
of S:
Common stock (P12,000 x
100%).
Paid-in capital in excess of par
(P108,000 x 100%).
Retained earnings (P72,000 x
100%)...
Allocated excess (excess of cost over
book value)

300,000
90,000

390,000

P 12,000
108,000
72,000

192,000
P 198,000

Less: Over/under valuation of assets and


liabilities:
Increase in inventory (P6,000 x
100%)
Increase in land (P36,000 x
100%)
Increase in buildings and
equipment
(P150,000 x
100%)....
Increase in copyrights (P60,000 x
100%)
Increase in contingent liabilities
estimated
liability for contingencies (P6,000
x 100%)..
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)..

6,000
36,000

150,000
6,000

6,000)

246,000

(P 48,000)

The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4

(1) Investment in S
Company...
Common stock, P1
par
Paid-in capital in excess of par (P300,000
P12,000 par)..
Acquisition of S Company.

300,000
12,000
288,000

The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:

(E1) Common stock S


Co.
Additional paid-in capital S
Co.
Retained earnings S
Co
Investment in S
Co
Non-controlling int erest (P192,000 x
20%)..
Eliminate investment against stockholders

12,000
108,000
72,000
153,600
38,400

equity of S Co
(E2)
Inventory..

6,000
36,000

Land..
Buildings and
150,000
equipment
60,000
Copyright....
Estimated liability for
6,000
contingencies..
Investment in S
146,400
Co...
Non-controlling interest (P90,000 given
51,600
P38,400)
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are
being
48,000
examined).............................................................................
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80% -Owned
Subsidiary (Fair Value Basis)
Eliminations
P Co.

Assets
Cash

S Co.

Dr.

Cr.

P 334,800

Consolidated
P

334,800

Accounts receiv able..

86,400

P 24,000

Inv entory.

96,000

60,000

(2)

6,000

162,000

Land

120,000

48,000

(2) 36,000

204,000

Buildings and equipment (net).

744,000

222,000

(2) 150,000

1,116,000

Copyright...
Inv estment in S Co..
Total Assets

300,000
__________ _________
P1,681,200

110,400

(2) 60,000

(1) 153,600
(2) 146,400

60,000
-

P354,000

P1,987,200

42,000

P 138,000

Liabilities and Stockholders Equity


Accounts payable
Estimated liability for
contingencies
Bonds payable
Common stock, P1 par* ..

96,000

(2)
240,000

Paid-in capital in excess of par

6,000
360,000

44,160

Common stock, P1 par


Paid-in capital in excess of par* *

120,000

6,000

44,160
12,000

(2) 12,000

723,840

723,840
(2)
108,000

(1)
108,000

Retained earnings
Retained earnings
Non-controlling interest

577,200

_________

72,000

(1) 72,000

_______

_________

Total Liabilities and Stockholders


Equity
P1,681,200
P354,000
(1) Eliminat e invest ment against st ockholders equit y of Scud Co.
(2) Eliminat e invest ment against allocat ed excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
* * P435,840 + [12,000 shares x (P25 P1)] = P723,840.

P 444,000

(2) 48,000

625,200

(1 ) 38,400
(2) 51,600

_90,000

P 444,000

P1,987,200

The balance sheet:


Assets
Cash
Accounts receiv ables
Inv entories
Land
Buildings and equipment (net)
Copyright
Total Assets
Liabilities and Stockholders Equity
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Common stock, P1 par
Paid-in capital in excess of par
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

Problem XII
1. Inventory
2. Land
3. Buildings and Equipment
4. Goodwill

5.

334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

P 138,000
6,000
360,000
P 504,000
P

44,160
723,840
652,200

P1,393,200
90,000
P1,483,200
P1,987,200

P 140,000
P 60,000
P 550,000

Fair value of consideration given


P 576,000
Less; Book value of SHE
450,000
Allocated excess:
P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory
P 20,000
Land
(10,000)
Buildings and equipment
70,000
80,000
Goodwill
P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the
investment account is eliminated.

Problem XIII

1. Inventories (P110,000 + P180,000 P10,000) = P280,000


2. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
3. Investment in DD stock will be fully eliminated and will not appear in the consolidated balance
sheet

Fair value of Subsidiary:


Consideration transferred
Less: BV of SHE of DD (P100,000 + P200,000 P40,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Inventory
Buildings and equipment (net)

P280,000
260,000
P 20,000
(P 10,000)
25,000

Add: Existing goodwill (to be eliminated


Goodwill to be reported

15,000
P 5,000
30,000
P 35,000

or, (Approach used in business combination statutory merger/consolidation)


Fair value of consideration given
P280,000
Fair value of Decibel's net assets:
Cash and receivables
P 40,000
Inventory
170,000
Buildings and equipment (net)
375,000
Accounts payable
(90,000)
Notes payable
(250,000)
Fair value of net identifiable
assets
(245,000)
Goodwill to be reported
P 35,000
Not e: Goodwill on books of DD is not an identifiable asset and t herefore is not included in t he comput at ion of
Decibel's net ident ifiable asset s at t he dat e of acquisit ion.

5. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)


6. Retained earnings, P`05,000 (parent only, SHE of subsidiary is eliminated)
Problem XIV
1. Inventory (P120,000 + P20,000)
2. Land (P70,000 P10,000)
3. Buildings and Equipment (P480,000 + P70,000)
4. Full-Goodwill, P57,500
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory
Land
Buildings and equipment (net)
Goodwill full

P140,000
P 60,000
550,000

P470,000
117,500

P 20,000
(10,000)
70,000

P587,500
450,000
P137,500

80,000
P 57,500

or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slims net assets
Fair value increment for:
Inventory
Land
Buildings and equipment (net)
Fair value of identifiable net assets
Goodwill - full
Partial Goodwill, P46,000
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P20,000 x 80%)
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill partial
5.

6.

Investment in Slim Corporation: None would be reported;


the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)

P470,000
117,500
P587,500
P450,000
20,000
(10,000)
70,000
(530,000)
P 57,500

P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000

64,000
P 46,000

P117,500

or,
BV SHE of SS
P450,000
Adjustments to reflect fair value (P20,000 P10,000 +P 70,000)
80,000
FV of SHE of SS
P530,000
Multiplied by: NCI %
20%
NCI partial goodwill
P106,000
Add: NCI on full-goodwill (P57,500 P46,000)
11,500
NCI full goodwill
P117,500

Problem XV
(Overview of the steps in applying the acquisition method when shares have been issued to create a
combination No. 8 includes a bargain purchase.)
1. The fair value of the consideration includes
Fair value of stock issued
P1,500,000
Contingent performance obligation
30,000
Fair value of consideration transferred
P1,530,000
2. Under the acquisition method, stock issue costs reduce additional paid -in capital.
3. The acquisition method records direct costs such as fees paid to investment banks for
arranging the combination as expenses.
4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in the
Common Stock account. The P74 fair value in excess of par value (P75 P1) is an increase to
additional paid-in capital of P1,480,000 (P74 20,000 shares).
5. Fair value of consideration transferred (above)
P1,530,000
Receivables
P 80,000

6.

7.
8.

Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Goodwill
P 350,000
Revenues and expenses of the subsidiary from the period prior to the combination are
omitted from the consolidated totals. Only the operational figures for the subsidiary after the
purchase are applicable to the business combination. The previous owners earned any
previous profits.
The subsidiarys Common Stock and Additional Paid-in Capital accounts have no impact on
the consolidated totals.
The fair value of the consideration transferred is now P1,030,000. This amount indicates a
bargain purchase:
Fair value of consideration transferred (above)
P1,030,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Gain on bargain purchase
P 150,000

Problem XVI
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a
limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SSs net assets acquired.
1.
2.
3.
4.
5.
6.

Inventory = P670,000 (P's book value plus Sun's fair value)


Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs are
reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)

Problem XVII
1. A total of P210,000 (P120,000 + P90,000) should be reported.
2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The
amount paid was P30,000 greater than the book value of the net assets of SS and is reported as
goodwill in the consolidated balance sheet at January 1, 20X5.
3. In determining the amount to be reported for land in the consolidated balance sheet, P15,000
(P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for P25,000 (P10,000
+ P15,000).
4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the consolidated
balance sheet. A total of P10,000 was deducted in determining the balance reported for accounts
receivable (P90,000 + P50,000 - P130,000). The elimination of an intercompany receivable must be
offset by the elimination of an intercompany payable.
5. The par value of B's stock outstanding is P100,000.

Problem XVIII
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XIX
1.
The investment balance reported by Roof will be P192,000.
2.
Total assets will increase by P310,000.
3.
Total liabilities will increase by P95,000.
4.
The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
5.
Non-controlling interest will be reported at P48,000 (P240,000 x .20).
Problem XX
1.
P57,000 = (P120,000 - P25,000) x .60
2.
P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3.
P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XXI
1. Investment in Craig Company....................................................
Cash .......................................................................................

950,000
950,000

2.
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value
Building (P700,000 fair P600,000 book value)
Discount on bonds payable P280,000 fair P300,000
book value)
Deferred tax liability (P40,000 fair P50,000 book value)
Buildings and equipment (net)
Goodwill
3. Adjustments on Craig books:
Land ............................................................................................
Building........................................................................................
Discount on Bonds Payable ........................................................
Goodwill ......................................................................................
Deferred Tax Liability ...................................................................
Retained Earnings .......................................................................
Paid-In Capital in Excess of Par ..............................................
Elimination entries:
Common Stock ...........................................................................
Paid-In Capital in Excess of Par ...................................................
Investment in Craig Company ...............................................
Problem XXII

P950,000
720,000
P 230,000
P 50,000
100,000
20,000
10,000
180,000
P 50,000

50,000
100,000
20,000
50,000
10,000
420,000
650,000

4.

300,000
650,000
950,000

Full-Goodwill
Fair value of Subsidiary:
Consideration transferred (200 shares x P25)
Less: BV of SHE of Public (P200 + P800 + P1,000)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Fixed assets (P3,000 fair P2,000 book value)
Goodwill full

P 5,000
_2,000
P 3,000
_1,000
P2,000

or,
Fair value of Subsidiary:
Consideration transferred (200 shares x P25)
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000)
Goodwill full

P 5,000
_3,000
P2,000

Note: The currently issued shares of Public Company and its fair value were used for the following
reasons (refer to Illustration 15-15 for comparison):
Total number of shares for Public Company after acquisition not given
The fair value of share of Private Company not given.

Fair v alue of net assets.

Fair value of common stock


per share
Currently issued
Additional shares issued

Public
Company
P3,000
P25
Public
200 60%**
300 40%
500

Private
Company
?

Private
? /60%
100 /40%
?

15,000 shares / 25,000 shares = 60%

Values are prior to acquisition (200 shares P25 market value).


Subsequent to acquisition, Private Company is the parent with 60% ownership; prior to
acquisition, Private Company has 0% ownership of Public Co mpany.
Prior to acquisition, this represents 100% ownership of Public Company; subsequent to
acquisition, these holders of 100 shares of Public Company become the 40% NCI.
Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on full -goodwill
amounted to P800 (P2,000 P1,200 or P2,000 x 40%). This approach to determine partial
goodwill is acceptable as long as there is FV of NCI in the acquirer.

Problem XXIII (Assume the use of Full-Goodwill Method)


Note: This solution assumes a difference between the basis of acquired assets for accounting and ta x
purposes for this stock acquisition.
1. Investment in Seel y Company
Common Stock***
Additional Paid-in-Capital

570,000
95,000
475,000

***Note: Depending on the wording of this exercise, the credit may be cash instead of common stock
and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely
Other Contributed Capital Seel y
Retained Earnings - Seely
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*

80,000
132,000
160,000
52,000
25,000
71,000
20,000
127,200

Investment in Seely Company


Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))

67,200
570,000
30,000

Problem XXIV
HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Medias losses are limited by contract, and (2) Hillsborough has the right to
receive the residual benefits of the sales generated on the HCO Media internet site above
P500,000, Hillsborough should consolidat e HCO Media.

TPC (Nos. 1, 2 and 3 of the requirement are part of the information)


a. The purpose of consolidated financial statements is to present the financial position and
results of operations of a group of businesses as if they were a single entit y. They are
designed to provide information useful for making business and economic decisions
especially assessing amounts, timing, and uncertainty of prospective cash flows.
Consolidated statements also provide more complete information about the resources,
obligations, risks, and opportunities of an enterprise than separate statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following conditions
exist.
The total equity at risk is not sufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties. In most cases, if equity at risk is
less than 10% of total assets, the risk is deemed insufficient.
The equity investors in the VIE lack any one of the following three characteristics of a
controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through voting
rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g., another firm
may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors' return
may be capped by the entity's governing documents or other arrangement s with
variable interest holders).

Consolidation is required if a parent has a variable interest that will


Absorb a majority of the entity's expected losses if they occur

Receive a majority of the entity's expected residual returns i f they occur


Also, a direct or indirect ability to make decisions that significantly affect the results of the
activities of a variable interest entity is a strong indication that an enterprise has one or both
of the characteristics that would require consolidation of the variable interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the VIE
At the end of the 1st five-year lease term, if the parent opts to sell the facility, and the
proceeds are insufficient to repay the VIE investors, TPC may be required to pay up to 85% of
the project's cost. Thus, a potential 15% risk.
During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the VIE
with a guarantee of Investors' (debt and equity) balances representing a risk of decline in
market value of asset
Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decision -making
ability (end of five-year lease term)
Absorb a majority of the entity's expected losses if they occur (via debt guarantees and
guaranteed lease payments and residual value)
Receive a majority of the entity's expected residual returns if they occur (via use of the
facility and potential increase in its market value).
Problem XXV
1. Implied valuation and excess allocation for S.
Noncontrolling interest fair value
Consideration transferred by P.
Total business fair value
Fair value of VIE net assets
Excess net asset value fair value

P 60,000
20,000
80,000
100,000
P20,000

The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase. All
SoftPlus assets and liabilities are recognized at their individual fair values.
Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase

2.

Implied valuation and excess valuation for Softplus.


Noncontrolling interest fair value
Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill

P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
-0-

60,000
20,000
80,000
60,000
P20,000

When the business fair value of a VIE (that is a business) is greater than assessed asset values,
all identifiable assets and liabilities are reported at fair values (unless a previously held interest)
and the difference is treated as a goodwill.
Cash
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
Noncontrolling interest
(60,000)
Pantech equity interest
(20,000)
-0Multiple Choice Problem
1. c
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]
3. d
Consideration transferred
P300,000
Less: Book value of SHE of S (P100,000 + P115,000)
215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 85,000
4. a Investment in subsidiary in the consolidated statements is eliminated in its entirety.
5. d
Consideration transferred
P150,000
Less: Book value of SHE of S (P40,000 + P52,000)
92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 58,000
6. b [P150,000 (P173,000 P40,000 P5,000)]
7. d [P132,000 + (P38,000 + {P60,000 P38,000}] or P132,000 + P60,000
8. b
Total Assets of P.
P1,278,000
Less: Investment in Silk Corp.
(440,000)
P 838,000
Book value of assets of S Corp.
542,000
Book value reported by P and S
P1,380,000
Increase in inventory (P60,000 P38,000)
22,000
Increase in land (P60,000 P32,000)
28,000
Increase in plant assets [P350,000 (P300,000 P60,000)]
110,000
Goodwill (full)*
26,667
Total assets reported
P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
If partial-goodwill:
Total Assets of P.
Less: Investment in S Corp.
Book value of assets of S Corp.
Book value reported by P and S
Increase in inventory (P60,000 P38,000)
Increase in land (P60,000 P32,000)
Increase in plant assets [P350,000 (P300,000 P60,000)]
Goodwill (partial)*
Total assets reported
*[P440,000 (P702,000 P142,000) x 75%]

P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000

9.
10.

d
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
a
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
P 10,500
Land (P20,000 x 70%)
14,000
Goodwill partial

11.

P150,500
__98,000
P 52,500

24,500
P 28,000

c
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full

P150,500
**64,500

P 15,000
20,000

P215,000
140,000
P 75,000

35,000
P 40,000

**given amount, but it should not be lower than the fair value of SHE
subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SS
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
12. b
Total Assets of Power Corp.
Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (full)
Total assets reported
If partial-goodwill:
Total Assets of Power Corp.
Less: Investment in Silk Corp.
Book value of assets of Silk Corp.

P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000

P 791,500
(150,500)
P 641,000
405,000

Book value reported by Power and


Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (partial)
Total assets reported
13.

14.

P701,500

P1,046,000
15,000
20,000
28,000
P1,109,000

(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000


+ P200,000)

Non-controlling interest (partial-goodwill): P52,500


NCI

FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
15.

d
Non-controlling interest (partial-goodwill): P64,500
NCI

FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
Add: NCI on full-goodwill (P40,000 P12,000)... 12,000
FV of NCI (full)..P 64,500
16.

P205,000

The amount reported by Power Corporation

17.

c
P419,500
= (P150,000 + P205,000) + P64,500
If partial-goodwill:
Stockholders equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parents SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE

P150,000
205,000
P355,000
52,500
P404,500

18. b
Consideration transferred ..............................................................................
Less: Strand's book value (P50,000 x 80%).......................................................
Fair value in excess of book value .................................................................

P60,000
(40,000)
P20,000

Excess assigned to inventory (60% ) .................................................... P12,000


Excess assigned to goodwill (40%) ................................... P 8,000
19. c
Consideration transferred (P60,000 80%) .....................................................
Less: Strand's book value ...............................................................................
Fair value in excess of book value .................................................................
Excess assigned to inventory (60%) .................................................... P15,000
Excess assigned to goodwill (40%) ................................... P10,000

P75,000
(50,000)
P25,000

20. a
Park current assets ...........................................................................................
Strand current assets .......................................................................................
Excess inventory fair value...............................................................................
Consolidated current assets ............................................................................

P 70,000
20,000
15,000
P105,000

Park noncurrent assets....................................................................................


Strand noncurrent assets ................................................................................
Excess fair value to goodwill (partial) .............................................................
Consolidated noncurrent assets .....................................................................

P 90,000
40,000
___8,000
P140,000

Park noncurrent assets.....................................................................................


Strand noncurrent assets .................................................................................
Excess fair value to goodwill (full)....................................................................
Consolidated noncurrent assets ......................................................................

P 90,000
40,000
__10,000
P140,000

21. c

22. d

23. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken out
by Park to acquire Strand.
24. b

Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken
out by Polk to acquire Strand.

25. b
Park stockholders' equity ................................................................................
NCI (partial):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory) . 15,000
FV of SHE S P65,000
x: Multiplied by: NCI%........................................................................
20%
Total stockholders' equity ..............................................................................

P80,000

13,000
P93,000

26. c
Park stockholders' equity ................................................................ . P80,000
NCI (full):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory) . 15,000
FV of SHE S P65,000
x: Multiplied by: NCI%.........................................................................
20%

NCI (partial) P13,000


Add: NCI on full-goodwill (P10,,000 P8,000) 2,000
Non-controlling interest at fair value (20% P75,000)
15,000
Total stockholders' equity
P95,000
27.
28.
29.
30.

b
a P150,000 + P500,000
a at fair value
d
(1) NCI measured at its share of net assets (Partial Goodwill)
Fair value of Subsidiary:
Consideration transferred P 100 million
Less: Fair value of identifiable assets and liabilities of Loco
(80% x P85 million).. 68 million
Goodwill (partial)....P 32 million
(2) NCI is measured at its fair value (Full Goodwill)
Fair value of Subsidiary:
Consideration transferred P 100 million
Fair value of NCI [(P100 million P24 million = P76 million / 80% =
P95 million] x 20%.................................................................................... 19 million
Fair value of Subsidiary ...P 119 million
Less: Fair value of identifiable assets and liabilities of Oak .
85 million
Goodwill (full) ...P 34 million
Under PFRS3 par. 32, goodwill is measured at the consideration transferred plus the
non-controlling interest (however measured) less net assets acquired. The noncontrolling interest may be measured at its share of net assets or its fair value, per PFRS3
par. 19.
Note: Fair value is assumed to be the same with the carrying/book value.

31.

d
Fair value of Subsidiary - Swan
Consideration transferred P 1,420,000
Less: Fair value of identifiable assets and liabilities of Swan
(70% x P1.2 million) .
840,000
Goodwill (partial)....P 580,000
Goodwill is carried as an asset in the consolidated statement of financial position.
Fair value of Subsidiary - Homer
Consideration transferred P 300,000
Less: Fair value of identifiable assets and liabilities of Homer
(65% x P640,000) ...
416,000
Gain on bargain purchase P ( 116,000)
Gain on a bargain purchase is recognized in profit or loss not on the statement of
financial position.
Notes:
1.
Moon measures non-controlling interests at the relevant share of the identifiable
net assets at the acquisition date; therefore partial goodwill is in effect.
2.
Fair value is assumed to be the same with the carrying/book value.

32.

a See PFRS 3 par. 32.


Fair value of Subsidiary:
Consideration transferred P1,960,000
Less: Fair value of identifiable assets and liabilities of Oak
(P700,000 x 70%) .
490,000
Goodwill (partial).. P1,470,000
Or, alternatively:
Fair value of Subsidiary:
Consideration transferred P1,960,000
Less: Book value of SHE of Oak (P100,000 + P300,000 + P1,400,000) x 70%.......... 1,260.000
Allocated excess ..P 700,000
Less: Over/under valuation of assets and liabilities
(P1,800,000 P700,000) x 70%...................................................................... 770,000
Goodwill (partial)..P1,470,000
Note: Since the company elected to measure NCI at its share of the identifiable net assets
instead of fair value, therefore the partial goodwill approach should be used.

33.

d - P592,000 = P300,000 + P270,000 + P22,000

34.

a P26,667
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P400,000 x 75%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Current assets (P22,000 x 75%)
Land, buildings and equipment (P138,000 x 75%)
Goodwill partial
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred (P440,000 / 75%)
Less: BV of SHE of S (P400,000 x 100%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Current assets (P22,000 x 100%)
Land, buildings and equipment (P138,000 x 100%)
Goodwill full

P440,000
__300,000
P140,000
P 16,500
103,500

120,000
P 20,000

P586,667
__400,000
P186,667
P 22,000
138,000

160,000
P 26,667

35. b
Consolidated Total Assets:
Current assets (No. 32)
Land, buildings and equipment
[P538,000 + P272,000 + P138,000 + P26,667, full-goodwill]

592,000

974,667
P 1,566,667

36 c
FV of SHE of SS:
Book value of SHE of S .P 400,000
Adjustments to reflect fair value . 160,000
FV of SHE of S ..P 560,000

Multiplied by: NCI%..............................................................


25%
FV of NCI (partial) ..P 140,000
Add: NCI on full-goo dwill (P26,667 P20,000) ....
6,667
FV of NCI (full-goodwill) ...P 146,667
37. d
Consolidated Total Liabilities:
Liabilities: P Co. (P300,000 + P538,000 + P440,000 P348,333)..P 929,667
S Co ..
142,000
P1,071,667
38. d
Consolidated Stockholders Equity
Parents stockholders equity P 348,333
Add: NCI (full-goodwill) (No. 36) .. 146,667
P 495,000
39. b
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5) ..
APIC
Add: APIC of P
Less: Stock issuance cost
40.
41.
42.
43.
44.
45.
46.

47.

48.
49.
50.
51.
52.
53.

P 4,200,000
__2,500,000
P 1,700,000
7,500,000
___100,000
P 9,100,000

c
a
No answer available
a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000
a
c
a
[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000 increase + P100,000 in
increase in PPE] = P100,000
b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in PPE P300,000
P500,000) = P550,000
a
d (P1,000,000 + P250,000) = P1,250,000 P only.
d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
a P only
d
Total Assets of P
P 960,000
Less: Investment in S
(330,000)
P 630,000
Book value of assets of S
405,000
Book value reported by P and S
P1,035,000
Increase in inventory (P45,000 P26,000)
19,000
Increase in land (P45,000 - P24,000)
21,000
Increase in plant assets [P300,000 (P225,000 P45,000)]
120,000
Goodwill (full)
_____0
Total assets reported
P1,195,000
If partial-goodwill same answer with full-goodwill approach, since there is no gain.

54. b step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value
30% FV of previously held equity interest: 30,000 shares x P5, fair value
10% FV of NCI (100,000 60,000 30,000) x P, fair value
100% Fair value of subsidiary
Less: Fair value of net assets (SHE) of subsidiary
55.
56.
57.
58.

P360,000
150,000
40,000
P560,000
500,000
P 60,000

b
a
a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)

P330,000
395,000
P 65,000
59. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in the
worksheet or eliminating entries.
60. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
61. d Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made.
Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated
subsidiary, so the P300,000 intercompany account will be eliminated.
62. d
63. a
64. c In the combined financial statements (which normally used to described financial statements
in a common control situation), intercompany accounts are eliminated in full.
65. d In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their
entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the
parent nonetheless controls it.
66. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parents percentage ownership.
67. d refer to62
In consolidating the subsidiary's figures, all intercompany bal ances must be eliminated in their
entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the
parent nonetheless controls it.
68. d refer to No. 61
69. c
An asset acquired in a business combination is initially valued at 100% acquisition-date fair
value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 ...............................................................
Amortization for 2 years (10 year life) .............................................................
Patent reported amount December 31, 2010 ................................................

P45,000
(9,000)
P36,000

70. a
PP - building .....................................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ....................................................................................
-ORPP - building ......................................................................................................
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000)

P510,000
210,000
P720,000
510,000

210,000

Consolidated buildings ....................................................................................

P720,000

71. No answer available P60,000


AA, Inc. Fair value at January 1, 20x7:
30% previously owned fair value (30,000 shares P5) ...................................
60% new shares acquired (60,000 shares P6) ..............................................
10% NCI fair value (10,000 shares P5) ..........................................................
Acquisition-date fair value .............................................................................
Net assets' fair value .......................................................................................
Goodwill ......................................................................................................

P150,000
360,000
50,000
P560,000
500,000
P60,000

72. d
Cost of Investment (40 shares* x P40)P 1,600
Less: Book value of SHE Pedro Ltd (P300 + P800) x 100%......................... 1,100
Allocated excessP 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 P1,300) x 100% x 70%........
140
Goodwill. P 360 (d)

100%
Pedro Ltd
Santi Ltd
Currently issued 150 60% **
60 60%
Additional shares issued.. 100 40%
40 / 40%
Total shares 250
100
**150/250

Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltds shareholders exchange
their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 ) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in Pedro Ltd
shows that it consists of the 100 shares existing prior to the merger and 150 new shares held bye former shareholders
in Santi Ltd. In essence, the former shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The
former Santi Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has been
a reverse acquisition, and that Santi Ltd is effectively the a cquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent. The usual
circumstance creating a reverse acquisition is where an entity (the legal parent) obtains ownership of the equity of
another entity (the legal subsidiary) but, as part of the exchange transaction, it issues enough voting equity as
consideration for control of the combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of Pedro ltd are to
be valued at fair value. This is contrary to normal acquisition accounting, based on Pedro Ltd being the legal parent
of Santi Ltd, which would require the assets and liabilities of Santi Ltd to be valued at fair value.
73. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from
P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.

Theories
1.
2.
3.
4.

c
a
e
e

6.
7.
8.
9.

b
b
A
D

11.
12.
13.
14.

c
c
d
d

16.
17.
18.
19.

d
c
b
c

21.
22.
23.
24.

b
a
a
b

26.
27.
28.
29.

d
c
c
d

31
32.
33.
34.

c
d
b
d

36.
37.
38.
39.

d
d
c
b

5.
41.
42.
43.
44.
45.

b
c
c
c
c
c

10,
46.
47.
48.
49.
50,

a
b
a
c
d
b

15,
51.
52.
53.
54.
55,

b
c
b
a
a
c

20.
56.
57.
58.
59.
60.

25.

30.

35.

40.

Chapter 16
Problem I
1. (Full or partial-goodwill) the same answer.
Consideration transferred by MM ........................
Noncontrolling interest fair value..........................
Fair value of Subsidiary
Less: Book value of SHE S .. .
Positive excess .....................................................
Excess fair value assigned to buildings
Goodwill - full
Total ................................................................

P664,000
166,000*
P830,000
(600,000)
230,000

Annual Excess
Life
Amortizations
80,000 20 years
P4,000
P150,000 indefinite
-0P4,000

2.

P150,000 full goodwill (see No. 1 above)


P120,000 partial-goodwill:
Consideration transferred by MM ........................ P664,000
Less: Book value of SHE S (P600,000 x 80%) ..
480,000
Allocated excess ..
P184,000
Less: Over/under valuation of A and L:
P80,000 x 80%.................................................
64,000
Goodwill - partial .................................................. P120,000

3.

Full-goodwill
Common Stock - TT ..........................................................
Additional Paid-in Capital - TT .........................................
Retained Earnings - TT .......................................................
Investment in TT Company (80%) ...............................
Non-controlling interest (20%) ....................................
Buildings ...........................................................................
Goodwill ..........................................................................
Investment in TT Company (80%) ...............................
Non-controlling interest (P166,000 P120,000)...........
Partial-goodwill
Common Stock - TT ..........................................................
Additional Paid-in Capital - TT .........................................
Retained Earnings - TT .......................................................
Investment in TT Company (80%) ...............................
Non-controlling interest (20%) ....................................
Buildings ...........................................................................
Goodwill ..........................................................................
Investment in TT Company (80%) ...............................
Non-controlling interest (20% x P80,000) ....................

300,000
90,000
210,000
480,000
120,000
80,000
150,000
184,000
46,000

300,000
90,000
210,000
480,000
120,000
80,000
120,000
184,000
16,000

4.

Cost Model/Initial Value Method


Dividends received (80%) ......................................................
Investment in Taylor12/31/x4 (original value paid)

P 8,000
P664,000

5.

Cost Model/Initial Value Method same answer with No. 4.

6.

Using the acquisition method, the allocation will be the total difference ( P80,000) between the
buildings' book value and fair value. Based on a 20 year life, annual excess amortization is P4,000.
MM book valuebuildings ..............................................
TT book valuebuildings .................................................
Allocation ........................................................................
Excess Amortizations for 20x420x5 (P4,000 2) .
Consolidated buildings account

7.

Acquisition-date fair value allocated to goodwill:


Goodwill-full ( see No. 1 above) ............................................
Goodwill-partial (see No. 1 above)

800,000
300,000
80,000
(
8,000)
P 1,172,000

P
P

150,000
120,000

8. The common stock and additional paid-in capital figures to be reported are the parent balances
only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem II
1.
Partial Goodwill or Proportionate Basis
a. Investment in S
225,000
Beginning Retained Earnings-Palm Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.

c.

Common stock S
Retained earnings S
Investment in S Co
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)

FV of SHE of S:
Common stock, 1/1/20x5
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
NI Subsidiary (20x4)
Dividends Subsidiary 20x4

225,000

3,000,000
1,250.000
3,825,000
425,000
400,000
150,000
40,000

210,000

P3,000,000
P1,000,000
250,000
(
0) 1,250,000

Book value of SHE S, 1/1/20x5


P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000

Computation of Gain:
Partial Goodwill or Proportionate Basis
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 90%
Land (P2,000,000 P1,600,000) x 90%
Gain partial (attributable to parent)

P3,750,000
_3,600,000
P 150,000
P 90,000
360,000

__450,000
(P300,000)

Full Goodwill or Fair Value Basis


a. Investment in S
225,000
Beginning Retained Earnings-P Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.

c.

Common stock S
Retained earnings S
Investment in S
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)

225,000

3,000,000
1,250.000
3,825,000
425,000
400,000
150,000
40,000

210,000

FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
250,000
Dividends Subsidiary 20x4
(
0) 1,250,000
Book value of SHE S, 1/1/20x5
P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000

Multiplied by: NCI%


FV of NCI
Full-goodwill or Fair Value Basis
Fair value of Subsidiary:
Consideration transferred P3,750,000 / 90%
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 100%
Land (P2,000,000 P1,600,000) x 100%
Gain full (attributable to parent)

10%
P 465,000

P4,166,667
4,000,000
P 166,667
P 100,000
400,000

__500,000
(P333,333

Note: In case of gain, the working paper eliminating entries under partial and full -goodwill
approach are the same.
2.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Adjustment to conv ert 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
(P1,000,000 + P250,000 P0 + P300,000 P0)
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4 (inv entory)
Multiplied by: Controlling interests %...................
Add: Bargain purchase gain (Controlling interest P300,000)
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x5

Problem III
Computation of Goodwill:
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P1,000,000 + P500,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill partial
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred P2,800,000 / 80%
Less: BV of SHE of S (P1,500,000 x 100%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill full
Amortization of allocated excess:

P2,000,000

P1,550,000
1,000,000
P 550,000
100,000
P 450,000
90%
P405,000
300,000
_______0

__705,,000
P2,705,000

P2,800,000
_1,200,000
P1,600,000
__720,000
P 880,000

P3,500,000
1,500,000
P2,000,000
__900,000
P1,100,000

P900,000 / 10 years = P90,000 per year


1.
Cost Model-Full Goodwill (Eliminating Entries)
20x4
a. Beginning Retained Earnings-S Co.
Capital Stock- S Co.
Property and Equipment (net)
Goodwill
Investment in S Co.
Non-controlling Interest

1,000,000
500,000
900,000
1,100,000
2,800,000
700,000

Common stock, 1/1/20x4


P 500,000
Retained earnings, 1/1/20x4
1,000,000
Book value of SHE S, 1/1/20x5
P1,500,000
Adjustments to reflect fair value
900,000
FV of SHE of S1/1/x5
P2,400,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 480,000
Add: NCI on full-goodwill (P1,100,000 P880,000)
220,000
FV of NCI (full)
P 700,000
b. Depreciation Expense
Property and Equipment (net )
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company
Capital Stock-S Company
Property and Equipment (net)
Goodwill
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20]

90,000
90,000

240,000
240,000

1,300,000
500,000
900,000
1,100,000
3,040,000
760,000

FV of SHE of S:
Common stock, 1/1/20x5
P 500,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0) 1,300,000
Book value of SHE S, 1/1/20x5
P1,800,000
Adjustments to reflect fair value
900,000
FV of SHE of S1/1/x5
P2,700,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 540,000
Add: NCI on full-goodwill (P1,100,000 P880,000)
220,000

FV of NCI (full)
c. Beginning Retained Earnings-P Co. (P90,000 x 80%)
Non-controlling Interest (P90,000, depreciation x 20%)
Depreciation Expense
Property and Equipment (net)

P 760,000
72,000
18,000
90,000
180,000

NCI (partial), 12/31/20x5: [(a) P760,000 (b) P18,000 = P522,000]


FV of SHE of S:
Common stock, 1/1/20x5
P 500,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0) 1,300,000
Book value of SHE S, 1/1/20x5
P1,800,000
Adjustments to reflect fair value
900,000
Amortization of allocated excess (P90,000 x 1)
( 90,000)
FV of SHE of S
P2,610,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 522,000
Add: NCI on full-goodwill (P1,100,000 P880,000)
220,000
FV of NCI (full)
P 742,000

Cost Model-Partial Goodwill (Eliminating Entries)


20x4
a. Beginning Retained Earnings-S Co.
Capital Stock- S Co.
Property and Equipment (net)
Goodwill
Investment in S Co.
Non-controlling Interest
b. Depreciation Expense
Property and Equipment (net )
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5

1,000,000
500,000
900,000
880,000
2,800,000
480,000
90,000
90,000

240,000

b. Beginning Retained Earnings-S Company


1,300,000
Capital Stock-S Company
500,000
Property and Equipment (net)
900,000
Goodwill
880,000
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20] (P1,100,000 P880,000)

240,000

3,040,000
540,000

NCI:

FV of SHE of S:
Common stock, 1/1/20x5
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
NI Subsidiary (20x4)
Dividends Subsidiary 20x4
Book value of SHE S, 1/1/20x5
Adjustments to reflect fair value
FV of SHE of S1/1/x5
Multiplied by: NCI%
FV of NCI (partial)
c. Beginning Retained Earnings-P Co. (P90,000 x 80%)
Non-controlling Interest (P90,000 depreciation x 20%)
Depreciation Expense
Property and Equipment (net)

P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000
72,000
18,000
90,000
180,000

NCI (partial), 12/31/20x5: [(a) P540,000 (b) P18,000 = P522,000]


FV of SHE of S:
Common stock, 1/1/20x5
P 500,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0) 1,300,000
Book value of SHE S, 1/1/20x5
P1,800,000
Adjustments to reflect fair value
900,000
Amortization of allocated excess (P90,000 x 1)
( 90,000)
FV of SHE of S
P2,610,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 522,000

2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI


20x4

Consolidated Net Income for 20x4


Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment

P400,000
300,000
P700,000
P 42,000
90,000
____0

132,000

Controlling Interest in Consolidated Net Income


or Profit
attribut able to equity holders of P..
Add: Non-controlling Interest in Net Income
(NCINI)
Consolidated Net Income for 20x4

P568,000
42,000
P610,000

Net income of subsidiary..

P
300,000
(
90,000)
P210,000

Amortization of allocated excess ...

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

20%
P
42,000

Non-controlling Interest in Net Income (NCINI)


Note: If there is impairment in goodwill the CNI and NCI-CNI are not the same.

20x5

Consolidated Net Income for 20x5


Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment

P425,000
400,000
P825,000
P 62,000
90,000
____0
152,000

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
Net income of subsidiary..
Amortization of allocated excess ...

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


Non-controlling Interest in Net Income (NCINI)

P673,000
62,000
P735,000
P
400,000
(
90,000)
P310,000
20%
P

62,000
Problem IV
1.
Common stock of TT Company
on December 31, 20x4
Retained earnings of TT Company
January 1, 20x4
Sales for 20x4
Less: Expenses
Dividends paid
Retained earnings of TT Company
on December 31, 20x4
Net book value on December 31, 20x4
Proportion of stock acquired by QQ
Purchase price
2.
Net book value on December 31, 20x4
Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest

P 90,000
P 130,000
195,000
(160,000)
(15,000)
150,000
P240,000
x
.80
P192,000
P240,000
x
.20
P 48,000

3.

Consolidated net income is P143,000. None of the 20x4 net income of TT Company was earned
after the date of purchase and, therefore, none can be included in consolidated net income.

4.

Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].

Problem V
Requirements 1 to 4:
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)


Consideration transferred:
Cash
Notes payable
Less: Book value of stockholders equity of S:
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

P 360,000
105,000

P
465,000

P 240,000
120,000

6,000

7,200
96,000
( 24,000)

360,000
P
105,000

100%).....
Decrease in bonds payable (P4,800 x
100%)
Positive excess: Goodwill (excess of cost over
fair
value)...

4,800

90,000
P
15,000

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

S Co.
Book
value
Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..

S Co.
Fair
value

(Over)
Under
Valuation

P
24,000
48,000
84,000
168,000

P
30,000
55,200
180,000
144,000
(
(120,000) 115,200)
P
P
204,000 294,000

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...

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

S Co.
Book value
180,000

S Co.
Fair value
180,000

Increase
(Decrease)
0

96,000

( 96,000)

84,000

180,000

96,000

S Co.
Book value
360,000

S Co.
Fair value
144,000

(Decrease)
( 216,000)

192,000

( 192,000)

168,000

144,000

24,000)

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000
Subject
to
Annual

Lif
e
1

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

Amortization

Buildings (net)

96,00
0
(24,0
00)

Bonds payable

4,800

Equipment (net).........

8
4
4

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

12,00
0
(6,00
0)

12,000
( 6,000)
1,200

1,200
P
7,200

P 13,200

20x4 : First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 465,000
360,000

Cash..
Notes payable

105,000

Acquisit ion of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash
Dividend income (P36,000 x 100%).

36,000

36,000

Record dividends from S Company.

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

Dividends paid
Cash.

36,000

Div idends paid by S Co..

36,000

Consolidation Workpaper First Year after Acquisition

(E1)
Common
stock

Co
Retained
earnings

Co
Investment
in
Co

240,000

120,000

360,000

To eliminat e int ercompany invest ment and equit y account s


of subsidiary on date of acquisition. ; and t o establish non-controlling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200

Land.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Investment
in
S
Co.

4,800
15,000
216,000
105,000

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense
Goodwill impairment loss

6,000
6,000
6,000
1,200
3,600
6,000

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill..

12,000
1,200
3,600

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Sons ident ifiable asset s and liabilit ies as follows:

Inv entory 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.


Dividends paid S

36,000
36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

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


Cost Model
100%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Div idend income
Total Rev enue

P Co
P480,000
36,000
P516,000

S Co.
P240,000
P240,000

Dr.
(4)

36,000

Cr.

Consolidated
P 720,000
_________
P 720,000

Cost of goods sold


Depreciation expense
Interest expense
Goodwill impairment loss
Other expenses
Total Cost and Expenses
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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
Total

P204,000
60,000
-

P138,000
24,000
-

48,000
P312,000
P204,000

18,000
P180,000
P 60,000

(3)
(3)
(3)
(3)

6,000
6,000
1,200
3,600

P 348,000
90,000
1,200
3,600
66,000
P508,800
P211,200

P360,000

P 360,000

204,000
P564,000

P120,000
60,000
P180,000

72,000
-

36,000

P492,000

P144,000

147,000
90,000
120,000
210,000
240,000
720,000

P 90,000
60,000
90,000
48,000
180,000
540,000

(1) 120,000
211,200
P571,200

(4)

P 499,200

P
(2)
(2)

6,000
7,200

(2)
(2)

4,800
15,000

465,000
P1,992,000

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

___590,400
P1,992,000

240,000
144,000
P1,008,000

72,000
________

36,000

(3)

6,000

(2) 216,000
(3) 1,200
(3) 3,600
(4) 360,000
(5) 105,000

(2) 96,000 (3)


(2) 192,000
(3)
6,000

12,000

237,000
150,000
210,000
265,200
420,000
1,044,000
3,600
11,400

P2,341,200

P 147,000
495,000
240,000
360,000
600,000

(1) 240,000
P 736,200

P 736,200

499,200
P2,341,200

20x5: Second Year after Acquisition


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
100%).

48,000
x

48,000

Record dividends from S Company.

On the books of S Company, the P40,000 dividend paid was recorded as follows:

Dividends paid
Cash
Dividends paid by S Co..

48,000
48,000

Consolidation Workpaper Second Year after Acquisition

(E1)
Investment
Company
Retained
earnings
Company

in

24,000

24,000

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5.
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

P144,000
120,000
P 24,000
100%
P 24,000

(E2)
Common
stock

Co
Retained earnings S Co., 1/1/20x5
Investment in S Co

240,000
144,000
384,000

To eliminat e int ercompany invest ment and equit y account s


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

(E3)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Investment
in
S
105,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on January 1, 20x5.

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


(P16,800 x 100%)
Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense

16,800
6,000
12,000
1,200

6,000

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

24,000
2,400
3,600

To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Ss ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Ps ret ained earnings
Year 20x5 amount s are debit ed t o respect ive nominal account s..

Inv entory sold


Equipment
Buildings
Bonds payable
Impairment loss
Totals

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,600
P 16,800

Depreciation/
Amortization
expense
P

Amortization
-Interest

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

P1,200

(E5) Dividend income - P.


Dividends paid S

48,000
48,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E6) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

16,560
16,560

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E4)] ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 90,000
( 7,200)
P 82,000
20%
P 16,560

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


Cost Model
100%-Owned Subsidiary
Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1

P Co.
P540,000
48,000
P588,000
P216,000
60,000
72,000
P348,000
P240,000

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000

Dr.

(5)

48,000

(4)
(4)

6,000
1,200

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800

P Company

P492,000

S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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
Total

(4) 16,800
(2)
144,000

(1)

24,000

499,200

240,000
P732,000

P144,000
90,000
P234,000

72,000
-

48,000

P660,000

P186,000

P 702,000

189,000
180,000
216,000
252,000
240,000
720,000

P 102,000
960,000
108,000
48,000
180,000
540,000

P 291,000
276,000
324,000
265,200
420,000
1,044,000
2,400
11,400

(5)

(3)
(3)

(3)
(3)
(1)

465,000
P2,220,000

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

660,000
P2,220,000

274,800
P 774,000

240,000
186,000
P1,074,000

6,000 (4)
7,200

4,800
15,000
24,000

(3) 96,000
(3) 192,000
(4) 12,000

48,000

6,000

(3) 216,000
(4) 2,400
(4) 3,600
(2) 384,000
(6) 105,000

(4)

24,000

72,000
________

P2,634,000

P 180,000
552,000
240,000
360,000
600,000

(2) 240,000
P 783,120

P 783,120

702,000
P2,634,000

5. 1/1/20x4
a.
On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)

P360,000

b. NCI not applicable, since it is 100% owned subsidiary


c.

Stockholders Equity
Common stock, P10 par

P
600,000

Retained earnings
Total Stockholders Equity (Total Equity)

360,000
P
960,000

6. 12/31/20x4:
a. P211,200 same with CNI since there is no NCI.
Consolidated Net Income for 20x4
Net income from own/separate operations:
Pa Company
S Company

P168,000
60,000

Total
Less: Amortization of allocated excess
Goodwill impairment loss
Consolidated Net Income for 20x4

P 13,200
3,600

P228,000
16,800
P211,200

b. NCINI not applicable, since it is 100% owned subsidiary


c. P211,200 same with NCI-CNI since there is no NCI.
d.
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x4 or Consolidated Net Income (CNI)*
211,200
Total
P571,200
Less: Div idends paid P Company for 20x4
72,000
Consolidated Retained Earnings, December 31, 20x4
P499,200
* since it is a 100%-owned subsidiary, Cont rolling Int erest in Net Income is t he same wit h Consolidat ed Net Income.

e. NCI not applicable, since it is 100% owned subsidiary


f.

Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)

P
600,000
499,200
P
1,099,200

12/31/20x5
a. P274,800 same with CNI since there is no NCI.
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Amortization of allocated excess
Goodwill impairment loss
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent or CNI

P192,000
90,000
P282,000
P 7,200
0

7,200
P274,800

b. NCINI not applicable, since it is 100% owned subsidiary


c. P274,800 same with NCI-CNI since there is no NCI.
d.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to conv ert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................
Consolidated Retained earnings, January 1, 20x5
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x5 or CNI
Total
Less: Div idends paid P Company for 20x5

P492,000

P 144,000
120,000
P 24,000
16,800
P 7,200
100%

7,200
P 499,200
274,800
P774,000
72,000

Consolidated Retained Earnings, December 31, 20x5

P702,000

e. NCI not applicable, since it is 100% owned subsidiary


f.

Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)

P 600,000
702,000
P1,302,000

Problem VI
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

288,000
P
84,000

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

72,000
P
12,000

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

S Co.
Book
value
Inventory...

S Co.
Fair
value
P

(Over)
Under
Valuation
P P 6,000

24,000
48,000
84,000
168,000

30,000
Land
55,200
Equipment (net).........
180,000
Buildings (net)
144,000
(
Bonds payable (120,000) 115,200)
P
P
Net..
204,000 294,000

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...

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

S Co.
Book value
180,000

S Co.
Fair value
180,000

Increase
(Decrease)
0

96,000

( 96,000)

84,000

180,000

96,000

S Co.
Book value
360,000

S Co.
Fair value
144,000

(Decrease)
( 216,000)

192,000

( 192,000)

168,000

144,000

24,000)

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(25,0
Buildings (net)
00)
Bonds payable

4,800

Lif
e
1

8
4
4

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

12,00
0
(6,00
0)

1,200
P
13,200

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

1,200
P
7,200

The goodwill impairment loss of P3,125 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 Son
(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:

Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%

The goodwill impairment loss would be allocated as follows

Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill applicable to NCI..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill

% of
Total
80.00%
20.00%
100.00%

When cost model is used, only two journal entries are recorded by P Company during 20x4 related to
its investment in S Company.
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000

372,000
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.

28,800
28,800

On the books of S Company, the P30,000 dividend paid was recorded as follows:

Dividends paid
Cash.
Dividends paid by S Co..

36,000

36,000

Consolidation Workpaper Year of Acquisition

(E1)
Common
stock

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..

240,000

120.000

288,000

72,000

To eliminat e int ercompany invest ment and equit y account s


of subsidiary on date of acquisition; and t o establish non-cont rolling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
Non-controlling
interest
(P90,000
x
18,000
20%)..
Investment
in
S
84,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish non-

cont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

12,000
1,200
3,000

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Sons ident ifiable asset s and liabilit ies as follows:

Inv entory 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

Total

13,200

It should be observed that the goodwill computed above was proportional t o the controlling interest
of 80% and non-controlling interest of 20% computed as follows:

Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%

Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full -goodwill would be
allocated as follows:

Value
Goodwill impairment loss attributable to P or
P
controlling
3,000
Interest
Goodwill impairment
loss applicable to
750

% of
Total
80.00%
20.00%

NCI..
Goodwill impairment loss based on 100% fair
value or fullGoodwill
(E4) Dividend income - P.
Non-controlling
interest
(P36,000
20%)..
Dividends paid S

P 3,750

100.00%

28,800
7,200

36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E5) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

9,360
9,360

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)] ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 60,000
( 13,200)
P 46,800
20%
P 9,360

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


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P310,000
P196,800
P196,800

Income Statement
Sales
Div idend income
Total Rev enue
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 abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.

S Co.
P240,000
P240,000
P138,000
28,000
18,000
P180,000
P 60,000
P 60,000

Dr.

(4)

28,800

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,000

(5)

9,360

Cr.

P360,000

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440

196,800
P552,000

P120,000
60,000
P180,000

72,000
-

36,000

P484,800

232,800

(1) 120,000

360,000
202,440
P562,440

72,000
________

P144,000

490,440

P 90,000

322,800

(4)

36,000

Accounts receiv able..


Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

90,000
120,000
210,000
240,000
720,000

60,000
90,000
48,000
180,000
540,000

(2)
(2)

6,000
7,200

(2)
(2)

4,800
12,000

372,000
P1,984,800

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

484,800

240,000
144,000
_________
P1,008,000

20x5: Second Year after Acquisition

Sales
Less: Cost of goods sold
Gross profit

P2,424,600

12,000

P147,000
495,000
240,000
360,000
600,000
490,440

7,200

__________
P 745,560

(1 ) 72,000
(2) 18,000
(5) 9,360
P 745,560

____92,160
P2,424,600

P Co.

S Co.

P
540,000
216,000

P
360,000

Less: Depreciation expense


Other expense
Net income from its own separate
operations
Add: Dividend income

P
192,000
38,400

Dividends paid

150,000
210,000
265,200
420,000
1,044,000
3,600
9,000

(1) 240,000

P
324,000
60,000
72,000

Net income

6,000

(2) 216,000
(3) 1,200
(3) 3,000
(7) 288,000
(8) 84,000

(2) 96,000 (3)


(2) 192,000
(3)
6,000

(4)
_________
P1,984,800

(3)

P
230,400
P
72,000

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 Cost Model Entry
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:

January 1, 20x5 December 31, 20x5:


Cash
Dividend
income
(P48,000

38,400
x

38,400

80%).
Record dividends from S Company.
On the books of S Company, the P40,000 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
Company
Retained
earnings
Company

in

19,200

19,200

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5, comput ed 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

P144,000
120,000
P 24,000
80%
P 19,200

(E2)
Common
stock

Co
Retained earnings S Co., 1/1/20x5
Investment
in
S
Co
(P384,000
80%)
Non-controlling
interest
(P384,000
20%)..

240,000
144,000

307,200

76,800

To eliminat e int ercompany invest ment and equit y account s


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

(E3)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.

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

216,000
18,000
84,000

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s 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
20%).
Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense

13,560
2,640

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

24,000
2,400
3,000

To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Ss ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Ps ret ained earnings &
NCI;
Year 20x5 amount s are debit ed t o respect ive nominal account s.

Inv entory 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
20%)..
Dividends paid S

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

38,400
9,600
48,000

(E6) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

16,560
16,560

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E4)] ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI

P 90,000
( 7,200)
P 82,800
20%
P 16,560

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


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400

Income Statement
Sales
Div idend income
Total Rev enue
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 abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable

P484,800

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

Dr.

(5)

38,400

(4)
(4)

6,000
1,200

(6)

16,560

(4) 13,560
(2) 144,000

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240

(1) 19,200

P 490,440

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 114,000
96,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000

372,000
P2,203,200

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000

120,000

258,240
P 748,680

(5)

(3)
(3)

6,000
7,200

(3)
(3)
(1)

4,800
12,000
19,200

(3) 96,000
(3) 192,000
(4) 12,000

(4)

48,000

6,000

(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000

(4)

24,000

72,000
________

P2,707,800

P180,000
552,000
240,000

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

240,000
600,000
643,200

240,000
186,000

360,000
600,000
(2) 240,000
676,680
(5)
(4)

___ _____
P2,203,200

Total

120,000

_________
P1,074,000

9,600
2,640

__________
P 821,160

(2 ) 76,800
(3) 18,000
(6) 16,560
P 821,160

____99,120
P2,707,800

5. 1/1/20x4
a.
On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)

P360,000

b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair v alue of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000

c.

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

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

6.
Note: The goodwill recognized on consolidation purely rel ates to the Ps 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
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
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

P 9,360
13,200
3,000

25,560
P202,440
9,360
P211.800

b. NCI-CNI
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company

P168,000
60,000
P228,000

P 60,000

Less: Amortization of allocated excess / goodwill impairment


(refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

13,200
P 46,800
20%
P 9,360

c. CNI, P211,800 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed a s
follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P 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: Div idends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

P360,000
202,440
P562,440
72,000
P490,440

e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160

f.

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

P 600,000
490,440
P1,090,440
___92,160
P1,182,600

12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
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

P192,000
90,000
P282,000
P16,560
__7,200

23,760
P258,240
16,560
P274,800

b. NCI-CNI
* Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 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 - P Company, January 1, 20x5 (cost model
Adjustment to conv ert 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 S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or


(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x5
258,240
Total
P748,680
Less: Div idends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired.

e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Div idends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..

P 240,000
P14,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120

f.

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

P 600,000
676,680
P1,276,680

NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5

___99,120
P1,1375,800

Problem VII
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

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)...

93,000
P
465,000

P 240,000
120,000

360,000
P
105,000

6,000
7,200
96,000

( 24,000)
4,800

90,000

P
15,000

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000

Lif
e
1

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

Subject
to
Amortization

Annual

Buildings (net)

96,00
0
(24,0
00)

Bonds payable

4,800

Equipment (net).........

8
4
4

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

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

12,00
0
(6,00
0)
1,200
P
7,200

20x4: First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

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

28,800
28,800

On the books of S Company, the P30,000 dividend paid was recorded as follows:

Dividends paid
Cash.
Dividends paid by S Co..

36,000

36,000

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

(E1) Common stock S Co


240,000
Retained earnings S Co
120.000
Investment in S Co
288,000
Non-controlling
interest
(P360,000
x
72,000
20%)..
To eliminat e int ercompany invest ment and equit y account s
of subsidiary on dat e of acquisit ion; and t o est ablish non-cont rolling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200

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.

4,800
13,000
216,000
21,000
84,000

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciat ion

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

12,000
1,200
3,750

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Ss ident ifiable asset s and liabilit ies as follows:

Inv entory 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
20%)..
Dividends paid S

28,800
7,200
36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E5) Non-controlling interest in Net Income of


Subsidiary

8,610

Non-controlling interest ..

8,610

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


Income less NCI on goodwill impairment loss on full-goodwill
for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)] ...
Multiplied by: Non-controlling interest %..........

P 60,000
( 13,200)
P 46,800
20%
P 9,360

Less: Non-controlling interest on impairment


loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill less
P2,500, impairment on partial-goodwill)*
750
Non-controlling Interest in Net Income (NCINI)
P 8,610
* t his procedure would be more appropriat e, inst ead of mult iplying t he fullgoodwill impairment loss of P3,125 by 20%. There might be situat ions where t he
NCI on goodwill impairment loss would not be proport ionat e t o NCI acquired
(refer t o Illust rat ion 15-6).

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 (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P312,000
P196,800
P196,800

Income Statement
Sales
Div idend income
Total Rev enue
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 abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill

S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000

Dr.

(4)

28,800

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,750

(5)

8,610

Cr.

P360,000

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,680

196,800
P556,800

P120,000
60,000
P180,000

72,000
-

36,000

P484,800

232,800
90,000
120,000
210,000
240,000
720,000

360,000

(1) 120,000
202,680
P562,440

86,400
________

P144,000

490,440

P 90,000
60,000
90,000
48,000
180,000
540,000

322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250

(4)

(2)
(2)

6,000
7,200

(2)
(2)

4,800
15,000

(3)

36,000

6,000

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

Inv estment 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

372,000
P1,984,800

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

(3) 288,000
(4) 84,000

(2) 96,000 (3)


(5) 192,000
(6)
6,000

240,000
144,000

(1) 240,000

484,800
_________
P1,984,800

_________
P1,984,800

__________
P 748,560

20x5: Second Year after Acquisition

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

(7)

7,200

P147,000
495,000
240,000
360,000
600,000
490,440
____94,410
P2,426,850

P Co.

S Co.

P
540,000
216,000

P
360,000

P
324,000
60,000
72,000
P
192,000
38,400

Net income

P
230,400
P
72,000

No goodwill impairment loss for 20x5.

12,000

(1 ) 72,000
(2) 21,000
(5) 8,610
P 748,560

Net income from its own separate


operations
Add: Dividend income

Dividends paid

P2,426,850

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

38,400
38,400

On the books of S Company, the P40,000 dividend paid was recorded as follows:

Dividends paid
Cash
Dividends paid by S Co..

48,000
48,000

Consolidation Workpaper Second Year after Acquisition

(E1)
Investment
Company
Retained
earnings
Company

in

19,200

19,200

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5.
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

P144,000
120,000
P 24,000
80%
P 19,200

(E2)
Common
stock

Co
Retained earnings S Co., 1/1/20x5
Investment
in
S
Co
(P384,000
80%)
Non-controlling
interest
(P384,000
20%)..

240,000
144,000

307,200

76,800

To eliminat e int ercompany invest ment and equit y account s


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

(E3)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
S
84,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subs idiary) on January 1, 20x5.

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

(P16,950 x 80%)
Non-controlling
interests
(P16,950
20%).
Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense

13,560
3,390

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

24,000
2,400
3,750

To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Sons ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings
and NCI.
Year 20x5 amount s are debit ed t o respect ive nominal account s..

Inv entory sold


Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560

Depreciation/
Amortization
expense
P

Amortization
-Interest

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

P1,200

(E5) Dividend income - P.


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

38,400
9,600
48,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E6) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..
To est ablish non-cont rolling int erest in subsidiarys adjust ed net
income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E4)] ...
Multiplied by: Non-controlling interest %..........
Less: NCI on goodwill impairment loss on fullGoodwill
Non-controlling Interest in Net Income (NCINI)

P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560

16,560
16,560

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
Div idend income
Total Rev enue
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

P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

P484,800

Dr.
(5)

38,400

(4)
(4)

6,000
1,200

(6)

16,560

(5) 13,560
(6) 144,000

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240

(5) 19,200

P 490,440

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 102,000
96,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250

372,000
P2,203,200

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

643,200

240,000
186,000

258,240
P 748,680

(5)

(3)
(3)

(3)
(3)
(1)

6,000 (4)
7,200

4,800
15,000
19,200

(3) 96,000
(3) 192,000
(4) 12,000

57,600

6,000

(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(7) 84,000

(4)

24,000

72,000
________

P2,710,050
P180,000
552,000
240,000
360,000
600,000

(2) 240,000
676,680
(6)
(8)

___ _____
P2,203,200

_________
P1,074,000

9,600
3,390 (2 ) 76,800
(3) 21,000
__________ (6) 16,560
P 824,910
P 824,910

____101,370
P2,710,050

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)

P360,000

b.
Non-controlling interest (full-goodwill), January 1, 20x4
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair v alue of stockholders equity of S, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
Add: NCI on full-goodwill (P15,000 P12,000)
Non-controlling interest (partial-goodwill)..

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000

c.

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

6.
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 P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P168,000
60,000
P228,000
P 8,610
13,200
3,750

P202,440
8,610
P211.050

b. NCI-CNI P8,610
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
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)*

25,560

P 60,000
13,200
P 46,800
20%
P 9,360
750

Non-controlling Interest in Net Income (NCINI)


P 8,610
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of
P3,750 by 20%. There might be sit uat ions where t he NCI on goodwill impa irment loss would not be
proport ionat e t o NCI acquired.

c. CNI, P211,050 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 - P 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: Div idends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

P360,000
202,440
P562,440
72,000
P490,440

e.
Non-controlling interest (full-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of S, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill, 12/31/20x4..
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), 12/31/20x4..

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410

f.

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

P 600,000
490,440
P1,090,440
___94,410
P1,184,850

12/31/20x5:
a. CI-CNI P258,240
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to

P16,560
7,200
0

P192,000
90,000
P282,000

23,760

equity holders of parent..


Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5

P258,240
16,560
P274,800

b. NCI-CNI P16,560
* Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 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 - P Company, January 1, 20x5 (cost model
Adjustment to conv ert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps 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
Multiplied by: Controlling interests %...................

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or


(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Div idends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired.

e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Div idends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue of stockholders equity of S, 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)..

P 240,000
P144,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370

f.

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

P 600,000
676,680
P1,276,680
__101,370
P1,378,050

Problem VIII
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued)..........................
Common Stock (par value) ........................................................
Additional Paid-in Capital (excess over par value) ....................
Liabilities ......................................................................................

900,000
150,000
450,000
300,000

The payment to the broker is accounted for as an expense. The stock issue cost is a reduction in
additional paid-in capital.
Acquisition expense ..........................................................................
Additional Paid-in Capital.................................................................
Cash ........................................................................................

30,000
40,000
70,000

Allocation of Acquisition-Date Excess Fair Value:


Consideration transferred (fair value) for BB Stock .........................
Book Value of BB, 6/30 ......................................................................
Fair Value in Excess of Book Value ..............................................
Excess fair value (undervalued equipment) .....................................
Excess fair value (overvalued patented technology) ......................
Goodwill ......................................................................................
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included) ....................................................................................
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included) ..................................................
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary) ...........................................................................
4. Goodwill (computed above) ...................................................................
5. Liabilities (the parent's book value plus the fair value
of the subsidiary's debt plus the debt issued by the parent
in acquiring the subsidiary) .....................................................................
6. Common Stock (the parent's book value after recording
the newly-issued shares) .........................................................................
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above) ..................................................
Problem IX
1.
P15,000

(P115,000 + P46,000) - P146,000

P900,000
770,000
P130,000
100,000
(20,000)
P 50,000

P210,000
800,000
1,180,000
50,000

1,210,000
510,000
680,000

2.
3.
4.

P65,000
SS: P24,000

=
=

BB P70,000
Fair value of SS as a
whole:
P200,000
10,000

(P148,000 - P98,000) + P15,000


P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
P94,000 - P24,000
Book value of SS shares
Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
Differential assigned to goodwill
Fair value of SS

40,000
9,000
P259,000
5.
6.

65 percent
Capital Stock
Retained Earnings

=
=
=

1.00 (P90,650 / P259,000)


P120,000
P115,000

Problem X
1.
Investment in WP, Inc.
Contingent performance obligation
Cash

500,000
35,000
465,000

2.
12/31/x4 Loss from increase in contingent performance
obligation
Contingent performance obligation

5,000

12/31/x5 Loss from increase in contingent performance


obligation
Contingent performance obligation

10,000

12/31/x5 Contingent performance obligation


Cash
3. Cost Model/Initial Value Method
Investment in WP
Retained earnings-BS
Common stock
Retained earnings-WP
Investment in WP

5,000

10,000
50,000
50,000

30,000
30,000
200,000
180,000
380,000

Royalty agreements
Goodwill
Investment in WP

90,000
60,000

Dividend income
Dividends paid

35,000

Amortization expense
Royalty agreements

10,000

150,000

35,000

10,000

Problem XI (Consolidated accounts one year after acquisition)


SS acquisition fair value ($10,000 in
stock issue costs reduce
additional paid-in capital) ............................ P680,000
Book value of subsidiary
(1/1/x4stockholders' equity balances).............. (480,000)
Fair value in excess of book value ....................... P200,000
Excess fair value allocated to copyrights
Life
Amortizations
based on fair value ....................................... 120,000
6 yrs.
P20,000
Goodwill .............................................................. P 80,000 indefinite
_____-0Total ...............................................................
P20,000
1.

2.

Consolidated copyrights
PP (book value) .........................................................
SS (book value) ..........................................................
Allocation (above) ....................................................
Excess amortizations, 20x4 .........................................
Total .....................................................................
Consolidated net income, 20X4
Revenues (add book values) ....................................
Expenses:
Add book values .................................................
Excess amortizations ............................................
Consolidated net income ..........................................

P900,000
400,000
120,000
(20,000)
P1,400,000

P1,100,000
P700,000
20,000

720,000
P380,000

3.

Consolidated retained earnings, 12/31/x4


Retained earnings 1/1/x4 (PP) ...................................
P600,000
Net income 20x4 (above) .........................................
380,000
Dividends paid 20x4 (PP) ...........................................
(80,000)
Total .....................................................................
P900,000
SSs retained earnings balance as of January 1, 20x4, is not included because these
operations occurred prior to the purchase. SS's dividends were paid to PP and therefore
are excluded because they are intercompany in nature.

4.

Consolidated goodwill, 12/31/x4


Allocation (above) ....................................................

P80,000

Problem XII
Consolidated balances three years after the date of acquisition. Includes questions about parent's
method of recording investment for internal reporting purposes. )
1.

Acquisition-Date Fair Value Allocation and Amortization:


Consideration transferred 1/1/09 ........................ P600,000
Book value (given) ..............................................
(470,000)
Annual
Fair value in excess of book value .................
130,000
Excess
Allocation to equipment based on
Life Amortizations
difference in fair value and
book value ....................................................
90,000
10 yrs.
P9,000
Goodwill ..............................................................
P40,000 indefinite
-0Total ...............................................................
P9,000

Consolidated Balances
Depreciation expense = P659,000 (book values plus P9,000 excess depreciation)
Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are eliminated
as intercompany transfer)
Revenues = P1,400,000 (add book values)
Equipment = P1,563,000 (add book values plus P90,000 allocation less three years of
excess depreciation [P27,000])
Buildings = P1,200,000 (add book values)
Goodwill = P40,000 (original residual allocation)
Common Stock = P900,000 (parent balance only)
2.

The parent's choice of an investment method has no impact on the consolidated totals.
The choice of an investment method only affects the internal reporting of the parent.
Under PAS 27, it requires a choice between cost model or under PFRS 9 (known as fair
value model)

3.

The cost model or initial value method is used. The parent's Investment in Subsidiary
account still retains the original consideration transferred of P600,000. In addition, the
Investment Income account equals the amount of dividends paid by the subsidiary.

4.

If the equity method had been applied which is not allowed under PAS 27 for a parent to
consolidate, the Investment Income account would have included both the equity
accrual of P100,000 and excess amortizations of P9,000 for a balance of P91,000.

Problem XIII
1.
Net income for 20x4:

2.
3.

Operating income
Income from subsidiary
Net income
Consolidated net income is P125,000 (P90,000 + P35,000).
Retained earnings reported at December 31, 20x4:
Retained earnings, January 1, 20x4
Net income for 20x4
Dividends paid in 20x4
Retained earnings, December 31, 20x4

4.
5.

QQ
P 90,000
24,500
P114,500

NN
P35,000

QQ
P290,000
114,500
(30,000)
P374,500

NN
P40,000
35,000
(10,000)
P65,000

P35,000

Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained earnings
balance reported by QQ.
When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the tot al retained earnings reported by the parent in
arriving at consolidated retained earnings.

Problem XIV
(Several valuation and income determination questions for a business combination involving a non controlling interest.)

Business combinations are recorded generally at the fair value of the consideration transferred by the
acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PSs consideration transferred (P31.25 80,000 shares) .......................................
Non-controlling interest fair value (P30.00 20,000 shares) ..................................
SRs total fair value 1/1/09 ....................................................................................

P2,500,000
P600,000
P3,100,000

1.

Each identifiable asset acquired and liability assumed in a business combination should initially be
reported at its acquisition-date fair value.

2.

In periods subsequent to acquisition, the subsidiarys assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.

3.

SRs total fair value 1/1/09 ....................................................................................


SRs net assets book value....................................................................................
Excess acquisition-date fair value over book value .............................................
Adjustments from book to fair values ...................................................................
Buildings and equipment .................................................
(250,000)
Trademarks ......................................................................
200,000
Patented technology ......................................................
1,060,000
Unpatent ed technology..................................................
600,000
Goodwill
......................................................................................................

P3,100,000
1,290,000
P1,810,000

Combined revenues.............................................................................................
Combined expenses ............................................................................................
Building and equipment excess depreciation .....................................................
Trademark excess amortization ............................................................................
Patented technology amortization ......................................................................
Unpatent ed technology amortization .................................................................
Consolidated net income ....................................................................................

P4,400,000
(2,350,000)
50,000
(20,000)
(265,000)
(200,000)
P1,615,000

To non-controlling interest:
SRs revenues ..................................................................................................
SRs expenses..................................................................................................
Total excess amortization expenses (above) .................................................
SRs adjusted net income ...............................................................................
Non-controlling interest percentage ownership ............................................
Non-controlling interest share of consolidated net income ...........................

P1,400,000
(600,000)
(435,000)
P365,000
20%
P73,000

To controlling interest:
Consolidated net income ..............................................................................
Non-controlling interest share of consolidated net income...........................
Controlling interest share of consolidated net income ..................................

P1,615,000
(73,000)
P1,542,000

4.

1,610,000
P 200,000

-ORPSs
PSs
PSs
PSs

revenues ..................................................................................................
expenses..................................................................................................
separate net income ..............................................................................
share of SRs adjusted net income
(80% P365,000) .................................................................................

P3,000,000
1,750,000
P1,250,000
292,000

5.

6.

Controlling interest share of consolidated net income ..................................

P1,542,000

Fair value of non-controlling interest January 1, 20x4...........................................


20x4 income ............................................................................................ 73,000
Dividends (20% P30,000) ....................................................................................
Non-controlling interest December 31, 20x4 ........................................................

P600,000

(6,000)
667,000

If SRs acquisition-date total fair value was P2,250,000, then a bargain purchase has occurred.
SRs total fair value 1/1/09 ....................................................................................
P2,250,000
Collective fair values of SRs net assets ................................................................
P2,300,000
Bargain purchase .................................................................................................
P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities assumed be
recognized at their acquisition date fair values regardless of the assessed fair value. Therefore,
none of SRs identifiable assets and liabilities would change as a result of the assessed fair value.
When a bargain purchase occurs, however, no goodwill is recognized.

Problem XV (Full-Goodwill)
A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1 (stockholders' equity accounts)
(P100,000 + P600,000 + P700,000) ....................
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ............................
Dividends .......................................................
Change during year ............................................
Change during first six months of year ..........
Book value of RR, 7/1 (acquisition date) .
(Full-Goodwill)
Consideration transferred by KL (P1,330,000 +
P30,000) ...........................................................
Non-controlling interest fair value ..............................
RRs fair value (given) .................................................

P1,400,000

P120,000
(20,000)
P100,000
50,000
P1,450,000

P1,360,000
300,000
P1,630,000

Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV of
the NCI based on FV of SHE of Subsidiary (RR), computed as follow s:
BV of SHE of Subsidiary (RR) ..................................
Adjustments to reflect fair value (undervaluation)
FV of SHE of Subsidiary (RR) ..................................
Multiplied by: NCI%...............................................
FV of NCI .
Consideration transferred by KL (P1,330,000 +
P30,000) ...........................................................
Non-controlling interest fair value ..............................
RRs fair value (given) .................................................
Book value of RR, 7/1..................................................
Fair value in excess of book value..............................
Excess fair value assigned
Trademarks .............................................................

P1,450,000
150,000
P 1,600,000
20%
P 320,000

P1,360,000
___320,000
P1,680,000
(1,450,000)
P 230,000
Life
150,000 5 years

Annual Excess
Amortizations
P30,000

Goodwill (full-goodwill) ...........................................


Total
..................................................................

80,000 indefinite

-0P30,000

It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount refer to computation
above). The rationale behind such rule is to avoid having a lower amount of goodwill under
the full-goodwill approach as compared to goodwill computed under the partial -goodwill
approach.
(Partial-Goodwill)
Consideration transferred by KL ................................. P 1,360,000
Less: Book value of SHE RR (P1,450,000 x 80%) ..
1,160,000
Allocated excess . P 200,000
Less: Over/under valuation of A and L:
P150,000 x 80%..............................................
120,000
Goodwill - partial ........................................................ P 80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the same
because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) i s higher compared
to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus year excess amortization of P15,000.
Dividends paid = P80,000
Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
Equipment, none
Depreciation expense, none
Subsidiarys net income, P60,000 = [(P500,000 P280,000 P100,000) x 1/2]
Buildings, none
Goodwill (full), P80,000; Goodwill (partial), P80,000
Consolidated Net Income, P245,000
Sales (1)
P1,050,000
Cost of goods sold (2)
540,000
Operating expenses (3)
__265,000
Net Income
P 245,000
Non-controlling Interest in Sub. Income (4)
P
9,000
Controlling Interest in CNI
P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary operating
expenses) plus year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization [20%
(120,000 30,000) year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parents balance because the subsidiary was
acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value allocation after
taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)

Problem XVI (Consolidated balances after a mid-year acquisition)


Note: Investment account balance indicates the initial value method.
Consideration transferred ....................................
Non-controlling interest fair value ........................
FV of SHE - subsiary ..............................................
Less: Book value of DD (below) ............................
Fair value in excess of book value (positive)........
Excess assigned
based on fair value:
Equipment ................................................
Goodwill (full) ...........................................
Total ...............................................................
Amortization for 9 months ..............................

P526,000
300,000
P826,000
(765,000)
P 61,000
Life
(30,000) 5 years
P 91,000 indefinite

Acquisition-Date Subsidiary Book Value


Book value of Duncan, 1/1/x4 (CS + 1/1 RE) .........................
Increase in book value-net income (dividends
were paid after acquisition) ............................................
Time prior to purchase (3 months) .........................................
Book value of DD, 4/1/x4 (acquisition date) .........................

Annual Excess
Amortizations
P(6,000)
-0P(6,000)
P(4,500)

P740,000
P100,000

25,000
P765,000

* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD)..
Adjustments to reflect fair value (undervaluation)
FV of SHE of Subsidiary (DD) .............................
Multiplied by: NCI% ..........................................
FV of NCI .
(Partial-Goodwill)
Consideration transferred ..............................
Less: Book value of SHE DD (P765,000 x 60%)
Allocated excess.
Less: Over/under valuation of A and L:
(P30,000 x 60%)...........................................
Goodwill - partial ............................................

P765,000
( 30,000)
P735,000
40%
P294,000

P 526,000
459,000
P 67,000
( 18,000)
P 85,000

1. Consolidated Income Statement:


Revenues (1)
P825,000
Cost of goods sold (2)
P405,000
Operating expenses (3)
214,500
619,500
Consolidated net income
P 205,500
Noncontrolling interest in CNI (4)
28,200
Controlling interest in CNI
P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary
operating expenses) less nine month excess overvalued equipment depreciation
reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization

2.
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus P4,500
nine months excess amortization)
Common Stock = P630,000 (P company balance only)
Buildings = P1,124,000 (add the two book values)
Dividends Paid = P80,000 (P company balance only)
Problem XVII
Ps gain on sale of subsidiary stock is computed as follows:

Cash proceeds
Fair value of retained non-controlling interest equity
investment (35%)
Carrying value of the non-controlling interest before
deconsolidation
(15% or prior outside non-controlling interest in
Subsidiary)
Less: Carrying value of Subsidiarys net assets
Gain on disposal or deconsolidation

P
720,000
420,000

120,000
P1,260,000
1,200,000
P 60,000

Parent Company reports the P60,000 gain in 20x5 income.


Problem XVIII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:

Cash proceeds
Less: Carrying value of non-controlling interest
(P720,000* x 10%)
Gain transfer within equity in Additional paid-in
capital account

P
96,000
72,000
P
60,000

* t he P720,000 is already t he gross-up amount since it is t he amount present ed in t he consolidat ed balance sheet .

Because P Company continues to have the ability to control S Company, the sale of Ss shares is
treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Pa lmer Companys
additional paid-in capital increases by P60,000.
Problem XIX
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ..
Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance P720,000

P 210,000

x: Non-controlling interest .
20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance .P720,000
Additional issuance .. 210,000
BV of SHE after issuance .P930,000
x: Non-controlling interest ...
36%** 334,800 190,800
Gain transfer within equity in
Additional paid-in capital account. ..............
P 19,200
* (120,000 96,000) / 120,000 = 20% ownership before additional issuance of shares.
** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
P Company recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to P595,200
[P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.

Problem XX
1. Equity Method
Income accrual (80%) ...........................................................
Excess amortization expense .................................................
Investment income ..........................................................

P56,000
(3,200)
P52,800

Initial fair value paid ...............................................................


Income accrual 20x420x6 (P260,000 80%) ........................
Dividends 20x420x6 (P45,000 80%) ....................................
Excess Amortizations 20x420x6 (P3,200 3) ..........................
Investment in TT12/31/x6 ...............................................

P664,000
208,000
(36,000)
(9,600)
P826,400

2.

Equity Method same with No. 1

3.

Using the acquisition method, the allocation will be the total difference (P80,000) between the
buildings' book value and fair value. Based on a 20 year life, annual excess amortization is P4,000.
MM book valuebuildings ..............................................
TT book valuebuildings .................................................
Allocation ........................................................................
Excess Amortizations for 20x420x5 (P4,000 2)
Consolidated buildings account .........................

4.

5.

Acquisition-date fair value allocated to goodwill


Goodwill-full ( see Problem I above) ....................................
Goodwill-partial (see Problem I above)

P 800,000
300,000
80,000
(8,000)
P1,172,000
P
P

150,000
120,000

If the parent has been applying the equity method, the stockholders' equity accounts on its
books will already represent consolidated totals. The common stock and additional paid -in capital
figures to be reported are the parent balances only.
Common stock, P500,000
Additional paid-in capital, P280,000

Problem XXI

(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1Acquisition-Date Fair Value Allocation and Amortization
JJs acquisition-date fair value .. P206,000
Book value of JJ .......................................
(140,000)
Fair value in excess of book value ...........
66,000
Excess fair value assigned to specific
accounts based on individual fair values
Equipment .........................................
Buildings (overvalued) .......................
Goodwill ............................................
Total ...................................................

54,400
(10,000)
P21,600

Life
8 yrs.
20 yrs.
indefinite

Annual Excess
Amortization
P6,800
(500)
-0P6,300

Investment in JJ Company12/31/x6
JJs acquisition-date fair value .....................................................
20x4 Increase in book value of subsidiary
20x4 Excess amortizations (Schedule 1) .......................................
20x5 Increase in book value of subsidiary ...................................
20x5 Excess amortizations (Schedule 1) .......................................
20x6 Increase in book value of subsidiary ...................................
20x6 Excess amortizations (Schedule 1) .......................................
Investment in J Company ......................................................

P206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
P257,100

2. Equity in Subsidiary Earnings


Income accrual ............................................................................
Excess amortizations (Schedul e 1) ...............................................
Equity in subsidiary earnings ..................................................

P30,000
(6,300)
P23,700

3. Consolidated Net Income


Consolidated revenues (add book values) .................................
Consolidated expenses (add book values) ................................
Excess amortization expenses (Schedule 1) ................................
Consolidated net income ...........................................................

P414,000
(272,000)
(6,300)
P135,700

4. Consolidated Equipment
Book values added together ......................................................
Allocation of purchase price .......................................................
Excess depreciation (P6,800 3) .................................................
Consolidated equipment ......................................................

P370,000
54,400
(20,400)
P404,000

5. Consolidated Buildings ..............................................................................


Book values added together ......................................................
Allocation of purchase price .......................................................
Excess depreciation (P500 3) ....................................................
Consolidated buildings...........................................................

P288,000
(10,000)
1,500
P279,500

6. Consolidated goodwill
Allocation of excess fair value to goodwill ...................................

P21,600

7. Consolidated Common Stock ...................................................................


P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings ...............................................................

P410,000

Tyler's balance of P410,000 is equal to the consolidated total because the equity method
has been applied.
Problem XXII
Computation of Goodwill:
Partial Goodwill or Proportionate Basis
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P1,200,000 + P600,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P725,000 P600,000) x 80%
Equipment (P1,075,000 P900,000) x 80%
Goodwill partial

Full-goodwill or Fair Value Basis


Fair value of Subsidiary:
Consideration transferred P1,970,000 / 80%
Less: BV of SHE of S (P1,200,000 + P600,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P725,000 P600,000) x 100%
Equipment (P1,075,000 P900,000) x 100%
Goodwill full

P1,970,000
_1,440,000
P 530,000
P 100,000
140,000

__240,000
P 290,000

P2,467,500
1,800,000
P 662,500
P125,000
175,000

__300,000
P362,500

Amortization
Inventory: P125,000 x 60%
P125,000 x 40%
Equipment: P175,000 / 7 years

20x4
P 75,000
25,000
P 100,000

20x5
P 50,000
25,000
P 75,000

1.
20x4
Investment in S Company
Cash

1,970,000
1,970,000

Cash (0.8 x P150,000)


Investment in S Company

120,000

Investment in S Company
Equity in Subsidiary Income (.80)(P750,000)

600,000

120,000

600,000

Equity in Subsidiary Income


Investment in S Company

80,000

Cash (0.8 x P225,000)

180,000

80,000

20x5

Investment in S Company
Investment in S Company
Equity in Subsidiary Income (.80)(P900,000)
Equity in Subsidiary Income
Investment in S Company

180,000
720,000
720,000
60,000
60,000

2.
20x4
(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000)
Dividends Declared (0. 80 x P150,000)
Investment in S Company
(2) Beginning Retained Earnings - S Company
Common Stock- S Company
Investment in S Company
Noncontrolling Interest
(3) Inventory (P125, 000 P75,000)
Cost of Goods Sold
Equipment (net)
Goodwill
Investment in S Company
(4) Depreciation Expense
Equipment (net)

520,000
120,000
400,000
600,000
1,200,000
1,307,500
492,500
50,000
75,000
175,000
362,500
662,500
25,000
25,000

20x5
(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000)
Dividends Declared (0. 80 x P225,000)
Investment in Superstition Company
(2) Beginning Retained Earnings-Superstition Company
Common Stock - Superstition Company.
Investment in Superstition Company

660,000
180,000
480,000
1,200,000
1,200,000
1,787,500

Non-controlling Interest
(P492,500 + (P1,200,000 P600,000) x .20)

(3) Investment in S Company


Non-controlling Interest
Cost of Goods Sold
Equipment (net)
Goodwill
Investment in S Company
(4) Investment in S Company
Non-controlling Interest
Depreciation Expense
Equipment (net)

612,500

60,000
15,000
50,000
175,000
362,500
662,500
20,000
5,000
25,000
50,000

3.

Consolidated Net Income for 20x5


Net income from own/separate operations
P Company (P1,000,000 P120,000)
S Company

P 880,000
__
750,000
P1,630,000

Total
Less: Non-controlling Interest in Net Income*
P130,000
Amortization of allocated excess
100,000
Goodwill impairment
____0
230,000
Controlling
Interest in Consolidated Net
Income or Profit
P1,400,000
attributable
to
equity
holders
of
parent..
Add: Non-controlling Interest in Net Income
130,000
(NCINI)
Consolidated Net Income for 20x4
P1,530,000
Net income of subsidiary..
Amortization of allocated excess (P25,000 + P75,000)

P
750,000
(
100,000)
P650,000

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


20%
P
130,000

Non-controlling Interest in Net Income (NCINI)

Note: Regardless on the method used in recording investments (cost model or equity method) the
manner of computing CI-CNI, NCI-CNI and CNI are exactly the same.
Problem XXIII
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

P
372,000
P 192,000
96,000

288,000
P

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)...

84,000

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

72,000
P
12,000

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

S Co.
Book
value

S Co.
Fair
value

P
24,000
48,000
84,000
168,000

P
Inventory...
30,000
Land
55,200
Equipment (net).........
180,000
Buildings (net)
144,000
(
Bonds payable (120,000) 115,200)
P
P
Net..
204,000 294,000

(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...

Buildings................
Less: Accumulated

S Co.
Book value
180,000

S Co.
Fair value
180,000

Increase
(Decrease)
0

96,000

( 96,000)

84,000

180,000

96,000

S Co.
Book value
360,000
192,000

S Co.
Fair value
144,000
-

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

depreciat ion..
Net book
value...

168,000

144,000

24,000)

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(25,0
Buildings (net)
00)
Bonds payable

4,800

Lif
e
1

8
4
4

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

12,00
0
(6,00
0)

1,200
P
13,200

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

1,200
P
7,200

The goodwill impairment loss of P3,125 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:

Value

% of
Total

Goodwill applicable to P
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

80.00%
20.00%
100.00%

The goodwill impairment loss would be allocated as follows

Value
Goodwill impairment loss attributable to P or
P
controlling
3,000
Interest
Goodwill applicable to NCI..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill

% of
Total
80.00%
20.00%
100.00%

20x4: First Year after Acquisition


Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

Cash..
Acquisit ion of S Company.

January 1, 20x4 December 31, 20x4:


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

28,800

28,800

Record dividends from S Company.

December 31, 20x4:


(3) Investment in S Company
Investment income (P60,000 x 80%)

48,000
48,000

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

13,560
13,560

Record amortization of allocat ed excess of invent ory, equipment , buildings and


bonds payable and goodwill impairment loss.

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

Inv estment in S
372,000 28,800

Div idends S (36,000x 80%)

NI of S
(60,000 x 80%)
Balance, 12/31/x4

Amortization &
impairment

48,000
377,640

13,560

Inv estment Income


13,560

48,000
34,440

Amortization &
impairment

NI of S
(P60,000 x 80%)
Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition


The schedule of determination and allocation of excess presented a bove provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:

(E1)
Common
stock

S
Co
Retained
earnings

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

240,000
120.000
288,000
72,000

To eliminat e invest ment on January 1, 20x4 and equit y account s


of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of
acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
Non-controlling
interest
(P96,000
x
18,000
20%)..
Investment
in
S
84,000
Co.
To eliminat e invest ment on January 1, 20x4 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o goodwill; and t o est ablish non- cont rolling int erest (in net asset s of
subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..

6,000
6,000

Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

6,000
1,200
3,000

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

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

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Sons ident ifiable asset s and liabilit ies as follows:

Inv entory 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

13,200

It should be observed that the goodwill computed above was proportional to the controlling interest
of 80% and non-controlling interest of 20% computed as follows:

Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%

Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full -goodwill would be
allocated as follows:

Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill impairment
loss applicable to
625
NCI..
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill
(E4) Investment income

34,440

% of
Total
80.00%
20.00%
100.00%

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

7,200
36,000
5,640

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:
Inv estment in S
NI of S
28,800
Div idends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
5,640

After

Inv estment Income


Amortization
impairment

13,560

NI of S
(60,000
x 80%)

48,000
34,440

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,

goodwill
purposes:

for

Cost, 1/1/x4
NI of Son
(60,000 x 80%)
Balance, 12/31/x4

Goodwill applicable to parent


Goodwill applicable to NCI
Total (full) goodwill

Inv estment in S
372,000
28,800
48,000
377,640

377,640
Value
P12,000
3,000
P15,000

13,560
288,000
84,000
5,640

Div idends S (36,000x 80%)


Amortization &
impairment
(E1) Inv estment, 1/1/20x4
(E2) Inv estment, 1/1/20x4
(E4) Inv estment Income
and div idends

Percentage of
amortization

377,640
% of Total
80.00%
20.00%
100.00%

The goodwill impairment loss of P3,750 based on 100% fair v alue or full-goodwill would
be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair v alue or full-goodwill
P 3,750
100.00%

(E5) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

9,360
9,360

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)] ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 60,000
( 13,200)
P 46,800
20%
P 9,360

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.

Equity Method (Partial -goodwill)


80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
P Co
P480,000
34,440
P513,600
P204,000
60,000
48,000
P312,000
P202,440
P202,440

Income Statement
Sales
Inv estment income
Total Rev enue
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 abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

P360,000

202,440
P562,440

P120,000
60,000
P180,000

72,000
-

36,000

P490,440

P144,000

232,800
90,000
120,000
210,000
240,000
720,000

P 90,000
60,000
90,000
48,000
180,000
540,000

Dr.
(4)

34,440

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,000

(5)

9,360

377,640
P1,990,440

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

490,440

240,000
144,000
_________
P1,008,000

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440

P360,000
202,440
P562,440

(4)

72,000
-

36,000

P490,440

P
(2)
(2)

6,000 (3)
7,200

6,000

(2) 216,000
4,800 (3) 1,200
12,000 (3) 3,000
(2) 288,000
(2) 84,000
(4) 5,640

(2) 96,000 (3)


(8) 192,000
(9)
6,000

322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000

P2,424,600

12,000

P147,000
495,000
240,000
360,000
600,000

(1) 240,000

490,440
(10) 7,200

_________
P1,990,440

Cr.

(1) 120,000

(2)
(2)

20x5: Second Year after Acquisition

Sales

S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000

__________
P 751,200

(1 ) 72,000
(2) 18,000
(5) 9,360
P 751,200

P Co.

____92,160
P2,424,600

S Co.
P

540,000
216,000

Less: Cost of goods sold


Gross profit
Less: Depreciation expense
Other expense

P
324,000
60,000
72,000

Net income from its own separate


operations
Add: Investment income

P
192,000
66,240

Net income

P
258,240
P
72,000

Dividends paid

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
The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:

January 1, 20x5 December 31, 20x5:


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

38,400
38,400

Record dividends from S Company.

December 31, 20x5:


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

72,000
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

5,760

Record amortizat ion of allocat ed excess of invent ory, equipment ,


buildings and bonds payable

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%)
Balance, 12/31/x5

Inv estment in S
377,640 38,400
72,000
405,480

5,760

Div idends S (48,000x 80%)


Amortization
(P7,200 x 80%)

Inv estment Income


Amortization
(7,200 x 80%)

5,760

72,000
66,240

Consolidation Workpaper Second Year after Acquisition

NI of S
(90,000 x 80%)
Balance, 12/31/x4

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:

(E1)
Common
stock

S
Co
Retained
earnings

S
Co,
1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling
interest
(P384,000
x
20%)..

240,000
144.000
307,200
76,800

To eliminat e invest ment on January 1, 20x5 and equit y account s


of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation equipment (P96,000 84,000


P12,000)
Accumulat ed depreciation buildings (P192,000 + 6,000) 198,000
7,200
Land.
Discount on bonds payable (P4,800 P1,200).
3,600
Goodwill (P12,000 P3,000)..
9,000
Buildings..
216,000
Non-controlling interest [(P90,000 P13,200) x 20%]
15,360
Investment
in
S
70,440
Co.
To eliminat e invest ment on January 1, 20x5 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o t he original amount of goodwill; and t o est ablish non- cont rolling
int erest (in net asset s of subsidiary) on 1/1/20x5.

(E3) Depreciation expense..


Accumulated
depreciation

buildings..
Interest expense
Accumulated
depreciation

equipment..
Discount
on
bonds
payable
To provide for 20x5 depreciat ion and amort izat ion on differences
bet ween acquisit ion dat e fair value and book value of Sons
ident ifiable asset s and liabilit ies as follows:

Inv entory sold


Equipment
Buildings
Bonds payable

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______

P 1,200

Total

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

Totals

P 6,000

P1,200

P7,,200

(E4) Investment income


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

66,240
9,600

48,000
27,840

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:

After

Inv estment in S
NI of S
38,400
Div idends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840

Inv estment Income


Amortization
(P7,200 x 80%)

5,760

72,000
66,240

the
NI of S
(90,000
x 80%)

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/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5

Inv estment in S
377,640
38,400
72,000
405,480

5,760
307,200
70,440
27,840

405,480

405,480

Div idends S (48,000x 80%)


Amortization
(7,200 x 80%)
(E1) Inv estment, 1/1/20x5
(E2) Inv estment, 1/1/20x5
(E4) Inv estment Income
and div idends

(E5) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

16,560
16,560

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)] ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 90,000
( 7,200)
P 82,800
20%
P 16,560

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
Inv estment income
Total Rev enue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss

P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
-

S Co.
P360,000
P360,000
P192,000
24,000
54,000
-

Dr.

(4)

66,240

(3)
(3)

6,000
1,200

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
-

Total Cost and Expenses


Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P348,000
P258,240
P258,240

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

P270,000
P 90,000
P 90,000

(5)

P 625,200
P 274,800
( 16,560)
P258,240

16,560

P490,440

P490,440

258,240
P748,680

P144,000
90,000
P234,000

72,000
-

48,000

P676,680

P186,000

P676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 102,000
96,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000

405,480
P2,236,680

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

676,680

240,000
186,000

(1) 144,000

(4)

(2)

7,200

(2)
(2)

3,600
9,000

(2)

_________
P1,074,000

84,000

48,000

(3) 216,000
(3) 1,200
(1) 307,200
(2) 70,440
(4) 27,840

(3)

12,000

(2) 198,000
(3) 6,000

9,600

__________
P 794,400

72,000
-

P2,707,800

P180,000
552,000
240,000
360,000
600,000

(1) 240,000
(7)

___ _____
P2,236,680

258,240
P748,680

676,680
(2 ) 76,800
(2) 15,360
(5) 16,560
P 794,400

____99,120
P2,707,800

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 VI solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)

P360,000

b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and

P 240,000
120,000
P 360,000

liabilities, date of acquisition (January 1, 20x4)


Fair v alue of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

90,000
P450,000
20
P 90,000

c.

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

6.
12/31/20x4:
a. CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 9,360
13,200
3,000

P168,000
60,000
P228,000

25,560
P202,440
9,360
P211.800

b. NCI-CNI
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess / goodw ill impairment
(refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 60,000
13,200
P 46,800
20%
P 9,360

c. CNI, P211,800 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 - P 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: Div idends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

P360,000
202,440
P562,440
72,000
P490,440

e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total

P 240,000
P120,000
60,000
P180,000

Less: Div idends paid 20x4


Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

36,000

144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160

f.

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

P 600,000
490,440
P1,090,440
___92,160
P1,182,600

12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
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

P192,000
90,000
P282,000
P16,560
__7,200

23,760
P258,240
16,560
P274,800

b. NCI-CNI
* Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 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 - P Company, January 1, 20x5 (cost model
Adjustment to conv ert 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 S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

(P3, 750 x 80%)


3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Div idends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired.

e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Div idends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue of stockholders equity of subsidiary, December 31, 20x 5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..

P 240,000
P14,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120

f.

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

P 600,000
676,680
P1,276,680
___99,120
P1,1375,800

Problem XXIV
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

P
372,000
93,000
P
465,000

P 240,000

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)...

120,000

360,000
P
105,000

6,000
7,200
96,000

( 24,000)
4,800

90,000

P
15,000

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable

Lif
e
1

8
4

4,800

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

12,00
0
(6,00
0)

1,200
P
13,200

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

1,200
P
7,200

2x4: First Year after Acquisition


Parent Company Equity Method Entry
The following are entries recorded by the parent in 20x4 in relation to its subsidiary investment:
January 1, 20x4:

(1)

Investment

in

S 372,000

Company
372,000

Cash..
Acquisit ion 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 (P60,000 x 80%)

48,000

28,800

Record dividends from S Company.

48,000

Record share in net income of subsidiary.

December 31, 20x4:


(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
Investment in S Company

13,560
13,560

Record amortization of allocat ed excess of invent ory, equipment , buildings and


bonds payable and goodwill impairment loss.
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%. There might
be sit uations where the controlling interests on goodwill impairment loss would not be proport ionat e t o NCI acquired (refer t o
Illust rat ion 15-6).

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4

Inv estment in S
372,000 28,800
48,000
377,640

Div idends S (36,000x 80%)


Amortization &
Impairment

13,560

Inv estment Income


Amortization &
Impairment

13,560

NI of S
(P60,000 x 80%)
Balance, 12/31/x4

48,000
34,440

Consolidation Workpaper First Year after Acquisition


The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:

(E1)
Common
stock

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..

240,000

120.000

288,000

72,000

To eliminat e invest ment on January 1, 20x4 and equit y account s

of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of
acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
S
84,000
Co.
To eliminat e invest ment on January 1, 20x4 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o goodwill; and t o est ablish non- cont rolling int erest (in net asset s of
subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill
To provide for 20x4 impairment loss and depreciat ion and
amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Ss ident ifiable asset s and liabilit ies as follows:

Inv entory sold


Equipment
Buildings
Bonds payable

Cost of
Goods
Sold
P 6,000

_______

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______

P 1,200

Total

12,000
1,200
3,750

Totals

P 6,000

P 6,000

P1,200

13,200

It should be observed that the goodwill computed above was proportional to the controlling interest
of 80% and non-controlling interest of 20% computed as follows:

Value
Goodwill applicable to parent

P12,00
0
3,000
P15,000

Goodwill applicable to NCI..


Total (full) goodwill..

% of
Total
80.00%
20.00%
100.00%

Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would be
allocated as follows:

Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill impairment
loss applicable to
750
NCI..
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill
(E4) Investment income
Non-controlling
interest
(P36,000
20%)..
Dividends paid S
Investment in S Company

% of
Total
80.00%
20.00%
100.00%

37,440
7,200

36,000
8,640

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:

After

Inv estment in S
NI of S
28,800
Div idends S
(60,000
Amortization &
x 80%). 48,000
13,560
Impairment
5,640

Inv estment Income


Amortization &
Impairment

13,560

48,000
34,440

NI of Son
(60,000
x 80%)

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
(60,000 x 80%)
Balance, 12/31/x4

Inv estment in S
372,000
28,800
40,000
377,640

13,560
288,000
84,000
5,640

Div idends S (36,000x 80%)


Amortization &
Impairment
(E1) Inv estment, 1/1/20x4
(E2) Inv estment, 1/1/20x4
(E4) Inv estment Income

and div idends


377,640

Percentage of goodwill for amortization purposes:


Value
Goodwill applicable to parent
P12,000
Goodwill applicable to NCI
3,000
Total (full) goodwill
P15,000

377,640

% of Total
80.00%
20.00%
100.00%

The goodwill impairment loss of P3,750 based on 100% fair v alue or full-goodwill would
be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair v alue or full-goodwill
P 3,750
100.00%

(E5) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

8,610
8,610

To est ablish non-cont rolling int erest in subsidiarys adj ust ed net
income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)] ...

P 60,000
( 13,200)
P 46,800
20%
P 9,360

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


Non-controlling Interest in Net Income (NCINI)
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)*
750
Non-controlling Interest in Net Income (NCINI)
P 8,610
* t his procedure would be more appropriat e, inst ead of mult iplying t he fullgoodwill impairment loss of P3,750 by 20%. There might be situat ions where t he
NCI on goodwill impairment loss would not be proport ionat e t o NCI acquired
(refer t o Illust rat ion 15-6).

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.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Depreciation expense
Interest expense

P Co
P480,000
34,440
P514,440
P204,000
60,000
-

S Co.
P240,000
P240,000
P138,000
24,000
-

Dr.

(4)

34,440

(3)
(3)
(3)

6,000
6,000
1,200

Cr.

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200

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
P202,440
P202,440

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

18,000
P180,000
P 60,000
P 60,000

(3)

3,750

(5)

8,610

66,000
3,750
P508,950
P211,050
( 8,610)
P202,440

P360,000

P360,000

202,440
P562,440

P120,000
60,000
P180,000

72,000
-

36,000

P490,440

P144,000

232,800
90,000
120,000
210,000
240,000
720,000

P 90,000
60,000
90,000
48,000
180,000
540,000

(1) 120,000
202,440
P562,440

(4)

P490,440

P
(2)
(2)

(2)
(2)

377,640
P1,990,440

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

490,440

240,000
144,000

20x5: Second Year after Acquisition

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

_________
P1,008,000

6,000 (3)
7,200

6,000

(2) 216,000
4,800 (3) 1,200
15,000 (3) 3,750
(2) 288,000
(2) 84,000
(4) 5,640

(2) 96,000 (3)


(2) 192,000
(3)
6,000

322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250

P2,426,850

12,000

P147,000
495,000
240,000
360,000
600,000

(1) 240,000
490,440
(4)

_________
P1,990,440

72,000
-

36,000

7,200

__________
P 754,200

(1 ) 72,000
(2) 21,000
(5) 8,610
P 754,200

____94,410
P2,426,850

P Co.

S Co.

P
540,000
216,000

P
380,000

P
324,000
60,000
72,000

192,000
P
168,000
24,000
54,000

Net income from its own separate


operations
Add: Investment income
Net income

P
192,000
66,240
P
258,240
P
72,000

Dividends paid

P
90,000
P
90,000
P
48,000

No goodwill impairment loss for 20x5.

Parent Company Equity Method Entry


The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:

January 1, 20x5 December 31, 20x5:


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

38,400

38,400

Record dividends from S Company.

December 31, 20x5:


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

72,000

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
5,760

Record amortizat ion of allocat ed excess of invent ory, equipment ,


buildings and bonds payable

P Companys P12,000 portion of the differential related to goodwill related to goodwill is not adjusted
on the parents books following Option 2 as referred to above for goodwill impairment loss. Even
though the goodwill of the consolidated entity is impaired,
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%)
Balance, 12/31/x5

Inv estment in S
377,640 38,400
72,000
405,480

5,760

Div idends S (48,000x 80%)


Amortization
(P7,200 x 80%)

Inv estment Income


Amortization
(7,200 x 80%)

5,760

72,000
66,240

NI of S
(90,000 x 80%)
Balance, 12/31/x4

Consolidation Workpaper Second Year after Acquisition


The schedule of determination and allocation of excess presented ab ove provides complete
guidance for the worksheet eliminating entries.

(E1)
Common
stock

S
Co
Retained
earnings

S
Co,
1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling
interest
(P384,000
x
20%)..

240,000
144.000
307,200
76,800

To eliminat e invest ment on January 1, 20x5 and equit y account s


of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation equipment (P96,000 84,000


P12,000)
Accumulated depreciation buildings (P192,000 + 198,000
P6,000)
7,200
Land.
Discount on bonds payable (P4,800 P1,200).
3,600
Goodwill (P15,000 P3,750)..
11,250
Buildings..
216,000
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
P3,000, partial- goodwill impairment)*
17,610
or (P3,750 x 20%)]
Investment
in
S
70,440
Co.
To eliminat e invest ment on January 1, 20x5 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o t he original amount of goodwill; and t o est ablish non- cont rolling
int erest (in net asset s of subsidiary) on 1/1/20x5.
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of P3,750 by 20%. There
might be situations where t he NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer t o Illust rat ion
15-6).

(E3) Depreciation expense..


Accumulated
depreciation

buildings..
Interest expense
Accumulated
depreciation

equipment..
Discount
on
bonds
payable
To provide for 20x5 depreciat ion and amort izat ion on differences
bet ween acquisit ion dat e fair value and book value of Sons
ident ifiable asset s and liabilit ies as follows:

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

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Inv entory sold


Equipment
Buildings
Bonds payable
Totals

Total

P7,200

(E4) Investment income


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

66,240
9,600

48,000
27,840

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:

After

Inv estment in S
NI of S
38,400
Div idends - S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840

Inv estment Income


Amortization
(P7,200 x 80%)

5,760

72,000
66,240

NI of S
(90,000
x 80%)

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,
Inv estment in S
377,640
38,400

Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5

72,000
405,480

5,760
307,200
70,440
27,840

405,480

405,480

Div idends S (48,000x 80%)


Amortization
(7,200 x 80%)
(E1) Inv estment, 1/1/20x5
(E2) Inv estment, 1/1/20x5
(E4) Inv estment Income
and div idends

(E5) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

16,560
16,560

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)] ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Less: NCI on goodwill impairment loss on fullGoodwill
Non-controlling Interest in Net Income (NCINI)

P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560

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


Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement

P Co

S Co.

Dr.

Cr.

Consolidated

Sales
Inv estment income
Total Rev enue
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

P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

(4)

66,240

(3)
(3)

6,000
1,200

(5)

16,560

P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240

P490,440

P490,440

258,240
P748,680

P144,000
90,000
P234,000

72,000
-

48,000

P676,680

P186,000

P676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 102,000
960,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250

405,9480
P2,236,680

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

676,680

240,000
186,000

(1) 144,000

(4)

(2)

7,200

(2)
(2)

3,600
11,250

(2)

__________
P1,074,000

84,000

48,000

(3) 216,000
(3) 1,200
(1) 307,200
(5) 70,440
(4) 27,840

(3)

12,000

(2) 198,000
(3)
6,000

9,600

__________
P 796,650

72,000
-

P2,634,000

P 180,000
552,000
240,000
360,000
600,000

(1) 240,000
(3)

___ _____
P2,236,680

258,240
P748,680

676,680
(2 ) 76,800
(2) 17,610
(5) 16,560
P 796,650

__________
P2,634,000

Note: Using cost model or equity method, t he consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly
the same (refer to Problem VII solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings o f parent should always be considered as the
consolidated retained earnings, thus:

Consolidated Retained Earnings, January 1, 20x4


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

P360,000

b.
Non-controlling interest (full-goodwill), January 1, 20x4
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair v alue of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
Add: NCI on full-goodwill (P15,000 P12,000)
Non-controlling interest (partial-goodwill)..

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000

c.

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

6.
a. CI-CNI P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-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

P168,000
60,000
P228,000
P 8,610
13,200
3,750

25,560
P202,440
8,610
P211.050

b. NCI-CNI P8,610
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table abov e)

P 60,000
13,200
P 46,800
20%
P 9,360

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


Non-controlling Interest in Net Income (NCINI)
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)*
750
Non-controlling Interest in Net Income (NCINI)
P 8,610
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of
P3,750 by 20%. There might be sit uat ions where t he NCI on goodwill impairment loss would not be
proport ionat e t o NCI acquired.

c. CNI, P211,050 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 - P Company, January 1, 20x4 (date of acquisition)

P360,000

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


equity holders of parent for 20x4
Total
Less: Div idends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

202,440
P562,440
72,000
P490,440

e.
Non-controlling interest (full-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings SCompany, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill, 12/31/20x4..
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), 12/31/20x4..

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410

f.

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

P 600,000
490,440
P1,090,440
___94,410
P1,184,850

12/31/20x5:
a. CI-CNI P258,240
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-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 20x5

P192,000
90,000
P282,000
P16,560
7,200
0

P258,240
16,560
P274,800

b. NCI-CNI P16,560
* Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table abov e)
Multiplied by: Non-controlling interest %..........

23,760

P 90,000
80,400
P 82,800
20%

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

P 16,560

c. CNI, P274,800 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 - P Company, January 1, 20x5 (cost model
Adjustment to conv ert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or


(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Div idends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired.

e.
Non-controlling interest (full-goodwill), December 31, 20x5
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Div idends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue of 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)..

P 240,000
P144,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370

f.

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings

P 600,000
676,680

Ps Stockholders Equity / CI SHE, 12/31/20x4


NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P1,276,680
__101,370
P1,378,050

Problem XXV
1. Ambrose should report income from its subsidiary of P15,000 (P20,000 x .75) rather than dividend
income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the noncontrolling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA
P59,000
Less: Dividend income from KR
(9,000)
Operating income of AA
P50,000
Net income of KR
20,000
Consolidated net income
P70,000
4.
Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA must be
excluded from consolidated net income.
Problem XXVI
(Determine consolidated balances for a step acquisition).
1.

AD fair value implied by price paid by MM


P560,000 70% =

P800,000

2.

Revaluation gain
1/1 equit y investment in AD (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment
Gain on revaluation to fair value

P178,000
8,750
186,750
200,000
P13,250

Goodwill at 12/31
Fair value of AD at 6/30
Book value at 6/30 (700,000 + [70,000 2])
Excess fair value
Allocation to goodwill (no impairment)

P800,000
735,000
P65,000
P65,000

3.

4.

Non-controlling interest
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Non-controlling interest 12/31

Multiple Choice Problem


1. d equivalent to consideration transferred, P320,000

P40,000
1,750
(1,000)
P40,750

2. d equivalent to consideration transferred, P380,000


3. d
P: BV,12/31/20x6
S:
BV of building, 12/31/20x4
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 P240,000)
Less: Amortization of excess (P110,000/10) x 3 years

P250,000
P170,000
110,000
33,000

247,000
P497,000

4. d
Inventory not yet sold in 20x4
Building: (P390,000 P200,000)/ 10 years
Equipment (P280,000 P350,000)/ 5 years

0
19,000
( 14,000)
P 5,000

BV of building, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
Depreciation 1/1/20x4 12/31/20x6 (P100,000/20 x 3 years)

P200,000
100,000
( 15,000)
P285,000

5. b

6. d same with No. 5


7. d
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years)

P 80,000
( 5,000)
1,500
P 76,500

8. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years)
9. d 1/2/20x4:
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)

(P 5,000)
1,500
(P 3,500)
P200,000
100,000
P300,000

10. a
Net income of S (5/1/x5 12/31/x5): P840,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
not 12/31/x6)
x: Controlling interests

P560,000
300,000

Net income of S (5/1/x5 12/31/x5): P210,000 x 8/12


Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 12/31/20x5 (date to establish reciprocity
not or 1/1/20x6)
x: Controlling interests

P140,000
75,000

Retained earnings S Company, 1/1/20x4

P120,000

P260,000
80%
P208,000

11. a

P 65,000
80%
P 52,000

12. b

Less: Retained earnings S Company, 12/31/20x4


Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
should always be beginning of the year, not 12/31/x6)
x: Controlling interests

380,000

P260,000
90%
P234,000

13. b
Retained earnings S Company, 1/1/20x4
Less: Retained earnings S Company, 12/31/20x6
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
should always be beginning of the year, not 12/31/x6)
x: Controlling interests

P 60,000
190,000

P130,000
90%
P117,000

14. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3

P240,000
45,000
P195,000
30%
P 58,500

15. c
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess* *

P 375,000
30,000
P405,000
P5,250
3,750
0

9,000
P396,000

P30,000
3,750
P26,250
20%
P 5,250

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


Non-controlling Interest in Net Income (NCINI) for 20x4
* * P270,000/80% = P337,500 (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the
same.

16. a
* Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3

P600,000
112,500
P487,500
30%
P146,250

17. c
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)

P 625,000
50,000
P675,000
P 8,750
6,250

Goodwill impairment (impairment under full-goodwill approach)


Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess* *

15,000
P660,000

P50,000
6,250
P43,750
20%
P 8,750

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


Non-controlling Interest in Net Income (NCINI) for 20x4
* * P450,000/80% = P562,500 (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the
same.

18. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly throughout
the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12
P206,667
Amortization of allocated excess: P15,000 x 4/12
5,000
P211,667
19. c
Net income of S Company (P800,000 P620,000)
Less: Amortization of allocated excess
Multiplied by: No of mos. (9/1-12/31)

P180,000
15,000
P165,000
4/12
P 55,000

20. a
Net income of S Company (P800,000 P620,000)
Less: Amortization of allocated excess
Multiplied by: No of mos. (9/1-12/31)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4

P180,000
15,000
P165,000
4/12
P 55,000
____20%
P 22,000

21. d
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess* *

P 560,000
140,000
P700,000
P 50,400
14,000
_
0

64,400
P635,600

P140,000
14,000
P126,000
40%
P 50,400

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


Non-controlling Interest in Net Income (NCINI) for 20x4
* * P420,000/60% = P700,000 P560,000 = P140,000 P140,000 = P0
Amortization: P140,000/10 years = P14,000
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the
same.

22. a

NCI-CNI: P50,400 (refer to No. 21)

Non-controlling interest (full-goodwill), December 31, Year 2


Common stock S Company, December 31, Year 2
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, Year 2
Add: Net income of S for Year 2
Total
Less: Div idends paid Year 2
Stockholders equity S Company, December 31, Year 2
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, Year 1)
Amortization of allocated excess (refer to amortization abov e) :
Year 1
Year 2
Fair v alue of stockholders equity of subsidiary, December 31, Year 2
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial/full goodwill) since there is no goodwill

P 300,000
P260,000
140,000
P400,000
0

400,000
P 700,000
140,000

P 14,000
14,000

( 28,000)
P 812,000
40%
P 324,800

23. c
Book v alue equipment Parent, 12/31/Year 2
Fair v alue equipment Subsidiary, 12/31/Year 2
Book v alue, 1/1/Year 1
Adjustments to reflect fair v alue
Amortization depreciation (P14,000 x 2 years)
Consolidated equipment balance, 12/31/2Year 2

P444,000
P200,000
140,000
( 28,000)

312,000
P756,000

24. b
Full-Goodwill: (P600,000/70%) P640,000 = P217,143 P40,000 = P177,143
If partial goodwill: P600,000 (P640,000 x 70%) = P152,000 (P40,000 x 70%) = P124,000
25. c
26. d - The acquisition method consolidates assets at fair value at acquisition date regardless of the
parents percentage ownership.
27. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their
entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the
parent nonetheless controls it.
28. c - An asset acquired in a business combination is initially valued at 100% acquisition -date fair
value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 ...............................................................
Amortization for 2 years (10 year life) .............................................................
Patent reported amount December 31, 20x5 ................................................

P45,000
(9,000)
P36,000

29. c
Non-controlling interest (full-goodwill), December 31, 20x4
Book v alue of SHE S, 12/31/20x4
Add: Net income of S 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, Year 2
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition January 1, 20x4
Amortization of allocated excess (refer to amortization abov e: P200,000/10
Fair v alue of stockholders equity of subsidiary, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)

P1,000,000
___150,000
P1,150,000
____90,000
P1,060,000
200,000
_( 20,000)
P1,240,000
30%
P 372,000

Add: NCI on full-goodwill P85,714 P60,000)


Non-controlling interest (full)

___25,714
P397,714

*P900,000/70% = P1,285,714 P1,000,000 = P285,714 P200,000 = P85,714, full


goodwill

*P900,000 (P1,000,000 x 70%) = P200,000 (P200,000 x 70%) = P60,000,


partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3
either partial or full-goodwill approach are considered acceptable.
30. b

Combined revenues .......................................................................................


Combined expenses ......................................................................................
Trademark amortization .................................................................................
Patented technology amortization ................................................................
Consolidated net income ..............................................................................

31. No answer available: P34,400 and P260,800


NCI-CNI - P34,400; NCI P260,800
Subsidiary income (P100,000 P14,000 excess amortizations) .......................
Non-controlling interest percentage ..............................................................
Non-controlling interest in subsidiary income .................................................

P1,300,000
(800,000)
(6,000)
(8,000)
P486,000

P86,000
40%
P34,400

Fair value of non-controlling interest at acquisition date...............................


40% change in Scott book value since acquisition ........................................
Excess fair value amortization (P14,000 40%) ...............................................
40% current year income ...............................................................................
Non-controlling interest at end of year ..........................................................

P180,000
52,000
(5,600)
34,400
P260,800

32. a

MM trademark balance .................................................................................


SS trademark balance...................................................................................
Excess fair value .............................................................................................
Two years amortization (10-year life) ..............................................................
Consolidated trademarks...............................................................................

P260,000
200,000
60,000
(12,000)
P508,000

33. b

Combined revenues .......................................................................................


Combined expenses ......................................................................................
Excess acquisition-date fair value amortization .............................................
Consolidated net income ..............................................................................
Less: noncontrolling interest (P85,000 40%) ..................................................
Consolidated net income to controlling interest ............................................

P1,100,000
(700,000)
(15,000)
P385,000
(34,000)
P351,000

34. No answer available:


20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
35. c

HH expense ....................................................................................................
NN expenses ...................................................................................................
Excess fair value amortization (70,000 10 yrs)...............................................
Consolidated expenses ..................................................................................

36. b refer to No. 33

P621,000
714,000
7,000
P1,342,000

37. a

Fair value of non-controlling interest on April 1 ..............................................


30% of net income for 9 months ( year P240,000 30%)...........................
Non-controlling interest December 31 ...........................................................

38. b (P50,000 + P70,000) x 25% = P30,000


39. b P only.
40. b

- refer to No. 30

41. No answer available refer to No. 31


42. a

- refer to No. 32

43. a

P650,000 =P500,000 + P200,000 - P50,000

44. c

P95,000 = (P956,000 / .80) - P1,000,000 - P100,000

45. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]


46. a
47. b
Net Income from own operations:
20x4
20x5
Parent P 100,000 P100,000
Subsidiary ...
25,000
35,000
P125,000
P135,000
Subsidiarys other comprehensive income ..
5,000
10,000
Total Comprehensive Income .....P130,000
P145,000
Less: Amortization of allocated excess .
6,250
6,250
Impairment of full- goodwill (if any) .
0
0
Consolidated /Group Comprehensive Income P123,750
P138,750
Less: Non-controlling interest in Comprehensive
Income *
4,750
7,750
Controlling Interest in Consolidated
__________________
Comprehensive Income . P119,000
P131,000
*Non-controlling interest in Comprehensive Income:
20x4
2012
Subsidiarys:
Net income from own operations .......P 25,000
P 35,000
Other Comprehensive Income (P30,000
P25,000) . ...
5,000
10,000
Subsidiarys Comprehensive Income ........P 30,000
P 45,000
Less: Amortization of allocated excess* ..
6,250
6,250
Impairment of full-goodwill (if any).... .
0
0
P 23,750
P 38,750
x: Non-controlling interests .
20%
20%
Non-controlling interest in Comprehensive Incom e...P
4,750
P 7,750

48.
49.
50.
51.

*Amortization of allocated excess:


Increase in other intangibles: P50,000 / 8 years = P 6,250
c refer to No. 47
c refer to No. 47
b- refer to No. 47
b

P165,000
54,000
P219,000

Consideration transferred
P3,800
Less: BV of SHE of S: P1,000 + P600 + P1,500
3,100
Allocated excess /differential / excess of cost or fair value over book value P 700
52. a
Allocated excess /differential / excess of cost or fair value over book value P 700
Less: O/U valuation of A and L
Book value (P800 + P1,000 + P1,500 + P900 P1,800)
P2,400
Fair value (P900 + P1,200 + P1,250 + P1,300 P1,700)
2,950
Net increase
550
Goodwill
P 150
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.

c inventory at fair value


b - (P1,500, book value (P1,500 P1,200) + (P300/5) = P1,260
d (P1,000, book value + (P1,250 P1,000) (P250/2) = P1,125
c (P900, book value + (P1,300 P900) = P1,300
c (P1,800 (P1,800 P1,700) + (P100/4) = P1,725
c - (P1,500, book value (P1,500 P1,200) + (P300/5) x 2 years
b - (P1,000, book value + (P1,250 P1,000) (P250/2) x 2 years
b - (P900, book value + (P1,300 P900) = P1,3000
d - (P1,800 (P1,800 P1,700) + (P100/4) x 2 years = P1,750
b
Consideration transferred: 10,500 shares x P95
Less: BV of SHE S (?)
Allocated excess;
Less: O/U valuation of A and L:
Undervaluation of land
Overvaluation of buildings
Undervaluation of equipment
Undervaluation/unrecorded trademark

= P1,320
= P1,000

P997,500
857,500
P140,000
P40,000
( 30,000)
80,000
50,000 140,000
P
0

63. a P900,000 + P500,000 = P1,400,000


64. d assumed that total expenses includes cost of goods sold which is different when the question
is total operating expenses
Cost of goods sold (P360,000 + P200,000)
P 560,000
Depreciation expense (P140,000 + P40,000)
180,000
Other expenses (P100,000 + P60,000)
160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20
(P1,500)
Equipment; P80,000 / 10
8,000
Trademark: P50,000 / 16
3,125
9,625
Total expenses
P909,625
65.
66.
67.
68.
69.
70.
71.

b (P750,000 + P280,000) P30,000 + (P1,500 x 5 years) = P1,007,500


c (P300,000 + P500,000) + P80,000 (P8,000 x 5 years) = P840,000
c P450,000 + P180,000 + P40,000 = P670,000
d P50,000 P3,125 x 5 years) = P34,375
a P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
a P only
Cannot be determined. Since PAS 27 allows two methods in the books of Par ent (i.e. cost model
and fair value model (which is under PAS 39 or PFRS 9). It is therefore assumed that the retained
earnings of parent on 1/1/20x4 amounting to P1,350,000 is under the cost model, therefore, there
is a need to establish reciprocity (or retroactive adjustments from 1/1/20x0 to 1/1/20x4) but there
is data as given amount for retained earnings of subsidiary on 1/1/20x0.

If equity method is used (therefore assume the P1,350,000 is computed under the equity
method), the answer would be,
Consolidated Retained Earnings, December 31, 20x 4
Consolidated Retained earnings, January 1, 20x 4 (equity method)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Div idends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x 4 (under equity method)
Net Income from own operations:
Sales
Less: cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Net income

P 1,350,000
490,375
P1,840,375
195,000
P1,645,375
P Co
P900,000
360,000
P540,000
140,000
100,000
P300,000

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


P Company
S Company
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..

S Co
P500,000
200,000
P300,000
40,000
60,000
P200,000

P300,000
200,000
P500,000
P

0
9,625
_
0

9,625
P490,375

72. No answer available (P80,000 x 100%) = P80,000. Refer to No. 71 for further discussion
Note: Normally, the term used in the requirement equity in subsidiary income, is a term used
under equity method, but it should be noted that under PAS 27, it prohibits the use of equity
method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the
answer would be, P190,375.
Share in net income: P200,000 x 100%
P200,000
Less: Amortization of allocated excess
9,625
P190,375
73. b
Decrease in Buildings account:
Fair value
P 8,000
Book value ..
__10,000
Decrease .
P 2,000
74. d
Decrease in buildings account (refer to No. 73)
Less: Increase due to depreciation (P2,000/10)
Decrease in buildings accounts ..

P 2,000
200
P 1,800

Decrease in buildings account (refer to No. 74)


Less: Increase due to depreciation (P2,000/10)
Decrease in buildings accounts ..

P 1,800
200
P 1,600

Increase in Equipment account:


Fair value
Book value ..

P 14,000
__18,000

75. d

76. a

Increase .

4,000

77. a
Increase in equipment account (refer to No. 76)
Less: Decrease due to depreciation (P4,000/4)
Increase in equipment accounts ..

P
P

4,000
1,000
3,000

78. a
Increase in equipment account (refer to No. 77)
Less: Decrease due to depreciation (P4,000/4
Increase in equipment accounts ..

P 3,000
1,000
P 2,000

79. a
Increase in Land account:
Fair value P 12,000
Book value .. 5,000
Increase .. P 7,000
80. b refer to No. 79, no depreciation/amortization
81. b refer to No. 79, no depreciation/amortization
82. e
Increase in Patent account:
Fair value
Book value ..
Increase .

P 11,000
_
0
P 11,000

(P234,000/90%) (P160,000 + P80,000) = P20,000 (P4,000 P2,000 + P7,000) = P11,000.


Partial or full-goodwill approach, the amortization remains the same.
83. e
Increase in patent account (refer to No. 82)
Less: Decrease due to depreciation (P11,000/5).
Increase in patent accounts .

P 11,000
2,200
P 8,800

Increase in patent account (refer to No. 83)


Less: Decrease due to depreciation (P11,000/5).
Increase in patent accounts .

84. d
8,800
2,200
P 6,600

85. a
Under the cost method, an investor recognizes its investment in the investee at cost. Income is
recognized only to the extent that the investor receives distributions from the accumulated net
profits (or dividend declared/paid by the investee) of the investee arising after the date of
acquisition by the investor. Distributions (dividends) received in excess of such profits are
regarded as a recovery of investment and are accounted for as a reduction of the cost of the
investment (i.e., as a return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the
same.
86. d refer to No. 85 for further discussion.
87. b refer to No. 85 for further discussion.

88.
89.
90.
91.

a P40,000 x 80%
b P50,000 x 80%
a P60,000 x 80%
c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations .P100,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P 93,000
x: Non-controlling interests .
20%
Non-controlling interest in Net Income
P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full-goodwill
method should also be allocated between controlling and non-controlling interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations .P100,000
Less: Amortization of allocated excess* .
7,000
P 93,000
x: Non-controlling interests .
20%
Non-controlling interest in Net Income .
P 18,600

92. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations .P120,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P113,000
x: Non-controlling interests .
20%
Non-controlling interest in Net Income
P 22,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full -goodwill
method should also be allocated between controlling and non-controlling interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations .P120,000
Less: Amortization of allocated excess*
7,000
P113,000

x: Non-controlling interests .
Non-controlling interest in Net Income

20%
P 22,600

93. a
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from ow n operations .P130,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P123,000
x: Non-controlling interests .
20%
Non-controlling interest in Net Income
P 24,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full -goodwill
method should also be allocated between controlling and non-controlling interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations .P130,000
Less: Amortization of allocated excess*
7,000
P123,000
x: Non-controlling interests .
20%
Non-controlling interest in Net Income
P 24,600
94. a

Book value of Stockholders Equity of Subsidiary


Common stock, 12/31/20x4
P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4.P200,000
Add: Net income 20x4.. 100,000
Less: Dividends paid, 20x4.. 40,000 260,000
Book value of Stockholders Equity of Subsidiary, 12/31/x4
P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year..
7,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x4
P 623,000
Multiplied by: Non-controlling Interest %...........................
20%
Non-controlling Interest (partial goodwill)..
P 124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.

Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash
P 500,000
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary): (P300,000 + P200,000) x 80%..
400,000
Allocated Excess..
P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%...................... P 24,000
Increase in building: P40,000 x 80%..........................
32,000 56,000
Goodwill (Partial)..
P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%..........
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary)...................................
Allocated Excess..
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000).
Goodwill (Full/Gross- up)....

P 625,000
500,000
P 125,000

70,000
55,000

95. e

Book value of Stockholders Equity of Subsidiary


Common stock, 12/31/20x5
P 300,000
Retained earnings, 12/31/20x5:
Retained earnings, 1/1/20x5 (refer to No. 94).P260,000
Add: Net income, 20x5. 120,000
Less: Dividends paid, 20x5 50,000 330,000
Book value of Stockholders Equity of Subsidiary, 12/31/x5
P 630,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess 2 yrs
14,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x5
P 686,000
Multiplied by: Non-controlling Interest %..............................
20%
Non-controlling Interest (partial goodwill)..
P 137,200
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 148,200
96. e

Book value of Stockholders Equity of Subsidiary


Common stock, 12/31/20x6
P 300,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x6.P330,000
Add: Net income, 20x6 130,000

Less: Dividends paid, 20x6.. 60,000 400,000


Book value of Stockholders Equity of Subsidiary, 12/31/x6
P 700,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 12/31/20x6): P7,000 x 3 years
21,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x6
P 749,000
Multiplied by: Non-controlling Interest %............................
20%
Non-controlling Interest (partial goodwill)..
P 149,800
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
97. b

P: BV,12/31/20x5
S:
BV of building, 12/31/20x5
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 P90,000)
Less: Amortization of excess (P30,000/10) x 2 years

P 975,000
P105,000
30,000
6,000

129,000
P1,104,000

98. b P500,000 + P3,461


99. b
100. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares)
P120,600
Less: Book value of SHE-S, 1/1:
Common stock S: P50,000 x 90%
P 45,000
APIC S: P15,000 x 90%
13,500
RE S: P41,000 x 90%
36,900
95,400
Allocated Excess
P 25,200
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100P16,100) x 90%
P
900
Increase in Eqpt. (P48,000P40,000) x 90%
7,200
Increase in Patents (P13,000P10,000) x 90%
2,700
10,800
Positive Excess: Goodwill
P 14,400
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year
P 1,000
Equipment: P8,000 / 4 years
2,000
Patents: P3,000 / 10 years
300
P 3,300
101. c
Common stock S
P 50,000
APIC S
15,000
RE S
P 41,000
Stockholders equity Subsidiary, 1/1
P106,000
Add: Adjustments to reflect fair value
12,000
Fair value of Stockholders Equity S, 1/1
P118,000
x: Non-controlling) interests
10%
Non-controlling Interests (in net assets)
P 11,800

102. a P48,000, parent only.


103. a P48,000. On the date of acquisition, the parents retained earnings is
also the consolidated retained earnings.
104. No requirement.
105. b P120,600, the initial value
106. b P4,000 x 90% = P3,600
107. c - use also the traditional formula presented in the book
Parent Subsidiary Consolidated
Net Income from own operations:
P: [P30,200 (P4,000 x 90%)
P 266,000
S (90% : 10%)
8,460
P 940
Amort.of Allocated Excess (90%:10%) (
2,970)
( 330)
Impairment partial goodwill
(
0)
_____
P 32,090
P 610
P32,700
CI CNI/
NCI-CNI CNI/Group NI
Profit Attributable
to Equity Holders
of Parent
108. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31/2011
P
50,000
Additional paid-in capital - S, 12/31/2011
15,000
Retained earnings - S, 12/31/2011:
RE-S, 1/1/2011
P 41,000
Add: NI-S, 2011
9,400
Less: Dividends S
4,000
46,400
Book value of SHE - S, 12/31/2011
P 111,400
Add: Adjustments to reflect fair value, 1/1/2011
12,000
Less: Amortization of allocated excess (1 yr.)
3,300
Fair Value of Net Assets/SHE - S, 12/31/2011
P
120,100
x: Noncontrolling Interest %
10%
Noncontrolling Interest (in net assets), 12/31/2011 P
12,010
109. b refer to 106 for computation
110. c refer to 106 for computation
111. b
Controlling RE / RE Attributable
to EH of Parent, 1/1/2010 (refer to No. 102
Add: CI CNI (refer to 106 and 109)
Less: CI Dividends (Dividend of parent only)
Controlling RE / RE Attributable
to EH of Parent, 12/31/2011
112. b same with No. 111.
113. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock P: [P100,000 + P120,600
(5,400 shares x P10 par)]
APIC P: [15,000 + [P120,600 (5,400 x P10)]
RE P (refer to No. 12)
Parents Stockholders Equity or

P 48,000
32,090
15,000
P 65,090

P154,000
81,600
65,090

Controlling Interest Equity


Noncontrolling Interest (refer to No. 8)
Consolidated Equity

P300,690
12,010
P312,700

114. b
115. b Dividend paid S, P70,000 x 60% = P42,000
116. d CNI amounted to P265,000 [CI-CNI, P235,000 (refer to No. 117) and NCI-CNI, P30,000 (refer to
No. 118)]
Peer
Sea-Breeze
Consolidated
Net income from own operations:
Parent
190,000
Subsidiary
54,000
36,000
Amortization of allocated excess
( 9,000)
( 6,000)
Impairment of goodwill
(
0)
(
0)
235,000
30,000
265,000
CI-CNI
NCI-CNI
CNI
20x5 results of operations are as follows:
Sales
Less: Cost of goods sold Operating expenses
Net income from its own separate operations
Add: Investment income
Net income

Peer
P 600,000
410,000
P 190,000
45,000
P 235,000

Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%)
Fair value of NCI (given) (40%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders equity of Sea (P550,000 x 100%)
Allocated excess (excess of cost over book value) ..
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%)
Positive excess: Full-goodwill (excess of cost over fair value)
Amortization of Allocated Excess
Book Value
Buildings (net)- 6
300,000
Equipment (net) 4
300,000
Patent -10
-0Net

Fair Value
360,000
280,000
100,000

Over/under
P 60,000
(20,000)
100,000
P 140,000

Sea-Breeze
P 300,000
210,000
P 90,000
P 90,000

P 414,000
276,000
P 690,000
__550,000
P 140,000

140,000
0

Amort.
P 10,000
(5,000)
10,000
P 15,000

117. c refer to No. 116 for computations


118. b refer to No. 116 for computations
119. c - P811,000.

Consolidated Retained Earnings, December 31,


20x5
Retained earnings - Parent Company, January 1,
20x5 (cost model)

P700,000

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, 20x2
Increase in retained earnings since date of
acquisition
Less: Amortization of allocated excess
20x2 20x4
(P15,000 x 3 years)

Multiplied
%...................

by:

Controlling

P
300,000
70,000
P
230,000

45,000
P
185,000

interests

Less:
Goodwill
impairment
loss (fullgoodwill),
Consolidated Retained earnings, January 1, 20x5

60%
P
111,000
0

Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary,
rule should always be applied
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE

111,000
P
811,000

the following

Since, the P811,000 is the retained earnings of parent under the equity method, it
should also be considered as the parents portion or interest in consolidated
retained earnings or simply the consolidated retained earnings.
120. c - P811,000 refer to note (b) of No. 119
121. b P111,000 refer to No. 119
122. d

Consolidated Retained earnings, January 1, 20x5 (refer to


Nos. 118 and 119)
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5

P
811,000
235,000

Total

P1,046,0
00

Less: Dividends paid Parent Company for 20x5


Consolidated Retained Earnings, December 31, 20x5

92,000
P
954,000

123. d refer to No.122


124. c
Non-controlling interest (partial-goodwill), December 31, 2015
Common stock Subsidiary Company, December 31, 2015

P
480,000

Retained earnings Subsidiary Company,


December 31, 2015
Retained earnings Subsidiary Company, P300,000
January 1, 2015
Add: Net income of subsidiary for 2015
90,000
Less: Dividends paid Subsidiary - 2015
70,000
Stockholders equity Subsidiary Company,
December 31, 2015
Adjustments to reflect fair value - (over)
undervaluation
of assets and liabilities, date of acquisition
(January 1, 2012)
Amortization of allocated excess (refer to
amortization above)
(P15,000 x 4)
Fair value of stockholders equity of subsidiary,
12/31/ 2015
Multiplied
by:
Non-controlling
Interest
percentage.
Non-controlling interest (partial)
Add: NCI on full-goodwill.
Non-controlling interest (full)

320,000
P
800,000
140,000

(
60,000)
P
880,000
40
P
352,000
____0
P
352,000

125. c

Stockholders Equity
Common stock - Peer
Retained earnings
Parents
Stockholders
Attributable to the

P
724,000
954,000
Equity/Equity

Owners of the Parent


Non-controlling interest**
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

1,678,000
352,000
P 985,500
P2,030,000

126. c
Investment in Sea-Breeze

Investment Income

127.
1/1/x2.
414,000 42,000
Dividends S
NI of S
Retro
111,000
(70,000 x 60%
128.
NI of S
refer
(90,000
Amortization
Amortization
(90,000
No.
x 60%). 54,000
9,000
(P15,000 x 60%)
(P15,000
x
60%)
54,000
x
129.
9,000
60%)
12/31/x5
528,000
45,000
refer
No. 117
130. No requirement
131. b refer to No. 118
132. c refer to No. 119
133. c refer to No. 120
134. a not applicable under equity method.
135. d refer to No. 122
136. d refer to No. 123
137. d refer to No. 124
138. c refer to No. 125
139. b building account in the books of subsidiary at fair value
140. e building account in the books of subsidiary at book value
141. d push-down accounting: equipment account in the books of subsidiary is at fair value
142. c P120,000 x 70%
143. c
Investment.1/1/20x4
P210,000
Add: Share in net income 20x4 (P90,000 x 70%)
63,000
Less: Dividends received
24,000
Investment, 12/31/20x4
P249,000
Add: Share in net income 20x5 (P120,000 x 70%)
84,000
Less: Dividends received
36,000
Investment, 12/31/20x5
P297,000
Note: The term received means that is the amount attributable to parent. If the term
declared or paid were used then it should be multiplied further by controlling interest.
144. c P60,000 x 80% = P48,000
145. c
Investment.1/1/20x4
Add: Share in net income 20x4 (P45,000 x 80%)
Less: Dividends received
Investment, 12/31/20x4
Add: Share in net income 20x5 (P60,000 x 80%)
Less: Dividends received
Investment, 12/31/20x5
148. b
Fullgoodwill Aproach

P105,000
36,000
12,000
P129,000
48,000
18,000
P159,000

c
d
to
116
c
to

Fair value of Subsidiary ( 100%)


Consideration transferred
(80%)..
Fair value of NCI (given)
(20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of
Son:
Common stock (P100,000 x
100%).
Retained earnings (P60,000 x
100%)...
Allocated excess (excess of cost over book
value)..
Less: Over/under valuation of assets and
liabilities:
Increase in land (P5,000 x
100%).
Increase in equipment (P10,000 x 100%)
Positive excess: Full-goodwill (excess of cost
over
fair
value)...

P
180,000
20,000
P
200,000

P 100,000
60,000

P
5,000
___10,000

160,000
P
40,000

15,000

P
25,000

Partial-Goodwill Approach

Fair value of Subsidiary (90%)


Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P100,000 x
90%).
Retained earnings (P60,000 x
90%)...
Allocated excess (excess of cost over book
value)..
Less: Over/under valuation of assets and
liabilities:
Increase in land (P5,000 x
90%).
Increase in equipment (P10,000 x 90%)
Positive excess: partial-goodwill (excess of
cost over

P
180,000

P 90,000
54,000

4,500
___9,000

144,000
P
36,000

13,500
P
22,500

fair
value)...
A summary or depreciation and amortization adjustments is as follows:

Lif
e

Annu
al
Amou
nt

Current
Year(20x
4)

P
2,000

P 2,000

Account Adjustments to be
amortized
Subject
to
Annual
Amortization

Over/
under

Equipment (net).........

10,000

Patent

25,000

5,000
P
7,000

5,000
P 7,000

149. d
Investment in Wisden
180,000
18,000
Dividends S
(20,000Inv
x 90%)
estment in Wisden
NI of S
1/1/x6.
230,400
9,000
Div idends S
(60,000
Amortization
(10,000 x 90%)
x 90%). 54,000
12,600
(P14,000 x
NI of S
90%)
(30,000
Amortization
1/1/x6
203,400
x 90%). 27,000
6,300
(7,000 x 90%)
1/1/x6
215,100

150.

1/1/x4.

Theories
1.
2.
3.
4.
5.

B
C
D
D
a

6.
7.
8.
9.
10,

D
B
c*
D
d

11.
12.
13.
14.
15,

A
C
B
D
c

16.
17.
18.
19.
20.

C
C
C
D
d

21.
22.
23.
24.
25.

B
D
A
B
c

26.
27.
28.
29.
30.

C
C
D
C
a

31
32.
33.
34.
35.

C
B
C
B
B

36.
37.
38.
39.
40.

C
C
D
D
B

* partial equity is the same with equity met hod except t hat amortization of allocated excess is not recognized in t he investment
and income account.

41.
42.
43.
44.
45.

B
C
D
A
c

46.
47.
48.
49.
50,

Chapter 17
Problem I
1. 20x4
Sales

1,080,000
Purchases (Cost of Goods Sold)

1,080,000

12/31 Inventory (Income Statement)


[216,000 (216,000/1.20)]
12/31 Inventory (Balance Sheet )

36,000
36,000

20x5
Sales

1,200,000
Purchases (Cost of Goods Sold)

12/31 Inventory (Income Statement)


[300,000 (300,000/1.20)]
12/31 Inventory (Balance Sheet )
Beginning R/E Puma
1/1 Inventory (Income Statement)

1,200,000

50,000
50,000
36,000
36,000

2.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* t hat has been realized in t ransact ions wit h t hird part ies.

P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P 460,000

460,000
P1,206,000
0
P1,206,000
92,000
P 1,114,000

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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
* t hat has been realized in t ransact ions wit h t hird part ies.
* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)

P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P460,000
P 92,000
0

460,000
P1,206,000
92,000
P1,114,000
_ 92,000
P 1,206,000

P460,000
0
(
0)

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.
Sales

P460,000
_____0
P460,000
20%
P 92,000

1,020,000

Purchases (Cost of Sales)


To eliminate intercompany sales.

1,020,000

12/31 Inventory (Income Statement)


51,000
Inventory (Balance Sheet )
51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings Pinta
(.90 P40,000)
36,000
Noncontrolling interest
4,000
1/1 Inventory (Balance Sheet )
40,000
To recognize unrealized profit in beginning inventory realized during the year.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* t hat has been realized in t ransact ions wit h t hird part ies.

P 600,000
40,000
( 51,00 0)
P 589,000

P 1,720,000
0
(_
0)
P 1, 720,000

589,000
P2,309,000
0
P2,309,000
58,900
P 2,250,100

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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
* t hat has been realized in t ransact ions wit h t hird part ies.
* * 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)

P 1,720,000
0
(________0)
P1,720,,000
P 600,000
40,000
( 51,000)
P589,000
P 58,900
0

589,000
P2,309,000
__58,900
P2,250,100
_ 58,900
P 2,309,000

P600,000

Realized profit in beginning inv entory of P Company (upstream sales)


Unrealized profit in ending inv entory of P Company (upstream sales)
Son Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

40,000
( 51,000)
P589,000
_____0
P589,000
10%
P 58,900

Problem III

Consolidated Net Income for 20x4


P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P1,500,000 + P2,400,000)
Realized profit in beginning inv entory of P Company (upstream sales) Salad
Realized profit in beginning inv entory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) Salad
Unrealized profit in ending inv entory of P Company (upstream sales) Tuna
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* * - Salad
Non-controlling Interest in Net Income* * - Tuna
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
* t hat has been realized in t ransact ions wit h t hird part ies.

P 3,600,000
54,000
(_ 45,00 0)
P 3,609,000
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000

P 301,800
___239,400

3,903,000
P7,512,000
0
P7,512,000
___541,200
P6,970,800

Or, alternatively

Consolidated Net Income for 20x4


P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P1,500,000 + P2,400,000)
Realized profit in beginning inv entory of P Company (upstream sales) Salad
Realized profit in beginning inv entory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) Salad
Unrealized profit in ending inv entory of P Company (upstream sales) Tuna
S Companys realized net income from separate operations* ...
Total
Less: Non-controlling Interest in Net Income* * - Salad
Non-controlling Interest in Net Income* * - Tuna
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attrib utable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
* t hat has been realized in t ransact ions wit h t hird part ies.

P 3,600,000
54,000
(___45,000)
P3,609,,000
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000

3,903,000
P7,512,000

P 301,800
239,400
0

__541,200
P6,970,800
_541,200
P 7,512,000

**Salad

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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
Son Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P1,500,000
66,000
( 57,000)
P1,509,000
_____0
P1,509,000
__
20%
P 301,800

**Tuna
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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
Son Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

Realized Profit in Beginning inventory:


Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125
Unrealized Profit in Ending inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125

Problem IV
1.
Sales
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet )
[P1,250,000 - (P1,250,000/1.25)]
1/1 Retained Earnings P Company (1)
Noncontrolling interest (2)
Cost of Goods Sold (Beginning Inventory)
[P525,000 (P525,000/1.25)] = P105,000

P2,400,000
63,000
( 69,000)
P2,394,000
_____0
P2,394,000
10%
P 239,400

P54,000
66,000
63,000

P45,000
57,000
69,000

4,000,000
4,000,000
250,000
250,000

84,000
21,000
105,000

(1) .8(P105,000)
(2) .2(P105,000)
2/3.
4.

P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.


[(.20 P5,400,000) -.20(P1,250,000 P1,250,000/1.25)] = P1,030,000 non-controlling interest in
consolidated net assets on December 31, 20x4.

Problem V

P COMPANY AND SUBSIDIARY


Consolidated Income Statement
For the Year Ended December 31, 20x4
Sales (P13,800,000 P1,350,000)
Cost of Goods Sold (a)
Operating Expenses
Consolidated Income
Less Non-controlling Interest in Consolidated Income (b)
Controlling Interest in Consolidated Net Income

P12,450,000
P7,755,000
1,800,000

9,555,000
2,895,000
197,500
P2,697,500

(a)
Reported Cost of Goods Sold
Less intercompany sales in 20x4
Plus unrealized profit in ending inv entory (2/5 x (P1,350,000 - P900,000))
Less realized profit in beginning inv entory (1/4 x (P1,800,000 - P1,500,000))
Corrected cost of goods sold

P9,000,000
(1,350,000)
180,000
(75,000)
P7,755,000

(b)

P1,900,000

Reported net income of subsidiary

P190,00
0
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
0.1
(1/4 x (P1,800,000 - P1,500,000))
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4)
Income realized in transactions with third parties
Non-controlling interest in consolidated income

75,000
0
1,975,000
0.10
P197,500

Problem VIII
(Determine selected consolidated balances; includes inventory tr ansfers and an outside ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 P120,000) ..........................................
Inventory Remaining at Year's End .................................................................
Unrealized Intercompany Gross profit, 12/31 ......................................................

P40,000
20%
P8,000

Consolidated Totals:
Inventory = P592,000 (add the two book values and subtract the ending unrealized gross
profit of P8,000)
Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany
transfer and add [to defer] ending unrealized gross profit)
Operating Expenses = P443,000 (add the two book values and the amortization expense
for the period)
Gross profit: P1,240,000 P548,000 = P692,000
Controlling Interest in CNI:
Gross profit.......................................................................................... P692,000
Less: Operating expenses ................................................................... 443,000
Consolidated Net Income ................................................................. P249,000
Less: NCI-CNI .......................................................................................
8,700
CI-CNI ................................................................................................. P240,300
or

Consolidated Net Income for 20x5


P Companys net income from own/separate operations (P800-P400-P180)
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P600 P300 P250)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* t hat has been realized in t ransact ions wit h t hird part ies.

P 50,000
0
( 8, 000)
P 42,000

P 220,000
0
(_
0)
P 220,000

42,000
P 262,000
13,000
P 249,000
8,700
P 240,300

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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
* t hat has been realized in t ransact ions wit h t hird part ies.
* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

P 220,000
0
(_
0)
P 220,000
P 50,000
0
( 8,000)
P 42,000
P 8,700
13,000

42,000
P 262,000
21,700
P240,300
_ 8,700
P249,000

P 50,000
0
( 8,00 0)
P 42,000
13,000
P 29,000
30%
P 8,700

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported
income after subtracting 13,000 excess fair value amortization and deferring P8,000 ending
unrealized gross profit) Gross profit is included in this computation because the transfer was
upstream from SS to PT.

Problem IX
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
Son:
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

288,000
P
84,000

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

72,000
P
12,000

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

Co.
Book
value
P
24,000
48,000
84,000
168,000

(Over)
Under

Co.
Fair
value Valuation
P
Inventory...
30,000 P 6,000
Land
55,200
7,200
Equipment (net).........
180,000
96,000
Buildings (net)
144,000
(24,000)
(
Bonds payable (120,000) 115,200)
4,800
P
P
Net..
204,000 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidat ion purposes as follows:

S Co.

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

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

180,000

Co.
Fair value
180,000

Increase
(Decrease)
0

96,000

( 96,000)

84,000

180,000

96,000

S Co.
Book value
360,000

S Co.
Fair value
144,000

(Decrease)
( 216,000)

192,000

( 192,000)

168,000

144,000

24,000)

A summary of depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable

4800

Lif
e
1

8
4
4

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

12,00
0
(6,00
0)

1,200
P
13,200

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

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 Son
(P360,000 x 100%)
Allocated excess (excess of cost over book value)..

P 372,000
93,000
P 465,000
P

__360,000
105,000

Add (deduct): (Over) under valuation of assets and


liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

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:

Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%

The goodwill impairment loss would be allocated as follows

Value
Goodwill impairment loss attributable t o parent
P
or controlling
3,000
Interest
Goodwill applicable to NCI..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill

% of
Total
80.00%
20.00%
100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:

20x4

Sales of
Parent to
Subsidiary
P150,000

Intercompany
Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000

20x5

120,000

P120,000 x 80% = P96,000

Year

Unrealized
Intercompany Profit in
Ending Inventory
P90,000 x 20% =
P18,000
P96,000 x 25% =
P24,000

Upstream Sales:

Year

Sales of
Subsidiary to

Intercompany
Merchandise
in 12/31 Inventory

Unrealized
Intercompany Profit in

20x4

Parent
P 60,000

of S Company
P60,000 x 50% = P30,000

20x5

75,000

P 75,000 x 40% = P30,000

Ending Inventory
P30,000 x 40% =
P12,000
P30,000 x 20% = P
6,000

20x4: First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

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

28,800
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

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..

240,000

120.000

288,000

72,000

To eliminat e int ercompany invest ment and equit y account s


of subsidiary on date of acquisition; and t o establish non-cont rolling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000

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

216,000
18,000
84,000

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

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

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Ss ident ifiable asset s and liabilit ies as follows:

Inv entory 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 2,000

P 1,200
P1,200

(E4) Dividend income - P.


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

Total

13,200

28,800
7,200
36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E5) Sales.
Cost of Goods Sold (or Purchases)

150,000
150,000

To eliminat ed int ercompany downst ream sales.

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminat ed int ercompany upst ream sales.

(E7) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

18,000
18,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

12,000
12,000

To defer t he upstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E9) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

6,960
6,960

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inv entory of P
Company (upstream sales)..
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 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P

6,960

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


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
P Co
P480,000

S Co.
P240,000

Div idend income


Total Rev enue
Cost of goods sold

28,800
P508,800
P204,000

P240,000
P138,000

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

60,000
48,000
P312,000
P196,800
P196,800

24,000
18,000
P180,000
P 60,000
P 60,000

Sales

Income Statement

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company

P432,000

P144,000

Dr.
(5) 150,000
(6) 60,000
(4) 36,000
(3)
(7)
(8)
(3)
(3)

Cr.

Consolidated
P 510,000
_________
P 510,000
P 168,000

6,000 (5) 150,000


18,000 (6) 60,000
12,000
6,000
1,200

(3)

3,000

(9)

6,960

(1) 120,000

90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840

360,000

Net income, from abov e


Total
Div idends paid
Perfect Company
Son Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

236,160
P668,160

72,000
P216,000

86,400
-

43,200

P581,760

174,840
P538,840

72,000
________

P172,800

466,840

232,800
90,000
120,000

P 90,000
60,000
90,000

355,200
150,000

1210,000
240,000
720,000

48,000
180,000
540,000

372,000
P1,984,800

P1,008,000

P 135,000

P 96,000

405,000

288,000

120,000
240,000
600,000

120,000
120,000

581,760

240,000
144,000

(4)

(2)

6,000

(2)

7,200

(2)
(2)

_________
P1,008,000

6,000
18,000
12,000

(2) 216,000
4,800 (3) 12000
12,000 (3) 3,000
(9) 288,000
(10) 84,000

(2) 96,000 (3)


(11)
192,000
(12) 6,000

180,000
265,200
420,000
1,044,000
3,600
9,000
P2,394,600

12,000

P147,000
495,000
240,000
360,000
600,000

(1) 240,000
462,840
(13) 7,200

_________
P1,984,800

(3)
(7)
(8)

36,000

__________
P 983,160

(1 ) 72,000
(2) 18,000
(9) 6,960
P 983,160

Consolidated Net Income for 20x4


P Companys net income from own/separate operations.
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Unrealized profit in ending inv entory of S Company (upstream sales)
Son Companys realized net income from separate operations* ...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization abov e)
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
* t hat has been realized in t ransact ions wit h t hird part ies.
* * 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 profit in ending inv entory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

____89,760
P2,394,600

P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000

48,000
P198,000

23,160
P174,840
_ 6,960
P181.800

P 60,000
( 12,000)
P 48,000
13,200
P 34,800

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


Non-controlling Interest in Net Income (NCINI) partial goodwill
* t hat has been realized in t ransact ions wit h t hird part ies.

20%
6,960

Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on
goodwill and impairment losses are not shared with NCI.
20x5: Second Year after Acquisi tion

P Co.

Sales

P
540,000
216,000

Less: Cost of goods sold


Gross profit
Less: Depreciation expense
Other expense

P
324,000
60,000
72,000

Net income from its own separate


operations
Add: Dividend income

P
192,000
38,400

Net income

P
230,400
P
72,000

Dividends paid

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.


20x5: 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
80%).
Record dividends from S Company.

38,400
x

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

(E1)
Investment
Company

in

19,200

Retained
earnings
Company

19,200

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5, comput ed 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

P144,000
120,000
P 24,000
80%
P 19,200

(E2)
Common
stock

Co
Retained earnings S Co., 1/1/20x5
Investment
in
S
Co
(P384,000
80%)
Non-controlling
interest
(P384,000
20%)..

240,000
144.000

307,200

76,800

To eliminat e int ercompany invest ment and equit y account s


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

(E3)
6,000
Inventory.
Accumulated depreciation equipment.. 96,000
....
Accumulated depreciation buildings.. ... 192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
216,000
Buildings...........................
Non-controlling
interest
(P90,000
20%)............................
Investment
in
Co.

18,000

84,000

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s 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

13,560
x
2,640

20%).
Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

24,000
2,400
3,000

To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Ss ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Ps ret ained earnings &
NCI;
Year 20x5 amount s are debit ed t o respect ive nominal account s.

Inv entory 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
20%)..
Dividends paid S

38,400
9,600
48,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E6) Sales.
Cost of Goods Sold (or Purchases)

120,000
120,000

To eliminat ed int ercompany downst ream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminat ed int ercompany upst ream sales.

(E8) Beginning Retained Earnings P


Company
Cost of Goods Sold (Ending Inventory
Income Statement)
To realized profit in downstream beginning inventory deferred in t he

18,000
18,000

prior period.

(E9) Beginning Retained Earnings P Company


(P12,000 x 80%)
Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory
Income Statement)

9,600
2,400
12,000

To realized profit in beginning inventory deferred in t he prior period.

(E10) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

24,000
24,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

6,000
6,000

To defer t he upstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E12) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

17,760
17,760

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x5 as follows:
Realized profit in beginning inv entory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inv entory of P
Company - 20x5 (upstream sales)
S Companys Realized net income*
Less: Amortization of allocated excess

12,000
( 6,000)
P 96,000
7,200
P 88,800
20%

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


Non-controlling Interest in Net Income (NCINI )
partial goodwill
P 17,760
* from separat e t ransact ions t hat has been realized in t ransact ions
wit h t hird persons.

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


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales

Income Statement

Div idend income


Total Rev enue
Cost of goods sold

P Co
P540,000

S Co.
P360,000

38,400
P501,600
P216,000

P360,000
P192,000

Dr.
(6) 120,000
(7) 75,000
(5) 38,400

Cr.

(10) 24,000
(11) 6,000

(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000

Consolidated
P 705,000
___________
P 705,000
213,000

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

60,000
72,000
P348,000
P230,400
P230,400

Statement of Retained Earnings


Retained earnings, 1/1
P Company

P484,800

S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

24,000
54,000
P270,000
P 90,000
P 90,000

(4)
(4)

6,000
1,200

P
P
(
P

(12) 17,760

(6) 13,560
(8) 18,000
(9) 9,600
(10)
144,000

(9) 19,200

90,000
1,200
126,000
430,200
274,800
17,760)
257,040

P 462,840

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 647,880

265,200
180,000
216,000

P 102,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

372,000
P2,203,200

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

643,200

___ _____
2,203,200

240,000
186,000

_________
P1,074,000

257,040
P 719,880

(5)

(11) 7,200
(3)

7,200

(3)
(3)
(1)

4,800
12,000
19,200

(3) 96,000
(3) 192,000
(4) 12,000

48,000

(4) 7,200
(10) 24,000
(11) 6,000

(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000

(4)

24,000

72,000
________

294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800
P180,000
552,000
240,000
360,000
600,000

(2) 240,000
(4)
2,640
(14) 9,600
(9)
2,400
__________
P1,077,360

647,880
(2 ) 76,800
(3) 18,000
(12) 17,760
P1,077,360

____97,920
P2,677,800

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings P Company, January 1, 20x4 (date of acquisition)

b.

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 v alue - (ov er) underv aluation of assets and liabilities
Fair v alue of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)

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

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

6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributabl e to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Unrealized profit in ending inv entory of S Company (downstream sa les)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Unrealized profit in ending inv entory of S Company (upstream sales)
S Companys realized net income from separate operations* ...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization abov e)
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
* t hat has been realized in t ransact ions wit h t hird part ies.

P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000

48,000
P198,000

23,160
P174,840
_ 6,960
P181.800

b. NCI-CNI P6,960
* * 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 profit in ending inv entory of P Company (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
* t hat has been realized in t ransact ions wit h t hird part ies.

P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960

c. CNI, P181,800 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 - P 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: Div idends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

P360,000
174,840
P534,840
72,000
P462,840

e. 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 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: Div idends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of subsidiary, December 31, 20x4
Less: Unrealized profit in ending inv entory of P Company (upstream sales)
Realized stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

P 240,000
P120,000
6,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,000
12,000
P448,800
20
P 89,760

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
462,840
P1,062,840
___89,760
P1,152,600

12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* t hat has been realized in t ransact ions wit h t hird part ies.

Or, alternatively

Consolidated Net Income for 20x5

P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000

96,000
P282,000
7,200
P274,800
17,760
P257,040

P Companys net income from own/separate operations.


Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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
* t hat has been realized in t ransact ions wit h t hird part ies.

P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200

96,000
P282,000
24,960
P257,040
_ 17,760
P274,800

b. NCI-CNI

* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

c. CNI, P274,800 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: Unrealized profit in ending inventory of S Company (downstream sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inv entory of S
Company (downstream sales) 20x4 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that hav e been realized in transactions with third
parties..
Adjustment to conv ert 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
Unrealized profit in ending inv entory of P Company (upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning
inv entory of P Company (upstream sales) 20x5 (RPBI of P - 20x5)
Multiplied by: Controlling interests %...................

P484,800
18,000
P466,800

P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P 960)
3,000

Less: Goodwill impairment loss, partial goodwill


( 3,960)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
257,040
Total
P748,680
Less: Div idends paid Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P647,880
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,125 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired (refer t o Illust rat ion 15-6).

Or, alternatively:

Consolidated Retained Earnings, December 31, 20x5


Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
20x5 (UPEI of S 20x5) or Realized profit in beginning inv entory of S
Company (downstream sales) 20x6 (RPBI of S - 20x6).
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that hav e been realized in
transactions with third parties..
Adjustment to conv ert 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)
Unrealized profit in ending inv entory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning
inv entory of P Company (upstream sales) 20x6 (RPBI of P - 20x6)
Multiplied by: Controlling interests %...................

P643,200
24,000
P619,200

P 186,000
120,000
P 66,000
20,400

P
P

Less: Goodwill impairment loss, partial goodwill


Consolidated Retained earnings, December 31, 20x5

6,000
39,600
80%
31,680
3,000

28,680
P647,880

e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock Subsidiary Company, December 31, 20x5
P 240,000
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5*
P144,000
Add: Net income of subsidiary for 20x5
90,000
Total
P234,000
Less: Div idends paid 20x5
48,000
186,000
Stockholders equity Subsidiary Company, December 31, 20x5
P 426,000
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
90,000
Amortization of allocated excess (refer to amortization abov e) :
20x4
P 13,200
20x5
7,200
( 20,400)
Fair v alue of stockholders equity of subsidiary, December 31, 20x5
P 495,600
Less: Unrealized profit in ending inv entory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inv entory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
6,000
Realized stockholders equity of subsidiary, December 31, 20x5.
P489,600
Multiplied by: Non-controlling Interest percentage...
20
Non-controlling interest (partial goodwill)..
P 97,920
* t he realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting t o P10,000 is
already included in t he beginning ret ained earnings of S Company.

f.

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

P 600,000
647,880
P1,247,880

NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

___97,920
P1,345,800

Problem X
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

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)...

93,000
P
465,000

P 240,000
120,000

360,000
P
105,000

6,000
7,200
96,000

( 24,000)
4,800

90,000
P
15,000

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be unde
amortized
r
Inventory
P

Lif
e
1

Annu
al
Current
Amou Year(20x
nt
4)
P P 6,000

20x5
P

6,000
Subject
to
Amortization

6,000

Annual

Buildings (net)

96,00
0
(24,0
00)

Bonds payable

4,800

Equipment (net).........

8
4
4

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

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

12,00
0
(6,00
0)
1,200
P
7,200

20x4: First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

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

28,800

28,800

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

Dividends paid
Cash.
Dividends paid by S Co..

36,000

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

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
To eliminat e int ercompany invest ment and equit y account s

240,000

120.000

288,000

72,000

of subsidiary on date of acquisition; and t o establish non-cont rolling


int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
Son
84,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill
To provide for 20x4 impairment loss and depreciat ion and
amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Ss ident ifiable asset s and liabilit ies as follows:

Inv entory 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

12,000
1,200
3,750

(E4) Dividend income - P.


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

28,800
7,200
36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E5) Sales.
Cost of Goods Sold (or Purchases)

150,000
150,000

To eliminat ed int ercompany downst ream sales.

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminat ed int ercompany upst ream sales.

(E7) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

18,000
18,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

12,000
12,000

To defer t he upstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E9) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

6,210

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inv entory of P
Company (upstream sales)..
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
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

P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960

750
P

6,210

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


Cost Model (Full-goodwill)
80%-Owned Subsidiary

6,210

December 31, 20x4 (First Year after Acquisition)


P Co

Income Statement

S Co.

Sales

P480,000

P240,000

Div idend income


Total Rev enue

28,800
P451,200

P240,000

Cost of goods sold

P204,000

P138,000

Depreciation expense

60,000

24,000

Interest expense
Other expenses

48,000

18,000

Goodwill impairment loss


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

P312,000
P196,800
P196,800

Statement of Retained Earnings


Retained earnings, 1/1
P Company

P360,000

S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31
Balance
Sheet

P180,000
P 60,000
P 60,000

P120,000
60,000
P180,000

72,000
-

36,000

P484,800

Cash.
Accounts receiv able..
Inv entory.

Land.
Equipment
Buildings

Total
Accumulated depreciation

Consolidated
P 510,000

_________
P 510,000
P 168,000
(5) 150,000
(6) 60,000
90,000
1,200
66,000
3,750

(3)
3,750

(9)

P328,950
P181,050
( 6,210)
P174,840

6,210

360,000

(1)
120,000

174,840
P534,840

72,000
________

P144,000

462,840

P
232,800
90,000

P 90,000
60,000

322,800
150,000

120,000

90,000

(4)

36,000

to

210,000
240,000
720,000

48,000
180,000
540,000

Discount on bonds payable


Goodwill
Inv estment in S Co

(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200

Cr.

196,800
P556,800

Balance Sheet

Dr.
(5)
150,000
(6)
60,000
(4)
28,800

(2)
6,000

P1,008,000

P 135,000

P 96,000

6,000
18,000
12,000

180,000

(2) 216,000

265,200
420,000
1,044,000

(2)
7,200

(2)
4,800
(2)
15,000

372,000
P1,984,800

(3)
(7)
(8)

(2)

(3)

1,200

3,600

(3) 3,750
(11)
288,00
0
(12) 84,000

11,250

(3)

12,000

P2,396,850
P147,000

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

405,000

288,000

120,000
240,000
600,000

120,000
120,000

484,800

(4)
7,200
_________
P1,984,800

462,840
(1 ) 72,000 (2)
21,000
(9) 6,210

_________
P1,008,000

495,000
240,000
360,000
600,000

(1)
240,000

240,000
144,000

Non-controlling interest

Total

96,000
(15)
192,000
(16)
6,000

P
986,160

P 986,160

____92,010
P2,396,850

20x5: Second Year after Acquisition

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

Perfect
Co.
P
540,000
216,000
P
324,000
60,000
72,000

Net income from its own separate


operations
Add: Dividend income

P
192,000
38,400

Net income

P
230,400
P
72,000

Dividends paid

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.


20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relati on to its subsidiary investment:

January 1, 20x5 December 31, 20x5:


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

38,400
x

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

(E1)
Investment
Company
Retained
earnings
Company

in

19,200
19,200

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5.
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

P144,000
120,000
P 24,000
80%
P 19,200

(E2) Common stock S Co


240,000
Retained earnings S Co., 1/1/20x5
144.000
Investment
in
S
Co
(P384,000
x
307,200
80%)
Non-controlling
interest
(P384,000
x
76,800
20%)..
To eliminat e int ercompany invest ment and equit y account s
of subsidiary and t o est ablish non-cont rolling int erest (in net asset s of
subsidiary) on January 1, 20x5.

(E3)
6000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
S
84,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish non-

cont rolling int erest (in net asset s of subsidiary) on January 1, 20x5.

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


(P16,950 x 80%)
Non-controlling
interests
(P16,950
20%).
Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

6,000
24,000
2,800
3,750

To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Sons ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings
and NCI.
Year 20x5 amount s are debit ed t o respect ive nominal account s..

Inv entory sold


Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560

Depreciation/
Amortization
expense
P

Amortization
-Interest

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

(E5) Dividend income - P.


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

P1,200

38,400
9,600
48,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E6) Sales.
Cost of Goods Sold (or Purchases)

120,000
120,000

To eliminat ed int ercompany downst ream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminat ed int ercompany upst r eam sales.

(E8) Beginning Retained Earnings P


Company

18,000

Cost of Goods Sold (Ending Inventory


Income Statement)

18,000

To realized profit in downstream beginning inventory deferred in t he


prior period.

(E9) Beginning Retained Earnings P Company


(P12,000 x 80%)
Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory
Income Statement)

9,600
2,400
12,000

To realized profit in upstream beginning inventory deferred in t he


prior period.

(E10) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

24,000
24,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

6,000
6,000

To defer t he upstream sales - unrealized profit in ending inventor y


unt il it is sold to outsiders.

(E12) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

17,760
17,760

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x5 as follows:
Net income of subsidiary..
Realized profit in beginning inv entory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
Son Companys Realized net income*
Less: Amortization of allocated excess

P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

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


Non-controlling Interest in Net Income (NCINI)
partial goodwill
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 17,760
* from separat e t ransact ions t hat has been realized in t ransact ions
wit h t hird persons.

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


Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales

Income Statement

P Co
P540,000

S Co.
P360,000

Dr.
(6) 120,000

Cr.

Consolidated
P 705,000

Div idend income


Total Rev enue
Cost of goods sold

38,400
P574,800
P216,000

P360,000
P192,000

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

60,000
72,000
P348,000
P230,400
P230,400

24,000
54,000
P270,000
P 90,000
P 90,000

Statement of Retained Earnings


Retained earnings, 1/1
P Company

P484,800

S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

5. 1/1/20x4

(7) 75,000
(5) 38,400
(10) 24,000
(11) 6,000
(4)
(4)

(6) 120,000
(7) 90,000
(8) 21,600
(9) 14,400

___________
P 705,000
P 213,000

6,000
1,200

P
P
(
P

(12) 17,760

(7) 13,560
(8) 18,000
(9) 96000
(13)
144,000

(12) 19,200

90,000
1,200
126,000
430,200
274,800
17,760)
257,040

P 462,840

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 647,880

265,200
180,000
216,000

P 102,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

372,000
P2,203,200

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

643,200

___ _____
P2,203,200

240,000
186,000

_________
P1,074,000

257,040
P 719,880

(5)

(14) 6,000
(3)

7,200

(3)
(3)
(1)

4,800
15,000
19,200

(3) 96,000
(3) 192,000
(4) 12,000

48,000

(4) 6,000
(10) 24,000
(11) 6,000

(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(3) 84,000

(4)

24,000

72,000
________

294,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000

(2) 240,000
647,880
(4)
3,390
(17) 9,600
(9)
2,400
__________
P1,081,110

(2 ) 76,800
(3) 21,000
(12) 17,760
P1,081,110

____100,170
P2,680,050

a.

On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)

P360,000

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

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

c.

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

6.
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 P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Unrealized profit in ending inv entory of S Company (downstream sales)
Perfect Companys realized net income from separate operations* ...
S Companys net income from own operations.
Unrealized profit in ending inv entory of S Company (upstream sales)
Son Companys realized net income from separate operations* ...
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under full-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
* t hat has been realized in t ransact ions wit h t hird part ies.

P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
3,750

23,160
P174,840
_ 6,210
P181.050

b. NCI-CNI P6,210
* * 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 profit in ending inv entory of P Company (upstream sales)

48,000
P198,000

P 60,000
( 12,000)

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
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)
* t hat has been realized in t ransact ions wit h t hird part ies.

P 48,000
13,200
P 34,800
20%
P 6,960

750
6,210

c. CNI P181,050 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: Div idends paid Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

P360,000
174,840
P534,840
72,000
P462,840

e.
Non-controlling interest ), 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: Div idends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of subsidiary, December 31, 20x4
Less: Unrealized profit in ending inv entory of P Company (upstream sales)
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)..

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,800
12,000
P448,800
20
P 89,760
2,250
P 92,010

f.

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 600,000
462,840
P1,062,840
___92,010
P1,154,840

12/31/20x5:
a. CI-CNI P257,040
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...

P192,000
18,000
(_24,000)
P186,000

S Companys net income from own operations.


Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* t hat has been realized in t ransact ions wit h t hird part ies.

P 90,000
12,000
( 6,000)
P 96,000

96,000
P282,000
7,200
P274,800
17,760
P257,040

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
Son 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
* t hat has been realized in t ransact ions wit h t hird part ies.

P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200

96,000
P282,000
24,960
P257,040
_ 17,760
P274,800

b. NCI-CNI P16,560
* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
0
P 17,760

c. CNI, P274,800 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: Unrealized profit in ending inventory of S Company (downstream sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inv entory of S
Company (downstream sales) 20x4 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that hav e been realized in transactions with third
parties..
Adjustment to conv ert 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

P484,800
18,000
P466,800

P 144,000

Less: Retained earnings Subsidiary, January 1, 20x4


Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Unrealized profit in ending inv entory of P Company (upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning
inv entory of P Company (upstream sales) 20x5 (RPBI of P - 20x5)
Multiplied by: Controlling interests %...................

120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P 960)

Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or


(P3,750 x 80%)
3,000
( 3,960)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
257,040
Total
P719,880
Less: Div idends paid Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P647,880
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired (refer t o Illust rat i on 15-6).

Or, alternatively:

Consolidated Retained Earnings, December 31, 20x5


Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
20x5 (UPEI of S 20x5) or Realized profit in beginning inv entory of S
Company (downstream sales) 20x6 (RPBI of S - 20x6).
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that hav e been realized in
transactions with third parties..
Adjustment to conv ert 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)
Unrealized profit in ending inv entory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning
inv entory of P Company (upstream sales) 20x6 (RPBI of P - 20x6)

P643,200
24,000
P619,200

P 186,000
120,000
P 66,000
20,400

Multiplied by: Controlling interests %...................


P
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5

6,000
39,600
80%
31,680
3,000

28,680
P647,880

e.
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: Div idends paid 20x5
Stockholders equity Subsidiary Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5

P 240,000
P144,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)

f.

Fair v alue of stockholders equity of subsidiary, December 31, 20x5


P 495,600
Less: Unrealized profit in ending inv entory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inv entory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
6,000
Realized stockholders equity of subsidiary, December 31, 20x5.
P489,600
Multiplied by: Non-controlling Interest percentage...
20
Non-controlling interest (partial goodwill)..
P 97,920
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
2,250
Non-controlling interest (full-goodwill)..
P 100,170
* t he realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting t o P10,000 is
already included in t he beginning ret ained earnings of S Company.

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 12/31/20x5

P 600,000
647,880
P1,247,880
___100,170
P1,348,050

Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ............................................................................
P290,000
SWs cost of goods sold ...........................................................................
197,000
Elimination of 20x5 intercompany transfers .............................................
(110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) .................................................
(8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) ...............................................
12,000
Consolidated cost of goods sold .................................................
P381,000
Consolidated Inventory
PP book value ....................................................................................
P346,000
SW book value ...................................................................................
110,000
Eliminate ending unrealized gross profit (see above) .......................
(12,000)
Consolidated Inventory .....................................................................
P444,000
Non-controlling Interest in Subsidiarys Net Income
Because all intercompany sales were downstream, the deferrals do not affect SW. Thus,
the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold and
expenses) reported income or P11,600.
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150)
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)

P 200,000
8,000
(_ 12,000)

P Companys realized net income from separate operations* ...


S Companys net income from own operations (P360 P197 P105)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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 196,000

P 58,000
0
(
0)
P 58,000

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

58,000
P 254,000
____0
P 254,000
11,600
P 242,200

P 58,000
0
(
0)
P 58,000
____0
P 58,000
20%
P 11,600

2.
Consolidated Cost of Goods Sold
PP book value ..........................................................................................
SW book value .........................................................................................
Elimination of 20x5 intercompany transfers .............................................
Reduction of beginning inventory because of
20x4 unrealized gross profit (P21,000/1.4 = P15,000
cost; P21,000 transfer price less P15,000
cost = P6,000 unrealized gross profit) .................................................
Reduction of ending inventory because of
20x5 unrealized gross profit (P35,000/1.4 = P25,000
cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) ...............................................
Consolidated cost of goods sold .............................................................
Consolidated Inventory
PP book value ..........................................................................................
SW book value .........................................................................................
Eliminate ending unrealized gross profit (see above) .............................
Consolidated inventory .....................................................................

P290,000
197,000
(80,000)

(6,000)

10,000
P411,000
P346,000
110,000
(10,000)
P446,000

Non-controlling Interest in Subsidiary's Net income


Since all intercompany sales are upstream, the effect on Snow's income must be reflected
in the non-controlling interest computation:
SW reported income ...............................................................................
20x4 unrealized gross profit realized in 20x5 (above) ..............................
20x5 unrealized gross profit to be realized in 20x6 (above) .....................
SW realized income .................................................................................
Outside ownership percentage ..............................................................
Non-controlling interest in SWs income ............................................
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150)
Realized profit in beginning inv entory of S Company (downstream sales)

P58,000
6,000
(10,000)
P54,000
20%
P10,800
P 200,000

Unrealized profit in ending inv entory of S Company (downstream sales)


P Companys realized net income from separate operations* ...
S Companys net income from own operations (P360 P197 P105)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

(_
0)
P 200,000
P 58,000
6,000
( 10,000)
P 54,000

54,000
P 254,000
____0
P 254,000
10,800
P 243,200

P 58,000
6,000
( 10,000)
P 54,000
____0
P 54,000
20%
P 10,800

Problem XIII
1. (Computation of selected consolidation balances as affected by downstream i nventory transfers)

UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)


Intercompany gross profit (P120,000 P72,000).........................

P48,000

Unrealized Intercompany Gross profit, 12/31/x4 ............................

P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)


Intercompany gross profit (P250,000 P200,000) .....................

P50,000

Inv entory remaining at year's end ..............................................................................................

Inv entory remaining at year's end ..............................................................................................

30%

20%

Unrealized intercompany gross profit, 12/31/x5 .............................


P10,000
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate intercompany
sales of P250,000)
Cost of goods sold:
Benson's book value ......................................................................... P535,000
Broadway's book value ...................................................................
400,000
Eliminate intercompany transfers ..................................................
(250,000)
Realized gross profit deferred in 20x4 ..........................................
(14,400)
Deferral of 20x5 unrealized gross profit .......................................
10,000
Cost of goods sold ....................................................................... P680,600
Operating expenses = P210,000 (add the two book values and include
intangible amortization for current year)
Dividend income = -0- (intercompany t ransfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is not
included because they were downstream)
Broadway reported income for 20x5 .................................................................................
Intangible amortization...........................................................................................................
Broadway adjusted income..................................................................................................
Outside ownership ...................................................................................................................

P100,000
(10,000)
90,000
30%

Noncontrolling interest in Broadways earnings ..............................................................

P 27,000

or,

Consolidated Net Income for 20x5


P Companys net income from own/separate operations (P800-P535-P100)
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P600 P400 P100)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

P 165,000
14,400
(_10,000)
P 169,400
P 100,000
0
(
0)
P 100,000

100,000
P 269,400
__10,000
P 259,400
27,000
P 232,400

P 100,000
0
(
0)
P 100,000
__10,000
P 90,000
30%
P 27,000

Inventory = P988,000 (add the two book values less the P10,000 ending
unrealized gross profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value ......................................... P285,000
Excess January 1 intangible allocation (30% P295,000) ....
88,500
Noncontrolling Interest in Broadways earnings ..................................................................
Dividends (30% P50,000)..........................................................................................................

Total noncontrolling interest at 12/31/x5...................................

27,000
(15,000)

P385,500

2. (Computation of selected consolidation balances as affected by upstream inventory transfers).


UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)

Intercompany gross profit (P120,000 P72,000) ........................


Inventory remaining at year's end ................................................
Unrealized intercompany gross profit, 12/31/x4 .............................

P48,000
30%
P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)


Intercompany gross profit (P250,000 P200,000) .....................
Inventory remaining at year's end ................................................
Unrealized intercompany gross profit, 12/31/x5 .............................

P50,000
20%
P10,000

CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate the
Intercompany transfer)
Cost of goods sold:

Benson's COGS book value ............................................................ P535,000


Broadway's COGS book value ......................................................
400,000
Eliminate intercompany transfers ..................................................
(250,000)
Realized gross profit deferred in 20x4 ..........................................
(14,400)
Deferral of 20x5 unrealized gross profit .......................................
10,000
Consolidated cost of goods sold ............................................ P680,600
Operating expenses = P210,000 (add the two book values and include
intangible amortization for current year)
Dividend income = -0- (interco. transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is
included because they were upstream)
Broadway reported income for 20x5 .................................................................................
Intangible amortization...........................................................................................................

P100,000
(10,000)

20x4 gross profit recognized in 20x5 .......................................


20x5 gross profit deferred ..........................................................
Broadway realized income for 20x5........................................

14,400
(10,000)
P94,400

Outside ownership ...................................................................................................................

Noncontrolling interest .....................................................................


Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100)
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P600 P400 P100)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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..
* * 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 profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

30%

P28,320
P 165,000
0
(_
0)
P 165,000

P 100,000
14,400
( 10,000)
P 104,400

104,400
P 269,400
__10,000
P 259,400
28,320
P 231,080

P 100,000
14,400
( 10,000)
P 104,400
__10,000
P 94,400
30%
P 28,320

Inventory = P988,000 (add the two book values and defer the P10,000
ending unrealized gross profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% P935,600) ............................. P280,680
Excess int angible allocation (30% P295,000) .....................
(88,500)
Noncontrolling Interest in Broadways earnings ..................
28,320

Dividends (30% P50,000)......................................................................................................

Total noncontrolling interest at 12/31/x5................................

(15,000)

P382,500

Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales): ..................................................... ... P15,000
RPBI of P (upstream sales) ....................................................... 10,000
UPEI of S (downstream sales) ... 20,000
UPEI of P (upstream sales) . 5,000
Pepper
(CI-CNI)
Net Income from own operations:
Pepper [P724,000 (PP30,000 x 80%)]
Salt
RPBI of S (down)
RPBI of P (up)
UPEI of S (down)
UPEI of P (up)
Amortization
Impairment of goodwill

P700,000
72,000
15,000
8,000
( 20,000)
( 4,000)
( 1,600)
(
0)
P769,400

Salt
(NCI-CNI)

CNI

P 18,000
2,000
(1,000)
( 400)
____( 0)__
P18,600

Profit Attributable to Equity NC Interest


Holders of Parent
in Net Income

P788,000

CNI

Note: Preferred Solution - since what is given is the RE P, 12/31/2014 (ending


balance of the current year) Retained earnings Parent, 12/31/2014 (cost) ..
P 3,500,000
-: UPEI of S (down) 2014 or RPBI of S (dow n) 2015.. .
20,000
Adjusted Retained earnings Parent, 12/31/2014 (cost) ..
P 3,480,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011 .P 150,000
Less: Retained earnings Subsidiary, 12/31/2014 ...
320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 170,000
Accumulated amortization (1/1/2011 12/31/2014):
P 2,000 x 4 years ..(
8,000)
UPEI of P (up) 2014 or RPBI of P (up) 2015 .....(
5,000)
P 157,000
X: Controlling Interests 80% 125,600
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014 . P 3,605,600
Or, compute first the RE P on January 1, 2014 (use work back approach),
Retained earnings Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P) .
P2,801,000
-: UPEI of S (down) 2013 or RPBI of S (down) 2014.. .
15,000
Adjusted Retained earnings Parent, 1/1/2014 (cost)
P2,786.000
Retroactive Adjustments to convert Cost to Equity for

purposes of consolidation / Parents share of adjusted


net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011 P 150,000
Less: Retained earnings Subsidiary, 1/1/2014
260,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P110,000
Accumulated amortization (1/1/2011 1/1/2014):
P 2,000 x 3 years . ( 6,000)
UPEI of P (up) 2013 or RPBI of P (up) 2014 ... ( 10,000)
P 94,000
X: Controlling Interests 80% 75,200
RE P, 1/1/2014 (equity method) = CRE, 1/1/2014 ..P2,861,200
+: CI CNI or Profit Attributable to Equity Holders of Parent .. 769,400
-: Dividends P ..
25,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014 ..P3,605,600
Sales
Cost of Sales
P
P2,500,000
P1,250,000
S
1,200,000
875,000
Intercompany sales - downstream
( 320,000)
( 320,000)
Intercompany sales - upstream
( 290,000)
( 290,000)
RPBI of S (downstream sales)*
( 15,000)
RPBI of P (upstream sales)***
( 10,000)
UPEI of S (downstream sales)**
20,000
UPEI of P (upstream sales)****
_________
5,000
Consolidated
P3,090,000
P1,515,000
Working Paper Eliminating Entries:
1. Intercompany Sales and Purchases:
Downstream Sales:
Sales .. 320,000
Cost of Sales (or Purchases) ....
320,000
Upstream Sales:
Sales .. 290,000
Cost of Sales (or Purchases)
290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings P, beginning ..... 15,000
Cost of Sales (Beginning Inventory in Income Statement) ............ 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement) 20,000
Inventory (Ending Inventory in Balance Sheet) ..
20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE P, beg.)
Retained Earnings P, beginning ..... 16,000
NCI .... 4,000
Cost of Sales (Beginning Inventory in Income Statement) ........
20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement) 5,000
Inventory (Ending Inventory in Balance Sheet) ..
5,000

Problem XV (Change 2009 20x4; 2010 20x5; 2011 20x6)

(Compute consolidated totals with transfers of both inventory and a building.)

Excess Amortization Expenses


Equipment P60,000 10 years = P6,000 per year
Franchises P80,000 20 years = P4,000 per year
Annual excess amortizations P10,000
Unrealized Gross profit Inventory, 1/1/x6
Markup (P70,000 P49,000) ............................................................
Markup percentage (P21,000 P70,000) ...................................

P21,000
30%

Remaining inv entory ...............................................................................................................................


Markup percentage ...............................................................................................................................

P30,000
30%

Unrealized gross profit, 1/1/x6 .........................................................

P9,000

Unrealized Gross profit Inventory, 12/31/x6


Markup (P100,000 P50,000) ..........................................................

P50,000

Remaining inventory .........................................................................

P40,000

Unrealized gross profit, 12/31/x6 ....................................................

P20,000

Markup percentage (P50,000 P100,000) .......................................................................................

Markup percentage ...............................................................................................................................

50%

50%

Impact of intercompany Building Transfer


12/31/x5Transfer price figures
Transfer price .................................................................................
Gain on transfer (P50,000 P30,000) ......................................
Depreciation expense (P50,000 5) ......................................
Accumulated depreciation .....................................................
12/31/x6Transfer price figures
Depreciation expense ................................................................
Accumulated depreciation .....................................................
12/31/x5Historical cost figures
Historical cost ................................................................................
Depreciation expense (P30,000 book value 5 years) ....
Accumulated depreciation (P40,000 + P6,000) ..................
12/31/x6Historical cost figures
Depreciation expense ................................................................
Accumulated depreciation .....................................................

P50,000
20,000
10,000
10,000
10,000
20,000
P70,000
6,000
46,000
6,000
52,000

CONSOLIDATED BALANCES
Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)
Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in
intercompany purchases. Subtract P9,000 because of the previous year

unrealized gross profit and add P20,000 to defer the current year unrealized gross
profit.)
Operating Expenses = P206,000 (add the two book values and include the
P10,000 excess amortization expenses but remove the P4,000 in excess
depreciation expense [P10,000 P6,000] created by building transfer)
Investment Income = P0 (the intercompany balance is removed so that the
individual revenue and expense accounts of the subsidiary can be shown)
Inventory = P280,000 (add the two book values and subtract the P20,000 ending
unrealized gross profit)
Equipment (net) = P292,000 (add the two book values and include the P60,000
allocation from the acquisition-date fair value less three years of excess
amortizations)
Buildings (net) = P528,000 (add the two book values and subtract the P20,000
unrealized gain on the transfer after two years of excess depreciation [P4,000 per
year])

Problem XVI
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
Son:
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

P
372,000

P 192,000
96,000

288,000
P
84,000

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

72,000
P
12,000

fair
value)...
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book
value
Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..

S Co.
Fair
value

(Over)
Under
Valuation

P
24,000
48,000
84,000
168,000

P
30,000
55,200
180,000
144,000
(
(120,000) 115,200)
P
P
204,000 294,000

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...

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

S Co.
Book value
180,000

S Co.
Fair value
180,000

Increase
(Decrease)
0

96,000

( 96,000)

84,000

180,000

96,000

S Co.
Book value
360,000

S Co.
Fair value
144,000

(Decrease)
( 216,000)

192,000

( 192,000)

168,000

144,000

24,000)

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be
amortized
Inventory
Subject
to
Amortization

Annual

Over/
Unde
r
P
6,000

Lif
e
1

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

Equipment (net).........
Buildings (net)
Bonds payable

96,00
0
(24,0
00)
48000

8
4
4

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

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

12,00
0
(6,00
0)
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 Son
(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:

Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%

The goodwill impairment loss would be allocated as follows

Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill applicable to NCI..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750

% of
Total
80.00%
20.00%
100.00%

Goodwill
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:

20x4

Sales of
Parent to
Subsidiary
P150,000

Intercompany
Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000

20x5

120,000

P120,000 x 80% = P96,000

Year

Unrealized
Intercompany Profit in
Ending Inventory
P90,000 x 20% =
P18,000
P96,000 x 25% =
P40,000

Upstream Sales:

Year
20x4
20x5

Sales of
Subsidiary to
Parent
P 50,000
62,500

Intercompany
Merchandise
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P 62,500 x 40% = P25,000

Unrealized
Intercompany Profit in
Ending Inventory
P25,000 x 40% =
P10,000
P25,000 x 20% = P
5,000

20x4: First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

Cash..
Acquisit ion of S Company.

January 1, 20x4 December 31, 20x4:


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

28,800

28,800

Record dividends from S Company.

December 31, 20x4:


(3) Investment in S Company
Investment income (P60,000 x 80%)
Record share in net income of subsidiary.

December 31, 20x4:

48,000
48,000

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill


impairment loss)]
Investment in S Company

13,560
13,560

Record amortization of allocat ed excess of invent ory, equipment , buildings and


bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Inv estment income (P18,000 x 100%)
Inv estment in S Company
To adjust inv estment income for downst ream sales - unrealized profit in ending
invent ory of S.
December 31, 20x4:
(6) Inv estment income (P12,000 x 80%)
Inv estment in S Company
To adjust inv estment income for upstream sales - unrealized profit in ending
inv entory P .

18,000

9,600

18,000

9,600

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)

Inv estment in S
372,000 28,800
48,000

Div idends S (30,000x 80%)


Amortization &
impairment
UPEI of Son (P15,000 x 100%)
UPEI of Perfect (P10,000 x80%)

13,560
18,000
9,600

350,040
Inv estment Income
13,560
18,000
9,600

NI of S
(P60,000 x 80%)

48,000
6,840

Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition

(E1)
Common
stock

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..

240,000

120.000

288,000

72,000

To eliminat e invest ment on January 1, 20x4 and equit y account s of


subsidiary on date of acquisition; and t o establish non-controlling int erest
(in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800

payable.
12,000
Goodwill.
Buildings..
Non-controlling
interest
(P90,000
x
20%)..
Investment
in
S
Co.

216,000
18,000
84,000

To eliminat e invest ment on January 1, 20x4 and allocat e excess of


cost over book value of ident ifiable asset s acquired, wit h remainder
t o goodwill; and t o est ablish non- cont rolling int erest (in net asset s of
subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

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

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Ss ident ifiable asset s and liabilit ies as follows:

Inv entory 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 7,200

P 1,200
P1,200

(E4) Investment income


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

Total

14,400

6,840
21,960
7,200
36,000

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:

NI of S

Inv estment in S
28,800
Div idends - S

Inv estment Income


NI of S

After

(60,000
x 80%). 48,000

13,560
18,000
9,600
21,960

Amortization &
impairment
UPEI of S
UPEI of P

Amortization
impairment
UPEI of S
UPEI of P

13,560
18,000
9,600

(50,000
x 80%)

48,000

the

6,840

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
(60,000 x 80%)
Balance, 12/31/x4
(E4) Inv estment Income
and div idends

Inv estment in S
372,000
28,800
48,000
350,040
21,960
372,000

13,560
18,000
9,600
288,000
84,000

Div idends S (30,000x 80%)


Amortization &
impairment
UPEI of Son
UPEI of Perfect
(E1) Inv estment, 1/1/20x4
(E2) Inv estment, 1/1/20x4

372,000

(E5) Sales.
Cost of Goods Sold (or Purchases)

150,000
150,000

To eliminat ed int ercompany downst ream sales.

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminat ed int ercompany upst ream sales.

(E7) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

18,000
18,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

12,000
12,000

To defer t he upstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E9) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..
To est ablish non-cont rolling int erest in subsidiarys adjust ed net
income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inv entory of P
Company (upstream sales)..
Son Companys realized net income from
separate operations* ...
Less: Amortization of allocated excess [(E3)] .

P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800

6,960
6,960

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


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

20%
P

6,960

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.
Equity Method (Partial -goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
P Co
P480,000

S Co.
P240,000

Inv estment income


Total Rev enue

6,840
P486,840

P240,000

Cost of goods sold

P204,000

P138,000

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

60,000
48,000
P312,000
P174,840
P174,840

24,000
18,000
P180,000
P 60,000
P 60,000

Sales

Income Statement

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings

Dr.
(5) 150,000
(6) 60,000
(4) 6,840

(3)
(7)
(8)
(3)
(3)

6,000
18,000
12,000
6,000
1,200

(3)

3,000

(9)

6,960

Cr.

_________
P 510,000
P 168,000

(5)
150,000
(6)
60,000

90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840

P360,000

Consolidated
P 510,000

174,840
P414,840

P120,000
60,000
P180,000

72,000
-

36,000

P462,840

360,000

(1) 120,000

174,840
P414,840

72,000
________

P144,000

642,840

232,800
90,000
120,000

P 90,000
60,000
90,000

387,360
150,000

210,000
220,000
720,000

48,000
180,000
540,000

(4)

(1)

5,000

(2)

7,200

(2)
4,800
(2) 12,000
(8) 21,960

350,040
P1,635,700

P1,006,000

P 135,000
405,000

P 96,000
288,000

(2) 96,000
(2) 192,000
(3)
6,000

(3)
(7)
(8)

36,000

6,000
18,000
12,000

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

(3)

12,000

180,000
265,200
380,000
1,044,000
3,600
9,000
P2,394,600

P 147,000
495,000

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

120,000
240,000
600,000

120,000
120,000

240,000
360,000
600,000

240,000
144,000

(1) 240,000

462,840
_________
P1,962,840

_________
P1,008,000

__________
P 983,160

(4)

7,200

(1 ) 72,000
(2) 18,000
(5) 6,960
P 983,160

462,840
____89,760
P2,394,600

Second Year after Acquisition

Sales
Less: Cost of goods sold
Gross profit

P Co.

P
540,000
216,000

Less: Depreciation expense


Other expense

P
324,000
60,000
72,000

Net income from its own separate


operations
Add: Investment income

P
192,000
65,040

Net income
Dividends paid

P
257,040
P
72,000

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.


20x5: Parent Company Equity Method Entry

January 1, 20x5 December 31, 20x5:


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

38,400

38,400

Record dividends from S Company.

December 31, 20x5:


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

72,000
72,000

Record share in net income of subsidiary.

December 31, 20x5:


(4) Investment income (P7,200 x 80%)
Investment in S Company
Record amortizat ion of allocat ed excess of invent ory, equipment ,
buildings and bonds payable

5,760

5,760

December 31, 20x5:


(5) Inv estment income (P24,000 x 100%)
Inv estment in S Company
To adjust inv estment income for downst ream sales - unrealized profit
in ending invent ory of Son (UPEI of S).
December 31, 20x5:
(6) Inv estment in S Company..
Inv estment income (P18,000 x 100%)..
To adjust inv estment income for downst ream sales - realized profit in
beginning invent ory of S (RPBI of S).
December 31, 20x5:
(7) Inv estment income (P6,000 x 80%)
Inv estment in S Company
To adjust inv estment income for upstream sales - unrealized profit in
ending inv entory Perfect (UPEI of P).

December 31, 20x5:


(8) Inv estment in S Company..
Inv estment income (P12,000 x 80%)..
To adjust inv estment income for upstream sales - realized profit in
beginning inv entory of Perfect (RPBI of P)

24,000
24,000

18,000

18,000

4,800

4,800

9,600

9,600

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%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

Amortization (7,200 x 805)


UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)

Inv estment in S
350,040 38,400
5,760
72,000 24,000
18,000
4,800
9,600
376,680
Inv estment Income
5,760
24,000
72,000
4,800 18,000
9,600
65,040

Div idends S (48,000x 80%)


Amortization (7,200 x 80%)
UPEI of Son (P24,000 x 100%)
UPEI of Perfect (P6,000 x 80%)

NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P(P12,000 x 80%)
Balance, 12/31/x5

Consolidation Workpaper Second Year after Acquisi tion


The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:

(E1)
Common
stock

S
Co
Retained
earnings

S
Co,
1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling
interest
(P384,000
x
20%)..
To eliminat e invest ment on January 1, 20x5 and equit y account s
of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on 1/1/20x5.

240,000
144.000
307,200
76,800

(E2) Accumulated depreciation equipment (P96,000 84,000


P12,000)
Accumulated depreciation buildings (P160,000 + 198,000
P6,000)
7,200
Land.
Discount on bonds payable (P4,800 P1,200).
3,600
Goodwill (P12,000 P3,000)..
9,000
Buildings..
216,000
Non-controlling interest [(P90,000 P13,200) x 20%]
15,360
Investment
in
S
70,440
Co.
To eliminat e invest ment on January 1, 20x5 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o t he original amount of goodwill; and t o est ablish non- cont rolling
int erest (in net asset s 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
12,000
1,200

To provide for 20x5 depreciat ion and amort izat ion on differences
bet ween acquisit ion dat e fair value and book value of Sons
ident ifiable asset s and liabilit ies as follows:

Inv entory sold


Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Total

P7,200

(E4) Investment income


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

65,040
9,600

48,000
26,640

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:
NI of S
(90,000
x 80%).

Inv estment in S
38,400
Div idends S
Amortization
72,000
5,760
(P7,200 x 80%)

Inv estment Income


Amortization
(P7,200 x 80%)

5,760

72,000

NI of S
(90,000
x 80%)

RPBI of S
RPBI of P

18,000
9,600
26,640

24,000
4,800

UPEI of S
UPEI of P

UPEI of S
UPEI of P

(E6) Sales.
Cost of Goods Sold (or Purchases)

24,000
4,800

18,000 RPBI of S
9,600 RPBI of P
65,040

120,000
120,000

To eliminat ed int ercompany downst ream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminat ed int ercompany upst ream sales.

(E8) Investment in Son Company.


Cost of Goods Sold (Ending Inventory
Income Statement)

18,000
18,000

To realized profit in downstream beginning inventory deferred in t he


prior period.

(E9) Investment in Son Company (P12,000 x 80%)


Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory
Income Statement)

9,600
2,400
12,000

To realized profit in upstream beginning inventory deferred in t he


prior period.

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/x5
NI of S
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P

Inv estment in S
350,040
38,400
72,000
18,000
9,600
376,680
18,000
9,600

5,760
24,000
4,800
307,200
70,440
26,640

336,900

404,280

(E10) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

Div idends S (40,000x 80%)


Amortization
(6,000 x 80%)
UPEI of S (P20,000 x 100%)
UPEI of P (P5,000 x 80%)
(E1) Inv estment, 1/1/20x5
(E2) Inv estment, 1/1/20x5
(E4) Inv estment Income
and div idends

24,000
24,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

6,000
6,000

To defer t he upstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E12) Non-controlling interest in Net Income of


Subsidiary

17,760

Non-controlling interest ..

17,760

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x5 as follows:
Net income of subsidiary..
Realized profit in beginning inv entory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
S Companys Realized net income*
Less: Amortization of allocated excess

P 90,000
12,000
(
P
(
P

6,000)
96,000
7,200)
88,800
20%

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


Non-controlling Interest in Net Income (NCINI)
partial goodwill
P 17,760
* from separat e t ransact ions t hat has been realized in t ransact ions
wit h t hird persons.

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


Equity Method (Partial -goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
P Co
P540,000

S Co.
P360,000

Inv estment income


Total Rev enue
Cost of goods sold

65,040
P605,040
P216,000

P360,000
P192,000

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

60,000
72,000
P348,000
P257,040
P257,040

24,000
54,000
P270,000
P 90,000
P 90,000

(3)
(3)

(1) 144,000

257,040
P719,880

P144,000
90,000
P234,000

72,000
-

48,000

P777,456

P223,200

P 777,456

265,200
180,000
216,000

P 102,000
96,000
108,000

P 367,200
276,000

210,000
240,000

48,000
180,000

Sales

Income Statement

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment

Dr.
(6) 120,000
(7) 75,000
(4) 65,040

Cr.

(10) 24,000
(11) 6,000

(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000

(5)

6,000
1,200

Consolidated
P 705,000
___________
P 705,000
P 213,000

P
P
(
P

17,760

P462,840

90,000
1,200
126,000
430,200
274,800
17,760)
257,040

P 462,840
257,040
P 719,880

(4)

(2)

7,200

48,000

(10) 24,000
(11) 6,000

72,000
________

294,000
265,200
420,000

Buildings
Discount on bonds payable
Goodwill
Inv estment 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

720,000

540,000

376,680
P2,207,880

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

647,880

240,000
186,000

(2)
(2)
(8)
(9)

(3) 216,000
3,600 (3) 1,200
9,000
18,000 (1) 307,200
9,600 (6) 70,440
(4) 26,640

(2)

84,000

_________
P1,074,000

P2,677,800

12,000

(2) 198,000
(3) 6,000

P180,000
552,000
240,000
360,000
600,000

(1) 240,000
647,880
(4)
(9)

___ _____
P2,207,880

(3)

1,044,000
2,400
9,000

9,600
2,400

__________
P1,046,400

(2 ) 76,800
(2) 15,360
(5) 17,760
P1,046,400

____97,920
P2,677,800

5 and 6. Refer to Problem IX 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 IX solution).
Problem XVII
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%)

P
372,000
93,000
P
465,000

P 240,000
120,000

6,000

360,000
P
105,000

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)...

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

90,000

P
15,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be
amortized
Inventory
Subject
to
Amortization

Over/
unde
r
P
6,000

Lif
e
1

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

12,00
0
(6,00
0)

Annual

Buildings (net)

96,00
0
(24,0
00)

Bonds payable

4,800

Equipment (net).........

8
4
4

1,200
P
13,200

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

1,200
P
7,200

20x4: First Year after Acquisition


Parent Company Equity Method Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

Cash..
Acquisit ion of S Company.

January 1, 20x4 December 31, 20x4:


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

December 31, 20x4:

28,800
28,800

(3) Investment in S Company


Investment income (P60,000 x 80%)

48,000
48,000

Record share in net income of subsidiary.

December 31, 20x4:


(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
Investment in S Company

13,560
13,560

Record amortization of allocat ed excess of invent ory, equipment , buildings and


bonds payable and goodwill impairment loss.

* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,125 by 80%. There might
be sit uations where the controlling interests on goodwill impairment loss would not be proport ionat e t o NCI acquired (refer t o
Illust rat ion 15-6).

December 31, 20x4:


(5) Inv estment income (P18,000 x 100%)
Inv estment in S Company
To adjust inv estment income for downst ream sales - unrealized profit
in ending invent ory of S.
December 31, 20x4:
(6) Inv estment income (P12,000 x 80%)
Inv estment in S Company
To adjust inv estment income for upstream sales - unrealized profit in
ending inv entory P .

18,000

9,600

18,000

9,600

Thus, the investment balance and investment income in the books of P Company is as follows

Cost, 1/1/x4
NI of S
(60,000 x 80%)

Balance, 12/31/x4

Inv estment in S
372,000 28,800
48,000

Div idends S (36,000x 80%)


Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)

13,560
18,000
9,600

324,000
Inv estment Income

Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)

13,560
18,000
9,600

NI of S
(P60,000 x 80%)

48,000
6,840

Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition

(E1)
Common
stock

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000

240,000

120.000

288,000

72,000

20%)..
To eliminat e invest ment on January 1, 20x4 and equit y account s
of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of
acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
Son
84,000
Co.
To eliminat e invest ment on January 1, 20x4 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o goodwill; and t o est ablish non- cont rolling int erest (in net asset s of
subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill
To provide for 20x4 impairment loss and depreciat ion and
amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Ss ident ifiable asset s and liabilit ies as follows:

Inv entory sold


Equipment

Cost of
Goods
Sold
P 6,000

Depreciation/
Amortization
Expense
P 12,000

Amortization
-Interest

Total

12,000
1,200
3,750

Buildings
Bonds payable
Totals

_______
P 6,000

( 6,000)
_______
P 7,200

P 1,200
P1,200

14,400

(E4) Investment income


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

6,840
21,960
7,200

36,000

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:

After

Inv estment Income

Inv estment in S
NI of S
28,800
Div idends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
18,000
UPEI of S
9,600
UPEI of P
21,960

Amortization
impairment
UPEI of S
UPEI of P

13,560
18,000
9,600

48,000

the
NI of S
(50,000
x 80%)

6,840

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
(60,000 x 80%)
Balance, 12/31/x4
(E4) Inv estment Income
and div idends

Inv estment in S
372,000
28,800
48,000
350,040
21,960
372,000

13,560
18,000
9,600
288,000
84,000

Div idends S (30,000x 80%)


Amortization &
impairment
UPEI of S
UPEI of P
(E1) Inv estment, 1/1/20x4
(E2) Inv estment, 1/1/20x4

372,000

(E5) Sales.
Cost of Goods Sold (or Purchases)

150,000
150,000

To eliminat ed int ercompany downst ream sales.

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminat ed int ercompany upst ream sales.

(E7) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

18,000
18,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory


Income St atement)
Inventory Balance Sheet
To defer t he upstream sales - unrealized profit in ending inventory

12,000
12,000

unt il it is sold to outsiders.

(E9) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

6,210
6,210

To est ablish non-cont rolling int erest in subsidiarys adjust ed net


income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inv entory of P
Company (upstream sales)..
S Companys realized net income from
separate operations* ...
Less: Amortization of allocated excess [(E3)] .

P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P 6,960

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)*
750
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 6210
* t his procedure would be more appropriat e, inst ead of mult iplying t he fullgoodwill impairment loss of P3,750 by 20%. There might be situat ions where t he
NCI on goodwill impairment loss would not be proport ionat e t o NCI acquired
(refer t o Illust rat ion 15-6).

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


Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
P Co
P480,000

S Co.
P240,000

Inv estment income


Total Rev enue

6,840
P486,840

P240,000

Cost of goods sold

P204,000

P138,000

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

60,000
48,000
P312,000
P174,840
P174,840

24,000
18,000
P150,000
P 50,000
P 50,000

Sales

Income Statement

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company

Dr.
(5) 150,000
(6) 60,000
(4)
6,840

(3)
(7)
(8)
(3)
(3)

174,840
P414,840
72,000

Consolidated
P 510,000
_________
P 510,000
P 168,000

(5)
6,000 150,000
18,000 (6)
12,000 60,000
6,000
1,200

(3)

3,750

(9)

5,175

P360,000
P120,000
60,000
P180,000

Cr.

90,000
1,200
66,000
3,750
P274,125
P150,875
( 5,175)
P145,700

360,000

174,840
414,840

(1) 120,000

72,000

S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.

Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

36,000

P462,840

________

P144,000

462,840

232,800
90,000
120,000

P 90,000
60,000
90,000

322,800
150,000

210,000
240,000
720,000

48,000
180,000
540,000

350,040
P1,635,700

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

462,840

240,000
144,000

_________
P1,962,840

_________
P1,008,000

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

Dividends paid

(2)

6,000

(2)

7,200

(3)
(7)
(8)

36,000

6,000
18,000
12,000

(2) 216,000
(2)
4,800 (3) 1,200
(2) 15,000 (3) 3,750
(4) 21,960 (2) 288,000
(2) 84,000

(2) 96,000 (3)


(2) 192,000
(3)
6,000

12,000

180,000
265,200
420,000
1,044,000
3,600
11,250
P2,396,850
P 147,000
495,000
240,000
360,000
600,000

(1) 240,000
462,840
(4)

20x5: Second Year after Acquisition

Net income

(4)

7,200

__________
P 986,160

(1 ) 72,000
(2) 21,000
(9) 6,210
P 986,160

Perfect
Co.
P
540,000
216,000
P
324,000
60,000
72,000
P
192,000
65,040
P
257,040
P
72,000

____92,010
P2,396,850

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%).

38,400
38,400

Record dividends from S Company.

December 31, 20x5:


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

72,000

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

5,760

Record amortizat ion of allocat ed excess of invent ory, equipment ,


buildings and bonds payable
December 31, 20x5:
(5) Inv estment income (P24,000 x 100%)
Inv estment in S Company
To adjust inv estment income for downst ream sales - unrealized profit
in ending invent ory of S (UPEI of S).
December 31, 20x5:
(6) Inv estment in S Company..
Inv estment income (P18,000 x 100%)..
To adjust inv estment income for downst ream sales - realized profit in
beginning invent ory of S (RPBI of S).
December 31, 20x5:
(7) Inv estment income (P6,000 x 80%)
Inv estment in S Company
To adjust inv estment income for upstream sales - unrealized profit in
ending inv entory P (UPEI of P).
December 31, 20x5:
(8) Inv estment in S Company..
Inv estment income (P12,000 x 80%)..
To adjust inv estment income for upstream sales - realized profit in
beginning inv entory of P (RPBI of P)

24,000

18,000

24,000

18,000

4,800
4,800

9,600

9,600

Thus, the investment balance and investment income in the books of Perfect C ompany is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

Inv estment in S
350,040 38,400
5,760
72,000 24,000
18,000
4,800
9,600
376,680
Inv estment Income

Div idends S (48,000x 80%)


Amortization (7,200 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)

Amortization (7,200 x 805)


UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)

5,760
24,000
4,800

72,000
18,000
9,600
65,040

NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

Consolidation Workpaper Second Year after Acquisition


The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.

(E1)
Common
stock

S
Co
Retained
earnings

S
Co,
1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling
interest
(P384,000
x
20%)..

240,000
144.000
307,200
76,800

To eliminat e invest ment on January 1, 20x5 and equit y account s


of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation equipment (P96,000 84,000


P12,000)
Accumulated depreciation buildings (P192,000 + 198,000
P6,000)
7,200
Land.
Discount on bonds payable (P4,800 P1,200).
3,600
Goodwill (P15,000 P3,750)..
11,250
Buildings..
216,000
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
P3,000, partial- goodwill impairment)*
17,610
or (P3,750 x 20%)]
Investment
in
S
70,440
Co.
To eliminat e invest ment on January 1, 20x5 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o t he original amount of goodwill; and t o est ablish non- cont rolling
int erest (in net asset s of subsidiary) on 1/1/20x5.
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of P3,750 by 20%. There
might be situations where t he NCI on goodwill impairment loss would not b e proportionate to NCI acquired (refer t o Illust rat ion
15-6).

(E3) Depreciation expense..


Accumulated
depreciation

buildings..
Interest expense

6,000
6,000
1,200

Accumulated
depreciation
equipment..
Discount
on
payable

12,000

bonds

1,200

To provide for 20x5 depreciat ion and amort izat ion on differences
bet ween acquisit ion dat e fair value and book value of Sons
ident ifiable asset s and liabilit ies as follows:

Inv entory sold


Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Total

P7,200

(E4) Investment income


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

65,040
9,600

48,000
26,640

To eliminate intercompany dividends and investment income under


equit y met hod and est ablish share of dividends, comput ed as
follows:
NI of Son
(90,000
x 80%).
RPBI of S
RPBI of P

Inv estment in S
38,400
Div idends S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000 24,000
UPEI of S
9,600
4,800
UPEI of P
26,640

Inv estment Income


Amortization
(P7,200 x 80%)
UPEI of S
UPEI of P

(E6) Sales.
Cost of Goods Sold (or Purchases)

5,760
24,000
4,800

72,000
18,000
9,600
65,040

NI of S
(90,000
x 80%)
RPBI of S
RPBI of P

120,000
120,000

To eliminat ed int ercompany downst ream s ales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminat ed int ercompany upst ream sales.

(E8) Investment in Son Company.


Cost of Goods Sold (Ending Inventory
Income Statement)

18,000
18,000

To realized profit in downstream beginning inventory deferred in t he


prior period.

(E9) Investment in Son Company (P12,000 x 80%)


Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory
Income Statement)
To realized profit in upstream beginning inventory deferred in t he
prior period.

9,600
2,400
12,000

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/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P18,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P

Inv estment in S
350,040
38,400
72,000
18,000
9,600
376,680
18,000
9,600

5,600
24,000
4,800
307,200
70,440
26,640

404,280

404,280

Div idends S (48,000x 80%)


Amortization
(7,000 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
(E1) Inv estment, 1/1/20x5
(E2) Inv estment, 1/1/20x5
(E4) Inv estment Income
and div idends

(E10) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

24,000
24,000

To defer t he downstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory


Income Statement)
Inventory Balance Sheet

6,000
6,000

To defer t he upstream sales - unrealized profit in ending inventory


unt il it is sold to outsiders.

(E12) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..
To est ablish non-cont rolling int erest in subsidiarys adjust ed net
income for 20x5 as follows:

Net income of subsidiary..


Realized profit in beginning inv entory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
Son Companys Realized net income*
Less: Amortization of allocated excess

P 90,000
12,000
(
P
(
P

6,000)
96,000
7,200)
88,000
20%
P 17,760

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


Non-controlling Interest in Net Income (NCINI)
partial goodwill
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 17,760
* from separat e t ransact ions t hat has been realized in t ransact ions

17,760
17,760

wit h t hird persons.

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


Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
P Co
P540,000

S Co.
P360,000

Inv estment income


Total Rev enue
Cost of goods sold

65,040
P605,040
P216,000

P360,000
P192,000

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

60,000
72,000
P348,000
P257,040
P257,040

24,000
54,000
P270,000
P 90,000
P 90,000

(3)
(3)

(1) 144,000

257,040
P719,880

P144,000
90,000
P234,000

72,000
-

48,000

P647,880

P186,000

P 647,880

265,200
180,000
216,000

P 114,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

Sales

Income Statement

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

Dr.
(6) 120,000
(7) 75,000
(4) 65,040

Cr.

(10) 24,000
(11) 6,000

(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000

(5)

Consolidated
P 705,000
___________
P 705,000
P 213,000

6,000
1,200

P
P
(
P

17,760

P462,840

P 462,840

376,680
P2,207,880

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

647,880

90,000
1,200
126,000
430,200
274,800
17,760)
308,448

240,000
186,000

257,040
P 719,880

(4)

(2)

7,200

48,000

(10) 24,000
(11) 6,000

(2)
(2)
(8)
(9)

(3) 216,000
3,600 (3) 1,200
11,250
18,000 (1) 307,200
9,600 (7) 70,440
(4) 26,640

(2)

84,000

(2) 198,000
(3) 6,000

(3)

12,000

72,000
________

294,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000

(1) 240,000
647,880

Non-controlling interest

Total

(4)
(9)
___ _____
P2,207,880

_________
P1,074,000

9,600
2,400

__________
P1,048,650

(1 ) 76,800
(2) 17,610
(14)17,760
P1,048,650

____100,170
P2,680,050

5 and 6. Refer to Problem X 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
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300]
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468]
Consolidated

Sales
2,250,000
1,125,000
3,375,000
468,000

Cost of Sales
1,800,000
_937,500
2,737,500
468,000
30,000

________
2.907,000

__37,200
2,276,700

2. c refer to No. 1 for computations

3. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (30/150)]
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
* t hat has been realized in t ransact ions wit h t hird part ies.

P225,000
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000

75,000
P300,000
0
P300,000
15,000
P285,000

Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.

P225,000

Realized profit in beginning inv entory of S Company (downstream sales)


Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
Son 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 20x4
* t hat has been realized i n t ransact ions wit h t hird part ies.
* * Non-controlling Interest in Net Income (NCINI) for 20x 4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000

75,000
P300,000

P 15,000
0

15,000
P285,000
_ 15,000
P290,000

P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000

4. c refer to No. 3 for computation


5. a P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
6. c P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
7. d
Cost of Sales
P Company
5,400,000
S Company
_1,200,000
Total
6,600,000
Less: Intercompany sales
1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625]
24,000
Add: Unrealized profit in EI of S Co.
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000]
__20,000
Consolidated
5,596,000

8. b
Net Income from own operations:
X-Beams (parent) Kent (subsidiary), 70%:30%
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30%

Parent

Subsidiary

210,000

90,000

( 11,200)

( 4,800)

Non-controlling Interest in Kents Net Income

85,200

9. d
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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 137,000
40,000
( 25,000)
P 152,000
_ 0
P 152,000
30%
P 45,600
0
P 45,600

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

10. c
Parent
Net Income from own operations:
Gibson (Parent): Sparis(subsidiary), 90%:10%
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10%
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10%
Non-controlling Interest in Kents Net Income
11. b
12. a
13. b (downstream sales)

Sales Pot (parent)


- Skillet (subsidiary)
Total
Add(Deduct): I ntercompany sales - dow n
Consolidated Sales

1,120,000
420,000
1,540,000
( 140,000)
1,400,000

CGS Pot (parent)


- Skillet (subsidiary)
Total
Add(Deduct): I ntercompany sales - dow n
Unrealized Profit in
Ending I nv entory of
Skillet (subsidiary)-dow n
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS

840,000
252,000
1,092,000
( 140,000)

14,000
966,000

Subsidiary

820,800

91,200

22,680

2,520

(27,000)

( 3,000)
90,720

14. c upstream sales


Note: The only change here from Problem 13 is the markup percentage which
40 percent*

would now be

CGS Pot (parent)


840,000
- Skillet (subsidiary)
252,000
Total
1,092,000
Add(Deduct): I ntercompany sales - upstream ( 140,000)
Unrealized Profit in
Ending I nv entory of
Pot (subsidiary)-upstream
EI of Pot:
Sales of Skillet 140,000
x: EI of Pot
40%
EI of Pot
56,000
X: GP of Skillet
(420 252)
420
40%*
22,400
Consolidated CGS
974,400
The problem is quite intriguing because of the statement Pot had established the transfer
price base on its normal markup. It should be noted that Parent Company established the
transfer price based on its normal price (in this case it is assumed that the mark -up of the
parent which is 25% is also the normal transfer price). So, the solution should be as follows:
Sales Pot (parent)
- Skillet (subsidiary)
Total
Add(Deduct): Intercompany sales - down
Consolidated Sales

1,120,000
420,000
1,540,000
( 140,000)
1,400,000

CGS Pot (parent)


- Skillet (subsidiary)
Total
Add(Deduct): Intercompany sales - down
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS

840,000
252,000
1,092,000
( 140,000)

14,000
966,000

15. No answer available P140,000, intercompany sales


16. a P20 x 28,000 picture tubes, intercompany sales
17. b P120,000, the amount of sales to outsiders is the amount of sales presented in the consolidated
income statement.
18. a the cost of inventory produced by the parent (downstream sales)

19. c
Consolidated Net Income for 20x4
P Companys net income from own/separate operations (P90,000 P62,000)
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P120,000 P90,000)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
* t hat has been realized in t ransact ions wit h t hird part ies.

P 28,000
0
(_
0)
P 28,000
P3 0,000
0
(
)
P30,000

30,000
P 58,000
0
P 58,000
3,000
P 55,000

Or, alternatively

Consolidated Net Income for 20x4


P Companys net income from own/separate operations (P90,000 P62,000)
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P120,000 P90,000)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales
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 20x4
* t hat has been realized in t ransact ions wit h t hird part ies.
* * Non-controlling Interest in Net Income (NCINI) for 20x 4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inv entory of P Company (upstream sales)

P 28,000
0
(_
0)
P 28,000
P3 0,000
0
(
)
P30,000
P 3,000
0

30,000
P 58,000
3,000
P 55,000
_ 3,000
P 58,000

P 30,000
0

Unrealized profit in ending inv entory of P Company (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

(
0)
P 30,000
0
P 30,000
10%
P 3,000
0
P 3,000

20. c P100,00 sales to unrelated/unaffiliated company.

21. c
P Company
S Company
Total
Less: Intercompany sales
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90]
Consolidated

Sales
Less: Cost of goods sold Parent
Subsidiary (90,000 x 70%)
Gross profit
Ending inventory (90,000 x 30%)

Cost of Sales
67,000
_63,000
130,000
90,000
__6,900
46,900

Parent Subsidiary
90,000
100,000
67,000
______
63,000
23,000
37,000
27,000

22. a
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)]
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)

P 37,000
0
(_
0)

P Companys realized net income from separate operations* ...


S Companys net income from own operations (P90,000 P67,000)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)]
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
* t hat has been realized in t ransact ions wit h t hird part ies.

P23,000
0
(

6,900 )
P16,100

P 37,000

16,100
P 53,100
0
P 53,100
1,610
P 51,490

Or, alternatively

Consolidated Net Income for 20x4


P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)]
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (P90,000 P67,000)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)]
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 20x4
* t hat has been realized in t ransact ions wit h t hird part ies.

P 37,000
0
(_
0)
P 37,000
P23,000
0
(

6,900 )
P16,100
P 1,610
0

16,100
P 53,100
1,610
P 51,490
_ 1,610
P 53,100

* * 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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstrea m sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 23,000
0
( 6,900)
P 16,100
0
P 16,100
10%
P 1,610
0
P 1,610

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. d P27,000 x 67/90 = P20,100


24. a the cost from parent of P48,000 x 45/60 = P36,000

Parent
Sales
Less: Cost of goods sold P and S1
Subsidiary
(60,000 x 45/60)
Gross profit
Ending inventory (60,000 x 15/60)

Subsidiary Subsidiary
1
2
60,000
60,000
67,000
48,000
60,000
______
______
45,000
12,000

22,000
15,000

25. b the cost from parent of P48,000 x 15/60 = P12,000


26. a
Sales
Intercompany
Parent
Subsidiary 1
Add: Cost of EI in S2 Co.
[P15,000 x (48/60]
Amount to be eliminated
*or, P60,000 + P60,000 [P15,000 x (60-48/60]

Cost of Sales

60,000
60,000

60,000
45,000

________
120,000

__12,000
*117,000

27. b refer to No. 26 for computation


28. d P15,000 x [(60-48)/60] = P3,000
29. a
Consolidated Net Income for 20x3
P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P105,000 x 20/120)
S Companys realized net income from separate operations* ...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x3

P150,000
0
(

17,500 )
P132,500

P 225,000
0
(_
0)
P225,000

132,500
P 357,500
_
0
P357,500

30. c
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
[P105,000 x 20/120)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P157,500 x 20/120)
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
* t hat has been realized in t ransact ions wit h t hird part ies.

P360,000
0
(_
0)
P360,000
P135,000
17,500
( 26,250 )
P126,250

126,250
P 486,250
_
0
P486,250
1,610
P 51,490

Or, alternatively

Consolidated Net Income for 20x4


P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations (
Realized profit in beginning inv entory of P Company (upstream sales)
[P105,000 x 20/120)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P157,500 x 20/120)
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 20x4
* t hat has been realized in t ransact ions wit h t hird part ies.

P360,000
0
(_
0)
P360,000
P135,000
17,500
( 26,250 )
P126,250
P 37,875
0

126,250
P 486,250
37,875
P 448,375
_37,875
P 486,250

* * 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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 135,000
17,500
( 26,250)
P 126,250
0
P126,250
30%
P 37,875
0
P 37,875

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

31. a refer to No. 30 for computation.


32. d
Consolidated Net Income for 20x5
P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
[P157,500 x 20/120)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P180,000 x 20/120)
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
* t hat has been realized in t ransact ions wit h t hird part ies.

Or, alternatively

Consolidated Net Income for 20x5

P 450,000
0
(_
0)
P450,000
P240,000
26,250
(

30,000 )
P236,250

236,250
P 686,250
_
0
P686,750
70,875
P 615,375

P Companys net income from own/separate operations


Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
[P157,500 x 20/120)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P180,000 x 20/120)
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
* t hat has been realized in t ransact ions wit h t hird part ies.
* * 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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

P 450,000
0
(_
0)
P450,000
P240,000
26,250
(

30,000 )
P236,250
P 70,875
0

236,250
P 686,250
70,875
P 615,375
__70,875
P 686,250

P 240,000
26,250
( 30,000)
P 236,250
0
P 236,250
30%
P 70.875
0
P 70,875

33. a - refer to No. 32 for computation.


34. c
P Company
S Company
Total
Less: Intercompany sales to Dundee
Intercompany sales to Perth
Consolidated

Sales
500,000
_350,000
850,000
100,000
150,000
600,000

35. a
Ending inventory of Perth from Dundee (P36,000 / 110%)
Ending inventory of Dundee from Perth (P31,000 / 130%)
Total

32,727
_23,846
56,573

36. d
P Company
S Company
Total
Less: Intercompany sales
Consolidated
37. No answer available P47,000

Sales
420,000
280,000
700,000
140,000
560,000

Operating
Expenses
28,000
14,000
42,000
_5,000
47,000

P Company
S Company
Total
Add: Undervalued equipment (P35,000/7 years)
Consolidated
38. c

Cost of Sales
196,000
_112,000
308,000
140,000

P Company
S Company
Total
Less: Intercompany sales
Add: Unrealized profit in EI of S Co.
[P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated

_16,800
184,900

39. No answer available P120,800


Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x5 (P35,000/7 years)
Fair v alue of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
Add: NCI on full-goodwill (P70,000 P56,000)
Non-controlling interest (full- goodwill)..

P 140,000
P210,000
154,000
P364,000
0

364,000
P 504,000
35,000
( 5,000)
P 534,000
20
P 106,800
14,000
P 120,800

Partial-goodwill

Fair value of Subsidiary (80%)


Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P140,000 x
80%).
Retained earnings (P210,000 x
80%)...
Allocated excess (excess of cost over book
value)..
Less: Over/under valuation of assets and
liabilities:
Increase in equipment (P35,000 x 80%)

P
364,000

P 112,000
168,000

280,000
P
84,000

___28,000

Positive excess: Partial-goodwill (excess of


cost over
fair
value)...

P 56,000

Full-goodwill

Fair value of Subsidiary (100%)


Consideration transferred: Cash ( P364,000/80%)
Less: Book value of stockholders equity of S (P350,000
x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and
liabilities
Increase in equipment P35,000 x 100%
Positive excess: Full-goodwill (excess of cost over
fair
value)...

P 455,000
__350,000
P 105,000
35,000

70,000

40. d
Equipment
616,000
420,000
1,036,000
35,000
7,000
1,064,000

P Company
S Company
Total
Add: Undervalued equipment
Less: Depreciation on undervalued equipment (P35,000/7 years)
Consolidated
41. d

Inventory
210,000
154,000
364,000
16,800
347,200

P Company
S Company
Total
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
42.

43.

Selling price
Less: Cost of sales
Original unrealized profit
Unsold percentage
Unrealized profit

50,000
_40,000
10,000
__30%
_3,000

No answer available P253,000


Consolidated Net Income for 20x4
P Companys net income from own/separate operations
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5

P180,000
( 3,000)
P 177,000
76,000
P253,000
0
P253,000

44.

a
Combined 20x5 sales (P580,000 + P445,000)
Less: 20x5 intercompany sales
Consolidated sales

45.

P
P

d
Combined cost of sales
Less: 20x5 intercompany sales
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4
Add: Unrealized profit in 20x5 ending inventory
Consolidated cost of sales

46.

47.

1,025,000
0
1,025,000

P 480,000
0
(
3,000)
________0
P 477,000

Combined cost of sales


Less: Intercompany sales revenue
Add: Unrealized profit taken out of inventory
(75%)x(35,000)
=
Consolidated cost of sales

P 160,000
110,000
26,250
P 76,250

Incomplete data PAS 27 allows the use of cost model in accounting for investment in subsidiary
in the books of parent company. Income recognized under this model is the dividends declared
or paid by the subsidiary multiplied by controlling interest. Since, there is no data as to dividends
of subsidiary, the amount of dividend income from the point of parent cannot be determined.
If Equity Method is used, then the answer would be:
(P115,000 x 70%) - P26,250
= P
54,250
But equity method is not allowed in the books of parent for purposes of CFS.

48.

Selling price
Less: Cost of sales
Unrealized profit
Unsold fraction
Credit to Inventory

P
(

60,000
48,000 )
12,000
1/3
4,000

49. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000


50. b using equity method.
(P120,000 x 80%) (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000
PAS 27 allows the use of cost model in accounting for investment in subsidiary in the books of
parent company
The use of equity method is not allowed in the books of parent (unless it is a stand-alone entity).
51. d Downstream situation
S Companys net income from own/separate operations

P120,000

x: NCI %

20%
P 24,000

52. a - It will be overstated by the amount of the NC interests share of the P1,600 of profit margin in
the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
53. c
Grebe plus Swamps separate cost of goods sold =
P400,000 + P320,000 =
Less: Intercompany sales
=
Add: Profit +12,500 - 10,000 =
Consolidated COGS
=

P 720,000
200,000
____2,500
P 522,500

54. a
Ending inventory of Grebe (1/2 x P100,000)
x: GP% of Parent (P100,000 P80,00)/P100,000
Unrealized profit in ending inventory

50,000
20%
10,000

Squids reported income


Less: Unrealized profits in the ending inventory
Squids adjusted income
NCI percentage
NCI-CNI

P 100,000
_____16,000
P
84,000
_______10%
P
8,400

55. a

56. b

Inventory remaining P100,000 50% = P50,000 Unrealized gross profit (based on LL's markup
as the seller) P50,000 40% = P20,000. The ownership percentage has no impact on this
computation.

57. c
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 P75,000) ...........................................
Inventory Remaining at Year's End ................................................................
Unrealized Intercompany Gross profit, 12/31/x4 ............................................

P25,000
16%
P4,000

UNREALIZED GROSS PROFIT, 12/31/x5


Intercompany Gross profit (P120,000 P96,000) ............................................
Inventory Remaining at Year's End ................................................................
Unrealized Intercompany Gross profit, 12/31/x5 ............................................

P24,000
35%
P8,400

CONSOLIDATED COST OF GOODS SOLD


Parent balance .......................................................................................
P380,000
Subsidiary Balance ..................................................................................
210,000
Remove Intercompany Transfer ..............................................................
(120,000)
.................................................................................................................. Recognize 20x4
Deferred Gross profit ................................................................................
(4,000)
Defer 20x5 Unrealized Gross profit ...........................................................
Cost of Goods Sold ........................................................................................

8,400
P474,400

58. a - Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an unrealized
gross profit of P10,000 must be removed from ending inventory based on a markup of 25

percent (P200,000 gross profit/P800,000 sales) which is multiplied by the P40,000 ending
balance. This deferral increases cost of goods sold because ending inventory is a negative
component of that computation. Thus, cost of goods sold for consolidation purposes is
P690,000 (P600,000 + P180,000 P100,000 + P10,000).
59. c - The only change here from No. 58 is the markup percentage which would now be 40 percent
(P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be deferred is
P16,000 (P40,000 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000 +
P180,000 P100,000 + P16,000).
60. b
UNREALIZED GROSS PROFIT, 12/31/x4
Ending inventory ......................................................................................
Markup (P33,000/P 110,000) .....................................................................
Unrealized intercompany gross profit, 12/31/x4 ......................................

P 40,000
__ 30%
P 12,000

UNREALIZED GROSS PROFIT, 12/31/x5


Ending inventory ......................................................................................
Markup (P48,000/P 120,000) .....................................................................
Unrealized intercompany gross profit, 12/31/x5 ......................................

P 50,000
40%
P 20,000

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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

61. a this topic is for Chapter 18


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

P 90,000
12,000
( 20,000)
P 82,000
0
P 82,000
10%
P 8,200
0
P 8,200

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)
62. b

- this topic is for Chapter 18


UNREALIZED GAIN
Transfer Price ............................................................................................
Book Value (cost after two years of depreciation) .................................
Unrealized Gain .......................................................................................
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years) ........................
Annual Depreciation Based on Transfer Price
(P280,000/8 years) .............................................................................
Excess D epreciation ................................................................................
ADJUSTMENTS TO CONSOLIDATED NET INCOME
Defer Unrealized Gain .............................................................................
Remove Excess Depreciation ..................................................................
Decrease to Consolidated Net Income ..................................................

P280,000
240,000
P40,000

P30,000
35,000
P5,000

P(40,000)
5,000
P(35,000)

63. c
P Company
S Company
Total
Less: Intercompany sales upstream sales
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated

Sales
10,000,000
__200,000
10,200,000
60,000

Cost of Sales
7,520,000
_160,000
7,680,000
60,000

________
10,140,000

__ 4,500
7,604,500

64. d refer to No. 63 for computation


65. c
P Company
S Company
Total
Less: Intercompany sales downstream sales
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated

Sales
10,000,000
__200,000
10,200,000
60,000
________
10,140,000

66. d

Add the two book values and remove P100,000 intercompany transfers.

67. c

Intercompany gross profit (P100,000 - P80, 000) .............................................


Inventory remaining at year's end .................................................................
Unrealized intercompany gross profit ............................................................

P20,000
60%
P12,000

CONSOLIDATED COST OF GOODS SOLD


Parent balance .......................................................................................
Subsidiary balance ..................................................................................

P140,000
80,000

Remove intercompany transfer ...............................................................


Defer unrealized gross profit (above) ......................................................
Cost of goods sold .........................................................................................
68. c

Consideration transferred .........................................


Non-controlling interest fair value...............................
SZ total fair value ........................................................
Book value of net assets .............................................
Excess fair over book value

(100,000)
12,000
P132,000

P260,000
65,000
P325,000
(250,000)
P75,000
Annual Excess
Amortizations

Life
Excess fair value assigned to undervalued assets:
Equipment ............................................................
Secret Formulas ...................................................
Total ........................................................................

25,000 5 years
P50,000 20 years
-0-

P5,000
2,500
P7,500

Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
69. a
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
Fair v alue of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
Add: NCI on full-goodwill (
Non-controlling interest (full- goodwill)..

P 100,000
P150,000
110,000
P260,000
0

260,000
P 360,000
75,000
( 7,500)
P 427,500
20
P 85,500
________0
P 85,500

Partial-goodwill

Fair value of Subsidiary (80%)


Consideration
transferred..
Less: Book value of stockholders equity
of S:
Common stock (P100,000 x
80%).
Retained earnings (P150,000 x
80%)...
Allocated excess (excess of cost over
book value)..
Less: Over/under valuation of assets and
liabilities:
Increase in equipment (P25,000 x

P 260,000

P 80,000
120,000

200,000
P

60,000

20,000

80%)
Increase in secret formulas: P50,000
x 80%

40,000

Full-goodwill

Fair value of Subsidiary (100%)


Consideration transferred: Cash (80%)
FV of NCI (20%)
Fair value of Subsidiary (100%)
Less: BV of stockholders equity of S (P100,000 +
P150,000) x 100%
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and
liabilities
Increase in equipment P25,000 x 100%
Increase in secret formulas: P50,000 x 100%

P 260,000
___65,000
P 325,000
__250,000
P 75,000

25,000
50,000

Amortization:
Equipment: P25,000 / 5 years
= P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated
P 7,500
70. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
71. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 P80,000) ............................................
Inventory Remaining at Year's End ...............................................................
Unrealized Intercompany Gross profit, 12/31 ................................................

P20,000
60%
P12,000

72. c P400,000 x 1/4 = P100,000 x 30% = P30,000


73. d
Non-controlling Interest in Net Income (NCINI) for
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

20x5
P 400,000
(

20,000)
P 380,000
0
P380,000
20%
P 76,000
0
P 76,000

20x6
P 480,000
20,000
0
P 500,000
0
P500,000
20%
P100,000
0
P100,000

74. c
Ending inv entory at selling price: P300,000 x 1/3 = P100,000 x (300,000 240,000)/300,000
Less: Inv entory write-down (P100,000 P92,000)
Intercompany profit to be eliminated

P20,000
__8,000
P12,000

75. The requirement Ps income from S is a term normally used under the equity method , but, in
some cases it may also refer to the term dividend income under the cost model depending on
how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term Ps income from S
may mean Income from subsidiary which is computed under the equi ty method, thus:
Share in net income (P120,000 x 60%)
Less: Unrealized profit in ending inv entory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189]
Intercompany profit to be eliminated

P72,000
__18,000
P54,000

Answer: Equity method (c)


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.
76. a refer to No. 1
77. c refer to No. 1

78. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P200,000 x 50% = P100,000 x (P40,000/P200,000)]
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
* t hat has been realized in t ransact ions wit h t hird part ies.
* * 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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

P 300,000
0
(_
0)
P300,000
P120,000

20,000 )
P100,000

100,000
P 400,000
_
0
P 400,000
20,000
P 380,000

P 120,000
0
( 20,000)
P 100,000
0
P 100,000
20%
P 20,000
0

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

P 20,000

79. c refer to No, 78 for computations.


80. refer to No. 75
The requirement Ps income from S is a term normally used under the equity method, but, in
some cases it may also refer to the term dividend income under the cost model depending on
how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term Ps income from S
may mean Income from subsidiary which is computed under the equity method, thus:
Share in net income (P200,000 x 60%)
Less: Unrealized profit in ending inv entory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315]
Intercompany profit to be eliminated

P120,000
__30,000
P 90,000

Answer: Equity method (b)


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.
81. a
20x5
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240]
Add: Unrealized profit in EI of S Co.
[P375,000 x 40% = P150,000 x (375-300)/375]
Consolidated

Sales
1,800,000
__900,000
2,700,000
375,000

Cost of Sales
1,440,000
_750,000
2,190,000
375,000
24,000

________
2.325,000

__30,000
1,821,000

82. c - refer to No. 81 for computations

83. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)]
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..

P 225,000
0
(_
0)
P225,000
P 90,000
(

15,000 )
P 75,000

75,000
P 300,000
_
0
P 300,000
15,000
P 285,000

* t hat has been realized in t rans act ions wit h t hird part ies.
* * 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)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000

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

84.
85.
86.
87.

c refer to No. 83 for computations


a [P100,000 x (25/100) = P25,000 x 40/100 = P10,000
b [P300,000 x 1/2 = P150,000 x 40% = P60,000]
No answer available P300
* * Non-controlling Interest in Net Income (NCINI) for 20x6
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
(P100,000 x 10% = P10,000 x 30%)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

0
0

( 3,000)
P( 3,000)
0
P( 3,000)
10%
P( 300)
0
P( 300)

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


Non-controlling Interest in GP
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in GP

88. b
20x3
Share in net income
20x3: P70,000 x 90%
20x4: P85,000 x 90%
20x5: P94,000 x 90%
Less: Unrealized profit in ending inv entory of P
20x3: P1,200 x 25% = P300 x 90%
20x4: P4,000 x 25% = P1,000 x 90%
20x5: P3,000 x 25% = P750 x 90%
Income from S

20x4

20x5

P 63,000
P 76,500

270)

________
P 62,730

270
(
900)
________
P 75,870

P 84,600

900
__( 675)
P 84,825

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.
89. c refer to No. 88 for computation.
90. d refer to No. 88 for computation.

91. a
* * Non-controlling Interest in Net Income (NCINI) for
S Companys net income of Subsidiary Company from its
own operations (Reported net income of S Company)

20x3
P 70,000

20x4
P 85,000

20x5
P 94,000

RPBI of P Company (upstream sales)


UPEI of P Company (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

0
(
300)
P 69,700
0
P 69,700
10%
P 6,970
0
P 6,970

300
( 1,000)
P 84,300
0
P 84,300
10%
P 8,430
0
P 8,430

1,000
(
750)
P 94,250
0
P 94,250
10%
P 9,425
0
P 9,425

92. c refer to No. 91 for computation.


93. c refer to No. 91 for computation.
94. a refer to No. 88 for computation.
95. a refer to No. 88 for computation.
96. b refer to No. 88 for computation.
97. a none, since intercompany profit starts only at the end of 20x3.
98. b the amount of unrealized profit at the end of 20x3.
99. c the amount of unrealized profit at the end of 20x4.
100. a
101. c
Cost of Sales
400,000
_350,000
750,000
250,000
500,000

P Company
S Company
Total
Less: Intercompany sales
Consolidated
102. a (P40,000 x 140% = P56,000)
103. a (P56,000 P40,000 = P16,000)
104. Not given
105.

105.

106.

Clark
Net assets reported
Profit on intercompany sale
Proportion of inventory unsold at year end
($60,000 / $240,000)
Unrealized profit at year end
Amount reported in consolidated statements
Dunn
Inventory reported by Banks (P175,000 + P60,000)
Inventory reported by Lamm
Total inventory reported
Unrealized profit at year end
[P50,000 x (P60,000 / P200,000)]
Amount reported in consolidated statements

P320,000
P48,000
x

.25
(12,000)
P308,000

P235,000
250,000
P485,000
(15,000)
P470,000

b
Cost of goods sold reported by Park
Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40)

P 800,000
700,000
P1,500,000
(200,000)

Reduction of cost of goods sold reported by


Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60]
Cost of goods sold for consolidated entity

Note:

107.
108.
109.

d
b
c

110.

111.

P32,000
P6,000
P9,000

(240,000)
P1,060,000

Answer b in the actual AICPA examination question was P1,100,000,


requiring candidates to select the closest answer.
=
=
=

(P200,000 + P140,000) P308,000


(P26,000 + P19,000) P39,000
Inventory held by Spin
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) P52,000]
Carrying cost of inventory for
Power

P12,000

(3,000)
P 9,000

.20 = P14,000 / [(Stockholders Equity P50,000)


+(Patent P20,000)]
14 years = (P28,000 / [(28,000 - P20,000) / 4 years]

112. c the amount of sales to outsiders or unaffiliated company


113. b the original cost (I,e., the cost to produced on the part of the seller Blue Company)

114.

Total income (P86,000 - P47,000)


Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)]
Consolidated net income assigned
to controlling interest

P39,000
(10,400)
P28,600

115.

116.

Amount paid by Lorn Corporation


Unrealized profit
Actual cost
Portion sold
Cost of goods sold

P120,000
(45,000)
P 75,000
x
.80
P 60,000

117.

Consolidated sales
Cost of goods sold
Consolidated net income
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling

P140,000
(60,000)
P 80,000

P120,000
(75,000)
P 45,000
x
.80
P 36,000

Interest
Income to noncontrolling
Interest
Income to controlling interest
118.

.30
(10,800)
P 69,200

Inventory reported by Lorn


Unrealized profit (P45,000 x .20)
Ending inventory reported

P 24,000
(9,000)
P 15,000

119.

P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]

120.

Sales reported by Movie Productions Inc.


Cost of goods sold (P30,000 x 2/3)
Consolidated net income

121.

P7,000 = [(P67,000 - $32,000) x .20]

P67,000
(20,000)
P47,000

122. c (P10,000 x 80%)


123. c the original cost
124. d
Date of Acquisition (1/1/2010)
Partial
Full
Fair value of consideration given P 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess. .P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%) ..
16,000
Goodwill . ...P 20,000 / 80%
P 25,000
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales): P3,000 x 35%........................................... ........... P1,050
RPBI of P (upstream sales): P2,500 (given) .................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent
EI %
EI of S
GP% of Parent
P60,000
x 30% = P18,000 x
25/125 . 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI %
EI of P
P60,000
x 30% = P18,000 x

GP% of Subsidiary
20% ...

Consolidated Net Income for 20x5


P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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* *
Controlling Interest in Consolidated Net Income or Profit attributable to

2,400
P 100,000
1,050
(_ 3,600)
P 97,450

P 30,000
1,000
( ,2,400 )
P28,600

28,600
P 126,050
2,000
P124,050
5,320

equity holders of parent 20x5..


* t hat has been realized in t ransact ions wit h t hird part ies.

P 118,730

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
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 2012
* t hat has been realized in t ransact ions wit h t hird part ies.

P 100,000
1,050
(_ 3,600)
P 97,450
P 30,000
1,000
( 2,400 )
P 28,600
P

* * Non-controlling Interest in Net Income (NCINI) for 2012


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (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

125.
126.
127.
128.
129.

b refer to No. 124


a P124,050 refer to No. 124
b refer to No. 129
c refer to No. 129
a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/2012. .....

5,320
2,000

28,600
P 126,050
7,320
P118,730
__ 5,320
P124,050

P 30,000
1,000
( 2,400)
P 28,600
2,000
P 26,600
20%
P 5,320
0
P 5,320

P 150,000

Retained earnings - S, 12/31/2012:


RE- S, 1/1/2012 ..P300,000
+: NI-S . 30,000
-: Div S 10,000
320,000
Book value of Stockholders equity, 12/31/2012 .......
P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010.. ....
20,000
Accumulated amortization (P2,000 x 3 years) ....
( 6,000)
Fair Value of Net Assets/SHE, 12/31/2012 .
P 484,000
UPEI of P (up)
( 2,400)
Realized SHE S,12/31/2012 .
P 481,600

x: NCI %.................................................................................... ......................


_ 20%
Non-controlling Interest (in net assets) - partial ..
P 96,320
NCI on full goodwill (25,000 20,000) ..
5,000
Non-controlling Interest (in net assets) full ....
P 101,320

+:

130. d refer to No. 131


131. d
Note: Preferred solution - since what is given is the RE P, 1/1/2012 (beginning
balance of the current year) Retained earnings Parent, 1/1/2012 (cost)
P 700,000
-: UPEI of S (down) 2011 or RPBI of S (down) 2012.. .
1,050
Adjusted Retained earnings Parent, 1/1/2012 (cost)
P 698,950
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2010 .P 230,000
Less: Retained earnings Subsidiary, 1/1/2012
300,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 70,000
Accumulated amortization (1/1/2010 1/1/2012):
P 2,000 x 2 years ( 4,000)
UPEI of P (up) 2011 or RPBI of P (up) 2012 ......( 1,000)
P 65,000
X: Controlling Interests .........____80%
52,000
RE P, 1/1/2012 (equity method) = CRE, 1/1/2012 .....
P750,950
+: CI CNI or Profit Attributable to Equity Holders of Parent ..
118,730
-: Dividends P
60,000
RE P, 12/31/2012 (equity method) = CRE, 12/31/2012 ......
P809,680
Or, if RE P is not given on January 1, 2012, then RE P on December 31, 2012 should be use:
Retained earnings Parent, 12/31/2012 (cost):
(P700,000 + P108,000 P60,000) ..
P 748,000
-: UPEI of S (down) 2012 or RPBI of S (down) 2013.. .
3,600
Adjusted Retained earnings Parent, 1/1/2012 (cost)
P 744,400
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2010 .P 230,000
Less: Retained earnings Subsidiary, 12/31/2012
(P300,000 + P20,000 P10,000) .....
320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 90,000
Accumulated amortization (1/1/2010 12/31/2012):
P 2,000 x 3 years ( 6,000)
UPEI of P (up) 2012 or RPBI of P (up) 2013 .. ( 2,400)
P 81,600
X: Controlling Interests .
80%
65,280
RE P, 12/31/2012 (equity method) = CRE, 12/31/2012 .
P809,680
132. b
Consolidated Stockholders Equity, 12/31/2012:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/2012:
Common stock P (P only) ..

P1,000,000

Retained Earnings P (equity method), 12/31/2012 ..


Controlling Interest / Parents Stockholders Equity .
Non-controlling interest, 12/31/2012 (partial) .
Consolidated Stockholders Equity, 12/31/2012

809,680
P1,809,680
96,320
P1,906,000

Consolidated Stockholders Equity, 12/31/2012:


Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/2012:
Common stock P (P only) ..
Retained Earnings P (equity method), 12/31/2012 ..
Controlling Interest / Parents Stockholders Equity .
Non-controlling interest, 12/31/2012 (full) .. .
Consolidated Stockholders Equity, 12/31/2012

P1,000,000
809,680
P1,809,680
101,320
P1,911,000

133. a

Theories
1.
2.
3.
4.
5.

d
b
c
a
c

6.
7.
8.
9.
10,

d
c
b
c
a

11.
12.
13.
14.
15,

d
a
c
c
d

16.
17.
18.
19.
20.

c
c
b
c
b

21.
22.
23.
24.
25.

c
a
a
b
c

Chapter 18
Problem I
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.

3.

26.
27.
28.
29.
30.

a
b
b
c
d

31
32.
33.
34.
35.

84,000
80,000
150,000
14,000

Journal entry to record purchase:


Equipment
Cash

84,000

Journal entry to record depreciation expense:


Depreciation Expense
Accumulated Depreciation

12,000

84,000

12,000

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

66,000
14,000
2,000
78,000

P150,000
(84,000)

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.

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 II
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.

P 66,000

55,000
35,000
5,000
85,000
P245,000
(210,000)
P 35,000
P120,000
(35,000)
P 85,000

Eliminating entry, December 31, 20x9:


E(1)

Truck
Retained Earnings
Depreciation Expense
Accumulated Depreciation
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 5 years]
Reported [(P245,000 / 7 years) x 2 years]
Required increase

Problem III

55,000
30,000
5,000
80,000
P150,000
(70,000)
P 80,000

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
120,000
P210,000
P300,000
(120,000)

(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 IV
1

Equipment
Beginning R/E Prince (P100,000 .80)
Noncontrolling Interest (P100,000 .20)
Accumulated Depreciation
Accumulated Depreciation (P100,000/4) 2
Depreciation Expense
Beginning R/E Prince (P25,000 .80)
Noncontrolling Interest (P25,000 .20)

3.

540,000
80,000
20,000
640,000
50,000
25,000
20,000
5,000

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

P3,270,000

676,000
P3,946,000

P820,000

Plus: Intercompany profit considered realized


in the current period

25,000
P845,000

Noncontrolling interest in Serf Company


(.20 845,000)
4.

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..

P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000

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
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

P3,270,000
0
P3,270,000
P820,000
25,000
P 845,000
P 169,000
0

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

845,000
P4,115,000

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.
Equipment
540,000
Beginning R/E Prince
100,000
Accumulated Depreciation
640,000

Accumulated Depreciation (P100,000/4) 2


Depreciation Expense
Beginning R/E Prince
6

50,000
25,000
25,000

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

P3,270,000

25,000
P3,295,000
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)
NCI-CNI
CI-CNI
CNI

656,000
P3,951,000

P820,000
P164,000
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..

P3,270,000
____25,000
P3,295,000
P 820,000
0
P 820,000

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

P3,270,000
25,000
P3,295,000
P820,000
0

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

P 820,000
P 164,000
0

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

P
372,000
P 192,000
96,000

288,000
P
84,000

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

72,000
P
12,000

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

S Co.

S Co.

164,000
P3,951,000
_169,000
P4,115,000

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)...

820,000
P4,115,000

(Over)

Book
value

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

Fair
value

P
24,000
48,000
84,000
168,000

Under
Valuation

P
30,000
55,200
180,000
144,000
(
(120,000) 115,200)
P
P
204,000 294,000

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...

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

S Co.
Book value
180,000

S Co.
Fair value
180,000

Increase
(Decrease)
0

96,000

( 96,000)

84,000

180,000

96,000

S Co.
Book value
360,000

S Co.
Fair value
144,000

(Decrease)
( 216,000)

1992,000

( 192,000)

168,000

144,000

24,000)

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable

4,800

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

( 6,000)

12,00
0
(6,00
0)

1,200

1,200

1,200

Lif
e
1

12,000

P
13,200

P
7,200

P 13,200

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
P

__360,000
105,000
90,000

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non -controlling interest
of 20% computed as follows:

Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%

The goodwill impairment loss would be allocated as follows

Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill applicable to NCI..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill

% of
Total
80.00%
20.00%
100.00%

The unrealized and gain on intercompany sales for 20x4 are as follows:

Date
of
Sale

Seller

Selling Book
Price Value

Unrealize
d*
Gain on

Remaini
Realized
ng
gain
Life
depreciatio

20x4

4/1/20 P Co.
x4
1/2/20 S Co.
x4

P90,0
00
60,00
0

P75,0
00
28,80
0

sale
P15,000

5 years

31,200

8 years

n**
P3,000/year
P3,900/year

P2,2
50
P3,9
00

* selling price less book value


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

20x4: First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

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

28,800

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

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..

240,000

120.000

288,000

72,000

To eliminat e int ercompany invest ment and equit y account s


of subsidiary on date of acquisition; and t o establish non-cont rolling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.

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

12,000
216,000
18,000
84,000

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E3) Cost of Goods Sold.


Depreciation expense..
Accumulated
depreciation

buildings..
Interest expense
Goodwill
impairment
loss.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

12,000
1,200
3,000

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Sons ident ifiable asset s and liabilit ies as follows:
Cost of
Depreciation/
Goods
Amortization
Amortization
Sold
Expense
-Interest
Total
Inv entory 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
20%)..
Dividends paid S

28,800
7,200
36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E5) Gain on sale of equipment


Equipment
Accumulated depreciation
To eliminate the downstream intercompany gain and rest ore t o it s
original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

15,000
30,000
45,000

(E6) Gain on sale of equipment


Equipment
Accumulated depreciation

31,200
12,000
43,200

To eliminat e t he upst ream int ercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(E7) Accumulated depreciation..


Depreciation expense

2,250
2,250

To adjust downstream depreciation expense on equipment sold t o


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

(E8) Accumulated depreciation..


Depreciation expense

3,900
3,900

To adjust upstream depreciation expense on equipment sold t o


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

(E9) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

10,140
10,140

To est ablish non-cont rolling int erest in subsidiarys adjust ed 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

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

Div idend income


Total Rev enue
Cost of goods sold
Depreciation expense

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

P271,200
P138,000
24,000

48,000

18,000

Interest expense
Other expenses

Dr.

Cr.

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

6,000
6,000 (7)

(3)

1,200

2,250
(8) 3,900

Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850
1,200
66,000

Goodwill impairment loss


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

P312,000
P211,800
P211,800

Statement of Retained Earnings


Retained earnings, 1/1
P Company

P360,000

S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31
Balance
Sheet

P180,000
P 91,200
P 91,200

(3)

3,000

P
P
(
P

(9 10,140

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

P 360,000

(1)
120,000

211,800
P571,800

P120,000
91,200
P211,200

72,000
-

36,000

P499,800

P175,200

P 495,810

Cash.
Accounts receiv able..
Inv entory.
Land.

P
232,800
90,000
120,000
210,000

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

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

Equipment

240,000

180,000

Buildings
Discount on bonds payable
Goodwill
Inv estment in S Co

720,000

540,000

Accumulated depreciation
- equipment

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

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

499,800
_________

Total

(4)

36,000

72,000
________

to

Balance Sheet

Total

207,810
P 567,810

P1,984,800

20x5: Second Year after Acquisition

Sales
Less: Cost of goods sold

240,000
175,200
_________
P1,008,000

(2)
6,000 3)
6,000
(2)
7,200
(5)
30,000
(6)
12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 12,000 (3) 3,000
(13)
288,00
0
(14) 84,000

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

(15) 96,000 (3) 12,000


(7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200
(18)
192,000
(19) 6,000

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

(1)
240,000
495,810
(20) 7,200 (1 ) 72,000 (2)
18,000
__________ (9) 10,140
P
834,450
P 834,450

P Co.
P
540,000
216,000

____92,940
P2,466,600

S Co.
P
360,000

Gross profit
Less: Depreciation expense
Other expense

P
324,000
60,000
72,000

Net income from its own separate


operations
Add: Dividend income

P
192,000
38,400

Net income

P
230,400
P
72,000

Dividends paid

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 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
80%).
Record dividends from S Company.

38,400
x

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
Company
Retained
earnings
Company

in

S
44,160

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5, comput ed 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

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

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

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

240,000
175,200

332,160

83,040

To eliminat e int ercompany invest ment and equit y account s


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

(E3)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%)
18,000
Investment
in
S
84,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s 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
20%).
Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense

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

Inventory..
Accumulated
depreciation

equipment..

24,000

Discount on bonds payable


Goodwill

2,400
3,000

To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Sons ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings &
NCI;
Year 20x5 amount s are debit ed t o respect ive nominal account s.

Inv entory 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
20%)..
Dividends paid S

38,400
9,600
48,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

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


Equipment
Accumulated depreciation

15,000
30,000
45,000

To eliminate the downstream intercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(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
43,200

To eliminat e t he upst ream int ercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(E7) Accumulated depreciation..


Depreciation expense (current
year)
Retained EarningsP Company, 1/1/20x5
(prior year)
To adjust downstream depreciation expense on equipment sold t o
subsidiary, thus realizing a portion of t he gain through depreciation

5,250
3,000
2,250

(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 t o


parent, thus realizing a portion of t he 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 est ablish non-cont rolling int erest in subsidiarys adjust ed 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 separat e t ransact ions t hat has been realized in t ransact ions
wit h t hird 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
Div idend income
Total Rev enue
Cost of goods sold
Depreciation expense

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

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

Dr.

(5)

38,400

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

(1) 13,560
(21) 15,000
(22) 24,960
P 175,200 (2) 175,200
__90,000
P265,200

S Company
Net income, from abov e
Total
Div idends paid
P Company

230,400
P730,200
72,000

Cr.

(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) 44,160
(23) 2,250
(24) 3,120

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

P 495,810
264,360
P 760,170
72,000

S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Inv estment 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

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
600,000

88,800
120,000

658,200

___ _____
P2,203,200

240,000
217,200

_________
P1,074,000

(5)

(15)
(3)
(5)
(6)
(3)
(3)
(1)

6,000
7,200
30,000
12,000
4,800
12,000
44,160

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

48,000

(16) 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
688,170
(4) 2,640
(5) 9,600
(6) 6,240
__________
P 979,350

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

____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:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)

P360,000

b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and liabilities
Fair v alue of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill),..

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

c.

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

6.
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.
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream 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 abov e)
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
* t hat has been realized in t ransact ions wit h t hird part ies.

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

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 abov e)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
* t hat has been realized in t ransact ions wit h t hird part ies.

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: Div idends paid Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

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

e.
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

P 240,000
P120,000

Add: Net income of subsidiary for 20x4


Total
Less: Div idends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue 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)..

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..
* t hat has been realized in t ransact ions wit h t hird part ies.

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
* t hat has been realized in t ransact ions wit h t hird part ies.

b. NCI-CNI P17,340
* * Non-controlling Interest in Net Income (NCINI) for 20x5

P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200

93,900
P288,900
24,540
P264,360
_ 17,340
P281,700

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

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

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 hav e been realized in transactions with third
parties..
Adjustment to conv ert 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 %...................

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

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: Div idends paid Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P688,170
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired (refer t o Illust rat ion 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 hav e been realized in
transactions with third parties..
Adjustment to conv ert from cost model to equity method for p urposes 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 %...................

P658,200
9,750
P648,450

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

23,400
53,400
80%

Less: Goodwill impairment loss


Consolidated Retained earnings, December 31, 20x5

42,720
3,000

39,720
P688,170

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: Div idends paid 20x5
Stockholders equity Subsidiary Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue 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)..

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

f.

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%).

P
372,000
93,000
P
465,000

P 240,000

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)...

120,000

360,000
P
105,000

6,000
7,200
96,000

( 24,000)
4,800

90,000
P
15,000

A summary or depreciation and amortization adjustments is as follows:

Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable

4,800

Lif
e
1

8
4
4

Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000

20x5
P
-

12,000
(
6,000)

12,00
0
(6,00
0)

1,200
P
13,200

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

1,200
P
7,200

20x4: First Year after Acquisition


Parent Company Cost Model Entry
January 1, 20x4:

(1)
Investment
in
Company

S 372,000
372,000

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

28,800
28,800

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

Dividends paid
Cash.
Dividends paid by S Co..

36,000
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

Co
Retained
earnings

Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..

240,000

120.000

288,000

72,000

To eliminat e int ercompany invest ment and equit y account s


of subsidiary on date of acquisition; and t o establish non-cont rolling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.

(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
S
84,000
Co.

To allocat e excess of cost over book value of ident ifiable asset s


acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

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.

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

Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill

12,000
1,200
3,750

To provide for 20x4 impairment loss and depreciat ion and


amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Sons ident ifiable asset s and liabilit ies as follows:

Inv entory sold


Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

_______
P 6,000

(E4) Dividend income - P.


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

28,800
7,200
36,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

(E5) Gain on sale of equipment


Equipment
Accumulated depreciation

15,000
30,000
45,000

To eliminate the downstream intercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(E6) Gain on sale of equipment


Equipment

31,200
12,000

Accumulated depreciation

43,200

To eliminat e t he upst ream int ercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(E7) Accumulated depreciation..


Depreciation expense

2,250
2,250

To adjust downstream depreciation expense on equipment sold t o


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

(E8) Accumulated depreciation..


Depreciation expense

3,900
3,900

To adjust upstream depreciation expense on equipment sold t o


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

(E9) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

9,390
9,390

To est ablish non-cont rolling int erest in subsidiarys adjust ed 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
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 91,200
( 31,200)
3,900
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

Div idend income


Total Rev enue
Cost of goods sold
Depreciation expense

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

P271,200
P138,000
24,000

48,000
-

18,000
-

Interest expense
Other expenses
Goodwill impairment loss

Dr.

Cr.

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

6,000
6,000 (7)
(8)
1,200

(3)

3,750

2,250
3,900

Consolidated
P 720,000

_________
P 720,000
P 348,000
83,850
1,200
66,000
3,750

Total Cost and Expenses


Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P312,000
P211,800
P211,800

Statement of Retained Earnings


Retained earnings, 1/1
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment

Accumulated depreciation
- equipment

9,390

P 360,000

211,800
P571,800

P120,000
91,200
P211,200

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

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

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

(9)

P 502,800
P 217,200
( 9,390)
P 207,810

P360,000

Buildings
Discount on bonds payable
Goodwill
Inv estment in S Co
Total

P180,000
P 91,200
P 91,200

499,800

240,000
175,200

(1) 120,000

(4)

20x5: Second Year after Acquisition

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

_________
P1,008,000

36,000

(2)
6,000 3)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 15,000 (3) 3,750
(1) 288,000
(2) 84,000

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

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
(17) 7,200

_________
P1,984,800

207,810
P 567,810

__________
P 843,690

495,810
(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

____95,190
P2,468,850

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

Net income from its own separate


operations
Add: Dividend income
Net income

P
192,000
38,400
P
230,400
P
72,000

Dividends paid

P
90,000
P
90,000
P
48,000

No goodwill impairment loss for 20x5.


Parent Company Cost Model Entry

January 1, 20x5 December 31, 20x5:


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

38,400
x

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

(E1)
Investment
Company
Retained
earnings
Company

in

44,160

44,160

To provide ent ry t o convert from t he cost met hod t o t he equit y


met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5, comput ed 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

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

(E2)
Common
stock

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

240,000
175,200

332,160

83,040

To eliminat e int ercompany invest ment and equit y account s


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

(E3)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full

21,000
P12,000, partial goodwill)]
Investment
in
S
84,000
Co.
To allocat e excess of cost over book value of ident ifiable asset s
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s 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]
13,560
Non-controlling interests (P16,950 x 20%) or (P13,200
x 20% +
3,390
(P3,750 P3,000 = P750)
Depreciation expense..
6,000
Accumulated
depreciation
12,000
buildings..
Interest expense
1,200
6,000
Inventory..
Accumulated
depreciation

equipment..
Discount on bonds payable
Goodwill
To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Sons ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings &
NCI;
Year 20x5 amount s are debit ed t o respect ive nominal account s.

Inv entory sold

(20x4)
Retained
earnings,
P 6,000

Depreciation/
Amortization
expense

Amortization
-Interest

24,000
2,400
3,750

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

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

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

P 1,200
P 1,200

(E5) Dividend income - P.


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

38,400
9,600
48,000

To eliminate intercompany dividends and non-cont rolling int erest


share of dividends.

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


Equipment
Accumulated depreciation

15,000
30,000
45,000

To eliminate the downstream intercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(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
43,200

To eliminat e t he upst ream int ercompany gain and rest ore t o it s


original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).

(E8) Accumulated depreciation..


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

5,250
3,000
2,250

To adjust downstream depreciation expense on equipment sold t o


subsidiary, thus realizing a portion of t he gain through depreciation

(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
3,900
3,120
780

To adjust upstream depreciation expense on equipment sold t o


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

(E10) Non-controlling interest in Net Income of


Subsidiary
Non-controlling interest ..

17,340
17,340

To est ablish non-cont rolling int erest in subsidiarys adjust ed 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
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
P 17,340
* from separat e t ransact ions t hat has been realized in t ransact ions
wit h t hird persons.

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


Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
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

Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Depreciation expense

S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receiv able..
Inv entory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill

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

(5)

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

48,000

6,000 (4) 6,000


7,200
30,000
12,000
(3) 216,000
4,800 (4) 2,400
15,000 (4) 3,750

72,000
________

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

Inv estment 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

372,000

(1)

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

44,160 (2) 332,160


(3) 90,000

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

(4)
(6)
(7)

24,000
45,000
43,200

P2,752,050

P 255,150
552,000
193,800
360,000
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:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)

P360,000

b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and liabilities
Fair v alue 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)

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

c.

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

6.
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 (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation

P183,000
(15,000)
2,250

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 abov e)
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
* t hat has been realized in t ransact ions wit h t hird part ies.

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

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 abov e)
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
* t hat has been realized in t ransact ions wit h t hird part ies.

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: Div idends paid Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

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

e.
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: Div idends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue 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...

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

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)..

92,940

2,250
P 95,190

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
___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* ...
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..
* t hat has been realized in t ransact ions wit h t hird part ies.

P192,000
3,000
P195,000
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
* t hat has been realized in t ransact ions wit h t hird part ies.

P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200

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

93,900
P288,900

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

P 86,700
20%
P 17,340
0
P 17,340

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 . . . . . . . . . . . . .

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 hav e been realized in transactions with third
parties..
Adjustment to conv ert 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 %...................

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

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: Div idends paid Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P688,170
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired (refer t o Illust rat ion 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 hav e been realized in
transactions with third parties..
Adjustment to conv ert 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 %...................

P658,200
9,750
P648,450

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

P
P

Less: Goodwill impairment loss (full-goodwill)


Consolidated Retained earnings, December 31, 20x5

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

39,720
P688,170

e.
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: Div idends paid 20x5
Stockholders equity Subsidiary Company, December 31, 20x5
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue 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)..

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

f.

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
Problem VII

1.

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.

20x4

.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

Noncontrolling interest in P 28,000 (5)


Consolidated income

2015
P 42,000 (6)

P 600,000
688,170
P1,288,170
__102,930
P1,391,100

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.

20x4

20x5

20x6

Consolidated net income as


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

P 750,000

P 600,000

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

-10,000
3,000

2.

Land account as reported


Less: Intercompany profit
Restated land account

20x6
P 300,000
P 300,000

3.
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

P100,000
P40,000
2,500
42,500
P142,500

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.

30,000
20,000
5,000
2,500
52,500

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)
Adjustment to depreciation expense

P 22,500
(20,000)
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.

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.

3.
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

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

Problem XIII
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 refer to Problem X
Problem XVI
1.
Eliminating entry, December 31, 20x7:
E(1)
Gain on Sale of Land
Land
Eliminating entry, December 31, 20x8:
E(1)
Retained Earnings, January 1
Land
2.

Eliminating entry, December 31, 20x7:

10,000
10,000

10,000
10,000

E(1)

Gain on Sale of Land


Land

10,000
10,000

Eliminating entry, December 31, 20x8:


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

6,000
4,000
10,000

Problem XVII

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

45,000

45,000

30,000

Problem XVIII
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.

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

(15,000)
P110,000

(10,000)
P140,000

20x4
P 90,000

20x5
P110,000

35,000
P125,000

40,000
P150,000

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

P60,000
(25,000)

(8,750)
P116,250

(10,000)
P140,000

Problem XIX
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 XX
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

P125,000
P 15,000
36,000
51,000
P176,000
(15,300)
P160,700

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
Amount required (P20,000 x 7 years)

156,000
4,000
124,000
25,200
10,800

P300,000
(144,000)
P156,000

P 20,000
P

(16,000)
4,000

P140,000

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


Required adjustment
Adjustment to retained earnings, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by BB
Required adjustment
Adjustment to Noncontrolling interest, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by non-controlling
Interest
Required adjustment
4.

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

(16,000)
P124,000
P36,000
x
.70
P25,200
P36,000
x
.30
P10,800

P150,000
P40,000
(4,000)
36,000
P186,000
(10,800)
P175,200

Problem XXI
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 sto