ABC Co. and XYZ Co. formed a business combination on January 1, 2016, when ABC Co.

acquired 75% interest in the common stock of XYZ Co. by paying P3,000,000 cash and contingent
consideration of P1,000,000 which has a 50% chance of occurrence as of that date. Such
investment was accounted using cost method in ABC Co.'s separate books. The non-controlling
interest has a fair value of P800,000 at the date of acquisition. At that date, all assets and liabilities
of XYZ Co. are equal to their respective fair values except the following:

Book Values Fair Values Net Effect in FVNA

Inventories 200,000 250,000 50,000
Building-net 1,500,000 1,420,000 (80,000)
Equipment-net 600,000 650,000 50,000
Machinery A 300,000 330,000 30,000
Land 1,000,000 1,200,000 200,000
Bonds Payable 200,000 180,000 20,000

60% of the inventories were sold in 2016, the remainder were sold on the early part of 2017. The
building has a remaining life of 8 years while the equipment has a remaining life of 5 years. The
only machinery of XYZ Co,. Machinery A, has an original life of 5 years and was bought on
January 1, 2014. The bonds payable has a maturity of 4 years from the date of acquisition. The
land was sold on October 31, 2017 for P1,500,000.

During 2016 and 2017, some intercompany sales of inventories were made by XYZ Co. and ABC
Co. Both companies maintain consistent gross profit rate for all its sales, including intercompany
sales of inventories, except for the last intercompany transaction for 2017 which was made at cost.
All transactions are credit transactions and are being paid the year following the sale. Information
regarding the intercompany sales of inventories are as follows:

Percentage
Invoice sold during
Seller Cost Amount Gross Profit the year
XYZ Co. 20,000 28,000 8,000 40%
2016
ABC Co. 22,500 30,000 7,500 75%
ABC Co. 26,250 35,000 7,750 60%
2017 XYZ Co. 15,000 21,000 6,000 85%
ABC Co. 10,000 10,000 - 45%

On December 31, 2016, ABC Co. sold an equipment with a carrying amount of P200,000 and
remaining life of 5 years to XYZ Co. for P250,000. On July 1, 2017, XYZ Co. sold Machinery A
to ABC Co. for a price of P140,000.
Goodwill impairment loss amounted to P30,000 and P20,000 for XYZ Co. at the end of 2016 and
2017, respectively.
Other information with regard to the two companies are as follows:

2016 2017
ABC Co. XYZ Co. ABC Co. XYZ Co.
Sales 9,000,000 3,850,000 9,500,000 4,375,000
Cost of Goods Sold (6,750,000) (2,750,000) (7,125,000) (3,125,000)
Gross Profit 2,250,000 1,100,000 2,375,000 1,250,000
Expenses (1,000,000) (500,000) (1,100,000) (575,000)
Dividend Income 150,000 - 225,000 -
Gain (Loss) on Sale 50,000 - - 490,000
Net Income 1,450,000 600,000 1,500,000 1,165,000

Dividends Paid 400,000 200,000 500,000 300,000

As of 12/31/2016 As of 12/31/2017
ABC Co. XYZ Co. ABC Co. XYZ Co.
Cash 1,050,000 757,500 1,725,000 3,105,000
Accounts Receivable 1,500,000 1,000,000 1,800,000 1,200,000
Inventories 550,000 300,000 650,000 320,000
Land 2,000,000 1,000,000 2,000,000 -
Building 2,000,000 1,312,500 1,800,000 1,125,000
Equipment-net 500,000 730,000 400,000 560,000
Machinery-net 200,000 200,000 600,000 -
Investment in Subsidiary 3,500,000 - 3,500,000 -
TOTAL ASSETS 11,300,000 5,300,000 12,475,000 6,310,000

Accounts Payable 1,200,000 1,150,000 1,350,000 1,270,000

Bonds Payable 500,000 200,000 500,000 200,000
Deferred Income 100,000 50,000 125,000 75,000
Contingent
500,000 - 500,000 -
Consideration
TOTAL LIABILITIES 2,300,000 1,400,000 2,475,000 1,545,000

Ordinary Share Capital 4,000,000 1,500,000 4,000,000 1,500,000

Ordinary Share Premium 2,000,000 500,000 2,000,000 500,000
Retained Earnings 3,000,000 1,900,000 4,000,000 2,765,000
TOTAL SHE 9,000,000 3,900,000 10,000,000 4,765,000
Determine the following for the Consolidated Financial Statements:

1. Goodwill or gain on acquisition

2. 2016 Consolidated Net Income

3. 2016 NCI's share in goodwill impairment loss

4. Gain/Loss on Sale of Equipment on December 31, 2016 sale

5. 2016 Share of Parent in the Consolidated Net Income

6. 2016 Share of NCI in the Consolidated Net Income

7. 2016 Sales

8. 2016 Cost of Goods Sold

9. 2016 Expenses

10. Inventories as of December 31, 2016

11. Carrying Amount of Equipment as of December 31, 2016

12. Carrying Amount of Machinery as of December 31, 2016

13. Carrying Amount of Building as of December 31, 2016

14. Accounts Receivable as of December 31, 2016

15. Accounts Payable as of December 31, 2016

16. 2016 Total Assets

17. 2016 Total Liabilities

18. 2016 Retained Earnings

19 2016 Non-controlling interest

20. 2016 Total Shareholders' Equity

21. 2017 Consolidated Net Income

22. ABC Co.'s share in 2017 Net Income of XYZ Co.

23. Gain/Loss on Sale of Machinery A

24. 2017 Share of Parent in the Consolidated Net Income

25. 2017 Share of NCI in the Consolidated Net Income

26. 2017 Sales

27. 2017 Cost of Goods Sold

28. 2017 Expenses

29. Inventories as of December 31, 2017

30. Carrying Amount of Equipment as of December 31, 2017

31. Carrying Amount of Machinery as of December 31, 2017

32. Carrying Amount of Building as of December 31, 2017

33. Accounts Receivable as of December 31, 2017

34. Accounts Payable as of December 31, 2017

35. 2017 Total Assets

36. 2017 Total Liabilities

37. 2017 Retained Earnings

38. 2017 Non-controlling interest

39. 2017 Total Shareholders' Equity

40. Gain on Sale of Land

SOLUTIONS:

75% 25% Total

Fair Value of the Whole
3,500,000 942,500 4,442,500
Subsidiary
FVNA-Subsidiary 2,827,500 942,500 3,770,000
Goodwill 672,500 - 672,500

Amortization Schedule
FV-BV 2016 2017
Inventories 50,000 30,000 20,000
Building-net (80,000) (10,000) (10,000)
Equipment-net 50,000 10,000 10,000
Machinery A 30,000 10,000 10,000
Land 200,000 - 200,000

BV-FV
Bonds Payable 20,000 5,000 5,000
Total Amortization 45,000 235,000

Intercompany Sale of Inventories

Unrealized Realized
Profit Profit
Upstream Sale 8,000 3,200
2016
Downstream Sale 7,500 5,625
Downstream Sale 8,750 7,125
2017
Upstream Sale 6,000 9,900

Intercompany Sale of Depreciable Assets

Unrealized Realized
Profit (Loss) Profit (Loss)
2016 Downstream Sale 50,000 -
Upstream Sale (10,000) (3,333)
2017
Downstream Sale - 10,000
2016

Subsidiary's Net Income 600,000

2016 amortization (45,000)
Unrealized Profit from upstream trans. (8,000)
Realized Profit from upstream trans. 3,200
550,200

Parent's Share 412,650 137,550 NCI's Share

Goodwill Impairment Loss (30,000) -
Share in Subsidiary's Net Income 382,650 137,550
Parent's Net Income 1,450,000
Dividend Income Received From Subsidiary (150,000)
Unrealized Profit from downstream trans. (57,500)
Realized Profit from downstream trans. 5,625
Consolidated Net Income 1,630,775 + 137,550 = 1,768,325 Total CNI
Retained Earnings of Parent, January 1, 2016 1,950,000 942,500 NCI, January 1, 2016
Dividend Paid by Parent (400,000) (50,000) Div. Received from Subs.
Consolidated Retained Earnings, December 31, 2016 3,180,775 1,030,050 NCI, December 31, 2016
2017
Subsidiary's Net Income 1,165,000
2017 amortization (235,000)
Unrealized Profit/Loss from upstream trans. 4,000
Realized Profti/Loss from upstream trans. 6,567
940,567

Parent's Share 705,425 235,142 NCI's Share

Goodwill Impairment Loss (20,000) -
Share in Subsidiary's Net Income 685,425 235,142
Parent's Net Income 1,500,000
Dividend Income Received From Subsidiary (225,000)
Unrealized Profit from downstream trans. (8,750)
Realized Profit from downstream trans. 17,125
Consolidated Net Income 1,968,800 + 235,142 = 2,203,942 Total CNI
Consolidated Retained Earnings, January 1, 2017 3,180,775 1,030,050 NCI, January 1, 2017
Dividend Paid by Parent (500,000) (75,000) Div. Received from Subs.
Consolidated Retained Earnings, December 31, 2017 4,649,575 1,190,192 NCI, December 31, 2017
ANSWERS:

1 Goodwill 672,500
2 2016 Consolidated Net Income 1,768,325
3 NCI's share in goodwill impairment loss -
4 Gain/Loss on Sale of Equipment 0
5 2016 Share of Parent in the Consolidated Net Income 1,630,775
6 2016 Share of NCI in the Consolidated Net Income 137,550
7 2016 Sales-P 9,000,000
2016 Sales-S 3,850,000
Intercompany sales @billed price (58,000)
2016 Consolidated Sales 12,792,000
8 2016 COGS-P 6,750,000
2016 COGS-S 2,750,000
Intercompany sales @billed price (58,000)
2016 Unrealized profits-inventories 15,500
2016 Realized profits-inventories (8,825)
2016 Amortization-inventories 30,000
2016 Consolidated COGS 9,478,675
9 2016 Expenses-P 1,000,000
2016 Expenses-S 500,000
2016 Amortization-Building (10,000)
2016 Amortization-Equipment 10,000
2016 Amortization-Machinery A 10,000
2016 Amortization-Bonds Payable 5,000
2016 Realized Profit-intercompany sale of equipment -
Goodwill Impairment loss 30,000
2016 Consolidated Expenses 1,545,000
10 Inventories-P 550,000
Inventories-S 300,000
Adjustment (FV-BV) 50,000
Accumulated Amortization (30,000)
Cumulative Unrealized profit-inventories (15,500)
Cumulative Realized profit-inventories 8,825
Consolidated Inventories-net 863,325
11 Equipment-P 500,000
Equipment-S 730,000
Adjustment (FV-BV) 50,000
 Accumulated Amortization (10,000)
Cumulative Unrealized Profit-Equipment (50,000)
Cumulative Realized Profit-Equipment -
Consolidated Equipment-net 1,220,000
12 Machinery-P 200,000
Machinery-S 200,000
Adjustment (FV-BV) 30,000
Accumulated Amortization (10,000)
Consolidated Machinery-net 420,000
13 Building-P 2,000,000
Building-S 1,312,500
Adjustment (FV-BV) (80,000)
Accumulated Amortization 10,000
Consolidated Building-net 3,242,500
14 Accounts Receivable-P 1,500,000
Accounts Receivable-S 1,000,000
Intercompany Receivables (58,000)
Consolidated Accounts Receivable 2,442,000
15 Accounts Payable-P 1,200,000
Accounts Payable-S 1,150,000
Intercompany Payables (58,000)
Consolidated Accounts Payable 2,292,000
16 Parent's Assets at 12/31/16 11,300,000
Investment in Subsidiary (3,500,000)
Subsidiary's Assets at 12/31/16 5,300,000
FV-BV adjustments 250,000
Accumulated Amortization-2016 (40,000)
Goodwill 672,500
Accumulated Goodwill Impairment Loss-2016 (30,000)
2016 Cumulative Unrealized profits (65,500)
2016 Cumulative Realized profits 8,825
Intercompany Receivables (58,000)
Consolidated Total Assets, 12/31/16 13,837,825
17 Parent's Liabilities at 12/31/16 2,300,000
Subsidiary's Liabilities at 12/31/16 1,400,000
FV-BV adjustments (20,000)
Accumulated Amortization-2016 5,000
Intercompany Payables (58,000)
Consolidated Total Liabilities, 12/31/16 3,627,000
18 2016 Consolidated Retained Earnings 3,180,775
19 2016 Non-Controlling Interest 1,030,050
20 OSC-P 4,000,000
OSP-P 2,000,000
2016 Consolidated Retained Earnings 3,180,775
2016 Non-Controlling Interest 1,030,050
2016 Consolidated SHE 10,210,825
21 2017 Consolidated Net Income 2,203,942
22 C Co.'s share in 2017 Net Income of XYZ Co. 685,425
23 Gain/Loss on Sale of Machinery A 0
24 2017 Share of Parent in the Consolidated Net Income 1,968,800
25 2017 Share of NCI in the Consolidated Net Income 235,142
26 2017 Sales-P 9,500,000
2017 Sales-S 4,375,000
Intercompany sales @billed price (66,000)
2016 Consolidated Sales 13,809,000
27 2017 COGS-P 7,125,000
2017 COGS-S 3,125,000
Intercompany sales @billed price (66,000)
2017 Unrealized profits-inventories 14,750
2017 Realized profits-inventories (17,025)
2017 Amortization-inventories 20,000
2017 Consolidated COGS 10,201,725
28 2017 Expenses-P 1,100,000
2017 Expenses-S 575,000
2017 Amortization-Building (10,000)
2017 Amortization-Equipment 10,000
2017 Amortization-Machinery A 10,000
2017 Amortization-Bonds Payable 5,000
2017 Realized Profit-intercompany sale of equipment (6,667)
Goodwill Impairment loss 20,000
2017 Consolidated Expenses 1,703,333
29 Inventories-P 650,000
Inventories-S 320,000
Adjustment (FV-BV) 50,000
Accumulated Amortization (50,000)
Cumulative Unrealized profit-inventories (30,250)
Cumulative Realized profit-inventories 25,850
Consolidated Inventories-net 965,600
30 Equipment-P 400,000
Equipment-S 560,000
 Adjustment (FV-BV) 50,000
Accumulated Amortization (20,000)
Cumulative Unrealized Profit-Equipment (50,000)
Cumulative Realized Profit-Equipment 10,000
Consolidated Equipment-net 950,000
31 Machinery-P 600,000
Machinery-S -
Adjustment (FV-BV) 30,000
Accumulated Amortization (20,000)
Cumulative Unrealized Profit-Equipment 10,000
Cumulative Realized Profit-Equipment (3,333)
Consolidated Machinery-net 616,667
32 Building-P 1,800,000
Building-S 1,125,000
Adjustment (FV-BV) (80,000)
Accumulated Amortization 20,000
Consolidated Building-net 2,865,000
33 Accounts Receivable-P 1,800,000
Accounts Receivable-S 1,200,000
Intercompany Receivables (66,000)
Consolidated Accounts Receivable 2,934,000
34 Accounts Payable-P 1,350,000
Accounts Payable-S 1,270,000
Intercompany Payables (66,000)
Consolidated Accounts Payable 2,554,000
35 Parent's Assets at 12/31/17 12,475,000
Investment in Subsidiary (3,500,000)
Subsidiary's Assets at 12/31/17 6,310,000
FV-BV adjustments 250,000
Accumulated Amortization-2017 (270,000)
Goodwill 672,500
Accumulated Goodwill Impairment Loss-2017 (50,000)
2017 Cumulative Unrealized profits (70,250)
2017 Cumulative Realized profits 32,517
Intercompany Receivables (66,000)
Consolidated Total Assets, 12/31/17 15,783,767
36 Parent's Liabilities at 12/31/17 2,475,000
Subsidiary's Liabilities at 12/31/17 1,545,000
FV-BV adjustments (20,000)
Accumulated Amortization-2017 10,000
Intercompany Payables (66,000)
Consolidated Total Liabilities, 12/31/17 3,944,000
37 2017 Consolidated Retained Earnings 4,649,575
38 2017 Non-Controlling Interest 1,190,192
39 OSC-P 4,000,000
OSP-P 2,000,000
2017 Consolidated Retained Earnings 4,649,575
2017 Non-Controlling Interest 1,190,192
2017 Consolidated SHE 11,839,767
40 Selling Price 1,500,000
Land at Fair Value 1,200,000
Gain on Sale 300,000
 Checking
Intercompany Sales of Inventory

2016 2017
XYZ ABC ABC XYZ ABC
Sales 28,000 30,000 35,000 21,000 10,000
COGS 20,000 22,500 26,250 15,000 10,000
GP 8,000 7,500 8,750 6,000 -
GP% 40% 25% 25% 40% 0%

Intercompany Sales of PPE

Equipment-Downstream Upstream-Machinery A

2016 2017
ABC Co. 's Book XYZ Co.'s Book
Cash 250,000 Dep Exp 50,000
Equipment-net 200,000 Acc. Dep. 50,000
Gain on Sale 50,000
Cash 140,000
XYZ Co.'s Book Loss on Sale 10,000
Equipment 250,000 Machinery-net 150,000
Cash 250,000

Conso's Book no entry ABC Co. 's Book

Machinery-net 140,000
2017 Cash 140,000
XYZ Co.'s Books
Depreciation Expense 50,000 Depreciation Exp. 46,666.67
Accum. Dep 50,000 Accum. Dep. 46,666.67

Conso's Book Conso's Book

Depreciation Expense 40,000 Depreciation Exp. 110,000
Accum. Dep. 40,000 Accum. Dep. 110,000