Chapter 16 Advanced Accounting Solution Manual

Chapter 16
Problem I
1. P50,075
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P25,000 – (P9,000 x 85%)] P17,350
Sill Company 40,000
Total P57,350
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P50,075
Add: Non-controlling Interest in Net Income (NCINI) 5,775
Consolidated Net Income for 20x4 P55,850
*Net income of subsidiary – 20x4 P 40,000

Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... 15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
2. P5,775 – refer to computation in No. 1
Problem II - Cost Model/Method versus Equity Method

Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred: P600,000.............................................. 600,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares – Small (400,000 x 75%)............ 300,000
Retained earnings – Small (100,000 x 75%)......................... 75,000 375,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 225,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (40,000 x 75%)........................................ 30,000
Decrease in Patents (70,000 x 75%).......................................... (52,500) ( 22,500)
Positive Excess: Goodwill - partial 247,500
Full-Goodwill Approach:
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares 400,000
Retained earnings 100,000
500,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000
Increase in Inventory 40,000
Decrease in Patents (70,000) (30,000)
Positive Excess: Goodwill - full 330,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5 20x6
Inventory P40,000 1 P 40,000 P 40,000 P - P -
Subject to Annual Amortization
Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)
Amortization P 26,000 P 26,000 P(14,000) P(14,000)
Impairment of goodwill (full) 330,000 - _____ _____ ______ __ 19,300
P 26,000 P 26,000 P(14,000) P 5,300
For purposes of comparison between Cost Model/Method and Equity Method

Cost Method
Journal Entries Year 1 Year 2 Year 3
Investment
Investment in Small 600,000
Cash 600,000
Dividend of Subsidiary
Cash 18,750 7,500 30,000
Dividend income 18,750 7,500 30,000
Investment in Son Dividend Income
1/1/x4 CI…… 600,000
18,750 - Div–S (75 x80%)
12/31/x4 600,000 18,750
7,500 - Div–S (10 x80%)
12/31/x5 600,000 18,750
30,000 - Div–S (40 x80%)
12/31/x6 600,000 30,000
Equity Method
1. Year 1 Year 2 Year 3
Investment
Cash 600,000
Net Income (Loss) of Subsidiary:
Investment in Small (75% x Small’s profit) 60,000 67,500
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment income 10,500
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort & Amortization (80,000
x 75%)……. 60,000 19,500 impairment impairment 19,500 60,000 x 75%)
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort & 75% Amort &
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,000 75% Div - Son NI of Son
(90,000 75% Amort & Amortization (90,000
12/31/x6 632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:

Investment in Small under cost method......................................... 600,000
Small’s retained earnings, end of year....................................... 160,000
Small’s retained earnings, date of acquisition.......................... 100,000
Change since acquisition............................................................ 60,000
Less: Cumulative amortization of acquisition differential............. 17,300
42,700
x: Controlling Interest (75%).............................................................. 75% 32,025
Investment in Small under equity method..................................... 632,025
2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700
b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 28,000) ( 2,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . . . P 532,000
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . 20
FV of Non-controlling interest (partial goodwill), 12/31/20x6 . . . . . . . . . . . . . . . . . P 133,000
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… ___4,825 ___*77,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6 may also be computed as follows (Note: This is the
American version of computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6………………………………………….. P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) ……………………………………….. 90,000
Dividends – Subsidiary 20x6……………………………………….. ( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………… P560,000
Adjustments to reflect fair value (Increase in Net Assets)………..P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)………………………………………….. 42,000
Impairment of goodwill – 20x6…………………………………….. ( 19,300) 282,700
FV of SHE of Small………………………………………………………… P 842,700
Multiplied by: NCI%............................................................................... 25%
FV of NCI, 12/31/20x6…………………………………………………….. P 210,675
Or, alternatively:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment __282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . ______25%
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P 498,500
The CRE, December 31, 20x6 would be as follows:
Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025
Or, alternatively: to compute CRE, 12/31/20x6

Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, December 31, 20x6 (cost model) P630,000
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000) P 160,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2 (28,000)
P 62,000
Multiplied by: Controlling interests %................... _____75%
P 46,500
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%) __14,475 __32,025
Consolidated Retained earnings, December 31, 20x6 P 662,025
d. P233.525
Parent Company: Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Add: Non-controlling Interest in Net Income (NCINI) __21,175

Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825
e. P21,175 – refer to (d) for computations

Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are
exactly the same.
Problem III
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000
Account Adjustments to be Over/ Annual Current
amortized under Life Amount Year(20x5) 20x6 20x7
Inventory P70,000 1 P 70,000 P 70,000 P - P -
Patents 90,000 10 __9,000 ___9,000 ___9,000 ___9,000
P160,000 P 79,000 P 79,000 P 9,000 P 9,000,
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent P(13,650) P(21,200)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss(CNI) P(21,000) P(14,750)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P(7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P6,450
2. CI-CNI – refer to computation in No. 1
20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000)............................................................. 7,350
20x6: 15%  (52,000 – 9,000)............................................................... 6,450
(2)
20x5 20x6
NI (loss) Pen 28,000 (45,000)
Less: Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) ________ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)
3. CRE, 12/31/20x6 – P73,150

Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x6 __9,000
P (21,000)
Multiplied by: Controlling interests %................... 85%
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)
Consolidated Retained earnings, December 31, 20x6 P 73,150
4. NCI, 12/31/20x6: P110,850

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000 ( 15,000) 167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
Multiplied by: NCI% _________15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill _______ _0
FV of NCI (full),12/31/20x6 P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P 114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) P167,000
Less: Retained earnings, 12/31/20x4 (date of acquisition) 100,000
Increase since acquisition P 67,000
Less: Amortization of allocated excess (79,000 + 9,000) 88,000
P( 21,000)
Multiplied by: NCI’s share ____ 15% ( 3,150)
Non-controlling interest (full) 12/31/20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000

Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment, cost model 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000
( 21,000)
Multiplied by: CI share 85% ( 17,850)
Invest. account – equity method as at Dec. 31, 20x6 628,150
Implied value of 100% (628,150 / 85%) 739,000

Silk –Common shares 500,000
Retained earnings – Silk, 12/31/20x6 167,000
667,000
Balance unamortized allocated excess – Patents 72,000
Problem IV
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM ........................... P664,000
Noncontrolling interest fair value ............................. 166,000*
Fair value of Subsidiary………………………… P830,000
Less: Book value of SHE – S…..……………………. (600,000)
Positive excess ............................................................ 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000 20 years P4,000
Goodwill - full P150,000 indefinite -0-
Total ........................................................................ P4,000
2. P150,000 – full goodwill (see No. 1 above)
P120,000 – partial-goodwill:
Consideration transferred by MM ........................... P 664,000
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 .................................................................. 300,000
Additional Paid-in Capital - TT ............................................... 90,000
Retained Earnings - TT .............................................................. 210,000
Investment in TT Company (80%) ................................... 480,000
Non-controlling interest (20%) ......................................... 120,000
Buildings ..................................................................................... 80,000

Goodwill .................................................................................... 150,000
Non-controlling interest (P166,000 – P120,000) ............ 46,000
Partial-goodwill
Common Stock - TT .................................................................. 300,000
Additional Paid-in Capital - TT ............................................... 90,000
Retained Earnings - TT .............................................................. 210,000
Non-controlling interest (20%) ......................................... 120,000
Buildings ..................................................................................... 80,000

Goodwill .................................................................................... 120,000
Non-controlling interest (20% x P80,000) ....................... 16,000
4. Cost Model/Initial Value Method

Dividends received (80%) ............................................................. P 8,000
Investment in Taylor—12/31/x4 (original value paid)………… 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 value—buildings .................................................... P 800,000
TT book value—buildings ........................................................ 300,000
Allocation .................................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. ( 8,000)
Consolidated buildings account ………………… P 1,172,000
7. Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) .................................................. P 150,000
Goodwill-partial (see No. 1 above)……………………………… P 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 V
1.
Partial Goodwill or Proportionate Basis
a. Investment in S 225,000
Beginning Retained Earnings-Palm Inc. 225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))
b. Common stock – S 3,000,000

Retained earnings – S 1,250.000
Investment in S Co 3,825,000
NCI (P4,250,000 x 10%) 425,000
c. Land 400,000
Investment in S 150,000
NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000
Retained earnings – P (bargain purchase gain –
closed to retained earnings since only balance
sheets are being examined, P300,000 – P90,000
depreciation, 20x4) 210,000
FV of SHE of S:
Common stock, 1/1/20x5 P3,000,000
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% 10%
FV of NCI P 465,000
Computation of Gain:
Fair value of Subsidiary:
Consideration transferred P3,750,000
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90% _3,600,000
Allocated excess P 150,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 – P700,000) x 90% P 90,000
Land (P2,000,000 – P1,600,000) x 90% 360,000 __450,000
Gain – partial (attributable to parent) (P300,000)
Full Goodwill or Fair Value Basis

a. Investment in S 225,000
Beginning Retained Earnings-P Inc. 225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))
b. Common stock – S 3,000,000

Retained earnings – S 1,250.000
Investment in S 3,825,000
NCI (P4,250,000 x 10%) 425,000
c. Land 400,000
Investment in S 150,000
NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000
Retained earnings – P (bargain purchase gain –
closed to retained earnings since only balance
sheets are being examined, P300,000 – P90,000
depreciation, 20x4) 210,000
FV of SHE of S:
Common stock, 1/1/20x5 P3,000,000
FV of NCI P 465,000
Full-goodwill or Fair Value Basis
Consideration transferred P3,750,000 / 90% P4,166,667
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100% 4,000,000
Inventory (P800,000 – P700,000) x 100% P 100,000
Land (P2,000,000 – P1,600,000) x 100% 400,000 __500,000
Gain – full (attributable to parent) (P333,333
Note: In case of gain, the working paper eliminating entries under partial and full-goodwill
approach are the same.
2.
Retained earnings - Parent Company, December 31, 20x5 (cost model P2,000,000
Retained earnings – Subsidiary, December 31, 20x5
(P1,000,000 + P250,000 – P0 + P300,000 – P0) P1,550,000
Less: Retained earnings – Subsidiary, January 1, 20x4 1,000,000
Less: Amortization of allocated excess – 20x4 (inventory) 100,000
P 450,000
P405,000
Add: Bargain purchase gain (Controlling interest – P300,000) 300,000
Less: Goodwill impairment loss _______0 __705,,000
Consolidated Retained earnings, December 31, 20x5 P 4,705,000
Problem VI
Computation of Goodwill:
Partial Goodwill
Less: BV of SHE of S (P1,000,000 + P500,000) x 80% _1,200,000
Allocated excess P1,600,000
Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% __720,000
Goodwill – partial P 880,000
Full-goodwill:
Less: BV of SHE of S (P1,500,000 x 100%) 1,500,000
Allocated excess P2,000,000
Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% __900,000
Goodwill – full 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. 1,000,000
Capital Stock- S Co. 500,000
Property and Equipment (net) 900,000
Goodwill 1,100,000
Investment in S Co. 2,800,000
Non-controlling Interest 700,000
Common stock, 1/1/20x4 P 500,000
Retained earnings, 1/1/20x4 1,000,000
FV of SHE of S1/1/x5 P2,400,000
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 90,000

20x5
a. Investment in S Company (P300,000 x 0.80) 240,000
Beginning Retained Earnings-P Co. 240,000
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company 1,300,000

Capital Stock-S Company 500,000
Goodwill 1,100,000
Investment in S Company (P2,800,000 + P240,000) 3,040,000
Non-controlling Interest P700,000 +
[(P1,300,000 – P1,000,000) x 0.20] 760,000
FV of SHE of S:
FV of SHE of S1/1/x5 P2,700,000
c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000

Non-controlling Interest (P90,000, depreciation x 20%) 18,000
Depreciation Expense 90,000
NCI (partial), 12/31/20x5: [(a) P760,000 – (b) P18,000 = P522,000]

FV of SHE of S:
Cost Model-Partial Goodwill (Eliminating Entries)

20x4
a. Beginning Retained Earnings-S Co. 1,000,000
Capital Stock- S Co. 500,000
Goodwill 880,000
Investment in S Co. 2,800,000
b. Depreciation Expense 90,000
20x5
a. Investment in S Company (P300,000 x 0.80) 240,000
Beginning Retained Earnings-P Co. 240,000
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company 1,300,000

Capital Stock-S Company 500,000
Goodwill 880,000
Investment in S Company (P2,800,000 + P240,000) 3,040,000
Non-controlling Interest P700,000 +
[(P1,300,000 – P1,000,000) x 0.20] – (P1,100,000 – P880,000) 540,000
NCI:
FV of SHE of S:
FV of SHE of S1/1/x5 P2,700,000
c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000

Non-controlling Interest (P90,000 depreciation x 20%) 18,000
NCI (partial), 12/31/20x5: [(a) P540,000 – (b) P18,000 = P522,000]
FV of SHE of S:
2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI

20x4
P Company P400,000
S Company 300,000
Total P700,000
Amortization of allocated excess 90,000
Goodwill impairment ____0 132,000
attributable to equity holders of P………….. P568,000
Net income of subsidiary…………………….. P 300,000

Amortization of allocated excess …... ( 90,000)
P210,000
20x5
P Company P425,000
S Company 400,000
Total P825,000

Amortization of allocated excess …... ( 90,000)
P310,000
Problem VII
1. Common stock of TT Company
on December 31, 20x4 P 90,000
Retained earnings of TT Company
January 1, 20x4 P 130,000
Sales for 20x4 195,000
Less: Expenses (160,000)
Dividends paid (15,000)
Retained earnings of TT Company
on December 31, 20x4 150,000
Net book value on December 31, 20x4 P240,000
Proportion of stock acquired by QQ x .80
Purchase price P192,000
2. Net book value on December 31, 20x4 P240,000
Proportion of stock held by
noncontrolling interest x .20
Balance assigned to noncontrolling interest 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 VIII
Requirements 1 to 4:
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Cash P 360,000
Notes payable 105,000 P 465,000
Less: Book value of stockholders’ equity of S:
Common stock (P200,000 x 100%)………………. P 240,000
Retained earnings (P100,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P5,000 x 100%)……………… P 6,000
Increase in land (P6,000 x 100%)……………………. 7,200
Increase in equipment (P80,000 x 100%) 96,000
Decrease in buildings (P20,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,000 x 100%)…… 4,800 90,000
Positive excess: Goodwill (excess of cost over
fair value)………………………………………………... P 15,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated depreciation….. 96,000 - ( 96,000)
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4 : First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 465,000
Cash…………………………………………………………………….. 360,000
Notes payable…………………………………… 105,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 36,000
Dividend income (P36,000 x 100%)……………. 36,000
Record dividends from S Company.
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid………… 36,000
Cash……. 36,000
Dividends paid by S Co..
Consolidation Workpaper – First Year after Acquisition
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120,000
Investment in S Co…………………………………………… 360,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition. ; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Investment in S Co………………………………………………. 105,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss 3,600
Inventory………………………………………………………….. 6,000
Discount on bonds payable………………………… 1,200
Goodwill…………….. 3,600
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Sold Amortization Amortization
Expense -Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds _______ _______ P 1,200
payable
Totals P 6,000 P 6,000 P1,200
(E4) Dividend income - P………. 36,000

Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
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 P Co S Co. Dr. Cr. Consolidated

Sales P480,000 P240,000 P 720,000
Dividend income 36,000 - (4) 36,000 _________
Total Revenue P516,000 P240,000 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000
Interest expense - - (3) 1,200 1,200
Goodwill impairment loss (3) 3,600 3,600
Other expenses 48,000 18,000 66,000
Total Cost and Expenses P312,000 P180,000 P508,800
Net Income to Retained Earnings P204,000 P 60,000 P211,200
Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 204,000 60,000 211,200
Total P564,000 P180,000 P571,200
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 ________
Retained earnings, 12/31 to Balance
Sheet P492,000 P144,000 P 499,200
Balance Sheet
Cash………………………. P 147,000 P 90,000 P 237,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 15,000 (3) 3,600 11,400
Investment in S Co……… 465,000 (1) 360,000
(2) 105,000 -
Total P1,992,000 P1,008,000 P2,341,200
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above ___590,400 144,000 499,200
Total P1,992,000 P1,008,000 P 736,200 P 736,200 P2,341,200
20x5: Second Year after Acquisition

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
Cash……………………… 48,000
Cash 48,000
Consolidation Workpaper – Second Year after Acquisition

(E1) Investment in S Company………………………… 24,000
Retained earnings – P Company……………………… 24,000
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Retained earnings – S Company, 1/1/20x5 P144,000

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 100%
Retroactive adjustment P 24,000

Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co ………………………… 384,000
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5

(P16,800 x 100%) 16,800
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,600
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings
Year 20x5 amounts are debited to respective nominal accounts..
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,600
Totals P 16,800 P 6,000 P1,200

share of dividends.
(E6) Non-controlling interest in Net Income of Subsidiary………… 16,560

Non-controlling interest ………….. 16,560
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:

Amortization of allocated excess [(E4)]…... ( 7,200)
P 82,000

Cost Model
Income Statement P Co. S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Dividend income 48,000 - (5) 48,000 ___________
Cost of goods sold P216,000 P192,000 P 408,000
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 625,200
Net Income to Retained Earnings P240,000 P 90,000 P 274,800

P Company P492,000 (4) 16,800 (1) 24,000 P 499,200
(2)
S Company P144,000 144,000
Total P732,000 P234,000 P 774,000
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to Balance P660,000 P186,000 P 702,000
Sheet
Balance Sheet
Cash………………………. P 189,000 P 102,000 P 291,000
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 252,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,600 11,400
Investment in S Co……… 465,000 (1) 24,000 (2) 384,000
(3) 105,000 -
Total P2,220,000 P1,074,000 P2,634,000
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P 180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings, from above 660,000 186,000 702,000
Total P2,220,000 P1,074,000 P 783,120 P 783,120 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:
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
Total Stockholders’ Equity (Total Equity) P 960,000
6. 12/31/20x4:
a. P211,200 – same with CNI since there is no NCI.
Net income from own/separate operations:
Pa Company P168,000
S Company 60,000
Total P228,000
Less: Amortization of allocated excess P 13,200
Goodwill impairment loss 3,600 16,800
b. NCINI – not applicable, since it is 100% owned subsidiary

c. P211,200 – same with NCI-CNI since there is no NCI.
d.
equity holders of P for 20x4 or Consolidated Net Income (CNI)* 211,200
Total P571,200
Less: Dividends paid – P Company for 20x4 72,000
*since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated Net
Income.
e. NCI – not applicable, since it is 100% owned subsidiary

f.
Total Stockholders’ Equity (Total Equity) P 1,099,200
12/31/20x5
a. P274,800 – same with CNI since there is no NCI.
P Company P192,000
S Company 90,000
Total P282,000
Less: Amortization of allocated excess P 7,200
Goodwill impairment loss 0 7,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent or CNI 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.
Retained earnings - P Company, January 1, 20x5 (cost model P492,000
consolidation or to establish reciprocity:/P’s share in adjusted net
Retained earnings – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
P 7,200
Multiplied by: Controlling interests %................... 100% 7,200
equity holders of P for 20x5 or CNI 274,800
Total P774,000
e. NCI – not applicable, since it is 100% owned subsidiary
f.
Total Stockholders’ Equity (Total Equity) P1,302,000
Problem IX – 80% Partial Goodwill - Cost Model

Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred……………………………….. P 372,000
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 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:

Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
20x4: First Year after Acquisition

January 1, 20x4:
Cash…………………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Cash……. 36,000
Consolidation Workpaper – Year of Acquisition
Retained earnings – S Co…………………………………… 120.000
Non-controlling interest (P360,000 x 20%)……………………….. 72,000
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
controlling interest (in net assets of subsidiary) on date of acquisition.
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Goods Amortization Amortization
Sold expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
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 % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
Non-controlling interest (P36,000 x 20%)……………….. 7,200
share of dividends.


P 46,800

Cost Model (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Net Income P196,800 P 60,000 P211,800
NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P552,000 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(5) 84,000 -
Total P1,984,800 P1,008,000 P2,424,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,984,800 P1,008,000 P 745,560 P 745,560 P2,424,600

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.

Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
year, 1/1/20x5, computed as follows:
Investment in S Co (P384,000 x 80%)………………………… 307,200
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
controlling interest (in net assets of subsidiary) on January 1, 20x5.
[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Total P 13,560
share of dividends.
P 82,800
Non-controlling Interest in Net Income (NCINI P 16,560

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800
P Company P484,800 (4) 13,560 (1) 19,200 P 490,440
S Company P 144,000 (2) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,707,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (5) 9,600
(4) 2,640 (2 ) 76,800
(3) 18,000
___ _____ _________ __________ (6) 16,560 ____99,120
Total P2,203,200 P1,074,000 P 821,160 P 821,160 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:
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
c.
Consolidated SHE:
P’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the P’s 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 Company P168,000
S Company 60,000
Total P228,000
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
equity holders of parent………….. P202,440
Consolidated Net Income for 20x4 P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 46,800
c. CNI, P211,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
equity holders of parent for 20x4 202,440
Total P562,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 240,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P120,000
Add: Net income of S for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – S Company, December 31, 20x4 P 384,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
f.
Consolidated SHE:
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment for 20x5
P 82,800
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
P 10,800
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
equity holders of P for 20x5 258,240
Total P748,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.
e.
Total P234,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600
Non-controlling interest (partial goodwill)………………………………….. P 99,120
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Problem X – 80% Full Goodwill – Cost Model

Schedule of Determination and Allocation of Excess
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

January 1, 20x4:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Cost of Goods Depreciation/ Amortization Amortization
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
P 46,800
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
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125
by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired (refer to Illustration 15-6).
Cost Model (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P211,050
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 86,400
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (6) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850
P Co. S Co.
Sales P 540,000 P 360,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400
Dividend income (P48,000x 80%)……………. 38,400
year, 1/1/20x5.
Investment in S Co (P384,000 x 80%)………………………… 307,200
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

(P16,950 x 80%) 13,560
Non-controlling interests (P16,950 x 20%)……………………. 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

share of dividends.

P 82,800
P 16,560
Less: NCI on goodwill impairment loss on full-
Goodwill 0

Cost Model (Full-goodwill)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (5) 13,560 (5) 19,200 P 490,440
S Company P 144,000 (6) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 57,600 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(8) 3,390 (2 ) 76,800
(3) 21,000
___ _____ _________ __________ (6) 16,560 ____101,370
Total P2,203,200 P1,074,000 P 824,910 P 824,910 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:
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Fair value of stockholders’ equity of S, January 1, 20x4…… P450,000
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s 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
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
equity holders of P………….. P202,440
b. NCI-CNI – P8,610
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling int. 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
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss
of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not

Total P562,440
e.
Total P180,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
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 2,250
Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
Goodwill impairment (impairment under full-goodwill approach) 0 23,760
P 82,800

Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600
Non-controlling interest (full-goodwill)………………………………….. P 101,370
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XI
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued) ............................ 900,000
Common Stock (par value) ............................................................... 150,000
Additional Paid-in Capital (excess over par value) ...................... 450,000
Liabilities ................................................................................................. 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 ................................................................................... 30,000
Additional Paid-in Capital......................................................................... 40,000
Cash ................................................................................................... 70,000
Allocation of Acquisition-Date Excess Fair Value:
Consideration transferred (fair value) for BB Stock ............................ P900,000
Book Value of BB, 6/30 ............................................................................... 770,000
Fair Value in Excess of Book Value ................................................... P130,000
Excess fair value (undervalued equipment) ......................................... 100,000
Excess fair value (overvalued patented technology) ........................ (20,000)
Goodwill................................................................................................. P 50,000
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included) ............................................................................................... P210,000
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included) ........................................................ 800,000
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary) ..................................................................................... 1,180,000
4. Goodwill (computed above) ........................................................................... 50,000
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) .............................................................................. 1,210,000
6. Common Stock (the parent's book value after recording
the newly-issued shares) ................................................................................... 510,000
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above) ......................................................... 680,000
Problem XII
1. Investment in WP, Inc. 500,000
Contingent performance obligation 35,000
Cash 465,000
2.
12/31/x4 Loss from increase in contingent performance
obligation 5,000
12/31/x5 Loss from increase in contingent performance

obligation 10,000
12/31/x5 Contingent performance obligation 50,000

Cash 50,000
3. Cost Model/Initial Value Method

Investment in WP 30,000
Retained earnings-BS 30,000
Common stock 200,000

Retained earnings-WP 180,000
Royalty agreements 90,000

Goodwill 60,000
Dividend income 35,000
Dividends paid 35,000
Amortization expense 10,000

Royalty agreements 10,000
Problem XIII (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 _____-0-
Total ....................................................................... P20,000
1. Consolidated copyrights
PP (book value) ................................................................. P900,000
SS (book value) .................................................................. 400,000
Allocation (above) ........................................................... 120,000
Excess amortizations, 20x4 ............................................... (20,000)
Total .............................................................................. P1,400,000
2. Consolidated net income, 20X4

Revenues (add book values) ......................................... P1,100,000
Expenses:
Add book values ........................................................ P700,000
Excess amortizations .................................................. 20,000 720,000
Consolidated net income ................................................ 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
SS’s 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 XIV
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 -0-
Total ....................................................................... 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 XV
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. 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 total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XVI
(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.
PS’s consideration transferred (P31.25 × 80,000 shares) ............................................. P2,500,000

Non-controlling interest fair value (P30.00 × 20,000 shares) ...................................... P600,000
SR’s total fair value 1/1/09 ............................................................................................... 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 subsidiary’s 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. SR’s total fair value 1/1/09 ............................................................................................... P3,100,000

SR’s net assets book value ............................................................................................... 1,290,000
Excess acquisition-date fair value over book value ................................................... P1,810,000
Adjustments from book to fair values ............................................................................
Buildings and equipment ........................................................ (250,000)
Trademarks ................................................................................ 200,000
Patented technology .............................................................. 1,060,000
Unpatented technology ......................................................... 600,000 1,610,000
Goodwill ................................................................................................................... P 200,000
4. Combined revenues ......................................................................................................... P4,400,000

Combined expenses......................................................................................................... (2,350,000)
Building and equipment excess depreciation ............................................................ 50,000
Trademark excess amortization ...................................................................................... (20,000)
Patented technology amortization ............................................................................... (265,000)
Unpatented technology amortization .......................................................................... (200,000)
Consolidated net income ............................................................................................... P1,615,000
To non-controlling interest:
SR’s revenues ............................................................................................................... P1,400,000
SR’s expenses............................................................................................................... (600,000)
Total excess amortization expenses (above) ........................................................ (435,000)
SR’s adjusted net income ......................................................................................... P365,000
Non-controlling interest percentage ownership .................................................. 20%
Non-controlling interest share of consolidated net income .............................. P73,000
To controlling interest:
Consolidated net income......................................................................................... P1,615,000
Non-controlling interest share of consolidated net income .............................. (73,000)
Controlling interest share of consolidated net income ...................................... P1,542,000
-OR-
PS’s revenues ............................................................................................................... P3,000,000
PS’s expenses ............................................................................................................... 1,750,000
PS’s separate net income ......................................................................................... P1,250,000
PS’s share of SR’s adjusted net income
(80% × P365,000) ............................................................................................ 292,000
Controlling interest share of consolidated net income ...................................... P1,542,000
5. Fair value of non-controlling interest January 1, 20x4 ................................................ P600,000
20x4 income ..................................................................................................................... ……..73,000
Dividends (20% × P30,000) ............................................................................................... (6,000)
Non-controlling interest December 31, 20x4 ................................................................ P 667,000
6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.
SR’s total fair value 1/1/09 ............................................................................................... P2,250,000
Collective fair values of SR’s 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 SR’s 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 XVII (Full-Goodwill)

A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1 (stockholders' equity accounts)
(P100,000 + P600,000 + P700,000) ...................... P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ................................ P120,000
Dividends .............................................................. (20,000)
Change during year ................................................. P100,000
Change during first six months of year .......... 50,000
Book value of RR, 7/1 (acquisition date) . P1,450,000
(Full-Goodwill)
Consideration transferred by KL (P1,330,000 +
P30,000) ................................................................... P1,360,000
Non-controlling interest fair value ................................. 300,000
RRs’ fair value (given) ....................................................... 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 follows:
BV of SHE of Subsidiary (RR) ...................................... P1,450,000

Adjustments to reflect fair value (undervaluation) 150,000
FV of SHE of Subsidiary (RR) ....................................... P 1,600,000
Multiplied by: NCI% ..................................................... 20%
FV of NCI………………………………………………. P 320,000
Consideration transferred by KL (P1,330,000 +

P30,000) ................................................................... P1,360,000
Non-controlling interest fair value ................................. ___320,000
RRs’ fair value (given) ....................................................... P1,680,000
Book value of RR, 7/1 ........................................................ (1,450,000)
Fair value in excess of book value ................................. P 230,000 Annual Excess
Excess fair value assigned Life Amortizations
Trademarks ..................................................................... 150,000 5 years P30,000
Goodwill (full-goodwill) ................................................ P 80,000 indefinite -0-
Total .......................................................................... P30,000
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
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) is 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 ½ 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
 Subsidiary’s 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 ½ year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% × (120,000 – 30,000) × ½ year] = P9,000
 Retained Earnings, 1/1 = P1,400,000 (the parent’s 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 XVIII (Consolidated balances after a mid-year acquisition)

Note: Investment account balance indicates the initial value method.
Consideration transferred ........................................ P526,000

Non-controlling interest fair value .......................... 300,000
FV of SHE - subsiary .................................................... P826,000
Less: Book value of DD (below)................................ (765,000)
Fair value in excess of book value (positive) ........ P 61,000
Excess assigned Annual Excess
based on fair value: Life Amortizations
Equipment ...................................................... (30,000) 5 years P(6,000)
Goodwill (full) ................................................. P 91,000 indefinite -0-
Total ....................................................................... P(6,000)
Amortization for 9 months ................................. P(4,500)
Acquisition-Date Subsidiary Book Value

Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................ P740,000
Increase in book value-net income (dividends
were paid after acquisition) ................................................. P100,000
Time prior to purchase (3 months) .............................................. ×¼ 25,000
Book value of DD, 4/1/x4 (acquisition date) ............................ 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) ..…………………… P765,000

Adjustments to reflect fair value (undervaluation) ( 30,000)
FV of SHE of Subsidiary (DD) ................................ P735,000
Multiplied by: NCI% ............................................... 40%
FV of NCI……………………………………………. P294,000
(Partial-Goodwill)
Consideration transferred ................................. P 526,000
Less: Book value of SHE – DD (P765,000 x 60%) 459,000
Allocated excess………………………………… P 67,000
(P30,000 x 60%)........................................... ( 18,000)
Goodwill - partial .................................................. 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 XIX
(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 equity investment in AD (book value) P178,000
25% income for 1st 6 months 8,750
Investment book value at 6/30 186,750
Fair value of investment 200,000
Gain on revaluation to fair value P13,250
3. Goodwill at 12/31
Fair value of AD at 6/30 P800,000
Book value at 6/30 (700,000 + [70,000 ÷ 2]) 735,000
Excess fair value P65,000
Allocation to goodwill (no impairment) P65,000
4. Non-controlling interest
5% fair value balance at 6/30 P40,000
5% Income from 6/30 to 12/31 1,750
5% dividends (1,000)
Non-controlling interest 12/31 P40,750
Problem XX
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds……………………………………… P 720,000

Fair value of retained non-controlling interest equity investment (35%) 420,000
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary) 120,000
P1,260,000
Less: Carrying value of Subsidiary’s net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI

or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem XXI
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds……………………………………… P 84,000

Less: Carrying value of non-controlling interest (P720,000* x 10%) 72,000
“Gain” – transfer within equity in “Additional paid-in capital” account P 12,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Because P Company continues to have the ability to control S Company, the sale of S’s shares
is treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer
Company’s additional paid-in capital increases by P60,000.
Problem XXII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ….. P 210,000

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
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 XXIII
1. Equity Method
Income accrual (80%) ................................................................... P56,000
Excess amortization expense ....................................................... (3,200)
Investment income .................................................................. P52,800
Initial fair value paid ........................................................................ P664,000

Income accrual 20x4–20x6 (P260,000 × 80%) ............................ 208,000
Dividends 20x4–20x6 (P45,000 × 80%) ......................................... (36,000)
Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................. (9,600)
Investment in TT—12/31/x6 ..................................................... 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 value—buildings .................................................... P 800,000
TT book value—buildings ........................................................ 300,000
Allocation .................................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) (8,000)
Consolidated buildings account ............................ P1,172,000
4. Acquisition-date fair value allocated to goodwill
Goodwill-full ( see Problem I above) ..................................................... P 150,000
Goodwill-partial (see Problem I above)………………………… P 120,000
5. 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 XXIV
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization
JJ’s 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 Annual Excess
Life Amortization
Equipment .............................................. 54,400 8 yrs. P6,800
Buildings (overvalued) ......................... (10,000) 20 yrs. (500)
Goodwill .................................................. P21,600 indefinite -0-
Total ......................................................... P6,300
Investment in JJ Company—12/31/x6
JJ’s acquisition-date fair value ........................................................... P206,000
20x4 Increase in book value of subsidiary 40,000
20x4 Excess amortizations (Schedule 1) ........................................... (6,300)
20x5 Increase in book value of subsidiary ........................................ 20,000
20x6 Increase in book value of subsidiary ........................................ 10,000
Investment in J Company ............................................................ P257,100
2. Equity in Subsidiary Earnings
Income accrual .................................................................................................. P30,000
Excess amortizations (Schedule 1) ................................................................. (6,300)
Equity in subsidiary earnings ..................................................................... P23,700
3. Consolidated Net Income

Consolidated revenues (add book values) .................................... P414,000
Consolidated expenses (add book values) .................................... (272,000)
Excess amortization expenses (Schedule 1) .................................... (6,300)
Consolidated net income ................................................................... P135,700
4. Consolidated Equipment
Book values added together ............................................................. P370,000
Allocation of purchase price .............................................................. 54,400
Excess depreciation (P6,800 × 3) ....................................................... (20,400)
Consolidated equipment ............................................................. P404,000
5. Consolidated Buildings ........................................................................................
Book values added together ............................................................. P288,000
Allocation of purchase price .............................................................. (10,000)
Excess depreciation (P500 × 3) .......................................................... 1,500
Consolidated buildings .................................................................. 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 XXV
Less: BV of SHE of S (P1,200,000 + P600,000) x 80% _1,440,000
Inventory (P725,000 – P600,000) x 80% P 100,000
Equipment (P1,075,000 – P900,000) x 80% 140,000 __240,000
Goodwill – partial P 290,000
Full-goodwill or Fair Value Basis

Less: BV of SHE of S (P1,200,000 + P600,000) x 100% 1,800,000
Inventory (P725,000 – P600,000) x 100% P125,000
Equipment (P1,075,000 – P900,000) x 100% 175,000 __300,000
Goodwill – full P362,500
Amortization
20x4 20x5
Inventory: P125,000 x 60% P 75,000
P125,000 x 40% P 50,000
Equipment: P175,000 / 7 years 25,000 25,000
P 100,000 P 75,000
1.
20x4
Investment in S Company 1,970,000
Cash 1,970,000
Cash (0.8 x P150,000) 120,000

Investment in S Company 120,000
Equity in Subsidiary Income (.80)(P750,000) 600,000
Equity in Subsidiary Income 80,000

20x5
Cash (0.8 x P225,000) 180,000

Equity in Subsidiary Income (.80)(P900,000) 720,000
Equity in Subsidiary Income 60,000

2.
20x4
(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000) 520,000
Dividends Declared (0.80 x P150,000) 120,000
(2) Beginning Retained Earnings - S Company 600,000

Common Stock- S Company 1,200,000
Investment in S Company 1,307,500
Noncontrolling Interest 492,500
(3) Inventory (P125,000 – P75,000) 50,000

Cost of Goods Sold 75,000
Equipment (net) 175,000
Goodwill 362,500
(4) Depreciation Expense 25,000

20x5
(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000) 660,000
Dividends Declared (0.80 x P225,000) 180,000
Investment in Superstition Company 480,000
(2) Beginning Retained Earnings-Superstition Company 1,200,000

Common Stock - Superstition Company. 1,200,000
Investment in Superstition Company
Non-controlling Interest
(P492,500 + (P1,200,000 – P600,000) x .20) 612,500
(3) Investment in S Company 60,000

Cost of Goods Sold 50,000
Goodwill 362,500

3.
P Company (P1,000,000 – P120,000) P 880,000
S Company __ 750,000
Total P1,630,000
attributable to equity holders of parent………….. P1,400,000
Consolidated Net Income for 20x4 P1,530,000

Amortization of allocated excess (P25,000 + P75,000) ( 100,000)
P650,000
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 XXVI – 80% Partial Goodwill – Equity Method

Schedule of Determination and Allocation of Excess (Partial-goodwill)
Common stock (P240,000 x 80%)……………………. P 192,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 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:
Less: Book value of stockholders’ equity of S (P360,000 x 100%) __360,000
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000

Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
Investment in S Company (P36,000 x 80%)……………. 28,800
December 31, 20x4:

Investment income (P60,000 x 80%) 48,000
Record share in net income of subsidiary.
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000*, goodwill 13,560
impairment loss)]
Record amortization of allocated excess of inventory, 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:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
Investment in Son Co…………………………………………… 288,000
(E2) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
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 % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 625 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
(E4) Investment income 34,440

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(60,000 Amortization & Amortization (60,000
5,640 34,440
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,
Investment in S
NI of Son Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4
84,000 (E2) Investment, 1/1/20x4
5,640 (E4) Investment Income
and dividends
377,640 377,640


P 46,800
Equity Method (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
Investment income 34,440 - (4) 34,440 _________
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,800

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,424,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (9) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,990,440 P1,008,000 P 751,200 P 751,200 P2,424,600

P Co. S Co.
Sales P 540,000 P 360,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000

The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
(2) Cash……………………… 38,400
December 31, 20x5:
December 31, 20x5:
(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
Investment in S
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete guidance for
the worksheet eliminating entries:
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + 6,000) 198,000
Land………………………………………………………………………. 7,200
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
(E3) Depreciation expense……………………….. 6,000

Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
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,
Investment in S
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480


P 82,800

Equity Method (Partial-goodwill)

Sales P540,000 P360,000 P 900,000
Investment income 66,240 - (4) 66,240 ___________
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800

P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
(2) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,707,800
Accumulated depreciation (2) 84,000

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 16,560 ____99,120
Total P2,236,680 P1,074,000 P 794,400 P 794,400 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:
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
c.
Consolidated SHE:
NCI, 1/1/20x4 ___90,000
6.
12/31/20x4:
a. CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
equity holders of P………….. P202,440
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment
P 46,800

as follows:
Total P562,440
e.
Total P180,000
f.
Consolidated SHE:
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
P Company P192,000
S Company 90,000
Total P282,000
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
P 82,800

P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
f.
Consolidated SHE:
NCI, 12/31/20x4 ___99,120
Problem XXVII - 80% Full Goodwill – Equity Method

Schedule of Determination and Allocation of Excess
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
January 1, 20x4:
Cash…………………………………………………………………….. 372,000
(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
buildings and bonds payable and goodwill impairment loss.
Investment in S
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
guidance for the worksheet eliminating entries on January 1, 20x4:
(E2) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
NI of S 28,800 Dividends – S NI of Son
(60,000 Amortization & Amortization & (60,000
x 80%)……. 48,000 13,560 Impairment Impairment 13,560 48,000 x 80%)
5,640 34,440
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,
Investment in S
(60,000 x 80%) 40,000 13,560 Impairment
84,000 (E2) Investment, 1/1/20x4
and dividends
377,640 377,640
P 46,800
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
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750
by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired (refer to Illustration 15-6).

Equity Method (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Investment income 34,440 - (4) 34,440 _________
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,050

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,990,440 P1,008,000 P 754,200 P 754,200 P2,426,850
P Co. S Co.
Sales P 540,000 P 380,000
Net income P 258,240 P 90,000
(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
P Company’s P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parent’s books following Option 2 as referred to above for goodwill impairment
loss. Even though the goodwill of the consolidated entity is impaired,
Investment in S
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4

guidance for the worksheet eliminating entries.
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
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)*
or (P3,750 x 20%)] 17,610
(E3) Depreciation expense……………………….. 6,000
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200

NI of S 38,400 Dividends - S NI of S
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
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,
Investment in S
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480

P 82,800
Less: NCI on goodwill impairment loss on full-
Goodwill 0

Equity Method (Full-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 66,240 - (4) 66,240 ___________
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800
P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(5) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,634,000
Accumulated depreciation (2) 84,000
- equipment P 150,000 P 102,000 (3) 12,000 P 180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest…………
(3) 9,600
(2 ) 76,800
(2) 17,610
___ _____ __________ __________ (5) 16,560 __________
Total P2,236,680 P1,074,000 P 796,650 P 796,650 P2,634,000
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 VII 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:
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___93,000
6.
a. CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
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

Total P562,440
e.
Retained earnings – SCompany, January 1, 20x4 P120,000
Total P180,000
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
P 82,800
as follows:
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Non-controlling interest (full-goodwill)………………………………….. P 101,370
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XXVIII
1. AA 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 non-controlling 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.
Multiple Choice Problems

1. 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
2. b – P500,000 + P3,461
3. b
4. d – equivalent to consideration transferred, P320,000
5. d – equivalent to consideration transferred, P380,000
6. a
20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
7. d – P45,000/15% = P300,000
8. No answer available
Pigeon’s separate income P150,000
Less: 60% of Home’s P10,000 loss = 6,000
Less: Equipment depreciation
P10,000/ 10 years = __1,000
Controlling Interest in Consolidated Net Income P143,000
Add: NCI in CNI
NL of S Company P( 10,000)
Less: Amortization of allocated excess (P1,000/60%) 1,667
P (11,667)
Multiplied by: NCI% 40% ( 4,667)
Consolidated Net Income P138,333
9. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
Less: Amortization of allocated excess 45,000
P195,000
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
10. c
P Company P 375,000
S Company 30,000
Total P405,000

Less: Amortization of allocated excess** 3,750
P26,250
**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.
11. a
*Non-controlling Interest in Net Income (NCINI) for Year 3
P487,500
Non-controlling Interest in Net Income (NCINI) for Year 3 P146,250
12. c
P Company P 625,000
S Company 50,000
Total P675,000

Less: Amortization of allocated excess** 6,250
P43,750
**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.
13. 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
14. c
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
15. a
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
16. b Combined revenues .................................................................................................. P1,100,000

Combined expenses .................................................................................................. (700,000)
Excess acquisition-date fair value amortization ................................................... (15,000)
Consolidated net income......................................................................................... P385,000
Less: noncontrolling interest (P85,000 × 40%) ......................................................... (34,000)
Consolidated net income to controlling interest ................................................. P351,000
17. c HH expense .................................................................................................................. P621,000

NN expenses ................................................................................................................ 714,000
Excess fair value amortization (70,000 ÷ 10 yrs) ..................................................... 7,000
Consolidated expenses ............................................................................................. P1,342,000
18. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the
same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe…………………………………… P 300,000
Subsidiary - George (P500,000 – P400,000)…….. 100,000
P 400,000
Less: Amortization of allocated excess…………………… 6,000
Impairment of goodwill (if any)……………………. 0
Consolidated/Group Net Income…………………………. P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................ P 7,500
4/1/20y0 – 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................ 15,000
Total…………………………………………….. P 22,500
Less: Amortization of allocated excess:
1/1/20y0 – 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%.......... 450
4/1/20y0 – 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%........... 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%.......………… 0
Remaining 9 months: P 0 x 20%............... 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent…………………. P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
19. c - 20x4 = P86,400

Consolidated Net Income 20x4 20x5
Peters Company's reported net income 64,000 37,500
Less: dividend income from Smith (1,600) 0
Peters' income from independent operations 62,400 37,500
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000) 24,000
Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 (4,000)
Controlling Interest in Consolidated net income 86,400 33,500
20. c - 20x5 = P33,500 – refer to No. 19
21. b - 20x4 = P151,400
Consolidated Retained Earnings 20x4 20x5
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000)) 22,400
(.80  (P48,000 – P25,000) 18,400
P151,400 P179,900
22. c - 20x5 = P179,900 – refer to No. 21
23. d
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.
24. d – refer to No. 23 for further discussion.

25. b – refer to No. 23 for further discussion.
26. a – P40,000 x 80%
27. b – P50,000 x 80%
28. a – P60,000 x 80%
29. 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:
Less: Amortization of allocated excess*……………. 7,000
P 93,000
Non-controlling interest in Net Income…………………. P 18,600
30. c
Impairment of full-goodwill (if any)**……… 0
P113,000

Total amortization………………………. P 7,000
interests

P113,000
31. a
Impairment of full-goodwill (if any)**……… 0
P123,000

Total amortization………………………. P 7,000
interests

P123,000
32. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4……………………………… P 300,000
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 non-
controlling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
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%........………………………….. P 625,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary)…………................................... 500,000
Allocated Excess.…………………………………………. P 125,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 55,000
33. e
Common stock, 12/31/20x5……………………………… P 300,000
Retained earnings, 1/1/20x5 (refer to No. 32)…… P260,000
Add: Net income, 20x5………………………………. 120,000
Less: Dividends paid, 20x5…………………………… 50,000 330,000
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Multiplied by: Non-controlling Interest %.............................. 20%
(P55,00,000 x 20%)*……………………………… 11,000
34. e
Common stock, 12/31/20x6……………………………… P 300,000
Retained earnings, 1/1/20x6………………………….P330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6………………………….. 60,000 400,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000
Multiplied by: Non-controlling Interest %............................ 20%
(P55,00,000 x 20%)*……………………………… 11,000
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
35. d – Economic Unit or Entity Concept (as required by PFRS 10)

P Company P 500,000
S Company 100,000
Total P600,000
Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000
Add: NCINI __20,000
CNI - entity concept P600,000

Less: Amortization of allocated excess _______0
P100,000
36. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10)
P Company P 500,000
S Company 100,000
Total P600,000
CNI - entity concept P580,000

Less: Amortization of allocated excess _______0
P100,000
37. Podex’s separate earnings for 20x6 ............................................................ P2,000,000

Dividend income from Sodex ................................................................ __120,000
Podex’s 20x6 net income ................................................................... P2,120,000
38. P2,260,000
Podex’s separate earnings for 20X6 P2,000,000
Podex’s equity in net income of Sodex ............................................... 300,000
Less: Amortization of cost in excess of book value ........................... (40,000)
Podex’s 20x6 net income ................................................................... P2,260,000
39. b
40. b
Net Income from own operations: 20x4 20x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P125,000 P135,000
Subsidiary’s 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 20x5

Subsidiary’s:
Net income from own operations………….......P 25,000 P 35,000
Other Comprehensive Income (P30,000 –
P25,000)…………………………….…………... 5,000 10,000
Subsidiary’s Comprehensive Income…………........P 30,000 P45,000
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 Income...P 4,750 P 7,750

Increase in other intangibles: P50,000 / 8 years = P 6,250
41. c – refer to No. 40

43. b- refer to No. 40
44. d
Inventory – not yet sold in 20x4 P 0
Building: (P390,000 – P200,000)/ 10 years 19,000
Equipment (P280,000 – P350,000)/ 5 years ( 14,000)
P 5,000
45. c
Plochman’s acquisition entry is:
Investment in Shure……………………………………………………………40,000,000
Retained earnings (acquisition-related expense – close to
retained since only balance sheet accounts are being
examined)…………………………………………………………………… 1,000,000
Common stock, 1,000,000 x P1 par……………………………… 1,000,000
PIC in excess of par [(1,000,000 x P39) – P800,000)…………… 32,000,000
Cash (P800,000 + P1,000,000)…………………………………….. 1,800,000
Eliminating entries are:

Book value of stockholders’ equity:
Stockholders’ equity-Shure………………………………………………… 6,000,000
Investment in Shure………………………………………………… 6,000,000
Allocated excess (acquisition/purchase differential):
Identifiable assets……………………………………………………………. 7,000,000
Long-term debt………………………………………………………………. 500,000
Goodwill………………………………………………………………………..28,500,000
Lawsuit liability………………………………………………………. 2,000,000
Investment in Shure………………………………………………… 34,000,000
46. d –refer to No. 45

47. a
48. a
Cost of Goods Sold P80,000 debit
Depreciation Expense (P192,000/120) 7 = P11,200 debit
49. c
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
50. a [(P250,000 - P180,000)/10]7
51. c
[(P380,000 - P260,000)/120]88
52. a
53. c
P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
54. b
[P320,000 - (P300,000 - P170,000)]/10
55. d
56. d
P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
57. a
[P405,000 - (P450,000 - P105,000)]/20
58. d - The acquisition method consolidates assets at fair value at acquisition date regardless of
the parent’s percentage ownership.
59. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
60. b
P: BV,12/31/20x5 P 975,000
S:
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 129,000 6,000
P1,104,000
61. 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 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 20x5 ...................................................... P36,000
62. b
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
63. d – same with No. 62
64. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
65. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
66. d – 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
P300,000
67. c
P Company P30,200 – (P150,0000 – P20,000 – P60,000) P 70,000
S Company (P100,000 – P15,000 – P45,000) 40,000
Total P110,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment ____0 ____0
Add: Non-controlling Interest in Net Income (NCINI) _____0
68. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300,000
Shipping: P75,000 + P150,000………………………………………………………………. 225,000
P 525,000
69.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoiidated retained earnings since it is the date of acdquisition) P 150,000
Add: CI – CNI (refer to No. 71) 110,000
Less: CI – Dividends (Dividend of parent only) 25,000
Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000
70. d
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P 190,000
71. d
Total assets (No. 72) P525,000
Les: Liabilities (No. 74) 190,000
Stockholders’ equity P335,000
72. b
Decrease in Buildings account:
Fair value…………………………………………… P 8,000
Book value………………………………………….. __10,000
Decrease……………………………………………. P 2,000
73. d
Decrease in buildings account (refer to No. 73)………… P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts…………………………….. P 1,800
74. d
Decrease in buildings account (refer to No. 74)………… P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts…………………………….. P 1,600
75. a
Increase in Equipment account:
Fair value…………………………………………… P 14,000
Book value………………………………………….. __18,000
Increase……………………………………………. P 4,000
76. a
Increase in equipment account (refer to No. 76)………… P 4,000
Less: Decrease due to depreciation (P4,000/4)…………… 1,000
Increase in equipment accounts…………………………….. P 3,000
77. a
Increase in equipment account (refer to No. 77)………… P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts…………………………….. P 2,000
78. a
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
79. b – refer to No. 78, no depreciation/amortization

80. b – refer to No. 78, no depreciation/amortization
81. e
Increase in Patent account:
Fair value…………………………………………… P 11,000
Book value………………………………………….. _ 0
Increase……………………………………………. 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.
82. e
Increase in patent account (refer to No. 85)……………… P 11,000
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 8,800
83. d
Increase in patent account (refer to No. 86)……………… P 8,800
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 6,600
84. 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. (P17,100–P16,100) x 90% P 900
Increase in Eqpt. (P48,000–P40,000) x 90% 7,200
Increase in Patents (P13,000–P10,000) 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
85. c
Common stock – S P 50,000
APIC – S 15,000
RE – S 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
86. a – P48,000, parent only.
87. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the
consolidated retained earnings.
88. No requirement.
89. b – P120,600, the initial value
90. b – P4,000 x 90% = P3,600
91. c
P Company P30,200 – (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Add: Non-controlling Interest in Net Income (NCINI) 610
Amortization of allocated excess – 20x4 ( 3,300)
P 6,100
P 610
Less: Non-controlling interest on impairment loss on full-goodwill ____0
Non-controlling Interest in Net Income (NCINI) P 610
92. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31 15,000
Retained earnings - S, 12/31:
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 P 111,400
Add: Adjustments to reflect fair value, 1/1 12,000
Less: Amortization of allocated excess (1 yr.) 3,300
Fair Value of Net Assets/SHE - S, 12/31 P 120,100
x: Noncontrolling Interest % 10%
Noncontrolling Interest (in net assets), 12/31 P 12,010
93. b – refer to 91 for computation
94. c – refer to 91 for computation
95. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102 P 48,000
Add: CI – CNI (refer to 106 and 109) 32,090
Less: CI – Dividends (Dividend of parent only) 15,000
Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090
96. b – same with No. 95
97. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000
APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600
RE – P (refer to No. 105) 65,090
Parent’s Stockholders Equity or Controlling Interest – Equity P300,690
Noncontrolling Interest 12,010
Consolidated Equity P312,700
98. c P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
99. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]
100. b Combined revenues .................................................................................................. P1,300,000

Combined expenses .................................................................................................. (800,000)
Trademark amortization ............................................................................................ (6,000)
Patented technology amortization ........................................................................ (8,000)
Consolidated net income......................................................................................... P486,000
101. No answer available

NCI-CNI - P34,400; NCI – P280,800
Subsidiary income (P100,000 – P14,000 excess amortizations) .......................... P86,000
Non-controlling interest percentage ...................................................................... __40%
Non-controlling interest in subsidiary income ....................................................... P34,400
Fair value of non-controlling interest at acquisition date ................................... P200,000

40% change in Scott book value since acquisition ............................................. 52,000
Excess fair value amortization (P14,000 × 40%) ..................................................... (5,600)
40% current year income .......................................................................................... __34,400
Non-controlling interest at end of year .................................................................. P280,800
102. a MM trademark balance............................................................................................ P260,000

SS trademark balance .............................................................................................. 200,000
Excess fair value .......................................................................................................... 60,000
Two years amortization (10-year life) ...................................................................... (12,000)
Consolidated trademarks ......................................................................................... P508,000
103. a Fair value of non-controlling interest on April 1 .................................................... P165,000

30% of net income for 9 months (¾ year × P240,000 × 30%) .............................. 54,000
Non-controlling interest December 31 ................................................................... P219,000
104. c
Add: Net income of S – 20x4 ___150,000
Total P1,150,000
Less: Dividends paid – 20x4 ____90,000
Stockholders’ equity – S Company, December 31, Year 2 P1,060,000
liabilities, date of acquisition January 1, 20x4 200,000
Amortization of allocated excess (refer to amortization above: P200,000/10 _( 20,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P1,240,000
Multiplied by: Non-controlling Interest percentage…………... 30%
Non-controlling interest (partial) P 372,000
Add: NCI on full-goodwill P85,714 – P60,000) ___25,714
Non-controlling interest (full) 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.
105. b – (P50,000 + P70,000) x 25% = P30,000
106. b – P only.
107. b
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
108. d
{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
109. a - P650,000 =P500,000 + P200,000 - P50,000
110. a – assume the use of equity method
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value ........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
e - If cost model/cost method, the answer would be P100,000.
Dividend income……………………………………………………………. P 100,000
111. c – P60,000 x 80% = P48,000

112. c
Investment.1/1/20x4 P105,000
Add: Share in net income – 20x4 (P45,000 x 80%) 36,000
Less: Dividends received 12,000
Investment, 12/31/20x4 P129,000
Add: Share in net income – 20x5 (P60,000 x 80%) 48,000
Less: Dividends received 18,000
Investment, 12/31/20x5 P159,000
113. d
Investment balance, 1/1/20x4……………………………………………….. P 150,000
Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500
Less: Dividends (P30% x P10,000)……………………………………………. 3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Puma’s 20x6 net income (equity method) ............................................... P 153,000
114. b
Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Investment income – 20x4 (equity method)………………………………. P 6,000
115. b
Full—goodwill Aproach
Common stock (P100,000 x 100%)………………. P 100,000
Increase in land (P5,000 x 100%)……………………. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
fair value)………………………………………………... P 25,000
Partial-Goodwill Approach
Common stock (P100,000 x 90%)……………………. P 90,000
Increase in land (P5,000 x 90%)……………………. P 4,500
Increase in equipment (P10,000 x 90%) ___9,000 13,500
Positive excess: partial-goodwill (excess of cost over
fair value)………………………………………………... P 22,500

Account Adjustments to be amortized Over/ Life Annual Current
under Amount Year(20x4)
Equipment (net)......... 10,000 5 P 2,000 P 2,000
Patent 25,000 5 5,000 5,000
P 7,000 P 7,000
116. d
Investment in Wisden
1/1/x4. 180,000 18,000 Dividends – S
(20,000 x 90%)
NI of S
(60,000 Amortization
x 90%)……. 54,000 12,600 (P14,000 x 90%)
1/1/x6 203,400
117. c
Investment in Wisden
1/1/x6. 230,400 9,000 Dividends – S
(10,000 x 90%)
NI of S
(30,000 Amortization
x 90%)……. 27,000 6,300 (7,000 x 90%)
1/1/x6 215,100
118. d – 20x3: P30,000 x 75% = P22,500

20x4: P40,000 x 75% = P30,000
119. a – no changes in investment unless there are dispositions of investment and permanent
impairment.
120. None – no answer available. Under the cost model share in net income or earnings of
subsidiary does not affect investment.
121. d
Investment account, December 31, 20x7:
Original investment …………………………………………P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000…………… 166,000
Less: Dividends received: 100% x P114,000……………… 114,000
Balance, December 31, 20x7…………………………….. P602,000
122. a
The adjusting entry required in 20x7 to convert from the cost to the equity method is:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny……. 110,000
123. b
124. b – Dividend paid – S, P70,000 x 60% = P42,000
125. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000

P Company P190,000
S Company 90,000
Total P280,000

Amortization of allocated excess – 20x4 ( 15,000_
P 75,000
P 30,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ______0
P 30,000
20x5 results of operations are as follows:

Peer Sea-Breeze
Sales P 600,000 P 300,000
Less: Cost of goods sold Operating expenses 410,000 210,000
Net income P 235,000 P 90,000
Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) __550,000
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0
Amortization of Allocated Excess

Book Value Fair Value Over/under Amort.
Buildings (net)- 6 300,000 360,000 P 60,000 P 10,000
Equipment (net)– 4 300,000 280,000 (20,000) (5,000)
Patent -10 -0- 100,000 100,000 10,000
Net P 140,000 P 15,000
126. c – refer to No. 125 for computations

127. b – refer to No. 125 for computations
128. c - P811,000.
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:/Parent’s
share in adjusted net increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 300,000
Less: Retained earnings – Subsidiary, January 1, 20x2 70,000
Less: Amortization of allocated excess – 20x2 – 20x4
(P15,000 x 3 years) 45,000
P 185,000
P 111,000
Less: Goodwill impairment loss (full-goodwill), 0 111,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary, the following rule should always be
applied –
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parent’s portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.
129. c - P811,000 – refer to note (b) of No. 128

130. b – P111,000 – refer to No. 128
131. d
Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 118 and 119) P 811,000
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5 235,000
Total P1,046,000
Less: Dividends paid – Parent Company for 20x5 92,000
Consolidated Retained Earnings, December 31, 20x5 P 954,000
132. d – refer to No.131
133. 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, January 1, 2015 P300,000
Add: Net income of subsidiary for 2015 90,000
Less: Dividends paid – Subsidiary - 2015 70,000 320,000
Stockholders’ equity – Subsidiary Company, December 31, 2015 P 800,000
Adjustments to reflect fair value - (over) undervaluation
of assets and liabilities, date of acquisition (January 1, 2012) 140,000
Amortization of allocated excess (refer to amortization above) –
(P15,000 x 4) ( 60,000)
Fair value of stockholders’ equity of subsidiary, 12/31/ 2015 P 880,000
Multiplied by: Non-controlling Interest percentage. 40
Non-controlling interest (partial) P 352,000
Add: NCI on full-goodwill……………………. ____0
Non-controlling interest (full) P 352,000
134. c
Common stock - Peer P 724,000
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 1,678,000
Non-controlling interest** 352,000
Total Stockholders’ Equity (Total Equity) P 985,500
Total Liabilities and Stockholders’ Equity P2,030,000
135. c
Investment in Sea-Breeze Investment Income
1/1/x2. 414,000 42,000 Dividends – S NI of S
Retro 111,000 (70,000 x 60%
NI of S
x 60%)……. 54,000 9,000 (P15,000 x 60%) (P15,000 x 60%) 9,000 54,000 x 60%)
12/31/x5 528,000 45,000
136. c
137. d – refer to No. 125
139. b – refer to No. 125
142. a – not applicable under equity method.
147. b
Consideration transferred: 10,500 shares x P95 P997,500
Less: BV of SHE – S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
148. a – P900,000 + P500,000 = P1,400,000
149. 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
Buildings: (P30,000) / 20 (P1,500)
Equipment; P80,000 / 10 8,000
Trademark: P50,000 / 16 3,125 9,625
Total expenses P909,625
150. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
151. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
152. c – P450,000 + P180,000 + P40,000 = P670,000
153. d – P50,000 – P3,125 x 5 years) = P34,375
154. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
155. a – P only
156. a
Consolidated Retained earnings, January 1, 20x4 (equity method) P 1,350,000
Total P1,840,375
Consolidated Retained Earnings, December 31, 20x4 (under equity method) P1,645,375
Net Income from own operations: P Co S Co

Sales P900,000 P500,000
Less: cost of goods sold 360,000 200,000
Gross profit P540,000 P300,000
Other expenses 100,000 60,000
Net income P300,000 P200,000

P Company P300,000
S Company 200,000
Total P500,000
Less: Non-controlling Interest in Net Income P 0
157. c
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
P190,375
158. c – P3,1250 / .20 = P15,750
159. a
Punn’s separate earnings for 20x6.............................................................. P 6,000,000
Add: Punn’s equity in net income of Sunn (3 months ended,12/31/x6) 200,000
Less: Amortization of cost in excess of book value ................................. ( 60,000)
Punn’s 20x6 net income (equity method) ................................................. P 6,140,000
160. a – assume the use of equity method
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value ........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
E - If cost model/cost method, the answer would be P100,000.

Dividend income……………………………………………………………. P 100,000
161. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
162. b
Retained earnings – S Company, 1/1/20x4 P 60,000
Less: Retained earnings – S Company, 12/31/20x6 190,000
should always be beginning of the year, not 12/31/x6) P130,000
P117,000
163. (b)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………….. . 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity – should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings………………………………………………………………………………………...P 22,000
x: Controlling interests………………………………………………………………………………………… 70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to
established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for
amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 2017 not
December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at the
beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary………………………………………………………………… 15,400
Retained earning – Parent Company, 1/1/2017………………………………. 15,400
164. (a)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000
Increase in Retained earnings for 2 years……………………………………………………………… P 22,000
Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]……………… 4,000
P 18,000
x: Controlling interests………………………………………………………………………………………. 70%
Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600
165. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
166. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
167. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
168. b – building account in the books of subsidiary at fair value
169. e – building account in the books of subsidiary at book value
170. d – push-down accounting: equipment account in the books of subsidiary is at fair value
171. b
172. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)
173. c – equivalent to the original cost
174. 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.
175. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Quiz - XVI
1. b
{P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.8
2. P36,925
{P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] + [(P215,000 -
P200,000)/5] (3/12)}.7
3. P545,500
P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7
4. P388,000
P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8
5. P15,400
{P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2
6. P13,200
{P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] - [(P520,000 -
P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3
7. P70,500
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
8. 20x5: P56,000
20x6: P14,000
Purchase differential amortization to investment income 20x5 20x6
Inventory (P300,000 - P240,000).7 P42,000 P 0
Plant Assets [(P700,000 - P560,000)/7].7 14,000 14,000
P56,000 P14,000
9.
Consolidation worksheet:
Cost of Goods Sold P60,000
10. P2,900
Sandpiper’s share of Shore net income (P18,000 x 30%) P 5,400
Add: Overvalued accounts receivable collected in 20x5 600
Undervalued accounts payable paid in 20x5 300
Less: Undervalued inventories sold in 20x5 ( 2,400)
Depreciation on building undervaluation P3,600/6 ( 600)
Amortization on patent P3,200/8 years ( 400)
Income from Shore/Income from subsidiary 2,900
11. P1,050,000
Parrco’s income from its own separate operations for 20x6 P 900,000
Subbco’s net income for the nine months ended 12/31/x6 200,000
Less: Amortization of cost in excess of book value (P30,000 ÷ 60%) ___50,000)
Consolidated net income for 20x6 (economic unit concept) P1,050,000
Division of consolidated net income:
To controlling interest (Parrco’s stockholders) P 990,000
To non-controlling interest (stockholders of Subbco) ___60,000
P1,050,000
12. P990,000
Parrco’s income from its own separate operations for 20x6 P 900,000
Parrco’s equity in net income of Subbco Company for
nine months ended 12/31/x6 (P200,000  60%) 120,000
Less: Parrco’s amortization of cost in excess of book value ( 30,000)
Consolidated net income for 20x6 (parent company concept) P 990,000
13. P400,000 (P100,000 + P300,000)
14. P3,600,000
Plyco’s separate earnings for 20x6 P 3,500,000
Add:Dividend income from Slyco .............................................................. 100,000
Plyco’s 20x6 net income P 3,600,000
15. P3,867,000
Plyco’s separate earnings for 20x6 ............................................................ P3,500,000
Add:Plyco’s equity in net income of Slyco ............................................... 400,000
Less: Amortization of cost in excess of book value ................................. ( 33,000)
Plyco’s 20x6 net income ............................................................................... P3,867,000
16. P3,867,000 (same amount as calculated in Requirement 16).
17. P52,000
Net income of S (5/1/x5 – 12/31/x5): P210,000 x 8/12 P140,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 75,000
not or 1/1/20x6) P 65,000
P 52,000
18. P12,600
[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7 = P12,600
19. 20x4 = P86,400

Consolidated Net Income 20x4 20x5
Peters Company's reported net income 64,000 37,500
Less: dividend income from Smith (1,600) 0
Peters' income from independent operations 62,400 37,500
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000) 24,000
Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 (4,000)
Controlling Interest in Consolidated net income 86,400 33,500
20. 20x5 = P33,500 – refer to No. 19
21. 20x4 = P151,400
Consolidated Retained Earnings 20x4 20x5
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000)) 22,400
(.80  (P48,000 – P25,000) 18,400
P151,400 P179,900
22. 20x5 = P179,900 – refer to No. 21
19. P9,200
Pinta Company 20y4 equity-method income:
Proportionate share of reported income (P30,000 x .40) P 12,000
Amortization of differential assigned to:
Buildings and equipment [(P35,000 x .40) / 5 years] ( 2,800)
Goodwill (P8,000: not impaired) -0-
Investment Income P 9,200
Assignment of differential
Purchase price P150,000
Proportionate share of book value of
net assets (P320,000 x .40) (128,000)
Proportionate share of fair value increase in
buildings and equipment (P35,000 x .40) (14,000)
Goodwill P 8,000
20. P3,600 - Dividend income, 20y4 (P9,000 x .40) P 3,600
21. Cost-method account balance (unchanged): P150,000

Equity-method account balance:
Balance, January 1, 20y4 P150,000
Investment income 9,200
Dividends received (3,600)
Balance, December 31, 20y4 P155,600
Theories
1. c 6. b 11. C** 16. c 21. d 26. c 31 c 36. d 41. a
2. d 7. c 12. b 17. c 22. a 27. d 32. b 37. b 42. c
3. d 8. d 13. d 18. d 23. b 28. c 33. c 38. b 43. a
4. d* 9. d 14. c 19. d 24. c 29. c 34. c 39. c 44.
5. d 10, a 15, c 20. b 25. c 30. b 35. d 40. d 45.
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.

Chapter 16 Advanced Accounting Solution Manual

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Chapter 16 Advanced Accounting Solution Manual

Загружено:

Авторское право:

Доступные форматы

Chapter 16

*Net income of subsidiary – 20x4 P 40,000

2. P5,775 – refer to computation in No. 1

Problem II - Cost Model/Method versus Equity Method

For purposes of comparison between Cost Model/Method and Equity Method

Investment in Small 10,500

Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:

c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Or, alternatively: to compute CRE, 12/31/20x6

*Net income of subsidiary – 20x6 P 90,000

e. P21,175 – refer to (d) for computations

3. CRE, 12/31/20x6 – P73,150

4. NCI, 12/31/20x6: P110,850

5. Consolidated Patents, 12/31/20x6: P72,000

Implied value of 100% (628,150 / 85%) 739,000

Buildings ..................................................................................... 80,000

Buildings ..................................................................................... 80,000

4. Cost Model/Initial Value Method

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

7. Acquisition-date fair value allocated to goodwill:

b. Common stock – S 3,000,000

Full Goodwill or Fair Value Basis

b. Common stock – S 3,000,000

b. Depreciation Expense 90,000

b. Beginning Retained Earnings-S Company 1,300,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000

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

Cost Model-Partial Goodwill (Eliminating Entries)

b. Beginning Retained Earnings-S Company 1,300,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000

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

Net income of subsidiary…………………….. P 300,000

Net income of subsidiary…………………….. P 400,000

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

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

20x4 : First Year after Acquisition

January 1, 20x4 – December 31, 20x4:

(E2) Inventory…………………………………………………………………. 6,000

(E4) Dividend income - P………. 36,000

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

Income Statement P Co S Co. Dr. Cr. Consolidated

Statement of Retained Earnings

20x5: Second Year after Acquisition

Consolidation Workpaper – Second Year after Acquisition

Retained earnings – S Company, 1/1/20x5 P144,000

(E2) Common stock – S Co………………………………………… 240,000

(E3) Inventory…………………………………………………………………. 6,000

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

(E5) Dividend income - P………. 48,000

(E6) Non-controlling interest in Net Income of Subsidiary………… 16,560

Net income of subsidiary…………………….. P 90,000

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

Statement of Retained Earnings

b. NCI – not applicable, since it is 100% owned subsidiary

b. NCINI – not applicable, since it is 100% owned subsidiary

e. NCI – not applicable, since it is 100% owned subsidiary

b. NCINI – not applicable, since it is 100% owned subsidiary

c. P274,800 – same with NCI-CNI since there is no NCI.

Problem IX – 80% Partial Goodwill - Cost Model

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

A summary or depreciation and amortization adjustments is as follows:

Fair value of Subsidiary (100%)

20x4: First Year after Acquisition