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Chapter 17

Problem I
1.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales) (_50,000)
P Companys realized net income from separate operations*... P 746,000
S Companys net income from own operations. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P1,206,000
Less: Non-controlling Interest in Net Income* * 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P
1,114,000
*that has been realized in transactions with third parties.
Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit
Ending inventory: P1,200,000 x = P300,000 x 20/120 = P50,000 profit

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales) (_50,000)
P Companys realized net income from separate operations*... P 746,000
S Companys net income from own operations. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess 0 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P
1,206,000
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations P460,000
Less: Amortization of allocated excess _____0
P460,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 92,000

2. Books of Puma
(a) Cost Method
20x4
Dividend Smarte Company:
None, since, there is no amount given
20x5
Dividend Smarte Company:
None, since, there is no amount given

(b) Equity Method


20x4
Net income Smarte
Investment in Smarte (400,000 x 80%) 320,000
Equity in Subsidiary Income 320,000

Dividend Smarte
Cash/Dividends receivable 0
Investment in Smarte 0
Amortization of Allocated excess:
Equity in Subsidiary Income 0
Investment in Smarte 0

Realized Profit in BI:


Investment in Smarte 0
Equity in Subsidiary Income 0

Unrealized Profit in EI:


Equity in Subsidiary Income 36,000
Investment in Smarte 36,000
20x5
Net income Smarte
Investment in Smarte (460,000 x 80%) 368,000
Equity in Subsidiary Income 368,000

Dividend Smarte
Cash/Dividends receivable 0
Investment in Smarte 0

Amortization of Allocated excess:


Equity in Subsidiary Income 0
Investment in Smarte 0

Realized Profit in BI:


Investment in Smarte 36,000
Equity in Subsidiary Income 36,000

Unrealized Profit in EI:


Equity in Subsidiary Income 50,000 50,000
Investment in Smarte
3. Downstream Sales
20x4
Sales1,080,000
Purchases (Cost of Goods Sold)... 1,080,000

**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[216,000 (216,000/1.20)].... 36,000
Inventory (Ending Inventory in Balance Sheet).. 36,000

20x5
100% Interscompany Sales
Sales.1,200,000
Purchases (Cost of Goods Sold).. 1,200,000

Downstream Sales:
*100% RPBI of S:
Retained Earnings P, beginning..... 36,000
Cost of Sales (Beginning Inventory in Income Statement).. 36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 (300,000/1.20)].... 15,000
Inventory (Ending Inventory in Balance Sheet).. 15,000

Problem II
1.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P
1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 1,
720,000
S Companys net income from own operations. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,00 0)
Son Companys realized net income from separate operations*... P 589,000 589,000
Total P2,309,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P2,309,000
Less: Non-controlling Interest in Net Income* * 58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P
2,250,100
*that has been realized in transactions with third parties.
Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit
Ending inventory: P1,020,000 x = P255,000 x 25/125 = P51,000 profit

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P
1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (________0)
P Companys realized net income from separate operations*... P1,720,,00
0
S Companys net income from own operations. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
S Companys realized net income from separate operations*... P589,000 589,000
Total P2,309,000
Less: Non-controlling Interest in Net Income* * P 58,900
Amortization of allocated excess 0 __58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P2,250,100
Add: Non-controlling Interest in Net Income (NCINI) _ 58,900
Consolidated Net Income for 20x5 P
2,309,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Companys realized net income from separate operations P589,000
Less: Amortization of allocated excess _____0
P589,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 58,900

2. Books of Pinta
(a) Cost Method
20x4
Dividend Simplex Company:
None, since, there is no amount given
20x5
Dividend Simplex Company:
None, since, there is no amount given

(b) Equity Method


20x4
Net income Simplex
Investment in Simplex (600,000 x 90%) 540,000
Equity in Subsidiary Income 540,000

Dividend Simplex
Cash/Dividends receivable 0
Investment in Simplex 0

Amortization of Allocated excess:


Equity in Subsidiary Income 0
Investment in Simplex 0

Realized Profit in BI:


Investment in Simplex 0
Equity in Subsidiary Income 0

Unrealized Profit in EI:


Investment in Simplex (40,000 x 90%) 36,000
Equity in Subsidiary Income 36,000
20x5
Net income Simplex
Investment in Simplex (600,000 x 90%) 540,000
Equity in Subsidiary Income 540,000
Dividend Simplex
Cash/Dividends receivable 0
Investment in Simplex 0

Amortization of Allocated excess:


Equity in Subsidiary Income 0
Investment in Simplex 0

Realized Profit in BI:


Investment in Simplex (40,000 x 90%) 36,000
Equity in Subsidiary Income 36,000

Unrealized Profit in EI:


Investment in Simplex (51,000 x 90%) 45,900
Equity in Subsidiary Income 45,900
3. Upstream Sales:
100% Interscompany Sales
Sales1,020,000
Purchases (Cost of Sales). .
1,020,000
To eliminate intercompany sales.
***100% RPBI of P: (if equity method Investment in S instead of RE P, beg.)
Retained Earnings P, beginning (90% x P40,000).... 36,000
NCI .. 4,000
Cost of Sales (Beginning Inventory in Income Statement) 40,000
To recognize unrealized profit in beginning inventory realized during the year.
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)51,000
Inventory (Ending Inventory in Balance Sheet) 51,000
To eliminate unrealized intercompany profit in ending inventory.

Problem III
1.
Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P3,000,000
Realized profit in beginning inventory of P Company (upstream sales): P525,000 x 105,000
25/125
Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x ( 250,000)
25/125
Son Companys realized net income from separate operations P
2,855,000
Less: Amortization of allocated excess _____0
P3,055,00
0
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 571,000

2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of


parent 20x5 cannot be solved, since there is no net income from separate operations
for P Company.

Incidentally, the eliminating entries are as follows:


Sales 4,000,000
Cost of Goods Sold 4,000,000
Cost of Goods Sold 250,000
Ending Inventory (Balance Sheet) 250,000
[P1,250,000 - (P1,250,000/1.25)]
Retained Earnings, beginning P Company (80%) 84,000
Noncontrolling interest (20%) 21,000
Cost of Goods Sold (Beginning Inventory) 105,000
[P525,000 (P525,000/1.25)] = P105,000
3.
Stockholders equity Subsidiary Company, December 31, 20x4 P5,400,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) 20x4 ( 0)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P5,400,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 250,000
Realized stockholders equity of subsidiary, December 31, 20x4 P5,150,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (in net assets).. P1,030,000

Problem IV
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (80%)


Consideration
transferred.. P 372,000
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 80%)
. P 192,000
Retained earnings (P120,000 x 80%)
... 96,000 288,000
Allocated excess (excess of cost over book value)
.. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
P 4,800
Increase in land (P7,200 x 80%)
. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)
..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)
3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P 12,000

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


SCo. 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. SCo.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation.. 192,000 - ( 192,000)
Net book
value... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
(24,00
Buildings (net) 0) 4 ( 6,000) ( 6,000) (6,000)
4800 1,20 1,20
Bonds payable 0 4 0 1,200 0
P
13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
computed as follows:

Fair value of Subsidiary (100%)


Consideration transferred: Cash (80%) 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
Allocated excess (excess of cost over book value).. P 105,000
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

In this case, the goodwill was proportional to the controlling interest of 80% and non-
controlling interest of 20% computed as follows:

Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%

The goodwill impairment loss would be allocated as follows


Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI.. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales,
are as summarized below:

Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
4
20x 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
5

Upstream Sales:
Intercompany Merchandise
Year Sales of in 12/31 Inventory Unrealized Intercompany
Subsidiary to of S Company Profit in Ending Inventory
Parent
20x P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
4
20x 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
5

20x4: First Year after Acquisition


Parent Company Cost Model Entry

January 1, 20x4:
(1) Investment in S Company 372,000
372,000
Cash..
Acquisition of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash 28,800
Dividend income (P36,000 x 80%). 28,800
Record dividends from S Company.
No entries are made on the parents books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition
(E1) Common stock S Co 240,000
Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%) 72,000
..
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) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
7,200
Land.
Discount on bonds 4,800
payable.
Goodwill. 12,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
..
Investment in Son 84,000
Co.
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold. 6,000


Depreciation expense.. 6,000
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,000
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Ss identifiable assets and liabilities as follows:

Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,20
0

(E4) Dividend income - P. 28,800


Non-controlling interest (P36,000 x 20%).. 7,200
Dividends paid S 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E5) Sales. 150,000


Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.

(E6) Sales. 60,000


Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory Income Statement)
18,000
Inventory Balance Sheet 18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory Income Statement)


12,000
Inventory Balance Sheet 12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E9) Non-controlling interest in Net Income of 6,960


Subsidiary
Non-controlling interest .. 6,960
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:

Net income of subsidiary.. P 60,000


Unrealized profit in ending inventory of P
Company (upstream sales) ( 12,000)
..
S Companys realized net income from
separate operations*... P 48,000
Less: Amortization of allocated excess [(E3)] 13,200
.
P 34,800
Multiplied by: Non-controlling interest 20%
%..........
Non-controlling Interest in Net Income
(NCINI) P 6,960
partial goodwill

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


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)

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


(5) P 510,000
150,000
Sales P480,000 P240,000 (6)
60,000
(4) _________
Dividend income 28,800 - 36,000
Total Revenue P508,800 P240,000 P 510,000
(3) P 168,000
6,000 (5)
(7) 150,000
Cost of goods sold P204,000 P138,000 18,000 (6)
(8) 60,000
12,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 48,000 18,000 66,000
(3) 3,000
Goodwill impairment loss - - 3,000
Total Cost and Expenses P312,000 P180,000 P328,200
Net Income P196,800 P 60,000 P181,800
(9) ( 6,960)
NCI in Net Income - Subsidiary - - 6,960
Net Income to Retained Earnings P196,800 P 60,000 P174,840

Statement of Retained Earnings


Retained earnings, 1/1
P
P Company P360,000 360,000
(1)
S Company P120,000 120,000
Net income, from above 196,800 __60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
(4)
S Company - __36,000 36,000 _ ________
Retained earnings, 12/31 to Balance P484,800 P144,000 P
Sheet 462,840

Balance Sheet
P
Cash. 232,800 P 90,000 P 355,200
Accounts receivable.. 90,000 60,000 150,000
(3)
6,000
(2) (7)
Inventory. 120,000 90,000 6,000 18,000
(8)
12,000 180,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 12000 3,600
(2) (3)
Goodwill 12,000 3,000 9,000
Investment in S Co 372,000 (1) 288,000
(2) 84,000 -
P1,008,0
Total P1,984,800 00 P2,394,600

Accumulated depreciation (2) (3)


- equipment P 135,000 P 96,000 96,000 12,000 P147,000
(2)
192,000
Accumulated depreciation 405,000 288,000 (3)
- buildings 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
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 484,800 144,000 462,840
(1 )
72,000 (2)
Non-controlling interest (4) 7,200 18,000
______ (9)
_________ ___ __________ 6,960 ____89,760
P1,008,0 P P
Total P1,984,800 00 983,160 983,160 P2,394,600

Consolidated Net Income for 20x4


P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
P Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
Son Companys realized net income from separate operations*... P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 6,960
*that has been realized in transactions with third parties.

Since NCI share of goodwill is not recognized, no adjustment is required for the impairment
loss on goodwill and impairment losses are not shared with NCI.

20x5: Second Year after Acquisition


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.
20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
Cash 38,400
Dividend income (P48,000 x 80%). 38,400
Record dividends from S Company.

On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid 48,000
Cash 48,000
Dividends paid by S Co..

Consolidation Workpaper Second Year after Acquisition


(E1) Investment in S Company 19,200
Retained earnings P Company 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of
the
year, 1/1/20x5, computed as follows:

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


Retained earnings S Company, 1/1/20x4 120,000
Increase in retained earnings.. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200

(E2) Common stock S Co 240,000


Retained earnings S Co., 1/1/20x5 144.000
Investment in S Co (P384,000 x 80%) 307,200

Non-controlling interest (P384,000 x 20%) 76,800
..
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net
assets of
subsidiary) on January 1, 20x5.

(E3) 6,000
Inventory.
Accumulated depreciation equipment.. .... 96,000
Accumulated depreciation buildings.. ... 192,000
7,200
Land.
Discount on bonds 4,800
payable.
Goodwill. 12,000
216,000
Buildings...........................
Non-controlling interest (P90,000 x 18,000
20%)............................
Investment in S Co. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1, 20x5.

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


[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%). 2,640
Depreciation expense.. 6,000
Accumulated depreciation buildings.. 12,000
Interest expense 1,200
Inventory.. 6,000
Accumulated depreciation equipment.. 24,000
Discount on bonds payable 2,400
Goodwill 3,000
To provide for years 20x4 and 20x5 depreciation and
amortization on
differences between acquisition date fair value and book value
of
Ss identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Ps retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal
accounts.

(20x4) Depreciation/
Retaine Amortization Amortizatio
d expense n
earnings -Interest
,
Inventory sold P
6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,20 ________ P 1,200
0
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P
10,560
Impairment loss 3,00
0
Total P
13,560

(E5) Dividend income - P. 38,400


Non-controlling interest (P48,000 x 20%).. 9,600
Dividends paid S 48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E6) Sales. 120,000


Cost of Goods Sold (or Purchases) 120,000
To eliminated intercompany downstream sales.

(E7) Sales. 75,000


Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.

(E8) Beginning Retained Earnings P Company 18,000


Cost of Goods Sold (Ending Inventory Income
Statement) 18,000
To realized profit in downstream beginning inventory deferred in
the
prior period.

(E9) Beginning Retained Earnings P Company (P12,000 x 80%) 9,600


Noncontrolling interest (P12,000 x 20%) 2,400
Cost of Goods Sold (Ending Inventory Income
Statement) 12,000
To realized profit in beginning inventory deferred in the prior
period.

(E10) Cost of Goods Sold (Ending Inventory Income


Statement) 24,000
Inventory Balance Sheet 24,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory Income


Statement) 6,000
Inventory Balance Sheet 6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E12) Non-controlling interest in Net Income of 17,760
Subsidiary
Non-controlling interest .. 17,760
To establish non-controlling interest in subsidiarys adjusted net
income for 20x5 as follows:

Realized profit in beginning inventory of P


Company - 20x5 (upstream sales) 12,000
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales) ( 6,000)
S Companys Realized net income* P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest 20%
%..........
Non-controlling Interest in Net Income
(NCINI ) P 17,760
partial goodwill
*from separate transactions that has been realized in transactions
with third persons.

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


Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)

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


(6) P 705,000
120,000
Sales P540,000 P360,000 (7)
75,000
(5) ___________
Dividend income 38,400 - 38,400
Total Revenue P578,400 P360,000 P 705,000
(6)
120,000 213,000
(7)
75,000
Cost of goods sold P216,000 P192,000 (10) 24,000 (8)
(11) 6,000 18,000
(9)
12,000
(4) 90,000
Depreciation expense 60,000 24,000 6,000
(4) 1,200
Interest expense - - 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200
P P 274,800
Net Income P230,400 90,000
(12) ( 17,760)
NCI in Net Income - Subsidiary - - 17,760
P P 257,040
Net Income to Retained Earnings P230,400 90,000

Statement of Retained Earnings


Retained earnings, 1/1
(2) 13,56
0
(8)
P Company P484,800 18,000
(9)
9,600 (1) 19,200 P 462,840
(2)
P 144,00
S Company 144,000 0
Net income, from above 230,400 90,000 257,040
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
(5)
S Company - 48,000 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P643,200 P186,000 P 647,880

Balance Sheet
P P
Cash. 265,200 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
(3)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
(3)
Discount on bonds payable 4,800 (4) 2,400 2,400
(3)
Goodwill 12,000 (4) 3,000 9,000
Investment in S Co 372,000 (1)
19,200 (2) 307,200
(3) 84,000 -
P1,074,0
Total P2,203,200 00 P2,677,800

Accumulated depreciation P (3) (4)


- equipment P 150,000 102,000 96,000 24,000 P180,000
(3)
192,000
Accumulated depreciation 450,000 306,000 (4)
- buildings 12,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
(2)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 643,200 186,000 647,880
(4)
2,640
(5)
Non-controlling interest 9,600 (2 )
(9) 76,800 (3)
___ ______ 2,400 18,000
_____ ___ __________ (12) 17,760 ____97,920
P1,074,0 P1,077,36 P1,077,36
Total 2,203,200 00 0 0 P2,677,800

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

Consolidated Retained Earnings, January 1, 20x4


Retained earnings P Company, January 1, 20x4 (date of acquisition) P360,000

b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company. 120,000
Stockholders equity Subsidiary Company... P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders equity of subsidiary, January 1, 20x4 P 450,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial) P 90,000

c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents 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 parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.

12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
P Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations*... P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.

b. NCI-CNI P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 6,960
*that has been realized in transactions with third parties.

c. CNI, P181,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed


as follows:

Consolidated Retained Earnings, December 31, 20x4


Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840
Total P534,840
Less: Dividends paid P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840

e. The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share
is not recognized. The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4 P 240,000
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Less: Dividends paid 20x4 36,000 144,000
Stockholders equity Subsidiary Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) 20x4 ( 13,200)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P460,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders equity of subsidiary, December 31, 20x4 P448,800
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial-goodwill).. P 89,760
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
Consolidated SHE, 12/31/20x4 P1,152,600
12/31/20x5:

a. CI-CNI
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
Son Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Amortization of allocated excess 7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P257,040
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable toequity
holders of parent.. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.

b. NCI-CNI
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 17,760

c. CNI, P274,800 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inventory of 18,000
S Company (downstream sales) 20x5 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties.. P466,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted
net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess 20x4 13,200
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning 12,000
inventory of P Company (upstream sales) 20x5 (RPBI of P -
20x5)
(P 1,200)
Multiplied by: Controlling interests %................... 80%
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840
Add: Controlling Interest in Consolidated Net Income or Profit
attributable to 257,040
equity holders of parent for 20x5
Total P748,680
Less: Dividends paid Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125
by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
20x5 (UPEI of S 20x5) or Realized profit in beginning inventory of 24,000
S Company (downstream sales) 20x6 (RPBI of S - 20x6).
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties.. P619,200
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted
net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5 P 186,000
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000) 20,400
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning 6,000
inventory of P Company (upstream sales) 20x6 (RPBI of P -
20x6)
P 39,600
Multiplied by: Controlling interests %................... 80%
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880

e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock Subsidiary Company, December 31, 20x5 P 240,000
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid 20x5 48,000 186,000
Stockholders equity Subsidiary Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P
13,200
20x5 7,200 ( 20,400)
Fair value of stockholders equity of subsidiary, December 31, 20x5 P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning
inventory 6,000
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
Realized stockholders equity of subsidiary, December 31, 20x5. P489,600
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting
to P10,000 is already included in the beginning retained earnings of S Company.

f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Consolidated SHE, 12/31/20x4 P1,345,800

Problem V
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%).. 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
Retained earnings (P120,000 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 (P6,000 x 100%)
P 6,000
Increase in land (P7,200 x 100%)
. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)
..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)
4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)... P 15,000

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be Over/ Annual Current
amortized under Life Amount Year(20x4) 20x5
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
(24,00
Buildings (net) 0) 4 ( 6,000) ( 6,000) (6,000)
4,80 1,20 1,20
Bonds payable 0 4 0 1,200 0
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 372,000
372,000
Cash..
Acquisition of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash 28,800
Dividend income (P36,000 x 80%). 28,800
Record dividends from Son Company.

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

Dividends paid 36,000


Cash. 36,000
Dividends paid by SCo..

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

Consolidation Workpaper First Year after Acquisition

(E1) Common stock S Co 240,000


Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%) 72,000
..
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) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
7,200
Land.
Discount on bonds 4,800
payable.
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full 21,000
P12,000, partial goodwill)]
Investment in Son 84,000
Co.
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold. 6,000


Depreciation expense.. 6,000
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,750
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill 3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Ss identifiable assets and liabilities as follows:

Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n
-Interest
Inventory sold P
6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

(E4) Dividend income - P. 28,800


Non-controlling interest (P36,000 x 20%).. 7,200
Dividends paid S 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E5) Sales. 150,000


Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.

(E6) Sales. 60,000


Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory Income Statement)


18,000
Inventory Balance Sheet 18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory Income Statement)


12,000
Inventory Balance Sheet 12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E9) Non-controlling interest in Net Income of 6,210


Subsidiary
Non-controlling interest .. 6,210
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:

Net income of subsidiary.. P 60,000


Unrealized profit in ending inventory of P
Company (upstream sales) ( 12,000)
..
S Companys realized net income from
separate operations*... P 48,000
Less: Amortization of allocated excess [(E3)] 13,200
.
P 34,800
Multiplied by: Non-controlling interest 20%
%..........
Non-controlling Interest in Net Income P 6,960
(NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less 750
P3,000, impairment on partial-
goodwill)
Non-controlling Interest in Net Income
(NCINI) P 6,210
full goodwill
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
(5) P 510,000
150,000
Sales P480,000 P240,000 (6)
60,000
(4) _________
Dividend income 28,800 - 28,800
Total Revenue P451,200 P240,000 P 510,000
(3) P 168,000
6,000 (5)
(7) 150,000
Cost of goods sold P204,000 P138,000 18,000 (6)
(8) 60,000
12,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 48,000 18,000 66,000
(3) 3,750
Goodwill impairment loss - - 3,750
Total Cost and Expenses P312,000 P180,000 P328,950
Net Income P196,800 P 60,000 P181,050
(9) ( 6,210)
NCI in Net Income - Subsidiary - - 6,210
Net Income to Retained Earnings P196,800 P 60,000 P174,840

Statement of Retained Earnings


Retained earnings, 1/1
P
P Company P360,000 360,000
(1)
S Company P120,000 120,000
Net income, from above 196,800 60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
(4)
S Company - 36,000 36,000 _ ________
Retained earnings, 12/31 to Balance P
Sheet P484,800 P144,000 462,840

Balance Sheet
P
Cash. 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
Inventory. 120,000 90,000 (2) (3) 180,000
6,000 6,000
(7)
18,000
(8)
12,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill 15,000 3,750 11,250
Investment in S Co 372,000 (3) 288,000
(4) 84,000 -
P1,008,0
Total P1,984,800 00 P2,396,850

Accumulated depreciation (2) (3)


- equipment P 135,000 P 96,000 96,000 12,000 P147,000
(6)
192,000
Accumulated depreciation 405,000 288,000 (7)
- buildings 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
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 484,800 144,000 462,840
(1 )
(4) 72,000 (2)
Non-controlling interest 7,200 21,000
______ (9)
_________ ___ 6,210 ____92,010
P1,008,0 P P
Total P1,984,800 00 986,160 986,160 P2,396,850

20x5: Second Year after Acquisition


Perfect Co. Son 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.


20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
Cash 38,400
Dividend income (P48,000 x 80%). 38,400
Record dividends from S Company.
On the books of S Company, the P48,000 dividend paid was recorded as follows:

Dividends paid 48,000


Cash 48,000
Dividends paid by SCo..

Consolidation Workpaper Second Year after Acquisition


(E1) Investment in S Company 19,200
Retained earnings P Company 19,200
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 % 80%
Retroactive adjustment P 19,200

(E2) Common stock S Co


240,000

Retained earnings S Co., 1/1/20x5


144.000

Investment in S Co (P384,000 x 80%)

307,200
Non-controlling interest (P384,000 x 20%)..

76,800
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

(E3) Inventory.
6000

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
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]

21,000
Investment in S Co.

84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1, 20x5.

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


(P16,950 x 80%)

13,560

Non-controlling interests (P16,950 x 20%).


3,390

Depreciation expense..
6,000

Accumulated depreciation buildings..


12,000

Interest expense
1,200

Inventory..

6,000
Accumulated depreciation equipment..

24,000
Discount on bonds payable

2,800
Goodwill

3,750
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..

(20x4)
Retained earnings,
Depreciation/
Amortization
expense

Amortization
-Interest

Inventory sold
P 6,000

Equipment
12,000
P 12,000

Buildings
(6,000)
( 6,000)

Bonds payable
1,200

P 1,200

Impairment loss
3,750

Totals
P 16,950
P 6,000
P1,200

Multiplied by: CI%....


80%

To Retained earnings
P13,560

(E5) Dividend income - P.


38,400

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


9,600

Dividends paid S

48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E6) Sales. 120,000


Cost of Goods Sold (or Purchases) 120,000
To eliminated intercompany downstream sales.

(E7) Sales. 75,000


Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.

(E8) Beginning Retained Earnings P Company 18,000


Cost of Goods Sold (Ending Inventory Income
Statement) 18,000
To realized profit in downstream beginning inventory deferred in
the
prior period.

(E9) Beginning Retained Earnings P Company (P12,000 x 80%) 9,600


Noncontrolling interest (P12,000 x 20%) 2,400
Cost of Goods Sold (Ending Inventory Income
Statement) 12,000
To realized profit in upstream beginning inventory deferred in
the
prior period.

(E10) Cost of Goods Sold (Ending Inventory Income


Statement) 24,000
Inventory Balance Sheet 24,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory Income
Statement) 6,000
Inventory Balance Sheet 6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of 17,760


Subsidiary
Non-controlling interest .. 17,760
To establish non-controlling interest in subsidiarys adjusted net
income for 20x5 as follows:

Net income of subsidiary.. P 90,000


Realized profit in beginning inventory of P
Company - 20x5 (upstream sales) 12,000
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales) ( 6,000)
Son Companys Realized net income* P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest 20
%.......... %
Non-controlling Interest in Net Income P 17,760
(NCINI)
- partial goodwill
Less: NCI on goodwill impairment loss on
full- 0
Goodwill
Non-controlling Interest in Net Income
(NCINI) P 17,760
full goodwill
*from separate transactions that has been realized in transactions
with third persons.

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


Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)

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


(6) P 705,000
120,000
Sales P540,000 P360,000 (7)
75,000
Dividend income 38,400 - (5) ___________
38,400
Total Revenue P574,800 P360,000 P 705,000
(6) P 213,000
120,000
(7)
90,000
Cost of goods sold P216,000 P192,000 (10) 24,000 (8)
(11) 6,000 21,600
(9)
14,400
(4) 90,000
Depreciation expense 60,000 24,000 6,000
(4) 1,200
Interest expense - - 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200
P P 274,800
Net Income P230,400 90,000
(12) ( 17,760)
NCI in Net Income - Subsidiary - - 17,760
P P 257,040
Net Income to Retained Earnings P230,400 90,000

Statement of Retained Earnings


Retained earnings, 1/1
(3) 13,56
0
(8)
P Company P484,800 18,000
(9)
96000 (4) 19,200 P 462,840
(5)
P 144,00
S Company 144,000 0
Net income, from above 230,400 90,000 257,040
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
(5)
S Company - 48,000 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P643,200 P186,000 P 647,880

Balance Sheet
P P
Cash. 265,200 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (6) 6,000 (4) 6,000
(10) 24,000
(11) 6,000 294,000
(3)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
(3)
Discount on bonds payable 4,800 (4) 2,400 2,400
(3)
Goodwill 15,000 (4) 3,750 11,250
Investment in S Co 372,000 (1)
19,200 (2) 307,200
(3) 84,000 -
P1,074,0
Total P2,203,200 00 P2,680,050

Accumulated depreciation P (3) (4)


- equipment P 150,000 102,000 96,000 24,000 P180,000
(3)
192,000
Accumulated depreciation 450,000 306,000 (4)
- buildings 12,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
(2)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 643,200 186,000 647,880
Non-controlling interest ___ ______ (4) (2 ) 76,800 ____100,170
_____ ___ 3,390 (3) 21,000
(8) (12) 17,760
9,600
(9)
2,400
__________
P1,074,0 P1,081,11 P1,081,11
Total P2,203,200 00 0 0 P2,680,050

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000

b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company. 120,000
Stockholders equity Subsidiary Company... P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders equity of subsidiary, January 1, 20x4 P 450,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial).. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000,
partial 3,000
goodwill)
Non-controlling interest (full-goodwill) P 93,000

c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
Perfect Companys realized net income from separate operations*. P150,000
..
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
Son Companys realized net income from separate operations*... P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,210
Consolidated Net Income for 20x4 P181.050
*that has been realized in transactions with third parties.

b. NCI-CNI P6,210
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial P 6,960
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
x
20%) or (P3,750 impairment on full-goodwill less P3,000, 750
impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) P 6,210
*that has been realized in transactions with third parties.

c. CNI P181,050 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840
Total P534,840
Less: Dividends paid Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840
e.
Non-controlling interest ), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4 P
240,000
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 60,000
Total P180,000
Less: Dividends paid 20x4 36,000 144,000
Stockholders equity Subsidiary Company, December 31, 20x4 P
384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) 20x4 ( 13,200
)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P460,800
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders equity of subsidiary, December 31, 20x4 P448,800
Multiplied by: Non-controlling Interest percentage... 2
0
Non-controlling interest (partial-goodwill).. P
89,760
Add: Non-controlling interest on full goodwill , net of impairment loss,
12/31/x4: 2,250
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill).. P 92,010
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P
600,000
Retained earnings 462,84
0
Parents Stockholders Equity / CI - SHE P1,062,84
0
NCI, 1/1/20x4 ___92,010
Consolidated SHE, 1/1/20x4 P1,154,84
0

12/31/20x5:
a. CI-CNI P257,040
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Amortization of allocated excess 7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P257,040
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
Son Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.

b. NCI-CNI P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 17,760
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 17,760

c. CNI, P274,800 refer to (a)


d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:

Consolidated Retained Earnings, December 31, 20x5


Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inventory of 18,000
S Company (downstream sales) 20x4 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties.. P466,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted
net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess 20x4 13,200
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning 12,000
inventory of P Company (upstream sales) 20x5 (RPBI of P -
20x5)
(P 1,200)
Multiplied by: Controlling interests %................... 80%
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)*
or 3,000 ( 3,960)
(P3,750 x 80%)
Consolidated Retained earnings, January 1, 20x5 P462,840
Add: Controlling Interest in Consolidated Net Income or Profit
attributable to 257,040
equity holders of parent for 20x5
Total P719,880
Less: Dividends paid Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750
by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).

Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
20x5 (UPEI of S 20x5) or Realized profit in beginning inventory of 24,000
S Company (downstream sales) 20x6 (RPBI of S - 20x6).
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties.. P619,200
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted
net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5 P 186,000
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200) 20,400
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning 6,000
inventory of P Company (upstream sales) 20x6 (RPBI of P -
20x6)
P 39,600
Multiplied by: Controlling interests %................... 80%
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)*
or 3,000 28,680
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5 P647,880

e.
Non-controlling interest, December 31, 20x5
Common stock Subsidiary Company, December 31, 20x5 P 240,000
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid 20x5 48,000 186,000
Stockholders equity Subsidiary Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P
13,200
20x5 7,200
( 20,400)
Fair value of stockholders equity of subsidiary, December 31, 20x5 P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning
inventory 6,000
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
Realized stockholders equity of subsidiary, December 31, 20x5. P489,600
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 97,920
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss 2,250
Non-controlling interest (full-goodwill).. P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting
to P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parents Stockholders Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170
Consolidated SHE, 12/31/20x5 P1,348,050

Problem VI
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration
transferred.. P 372,000
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 80%)
. P 192,000
Retained earnings (P120,000 x 80%)
... 96,000 288,000
Allocated excess (excess of cost over book value)
.. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
P 4,800
Increase in land (P7,200 x 80%)
. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%) ( 19,200)
.....
Decrease in bonds payable (P4,800 x 80%)
3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P 12,000

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.
Book Fair Increase
value 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.
Book Fair
value value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation.. 192,000 - ( 192,000)
Net book
value... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:


Account Adjustments to be Over/ AnnualA CurrentYea
amortized Under Life mount r(20x4) 20x5
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
(24,00
Buildings (net) 0) 4 ( 6,000) ( 6,000) (6,000)
4800 1,20 1,20
Bonds payable 0 4 0 1,200 0
P
13,200 P 13,200 P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
computed as follows:

Fair value of Subsidiary (100%)


Consideration transferred: Cash (80%) 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
Allocated excess (excess of cost over book value).. P 105,000
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

In this case, the goodwill was proportional to the controlling interest of 80% and non-
controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%

The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI.. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales,
are as summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
4
20x 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
5

Upstream Sales:
Intercompany Merchandise
Year Sales of in 12/31 Inventory Unrealized Intercompany
Subsidiary to of S Company Profit in Ending Inventory
Parent
20x P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
4
20x 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
5
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company 372,000
372,000
Cash..
Acquisition of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash 28,800
Investment in S Company (P36,000 x 80%). 28,800
Record dividends from S Company.

December 31, 20x4:


(3) Investment in S Company 48,000
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)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.

December 31, 20x4:


(5) Investment income (P18,000 x 100%) 18,000
Investment in S Company 18,000
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S.

December 31, 20x4:


(6) Investment income (P12,000 x 80%) 9,600
Investment in S Company 9,600
To adjust investment income for upstream sales - unrealized
profit in ending inventory P .
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x4 28,800 Dividends S (30,000x
372,000 80%)
NI of S Amortization &
(60,000 x 80%) 13,560 impairment
48,000
18,000 UPEI of Son (P15,000 x
Investment100%)
Income
Amortization & 9,600 UPEI
NI ofof
S Perfect (P10,000
impairment x80%)
48,000 (P60,000 x 80%)
Balance,
13,560 12/31/x4
350,040
UPEI of S (P18,000 x 100%)
18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
Consolidation Workpaper First Year after Acquisition

(E1) Common stock S Co 240,000


Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%) 72,000
..
To eliminate investment on January 1, 20x4 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) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
7,200
Land.
Discount on bonds 4,800
payable.
Goodwill. 12,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
..
Investment in S Co. 84,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with
remainder
to goodwill; and to establish non- controlling interest (in net
assets of
subsidiary) on date of acquisition.

(E3) Cost of Goods Sold. 6,000


Depreciation expense.. 6,000
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,000
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Ss identifiable assets and liabilities as follows:

Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,40
0

(E4) Investment income 6,840


Investment in S Company 21,960
Non-controlling interest (P36,000 x 20%).. 7,200
Dividends paid S 36,000
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 (50,000
x 80%). & impairment 48,000 x
48,000 13,560 impairment 13,560 80%)
18,000 UPEI of S UPEI of S
18,000
9,600 UPEI of P UPEI of P
9,600
21,960 6,840
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
Cost, 1/1/x4 28,800 Dividends S (30,000x
(E5) Sales.
372,000 80%) 150,000
Cost NI
of of S
Goods Sold (or Purchases) Amortization & 150,000
(60,000
To eliminated x 80%) downstream sales.
intercompany 13,560 impairment
48,000
(E6) Sales. 18,000 60,000
UPEI of Son
Cost of Goods Sold (or Purchases) 9,600 UPEI of Perfect 60,000
Balance,
To eliminated 12/31/x4 upstream sales.
intercompany 288,000 (E1) Investment, 1/1/20x4
350,040
(E4) Investment
(E7) Cost of Goods Income
Sold (Ending 84,000
Inventory Income Statement) (E2) Investment,
18,000 1/1/20x4
and dividends
21,960
Inventory Balance Sheet 18,000
To defer the downstream sales - unrealized profit in ending
372,000 372,000
inventory
until it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory Income Statement)


12,000
Inventory Balance Sheet 12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E9) Non-controlling interest in Net Income of 6,960


Subsidiary
Non-controlling interest .. 6,960
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:

Net income of subsidiary.. P 60,000


Unrealized profit in ending inventory of P
Company (upstream sales) ( 12,000)
..
Son Companys realized net income from
separate operations*... P 48,000
Less: Amortization of allocated excess [(E3)] ( 13,200)
.
P 34,800
Multiplied by: Non-controlling interest 20%
%..........
Non-controlling Interest in Net Income
(NCINI) P 6,960
partial goodwill

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.

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


Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)

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


Sales P480,000 P240,000 (5) P 510,000
150,000
(6)
60,000
(4) _________
Investment income 6,840 - 6,840
Total Revenue P486,840 P240,000 P 510,000
(3) (5) P 168,000
6,000 150,000
(7) (6)
Cost of goods sold P204,000 P138,000 18,000 60,000
(8)
12,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 48,000 18,000 66,000
(3) 3,000
Goodwill impairment loss - - 3,000
Total Cost and Expenses P312,000 P180,000 P328,200
Net Income P174,840 P 60,000 P181,800
(9) ( 6,960)
NCI in Net Income - Subsidiary - - 6,960
Net Income to Retained Earnings P174,840 P 60,000 P174,840

Statement of Retained Earnings


Retained earnings, 1/1
P
PCompany P360,000 360,000
(1)
S Company P120,000 120,000
Net income, from above 174,840 60,000 174,840
Total P414,840 P180,000 P414,840
Dividends paid
P Company 72,000 72,000
(4)
S Company - 36,000 36,000 _ ________
Retained earnings, 12/31 to Balance P
Sheet P462,840 P144,000 642,840

Balance Sheet
P
Cash. 232,800 P 90,000 P 387,360
Accounts receivable.. 90,000 60,000 150,000
(3)
6,000
(7)
Inventory. 120,000 90,000 (1) 5,000 18,000
(8)
12,000 180,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 220,000 180,000 380,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill 12,000 3,000 9,000
Investment in S Co 350,040 (2)
(4) 21,96 288,000
0 (2)
84,000
-
P1,006,0
Total P1,635,700 00 P2,394,600

Accumulated depreciation (2) (3)


- equipment P 135,000 P 96,000 96,000 12,000 P 147,000
(2)
192,000
Accumulated depreciation 405,000 288,000 (3)
- buildings 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
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 462,840 144,000 462,840
(1 )
(4) 72,000 (2)
Non-controlling interest 7,200 18,000
______ (5)
_________ ___ __________ 6,960 ____89,760
P1,008,0 P P
Total P1,962,840 00 983,160 983,160 P2,394,600

Second Year after Acquisition


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: Investment income 65,040 -
Net income P 257,040 P 90,000
Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

20x5: Parent Company Equity Method Entry


January 1, 20x5 December 31, 20x5:
(2) Cash 38,400
Investment in S Company (P48,000 x 80%). 38,400
Record dividends from S Company.

December 31, 20x5:


(3) Investment in S Company 72,000
Investment income (P90,000 x 80%) 72,000
Record share in net income of subsidiary.

December 31, 20x5:


(4) Investment income (P7,200 x 80%) 5,760
Investment in S Company 5,760
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable

December 31, 20x5:


(5) Investment income (P24,000 x 100%) 24,000
Investment in S Company 24,000
To adjust investment income for downstream sales - unrealized
profit in ending inventory of Son (UPEI of S).

December 31, 20x5:


(6) Investment in S Company.. 18,000
Investment income (P18,000 x 100%).. 18,000
To adjust investment income for downstream sales - realized
profit in beginning inventory of S (RPBI of S).

December 31, 20x5:


(7) Investment income (P6,000 x 80%) 4,800
Investment in S Company 4,800
To adjust investment income for upstream sales - unrealized
profit in ending inventory Perfect (UPEI of P).

December 31, 20x5:


(8) Investment in S Company.. 9,600
Investment income (P12,000 x 80%).. 9,600
To adjust investment income for upstream sales - realized profit
in beginning inventory of Perfect (RPBI of P)

Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x5 38,400 Dividends S (48,000x
350,040 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 24,000 UPEI of Son (P24,000 x
72,000 100%)
RPBI of S (P18,000 x 100%) 4,800 UPEI of Perfect (P6,000 x
18,000 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 Investment Income
Amortization
376,680 (7,200 x 805) NI of S
5,760
UPEI of S (P24,000 x 100%) 72,000 (P90,000 x 80%)
24,000
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5
Consolidation Workpaper Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:
(E1) Common stock S Co 240,000
Retained earnings S Co, 1/1/x5. 144.000
Investment in SCo (P384,000 x 80%) 307,200
Non-controlling interest (P384,000 x 20%) 76,800
..
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 84,000


P12,000)
Accumulated depreciation buildings (P160,000 + P6,000) 198,000
7,200
Land.
Discount on bonds payable (P4,800 P1,200). 3,600
Goodwill (P12,000 P3,000).. 9,000
Buildings.. 216,000
Non-controlling interest [(P90,000 P13,200) x 20%] 15,360
Investment in S Co. 70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with
remainder
to the original amount of goodwill; and to establish non-
controlling
interest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense.. 6,000


Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Depreciation/
Amortization Amortizatio
Expense n Total
-Interest
Inventory
sold
Equipment P 12,000
Buildings ( 6,000)
Bonds _______ P 1,200
payable
Totals P 6,000 P1,200 P7,20
0

(E4) Investment income 65,040


Non-controlling interest (P48,000 x 20%).. 9,600
Dividends paid S 48,000
Investment in S Company 26,640
To eliminate intercompany dividends and investment income
under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income
(E6) Sales.
NI of S 38,400 Dividends S 120,000 NI of S
Cost of Goods Sold (or Purchases)
(90,000 Amortization Amortization 120,000
(90,000
To
x eliminated
80%). intercompany downstream
5,760 (P7,200sales.
x (P7,200 x 80%) 72,000 x 80%)
72,000 80%) 5,760
RPBI of S 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
(E7) Sales. 75,000
18,000
Cost
RPBI of P of Goods Sold (or Purchases)
4,800 UPEI of P UPEI of P 9,600 75,000
RPBI of P
To eliminated intercompany upstream sales.
9,600 4,800
26,640 65,040
(E8) Investment in Son Company. 18,000
Cost of Goods Sold (Ending Inventory Income
Statement) 18,000
To realized profit in downstream beginning inventory deferred in
the
prior period.

(E9) Investment in Son Company (P12,000 x 80%) 9,600


Noncontrolling interest (P12,000 x 20%) 2,400
Cost of Goods Sold (Ending Inventory Income
Statement) 12,000
To realized profit in upstream beginning inventory deferred in
the
prior period.

After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 38,400 Dividends S (40,000x
350,040 80%)
NI of S Amortization
(90,000 x 80%) 5,760 (6,000 x 80%)
72,000
RPBI of S (P18,000 x 100%) 24,000 UPEI of S (P20,000 x
(E10) Cost of18,000
Goods Sold (Ending Inventory Income100%) 24,000
Statement)RPBI of P(P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
Balance,
Inventory 12/31/x5
Balance Sheet 307,200 (E1) Investment, 1/1/20x5
24,000
To defer 376,680
the downstream sales - unrealized profit in ending
inventory (E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
until it is sold(E9) RPBI of P
to outsiders. 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280
(E11) Cost of Goods Sold (Ending Inventory Income 6,000
Statement)
Inventory Balance Sheet 6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of 17,760


Subsidiary
Non-controlling interest .. 17,760
To establish non-controlling interest in subsidiarys adjusted net
income for 20x5 as follows:

Net income of subsidiary.. P 90,000


Realized profit in beginning inventory of P
Company - 20x5 (upstream sales) 12,000
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales) ( 6,000)
S Companys Realized net income* P 96,000
Less: Amortization of allocated excess ( 7,200)
P 88,800
Multiplied by: Non-controlling interest 20
%.......... %
Non-controlling Interest in Net Income
(NCINI) P 17,760
partial goodwill
*from separate transactions that has been realized in transactions
with third persons.

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


Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
(6) P 705,000
120,000
Sales P540,000 P360,000 (7)
75,000
(4) ___________
Investment income 65,040 - 65,040
Total Revenue P605,040 P360,000 P 705,000
(6) P 213,000
120,000
(7)
75,000
Cost of goods sold P216,000 P192,000 (10) 24,000 (8)
(11) 6,000 18,000
(9)
12,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200
P P 274,800
Net Income P257,040 90,000
(5) ( 17,760)
NCI in Net Income - Subsidiary - - 17,760
P P 257,040
Net Income to Retained Earnings P257,040 90,000

Statement of Retained Earnings


Retained earnings, 1/1
P Company P462,840 P 462,840
(1)
S Company P144,000 144,000
Net income, from above 257,040 90,000 257,040
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
(4)
S Company - 48,000 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P777,456 P223,200 P 777,456

Balance Sheet
P P
Cash. 265,200 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
(10)
Inventory. 216,000 108,000 24,000
(11) 6,000 294,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
(2)
Discount on bonds payable 3,600 (3) 1,200 2,400
(2)
Goodwill 9,000 9,000
Investment in S Co 376,680 (8) (1) 307,200
18,000 (2) 70,440
(9) 9,600 (4)
26,640 -
P1,074,0
Total P2,207,880 00 P2,677,800

(2)
Accumulated depreciation P 84,000 (3)
- equipment P 150,000 102,000 12,000 P180,000
(2)
Accumulated depreciation 450,000 306,000 198,000
- buildings (3) 6,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 647,880 186,000 647,880
Non-controlling interest (4) 9,600
(9) 2,400 (2 ) 76,800
___ (2) 15,360
_____ _________ __________ (5) 17,760 ____97,920
P1,074,0 P1,046,40 P1,046,40
Total P2,207,880 00 0 0 P2,677,800

5 and 6. Refer to Problem IX for computations


Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem IX solution).

Problem VII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%).. 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
Retained earnings (P120,000 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 (P6,000 x 100%)
P 6,000
Increase in land (P7,200 x 100%)
. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)
..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)
4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)... P 15,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be Over/ Annual Current
amortized under Life Amount Year(20x4) 20x5
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
(24,00
Buildings (net) 0) 4 ( 6,000) ( 6,000) (6,000)
4,80 1,20 1,20
Bonds payable 0 4 0 1,200 0
P
13,200 P 13,200 P 7,200

20x4: First Year after Acquisition


Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company 372,000
372,000
Cash..
Acquisition of S Company.

January 1, 20x4 December 31, 20x4:


(2) Cash 28,800
Investment in S Company (P36,000 x 80%). 28,800
Record dividends from S Company.

December 31, 20x4:


(3) Investment in S Company 48,000
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%) + (P3,750 P750)*, 13,560
goodwill impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%.
There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to
NCI acquired (refer to Illustration 15-6).

December 31, 20x4:


(5) Investment income (P18,000 x 100%) 18,000
Investment in S Company 18,000
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S.

December 31, 20x4:


(6) Investment income (P12,000 x 80%) 9,600
Investment in S Company 9,600
To adjust investment income for upstream sales - unrealized
profit in ending inventory P .

Thus, the investment balance and investment income in the books of P Company is as follows

Investment in S
Cost, 1/1/x4 28,800 Dividends S (36,000x
372,000 80%)
NI of S Amortization &
(60,000 x 80%) 13,560 impairment
48,000
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Balance, 12/31/x4
324,000
Investment Income
Amortization & NI of S
impairment 48,000 (P60,000 x 80%)
13,560
UPEI of S (P18,000 x 100%)
18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
Consolidation Workpaper First Year after Acquisition
(E1) Common stock S Co 240,000
Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%) 72,000
..
To eliminate investment on January 1, 20x4 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) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
7,200
Land.
Discount on bonds 4,800
payable.
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full 21,000
P12,000, partial goodwill)]
Investment in Son 84,000
Co.
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with
remainder
to goodwill; and to establish non- controlling interest (in net
assets of
subsidiary) on date of acquisition.

(E3) Cost of Goods Sold. 6,000


Depreciation expense.. 6,000
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,750
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill 3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Ss identifiable assets and liabilities as follows:

Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,40
0

(E4) Investment income 6,840


Investment in S Company 21,960
Non-controlling interest (P36,000 x 20%).. 7,200
Dividends paid S 36,000
To eliminate intercompany dividends and investment income
under
equity method and establish share of dividends, computed as
follows:
Investment Income
Investment in S
NI of S 28,800 Dividends - S NI of S
(60,000 Amortization Amortization (50,000
x 80%). & impairment 48,000 x
48,000 13,560 impairment 13,560 80%)
18,000 UPEI of S UPEI of S
18,000
9,600 UPEI of P UPEI of P
9,600
21,960 6,840
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
Cost, 1/1/x4 28,800 Dividends S (30,000x
372,000 80%)
NI of S Amortization &
(60,000 x 80%) 13,560 impairment
48,000
18,000 UPEI of S
9,600 UPEI of P
Balance, 12/31/x4 288,000 (E1) Investment, 1/1/20x4
350,040
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
(E5) Sales.and dividends 150,000
Cost 21,960
of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
372,000 372,000
(E6) Sales. 60,000
Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory Income Statement)


18,000
Inventory Balance Sheet 18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory Income Statement)


12,000
Inventory Balance Sheet 12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E9) Non-controlling interest in Net Income of 6,210


Subsidiary
Non-controlling interest .. 6,210
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:

Net income of subsidiary.. P 60,000


Unrealized profit in ending inventory of P
Company (upstream sales) ( 12,000)
..
S Companys realized net income from
separate operations*... P 48,000
Less: Amortization of allocated excess [(E3)] ( 13,200)
.
P 34,800
Multiplied by: Non-controlling interest 20%
%..........
Non-controlling Interest in Net Income P 6,960
(NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less 750
P3,000, impairment on partial-
goodwill)*
Non-controlling Interest in Net Income
(NCINI) P 6210
full goodwill
*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).
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
(5) P 510,000
150,000
Sales P480,000 P240,000 (6)
60,000
(4) _________
Investment income 6,840 - 6,840
Total Revenue P486,840 P240,000 P 510,000
(3) (5) P 168,000
6,000 150,000
(7) (6)
Cost of goods sold P204,000 P138,000 18,000 60,000
(8)
12,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 48,000 18,000 66,000
(3) 3,750
Goodwill impairment loss - - 3,750
Total Cost and Expenses P312,000 P150,000 P274,125
Net Income P174,840 P 50,000 P150,875
(9) ( 5,175)
NCI in Net Income - Subsidiary - - 5,175
Net Income to Retained Earnings P174,840 P 50,000 P145,700

Statement of Retained Earnings


Retained earnings, 1/1
P
P Company P360,000 360,000
(1)
S Company P120,000 120,000
Net income, from above 174,840 60,000 174,840
P
Total P414,840 P180,000 414,840
Dividends paid
P Company 72,000 72,000
(4)
S Company - 36,000 36,000 _ ________
Retained earnings, 12/31 to Balance P
Sheet P462,840 P144,000 462,840

Balance Sheet
P
Cash. 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
(3)
6,000
(7)
Inventory. 120,000 90,000 (2) 6,000 18,000
(8)
12,000 180,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill 15,000 3,750 11,250
Investment in S Co 350,040 (2)
(4) 288,000
21,960 (2)
84,000
-
P1,008,0
Total P1,635,700 00 P2,396,850

Accumulated depreciation (2) (3)


- equipment P 135,000 P 96,000 96,000 12,000 P 147,000
(2)
192,000
Accumulated depreciation 405,000 288,000 (3)
- buildings 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
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 462,840 144,000 462,840
(1 )
(4) 72,000 (2)
Non-controlling interest 7,200 21,000
______ (9)
_________ ___ __________ 6,210 ____92,010
P1,008,0 P P
Total P1,962,840 00 986,160 986,160 P2,396,850

20x5: Second Year after Acquisition


Perfect Co. Son 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: Investment income 65,040 -
Net income P 257,040 P 90,000
Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

Parent Company Equity Method Entry


January 1, 20x5 December 31, 20x5:
(2) Cash 38,400
Investment in S Company (P48,000 x 80%). 38,400
Record dividends from S Company.

December 31, 20x5:


(3) Investment in S Company 72,000
Investment income (P90,000 x 80%) 72,000
Record share in net income of subsidiary.

December 31, 20x5:


(4) Investment income (P7,200 x 80%) 5,760
Investment in S Company 5,760
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable

December 31, 20x5:


(5) Investment income (P24,000 x 100%) 24,000
Investment in S Company 24,000
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S (UPEI of S).

December 31, 20x5:


(6) Investment in S Company.. 18,000
Investment income (P18,000 x 100%).. 18,000
To adjust investment income for downstream sales - realized
profit in beginning inventory of S (RPBI of S).

December 31, 20x5:


(7) Investment income (P6,000 x 80%) 4,800
Investment in S Company 4,800
To adjust investment income for upstream sales - unrealized
profit in ending inventory P (UPEI of P).
December 31, 20x5:
(8) Investment in S Company.. 9,600
Investment income (P12,000 x 80%).. 9,600
To adjust investment income for upstream sales - realized profit
inbeginning inventory of P (RPBI of P)

Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
Cost, 1/1/x5 38,400 Dividends S (48,000x
350,040 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 24,000 UPEI of S (P24,000 x 100%)
72,000
RPBI of (P18,000 x 100%) 4,800 UPEI of P (P6,000 x 80%)
18,000
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5
376,680
Investment Income
Amortization (7,200 x 805) NI of S
5,760
UPEI of S (P24,000 x 100%) 72,000 (P90,000 x 80%)
24,000
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P (P12,000 x 80%)
65,040 Balance, 12/31/x5
Consolidation Workpaper Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
(E1) Common stock S Co 240,000
Retained earnings S Co, 1/1/x5. 144.000
Investment in SCo (P384,000 x 80%) 307,200
Non-controlling interest (P384,000 x 20%) 76,800
..
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 84,000


P12,000)
Accumulated depreciation buildings (P192,000 + P6,000) 198,000
7,200
Land.
Discount on bonds payable (P4,800 P1,200). 3,600
Goodwill (P15,000 P3,750).. 11,250
Buildings.. 216,000
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
P3,000, partial- goodwill impairment)* 17,610
or (P3,750 x 20%)]
Investment in S Co. 70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with
remainder
to the original amount of goodwill; and to establish non-
controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).

(E3) Depreciation expense.. 6,000


Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Depreciation/
Amortization Amortizatio
Expense n Total
-Interest
Inventory
sold
Equipment P 12,000
Buildings ( 6,000)
Bonds _______ P 1,200
payable
Totals P 6,000 P1,200 P7,20
0

(E4) Investment income 65,040


Non-controlling interest (P48,000 x 20%).. 9,600
Dividends paid S 48,000
Investment in S Company 26,640
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 Son 38,400 Dividends S NI of S
(90,000 Amortization Amortization (90,000
x 80%). 5,760 (P7,200 x (P7,200 x 80%) 72,000 x 80%)
72,000 80%) 5,760
RPBI of S 24,000 UPEI of S UPEI of S 18,000 RPBI of S
18,000 24,000
RPBI of P 4,800 UPEI of P UPEI of P 9,600 RPBI of P
9,600
(E6) Sales. 4,800 120,000
26,640
Cost of Goods Sold (or Purchases) 65,040 120,000
To eliminated intercompany downstream sales.

(E7) Sales. 75,000


Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.

(E8) Investment in Son Company. 18,000


Cost of Goods Sold (Ending Inventory Income
Statement) 18,000
To realized profit in downstream beginning inventory deferred in
the
prior period.

(E9) Investment in Son Company (P12,000 x 80%) 9,600


Noncontrolling interest (P12,000 x 20%) 2,400
Cost of Goods Sold (Ending Inventory Income
Statement) 12,000
To realized profit in upstream beginning inventory deferred in
the
prior period.

After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,

Investment in S
Cost, 1/1/x5 38,400 Dividends S (48,000x
350,040 80%)
NI of Son Amortization
(90,000 x 80%) 5,600 (7,000 x 80%)
72,000
RPBI of S (P18,000 x 100%) 24,000 UPEI of S (P24,000 x
18,000 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
Balance, 12/31/x5 307,200 (E1) Investment, 1/1/20x5
376,680
(E8) RPBI of S 70,440 (E2) Investment, 1/1/20x5
18,000
(E10) Cost of(E9)
GoodsRPBI of P(Ending Inventory Income 26,640
Sold (E4) Investment
24,000 Income
Statement)9,600 and dividends
404,280 404,280
Inventory Balance Sheet 24,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory Income


Statement) 6,000
Inventory Balance Sheet 6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of 17,760


Subsidiary
Non-controlling interest .. 17,760
To establish non-controlling interest in subsidiarys adjusted net
income for 20x5 as follows:

Net income of subsidiary.. P 90,000


Realized profit in beginning inventory of P
Company - 20x5 (upstream sales) 12,000
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales) ( 6,000)
Son Companys Realized net income* P 96,000
Less: Amortization of allocated excess ( 7,200)
P 88,000
Multiplied by: Non-controlling interest 20
%.......... %
Non-controlling Interest in Net Income P 17,760
(NCINI)
partial goodwill
Less: NCI on goodwill impairment loss on
full- 0
Goodwill
Non-controlling Interest in Net Income
(NCINI) P 17,760
full goodwill
*from separate transactions that has been realized in transactions
with third persons.

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


Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
(6) P 705,000
120,000
Sales P540,000 P360,000 (7)
75,000
(4) ___________
Investment income 65,040 - 65,040
Total Revenue P605,040 P360,000 P 705,000
(6) P 213,000
120,000
(7)
75,000
Cost of goods sold P216,000 P192,000 (10) 24,000 (8)
(11) 6,000 18,000
(9)
12,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200
P P 274,800
Net Income P257,040 90,000
(5) ( 17,760)
NCI in Net Income - Subsidiary - - 17,760
P P 308,448
Net Income to Retained Earnings P257,040 90,000

Statement of Retained Earnings


Retained earnings, 1/1
P Company P462,840 P 462,840
(1)
S Company P144,000 144,000
Net income, from above 257,040 90,000 257,040
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
(4)
S Company - 48,000 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P647,880 P186,000 P 647,880

Balance Sheet
P P
Cash. 265,200 114,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
(10)
Inventory. 216,000 108,000 24,000
(11) 6,000 294,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(3)
Buildings 720,000 540,000 216,000 1,044,000
(2)
Discount on bonds payable 3,600 (3) 1,200 2,400
(2)
Goodwill 11,250 11,250
Investment in S Co 376,680 (8)
18,000 (1) 307,200
(9) (3) 70,440
9,600 (4)
26,640 -
P1,074,0
Total P2,207,880 00 P2,680,050

(2)
Accumulated depreciation P 84,000 (3)
- equipment P 150,000 102,000 12,000 P180,000
(2)
Accumulated depreciation 450,000 306,000 198,000
- buildings (3) 6,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 647,880 186,000 647,880
Non-controlling interest (4) 9,600
(9) 2,400 (1 ) 76,800
___ ______ (2) 17,610
_____ ___ __________ (14)17,760 ____100,170
P1,074,0 P1,048,65 P1,048,65
Total P2,207,880 00 0 0 P2,680,050

5 and 6. Refer to Problem V for computations


Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem V solution).

Problem VIII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 P72,000)........................................... P48,000
Inventory remaining at year's end ..................................................................... 30%
Unrealized Intercompany Gross profit, 12/31/x4 ................................................. P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 P200,000) ........................................ P50,000
Inventory remaining at year's end ..................................................................... 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................. P10,000
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate intercompany sales of
P250,000)
Cost of goods sold:
Benson's book value .................................................................................... P535,000
Broadway's book value ................................................................................. 400,000
Eliminate intercompany transfers ................................................................. (250,000)
Realized gross profit deferred in 20x4 .......................................................... (14,400)
Deferral of 20x5 unrealized gross profit ....................................................... 10,000
Cost of goods sold .................................................................................. P680,600
Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)
Dividend income = -0- (intercompany transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is not included because
they were downstream)
Broadway reported income for 20x5 ............................................................ P100,000
Intangible amortization................................................................................. (10,000)
Broadway adjusted income........................................................................... 90,000
Outside ownership ....................................................................................... 30%
Noncontrolling interest in Broadways earnings............................................. P 27,000

or,
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100) P 165,000
Realized profit in beginning inventory of S Company (downstream sales) 14,400
Unrealized profit in ending inventory of S Company (downstream sales) (_10,000)
P Companys realized net income from separate operations*... P 169,400
S Companys net income from own operations (P600 P400 P100) P
100,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 100,000
100,000
Total P 269,400
Less: Amortization of allocated excess __10,000
Consolidated Net Income for 20x5 P 259,400
Less: Non-controlling Interest in Net Income* * 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 232,400

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 100,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations P 100,000
Less: Amortization of allocated excess __10,000
P 90,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 27,000
Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross
profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value......................................................... P285,000
Excess January 1 intangible allocation (30% P295,000).......................... 88,500
Noncontrolling Interest in Broadways earnings................................................ 27,000
Dividends (30% P50,000).............................................................................. (15,000)
Total noncontrolling interest at 12/31/x5.................................................... P385,500

2. (Computation of selected consolidation balances as affected by upstream inventory


transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 P72,000) .......................................... P48,000
Inventory remaining at year's end ................................................................ 30%
Unrealized intercompany gross profit, 12/31/x4 ................................................. P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)


Intercompany gross profit (P250,000 P200,000) ........................................ P50,000
Inventory remaining at year's end ................................................................ 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................. P10,000

CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
Cost of goods sold:
Benson's COGS book value ........................................................................... P535,000
Broadway's COGS book value ....................................................................... 400,000
Eliminate intercompany transfers ................................................................. (250,000)
Realized gross profit deferred in 20x4 .......................................................... (14,400)
Deferral of 20x5 unrealized gross profit ....................................................... 10,000
Consolidated cost of goods sold ............................................................. P680,600
Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)
Dividend income = -0- (interco. transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is included because they
were upstream)

Broadway reported income for 20x5 ............................................................................. P100,000


Intangible amortization................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ..................................................................... 14,400
20x5 gross profit deferred ...................................................................................... (10,000)
Broadway realized income for 20x5........................................................................ P94,400
Outside ownership ......................................................................................................... 30%
Noncontrolling interest ................................................................................................... P28,320
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100) P 165,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 165,000
S Companys net income from own operations (P600 P400 P100) P
100,000
Realized profit in beginning inventory of P Company (upstream sales) 14,400
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P 104,400
104,400
Total P 269,400
Less: Amortization of allocated excess __10,000
Consolidated Net Income for 20x5 P 259,400
Less: Non-controlling Interest in Net Income* * 28,320
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 231,080

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 100,000
Realized profit in beginning inventory of P Company (upstream sales) 14,400
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations P 104,400
Less: Amortization of allocated excess __10,000
P 94,400
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 28,320
Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized
gross profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% P935,600)............................................... P280,680
Excess intangible allocation (30% P295,000)....................................... (88,500)
Noncontrolling Interest in Broadways earnings...................................... 28,320
Dividends (30% P50,000).......................................................................... (15,000)

Total noncontrolling interest at 12/31/x5................................................. P382,500

Problem IX
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ...................................................................... P290,000
SWs cost of goods sold .................................................................... 197,000
Elimination of 20x5 intercompany transfers ...................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ......................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) ....................................... 12,000
Consolidated cost of goods sold ............................................ P381,000

Consolidated Inventory
PP book value .............................................................................. P346,000
SW book value ............................................................................. 110,000
Eliminate ending unrealized gross profit (see above) .................. (12,000)
Consolidated Inventory ............................................................... P444,000

Non-controlling Interest in Subsidiarys Net Income


Because all intercompany sales were downstream, the deferrals do not affect SW.
Thus, the non-controlling interest is 20% of the P58,000 (revenues minus cost of
goods sold and expenses) reported income or P11,600.

or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales) 8,000
Unrealized profit in ending inventory of S Company (downstream sales) (_ 12,000)
P Companys realized net income from separate operations*... P 196,000
S Companys net income from own operations (P360 P197 P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 58,000 58,000
Total P 254,000
Less: Amortization of allocated excess ____0
Consolidated Net Income for 20x5 P 254,000
Less: Non-controlling Interest in Net Income* * 11,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 242,200

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations P 58,000
Less: Amortization of allocated excess ____0
P 58,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 11,600

2.
Consolidated Cost of Goods Sold
PP book value ................................................................................... P290,000
SW book value .................................................................................. 197,000
Elimination of 20x5 intercompany transfers ...................................... (80,000)
Reduction of beginning inventory because of
20x4 unrealized gross profit (P21,000/1.4 = P15,000
cost; P21,000 transfer price less P15,000
cost = P6,000 unrealized gross profit) ......................................... (6,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P35,000/1.4 = P25,000
cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) ....................................... 10,000
Consolidated cost of goods sold ........................................................ P411,000
Consolidated Inventory
PP book value ................................................................................... P346,000
SW book value .................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) ........................ (10,000)
Consolidated inventory ................................................................ P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income ......................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) ....................... 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) .............. (10,000)
SW realized income ........................................................................... P54,000
Outside ownership percentage ......................................................... 20%
Non-controlling interest in SWs income ...................................... P10,800
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 200,000
S Companys net income from own operations (P360 P197 P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 6,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P 54,000 54,000
Total P 254,000
Less: Amortization of allocated excess ____0
Consolidated Net Income for 20x5 P 254,000
Less: Non-controlling Interest in Net Income* * 10,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 243,200

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 6,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations P 54,000
Less: Amortization of allocated excess ____0
P 54,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 10,800

Problem X
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P
3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales) (_ 45,00 0)
P Companys realized net income from separate operations*... P
3,609,000
S Companys net income from own operations (P1,500,000 + P2,400,000) P3,900,00
0
Realized profit in beginning inventory of P Company (upstream sales) 66,000
Salad
Realized profit in beginning inventory of P Company (upstream sales)- 63,000
Tuna
Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Salad
Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Tuna
S Companys realized net income from separate operations*... P3,903,00 3,903,000
0
Total P7,512,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P
301,800
Non-controlling Interest in Net Income* *- Tuna ___239,40 ___541,200
0
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P6,970,800
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P
3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales) (___45,000)
P Companys realized net income from separate operations*... P3,609,,00
0
S Companys net income from own operations (P1,500,000 + P2,400,000) P3,900,00
0
Realized profit in beginning inventory of P Company (upstream sales) 66,000
Salad
Realized profit in beginning inventory of P Company (upstream sales)- 63,000
Tuna
Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Salad
Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Tuna
S Companys realized net income from separate operations*... P3,903,00 3,903,000
0
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess 0 __541,20
0
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P6,970,800
Add: Non-controlling Interest in Net Income (NCINI) _541,200
Consolidated Net Income for 20x4 P
7,512,000
*that has been realized in transactions with third parties.
**Salad
Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P1,500,000
Realized profit in beginning inventory of P Company (upstream sales) 66,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Son Companys realized net income from separate operations P1,509,000
Less: Amortization of allocated excess _____0
P1,509,00
0
Multiplied by: Non-controlling interest %.......... __
20%
Non-controlling Interest in Net Income (NCINI) P 301,800

**Tuna
Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P2,400,000
Realized profit in beginning inventory of P Company (upstream sales) 63,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Son Companys realized net income from separate operations P2,394,000
Less: Amortization of allocated excess _____0
P2,394,00
0
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 239,400

Realized Profit in Beginning inventory:


Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125 63,000

Unrealized Profit in Ending inventory:


Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125 69,000

Problem XI
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)

Customer list amortization = P65,000/5 years = P13,000 per year

Intercompany Gross profit (P160,000 P120,000) .................................. P40,000


Inventory Remaining at Year's End.......................................................... 20%
Unrealized Intercompany Gross profit, 12/31 ............................................... P8,000

Consolidated Totals:
Inventory = P592,000 (add the two book values and subtract the ending
unrealized gross profit of P8,000)
Sales = P1,240,000 (add the two book values and subtract the P160,000
intercompany transfer)
Cost of Goods Sold = P548,000 (add the two book values and subtract the
intercompany transfer and add [to defer] ending unrealized gross profit)
Operating Expenses = P443,000 (add the two book values and the amortization
expense for the period)
Gross profit: P1,240,000 P548,000 = P692,000
Controlling Interest in CNI:

Gross profit................................................................................... P692,000


Less: Operating expenses............................................................ 443,000
Consolidated Net Income ............................................................ P249,000
Less: NCI-CNI................................................................................ 8,700
CI-CNI........................................................................................... P240,300
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P400-P180) P 220,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_
0)
P Companys realized net income from separate operations*... P 220,000
S Companys net income from own operations (P600 P300 P250) P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8, 000)
S Companys realized net income from separate operations*... P 42,000 42,000
Total P 262,000
Less: Amortization of allocated excess 13,000
Consolidated Net Income for 20x5 P 249,000
Less: Non-controlling Interest in Net Income* * 8,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 240,300
*that has been realized in transactions with third parties.

Or, alternatively

Consolidated Net Income for 20x5


P Companys net income from own/separate operations. P 220,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 220,000
S Companys net income from own operations. P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8,000)
S Companys realized net income from separate operations*... P 42,000 42,000
Total P 262,000
Less: Non-controlling Interest in Net Income* * P 8,700
Amortization of allocated excess 13,000 21,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P240,300
Add: Non-controlling Interest in Net Income (NCINI) _ 8,700
Consolidated Net Income for 20x5 P249,000
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)
S Companys realized net income from separate operations P 42,000
Less: Amortization of allocated excess 13,000
P 29,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 8,700

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the


reported income after subtracting 13,000 excess fair value amortization and
deferring P8,000 ending unrealized gross profit) Gross profit is included in this
computation because the transfer was upstream from SS to PT.

Problem XII
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):........................................................
P15,000
RPBI of P (upstream sales).......................................................
10,000
UPEI of S (downstream sales)... 20,000
UPEI of P (upstream sales). 5,000
Consolidated Net Income for 2014
P Companys net income from own/separate operations (P724,000 P700,000
P24,000
Realized profit in beginning inventory of S Company (downstream sales) 15,000
Unrealized profit in ending inventory of S Company (downstream sales) (20,00 0)
P Companys realized net income from separate operations*... P695,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 10,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)
S Companys realized net income from separate operations*... P 95,000 95,000
Total P790,000
Less: Amortization of allocated excess 2,000
Consolidated Net Income for 2014 P788,000
Less: Non-controlling Interest in Net Income* * 18,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 2014.. P769,400
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 2014
P Companys net income from own/separate operations P700,000
Realized profit in beginning inventory of S Company (downstream sales) 15,0000
Unrealized profit in ending inventory of S Company (downstream sales) (20,00 0)
P Companys realized net income from separate operations*... P695,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 10,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)
Son Companys realized net income from separate operations*... P 95,000 95,000
Total P790,000
Less: Non-controlling Interest in Net Income* * P 18,600
Amortization of allocated excess 2,000 20,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P769,400
Add: Non-controlling Interest in Net Income (NCINI) _ 18,600
Consolidated Net Income for 2014 P788,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 2014


S Companys net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 10,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)
S Companys realized net income from separate operations P 95,000
Less: Amortization of allocated excess 2,000
P 93,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 18,600
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 18,600

Note: Preferred Solution - since what is given is the RE P, 12/31/2014 (ending


balance of the current year) -
Retained earnings Parent, 12/31/2014 (cost).. P
3,500,000
-: UPEI of S (down) 2014 or RPBI of S (down) 2015...
20,000
Adjusted Retained earnings Parent, 12/31/2014 (cost).. P
3,480,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011.P 150,000
Less: Retained earnings Subsidiary, 12/31/2014... 320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 170,000
Accumulated amortization (1/1/2011 12/31/2014):
P 2,000 x 4 years..( 8,000)
UPEI of P (up) 2014 or RPBI of P (up) 2015........( 5,000)
P157,000
x: Controlling Interests 80%
125,600
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014. P
3,605,600

Or, compute first the RE P on January 1, 2014 (use work back approach),
Retained earnings Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P).
P2,801,000
-: UPEI of S (down) 2013 or RPBI of S (down) 2014...
15,000
Adjusted Retained earnings Parent, 1/1/2014 (cost) P2,786.000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011P 150,000
Less: Retained earnings Subsidiary, 1/1/2014 260,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 110,000
Accumulated amortization (1/1/2011 1/1/2014):
P 2,000 x 3 years. ( 6,000)
UPEI of P (up) 2013 or RPBI of P (up) 2014... ( 10,000)
P 94,000
X: Controlling Interests 80% 75,200
RE P, 1/1/2014 (equity method) = CRE, 1/1/2014..P2,861,200
+: CI CNI or Profit Attributable to Equity Holders of Parent.. 769,400
-: Dividends P.. 25,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014.P3,605,600

Sales Cost of Sales


P P2,500,000 P1,250,000
S 1,200,000 875,000
Intercompany sales - downstream ( 320,000) ( 320,000)
Intercompany sales - upstream ( 290,000)
( 290,000)
RPBI of S (downstream sales)* ( 15,000)
RPBI of P (upstream sales)*** ( 10,000)
UPEI of S (downstream sales)** 20,000
UPEI of P (upstream sales)**** _________ 5,000
Consolidated P1,515,000
P3,090,000

Working Paper Eliminating Entries:


1. Intercompany Sales and Purchases:
Downstream Sales:
Sales.. 320,000
Cost of Sales (or Purchases)....
320,000
Upstream Sales:
Sales.. 290,000
Cost of Sales (or Purchases)
290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings P, beginning..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)............
15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement) 20,000
Inventory (Ending Inventory in Balance Sheet)..
20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE P, beg.)
Retained Earnings P, beginning..... 16,000
NCI .... 4,000
Cost of Sales (Beginning Inventory in Income Statement)........
20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement) 5,000
Inventory (Ending Inventory in Balance Sheet)..
5,000

Multiple Choice Problems


1. a
20x4 and 20x5:: P12,000 x 80% = P9,600
20x6: P18,000 x 80% = P14,400

2. c
20x4: (P84,000 x 80%) = P67,200 (P1,440 x 30% x 80%) = P66,854.40
20x5: (P102,000 x 80%) + (P1,440 x 30% x 80%) - (P4,800 x 30% x 80%) = P80,793.60
20x6: (P112,800 x 80%) + (P4,800 x 30% x 80%) (P3,600 x 30% x 80%) = P90,258.00

3. No requirement.

4. b (P14,400 + P432 P1,440 = P13,392)


Analysis: Eliminating entries
Upstream Sales:
Sales.. 14,400
Cost of Sales (or Purchases) 14,400

100% RPBI of P: (if equity method Investment in S instead of RE P, beg.):


(P1,440 x 30% = P432)
Retained Earnings P, beginning..... 345.60
NCI . 86.40
Cost of Sales (Beginning Inventory in Income Statement)..
432.00

100% UPEI of P: (P4,800 x 30% = P1,440)


Cost of Sales (Ending Inventory in Income Statement).. 1,440
Inventory (Ending Inventory in Balance Sheet)... 1,440
5. a there are no intercompany profit in 20x3 (prior year), so need to adjust retained
earnings.

6. a - Investment income, P5,000 x 80% = P4,000; Investment in Leisure, P100,000.

7.c
Investment in Leisure
Cost, 1/1/x3 4,000 Dividends Lei (5,000x
109,070 80%)
NI of Leisure 4,800 Amortization (6,000 x 80%)
(13,000 x 80%) 850 Impairment (1,000 x 85%)*
10,400
RPBI of LP (350 x 80%) 336 UPEI of LP (420 x 80%)
280
Investment Income
Amortization
Balance, 12/31/x3 NI of Leisure
4,800
109,764
Impairment* 10,400 (13,000 x 80%)
850
UPEI of LP (420 x 80%)) 280 RPBI of LP (350 x 80%)
336
RPBI of
4,694 Balance, 12/31/x4
LP: P1,350 x
35/135 = P350
UPEI of LP: P1,620 x 35/135 = P420

Partial
Fair value of Subsidiary (80%)
Consideration P
transferred . . . . . . . . . . . . . . . . . . . . . . 100,000
Less: Book value of stockholders equity of LP
(P10,000 x 80%)
... ____8,000
Allocated excess (excess of cost over book value) . . P
. 92,000
Less: Over/under valuation of assets and liabilities:
Increase in favorable leases (P30,000 x 80%) .
.... ___24,000
Positive excess: Partial-goodwill (excess of cost over
fair
value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 68,000
Full
Fair value of Subsidiary (100%)
Consideration transferred P
(80%). . . . . . . . . . . . . . . . . . 100,000
Fair value of NCI (given) (20%)
.. ___20,000
Fair value of Subsidiary (100%) P
. 120,000
Less: Book value of stockholders equity of LP
(P10,000 x 100%)
. ___10,000
Allocated excess (excess of cost over book value) . . P
. 110,000
Less: Over/under valuation of assets and liabilities:
Increase in favorable leases (P30,000 x 100%)
.... ___30,000
Positive excess: Partial-goodwill (excess of cost over
fair
value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 80,000

Note: The controlling interests of parent to subsidiary of 80% is not


an outright application to impairment of goodwill, it still depends on
the resulting goodwill of partial and full goodwill, for instance in
Questions 6 to 10, the CI is 85% and NCI is 15% for impairment
computed as follows:

Partial goodwill 68,000 85%


_15
NCI on Full Goodwill 12,000 %
100
Full-goodwill 80,000 %
8. a
Consolidated Net Income for 20x3
Parent Companys net income from own/separate operations
(P400,000 P250,000 P130,000) P 20,000
Subsidiary Companys net income from own operations
(P200,000 P120,000 P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . 350
...
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . ( 420)
...
Son Companys realized net income from separate P12,930 12,930
operations* . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
.........
Less: Amortization of allocated 6,000
excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . ___1,000
.......
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 25,930
......
Less: Non-controlling Interest in Net Income* 1,236
*............................
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent P24,694
20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x3
Parent Companys net income from own/separate operations
(P400,000 P250,000 P130,000) P 20,000
Subsidiary Companys net income from own operations
(P200,000 P120,000 P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . 350
...
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . ( 420)
...
Son Companys realized net income from separate P12,930 12,930
operations* . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
.........
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . P 1,236
.....
Impairment of 1,000
goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of allocated 6,000 8,236
excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P 24,694
parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Non-controlling Interest in Net Income _ _ 1,236
(NCINI) . . . . . . . . . . . . . . . . . . . . . .
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P25,930
......
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x3


S Companys net income of Subsidiary Company from its own operations P 13,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream 350
sales) . . . . . . .
Unrealized profit in ending inventory of P Company (upstream sales) . . . . ( 420)
....
S Companys realized net income from separate operations . . . . . . . . . P 12,930
.
Less: Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
......
P 6,930
Multiplied by: Non-controlling interest % . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
......
Non-controlling Interest in Net Income (NCINI) partial goodwill . . . . . . . P 1,386
....
Less: NCI on goodwill impairment loss on full goodwill (P1,000 x 150
15%). . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . P 1,236
....

Or, alternatively

CI-CNI NCINI CNI


Parents net income own operations 20,0
00
Subsidiarys reported net income 10,400 2,600
Favorable leases amortization (4,800) (1,200)
Goodwill impairment loss (850) (150)
8
Upstream beg. inv. profit confirmed 0
Upstream end. inv. profit unconfirmed (336) (84)
25,93
24,694 1,236

9. b
Retained earnings of Parent Company (under equity method) /
Consolidated Retained earnings , January 1, P 40,000
20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 24,694
20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 64,694
..........
Less: Dividends paid Parent Company for 10,000
20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings of Parent Company (under equity method) /
Consolidated Retained Earnings, December 31, P 54,694
20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance
(which is under equity method) is always the same.

10. Ignore, there are some missing figures particularly the details of subsidiarys stockholders
equity since the date of acquisition.

11. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 137,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 25,000)
S Companys realized net income from separate operations P 152,000
Less: Amortization of allocated excess _ 0
P 152,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 45,600
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 45,600

12. b Combined cost of sales P


160,00
0
Less: Intercompany sales revenue 110,0
00
Add: Unrealized profit taken out of
inventory 26,2
(75%)x(35,000) = 50
Consolidated cost of sales P
76,250

13. d
Cost method: P40,000 x 70% = P28,000, dividend income
Equity Method: (P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary
income

14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

15. b
Cost method: P60,000 x 80% = P48,000
Equity Method: (P120,000 x 80%) (P200,000 x 50% = P100,000 x 20% =
P20,000)=P76,000

16. d Downstream situation


S Companys net income from own/separate operations P120,000
x: NCI % 20%
P 24,000

17. c
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189- __18,000
135)/P189]
Intercompany profit to be eliminated P54,000

18. b
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315- __30,000
P225)/P315]
Intercompany profit to be eliminated P 90,000

19. b - P45,000 + P110,000 - P50,000 - P80,000 = P25,000 increase

20. a
Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000
Ending inventory profit = P750,000 - P750,000/1.25 = P150,000
Downstream sales only affect equity in net income. P165,000 - P150,000 = P15,000
increase.

21. c - There is no unconfirmed profit in beginning or ending inventory, so the only


eliminating entry is to debit sales revenue and credit cost of goods sold for P1,000,000.

22. b
23. a
24. c P400,000 x 1/4 = P100,000 x 30% = P30,000
25. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 P20,000
240,000)/300,000
Less: Inventory write-down (P100,000 P92,000) __8,000
Intercompany profit to be eliminated P12,000

26. b [P300,000 x 1/2 = P150,000 x 40% = P60,000]


27. c P100,00 sales to unrelated/unaffiliated company.
28. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900

Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
29. a
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P 37,000
S Companys net income from own operations (P90,000 P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Companys realized net income from separate operations*... P16,100 16,100
Total P 53,100
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P 53,100
Less: Non-controlling Interest in Net Income* * 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 51,490
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P 37,000
S Companys net income from own operations (P90,000 P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Companys realized net income from separate operations*... P16,100 16,100
Total P 53,100
Less: Non-controlling Interest in Net Income* * P 1,610
Amortization of allocated excess 0 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 51,490
Add: Non-controlling Interest in Net Income (NCINI) _ 1,610
Consolidated Net Income for 20x4 P 53,100
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,900)
S Companys realized net income from separate operations P 16,100
Less: Amortization of allocated excess 0
P 16,100
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 1,610
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 1,610

30. d P27,000 x 67/90 = P20,100


31. b P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
32. a the cost of inventory produced by the parent (downstream sales)
33. c
Consolidated Net Income for 20x4
P Companys net income from own/separate operations (P90,000 P 28,000
P62,000)
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P 28,000
S Companys net income from own operations (P120,000 P90,000) P3 0,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ()
S Companys realized net income from separate operations*... P30,000 30,000
Total P 58,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P 58,000
Less: Non-controlling Interest in Net Income* * 3,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 55,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations (P90,000 P 28,000
P62,000)
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P 28,000
S Companys net income from own operations (P120,000 P90,000) P3 0,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales ()
S Companys realized net income from separate operations*... P30,000 30,000
Total P 58,000
Less: Non-controlling Interest in Net Income* * P 3,000
Amortization of allocated excess 0 3,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 55,000
Add: Non-controlling Interest in Net Income (NCINI) _ 3,000
Consolidated Net Income for 20x4 P 58,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations P 30,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations P 30,000
Less: Amortization of allocated excess 0
P 30,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 3,000
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 3,000
34. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales upstream sales 60,000 60,000
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500

35. d refer to No. 34 for computation


36. c (P10,140,000 P7,604,500) = P2,535,500
37. c
Sales
P Company 10,000,000
S Company __200,000
Total 10,200,000
Less: Intercompany sales downstream sales 60,000
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 7.5)/10] ________
Consolidated 10,140,000

38. a (P40,000 x 140% = P56,000)


39. a (P56,000 P40,000 = P16,000)
40. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
Add: Unrealized profit in EI of S Co.
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000

41. c - refer to No. 40 for computations


42. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P 225,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P225,000
S Companys net income from own operations P 90,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000
)
S Companys realized net income from separate operations*... P 75,000 75,000
Total P 300,000
Less: Amortization of allocated excess _0
Consolidated Net Income for 20x4 P 300,000
Less: Non-controlling Interest in Net Income* * 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 285,000
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
S Companys realized net income from separate operations P 75,000
Less: Amortization of allocated excess 0
P 75,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 15,000
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 15,000

43. c refer to No. 42 for computations


c
44.
45 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000

e Consolidated sales P140,000


46.
Cost of goods sold (60,000)
Consolidated net income P 80,000
Income to Dressers noncontrolling
interest:

Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200

A Inventory reported by Lorn P 24,000


47.
Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
48. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000

49. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573

50. a Selling price P 50,000


Less: Cost of sales _40,00
0
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000

51. a
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P180,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 3,000)

P Companys realized net income from separate operations*. P 177,000
..
S Companys net income from own 76,000
operations.
Total P253,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P253,000

52. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
53. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 (3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
54. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
Add: Unrealized profit in EI of S Co.
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
Consolidated 5,596,000

55. b
Cost of Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Less: Intercompany sales 200,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
Consolidated 680,000

56. b
Parent Subsidiar
y
Net Income from own operations:
X-Beams (parent)Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180)= P16,000,
70%:30% ( 11,200) ( 4,800)
Non-controlling Interest in Kents Net Income 85,200
57. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
S Companys net income of Subsidiary Company from its own
operations P 400,000 P 480,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Companys realized net income from separate operations P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 76,000 P100,000

58. a
**Non-controlling Interest in Net Income (NCINI) for 20x6
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 0
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Companys realized net income from separate operations P( 3,000)
Less: Amortization of allocated excess 0
P( 3,000)
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in GP P(300)
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in GP P( 300)
59. a
60 a Selling price P 60,000
.
Less: Cost of sales ( 48,000 )
Unrealized profit 12,000
Unsold fraction 1/3
Credit to Inventory P 4,000
61. a the cost from parent of P48,000 x 45/60 = P36,000
Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000

62. b the cost from parent of P48,000 x 15/60 = P12,000


63. a
Sales Cost of Sales
Intercompany
Parent 60,000 60,000
Subsidiary 1 60,000 45,000

Add: Cost of EI in S2 Co.


[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000
*or, P60,000 + P60,000 [P15,000 x (60-48/60]
64. b refer to No. 63 for computation
65. d P15,000 x [(60-48)/60] = P3,000
66. a
Consolidated Net Income for 20x3
P Companys net income from own/separate operations P 225,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P225,000
S Companys net income from own operations P150,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P105,000 x 20/120) ( 17,500
)
S Companys realized net income from separate operations*... P132,500 132,500
Total P 357,500
Less: Amortization of allocated excess _0
Consolidated Net Income for 20x3 P357,500

67. c
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P360,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P360,000
S Companys net income from own operations P135,000
Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120) ( 26,250
)
S Companys realized net income from separate operations*... P126,250 126,250
Total P 486,250
Less: Amortization of allocated excess _0
Consolidated Net Income for 20x4 P486,250
Less: Non-controlling Interest in Net Income* * 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 51,490
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P360,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P360,000
S Companys net income from own operations ( P135,000
Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120) ( 26,250
)
S Companys realized net income from separate operations*... P126,250 126,250
Total P 486,250
Less: Non-controlling Interest in Net Income* * P 37,875
Amortization of allocated excess 0 37,875
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 448,375
Add: Non-controlling Interest in Net Income (NCINI) _37,875
Consolidated Net Income for 20x4 P 486,250
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 135,000
Realized profit in beginning inventory of P Company (upstream sales) 17,500
Unrealized profit in ending inventory of P Company (upstream sales) ( 26,250)
S Companys realized net income from separate operations P 126,250
Less: Amortization of allocated excess 0
P126,250
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 37,875
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 37,875
68. a refer to No. 67 for computation.
69. d
Consolidated Net Income for 20x5
P Companys net income from own/separate operations P 450,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P450,000
S Companys net income from own operations P240,000
Realized profit in beginning inventory of P Company (upstream sales)
[P157,500 x 20/120) 26,250
Unrealized profit in ending inventory of P Company (upstream sales)
[P180,000 x 20/120) ( 30,000
)
S Companys realized net income from separate operations*... P236,250 236,250
Total P 686,250
Less: Amortization of allocated excess _0
Consolidated Net Income for 20x4 P686,750
Less: Non-controlling Interest in Net Income* * 70,875
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 615,375
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations P 450,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_0)
P Companys realized net income from separate operations*... P450,000
S Companys net income from own operations P240,000
Realized profit in beginning inventory of P Company (upstream sales)
[P157,500 x 20/120) 26,250
Unrealized profit in ending inventory of P Company (upstream sales)
[P180,000 x 20/120) ( 30,000
)
S Companys realized net income from separate operations*... P236,250 236,250
Total P 686,250
Less: Non-controlling Interest in Net Income* * P 70,875
Amortization of allocated excess 0 70,875
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 615,375
Add: Non-controlling Interest in Net Income (NCINI) __70,875
Consolidated Net Income for 20x5 P 686,250
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 240,000
Realized profit in beginning inventory of P Company (upstream sales) 26,250
Unrealized profit in ending inventory of P Company (upstream sales) ( 30,000)
S Companys realized net income from separate operations P 236,250
Less: Amortization of allocated excess 0
P 236,250
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 70.875
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 70,875

70. a refer to No. 69 for computation.


71. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
Less: Intercompany sales 140,000
Consolidated 560,000

72. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 47,000

73. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
Less: Intercompany sales 140,000
Add: Unrealized profit in EI of S Co.
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
Consolidated 184,800

74. a or e - if full goodwill method.

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

Common stock S Company, December 31, 20x4 P 140,000


Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4 P210,000
Add: Net income of S for 20x4 154,000
Total P364,000
Less: Dividends paid 20x4 0 364,000
Stockholders equity S Company, December 31, 20x4 P 504,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 35,000
Amortization of allocated excess (refer to amortization above) :
20x5 (P35,000/7 years) ( 5,000)
Fair value of stockholders equity of S, December 31, 20x5 P 534,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 106,800
Add: NCI on full-goodwill (P70,000 P56,000) 14,000
Non-controlling interest (full- goodwill).. P 120,800

Partial-goodwill
Fair value of Subsidiary (80%)
P
Consideration transferred.. 364,000
Less: Book value of stockholders equity of S:
Common stock (P140,000 x 80%). P112,000
168,0 280,00
Retained earnings (P210,000 x 80%)... 00 0
P
Allocated excess (excess of cost over book value).. 84,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P35,000 x 80%) ___28,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P 56,000
Full-goodwill
Fair value of Subsidiary (100%)
P
Consideration transferred: Cash (P364,000/80%) 455,000
Less: Book value of stockholders equity of S (P350,000 x 100%) __350,000
P
Allocated excess (excess of cost over book value).. 105,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P35,000 x 100% 35,000
Positive excess: Full-goodwill (excess of cost over P
fair value)... 70,000
75. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
Consolidated 1,064,000
76. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 16,800
112)/140]
Consolidated 347,200

77. d Add the two book values and remove P100,000 intercompany transfers.
78. c Intercompany gross profit (P100,000 - P80,000) ..................................... P20,000
Inventory remaining at year's end .......................................................... 60%
Unrealized intercompany gross profit ..................................................... P12,000

CONSOLIDATED COST OF GOODS SOLD


Parent balance .................................................................................. P140,000
Subsidiary balance ............................................................................ 80,000
Remove intercompany transfer ......................................................... (100,000)
Defer unrealized gross profit (above) ................................................ 12,000
Cost of goods sold .................................................................................. P132,000

79. c Consideration transferred .................................... P260,000


Non-controlling interest fair value.......................... 65,000
SZ total fair value.................................................. P325,000
Book value of net assets........................................ (250,000)
Excess fair over book value P75,000

Annual Excess
Life Amortizations
Excess fair value assigned to undervalued assets:
Equipment........................................................ 25,000
5 years..................................................P5,000
Secret Formulas .............................................. 50,000
20 years............................................... 2,500
Total ................................................................... P -0- P7,500

Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)

80. a

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

Common stock S Company, December 31, 20x4 P 100,000


Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4 P150,000
Add: Net income of S for 20x4 110,00
0
Total P260,000
Less: Dividends paid 20x4 260,000
0
Stockholders equity S Company, December 31, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 75,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Fair value of stockholders equity of S, December 31, 20x5 P 427,500
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 85,500
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill).. P 85,500

Partial-goodwill
Fair value of Subsidiary (80%)
P
Consideration transferred.. 260,000
Less: Book value of stockholders equity of S:
Common stock (P100,000 x 80%). P 80,000
120,0 200,0
Retained earnings (P150,000 x 80%)... 00 00
P
Allocated excess (excess of cost over book value).. 60,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P25,000 x 80%) 20,000
Increase in secret formulas: P50,000 x 80% 40,000

Full-goodwill
Fair value of Subsidiary (100%)
P
Consideration transferred: Cash (80%) 260,000
FV of NCI (20%) ___65,000
P
Fair value of Subsidiary (100%) 325,000
Less: BV of stockholders equity of S (P100,000 + P150,000) x
100% __250,000
P
Allocated excess (excess of cost over book value).. 75,000
Add (deduct): (Over) under valuation of assets and liabilities 25,00
Increase in equipment P25,000 x 100% 0
P
Increase in secret formulas: P50,000 x 100% 50,000

Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500

81. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).

82. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 P80,000) .................................... P20,000
Inventory Remaining at Year's End ........................................................ 60%
Unrealized Intercompany Gross profit, 12/31 .......................................... P12,000

83. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825

It should be noted that PAS 27 allow the use of cost model in accounting for investment
in subsidiary in the books of parent company but not the equity method.

84. c refer to No. 83 for computation.


85. d refer to No. 83 for computation.
86. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5
S Companys net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000
RPBI of P Company (upstream sales) 0 300 1,000
UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)
S Companys realized net income from separate operations P 69,700 P 84,300 P 94,250
Less: Amortization of allocated excess 0 0 0
P P P
69,700 84,300 94,250
Multiplied by: Non-controlling interest %.......... 10% 10% 10%
Non-controlling Interest in Net Income (NCINI) partial P 6,970 P 8,430 P 9,425
goodwill
Less: NCI on goodwill impairment loss on full goodwill
0 0 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 6,970 P 8,430 P 9,425

87. c refer to No. 86 for computation.


88. c refer to No. 86 for computation.
89. a refer to No. 86 for computation.
90. a refer to No. 86 for computation.
91. b refer to No. 86 for computation.
92. a none, since intercompany profit starts only at the end of 20x3.
93. b the amount of unrealized profit at the end of 20x3.
94. c the amount of unrealized profit at the end of 20x4.
95. d P32,000 = (P200,000 + P140,000)
P308,000
96. b P6,000 = (P26,000 + P19,000) P39,000
97. c P9,000 = Inventory held by Spin P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) (3,000)
P52,000]
Carrying cost of inventory for
Power P 9,000

98. B .20 = P14,000 / [(Stockholders Equity P50,000)


+(Patent P20,000)]
99 B 14 years = (P28,000 / [(28,000 - P20,000) / 4
years]
100. c (P10,000 x 80%)
101. d the original cost
102. d
Date of Acquisition (1/1/2010) Partial Full
Fair value of consideration givenP 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess..P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%).. 16,000
Goodwill ....P 20,000 / 80% P 25,000

Amortization of equipment: P20,000 / 10 years = P2,000

RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050


RPBI of P (upstream sales): P2,500 (given).................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of Parent
P60,000 x 30% = P18,000 x 25/125. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P60,000 x 30% = P18,000 x 20%... 2,400
Consolidated Net Income for 20x5
P Companys net income from own/separate operations P 100,000
Realized profit in beginning inventory of S Company (downstream sales) 1,050
Unrealized profit in ending inventory of S Company (downstream sales) (_ 3,600)
P Companys realized net income from separate operations*... P 97,450
S Companys net income from own operations P 30,000
Realized profit in beginning inventory of P Company (upstream sales) 1,000
Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
S Companys realized net income from separate operations*... P28,600 28,600
Total P 126,050
Less: Amortization of allocated excess 2,000
Consolidated Net Income for 20x4 P124,050
Less: Non-controlling Interest in Net Income* * 5,320
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 118,730
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations P 100,000
Realized profit in beginning inventory of S Company (downstream sales) 1,050
Unrealized profit in ending inventory of S Company (downstream sales) (_ 3,600)
P Companys realized net income from separate operations*... P 97,450
S Companys net income from own operations P 30,000
Realized profit in beginning inventory of P Company (upstream sales) 1,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
S Companys realized net income from separate operations*... P 28,600 28,600
Total P 126,050
Less: Non-controlling Interest in Net Income* * P 5,320
Amortization of allocated excess 2,000 7,320
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P118,730
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320
Consolidated Net Income for 2012 P124,050
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 2012


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 30,000
Realized profit in beginning inventory of P Company (upstream sales) 1,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400)
S Companys realized net income from separate operations P 28,600
Less: Amortization of allocated excess 2,000
P 26,600
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 5,320
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 5,320

103. b refer to No. 102


104. a P124,050 refer to No. 102
105. b refer to No. 107
106. c refer to No. 107
107. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2...... P
150,000
Retained earnings - S, 12/31/20x2:
RE- S, 1/1/20x2..P300,000
+: NI-S. 30,000
-: Div S 10,000
320,000
Book value of Stockholders equity, 12/31/20x2....... P
470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 ...
20,000
Accumulated amortization (P2,000 x 3 years)....
( 6,000) Fair Value of Net Assets/SHE, 12/31/20x2.
P 484,000
UPEI of P (up)
( 2,400)
Realized SHE S,12/31/20x2. P
481,600
x: NCI %..........................................................................................................
_ 20% Non-controlling Interest (in net assets) - partial..
P 96,320 +: NCI on full goodwill (25,000 20,000)..
5,000
Non-controlling Interest (in net assets) full.... P
101,320
108. d refer to No. 109
109. d
Note: Preferred solution - since what is given is the RE P, 1/1/20x2
(beginning
balance of the current year) -
Retained earnings Parent, 1/1/20x2 (cost) P
700,000
-: UPEI of S (down) 20x1 or RPBI of S (down) 20x2...
1,050
Adjusted Retained earnings Parent, 1/1/20x2 (cost)
P698,950
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x0.P 230,000
Less: Retained earnings Subsidiary, 1/1/20x2 300,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 70,000
Accumulated amortization (1/1/20x0 1/1/20x2):
P 2,000 x 2 years( 4,000)
UPEI of P (up) 20x1 or RPBI of P (up) 20x2...... ( 1,000)
P 65,000
X: Controlling Interests.........____80%
52,000
RE P, 1/1/2012 (equity method) = CRE, 1/1/20x2.....
P750,950
+: CI CNI or Profit Attributable to Equity Holders of Parent..
118,730
-: Dividends P
60,000
RE P, 12/31/20x2 (equity method) = CRE, 12/31/20x2......
P809,680
Or, if RE P is not given on January 1, 20x2, then RE P on December 31,
2012 should be use:
Retained earnings Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 P60,000).. P
748,000
-: UPEI of S (down) 20x2 or RPBI of S (down) 20x3...
3,600
Adjusted Retained earnings Parent, 1/1/20x2 (cost) P 744,400
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x0.P 230,000
Less: Retained earnings Subsidiary, 12/31/20x2
(P300,000 + P20,000 P10,000)........ 320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 90,000
Accumulated amortization (1/1/20x0 12/31/20x2):
P 2,000 x 3 years.. ( 6,000)
UPEI of P (up) 20x2 or RPBI of P (up) 20x3.. .. ( 2,400)
P 81,600
X: Controlling Interests. 80%
65,280
RE P, 12/31/20x2 (equity method) = CRE, 12/31/20x2.
P809,680

110. b
Consolidated Stockholders Equity, 12/31/20x2:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x2:
Common stock P (P only)..
P1,000,000
Retained Earnings P (equity method), 12/31/20x2..
809,680
Controlling Interest / Parents Stockholders Equity.
P1,809,680
Non-controlling interest, 12/31/20x2 (partial).
96,320
Consolidated Stockholders Equity, 12/31/20x2
P1,906,000

111. a
Consolidated Stockholders Equity, 12/31/20x2:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x2:
Common stock P (P only)..
P1,000,000
Retained Earnings P (equity method), 12/31/20x2..
809,680
Controlling Interest / Parents Stockholders Equity.
P1,809,680
Non-controlling interest, 12/31/20x2 (full)...
101,320
Consolidated Stockholders Equity, 12/31/20x2
P1,911,000

112. c
Non-controlling interest , December 31, 20x1
Common stock Subsidiary Company, December 31, 20x1 P 10,000
Retained earnings Subsidiary Company, December 31, 20x1 8,600
Stockholders equity Subsidiary Company, December 31, 20x4 P 18,600
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) 20x4 ( 0)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P 18,600
Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200
Realized stockholders equity of subsidiary, December 31, 20x4 P 17,400
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest. December 31, 20x1 .. P 3,480

113. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000

114. c
RPBI of P (upstream sales).... 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................... 15,000

Consolidated Net Income for 20x5


P Companys net income from own/separate operations (P103,500 P 49,500
P54,000)
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 49,500
S Companys net income from own operations P 71,250
Realized profit in beginning inventory of P Company (upstream sales) 45,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000
)
S Companys realized net income from separate operations*... P 101,250
101,250
Total P 150,750
Less: Amortization of allocated excess ____0
Consolidated Net Income for 20x4 P150,750
Less: Non-controlling Interest in Net Income* * 10,125
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 140,625
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P103,500 P 49,500
P54,000)
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 49,500
S Companys net income from own operations P 71,250
Realized profit in beginning inventory of P Company (upstream sales) 45,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000
)
S Companys realized net income from separate operations*... P 101,250
101,250
Total P 150,750
Less: Non-controlling Interest in Net Income* * P 10,125
Amortization of allocated excess ___0 10,125
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P140,625
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125
Consolidated Net Income for 2012 P150,750
*that has been realized in transactions with third parties.

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


S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 71,250
Realized profit in beginning inventory of P Company (upstream sales) 45,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
S Companys realized net income from separate operations P 101,250
Less: Amortization of allocated excess _0
P101,250
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 10,125
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 10,125

(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90 (P180,000 P150,000)) 27,000
Beginning Retained Earnings-Paque Co.
27,000
To establish reciprocity as of 1/1/20x8

(2) Sales 300,000


Purchases (Cost of Goods Sold)
300,000
To eliminate intercompany sales

(3) Ending Inventory - Income Statement (CGS) 15,000


Ending Inventory (Balance Sheet)
15,000
To eliminate unrealized intercompany profit in ending inventory (P75,000 0.20)

(4) Beginning Retained Earnings - Paque Co. (P45,000 0.90) 40,500


Non-controlling Interest P45,000 0.10) 4,500
Beginning Inventory (Income statement)
45,000
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year

(5) Dividend Income (P60,000 0.90) 54,000


Dividends Declared
54,000
To eliminate intercompany dividends

(6) Beginning Retained Earnings- Segal Co. 180,000


Common Stock - Segal Company 750,000
Investment in Segal Company (P810,000 + P27,000) 837,000
Non-controlling Interest (P750,000 + P180,000) x .10 93,000
To eliminate investment account and create non-controlling interest account

115. c
Preferred Solution - since what is given is the RE P, 1/1/20x8 -
Retained earnings Parent, 1/1/20x8 (cost).. P 598,400
-: UPEI of S (down) 20x7 or RPBI of S (down) 20x8...
25,000
Adjusted Retained earnings Parent, 1/1/20x8 (cost) P 573.400
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x4P 95,000
Less: Retained earnings Subsidiary, 1/1/20x8.. 144,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 49,000
Accumulated amortization (1/1/20x4 1/1/20x8). 0
UPEI of P (up) 20x7 or RPBI of P (up) 20x8... ( 0)
P 49,000
X: Controlling Interests 90% 44,100
RE P, 1/1/20x8 (equity method) = CRE, 1/1/20x8.. P
617,500
+: CI CNI or Profit Attributable to Equity Holders of Parent
203,700
-: Dividends P.. 110,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014.. P
711,200

Consolidated Net Income for 20x8


P Companys net income from own/separate operations P132,000
Realized profit in beginning inventory of S Company (downstream sales) 25,000
Unrealized profit in ending inventory of S Company (downstream sales) (10,000)
P Companys realized net income from separate operations*... P147,000
S Companys net income from own operations. P 63,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 63,000 63,000
Total P210,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x8 P210,000
Less: Non-controlling Interest in Net Income* * 6,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x8.. P203,700
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x8
P Companys net income from own/separate operations P132,000
Realized profit in beginning inventory of S Company (downstream sales) 25,000
Unrealized profit in ending inventory of S Company (downstream sales) (10,000)
P Companys realized net income from separate operations*... P147,000
S Companys net income from own operations. P 63,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 63,000 63,000
Total P210,000
Less: Non-controlling Interest in Net Income* * P 6,300
Amortization of allocated excess _____0 6,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P203,700
Add: Non-controlling Interest in Net Income (NCINI) _ 6,300
Consolidated Net Income for 20x8 P210,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x8


S Companys net income of Subsidiary Company from its own operations P 63,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations P 63,000
Less: Amortization of allocated excess 0
P 63,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 6,300
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 6,300

Amortization of equipment: P20,000 / 10 years = P2,000


RPBI of Sedbrock (downstream sales) 20x8.........................................................
P25,000
UPEI of Sedbrock (downstream sales) 20x8: P60,000 x 20%/120%..
10,000
Net income:
Pruitt Co. Sedbrook
Sales P1,210,00 P
0 636,000
Less: Cost of goods sold
Inventory, 1/1 165,000 132,000
Purchases 935,000 420,000
Inventory, 12/31 (220,000) __880,000 (144,000) __408,000
Gross profit P P 228,000
330,000
Less: Other expense 198,00 165,00
0 0
Net income from its own
separate operations P P 63,000
132,000
Add: Dividend income 31,50
0 -
Net income P P 63,000
163,500
Dividends declared P P 35,000
110,000

Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings Parent, 1/1/20x8 (cost).. P
598,400
Add: NI of Parent as reported 20x8 under cost model
163,500
Less: Dividend of Parent 20x8..
110,000
Retained earnings Parent, 12/31/20x8 (cost).. P
651,900
-: UPEI of S (down) 20x8 or RPBI of S (down) 20x9....
10,000
Adjusted Retained earnings Parent, 12/31/20x8 (cost model).. P
641,900
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x4 P 95,000
Less: Retained earnings Subsidiary, 12/31/20x8
Retained earnings Subsidiary , 1/1/20x8.. P144,000
Add: NI of Subsidiary 20x8 63,000
Less: Dividend of Subsidiary 20x8... 35,000 172,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 97,000
Accumulated amortization (1/1/20x4 12/31/20x8)..( 0)
UPEI of P (up) 20x8 or RPBI of P (up) 20x9........( 0)
P 97,000
x: Controlling Interests 90%
69,300
RE P, 12/31/20x8 (equity method) = CRE, 12/31/20x8 P
711,200

(Not required)
Analysis of workpaper entries
(1) Investment in Sedbrook Company (0.90(P144,000 P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8

(2) Sales 250,000


Purchases (Cost of Goods Sold) 250,000
To eliminate intercompany sales

(3) Ending Inventory - Income Statement (CGS) 10,000


Ending Inventory (Balance Sheet) 10,000
To eliminate unrealized intercompany profit in ending
inventory (P60,000 (P60,000/1.2)

(4) Beginning Retained Earnings - Pruitt Co. 25,000


Beginning Inventory (Income Statement) 25,000
To recognize intercompany profit in beginning inventory
realized during the year

(5) Dividend Income (P35,000.90) 31,500


Dividends Declared 31,500
To eliminate intercompany dividends

(6) Beginning Retained Earnings - Sedbrook Co. 144,000


Common Stock - Sedbrook Co. 600,000
Investment in Sedbrook Co.(P625,500 + P44,100) 669,600
Non-controlling Interest (P744,000 x .10) 74,400
To eliminate investment account and create non-controlling interest account

116. P941,000.
Fair value of consideration givenP1,360,000
Less: Book value of SHE - Subsidiary):
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess..P 200,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in franchise (P250,000 x 80%).. 200,000 / 80% = P250,000
P 0

Amortization of equipment: P250,000 / 25 years = P10,000

RPBI of S (downstream sales):........................................................


P30,000
RPBI of P (upstream sales).......................................................
20,000
UPEI of S (downstream sales)... 5,000
UPEI of P (upstream sales). 10,000

Consolidated Net Income for 20x4


P Companys net income from own/separate operations P700,000
Realized profit in beginning inventory of S Company (downstream sales) 30,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 5,000)
P Companys realized net income from separate operations*... P725,000
S Companys net income from own operations. P270,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P280,000 280,000
Total P1,005,000
Less: Amortization of allocated excess 10,000
Consolidated Net Income for 20x4 P 995,000
Less: Non-controlling Interest in Net Income* * 54,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 941,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 2014
P Companys net income from own/separate operations P700,000
Realized profit in beginning inventory of S Company (downstream sales) 30,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 5,000)
P Companys realized net income from separate operations*... P725,000
S Companys net income from own operations. P270,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P280,000 280,000
Total P1,005,000
Less: Non-controlling Interest in Net Income* * P 54,000
Amortization of allocated excess 10,000 64,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 941,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 2014


S Companys net income of Subsidiary Company from its own operations P270,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations P280,000
Less: Amortization of allocated excess 10,000
P270,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 54,000
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 54,000

(Not required)
Analysis of workpaper entries
(1) Sales 120,000
Purchases (Cost of Goods Sold) 120,000
To eliminate intercompany sales (P50,000 + P70,000)

(2) Ending Inventory Income Statement (CGS) 15,000


Inventory (Balance Sheet) 15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)

(3) Beginning Retained Earnings Paul Company (P20,000 0.8) 16,000


Non-controlling Interest 4,000
Beginning Inventory Income Statement (CGS) 20,000
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year

(4) Beginning Retained Earnings Paul Company. 30,000


Beginning Inventory Income Statement (CoGS) 30,000
To recognize profit in beginning inventory (downstream sales)
realized during the year and to reduce consolidated retained
earnings at beginning of the year for the amount of unrealized
downstream intercompany profit at the beginning of the year

117. P1,863,000
Retained earnings Parent, 12/31/20x4 (cost).. P
1,500,000
-: UPEI of S (down) 20x4 or RPBI of S (down) 20x5....
5,000
Adjusted Retained earnings Parent, 12/31/20x4 (cost model).. P
1,495,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x1.P 450,000
Less: Retained earnings Subsidiary, 12/31/20x4 960,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 510,000
Accumulated amortization (1/1/20x1 12/31/20x4)..( 40,000)
UPEI of P (up) 20x4 or RPBI of P (up) 20x5........ ( 10,000)
P 460,000
x: Controlling Interests 80%
368,000
RE P, 12/31/20x4 (equity method) = CRE, 12/31/20x4
P1,863,000

118. P54,000 refer to No. 116 for computation


119. a
Full-goodwill
Fair value of Subsidiary (100%)
P9,375,00
Consideration transferred: Cash (P7,500,000/80%) 0
Less: Book value of stockholders equity of S (P6,000,000 x _6,000,00
100%) 0
P3,375,00
Allocated excess (excess of cost over book value).. 0
Add (deduct): (Over) under valuation of assets and liabilities P( 150,000
Decrease in inventory: P(150,000 x 100%) ) ___300,00
Increase in building: P450,000 x 100% ___450,000 0
Positive excess: Full-goodwill (excess of cost over P3,075,00
fair value)... 0

Partial-goodwill
Fair value of Subsidiary (80%)
P7,500,00
Consideration transferred.. 0
Less: Book value of stockholders equity of S:
Common stock (P1,000,000 x 80%). P 800,000
4,000,00 4,800,00
Retained earnings (P5,000,000 x 80%)... 0 0
P2,700,00
Allocated excess (excess of cost over book value).. 0
Less: Over/under valuation of assets and liabilities:
Add (deduct): (Over) under valuation of assets and liabilities P( 120,000
Decrease in inventory: P(150,000 x 80%) )
Increase in building: P450,000 x 80% ___360,000 240,000
Positive excess: Partial-goodwill (excess of cost over P2,460,00
fair value)... 0

Amortization schedule

Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000

120. a
Non-controlling interest is 20% 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000

Or, alternatively:

Non-controlling interest, December 31, 20x2

Common stock S Company, December 31, 20x2 P1,000,000


Retained earnings S Company, December 31, 20x2 5,000,000
Stockholders equity S Company, December 31, 20x2 P6,000,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders equity of S, December 31, 20x2 P6,300,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P
1,260,000
Add: NCI on full-goodwill (P3,075,000 P2,460,000) ___615,000
Non-controlling interest (full- goodwill).. P1,875,000

121. d P2,393,800

Non-controlling interest , December 31, 20x4

Common stock S Company, December 31, 20x4 P1,000,000


Retained earnings S Company, December 31, 20x4 7,524,000
Stockholders equity S Company, December 31, 20x4 P8,524,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and __90,000
20x4:
Fair value of stockholders equity of S, December 31, 20x4 P8,914,000
Less: UPEI of P (up) 20x3 or RPBI of P (up) 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage... _ 20
Non-controlling interest (partial goodwill).. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill).. P2,393,800

RPBI of P (upstream sales):


Sales of Subsidiary EI % EI of P GP% of Subsidiary
P100,000 x 60% = P60,000 x 50,000/100,000...
30,000

UPEI of P (upstream sales): (given). 20,000

Or, alternatively:
Balance of NCI on acquisition December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit 20x4 ( 20,000)
Adjusted change in retained earnings of Jane since
acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800

122. b
Retained earnings Parent, 12/31/20x4 (cost)..
P11,900,000
-: UPEI of S (down) 20x4 or RPBI of S (down) 20x5....
0
Adjusted Retained earnings Parent, 12/31/20x4 (cost model)..
P11,900,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 12/31/20x2..P5,000,000
Less: Retained earnings Subsidiary, 12/31/20x4 7,524,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P2,524,000
Accumulated amortization (1/1/20x1 12/31/20x4).. 90,000
UPEI of P (up) 20x4 or RPBI of P (up) 20x5.....( 20,000)
P2,594,000
x: Controlling Interests 80%
2,075,200
RE P, 12/31/20x4 (equity method) = CRE, 12/31/20x4
P13,975,200

122. b - (P125,000 - P93,000) .8 = P25,600


123. c - (P125,000 - P93,000) .2 = P6,400
124. d
125. a - (P125,000 - P93,000) .7
126. c - (P125,000 - P93,000) .3
127. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080

Theories
1 True 6. True 11 True 16 Fals 21 True 26 e 31 b 36 a
. . . e . . .
2 Fals 7. Fals 12 Fals 17 Fals 22 Fals 27 e 32 e 37 b
. e e . e . e . e . . .
3 Fals 8. Fals 13 Fals 18 True 23 b 28 c 33 b 38 e
. e e . e . . . . .
4 True 9. True 14 True 19 True 24 e 29 d 34 d 39 d
. . . . . . .
5 Fals 10 Fals 15 True 20 Fals 25 a 30 a 35 a 40 d
. e , e , . e . . . .

41 b 46 c 51 a 56 c 61 a 66 b 71 b 76 c
. . . . . . .
42 c 47 b 52 c 57 b 62 a 67 b 72 a 77 c
. . . . . . . .
43 a 48 c 53 c 58 c 63 b 68 c 73 a 78 a
. . . . . . . .
44 c 49 a 54 d 59 b 64 c 69 d 74 a 79 c
. . . . . . . .
45 d 50 d 55 c 60 c 65 a 70 b 75 c 80 e
. , , . . . . .