You are on page 1of 99

Chapter 16

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

*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... 15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.

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

Problem II (Assume the use of full-goodwill approach)
Cost of 75% investment 600,000
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares 400,000
Retained earnings 100,000
500,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 40,000
Decrease in Patents (70,000) (30,000)
Goodwill - full 330,000

A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5 20x6
Inventory P40,000 1 P 40,000 P 40,000 P - P -
Subject to Annual Amortization
Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)
Amortization P 26,000 P 26,000 P(14,000) P(14,000)
Impairment of goodwill 330,000 - _____ _____ ______ __ 19,300
P 26,000 P 26,000 P(14,000) P 5,300

Unamortized balance of allocated excess:
Balance Balance
Jan. 1 Amortization Dec. 31
20x4 20x4 & 20x5 20x6
Inventory 40,000 40,000
Patents (70,000) (28,000) (14,000) (28,000)
Goodwill 330,000 0 19,300 310,700
300,000 12,000 5,300 282,700

Journal Entries Year 1 Year 2 Year 3
Investment in Small 600,000
Cash 600,000
Cash 18,750 7,500 30,000
Dividend income 18,750 7,500 30,000

2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700
b.
FV of NCI, 12/31/20x6:
Common stock, 12/31/20x6 P 400,000
Retained earnings, 1/1/20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000) P 110,000
Add; NI – Subsidiary (20x6) 90,000
Dividends – Subsidiary 20x6 ( 40,000) 160,000
Book value of SHE – S, 12/31/20x6 P 560,000
Adjustments to reflect fair value P 300,000
Amortization of allocated excess – 20x5 ( 12,000)
- 20x6 14,000
Impairment of goodwill – 20x5 ( 19,300)___282,700
FV of SHE of S P842,700
Multiplied by: NCI% 25%
FV of NCI P210,675

Or, alternatively;
Small’s common/ordinary shares 400,000
Small’s retained earnings (100,000+80,000-25,000-35,000-10,000+90,000
-40,000) 160,000
560,000
Unamortized acquisition differential 282,700
842,700
NCI’s share (25%) 210,675
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500
Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, January 1, 20x5 (cost model P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x5
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)

P ( 2,000)
Multiplied by: Controlling interests %................... 75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 1,500
Consolidated Retained earnings, January 1, 20x6 P498,500

Incidentally, the CRE, December 31, 20x6 would be as follows:
Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 219,050
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P647,550

d. P219,050
Consolidated Net Income for 20x6
Net income from own/separate operations
Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 16,350
Amortization of allocated excess 5,300
Goodwill impairment 19,300 40,950
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P219,050
Add: Non-controlling Interest in Net Income (NCINI) 16,350
Consolidated Net Income for 20x4 P235,400

*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 5,300)
P 84,700
Multiplied by: Non-controlling interest %.......... 25%
P 21,175
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825
Non-controlling Interest in Net Income (NCINI) P 16,350
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.

e. P16,350 – refer to (d) for computations

Teacher’s Guide: For purposes of comparison between Cost Model/Method and Equity Method

1. Year 1 Year 2 Year 3
Investment in Small 600,000
Cash 600,000
Investment in Small (75% x Small’s profit) 60,000 (26,250) 67,500
Investment income 60,000 (26,250) 67,500
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Investment income (75% x amortization of PD*) 19,500 (10,500) 3,975
Investment in Small 19,500 (10,500) 3,975
*purchase differential
( ) – indicates reduction

000 Patents 90. P646.000 Retained earnings 100.000 79.025 Investment in Small under equity method 632.000 .000 Less: cumulative amortization of acquisition differential 17.000 9.000 70.000 160.000 P 9.000 P 79. 20x4 160. Unamortized balance of allocated excess: Balance Balance Dec.025 Note: Regardless of the method used (cost or equity) answers for No.000.000 ___9.700 Large’s share (75%) 32.000 9. 31 20x4 20x5 20x6 20x6 Inventory 70.000 9.000 72.000 Non-controlling interest (15% x 760.000 P160.000 Fair value of Subsidiary (Implied cost of 100% investment).000 Small’s retained earnings.000/85% 760.000 P 79.000 Change since acquisition 60.000 10 __9. 31 Amortization Dec.000.300 42.000 Less: Over/under valuation of A/L (Allocated to): Increase in Inventory 70.000 A summary or depreciation and amortization adjustments is as follows: Account Adjustments to be Over/ Annual Current amortized under Life Amount Year(20x5) 20x6 20x7 Inventory P70.000 1 P 70. Investment in Small under cost method 600.000 72.12/31/20x4 114.000 P .000 Less: Carrying amount of Silk’s net assets = Carrying amount of Silk’s shareholders’ equity Common/Ordinary shares 500.000 Small’s retained earnings.000 600. end of year 160. P - Subject to Annual Amortization Patents 90.000 Allocated Excess: Acquisition differential – December 31.000 P 70.000 Patents 90.000 ___9. Problem III Cost of 8% investment 646.000 P 9.000 ___9. fair value of subsidiary). date of acquisition 100. 2 (a) to (e) above are exactly the same.

1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Net income from own/separate operations
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent P(13,650) P(21,200)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss (CNI) P(21,000) P(14,750)

20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P 43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P( 7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P 6,450
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.

2. CI-CNI – refer to computation in No. 1
20x5: P(21,000)
20x6: P14,750

Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000) - 7,350
20x6: 15%  (52,000 – 9,000) 6,450

(2)
20x5 20x6
Profit (loss) Pen 28,000 (45,000)
Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) _ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)

3. CRE, 12/31/20x6 – P73,150
Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 67,000
Less: Amortization of allocated excess – 20x5 79,000
Amortization of allocated excess – 20x6 __ 9,000
P (21,000)
Multiplied by: Controlling interests %................... 85%
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)
Consolidated Retained earnings, December 31, 20x6 P 73,150

4. NCI, 12/31/20x6: P110,850
FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P) + P15,000 ( 15,000) 167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
Multiplied by: NCI% 15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill 0
FV of NCI (full),12/31/20x6 P 110,850

Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P 114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings, 12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Amortization of allocated excess (79,000 + 9,000) 88,000
( 21,000)
NCI’s share 15% ( 3,150)
Non-controlling interest – Dec. 31, 20x6 P 110,850

5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000

Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000
- 21,000
85% - 17,850
Invest. account – equity method as at Dec. 31, 20x6 628,150

Implied value of 100% (628,150 / 85%) 739,000
Silk –Common shares 500,000
Retained earnings 167,000
667,000
Balance unamortized allocated excess – Patents 72,000

Problem IV
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM ........................... P664,000
Noncontrolling interest fair value ............................. 166,000*
Fair value of Subsidiary………………………… P830,000
Less: Book value of SHE – S…..……………………. (600,000)
Positive excess ............................................................ 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000 20 years P4,000
Goodwill - full P150,000 indefinite -0-
Total ........................................................................ P4,000
2. P150,000 – full goodwill (see No. 1 above)
P120,000 – partial-goodwill:
Consideration transferred by MM ........................... P 664,000
Less: Book value of SHE – S (P600,000 x 80%)…….. 480,000
Allocated excess…………………………………….. P184,000
Less: Over/under valuation of A and L:
P80,000 x 80%................................................. 64,000
Goodwill - partial ........................................................ P120,000

3. Full-goodwill
Common Stock - TT .................................................................. 300,000
Additional Paid-in Capital - TT ............................................... 90,000
Retained Earnings - TT .............................................................. 210,000
Investment in TT Company (80%) ................................... 480,000
Non-controlling interest (20%) ......................................... 120,000

Buildings ..................................................................................... 80,000
Goodwill .................................................................................... 150,000
Investment in TT Company (80%) ................................... 184,000
Non-controlling interest (P166,000 – P120,000) ............ 46,000

...................... Using the acquisition method...... 6...................000 Non-controlling interest (20% x P80.......TT .. 480............000 Investment in S Co 3.................. 80... ( 8..........000) .250...... Cost Model/Initial Value Method Dividends received (80%) .....TT ..............000) between the buildings' book value and fair value........000 Buildings ...TT .000 Additional Paid-in Capital .....................172......000 Retained earnings – S 1....000 c....... P280........... 120..000 Investment in S 150.................... annual excess amortization is P4.000 × 2) ………….. Land 400..... Investment in S 225..... 16.... 80.........000 Beginning Retained Earnings-Palm Inc........ 300...........000 x 10%)– (P100.....000 8............................000 Investment in TT Company (80%) .................000 Problem V 1................................ 225.................... Based on a 20 year life....000................. 120.................. P 800............... 1 above)……………………………… P 120.000 Non-controlling interest (20%) .000 x 10%) 425.000 Retained earnings – P (bargain purchase gain – ........................................... Acquisition-date fair value allocated to goodwill: Goodwill-full ( see No...... Partial-goodwill Common Stock ..... Cost Model/Initial Value Method – same answer with No..................000 4............... 300.........000 5..90 x(P1.......000 x 10%)] 40. P500...000 NCI (P4...........000 TT book value—buildings .....000)) b.250.825... Common stock.....000 NCI [(P500.............000 Investment in Taylor—12/31/x4 (original value paid)………… P664.........000 Allocation .. 90.......000 7...................000 Goodwill-partial (see No........000 Additional paid-in capital...... Partial Goodwill or Proportionate Basis a..............000......000 Investment in TT Company (80%) ....................... P 8............ Common stock – S 3..000 Excess Amortizations for 20x4–20x5 (P4. 184......000 Retained Earnings ..........250........ MM book value—buildings .... The common stock and additional paid-in capital figures to be reported are the parent balances only........................000 To establish reciprocity/convert to equity (0............ the allocation will be the total difference (P80.............. 4..........................................000 Goodwill .....000 – P1............ P 150.....000) Consolidated buildings account ………………… P 1............. 210....... 1 above) ............000........

P300.750.000 NI – Subsidiary (20x4) 250.000 Investment in S 150. closed to retained earnings since only balance sheets are being examined.000 Adjustments to reflect fair value 500. 1/1/20x5 Retained earnings.000) FV of SHE of S P4.000.000 To establish reciprocity/convert to equity (0. 20x4) 210.000 Amortization of allocated excess (P100.000 – P700.000.000 – P90.000 Book value of SHE – S.000 .250.000) x 90% 360.000 Gain – partial (attributable to parent) (P300.000 depreciation.000 x 1) ( 100. 1/1/20x5 P3.250.000 Retained earnings. 1/1/20x5 Retained earnings.000 Land (P2.000 Beginning Retained Earnings-P Inc.250.000 x 10%)– (P100.600.000 – P90.000.90 x(P1.000 Less: BV of SHE of S (P3.000 FV of SHE of S: Common stock.000 NCI (P4.000 NCI [(P500.250.) Inventory (P800. 225.000 Less: Over/under valuation of A and L: Inc.000.000 x 1) ( 100.000 depreciation.000 Allocated excess P 150.000) x 90% P 90.250.000 c.000 Retained earnings – S 1.000 Retained earnings. 1/1/20x4 P1.000 __450.000 x 10%)] 40. 20x4) 210.000 FV of SHE of S: Common stock.650.000.000.000 – P1.250.000) Full Goodwill or Fair Value Basis a.000 Retained earnings – P (bargain purchase gain – closed to retained earnings since only balance sheets are being examined.250.000 + P1.000 Dividends – Subsidiary 20x4 ( 0) 1.000 NI – Subsidiary (20x4) 250.000 Multiplied by: NCI% 10% FV of NCI P 465. (Dec. 1/1/20x5 P4.000 Book value of SHE – S.650.000) x 90% _3.000 Adjustments to reflect fair value 500.000 Computation of Gain: Partial Goodwill or Proportionate Basis Fair value of Subsidiary: Consideration transferred P3.000.000 Dividends – Subsidiary 20x4 ( 0) 1.000.600. 1/1/20x4 P1. Common stock – S 3. Investment in S 225. 1/1/20x5 P3.825.000) FV of SHE of S P4. P300.000 Investment in S 3. Land 400. 1/1/20x5 P4.000.000)) b.000 Amortization of allocated excess (P100.000 Multiplied by: NCI% 10% FV of NCI P 465.000 x 10%) 425.000 – P1.

.600.000.000.000 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary.500.000 Goodwill – partial P 880...100. December 31.000. December 31.000 Less: Amortization of allocated excess – 20x4 (inventory) 100.) Inventory (P800. the working paper eliminating entries under partial and full-goodwill approach are the same..000 Less: BV of SHE of S (P1.000. Consolidated Retained Earnings.000 P 450. 20x5 (P1. 20x5 P 4. January 1.000 Allocated excess P2.000. plant and eqpt.500.000 – P1.000 Land (P2.000 – P0) P1.500. (Dec.000) x 80% __900...000..000 Allocated excess P 166. (P1.667 Less: BV of SHE of S (P3. Full-goodwill or Fair Value Basis Fair value of Subsidiary: Consideration transferred P3. December 31. 20x5 Retained earnings ..000.333 Note: In case of gain.550.705.000 Less: Over/under valuation of A and L: Inc.500.166.000 __500....000 Less: Over/under valuation of A and L: Inc.000 + P250.000 / 80% P3.. 20x4 1..500.000 Less: BV of SHE of S (P1. (Dec.667 Less: Over/under valuation of A and L: Inc.600..000 Multiplied by: Controlling interests %.000) x 80% __720.000 + P500.000) x 100% P 100.000 Problem VI Computation of Goodwill: Partial Goodwill Fair value of Subsidiary: Consideration transferred P2.750.000 x 100%) 1.000 Less: Retained earnings – Subsidiary.800.800.) Prop. (P1.000 – P600.000 Increase in retained earnings since date of acquisition P 550.000 Goodwill – full P1.000 / 10 years = P90.) Prop.000 – P600.000 Full-goodwill: Fair value of Subsidiary: Consideration transferred P2.000 per year .000) x 100% 4...000 Consolidated Retained earnings..000 Add: Bargain purchase gain (Controlling interest – P300. December 31..200.000 – P0 + P300.000..000.000 + P1.000) x 100% 400. 2. 20x5 (cost model P2..000 – P700.000 Less: Goodwill impairment loss _______0 __705. plant and eqpt.. (Dec.000 Gain – full (attributable to parent) (P333.Parent Company. 90% P405.000 / 90% P4.000) x 80% _1.000) 300.000 Amortization of allocated excess: P900.000 Allocated excess P1.

000 x 80%) 72.000 Add: NCI on full-goodwill (P1.000 FV of SHE of S1/1/x5 P2.000 Retained earnings.000 Capital Stock-S Company 500.000 x 0.800.400.000) 220.300.000 Goodwill 1.000 Non-controlling Interest (P90.000 FV of NCI (full) P 760.000 – P880.000 – P880. 1/1/20x4 1.300.000 Dividends – Subsidiary 20x4 ( 0) 1.000 Book value of SHE – S.300.040.000 Property and Equipment (net) 900.1. 240. 500.000 Goodwill 1.000 Non-controlling Interest P700. Beginning Retained Earnings-S Co.000 Adjustments to reflect fair value 900.800.000.000 + [(P1.000 To establish reciprocity/convert to equity as of 1/1/20x5 b. 2.000 c.000 Investment in S Co.000 NI – Subsidiary (20x4) 300.000.000 Multiplied by: NCI% 20% FV of NCI (partial) P 480.000 Non-controlling Interest 700.000 Multiplied by: NCI% 20% FV of NCI (partial) P 540. 1.000) 220.100.000 Adjustments to reflect fair value 900.000 Depreciation Expense 90.000 FV of SHE of S1/1/x5 P2.000.000 Common stock.000 Add: NCI on full-goodwill (P1. 1/1/20x5 P1.000) 3. 1/1/20x4 P1.100. Cost Model-Full Goodwill (Eliminating Entries) 20x4 a.000 + P240.000.100.000 20x5 a.000 Investment in S Company (P2.500. (P90.800.S Co. 1/1/20x5 Retained earnings.000 Property and Equipment (net) 90. 1/1/20x5 P1.000 FV of NCI (full) P 700. Beginning Retained Earnings-P Co.000.100.000 Property and Equipment (net) 180.20] 760.000 Beginning Retained Earnings-P Co.000 .000 FV of SHE of S: Common stock.000 – P1. Beginning Retained Earnings-S Company 1.000 Capital Stock.000 b. 1/1/20x4 P 500.000 Retained earnings.700. Depreciation Expense 90.000) x 0. 1/1/20x5 P 500. depreciation x 20%) 18. Investment in S Company (P300.000 Book value of SHE – S.000 Property and Equipment (net) 900.80) 240.

000 Property and Equipment (net) 900.800.000.000 – (b) P18.000 Book value of SHE – S.300.100.20] – (P1. 240.000 FV of SHE of S1/1/x5 P2. 1/1/20x5 Retained earnings.300. Investment in S Company (P300.000) x 0.000 20x5 a.000 Non-controlling Interest 480.100.000 FV of NCI (full) P 742. 500. Beginning Retained Earnings-S Co. 1/1/20x5 P1.000 Goodwill 880.000) FV of SHE of S P2.000 Capital Stock.000 Adjustments to reflect fair value 900.000 – P880.700.S Co.000 – P1.300.80) 240.000 Capital Stock-S Company 500.000 Property and Equipment (net) 900.000 NCI: FV of SHE of S: Common stock.000 Property and Equipment (net) 90.000 + P240. 12/31/20x5: [(a) P760. Beginning Retained Earnings-S Company 1.000 Adjustments to reflect fair value 900.000 Amortization of allocated excess (P90.000 x 1) ( 90.000 Cost Model-Partial Goodwill (Eliminating Entries) 20x4 a.000 Investment in S Co.000] FV of SHE of S: Common stock. 1.300.000) 540.000. Depreciation Expense 90.000 + [(P1.000 Investment in S Company (P2.000 .000 Goodwill 880.000 Multiplied by: NCI% 20% FV of NCI (partial) P 522. 2. 1/1/20x5 P 500.000 Add: NCI on full-goodwill (P1.000 = P522. 1/1/20x5 Retained earnings.040. NCI (partial).000 Dividends – Subsidiary 20x4 ( 0) 1.000) 3.000 Multiplied by: NCI% 20% FV of NCI (partial) P 540.000.000 Non-controlling Interest P700. 1/1/20x5 P 500.000.800.000 – P880.000 Beginning Retained Earnings-P Co.000 NI – Subsidiary (20x4) 300.000 Book value of SHE – S. 1/1/20x4 P1. 1/1/20x4 P1.610.000 x 0.000 b.000 Retained earnings.000 NI – Subsidiary (20x4) 300. 1/1/20x5 P1.800.000 Dividends – Subsidiary 20x4 ( 0) 1.800.000 To establish reciprocity/convert to equity as of 1/1/20x5 b.000 Retained earnings.000) 220.

000 Multiplied by: NCI% 20% FV of NCI (partial) P 522.000 Book value of SHE – S...000 Amortization of allocated excess ….000 = P522. Beginning Retained Earnings-P Co.000 Depreciation Expense 90..000] FV of SHE of S: Common stock. P 400.000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….000 Net income of subsidiary……………………. P 300.800..000 Amortization of allocated excess 90.000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P…………....000 Less: Non-controlling Interest in Net Income* P 42.000 S Company 300. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI 20x4 Consolidated Net Income for 20x4 Net income from own/separate operations P Company P400. 1/1/20x4 P1.000 NI – Subsidiary (20x4) 300.000) FV of SHE of S P2... P673.000 Total P825..000 Multiplied by: Non-controlling interest %.000 Adjustments to reflect fair value 900... 1/1/20x5 Retained earnings.. 1/1/20x5 P1.000 NCI (partial)..000.. c.000 – (b) P18.000 depreciation x 20%) 18.. ( 90.000 x 1) ( 90.000 Non-controlling Interest (P90..000 Dividends – Subsidiary 20x4 ( 0) 1. (P90..000 Property and Equipment (net) 180.000) P310.000 ..000 2.000 S Company 400.000 Less: Non-controlling Interest in Net Income* P 62. 20% Non-controlling Interest in Net Income (NCINI) P 62..610.000) P210.000 Total P700.000 Add: Non-controlling Interest in Net Income (NCINI) 42. 12/31/20x5: [(a) P540.000 Amortization of allocated excess 90.000 Multiplied by: Non-controlling interest %. ( 90.000 Goodwill impairment ____0 132..300. 20% Non-controlling Interest in Net Income (NCINI) P 42.000 Consolidated Net Income for 20x4 P610..000 x 80%) 72.000 Net income of subsidiary…………………….000 Amortization of allocated excess ….000 Retained earnings.000 Amortization of allocated excess (P90..000 Add: Non-controlling Interest in Net Income (NCINI) 62..000 Goodwill impairment ____0 152. 1/1/20x5 P 500..000 Consolidated Net Income for 20x4 P735.000 20x5 Consolidated Net Income for 20x5 Net income from own/separate operations P Company P425.. P568.

000 Sales for 20x4 195.000 P 6.000)]. P 15...Problem VII 1.000 . none can be included in consolidated net income. Consolidate net income would be P178.000 Buildings (net) 168.000 2.000 P 465.000 Increase in land (P6.000 The over/under valuation of assets and liabilities are summarized as follows: S Co.000 P 90.800 Net………………………………………. 84.000 55.200 Equipment (net).000 Less: Book value of stockholders’ equity of S: Common stock (P200...000 x 100%)………..000 180.000) Retained earnings of TT Company on December 31..000 x 100%)……………….000 Less: Over/under valuation of assets and liabilities: Increase in inventory (P5..000 Less: Expenses (160..000 Decrease in buildings (P20.000 (24.000 Positive excess: Goodwill (excess of cost over fair value)………………………………………………. P 105.80 Purchase price P192.000 Notes payable 105. (Over) Under Book value Fair value Valuation Inventory………………….000.000 96.…………….20 Balance assigned to noncontrolling interest P 48..200 Increase in equipment (P80..000 x 100%)…………………….. 20x4 P240. 4.800 90.000 Retained earnings (P100..000 x 100%)…… 4.000 Land……………………………………… 48.000 360. P 240.000) ( 115..000 Proportion of stock acquired by QQ x . 7.000 Proportion of stock held by noncontrolling interest x . S Co. 120.000 + (P195..000 Net book value on December 31.000 x 100%) 96.000 P 30.000 Allocated excess (excess of cost over book value)….000 Retained earnings of TT Company January 1. 20x4 P240. P 24.. 20x4 150. 20x4 P 130.000 x 100%)……………… P 6. None of the 20x4 net income of TT Company was earned after the date of purchase and. Consolidated net income is P143.000) Bonds payable………………………… (120. ( 24.P160.000 [P143.000 .200 7.000 144. Net book value on December 31..000 3..000) Dividends paid (15.000 P 294. 20x4 Fair value of Subsidiary (100%) Consideration transferred: Cash P 360. Problem VIII Requirements 1 to 4: Date of Acquisition – January 1. Common stock of TT Company on December 31.200) 4.. therefore.. 20x4 P 90.000) Decrease in bonds payable (P4.000 x 100%)………. P 204.

...000 Buildings………………………………………... 20x4: (2) Cash……………………… 36.000 180.000 96... 36. S Co.. and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition. S Co. with remainder to goodwill . Increase Book value Fair value (Decrease) Equipment .000 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition..000 P 6.. On the books of S Company.800 Goodwill…………………………………………………………………..200 P 13.000 Acquisition of S Company.. 96.000 .. (E2) Inventory…………………………………………………………………. 180.000 Retained earnings – S Co…………………………………… 120. Book value Fair value (Decrease) Buildings. 192...000 S Co. 7. 192....The buildings and equipment will be further analyzed for consolidation purposes as follows: S Co.000 144.000 Land……………………………………………………………………….000 Investment in S Co…………………………………………… 360.200 1. ( 192...000 1 P 6.000) (6. Consolidation Workpaper – First Year after Acquisition (E1) Common stock – S Co………………………………………… 240.200 P 7. 6.. 84..000) ( 6.000 Notes payable…………………………………… 105. 360.000) A summary or depreciation and amortization adjustments is as follows: Over/ Annual Current Account Adjustments to be amortized under Life Amount Year(20x4) 20x5 Inventory P 6.000 ( 24.000 8 12.000 Buildings (net) (24. .200 P 13.. 360.000 To allocate excess of cost over book value of identifiable assets acquired.000 x 100%)……………...000 Cash…….000 dividend paid was recorded as follows: Dividends paid………… 36...000 144.000 ( 216.000 P - Subject to Annual Amortization Equipment (net).000 Dividends paid by S Co.200 20x4 : First Year after Acquisition Parent Company Cost Model Entry January 1.000) Bonds payable… 4.000 180.000) Net book value………………………...000 ...200 Discount on bonds payable………………………………………….000) Net book value……………………….800 4 1. 4.000 Investment in S Co………………………………………………... 96.... 216... 105. 15...000) Less: Accumulated depreciation…. 168..000) 4 ( 6..000 Accumulated depreciation – buildings…………………..200 1. ( 96..000 12. 20x4: (1) Investment in S Company…………………………………………… 465.000 Dividend income (P36... 96.. 20x4 – December 31.000 0 Less: Accumulated depreciation….000 12..000 Accumulated depreciation – equipment……………….000 Record dividends from S Company. the P36...000 Cash……………………………………………………………………. January 1. 36..

000 Interest expense………………………………… 1.000 60.200 (E4) Dividend income . Worksheet for Consolidated Financial Statements.000 ________ Retained earnings.000 18.000 P180.200 Goodwill…………….600 3. . December 31.000 (3) 6.200 payable Totals P 6.000 P 720.000 Buildings ( 6.000 Depreciation expense 60.000 Dividends paid – S…………………… 36. from above 204..000 Interest expense .000 Depreciation expense………………………. 1/1 P Company P360.000 (1) 120. (E3) Cost of Goods Sold…………….000 Net income.000 P 6.000 P 499.200 Dividends paid P Company 72.600 Inventory………………………………………………………….000 P571.000 Accumulated depreciation – buildings………………….000 P180..600 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Cost of Depreciation/ Goods Sold Amortization Amortization Expense -Interest Inventory sold P 6.000 P211. (3) 1.200 Goodwill impairment loss (3) 3.000 P240. 36.000 90.200 Balance Sheet .P……….000 P 720. Cr.000) Bonds _______ _______ P 1. Consolidated Sales P480.000 66.000 P 60.000 Accumulated depreciation – equipment……………….. 12/31 to Balance Sheet P492.000 Equipment P12.000 72. 6.000 P1.000 .000 _________ Total Revenue P516.000 (3) 6. 20x4 (First Year after Acquisition) Income Statement P Co S Co. 6.000 P144.000 24.000 S Company P120.000 P 348.000 Total Cost and Expenses P312. (4) 36.000 P 360. Dr. 20x4.000 Dividend income 36.. 36.000 S Company .000 P240.000 (4) 36. 6.000 Cost of goods sold P204.600 Other expenses 48. 12.000 211..200 1.000 P508. 3.000 To eliminate intercompany dividends and non-controlling interest share of dividends.200 Total P564.200 Statement of Retained Earnings Retained earnings. 6.800 Net Income to Retained Earnings P204. Cost Model 100%-Owned Subsidiary December 31.000 P138.000 Discount on bonds payable………………………… 1.200 Goodwill impairment loss 3.

000 Record dividends from S Company.000 P 90.000 To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of subsidiary) on January 1.000 - Total P1.equipment P 135.600 11.000 Common stock.000 90.000 Retained earnings – S Company.200 265.000 (2) 105.000 Accumulated depreciation 405.000 (3) 3.000 To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year. 20x5. P10 par……… 600.000 Increase in retained earnings…….000 (2) 96.000 Dividend income (P48.200 P2.000 420.044.000 Retained earnings – P Company……………………… 24.000 495.008.400 Investment in S Co……… 465.000 P2.000 Accounts payable…………… 120.000 600.000 48.000 Land…………………………….000 Multiplied by: Controlling interest % 100% Retroactive adjustment P 24.200 Accumulated depreciation .000 . 48. P 147. P 24.000 Retained earnings – S Co. 1/1/20x5.000 1..800 (3) 1.. Consolidation Workpaper – Second Year after Acquisition (E1) Investment in S Company………………………… 24.000 P1.000 (3) 12.000 dividend paid was recorded as follows: Dividends paid………… 48.000 (2) 192.992. Cash……………………….341. P10 par……… 240.000 (1) 240. 1/1/20x5 144. the P40.000 x 100%)…………….000 (2) 216.000 (2) 6.000 288.000 P 736.000 540.000 Buildings 720.000 499.. 1/1/20x5 P144.000 360.000 Dividends paid by S Co. .000 P 147.000 60.000 (E2) Common stock – S Co………………………………………… 240. 20x5 – December 31.200 3.000 210.000 P 237.000 Cash 48.000 Common stock.000 240. from above ___590. 210.000 Retained earnings.000 Accounts receivable…….400 144.000 P1.000 (1) 360.000 Bonds payable………………… 240..000 120.000 150.000 Discount on bonds payable (2) 4.200 Total P1.200 P 736. 90. 20x5: Cash……………………… 48.000 180.000 Inventory………………….341. 1/1/20x4 120.buildings (3) 6.200 Equipment 240. Retained earnings – S Company.200 20x5: Second Year after Acquisition Parent Company Cost Model Entry Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment: January 1.000 Investment in S Co ………………………… 384.992.600 Goodwill…………………… (2) 15.000 120.000 (2) 7.008.000 P 96. On the books of S Company. 120.000 (3) 6.

.000 Accumulated depreciation – equipment……………….000 To allocate excess of cost over book value of identifiable assets acquired.200 Discount on bonds payable…………………………………………. 7. 96. 6.400 Goodwill…………………………………… 3....000 P 12. 216.000 Land……………………………………………………………………….800 P 6.600 To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to P’s retained earnings Year 20x5 amounts are debited to respective nominal accounts.800 x 100%) 16.000 Amortization of allocated excess [(E4)]….000 Interest expense………………………………… 1. (20x4) Depreciation/ Retained Amortization Amortization earnings.P……….200 Impairment loss 3.000 Investment in S Co………………………………………………..200) P 82.. 1/1/20x5 (P16.. 15.200 Inventory…………………………………………………………. (E4) Retained earnings – P Company.000 P1.000 To eliminate intercompany dividends and non-controlling interest share of dividends. 105. 6.800 Goodwill………………………………………………………………….200 (E5) Dividend income .000 Buildings………………………………………...000) Bonds payable 1....560 Non-controlling interest …………...(E3) Inventory…………………………………………………………………. 4. P 90.000 Discount on bonds payable………………………… 2. and to establish non- controlling interest (in net assets of subsidiary) on January 1. 6.. 16..560 . 24. ( 7.000 Accumulated depreciation – buildings………………….200 P 1..000 Accumulated depreciation – equipment………………..560 To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows: Net income of subsidiary…………………….000 Equipment 12. (E6) Non-controlling interest in Net Income of Subsidiary………… 16. 48. 12. 20x5.000 Multiplied by: Non-controlling interest %.000) ( 6.000 Buildings (6..000 Accumulated depreciation – buildings………………….. 192.800 Depreciation expense……………………….600 Totals P 16. with remainder to goodwill. 20% Non-controlling Interest in Net Income (NCINI) P 16. expense -Interest Inventory sold P 6.000 Dividends paid – S…………………… 48..

S Co.000 Dividend income 48. thus: Consolidated Retained Earnings.200 Net Income to Retained Earnings P240.000 .000 (3) 7. .000 P 702. .buildings (4) 12.000 P 408.000 P 102.000 P 499.000 Common stock.000 Accumulated depreciation .000 Accumulated depreciation 450.000 P 774.P Company.000 324.074.000 360.000 (2) 240.400 Goodwill…………………… (3) 15. On date of acquisition the retained earnings of P should always be considered as the consolidated retained earnings.800 (4) 2. NCI – not applicable. 1/1 P Company P492. Cr.000 (4) 3.000 Inventory………………….000 Interest expense .000 P 90.000 (3) 192.000 P 783.000 Balance Sheet Cash………………………. - Total Cost and Expenses P348.000 180.200 1.000 240.000 Discount on bonds payable (3) 4.000 P186. from above 240.800 (1) 24.000 P270.000 P1. (5) 48.000 (1) 24.800 Statement of Retained Earnings Retained earnings.000 90. 180.000 144.000 P 625.000 960. P10 par……… 240.000 P 274.Worksheet for Consolidated Financial Statements.000 Accounts receivable……. Dr.000 Common stock.800 Total P732.000 306.000 (4) 16.000 Dividends paid P Company 72.120 P2.000 Cost of goods sold P216.000 P 291.600 11. from above 660.000 P2.000 Land…………………………….000 552. Consolidated Sales P540. 252.000 (4) 6.000 P360.000 S Company .220.200 Other expenses 72.000 108.000 Buildings 720.000 (5) 48.000 Depreciation expense 60.000 24.000 120.000 126.000 Net income.000 (2) 384. December 31.220. January 1.000 P192.000 5.000 120.044..000 (3) 105.400 Investment in S Co……… 465.000 (3) 6.400 2. 216.000 P 102. P 189.200 (2) S Company P144.000 _ ________ Retained earnings.000 90.200 Equipment 240. since it is 100% owned subsidiary .634.000 (4) 6.000 (3) 96.000 276.000 P234.000 P 900.634. 1/1/20x4 a.000 P 180.000 Total P2.000 72. January 1.120 P 783.000 420. Cost Model 100%-Owned Subsidiary Income Statement P Co.000 1.000 54.000 274.000 48.000 P1.000 (4) 24. P10 par……… 600.equipment P 150.200 265.000 P 900.000 702. 12/31 to Balance Sheet P660.000 b. (4) 1.000 Bonds payable………………… 240.000 ___________ Total Revenue P588.000 Accounts payable…………… 120.000 186. 20x5. 20x4 Retained earnings .074.000 Goodwill impairment loss .000 P360.000 540.000 600. 20x4 (date of acquisition) P360. 48.000 Retained earnings.000 (3) 216.000 - Total P2.000 .

Stockholders’ Equity Common stock. since it is 100% owned subsidiary c. Consolidated Net Income for 20x5 Net income from own/separate operations P Company P192. d.800 – same with CNI since there is no NCI. e.000 Retained earnings 499. 20x4 (date of acquisition) P360. P10 par P 600. P274.000 Less: Amortization of allocated excess P 13. NCI – not applicable.200 Less: Dividends paid – P Company for 20x4 72. since it is 100% owned subsidiary f. P10 par P 600.200 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent or CNI P274. Stockholders’ Equity Common stock.200 b.200 12/31/20x5 a.200 Goodwill impairment loss 0 7.000 Retained earnings 360.000 Consolidated Retained Earnings.000 6. since it is 100% owned subsidiary c. 12/31/20x4: a.200 Goodwill impairment loss 3.000 Less: Amortization of allocated excess P 7.800 – same with NCI-CNI since there is no NCI. NCINI – not applicable. January 1. December 31.200 – same with CNI since there is no NCI. December 31.200 Total Stockholders’ Equity (Total Equity) P 1. Consolidated Retained Earnings. Consolidated Net Income for 20x4 Net income from own/separate operations: Pa Company P168.200 Total P571. NCINI – not applicable.800 Consolidated Net Income for 20x4 P211. P274.000 Total Stockholders’ Equity (Total Equity) P 960. 20x4 Retained earnings .P Company.000 S Company 90. P211.800 b.600 16.000 S Company 60.000 Total P282. P211. Controlling Interest in Net Income is the same with Consolidated Net Income. .200 *since it is a 100%-owned subsidiary. 20x4 P499. c.099.200 – same with NCI-CNI since there is no NCI.000 Total P228.000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P for 20x4 or Consolidated Net Income (CNI)* 211.

200) Decrease in bonds payable (P4....200 x 80%)…………………….000 (24.800 Net………………………………………..000 Land……………………………………… 48.…………….000 Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………. 20x5 P702..000 Increase in retained earnings since date of acquisition P 24. S Co.200 Multiplied by: Controlling interests %. 20x5 Retained earnings ..000 Retained earnings 702. P 192. P 84.000 . P10 par P 600..000) Bonds payable………………………… (120.. since it is 100% owned subsidiary f.800 P 7......000 The over/under valuation of assets and liabilities are summarized as follows: S Co.000 Less: Dividends paid – P Company for 20x5 72.000 x 80%) 76. 20x4 120.000 x 80%)……………… P 4...000 x 80%)……….000 Less: Over/under valuation of assets and liabilities: Increase in inventory (P6... P 204.000 Buildings (net) 168.. ( 19. Consolidated Retained Earnings.. January 1.200 Equipment (net). P 24..000 Less: Book value of stockholders’ equity of S: Common stock (P240. 20x4 Fair value of Subsidiary (80%) Consideration transferred……………………………….000 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/P’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S. January 1.000 Consolidated Retained Earnings.. January 1.200 7. January 1.000 Problem IX Requirements 1 to 4: Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1.200 Consolidated Retained earnings. P 12..000 Total Stockholders’ Equity (Total Equity) P1. (Over) Under Book value Fair value Valuation Inventory………………….... NCI – not applicable..P Company..000 Less: Amortization of allocated excess – 20x4 16.000 Retained earnings (P120.200 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P for 20x5 or CNI 274.000 e. 20x5 P 499. 100% 7.000 P 6. P 372..000 P 90. December 31..000 180.760 Increase in equipment (P96..800 Increase in land (P7.000) ( 115.000 96.. 96.302.000 x 80%)………………. 5.000 Allocated excess (excess of cost over book value)….000 55.800 Total P774.000 288. Stockholders’ Equity Common stock.d...200) 4... December 31.000 P 30. 84.000 Less: Retained earnings – S..000 x 80%)…………………….. 20x5 (cost model P492.840 72.000 144.800 Decrease in buildings (P24.. 20x5 P 144.000 P 294.800 x 80%)…… 3.

000 Less: Book value of stockholders’ equity of Son (P360..000) Less: Accumulated depreciation….000 x 100%) 90.. P 15.000 P 6...00% The goodwill impairment loss would be allocated as follows Value % of Total Goodwill impairment loss attributable to parent or controlling P 3.200 1.000 100.000 12.000) Net book value……………………….. 96..200 P 13.000 96..00% Interest Goodwill applicable to NCI…………………….000 ( 24.200 P 7.000 Fair value of Subsidiary (100%) P 465. P 105.000 Allocated excess (excess of cost over book value)…. 84...200 1.000) Net book value………………………. 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 Buildings (net) (25.000 .. Increase Book value Fair value (Decrease) Equipment ..750 100.800 4 1..000 1 P 6..200 The goodwill impairment loss of P3.000 8 12.000 ( 216... 96..00% When cost model is used.. Book value Fair value (Decrease) Buildings.000) 4 ( 6. 360..000 0 Less: Accumulated depreciation….000 S Co.000 180..000) A summary or depreciation and amortization adjustments is as follows: Over/ Annual Current Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5 Inventory P 6.. ( 192..000 Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...000 Fair value of NCI (given) (20%) 93. only two journal entries are recorded by P Company during 20x4 related to its investment in S Company...000 80.000 In this case. the full-goodwill is computed as follows: Fair value of Subsidiary (100%) Consideration transferred: Cash (80%) P 372..000 P - Subject to Annual Amortization Equipment (net). 168.00% Goodwill applicable to NCI……………………..000) Bonds payable… 4. 180.. . P15. 192. S Co.....125 based on 100% fair value would be allocated to the controlling interest and the NCI based on the percentage of total goodwill each equity interest received.000) (6.The buildings and equipment will be further analyzed for consolidation purposes as follows: S Co.000 ..... For purposes of allocating the goodwill impairment loss....000 20..00% Goodwill impairment loss based on 100% fair value or full- Goodwill P 3... 3..000 x 100%) __360.000 Add (deduct): (Over) under valuation of assets and liabilities (P90..000 80. S Co.000 144..00% Total (full) goodwill………………………………..000 144.000 12.200 P 13... 750 20.000 180..000) ( 6... ( 96..

20x4: (1) Investment in S Company…………………………………………… 372.000 To allocate excess of cost over book value of identifiable assets acquired.000 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition. 6. 12.000 Buildings ( 6.000 Accumulated depreciation – buildings…………………..000 Land……………………………………………………………………….000 Cash…….000 Cash…………………………………………………………………….000 Inventory…………………………………………………………..000 Accumulated depreciation – equipment………………. 18..000 P1.000 dividend paid was recorded as follows: Dividends paid………… 36.800 Dividend income (P36. 6..200 Goodwill impairment loss………………………………………. (E3) Cost of Goods Sold…………….. January 1.000 Buildings………………………………………. with remainder to goodwill. 72.200 Totals P 6..000 x 20%)……………………….000 Accumulated depreciation – equipment……………….800 Record dividends from S Company.000 Accumulated depreciation – buildings…………………. 96. 28.200 .20x4: First Year after Acquisition Parent Company Cost Model Entry January 1. Consolidation Workpaper – Year of Acquisition (E1) Common stock – S Co………………………………………… 240.000 x 80%)……………. 192. 6. (E2) Inventory…………………………………………………………………. 3...000) Bonds payable _______ _______ P 1..800 Goodwill………………………………………………………………….200 Discount on bonds payable………………………………………….000 Interest expense………………………………… 1.200 Goodwill…………………………………… 3.. 6. 84. 4. and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition. 12. 6.000 P 6. the P30. 7. and to establish non- controlling interest (in net assets of subsidiary) on date of acquisition..000 Investment in S Co…………………………………………… 288. 216.200 13. On the books of S Company.000 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Cost of Depreciation/ Goods Amortization Amortization Sold expense -Interest Total Inventory sold P 6.000 x 20%)……………………….000 Investment in S Co……………………………………………….000 Depreciation expense……………………….000 Non-controlling interest (P360.000 Dividends paid by S Co. 20x4: (2) Cash……………………… 28.000 Retained earnings – S Co…………………………………… 120. 20x4 – December 31.000 Non-controlling interest (P90. 36.000 Acquisition of S Company.000 Discount on bonds payable………………………… 1. 372.000 Equipment P 12.

9.000 80. 750 20..360) Net Income to Retained Earnings P196.360 ( 9. P15.00% Total (full) goodwill……………………………….P……….000 P211.800 P 60. Dr.800 Non-controlling interest (P36.00% Goodwill impairment loss based on 100% fair value or full- Goodwill P 3. (3) 3. .360 To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary…………………….000 P202..000 Interest expense .000 90..It should be observed that the goodwill computed above was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Value % of Total Goodwill applicable to parent………………… P12.360 Worksheet for Consolidated Financial Statements. Cr.000 P138. (E5) Non-controlling interest in Net Income of Subsidiary………… 9.000 20.800 Multiplied by: Non-controlling interest %..000 Cost of goods sold P204.000 Dividend income 28. 20% Non-controlling Interest in Net Income (NCINI) P 9.000 80.Subsidiary .000 66.000 P 348.000 Goodwill impairment loss ..360 Non-controlling interest ………….200) P 46.800 NCI in Net Income .000 P180.000 18..200 Net Income P196. . 20x4.00% Interest Goodwill impairment loss applicable to NCI…………………….750 100.. 7.000 x 20%)……………….800 P 60.000 P 720.800 .800 P240.440 . (5) 9. (3) 1.000 P240...00% (E4) Dividend income .200 Dividends paid – S…………………… 36. Consolidated Sales P480.00% Goodwill applicable to NCI……………………. (4) 28. ( 13.000 P508..200 Other expenses 48.. P 60.125 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable to P or controlling P 3.000 Depreciation expense 60..000 100... 3. December 31.000 3.000 Amortization of allocated excess [(E3)]….800 _________ Total Revenue P508..000 Total Cost and Expenses P310. .000 To eliminate intercompany dividends and non-controlling interest share of dividends.000 P 720. 20x4 (First Year after Acquisition) Income Statement P Co S Co.000 (3) 6. 28.000 (3) 6.200 1..000 28. the goodwill impairment loss of P3. Cost Model (Partial-goodwill) 80%-Owned Subsidiary December 31.00% Therefore..

000 Bonds payable………………… 240.800 (3) 1. Sales P 540. 38.600 Goodwill…………………… (2) 12.200 Equipment 240. 20x5 – December 31.000 Discount on bonds payable (2) 4.000 72.440 Non-controlling interest………… (4) 7.000 (2) 192.400 Record dividends from S Company.800 60. Statement of Retained Earnings Retained earnings.000 (5) 84.008.044.000 _________ _________ __________ (5) 9.000 Retained earnings.440 Balance Sheet Cash……………………….000 P562.000 (3) 3.600 Accumulated depreciation .800 P1.400 Dividend income (P48.000 420. 36. from above 196.000 495. 120.560 P2.400 P 90.000 Net income. S Co.200 3.000 Land…………………………….000 (4) 288.000 180.000 120.000 P 168.560 P 745.000 P 360.000 No goodwill impairment loss for 20x5. 20x5: Cash……………………… 38..000 x 80%)…………….000 120.buildings (3) 6.000 P 96.440 Dividends paid P Company 72.008.000 24. P10 par……… 600.000 360.000 P 490.160 Total P1.000 Less: Cost of goods sold 216.000 P 322.440 Total P552. 12/31 to Balance Sheet P484.000 .000 210.000 Other expense 72. P 232.000 Gross profit P 324. 1/1 P Company P360.200 (1 ) 72.000 Net income from its own separate operations P 192.000 60.000 P147.000 P 90.000 (1) 120.000 P 360.000 Dividends paid P 72.000 202.000 150.000 Buildings 720.360 ____92.000 (3) 12.000 - Total P1.000 (2) 7.000 Accounts payable…………… 120.000 288. 210.000 Inventory………………….000 S Company .000 P180.000 Add: Dividend income 38.000 90.000 (1) 240.000 240.000 (2) 18.800 P1.000 Investment in S Co……… 372.000 P 745. .800 P 90.000 (3) 6.000 (2) 216.424.000 P 48.000 (2) 96.800 144.424.000 48.000 54.000 Less: Depreciation expense 60.equipment P 135. 90.000 S Company P120.000 (2) 6.600 20x5: Second Year after Acquisition P Co. from above 484. Parent Company Cost Model Entry Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment: January 1.000 1.984.800 P144.000 490.000 9.400 - Net income P 230.000 P2.800 Accounts receivable…….000 Common stock. P10 par……… 240.000 192.000 (4) 36.000 540.000 Common stock.000 Accumulated depreciation 405.984.000 600.200 265.000 _ ________ Retained earnings.

200 Discount on bonds payable…………………………………………. 216.000 Discount on bonds payable………………………… 2. 192..200 Retained earnings – P Company……………………… 19. 1/1/20x5 144.000 Increase in retained earnings……. (E3) Inventory…………………………………………………………………. P 24. 6.000 Accumulated depreciation – equipment……………….000 x 80%)………………………… 307. 1/1/20x4 120.000 Multiplied by: Controlling interest % 80% Retroactive adjustment P 19.000..000 Investment in S Co (P384. 24.000 Retained earnings – S Co. 20x5.800 To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of subsidiary) on January 1. 96.000 Dividends paid by S Co.200 x 80%) + P3.000 Accumulated depreciation – equipment……………….000 Retained earnings – S Company. 4. 1/1/20x5 P144. 1/1/20x5.000 Accumulated depreciation – buildings…………………..000 x 20%)………………………. 1/1/20x5 [(P13.000 Interest expense………………………………… 1.000 Non-controlling interest (P90. 6.000 x 20%) 18.000 To allocate excess of cost over book value of identifiable assets acquired.. . 12.200 Non-controlling interest (P384. 7.On the books of S Company. (E4) Retained earnings – P Company. 76. 12..000 dividend paid was recorded as follows: Dividends paid………… 48. Consolidation Workpaper – Second Year after Acquisition The working paper eliminations (in journal entry format) on December 31. 2.400 Goodwill…………………………………… 3.560 Non-controlling interests (P13.200 x 20%)……………………..000 Investment in S Co………………………………………………. 20x5...000 Cash 48.000 Buildings………………………………………. 6.000 Land………………………………………………………………………. and to establish non- controlling interest (in net assets of subsidiary) on January 1.200 (E2) Common stock – S Co………………………………………… 240. computed as follows: Retained earnings – S Company. 20x5.. are as follows: (E1) Investment in S Company………………………… 19.200 Inventory………………………………………………………….000 To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to P’s retained earnings & NCI.800 Goodwill………………………………………………………………….. the P40.000 Accumulated depreciation – buildings…………………. 84. with remainder to goodwill..640 Depreciation expense………………………. Year 20x5 amounts are debited to respective nominal accounts. impairment loss on partial-goodwill] 13.200 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.

Cr.400 P 90.000) ( 6.800 NCI in Net Income .000 P270.200 P234.000 Net income. 20x5 (Second Year after Acquisition) Income Statement P Co S Co.400 90. 1/1 P Company P484. 16.000 P 274.000 Buildings (6.Subsidiary .200 Net Income P230.560 To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows: Net income of subsidiary……………………. Dr.200 Sub-total P13..680 Dividends paid P Company 72.240 Total P715. from above 230. 9.400 P 90. 12/31 to Balance Sheet P643.. Cost Model (Partial-goodwill) 80%-Owned Subsidiary December 31.. (5) 38.680 .. ( 7.000 S Company .000 P 676.400 P360.200 P 6. . 20% Non-controlling Interest in Net Income (NCINI P 16.000 (4) 6.000 24.000 To eliminate intercompany dividends and non-controlling interest share of dividends. Consolidated Sales P540.000 Dividend income 38.000 Goodwill impairment loss .000 P 258.200 P 490.000 P 900.. expense -Interest Inventory sold P 6.200 ________ P 1.000 P192.000 (5) 48.200 1.000 Cost of goods sold P216.000 90.000 Interest expense . (E6) Non-controlling interest in Net Income of Subsidiary………… 16. (6) 16.000 126.000 P 748. (20x4) Depreciation/ Retained Amortization Amortization earnings.400 ___________ Total Revenue P578. P 90.000 P 408.000 72.600 Dividends paid – S…………………… 48.560 ( 16.200 Multiplied by: 80% To Retained earnings P 10.000 Total P 13.200 P186. 48.000 54..560) Net Income to Retained Earnings P230.200) P 82. .000) Bonds payable 1..560 Worksheet for Consolidated Financial Statements. (4) 1. 20x5.400 ..000 258.800 Multiplied by: Non-controlling interest %.200 Other expenses 72. - Total Cost and Expenses P348. .000 _ ________ Retained earnings.560 (E5) Dividend income .560 Non-controlling interest …………. December 31.560 Impairment loss 3..P……….800 (4) 13.240 Statement of Retained Earnings Retained earnings...000 P 900. 38..560 (1) 19..000 x 20%)……………….000 P360.000 (2) 144.000 P 1.000 Depreciation expense 60.440 S Company P 144.400 Non-controlling interest (P48..000 Equipment 12.000 P 625.000 Amortization of allocated excess [(E4)]….000 P 12.

800 (4) 2.200 186.000 Retained earnings – S Company.000 NCI.000 (2) 240. P 265.000 420. P10 par P 600.203.000 Accumulated depreciation 450. January 1.000 ___ _____ _________ __________ (6) 16.000 P 102.000 Buildings 720. thus: Consolidated Retained Earnings.000 (3) 216.000 600.044. January 1. 1/1/20x4 P1. 210.200 (3) 84. 180.000 48.074.000 Accounts payable…………… 120.000 (3) 7. 20x4…… P 240. P10 par……… 240. 20x4 P 360.120 Total P2.203.000 360.640 (2 ) 76.000 P 821.000 180..400 2.600 (4) 2.800 5.000 Adjustments to reflect fair value .P Company.200 P1.000 P 367.000 108.000 .000 P’s Stockholders’ Equity / CI .000 (3) 192. Consolidated SHE: Stockholders’ Equity Common stock.000 Retained earnings 360.(over) undervaluation of assets and liabilities. Note: The goodwill recognized on consolidation purely relates to the P’s share. Non-controlling interest (partial-goodwill)..000 (4) 3. from above 643. 20x4 120. 20x4 Common stock – S Company. date of acquisition (January 1. 12/31/20x4: .000 6. On date of acquisition the retained earnings of P should always be considered as the consolidated retained earnings.000 - Total P2.000 (1) 19.000 (3) 96.000 306. January 1.800 (3) 18.200 Accounts receivable……. P10 par……… 600.SHE P 960. 1/1/20x4 a. 20x4) 90.074.000 (4) 24. January 1.160 P2.000 552.000 1.800 Accumulated depreciation .200 P1.000 Inventory………………….000 96.200 P 114.000 9.160 P 821.707. Balance Sheet Cash……………………….000 P180.000 540.000 120.707.400 Goodwill…………………… (3) 12. January 1. P 90.000 Fair value of stockholders’ equity of subsidiary. January 1.000 Bonds payable………………… 240. January 1.000 Discount on bonds payable (3) 4..buildings (4) 12.200 Equipment 240.. 20x4 (date of acquisition) P360.000 676.200 265. 216.560 ____99.000 Multiplied by: Non-controlling Interest percentage………….000 Investment in S Co……… 372. 1/1/20x4 ___90. 20 Non-controlling interest (partial-goodwill)………………………………….000 324.000 Stockholders’ equity – S Company.000 Retained earnings.000 (3) 6.000 Consolidated SHE. 20x4 Retained earnings .000 P2.050.200 (2) 307.680 Non-controlling interest………… (5) 9.equipment P 150.000 276.000 Common stock.000 b. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.000 (4) 6.000 240.000 Land……………………………. 20x4…… P450.000 120.000 c.000 Common stock.

360 c.440 NCI.a.000 Consolidated Retained Earnings... 20x4 Retained earnings ..000 Less: Non-controlling Interest in Net Income* P 9.440 Add: Non-controlling Interest in Net Income (NCINI) 9. 20x4…… P460. date of acquisition (January 1.000 144. December 31.000 Retained earnings – S Company.000 Amortization of allocated excess (refer to amortization above) – 20x4 ( 13.000 Retained earnings 490. 20x4) 90.440 Less: Dividends paid – P Company for 20x4 72.560 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………. December 31.P Company. 12/31/20x4 P1.000 Total P228.160 Consolidated SHE. P 92.000 Less: Dividends paid – 20x4 36. January 1. December 31. 20x4 Common stock – S Company.. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings.. December 31. 20x4…… P 240.200 Goodwill impairment (impairment under partial-goodwill approach) 3.000 Total P180. 20x4 P 384. CNI.000 25.200) Fair value of stockholders’ equity of subsidiary. Consolidated SHE: Stockholders’ Equity Common stock. 20x4 P490. P211.000 S Company 60.440 Total P562.160 f.000 Multiplied by: Non-controlling Interest percentage………….. CI-CNI Consolidated Net Income for 20x4 Net income from own/separate operations P Company P168.(over) undervaluation of assets and liabilities..000 Adjustments to reflect fair value . NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P 60. 20 Non-controlling interest (partial-goodwill)………………………………….360 Amortization of allocated excess (refer to amortization above) 13. On subsequent to date of acquisition. P10 par P 600.000 Add: Net income of S for 20x4 60... P202..440 e. December 31. 12/31/20x4 P1. Non-controlling interest (partial-goodwill). 20x4 P120.000 Stockholders’ equity – S Company. 20x4 Retained earnings – S Company.800 b.360 Consolidated Net Income for 20x4 P211. 12/31/20x4 ___92.000 Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above) 13. January 1.000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 202. December 31..200 P 46...800 Multiplied by: Non-controlling interest %. December 31.440 P’s Stockholders’ Equity / CI – SHE.800 – refer to (a) d.090.182. 20x4 (date of acquisition) P360.600 . 20% Non-controlling Interest in Net Income (NCINI) P 9.

560 c.. December 31.000 Less: Retained earnings – S.000 Retained earnings – S Company.000 Increase in retained earnings since date of acquisition P 24. 20x4) 90.. P258...000 Less: Amortization of allocated excess – 20x4 13. 20x5 Retained earnings . January 1. 20x5…… P 240.000 Less: Amortization of allocated excess / goodwill impairment for 20x5 (refer to amortization table above) 80.680 *this procedure would be more appropriate.. 80% P 8.200 23.(over) undervaluation of assets and liabilities.. 20x5 P 144..750 by 80%.760 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………..800 Multiplied by: Non-controlling interest %.000 Total P282.000 Stockholders’ equity – S Company....000 Adjustments to reflect fair value ... instead of multiplying the full-goodwill impairment loss of P3.560 Amortization of allocated excess (refer to amortization above) __7. 20% Non-controlling Interest in Net Income (NCINI) for 20x5 P 16. P274. 20x5 P 426. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x5 Net income of S Company P 90.. Non-controlling interest (partial-goodwill).000 Less: Dividends paid – 20x5 48.. 20x4 120.750– P750)* or (P3.800 b..000 Amortization of allocated excess (refer to amortization above) : . 20x5 Retained earnings – S Company.000 Add: Net income of S for 20x5 90. e.440 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P for 20x5 258.000 186. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.640 Less: Goodwill impairment loss (full-goodwill).000 Less: Non-controlling Interest in Net Income* P16...800 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S. 20x5 (cost model P484. net (P3.240 Add: Non-controlling Interest in Net Income (NCINI) 16. 20x5 P676. date of acquisition (January 1.400 P 82. December 31. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings. January 1. CI-CNI Consolidated Net Income for 20x5 Net income from own/separate operations: P Company P192.800 – refer to (a) d.800 Multiplied by: Controlling interests %. 20x5 P14.240 Total P748.000 Total P234.. January 1. December 31.680 Less: Dividends paid – P Company for 20x5 72.. 20x5 Common stock – S Company. December 31. December 31.200 P 10.. 20x5 P 490.... January 1.640 Consolidated Retained earnings...560 Consolidated Net Income for 20x5 P274. CNI.12/31/20x5: a.000 S Company 90.P Company.. January 1.000 5. December 31. On subsequent to date of acquisition. 750 x 80%) 3.000 Consolidated Retained Earnings..

800 4 1. 7.800 90.000 x 100%)……….200 P 13.000) Decrease in bonds payable (P4.200 1.200 1.200 x 100%)……………………..000 Allocated excess (excess of cost over book value)….000 Retained earnings (P120.120 Consolidated SHE.000 12.000 x 100%) 96..800 Dividend income (P36.000 Fair value of Subsidiary (100%)……….. P 372.. 96. 20x4 – December 31.. 20x4 P 13.120 f.200 20x4: First Year after Acquisition Parent Company Cost Model Entry January 1..000 Less: Over/under valuation of assets and liabilities: Increase in inventory (P6.000 x 100%)……………… P 6.000 12. 93.000) 4 ( 6.000 Decrease in buildings (P24.276..200 P 7. 12/31/20x5 P1.000 Fair value of NCI (given) (20%)……………….200 ( 20.000 1 P 6. P10 par P 600. P 240. 20x5…… P 495..200 20x5 7.000 360. 12/31/20x5 ___99..000) ( 6....000 Retained earnings 676.000 P - Subject to Annual Amortization Equipment (net).000 Increase in land (P7. P 15.000 8 12.. Consolidated SHE: Stockholders’ Equity Common stock..680 NCI. 372..680 Parent’s Stockholders’ Equity / CI – SHE. January 1.000 A summary or depreciation and amortization adjustments is as follows: Over/ Annual Current Account Adjustments to be amortized under Life Amount Year(20x4) 20x5 Inventory P 6. 20x4: (2) Cash……………………… 28.000x 80%)……………. 20 Non-controlling interest (partial goodwill)…………………………………. ( 24.000 x 100%)……….. P 105.000 x 100%)………………. 20x4: (1) Investment in S Company…………………………………………… 372. 120..000 Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………. . P 99.800 Problem X Requirements 1 to 4: Schedule of Determination and Allocation of Excess Date of Acquisition – January 1.000 P 6.. 12/31/20x5 P1.400) Fair value of stockholders’ equity of S.200 Increase in equipment (P96. 20x4 Fair value of Subsidiary (80%) Consideration transferred (80%)…………….600 Multiplied by: Non-controlling Interest percentage………….. P 465..000) (6. December 31.800 x 100%)…… 4.200 P 13.800 Record dividends from S Company.1375. 28..000 Less: Book value of stockholders’ equity of Son: Common stock (P240.000) Bonds payable… 4.000 Cash……………………………………………………………………..000 Acquisition of S Company..000 Buildings (net) (24.

7.000 Non-controlling interest (P360.000 x 20%) + [(P15.000 P1.000 Accumulated depreciation – equipment………………. 192.. 6.000 x 20%)………………. 3. 96. 216.000 Dividends paid by S Co. 12. 6..200 Dividends paid – S…………………… 36.000 Discount on bonds payable………………………… 1. 6.On the books of S Company. 28.610 To establish non-controlling interest in subsidiary’s adjusted net Income less NCI on goodwill impairment loss on full-goodwill .P……….000 P 6.000 Accumulated depreciation – buildings………………….200 Totals P 6.. 13.000 Accumulated depreciation – buildings…………………. No entries are made on the P’s books to depreciate..000) Bonds payable _______ _______ P 1. full – P12.800 Non-controlling interest (P36.750 Inventory………………………………………………………….800 Goodwill…………………………………………………………………. 72.000.000 Land………………………………………………………………………. 4. partial goodwill)]………… 21.000 Interest expense………………………………… 1..000 Accumulated depreciation – equipment……………….000 Equipment P12.. 36.000 Depreciation expense………………………. and to establish non- controlling interest (in net assets of subsidiary) on date of acquisition.000 x 20%)……………………….200 (E4) Dividend income . with remainder to goodwill. 84.000. 7.000 To allocate excess of cost over book value of identifiable assets acquired. and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.000 Cash……..000 To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition. (E2) Inventory…………………………………………………………………. 8.000 Retained earnings – S Co…………………………………… 120. 6. amortize or write-off the portion of the allocated excess that expires during 20x4.000 Buildings………………………………………..200 Discount on bonds payable…………………………………………. 6.000 Investment in S Co…………………………………………… 288.000 Buildings ( 6.000 dividend paid was recorded as follows: Dividends paid………… 36..000 To eliminate intercompany dividends and non-controlling interest share of dividends.. (E5) Non-controlling interest in Net Income of Subsidiary………… 8.610 Non-controlling interest ………….200 Goodwill…………………………………… 3.200 Goodwill impairment loss……………………………………….750 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Cost of Goods Depreciation/ Amortization Amortization Sold Expense -Interest Inventory sold P 6.000 Investment in S Co………………………………………………. Consolidation Workpaper – First Year after Acquisition (E1) Common stock – S Co………………………………………… 240. the P30..000 Non-controlling interest (P90. (E3) Cost of Goods Sold…………….

050 NCI in Net Income ..125 impairment on full-goodwill less P2.000 210.000 P 720.610) Net Income to Retained Earnings P196.. 120.000 86. 210.000 420. 20x4 (First Year after Acquisition) Income Statement P Co S Co. P 60. (5) 8.750 Total Cost and Expenses P312.044.000 (4) 84.500.000 (3) 3.000 Interest expense .000 Inventory………………….000 P 490...000 P 348. Worksheet for Consolidated Financial Statements.000 P211..000 60.200 3.850 .800 Accounts receivable……. 90.000 (3) 6. (3) 3.750 3.000 P202. 20% P 9.000 180.800 Multiplied by: Non-controlling interest %.000 Buildings 720.680 Total P556.000 (2) 216. Consolidated Sales P480.000 P508.000 540.600 Goodwill…………………… (2) 15.000 P180.000 _ ________ Retained earnings. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).000 Land…………………………….800 P144.800 P 90. 12/31 to Balance Sheet P484.125 by 20%.250 Investment in S Co……… 372.Subsidiary .000 (1) 120.610 *this procedure would be more appropriate.000 P 360.680 Statement of Retained Earnings Retained earnings.800 60.800 P240.426.200 Other expenses 48.000 Amortization of allocated excess [(E3)]….000 Depreciation expense 60. ..000 (3) 288.000 P562.000 24.000 Goodwill impairment loss . .008.800 P1.000 66. 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.000 Net income.200 Equipment 240..000 P 322.000 S Company P120. from above 196. 1/1 P Company P360. instead of multiplying the full-goodwill impairment loss of P3.360 Less: Non-controlling interest on impairment loss on full-goodwill (P3.400 S Company . Cost Model (Full-goodwill) 80%-Owned Subsidiary December 31.000 - Total P1. impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) P 8.984... December 31.000 (3) 6.800 ..000 (2) 7.000 (3) 6.440 Dividends paid P Company 72.000 48.. .950 Net Income P196. ( 13.800 P 60.000 90.000 P138. Cr.000 90.200) P 46. 36.200 265..000 Discount on bonds payable (2) 4. 20x4.000 1.000 Cost of goods sold P204.750 11. (4) 28.800 _________ Total Revenue P508.000 Dividend income 28.000 (2) 6. for 20x4 as follows: Net income of subsidiary…………………….000 P 720.800 (3) 1.000 P240. (3) 1.610 ( 8.000 150.800 P 60.000 18..000 (4) 36.440 Balance Sheet Cash………………………. P 232.200 1.125 x 20%) or (P3.000 P2. Dr.800 P180.000 202.

000 (2) 21.000 Accounts payable…………… 120.000 Dividends paid by S Co.000 P 90.000 Other expense 72. 1/1/20x5.. On the books of S Company.000 Accumulated depreciation 405.000 54.000 192.buildings (6) 6.000 Net income from its own separate operations P 192.000 Multiplied by: Controlling interest % 80% Retroactive adjustment P 19.000 x 20%)……………………….000 (5) 192. Accumulated depreciation .000 x 80%)………………………… 307.000 Investment in S Co (P384.000 288. 20x5 – December 31.200 Retained earnings – P Company……………………… 19.000 360. P10 par……… 240.800 To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of .equipment P 135.000 Less: Cost of goods sold 216.000 Common stock.560 P 748.000 .800 P1.000x 80%)…………….400 - Net income P 230.200 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.000 P 360. Consolidation Workpaper – Second Year after Acquisition (E1) Investment in S Company………………………… 19.000 Less: Depreciation expense 60.000 Increase in retained earnings……. the P40.000 P147.984. 38.000 Retained earnings. 76.000 Retained earnings – S Co.400 Record dividends from S Company. Sales P 540.984.000 Dividends paid P 72. P 24.850 20x5: Second Year after Acquisition P Co.560 P2.000 120.000 24. 1/1/20x4 120.000 (2) 96.800 P 748.000 Common stock.000 (1) 240.400 Dividend income (P48.000 Retained earnings – S Company. P10 par……… 600.426..200 (1 ) 72.000 P 96. Retained earnings – S Company.000 495. 1/1/20x5 144.000 _________ _________ __________ (5) 8. 1/1/20x5 P144.400 P 90.000 Bonds payable………………… 240.000 No goodwill impairment loss for 20x5.410 Total P1.800 144.000 240.000 120.000 P 48..000 Add: Dividend income 38..000 P 168.000 Cash 48. 20x5: Cash……………………… 38.200 Non-controlling interest (P384.000 600.610 ____94. Parent Company Cost Model Entry Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment: January 1.000 dividend paid was recorded as follows: Dividends paid………… 48.000 Gross profit P 324.000 (3) 12.440 Non-controlling interest………… (7) 7.000 490. S Co.200 (E2) Common stock – S Co………………………………………… 240. from above 484.

200 P 1..560 Less: NCI on goodwill impairment loss on full- Goodwill 0 .000 P 12.000 Accumulated depreciation – buildings………………….000 To eliminate intercompany dividends and non-controlling interest share of dividends. 3. 15.000 Amortization of allocated excess [(E4)]….600 Dividends paid – S…………………… 48....000 Interest expense………………………………… 1.000 Equipment 12.000 To allocate excess of cost over book value of identifiable assets acquired. 216.750 Totals P 16. 192. 84. 6. 20x5.000 Investment in S Co………………………………………………..000.000 P1.750 To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to Perfect’s retained earnings and NCI. 20x5.000 Discount on bonds payable………………………… 2. partial goodwill)]………… 21.000 Non-controlling interest (P90. expense -Interest Inventory sold P 6. 16. and to establish non- controlling interest (in net assets of subsidiary) on January 1.000 Buildings (6.560 To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows: Net income of subsidiary……………………..000) ( 6..200 Inventory………………………………………………………….200 Discount on bonds payable…………………………………………. 20% P 16.P………....200 Impairment loss 3.400 Non-controlling interest (P48..800 Goodwill…………………………………………………………………. Year 20x5 amounts are debited to respective nominal accounts. (E3) Inventory………………………………………………………………….000 Buildings………………………………………. 7... 9. P 90. 1/1/20x5 (P16.560 Non-controlling interests (P16... subsidiary) on January 1. (E6) Non-controlling interest in Net Income of Subsidiary………… 16.950 x 80%) 13. 24. 6. (20x4) Depreciation/ Retained Amortization Amortization earnings. full – P12.200 Multiplied by: CI%. ( 7. 6.000..800 Multiplied by: Non-controlling interest %.. 4..400 Goodwill…………………………………… 3.950 P 6.000 Land………………………………………………………………………...560 (E5) Dividend income . (E4) Retained earnings – P Company.000 x 20%)………………. 80% To Retained earnings P13.000 Accumulated depreciation – equipment………………..200) P 82... 96..950 x 20%)……………………. 38.560 Non-controlling interest ………….000) Bonds payable 1. with remainder to goodwill. 12.000 x 20%) + [(P15.390 Depreciation expense……………………….000 Accumulated depreciation – equipment……………….000 Accumulated depreciation – buildings…………………..

200 Net Income P230.000 258.000 306. (4) 1. Consolidated Sales P540.000 P 748.000 120..000 Common stock.600 (8) 3. 180.000 - Total P2.Subsidiary .000 S Company .200 P 490. .200 Accounts receivable…….600 _ ________ Retained earnings.000 (3) 96. (5) 38.000 Retained earnings.000 P 102.000 P 258.000 1.044.400 2.000 120.560) Net Income to Retained Earnings P230.200 Other expenses 72.200 1.050 .440 S Company P 144.000 24.000 Net income.000 676.000 600. (6) 16.000 540. 20x5 (Second Year after Acquisition) Income Statement P Co S Co. 48. from above 643.560 Worksheet for Consolidated Financial Statements. December 31.203.240 Statement of Retained Earnings Retained earnings.200 (2) 307.000 Common stock.000 P 900.000 Inventory…………………. 12/31 to Balance Sheet P643.000 ___ _____ _________ __________ (6) 16.680 Balance Sheet Cash……………………….000 (4) 3.000 360.400 90.200 P 102.200 P1.710.000 Land…………………………….000 (4) 6.000 126.200 (7) 84.000 (6) 144.400 Goodwill…………………… (3) 15.000 108.000 48.000 324.000 P 625.000 P 408.000 P192. 20x5. Non-controlling Interest in Net Income (NCINI) P 16.000 P270.390 (2 ) 76.200 P186.680 Dividends paid P Company 72.000 (4) 6.680 Non-controlling interest………… (6) 9.400 P 90. .000 552.400 ___________ Total Revenue P578.000 (3) 216.200 Equipment 240.800 (3) 21.000 276. P10 par……… 600. 1/1 P Company P484.240 Total P715.200 P234.000 (3) 6.074. Cr.000 Interest expense . P10 par……… 240.000 Accounts payable…………… 120.400 P360. Cost Model (Full-goodwill) 80%-Owned Subsidiary December 31.370 Total P2.000 P 274.000 180.000 (1) 19.560 ( 16.000 Cost of goods sold P216.000 P180. 210. - Total Cost and Expenses P348.000 Buildings 720.800 (4) 2. .000 240.000 96.000 90. Dr.400 .000 Goodwill impairment loss .000 (2) 240.910 P 824.200 P1.560 ____101.000 P 900.000 P 676.400 P 90.000 420.000 P 824.buildings (4) 12. from above 230.200 265.000 P 367.200 186.000 Dividend income 38.000 (5) 57.equipment P 150.000 P360.000 (3) 7.000 . P 265.910 P2.000 (4) 24.750 11.000 Depreciation expense 60.250 Investment in S Co……… 372. 216.000 72.710.050 Accumulated depreciation .800 NCI in Net Income .800 (5) 13.074.000 54.000 Bonds payable………………… 240.000 Accumulated depreciation 450.000 Discount on bonds payable (3) 4.000 P2.560 (5) 19.203.000 (3) 192.

On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings. 20 Non-controlling interest (partial-goodwill)………………………………….. January 1.000 Add: NCI on full-goodwill (P15...000 Multiplied by: Non-controlling Interest percentage…………. date of acquisition (January 1.000 Total P228.000 b. 1/1/20x4 P1. 1/1/20x4 ___93.360 Less: Non-controlling interest on impairment loss on full-goodwill (P3. thus: Consolidated Retained Earnings.000 Non-controlling interest (partial-goodwill)………………………………….750 impairment on full-goodwill less P3.000 Retained earnings 360. January 1. P 93..560 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P………….5.200 P 46. impairment on partial-goodwill)* 750 ..000 Fair value of stockholders’ equity of S. 20x4 Common stock – S Company. P10 par P 600.000) ___3.P Company. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.000 Adjustments to reflect fair value .000 Stockholders’ equity – S Company.. Consolidated SHE: Stockholders’ Equity Common stock. 1/1/20x4 a.000 c.(over) undervaluation of assets and liabilities.440 Add: Non-controlling Interest in Net Income (NCINI) 8.610 Consolidated Net Income for 20x4 P211.000 S Company 60. CI-CNI – P202. Non-controlling interest (full-goodwill). January 1. NCI-CNI – P8. January 1. 12/31/20x4: a.000 Retained earnings – S Company.000 Consolidated SHE. 20x4 120. 20x4) 90. January 1.750 x 20%) or (P3.000.200 Goodwill impairment (impairment under full-goodwill approach) 3.053. January 1. 20x4 Retained earnings .. P 90.800 Multiplied by: Non-controlling interest %.050 b.610 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P 60.. 20% Non-controlling Interest in Net Income (NCINI) P 9. 20x4…… P 240.000 Less: Non-controlling Interest in Net Income* P 8...000 Less: Amortization of allocated excess (refer to amortization table above) 13. 20x4 P 360.000 Parent’s Stockholders’ Equity / CI . 20x4 (date of acquisition) P360. 20x4…… P450. P202.000 – P12.750 25. Note: The goodwill recognized on consolidation purely relates to the parent’s share... January 1.610 Amortization of allocated excess (refer to amortization above) 13..SHE P 960.000 NCI..440 Consolidated Net Income for 20x4 Net income from own/separate operations: P Company P168.000 6.

20x4 P490.000 144. 12/31/20x4……………. December 31. P10 par P 600. 20x4) 90. December 31. December 31.440 P’s Stockholders’ Equity / CI – SHE. c.050 – refer to (a) d. Non-controlling interest (full-goodwill). 20x4…… P460. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings. 20x4 P120.000 Less: Non-controlling Interest in Net Income* P16.000 Retained earnings 490.000. partial = P3.410 Consolidated SHE. January 1.000 S Company 90.000 Retained earnings – S Company. December 31. net of impairment loss. December 31.240 Consolidated Net Income for 20x5 Net income from own/separate operations P Company P192.000 Total P282. P258. P 94. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired..850 12/31/20x5: a. January 1.000 Amortization of allocated excess (refer to amortization above) – 20x4 ( 13.440 Less: Dividends paid – P Company for 20x4 72.560 Amortization of allocated excess (refer to amortization above) 7.(over) undervaluation of assets and liabilities. P 92. December 31. 20x4 (date of acquisition) P360.000 Add: Net income of S for 20x4 60.000 Total P180.000) – P750 impairment loss 2. 20 Non-controlling interest (partial-goodwill. 20x4 P 384.440 NCI.000 Adjustments to reflect fair value . 12/31/20x4 P1.760 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….000 Consolidated Retained Earnings..090.200) Fair value of stockholders’ equity of S.000 full – P12.440 Total P562. 12/31/x4: [(P15.000 Less: Dividends paid – 20x4 36. Consolidated SHE: Stockholders’ Equity Common stock.800 Multiplied by: Non-controlling Interest percentage………….250 Non-controlling interest (full-goodwill). CNI.560 .. 20x4 Common stock – S Company.440 e.. On subsequent to date of acquisition.000 Stockholders’ equity – S Company.160 Add: Non-controlling interest on full goodwill . 20x4 Retained earnings ..184. instead of multiplying the full-goodwill impairment loss of P3.240 Add: Non-controlling Interest in Net Income (NCINI) 16. 20x4 Retained earnings – S Company. 12/31/20x4 P1.610 *this procedure would be more appropriate.750 by 20%.200 Goodwill impairment (impairment under full-goodwill approach) 0 23.410 f. CI-CNI – P258. 20x4…… P 240.000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 202. P211. 12/31/20x4 ___94. 12/31/20x4………………………….P Company. December 31. date of acquisition (January 1. Non-controlling Interest in Net Income (NCINI) P 8.

Consolidated Net Income for 20x5 P274,800
b. NCI-CNI – P16,560
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company P 90,000
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above) 80,400
P 82,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560

c. CNI, P274,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model P484,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/P’s share in adjusted net
increased in subsidiary’s 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
P 10,800
Multiplied by: Controlling interests %................... 80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
Consolidated Retained earnings, January 1, 20x5 P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 258,240
Total P748,680
Less: Dividends paid – P Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.

e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – S Company, December 31, 20x5…… P 240,000
Retained earnings – S Company, December 31, 20x5
Retained earnings – S Company, January 1, 20x5 P144,000
Add: Net income of S for 20x5 90,000
Total P234,000
Less: Dividends paid – 20x5 48,000 186,000
Stockholders’ equity – S 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 S, December 31, 20x5…… P 495,600
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 99,120
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 101,370

f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,276,680
NCI, 12/31/20x4 __101,370
Consolidated SHE, 12/31/20x4 P1,378,050

Problem XI
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued) ............................ 900,000
Common Stock (par value) ............................................................... 150,000
Additional Paid-in Capital (excess over par value) ...................... 450,000
Liabilities ................................................................................................. 300,000
The payment to the broker is accounted for as an expense. The stock issue cost is a
reduction in additional paid-in capital.
Acquisition expense ................................................................................... 30,000
Additional Paid-in Capital......................................................................... 40,000
Cash ................................................................................................... 70,000
Allocation of Acquisition-Date Excess Fair Value:
Consideration transferred (fair value) for BB Stock ............................ P900,000
Book Value of BB, 6/30 ............................................................................... 770,000
Fair Value in Excess of Book Value ................................................... P130,000
Excess fair value (undervalued equipment) ......................................... 100,000
Excess fair value (overvalued patented technology) ........................ (20,000)
Goodwill................................................................................................. P 50,000
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included) ............................................................................................... P210,000
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included) ........................................................ 800,000
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary) ..................................................................................... 1,180,000
4. Goodwill (computed above) ........................................................................... 50,000
5. Liabilities (the parent's book value plus the fair value
of the subsidiary's debt plus the debt issued by the parent
in acquiring the subsidiary) .............................................................................. 1,210,000
6. Common Stock (the parent's book value after recording
the newly-issued shares) ................................................................................... 510,000
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above) ......................................................... 680,000

Problem XII
1. Investment in WP, Inc. 500,000
Contingent performance obligation 35,000
Cash 465,000

2.

12/31/x4 Loss from increase in contingent performance
obligation 5,000
Contingent performance obligation 5,000

12/31/x5 Loss from increase in contingent performance
obligation 10,000
Contingent performance obligation 10,000

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

3. Cost Model/Initial Value Method
Investment in WP 30,000
Retained earnings-BS 30,000

Common stock 200,000
Retained earnings-WP 180,000
Investment in WP 380,000

Royalty agreements 90,000
Goodwill 60,000
Investment in WP 150,000

Dividend income 35,000
Dividends paid 35,000

Amortization expense 10,000
Royalty agreements 10,000

Problem XIII (Consolidated accounts one year after acquisition)
SS acquisition fair value ($10,000 in
stock issue costs reduce
additional paid-in capital) ................................ P680,000
Book value of subsidiary
(1/1/x4stockholders' equity balances) ............... (480,000)
Fair value in excess of book value ......................... P200,000
Excess fair value allocated to copyrights Life Amortizations
based on fair value ............................................ 120,000 6 yrs. P20,000
Goodwill ...................................................................... P 80,000 indefinite _____-0-
Total ....................................................................... P20,000

1. Consolidated copyrights
PP (book value) ................................................................. P900,000
SS (book value) .................................................................. 400,000
Allocation (above) ........................................................... 120,000
Excess amortizations, 20x4 ............................................... (20,000)
Total .............................................................................. P1,400,000

2. Consolidated net income, 20X4
Revenues (add book values) ......................................... P1,100,000
Expenses:
Add book values ........................................................ P700,000

.....................000 SS’s retained earnings balance as of January 1......................000 Book value (given) ..........563........000 Dividends paid 20x4 (PP) .. 20x4........... 12/31/x4 Allocation (above) ....000 excess depreciation)  Dividends Paid = P120...................................000 Excess Allocation to equipment based on Life Amortizations difference in fair value and book value .........000 (parent balance only.............000 (add book values plus P90...000............................................ is not included because these operations occurred prior to the purchase....... Consolidated goodwill.... SS's dividends were paid to PP and therefore are excluded because they are intercompany in nature........................ In addition... (80... Subsidiary's dividends are eliminated as intercompany transfer)  Revenues = P1..... Acquisition-Date Fair Value Allocation and Amortization: Consideration transferred 1/1/09 ....... 130........ P900............ Excess amortizations ... 12/31/x4 Retained earnings 1/1/x4 (PP) ........200............000 10 yrs....000 Consolidated Balances  Depreciation expense = P659. P80......000 indefinite -0- Total ...................) 1... If the equity method had been applied which is not allowed under PAS 27 for a parent to consolidate...................................000) Annual Fair value in excess of book value ............000 (add book values)  Equipment = P1....000 (original residual allocation)  Common Stock = P900..... 4............... The parent's Investment in Subsidiary account still retains the original consideration transferred of P600..000 Net income 20x4 (above) .....................................000 allocation less three years of excess depreciation [P27....................................... Under PAS 27..........................000 (parent balance only) 2...................................... Consolidated retained earnings. 90...... the Investment Income account would have included both ........... P9........000 Problem XIV Consolidated balances three years after the date of acquisition........000 (book values plus P9..... P9...400.... it requires a choice between cost model or under PFRS 9 (known as fair value model) 3.. The cost model or initial value method is used.... The choice of an investment method only affects the internal reporting of the parent.................. P600... P40.......... 4....000) Total ......000 3........ 380.......000])  Buildings = P1...............000 Goodwill .....000 (add book values)  Goodwill = P40...................... Includes questions about parent's method of recording investment for internal reporting purposes.....000 720...... P380...... The parent's choice of an investment method has no impact on the consolidated totals....000 Consolidated net income ..... 20......... P600..... (470... the Investment Income account equals the amount of dividends paid by the subsidiary......

... they are not continually adjusted for changing fair values...........000 Income from subsidiary 24......... 600...500 P35...... 2...... 20x4 P374................000....000 P40.. Buildings and equipment .......................000 4...... 1.................000 + P35...... SR’s total fair value 1/1/09 ................................000 Unpatented technology .... Consolidated retained earnings at December 31.......................................000) Trademarks ................. Problem XV 1........000 P35... is equal to the P374.... this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings................................................................................000 ..... When the cost method is used.... Each identifiable asset acquired and liability assumed in a business combination should initially be reported at its acquisition-date fair value............500 P65...... 1.............500 Net income P114..... 3.........290...... 20x4......000 shares) ...........00 × 20......000 shares) . 200..............................000 Adjustments from book to fair values ..000 Dividends paid in 20x4 (30.. P3....810.... Thus.....25 × 80..610.....100...000 and excess amortizations of P9.....000 Excess acquisition-date fair value over book value . 20x4 P290. Problem XVI (Several valuation and income determination questions for a business combination involving a non-controlling interest........... Consolidated net income is P125..................................000 (P90.. In periods subsequent to acquisition...........000 for a balance of P91.......060.........000 Net income for 20x4 114................... the parent's proportionate share of the increase in retained earnings of the subsidiary subsequent to acquisition is not included in the parent's retained earnings....000)....... P 200.............000 2..000 Patented technology .................. January 1....... December 31.........100.... 5...000) (10...500 35.000 1.............000 Non-controlling interest fair value (P30................... 3.............. PS’s consideration transferred (P31..500 retained earnings balance reported by QQ.................................... Retained earnings reported at December 31.......000) Retained earnings.......... Net income for 20x4: QQ NN Operating income P 90.... Except for certain financial items.......................500...................................................... (250.... 20x4: QQ NN Retained earnings..... the subsidiary’s assets and liabilities are reported at their acquisition-date fair values adjusted for amortization and depreciation........................... P1..........................000 Goodwill ....... P2.......000 SR’s total fair value 1/1/09 ..) Business combinations are recorded generally at the fair value of the consideration transferred by the acquiring firm plus the acquisition-date fair value of the non-controlling interest........ the equity accrual of P100.. P3.................000 SR’s net assets book value .......................... P600...000 1...........

........................................... Therefore.......................................................................................................... P50.000) Total excess amortization expenses (above) ........................ (265........................... no goodwill is recognized........... 1..........000 Dividends ......................................................................................................................................... P 667........................................................................ 1/1 (stockholders' equity accounts) (P100.....000) Patented technology amortization .................................................... P1.................. P73........ P120.............. P2.................... P3........000........................................400.......................................................................................... P1.....000 PS’s separate net income ....000 + P600..............000) .............................................400............... however......................................................................615.........542......................................... If SR’s acquisition-date total fair value was P2........ 20x4 ..........000) Consolidated net income .....................000 6..............................................................000 Trademark excess amortization ................................................................ P600...............000 Non-controlling interest percentage ownership .............................................................000 Dividends (20% × P30...........000 PS’s share of SR’s adjusted net income (80% × P365......................................................000 To controlling interest: Consolidated net income..................................... P1........... (435.......... P2..000) Controlling interest share of consolidated net income .750...... (600..................250.............000 20x4 income .000 + P700................000) ............ P4. Combined revenues ...............000 Bargain purchase .........................................000 Increase in book value: Net Income (revenues less cost of goods sold and expenses) .....350........................................000 Combined expenses...250.................. (20....................73.................000 To non-controlling interest: SR’s revenues ......... P365............. P1................................000) Non-controlling interest December 31........................................ (2. SR’s total fair value 1/1/09 ................................................. then a bargain purchase has occurred.....000 Non-controlling interest share of consolidated net income ............................4.................000 Collective fair values of SR’s net assets ......... (200............. 50.............................300............................................. (73..........000 5.........000 SR’s expenses............................................................... none of SR’s identifiable assets and liabilities would change as a result of the assessed fair value..000 The acquisition method requires that the subsidiary assets acquired and liabilities assumed be recognized at their acquisition date fair values regardless of the assessed fair value. (6.000 Controlling interest share of consolidated net income .............615......... P1....................000) SR’s adjusted net income ....................................................................400......................... P1.............................................................................. 20% Non-controlling interest share of consolidated net income .............................542.... 292..000....................... 20x4 ................... Problem XVII (Full-Goodwill) A variety of consolidated balances-midyear acquisition) Book value of RR..... Fair value of non-controlling interest January 1........................................000 -OR- PS’s revenues ..........000) .......... (20..................................... P1..............................000) ........................000) Building and equipment excess depreciation ...000 PS’s expenses ................ When a bargain purchase occurs...............................000) Unpatented technology amortization ...............................................250............... ……..................

............... 20% FV of NCI………………………………………………............. The rationale behind such rule is to avoid having a lower amount of goodwill under the full-goodwill approach as compared to goodwill computed under the partial-goodwill approach..000 + P30....partial ...000 Non-controlling interest fair value ......................000) .... computed as follows: BV of SHE of Subsidiary (RR) .........000 Change during first six months of year ..... 120...........330...................600....... P 200.... P1....000 (post-acquisition subsidiary operating expenses) plus ½ year excess amortization of P15.....................000)....000 5 years P30.. (Partial-Goodwill) Consideration transferred by KL ...... P265.... that NCI can never be less than its share of fair value of net identifiable assets (which is P320....................... P1.....000) Fair value in excess of book value . ___320......000 (refer to above computation).............000 Consideration transferred by KL (P1..........000 Adjustments to reflect fair value (undervaluation) 150................................................ Thus.............630..000.....000 Non-controlling interest fair value .000 ............................................... 300......................000 Annual Excess Excess fair value assigned Life Amortizations Trademarks .....450..................000 x 80%.... the NCI share of company value is raised to P320........... 150.................... which is lower compared to the FV of the NCI based on FV of SHE of Subsidiary (RR)............... indicates a fair value of NCI amounting to P300................  Dividends paid = P80.......000) is higher compared to the imputed or the computed residual amount of NCI (P300.. P1..000 Note: The fair value of subsidiary amounting P1....000 Note that the goodwill under the full-goodwill and partial-goodwill approach are the same because the FV of the NCI based on the FV of SHE of subsidiary (P320....000 x 80%)…….......... 50..........................000 (replacing the P300....680.................................000 Book value of RR...........000 NCI computed as residual amount – refer to computation above)...............000 Goodwill .................. 7/1 ............................... 7/1 (acquisition date) ........... P 1.....000 + P30............. P100...000 FV of SHE of Subsidiary (RR) ......000 Goodwill (full-goodwill) .......450.....000 RRs’ fair value (given) ..... P1..000 RRs’ fair value (given) ........630......000 KK operating expenses plus P50....000 Allocated excess………………………………………….... P1..................000 indefinite -0- Total .360............................................ P 1.....................................450................... P 320..000 Multiplied by: NCI% .. P 230..........000 Book value of RR...160.......000 It should be carefully noted..000 = P200.. P 80.... P1................... P30.......000 (Full-Goodwill) Consideration transferred by KL (P1...000 Less: Book value of SHE – RR (P1...360..................000)........450............... Change during year .......000 Less: Over/under valuation of A and L: P150...... 1.............. Consolidation Totals:  Expenses...000...........000) . P 80...................330... (1......360.................

............000) 5 years P(6...000 (post-acquisition subsidiary revenue) (2) P400.............000 (post-acquisition subsidiary revenue......... 1/1 = P1... 1/1/x4 (CS + 1/1 RE) ...000 – 30..000 (add the two book values and the excess fair value allocation after taking one-half year excess amortization)  Goodwill (full)= P80............ P80......................000.....000  Cost of goods sold (2) 540.......000 (post-acquisition subsidiary COGS) (3) P200..000 Less: Book value of DD (below)..000 Non-controlling interest fair value ...000 – P280.000) × ½ year] = P9.....000 Time prior to purchase (3 months) ............................ P(6...000  Operating expenses (3) __265... P 91.000  Controlling Interest in CNI P 236............. P 61... P740.000 (the parent’s balance because the subsidiary was acquired during the current year)  Trademark = P935.000 – P100......... none  Goodwill (full).. Income (4) P 9...........000  Consolidated Net Income.... ×¼ 25.000 KK operating expenses plus P50..000) x 1/2]  Buildings........000) Goodwill (full) ......................000 (the original allocation)  Goodwill (partial) = P80............................000 indefinite -0- Total . none  Depreciation expense......... P80..050....050...000 (1) P800...........000 (the original allocation) Problem XVIII (Consolidated balances after a mid-year acquisition) Note: Investment account balance indicates the initial value method................ (30. P765........ Goodwill (partial).000 KK revenues plus P250......... P826..............000  Retained Earnings.000 Excess assigned Annual Excess based on fair value: Life Amortizations Equipment ........000) Fair value in excess of book value (positive) .....000  Net Income P 245.... P(4........ P1......000 KK COGS plus P140.....000  Non-controlling Interest in Sub.000  Sales (1) P1...... 300.................000 = P800..................000 is higher compared to the FV of the NCI based on FV of SHE of Subsidiary (RR)... P245............... P100..........subsiary ..500) Acquisition-Date Subsidiary Book Value Book value of Duncan........ Consideration transferred .400..... (765. computed as follows: .000 Increase in book value-net income (dividends were paid after acquisition) ..............000 (4) 20% of post-acquisition subsidiary income less excess fair value amortization [20% × (120..000) Amortization for 9 months ................................000 KK revenues plus P250...............000 = [(P500....000 (post-acquisition subsidiary operating expenses) plus ½ year excess amortization of P15...... none  Subsidiary’s net income... P526.................................000 FV of SHE .000 * The fair value of NCI amounting to P300...... P500.....000 Book value of DD. P60....000 x 1/2)  Equipment.. 4/1/x4 (acquisition date) .  Sales......

.…………………… P765....000 1..000 Less: Over/under valuation of A and L: (P30.000 (original allocation)...500 nine months excess amortization) Common Stock = P630... BV of SHE of Subsidiary (DD) ...000 ..........000 (add the two book values) Dividends Paid = P80.. Goodwill........ Revaluation gain 1/1 equity investment in AD (book value) P178..000 Allocated excess………………………………… P 67....000 Multiplied by: NCI% .. 1.... P735.....500 619...000 2.... Goodwill .....250 3....000 Less: Book value of SHE – DD (P765.000 Adjustments to reflect fair value (undervaluation) ( 30....124.....000 Allocation to goodwill (no impairment) P65.000 + [70..........000 combined operating expenses less P15.... P 85.000 (P company balance only) Problem XIX (Determine consolidated balances for a step acquisition)....... AD fair value implied by price paid by MM P560... partial = P85.........000 (preacquisition subsidiary operating expenses) less nine month excess overvalued equipment depreciation reduction of P4.000) FV of SHE of Subsidiary (DD) .750 Fair value of investment 200...... full = P91.200 Controlling interest in CNI P 177........500 Noncontrolling interest in CNI (4) 28.......000 combined COGS less P35...........000 combined revenues less P75. Consolidated Income Statement: Revenues (1) P825.000 Book value at 6/30 (700.000 reduction to fair value plus P4.partial .000 Excess fair value P65..000 Gain on revaluation to fair value P13... P294...500 Consolidated net income P 205...........000 25% income for 1st 6 months 8.....000 ÷ 70% = P800.......750 Investment book value at 6/30 186.000 (Partial-Goodwill) Consideration transferred ..000 Cost of goods sold (2) P405.. P 526.......000 (preacquisition subsidiary COGS) (3) P234...000 x 60%) 459....500 (add the two book values less P30.000) Goodwill .....000 Equipment = P774..000 x 60%)..000 (preacquisition subsidiary revenue) (2) P440......000 (P company balance only) Buildings = P1...... ( 18.......500 (4) 40% of post-acquisition subsidiary income less excess amortization 2........000 ÷ 2]) 735.... 40% FV of NCI……………………………………………......000 Operating expenses (3) 214. Goodwill at 12/31 Fair value of AD at 6/30 P800.........300 (1) P900....

000 Non-controlling interest after issuance of additional shares: Book value of SHE before issuance………………………………. Problem XXII P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows: Cash proceeds from issuance of additional shares …. P 19.000.000 Carrying value of the non-controlling interest before deconsolidation (15% or prior outside non-controlling interest in Subsidiary) 120.000 “Gain” – transfer within equity in “Additional paid-in capital” account P 60. Therefore..000)] = 36% ownership after additional issuance of shares .P930. Palmer Company’s additional paid-in capital increases by P60.000 – 96. ** [(24. It is assumed that the investment above is FVTPL..000) Non-controlling interest 12/31 P40.750 5% dividends (1.000 + 30. 36%** 334. no gain or loss is recognized.750 Problem XX P’s gain on sale of subsidiary stock is computed as follows: Cash proceeds……………………………………… P 720.200 * (120. Instead.800 “Gain” – transfer within equity in “Additional paid-in capital” account..260.…….000) / 120..P720.. Non-controlling interest 5% fair value balance at 6/30 P40.… 210...000) / (120..000* x 10%) 1.000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.000 x: Non-controlling interest……………. 20%* P 144.200.000 Fair value of retained non-controlling interest equity investment (35%) 420..000 = 20% ownership before additional issuance of shares.000 Gain on disposal or deconsolidation P 60..000 Less: Carrying value of Subsidiary’s net assets 1. Problem XXI P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows: Cash proceeds……………………………………… P 84.000 BV of SHE after issuance………………. P 210.000 *the P720.000 5% Income from 6/30 to 12/31 1.000 x: Non-controlling interest…………….800 190.. Because P Company continues to have the ability to control S Company. the sale of S’s shares is treated as an equity transaction.200.000 Less: Carrying Value of non-controlling from issuance of additional shares: Non-controlling interest prior to issuance of additional shares: Book value of SHE before issuance…P720.000 Less: Carrying value of non-controlling interest (P720..000 Additional issuance………………….000 Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI or FVTPL and its disposition.....000 + 30. 4.000 P1..

..000 ................................ the stockholders' equity accounts on its books will already represent consolidated totals.....................000/150......................... Parent has applied the equity method. P21.. Acquisition-date fair value allocated to goodwill Goodwill-full ( see Problem I above) ... (140........200) Investment income .000 5.... Common stock.....000 Income accrual 20x4–20x6 (P260...... (10............................000 20x4 Increase in book value of subsidiary 40.....................400 2...................................................000 Excess amortization expense ..000 TT book value—buildings .........000) and in additional paid-in capital of P19. MM book value—buildings .......000 Excess Amortizations for 20x4–20x5 (P4.. Problem XXIII 1........000 Book value of JJ .................... Using the acquisition method..... P 150...... 208...................200........................... (500) Goodwill ..000 × 80%) .........................P Company recognizes an increases in its Investment in S from P576....... P 800..................... P206...) 1....................000........ 66...000x 80%) to P595...... P500.... annual excess amortization is P4..........................................000 Problem XXIV (Consolidated balances three years after purchase.............................. P206.............. Equity Method Income accrual (80%) .600 indefinite -0- Total .......000 × 80%) ...... P52............200 [P930................... the allocation will be the total difference (P80.......... (36.... P6.000) between the buildings' book value and fair value. (9........000 Allocation ...............200 × 3) ........ Based on a 20 year life.. P56...800 Buildings (overvalued) ...........000) Consolidated buildings account ...................000 Additional paid-in capital...600) Investment in TT—12/31/x6 .......000 x (96.................... (3..000 Dividends 20x4–20x6 (P45....... 300...... P1.......................000 4.400 8 yrs................000) Excess Amortizations 20x4–20x6 (P3................................................ If the parent has been applying the equity method.........300 Investment in JJ Company—12/31/x6 JJ’s acquisition-date fair value . P826.......... Schedule 1—Acquisition-Date Fair Value Allocation and Amortization JJ’s acquisition-date fair value .................................172..000) Fair value in excess of book value ..... The common stock and additional paid-in capital figures to be reported are the parent balances only...............................000 (P720..000 × 2) (8...... 54..... P6..............000 Goodwill-partial (see Problem I above)………………………… P 120................................. 80.... 1 3....................000 Excess fair value assigned to specific accounts based on individual fair values Annual Excess Life Amortization Equipment ..... P664................ P280.............000) 20 yrs.............. Equity Method – same with No................................................800 Initial fair value paid .....

....................700 4............000 Less: BV of SHE of S (P1..................000 – P600........................700 3................... 20........ (Dec.......400) Consolidated equipment .................. P30.............................................000 + P600..............000 Allocation of purchase price ....500 Consolidated buildings ...... Book values added together .....000) x 80% P 100..........000 20x6 Excess amortizations (Schedule 1) ..................000 5.... Consolidated Net Income Consolidated revenues (add book values) ................. P135........) Inventory (P725....................................................300) 20x6 Increase in book value of subsidiary ............000 is equal to the consolidated total because the equity method has been applied..........000 Equipment (P1..............200....300) 20x5 Increase in book value of subsidiary ...............................000) Excess depreciation (P500 × 3) .................300) Equity in subsidiary earnings .600 7............................. (10.............................000 Goodwill – partial P 290................800 × 3) ....440............................000 – P900................... P410........................................................................... P279.............. P21.................................000 Tyler's balance of P410.... P288.......................................000 As a purchase........000 is used (the acquired company's common stock will be eliminated each year on the consolidation worksheet)....... 10...................................................... the parent's balance of P290....000 Allocated excess P 530......... Consolidated Equipment Book values added together ........000 Allocation of purchase price ......................................................... 1............. 54.........300) Consolidated net income ....... Equity in Subsidiary Earnings Income accrual .............. P370........................... P257...................... P404....................... (6...................................................... Consolidated Common Stock ............... P290.................000 __240......400 Excess depreciation (P6............................................000) x 80% _1.............. (20............. Consolidated Buildings ........................ Problem XXV Computation of Goodwill: Partial Goodwill or Proportionate Basis Fair value of Subsidiary: Consideration transferred P1............................075.....000 Full-goodwill or Fair Value Basis ........970...................... Consolidated goodwill Allocation of excess fair value to goodwill ................ 20x4 Excess amortizations (Schedule 1) .. P414..............100 2...............................300) Investment in J Company ......... (6.. 8....................000) Excess amortization expenses (Schedule 1) ....000 20x5 Excess amortizations (Schedule 1) ............500 6............... (6.........000 Excess amortizations (Schedule 1) .......................... (6......... P23... (6................ Consolidated Retained Earnings ..................000 Consolidated expenses (add book values) ......................................000 Less: Over/under valuation of A and L: Inc..................................000) x 80% 140............. (272..

000) x 100% P125.000 x 40% P 50.000 25. (Dec.000 Investment in S Company 400.80)(P750.S Company 600.S Company 1.500 Amortization 20x4 20x5 Inventory: P125.000) 720.000 .000 Equity in Subsidiary Income (.000 Investment in S Company 600.000 – P900.000) 520.000 Equity in Subsidiary Income (.000 Investment in S Company 60.970.000 Investment in S Company 1.) Inventory (P725. Fair value of Subsidiary: Consideration transferred P1.500 Less: Over/under valuation of A and L: Inc.000) 50.800.000 Equity in Subsidiary Income 60.500 Noncontrolling Interest 492.000 P125.000) 600.970.307.000 / 7 years 25.000 Equity in Subsidiary Income 80.000 Investment in S Company 720.200.000) 120.000 Cash (0.80 x P150.200.000 Cash 1.000 Allocated excess P 662.970.000 (2) Beginning Retained Earnings .000 – P600.500 Less: BV of SHE of S (P1.000 1.000 Investment in S Company 120.000 Equipment (P1.000) 120.467.80)(P750.000) x 100% 175.000 Dividends Declared (0. 20x4 Investment in S Company 1.000 Goodwill – full P362.000 Equipment: P175.000 – P75.000) -P80. 20x4 (1) Equity in Subsidiary Income ((.8 x P150.500 (3) Inventory (P125.000 / 80% P2.000 P 75.000 Common Stock.000 Investment in S Company 180.000 2.000) x 100% 1.8 x P225.000 Investment in S Company 80.000 __300.000) 180.075.000 + P600.000 x 60% P 75.000 20x5 Cash (0.80)(P900.000 P 100.

000 – P120.000) 660.000 Investment in Superstition Company Non-controlling Interest (P492...500 + (P1..000 20x5 (1) Equity in Subsidiary Income ((.000 Equipment (net) 25.000 Common Stock ..200.000) P 880.000 Depreciation Expense 25.000 Investment in Superstition Company 480.000 Non-controlling Interest 15.000) x .630.000) ( 100. .000) P650.000 Net income of subsidiary……………………. P1.000 – P600. Cost of Goods Sold 75. 20% Non-controlling Interest in Net Income (NCINI) P 130.80)(P900. P 750. NCI-CNI and CNI are exactly the same.000 Equipment (net) 175.400.000 Consolidated Net Income for 20x4 P1.000 Goodwill impairment ____0 230.000 Cost of Goods Sold 50.200.500 (4) Depreciation Expense 25.000) 180.000 S Company __ 750.530.000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….000 Goodwill 362.000 Amortization of allocated excess 100.20) 612.000 Multiplied by: Non-controlling interest %.000 3.000 + P75.500 Investment in S Company 662.000 Total P1.200.80 x P225.000 Goodwill 362..000 Less: Non-controlling Interest in Net Income* P130.500 (4) Investment in S Company 20.Superstition Company.000 (2) Beginning Retained Earnings-Superstition Company 1.500 (3) Investment in S Company 60.000 Amortization of allocated excess (P25.000 Note: Regardless on the method used in recording investments (cost model or equity method) the manner of computing CI-CNI.000 Non-controlling Interest 5. Consolidated Net Income for 20x5 Net income from own/separate operations P Company (P1.000) ..000 Equipment (net) 175.500 Investment in S Company 662.000 Dividends Declared (0.000.000 Equipment (net) 50...000 Add: Non-controlling Interest in Net Income (NCINI) 130...P60. 1..

.000 P 6.000) Net book value……………………….840 72.000) ( 6.. 96..000 Buildings (net) 168.....000) Less: Accumulated depreciation….. S Co.200 Equipment (net).000 0 Less: Accumulated depreciation….800 4 1.000 144.... 20x4 Fair value of Subsidiary (80%) Consideration transferred……………………………….760 Increase in equipment (P96.000) A summary or depreciation and amortization adjustments is as follows: Over/ Annual Current Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5 Inventory P 6. Increase Book value Fair value (Decrease) Equipment . S Co..000 Positive excess: Partial-goodwill (excess of cost over fair value)……………………………………………….000 . 360. P 192... 5.000 x 80%)……………….000 96. P 84..000 144..000 8 12.......000) Net book value……………………….000 Land……………………………………… 48.000) Bonds payable… 4..…………….000 288..000 P - Subject to Annual Amortization Equipment (net).125 based on 100% fair value would be allocated to the controlling interest and the NCI based on the percentage of total goodwill each equity interest .. (Over) Under Book value Fair value Valuation Inventory…………………..800 Net……………………………………….000 12.000 Allocated excess (excess of cost over book value)…..000 180..200 P 13.000 180... ( 192..... P 204. 180. P 12. 96.000 The buildings and equipment will be further analyzed for consolidation purposes as follows: S Co.200 x 80%)……………………....200 The goodwill impairment loss of P3.000 P 30.000 ( 216.000 55.200 1.000 . 168.000 P 294.200 P 13..000 P 90.000) Bonds payable………………………… (120.200 P 7.800 x 80%)…… 3. P 24.000 ( 24..000) 4 ( 6.800 Increase in land (P7. ( 96.000 180. Book value Fair value (Decrease) Buildings..000 12...000 Less: Book value of stockholders’ equity of S: Common stock (P240.000 x 80%) 76..000) ( 115.000 Less: Over/under valuation of assets and liabilities: Increase in inventory (P6. 96..000 1 P 6. 192..000) (6.200 7... P 372..200) Decrease in bonds payable (P4...000 The over/under valuation of assets and liabilities are summarized as follows: S Co.000 x 80%)……………… P 4. 84...000 (24..000 P 6.. ( 19...000 Retained earnings (P120.. S Co..000 144.200) 4. 84.000 x 80%)………..000 96.200 1....Problem XXVI Requirements 1 to 4: Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1.800 Decrease in buildings (P24....000 Buildings (net) (25.000 S Co..000 x 80%)…………………….

000 Fair value of NCI (given) (20%) 93. 20x4: (1) Investment in S Company…………………………………………… 372. 1/1/x4 372.200 x 80%) + P3.000 Fair value of Subsidiary (100%) P 465.00% Goodwill applicable to NCI……………………. 20x4: (3) Investment in S Company 48.000 Record share in net income of subsidiary.000 x 100%) 90. 372.800 Record dividends from S Company. the full-goodwill is computed as follows: Fair value of Subsidiary (100%) Consideration transferred: Cash (80%) P 372. December 31. 3. buildings and bonds payable and goodwill impairment loss.750 100.. December 31.. P15.000 80.00% Goodwill impairment loss based on 100% fair value or full- Goodwill P 3.000 Acquisition of S Company...000 x 80%)…………….000 In this case.800 Dividends – S (36.000 80.000 Add (deduct): (Over) under valuation of assets and liabilities (P90.000*. P 105.00% The goodwill impairment loss would be allocated as follows Value % of Total Goodwill impairment loss attributable to P or controlling P 3. the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Value % of Total Goodwill applicable to P………………… P12.560 Record amortization of allocated excess of inventory.000 Cash…………………………………………………………………….000 100.000 Allocated excess (excess of cost over book value)….00% Interest Goodwill applicable to NCI……………………. January 1. For purposes of allocating the goodwill impairment loss.00% 20x4: First Year after Acquisition Parent Company Equity Method Entry The following are entries recorded by the P in 20x4 in relation to its subsidiary investment: January 1.800 Investment in S Company (P36. P 15.00% Total (full) goodwill………………………………. goodwill 13.000 28. 20x4: (2) Cash……………………… 28.000 x 80%) 48.000 20.000x 80%) .received.. 20x4: (4) Investment income [(P13. 750 20.000 Less: Book value of stockholders’ equity of S (P360.. equipment. the investment balance and investment income in the books of P Company is as follows: Investment in S Cost. 20x4 – December 31.560 impairment loss)] Investment in S Company 13. 28.000 Positive excess: Full-goodwill (excess of cost over fair value)……………………………………………….. Thus.000 Investment income (P60.000 x 100%) __360.

000 Non-controlling interest (P360.000 Accumulated depreciation – buildings………………….000 Non-controlling interest (P96. and to establish non- controlling interest (in net assets of subsidiary) on date of acquisition.000 P1.200 13.800 Goodwill…………………………………………………………………. NI of S Amortization & (60..000 Investment in Son Co…………………………………………… 288.000 To eliminate investment on January 1.000 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Cost of Depreciation/ Goods Amortization Amortization Sold Expense -Interest Total Inventory sold P 6. 192. 6. (E3) Cost of Goods Sold…………….. 6.200 Goodwill impairment loss………………………………………. 20x4 and allocate excess of cost over book value of identifiable assets acquired.000 P 6.000 To eliminate investment on January 1.560 48. 12/31/x4 Consolidation Workpaper – First Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries on January 1.000 Interest expense………………………………… 1. 12. 20x4: (E1) Common stock – S Co………………………………………… 240.000) Bonds payable _______ _______ P 1.000 Accumulated depreciation – equipment……………….200 Totals P 6.000 x 80%) 48.000 x 20%)………………………. and to establish non.000 Depreciation expense………………………. (E2) Inventory………………………………………………………………….000 Retained earnings – S Co…………………………………… 120. with remainder to goodwill. 72. 4..200 Discount on bonds payable…………………………………………. 216.000 x 20%)……………………….000 Equipment P 12.000 Discount on bonds payable………………………… 1.000 Land……………………………………………………………………….000 Buildings ( 6. 6.controlling interest (in net assets of subsidiary) on date of acquisition. 6. 20x4 and equity accounts of subsidiary on date of acquisition..000 13.200 Goodwill…………………………………… 3.000 Accumulated depreciation – equipment………………..000 x 80%) 34.000 Investment in S Co……………………………………………….000 Buildings……………………………………….640 Investment Income Amortization & NI of S impairment 13. 3..560 impairment Balance.200 .440 Balance. 12. 18. 84..000 Inventory…………………………………………………………. 12/31/x4 377..000 (P60. 6.. 96. 7.000 Accumulated depreciation – buildings………………….

48.00% Goodwill impairment loss based on 100% fair value or full- Goodwill P 3.000 20.200 Dividends paid – S…………………… 36.000 100.000 20. computed as follows: Investment in S Investment Income NI of S 28. 12/31/x4 377.00% (E4) Investment income 34.00% Total (full) goodwill……………………………….640 288.000 x 80%) 48.560 48.00% Goodwill applicable to NCI 3.00% Therefore.000 (E2) Investment.750 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable P 3.640 (E4) Investment Income and dividends 377.000 (E1) Investment.000x 80%) NI of Son Amortization & (60.00% Goodwill impairment loss based on 100% fair value or full-goodwill P 3. 1/1/20x4 5.640 Percentage of goodwill for amortization purposes: Value % of Total Goodwill applicable to parent P12. 3.000 80. P15.440 After the eliminating entries are posted in the investment account.000 Amortization & Amortization (60.000 x 20%)………………. 625 20.000 100.360 . it should be observed that from consolidation point of view the investment account is totally eliminated. 1/1/20x4 84.800 Dividends .360 Non-controlling interest …………. the goodwill impairment loss of P3.00% Goodwill applicable to NCI…………………….560 impairment Balance.000 80.560 impairment impairment 13.00% The goodwill impairment loss of P3.000 28.640 377.S NI of S (60. Investment in S Cost. 7.000 13.000 80... 750 _20..It should be observed that the goodwill computed above was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Value % of Total Goodwill applicable to parent………………… P12.00% (E5) Non-controlling interest in Net Income of Subsidiary………… 9. Thus.640 34.440 Non-controlling interest (P36.000 80.000 x 80%)…….000 Investment in S Company 5.00% Total (full) goodwill………… P15.750 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable to parent or controlling P 3.750 100. 1/1/x4 372..000 x 80%) 5. 9.00% to parent or controlling Interest Goodwill impairment loss applicable to NCI…………………….640 To eliminate intercompany dividends and investment income under equity method and establish share of dividends.750 100.800 Dividends – S (36..000 13..00% Interest Goodwill impairment loss applicable to NCI…………………….

.000 24.360 Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or what option used to value non-controlling interest or goodwill.000 Discount on bonds payable (2) 4. 20x4.200 Other expenses 48.000 P562.424.000 P 96.000 P180.000 P490.000 150. (5) 9.440 P180..000 Depreciation expense 60. (3) 3.000 (2) 6. ( 13.990.. Equity Method (Partial-goodwill) 80%-Owned Subsidiary December 31.440 P144.600 P240.440 _________ Total Revenue P513. (4) 34.000 Investment income 34.000 P508.440 Statement of Retained Earnings Retained earnings.000 Land…………………………….000 (3) 6.044.000 P202.440 P1. 20x4 (First Year after Acquisition) Income Statement P Co S Co. 1/1 P Company P360.Subsidiary .000 - Retained earnings. Cr.000 .000 Amortization of allocated excess [(E3)]….000 Investment in S Co……… 377. (3) 1.360 ( 9.000 72..000 90.000 (2) 7.000 (2) 96.600 Accumulated depreciation .440 .000 Cost of goods sold P204..000 P2..000 90.440 P 60. 210.008.000 Total Cost and Expenses P312.000 P 322..000 (3) 6. P 60.000 3. .000 Accumulated depreciation 405.000 (8) 192.000 (3) 3.000 (3) 12.000 (2) 84. 20% Non-controlling Interest in Net Income (NCINI) P 9.200 3.200 Net Income P202.000 48.000 P 720.000 540. December 31.000 P138.800 NCI in Net Income . . from above 202.000 66.000 180.000 202.000 Inventory………………….000 210.000 P240.000 (4) 36. Consolidated Sales P480.000 Goodwill impairment loss .000 1. Worksheet for Consolidated Financial Statements.equipment P 135. 12/31 to Balance Sheet P490.640 - Total P1.440 P 60.000 (1) 120.440 Balance Sheet Cash………………………..000 P 720.000 P360..000 18.800 Accounts receivable……. Dr.600 Goodwill…………………… (2) 12.000 P211..000 60..800 (3) 1.000 (4) 5.. .000 P147.440 60. 90.000 Buildings 720.800 P 90. 36.000 9. P 232.200 Equipment 240.000 288.000 (3) 6.440 Dividends paid P Company 72.000 S Company P120. 120.000 Interest expense ..000 495.440 Total P562.360) Net Income to Retained Earnings P202.200) P 46.000 P 348.800 Multiplied by: Non-controlling interest %.200 1. To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary…………………….000 S Company .000 (2) 216.000 420.200 265.640 (2) 288.000 Net income.

20x5: (4) Investment income (P7. Parent Company Equity Method Entry The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment: January 1. equipment. 1/1/x5 377.000 54.000 Add: Investment income 66. December 31.000 Record share in net income of subsidiary. 76.000 120.800 To eliminate investment on January 1.000 P 48.424..000 5.000 Gross profit P 324. .760 Record amortization of allocated excess of inventory.000 No goodwill impairment loss for 20x5.000x 80%) NI of S Amortization (90.000 x 80%) 66.990.760 Investment in S Company 5.760 72.000 Net income from its own separate operations P 192.000 (90.640 38.008. 12/31/x5 405.200 (1 ) 72.000 P 168. 1/1/x5………………………….000 490.200 x 80%) 5.240 - Net income P 258.200 P 751.000 P 360. 38.000 360.400 Dividends – S (48.000 24.000 Retained earnings – S Co.000 Other expense 72.000 Investment in S Co (P384. 12/31/x4 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………………………………………… 240.000 120.000 Less: Cost of goods sold 216.600 20x5: Second Year after Acquisition P Co.200 x 80%) Balance.240 P 90.000 Accounts payable…………… 120.200 x 80%) 5.000 x 80%) 72.000 Dividends paid P 72.440 P1.000 192. buildings and bonds payable Thus.400 Investment in S Company (P48.000 P 90.000 240.000 x 80%) 307. 20x5: (2) Cash……………………… 38. P10 par……… 240.760 (P7.000 Retained earnings.200 P2. from above 490.200 Non-controlling interest (P384.000 Common stock. the investment balance and investment income in the books of P Company is as follows: Investment in S Cost. 20x5 – December 31.440 Non-controlling interest………… (10) 7.000 x 20%)……………………….buildings (9) 6. December 31. 20x5 and equity accounts .240 Balance. 20x5: (3) Investment in S Company 72.000 Bonds payable………………… 240. 144.480 Investment Income Amortization NI of S (7.000 (1) 240. Sales P 540.360 ____92.000 600.000 P 751.000 Common stock. P10 par……… 600. S Co.160 Total P1.000 x 80%)…………….000 Investment income (P90.400 Record dividends from S Company.000 Less: Depreciation expense 60.000 _________ _________ __________ (5) 9.000 (2) 18.440 144.000 x 80%) 72.

000)……………………………. and to establish non- controlling interest (in net assets of subsidiary) on 1/1/20x5.000 Amortization Amortization (90. 6.760 (7.200)….200 Totals P 6. 1/1/x5 377..200 (E4) Investment income 66. it should be observed that from consolidation point of view the investment account is totally eliminated. 12/31/x5 405.480 307.000) 84.000 – P12.760 72.000 P1. (E2) Accumulated depreciation – equipment (P96.000 x 20%)……………….000 Accumulated depreciation – buildings (P192..200 To provide for 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Depreciation/ Amortization Amortization Expense -Interest Total Inventory sold Equipment P 12. 1/1/20x5 70.200 x 80%) 5. with remainder to the original amount of goodwill.200 x 80%) (P7.000 Land……………………………………………………………………….200 Discount on bonds payable (P4. computed as follows: Investment in S Investment Income NI of S 38.000 x 80%) 27.controlling interest (in net assets of subsidiary) on 1/1/20x5.000 5.000x 80%) NI of S Amortization (90. 72. (E3) Depreciation expense……………………….000 + 6.000 Non-controlling interest [(P90. 70. 9.760 (P7.400 Dividends – S NI of S (90.640 38.240 After the eliminating entries are posted in the investment account.400 Dividends – S (48. of subsidiary on date of acquisition. 20x5 and allocate excess of cost over book value of identifiable assets acquired.000 – P13.000 Interest expense………………………………… 1.000 Accumulated depreciation – buildings………………….200) x 20%] 15.000 Investment in S Company 27. 216. 1/1/20x5 27.360 Investment in S Co………………………………………………. 12.200 Accumulated depreciation – equipment……………….. 3. 7. Thus.440 To eliminate investment on January 1.000 Buildings ( 6..600 Dividends paid – S…………………… 48.000 – P3.200 P7.240 Non-controlling interest (P48.000 x 80%) 72.200 (E1) Investment.000 x 80%)…….800 – P1..840 66..480 405.. and to establish non.000 Buildings……………………………………….000) 198.000) Bonds payable _______ P 1.000 Discount on bonds payable………………………… 1. Investment in S Cost.840 To eliminate intercompany dividends and investment income under equity method and establish share of dividends.600 Goodwill (P12.440 (E2) Investment.840 (E4) Investment Income and dividends 405.200 x 80%) Balance. 6.000 5.480 . 9.

(4) 66.240 ___________ Total Revenue P606.000 72.. 216. 12/31 to Balance Sheet P676.074.440 P490. . Consolidated Sales P540.. 20x5 (Second Year after Acquisition) Income Statement P Co S Co...200 2.000 Net income..200 1.000 258.000 P 367.000 Inventory………………….680 Balance Sheet Cash………………………. 180. 20x5.680 P1..240 P 90. 1/1 P Company P490.000 Investment income 66.000 P192. (E5) Non-controlling interest in Net Income of Subsidiary………… 16. (5) 16.000 P360.236.000 9.000 Cost of goods sold P216.240 . P 90.000 P 408.000 324.600 (3) 1.800 . 210. 16.000 P258.000 54.560) Net Income to Retained Earnings P258.480 (1) 307.000 Investment in S Co……… 405.200 Accounts receivable…….000 P 274.000 96.000 (3) 6...000 420.200 Net Income P258.000 Goodwill impairment loss .800 Multiplied by: Non-controlling interest %.000 P748. ( 7. from above 258...400 Goodwill…………………… (2) 9.000 276.240 Statement of Retained Earnings Retained earnings.440 S Company P144. .560 To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary…………………….840 - Total P2.044.000 126.560 Non-controlling interest …………. Equity Method (Partial-goodwill) 80%-Owned Subsidiary December 31. Dr.000 (3) 216.240 Total P748..200 Equipment 240.000 1.680 P186. December 31.200 (2) 70.000 540.. - Total Cost and Expenses P348..000 Buildings 720.000 (1) 144. 20% Non-controlling Interest in Net Income (NCINI) P 16.Subsidiary .000 108.000 (2) 7.000 Interest expense . P 265.000 24.000 P 900..000 Discount on bonds payable (2) 3. (3) 1.000 (4) 48.440 (4) 27.240 P 90.200 Other expenses 72.680 P234.000 Land…………………………….000 P 625.000 P360.200 P 102.000 P270.000 Amortization of allocated excess [(E3)]….000 P2.707.800 NCI in Net Income . Cr.000 P676.000 90. 48.560 Worksheet for Consolidated Financial Statements.560 ( 16.240 90.200 265.000 180.000 S Company .000 Depreciation expense 60.000 48.000 - Retained earnings. .680 Dividends paid P Company 72.200) P 82.000 P 900.

360 Amortization of allocated excess (refer to amortization above) 13.000 Stockholders’ equity – S Company.000 6. 20x4) 90. 20x4…… P 240. P 90.680 Non-controlling interest………… (7) 9.000 c. CI-CNI Consolidated Net Income for 20x4 Net income from own/separate operations P Company P168.000 Fair value of stockholders’ equity of subsidiary.000 b.600 (2 ) 76.800 (2) 15. consolidated equity on December 31. P10 par……… 600.120 Total P2. 20 Non-controlling interest (partial-goodwill)…………………………………. consolidated retained earnings.000 Total P228. Non-controlling interest (partial-goodwill).000 Parent’s Stockholders’ Equity / CI .000 Consolidated SHE.000 NCI. 5. 20x4 120. January 1.050.000 360. Consolidated SHE: Stockholders’ Equity Common stock.000 Accumulated depreciation 450.buildings (3) 6.000 552.000 25. January 1. 20x4…… P450. from above 676.680 P1.000 306.200 Goodwill impairment (impairment under partial-goodwill approach) 3.000 120.000 Common stock.000 Accounts payable…………… 120.360 ___ _____ _________ __________ (5) 16.000 676.560 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P………….707.000 P180.000 P 794.800 Note: Using cost model or equity method.. Accumulated depreciation (2) 84.000 600.000 Bonds payable………………… 240. 1/1/20x4 a.560 ____99.000 S Company 60.000 . 12/31/20x4: a. P10 par……… 240.000 (1) 240. January 1. the consolidated net income. 20x4 and 20x5 are exactly the same (refer to Problem VI solution).074.000 (2) 198.000 Common stock..P Company. January 1. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings.000 Retained earnings. 20x4 P 360.400 P2.000 Multiplied by: Non-controlling Interest percentage…………..680 186.000 P 102.400 P 794. January 1. date of acquisition (January 1.SHE P 960. P10 par P 600.000 240.000 Retained earnings – S Company. thus: Consolidated Retained Earnings. non-controlling interests.(over) undervaluation of assets and liabilities.360 . January 1. 20x4 Common stock – S Company. 20x4 Retained earnings .000 (3) 12. 1/1/20x4 ___90.000 Retained earnings 360. P202. January 1. 20x4 (date of acquisition) P360.equipment P 150.000 Adjustments to reflect fair value .000 Less: Non-controlling Interest in Net Income* P 9.236. 1/1/20x4 P1.000 ..440 Add: Non-controlling Interest in Net Income (NCINI) 9.000 120.

December 31.560 Consolidated Net Income for 20x5 P274.440 Total P562.560 Amortization of allocated excess (refer to amortization above) __7.440 e..000 144. 20x4 (date of acquisition) P360..000 Consolidated Retained Earnings.200 23. 20x4…… P460. 20x4 P120.(over) undervaluation of assets and liabilities. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P 60.. P 92. On subsequent to date of acquisition.440 P’s Stockholders’ Equity / CI – SHE. December 31. January 1.800 .160 f. P10 par P 600.000 Retained earnings 490.800 b. CNI. January 1.. 12/31/20x4 ___92. P258. Consolidated Net Income for 20x4 P211. 20x4) 90. 20x4…… P 240. 20% Non-controlling Interest in Net Income (NCINI) P 9. CI-CNI Consolidated Net Income for 20x5 Net income from own/separate operations: P Company P192.000 Adjustments to reflect fair value ..P Company.200) Fair value of stockholders’ equity of subsidiary. 20 Non-controlling interest (partial-goodwill)…………………………………..200 P 46..000 Less: Dividends paid – 20x4 36. 20x4 Common stock – S Company.360 c. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings.000 Less: Non-controlling Interest in Net Income* P16.. December 31. December 31.240 Add: Non-controlling Interest in Net Income (NCINI) 16.160 Consolidated SHE.000 Amortization of allocated excess (refer to amortization above) – 20x4 ( 13.182.760 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….600 12/31/20x5: a. December 31. 20x4 Retained earnings .000 S Company 90.000 Add: Net income of S for 20x4 60.440 Less: Dividends paid – P Company for 20x4 72. 20x4 P490.000 Stockholders’ equity – S Company.000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 202..000 Total P180.800 – refer to (a) d. date of acquisition (January 1.000 Total P282..800 Multiplied by: Non-controlling interest %.. December 31. 20x4 Retained earnings – S Company.440 NCI. P211.000 Retained earnings – S Company. Consolidated SHE: Stockholders’ Equity Common stock.. 20x4 P 384. Non-controlling interest (partial-goodwill).. December 31. 12/31/20x4 P1.090.000 Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above) 13.000 Multiplied by: Non-controlling Interest percentage…………. 12/31/20x4 P1.

680 *this procedure would be more appropriate. 20x5 (cost model P484.000 Retained earnings – S Company.. Non-controlling interest (partial-goodwill)..800 Multiplied by: Controlling interests %. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.. CNI.276..680 Less: Dividends paid – P Company for 20x5 72. P274.400 P 82. 20x5 Retained earnings . January 1.. 20x5 P 144. 750 x 80%) 3. 20x5…… P 240. December 31.640 Consolidated Retained earnings. 20 Non-controlling interest (partial goodwill)…………………………………...600 Multiplied by: Non-controlling Interest percentage…………. 20x5 Common stock – S Company.640 Less: Goodwill impairment loss (full-goodwill). 80% P 8.b.000 Add: Net income of S for 20x5 90.(over) undervaluation of assets and liabilities.000 Consolidated Retained Earnings.. January 1. date of acquisition (January 1. P10 par P 600.200 ( 20.. 12/31/20x4 P1.440 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 258. December 31... December 31. 20x5 P 426. Consolidated SHE: Stockholders’ Equity Common stock. e. 20x5 P 490.. 20x4 120. December 31.800 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S.. 20x4) 90. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x5 Net income of S Company P 90.000 Retained earnings 676. 20x5 P676.000 Less: Dividends paid – 20x5 48....200 20x5 7.750 by 80%.000 Adjustments to reflect fair value .. net (P3..000 Less: Amortization of allocated excess – 20x4 13. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings.. 20x5 P14.400) Fair value of stockholders’ equity of subsidiary. December 31.000 Stockholders’ equity – S Company. January 1.800 – refer to (a) d. January 1. On subsequent to date of acquisition. January 1.680 ...000 Less: Amortization of allocated excess / goodwill impairment for 20x5 (refer to amortization table above) 80.000 Total P234. P 99.120 f..000 Increase in retained earnings since date of acquisition P 24..800 Multiplied by: Non-controlling interest %.000 5. December 31.680 P’s Stockholders’ Equity / CI – SHE.... instead of multiplying the full-goodwill impairment loss of P3.P Company.750– P750)* or (P3..000 186. 20% Non-controlling Interest in Net Income (NCINI) for 20x5 P 16.240 Total P748....000 Amortization of allocated excess (refer to amortization above) : 20x4 P 13.200 P 10. 20x5…… P 495. December 31. 20x5 Retained earnings – S Company.560 c.000 Less: Retained earnings – S.

P 465. .....000 Increase in land (P7. 7.000 Allocated excess (excess of cost over book value)….000 1 P 6.000 12.000 Retained earnings (P120. December 31.200 1..000 8 12. P 372. P 15.000 x 100%) 96. 20x4 – December 31.000 Positive excess: Full-goodwill (excess of cost over fair value)……………………………………………….200 P 13. 20x4: (2) Cash……………………… 28. 120. 12/31/20x4 P1.200 x 80%) + (P3. P 105.000 Cash…………………………………………………………………….000 x 100%)………...200 2x4: First Year after Acquisition Parent Company Equity Method Entry The following are entries recorded by the parent in 20x4 in relation to its subsidiary investment: January 1. 372.800 Record dividends from S Company..000 Record share in net income of subsidiary..000 Fair value of Subsidiary (100%)……….200 x 100%)…………………….. 20x4 Fair value of Subsidiary (80%) Consideration transferred (80%)……………. 20x4: (1) Investment in S Company…………………………………………… 372.000 Investment income (P60..800 4 1. P 240.800 Investment in S Company (P36. NCI..750 – P750)*.200 Increase in equipment (P96..000 Fair value of NCI (given) (20%)………………. 96.120 Consolidated SHE. 20x4: (4) Investment income [(P13..000 P - Subject to Annual Amortization Equipment (net).560 Record amortization of allocated excess of inventory.000 Less: Over/under valuation of assets and liabilities: Increase in inventory (P6.000 A summary or depreciation and amortization adjustments is as follows: Over/ Annual Current Account Adjustments to be amortized under Life Amount Year(20x4) 20x5 Inventory P 6.000) ( 6.000 Acquisition of S Company.800 Problem XXVII Requirements 1 to 4: Schedule of Determination and Allocation of Excess Date of Acquisition – January 1.200 1.000 Buildings (net) (24.000) 4 ( 6.000 x 100%)……………… P 6. ( 24.000 Decrease in buildings (P24. 12/31/20x4 ___99.000 x 80%)…………….000) Bonds payable… 4.000 x 100%)………. 93.1375.000 P 6.. December 31.000 x 80%) 48. 13.000 Less: Book value of stockholders’ equity of Son: Common stock (P240.000 360.000 x 100%)……………….. 28.200 P 13. equipment.560 goodwill impairment loss)] Investment in S Company 13.000) (6.. January 1..200 P 7.800 90.000) Decrease in bonds payable (P4.800 x 100%)…… 4.000 12.. 20x4: (3) Investment in S Company 48..

20x4: (E1) Common stock – S Co………………………………………… 240. 6. 3.000 Accumulated depreciation – buildings…………………. (E3) Cost of Goods Sold…………….000x 80%) NI of S Amortization & (60..000 x 20%) + [(P15.640 Investment Income Amortization & NI of S Impairment 13. 12.000 Buildings………………………………………. 84.000 Accumulated depreciation – buildings………………….. 7.000 Retained earnings – S Co…………………………………… 120.200 Goodwill…………………………………… 3..000 Interest expense………………………………… 1.000 x 80%) 48.000 To eliminate investment on January 1.000 Discount on bonds payable………………………… 1.800 Goodwill…………………………………………………………………. 6. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).560 48.560 Impairment Balance. instead of multiplying the full-goodwill impairment loss of P3.750 by 80%.000 Non-controlling interest (P90.. 6. with remainder to goodwill.000 x 20%)……………………….000 Accumulated depreciation – equipment………………. 12/31/x4 377.000. 20x4 and allocate excess of cost over book value of identifiable assets acquired. Thus. buildings and bonds payable and goodwill impairment loss. *this procedure would be more appropriate. and to establish non.controlling interest (in net assets of subsidiary) on date of acquisition. 6.750 Inventory………………………………………………………….000. and to establish non- controlling interest (in net assets of subsidiary) on date of acquisition. 216.000 28.000 Accumulated depreciation – equipment……………….000 Investment in S Co………………………………………………. full – P12. 1/1/x4 372...000 (P60. partial goodwill)]………… 21. 72. 20x4 and equity accounts of subsidiary on date of acquisition.000 x 80%) 34. 6.000 Depreciation expense……………………….000 Non-controlling interest (P360.. 15.200 Discount on bonds payable………………………………………….200 Goodwill impairment loss………………………………………. 12/31/x4 Consolidation Workpaper – First Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries on January 1. 192. (E2) Inventory………………………………………………………………….440 Balance.000 To eliminate investment on January 1. 4. the investment balance and investment income in the books of P Company is as follows: Investment in S Cost.000 13.800 Dividends – S (36.000 Investment in S Co…………………………………………… 288.750 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Cost of Depreciation/ .000 Land………………………………………………………………………. 96..

Goods Amortization Amortization Sold Expense -Interest Total Inventory sold P 6. 48.440 Non-controlling interest (P36. 12/31/x4 377.000 P 6.640 To eliminate intercompany dividends and investment income under equity method and establish share of dividends.000 Buildings ( 6.000 28. 1/1/x4 372.000 x 80%)…….00% (E4) Investment income 37.000 13. the goodwill impairment loss of P3. 1/1/20x4 5.000 Equipment P 12.000 80.000 Amortization & Amortization & (60.000 (E1) Investment.000 20.00% Therefore.200 It should be observed that the goodwill computed above was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Value % of Total Goodwill applicable to parent………………… P12.640 34.560 Impairment Impairment 13.00% ..000) Bonds payable _______ _______ P 1.00% Goodwill applicable to NCI 3.000 13.560 Impairment Balance.000 100..000 P1.000 x 80%) 5.440 After the eliminating entries are posted in the investment account.750 100.00% Goodwill impairment loss based on 100% fair value or full- Goodwill P 3. 1/1/20x4 84. 750 20.125 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable to parent or controlling P 3.000 80. 7.800 Dividends – S (36.00% Interest Goodwill impairment loss applicable to NCI……………………. computed as follows: Investment in S Investment Income NI of S 28.000 20.000 x 20%)……………….640 Percentage of goodwill for amortization purposes: Value % of Total Goodwill applicable to parent P12.000x 80%) NI of S Amortization & (60.000 (E2) Investment. it should be observed that from consolidation point of view the investment account is totally eliminated.000 80..640 377. Thus.000 x 80%) 40.200 Totals P 6. P15. 3.200 Dividends paid – S…………………… 36..640 (E4) Investment Income and dividends 377.00% Goodwill applicable to NCI……………………. Investment in S Cost.00% Total (full) goodwill……………………………….640 288.800 Dividends – S NI of Son (60.200 13.000 Investment in S Company 8.560 48.

000 (3) 6.000 90..Subsidiary . from above 202.610 To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary……………………..200 Other expenses 48.440 P 60.000 P562. .000 Amortization of allocated excess [(E3)]….00% The goodwill impairment loss of P3.000 Net income.800 Multiplied by: Non-controlling interest %.360 Less: Non-controlling interest on impairment loss on full-goodwill (P3.440 Statement of Retained Earnings Retained earnings.000 (1) 120. 750 _20.610 Non-controlling interest …………. 20% Non-controlling Interest in Net Income (NCINI) P 9.750 by 20%. (3) 1.750 impairment on full-goodwill less P3.000 80.000 24. Dr. (4) 34.750 3.610) Net Income to Retained Earnings P202.440 .000 .610 *this procedure would be more appropriate.000 S Company P120.750 x 20%) or (P3. 20x4.000 P 720.440 P180. Worksheet for Consolidated Financial Statements...440 Dividends paid P Company 72.200) P 46. instead of multiplying the full-goodwill impairment loss of P3.000 66. .750 Total Cost and Expenses P312.000 P 720..000 P180..000 100.000 Depreciation expense 60. 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.00% Goodwill impairment loss based on 100% fair value or full-goodwill P 3.440 P 60. December 31.00% to parent or controlling Interest Goodwill impairment loss applicable to NCI……………………. (5) 8. Equity Method (Full-goodwill) 80%-Owned Subsidiary December 31..000 Cost of goods sold P204.000 P138. 1/1 P Company P360.200 1.440 60.610 ( 8.000 P 348.000 P211. .000 P508.750 100.000 72. Total (full) goodwill………… P15. Consolidated Sales P480.000 Interest expense ....000 P202. (3) 3.000 202.000 P240. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6). impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) P 8..440 P240.000. ( 13.750 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable P 3.440 Total P562.050 NCI in Net Income .000 Investment income 34..000 Goodwill impairment loss .000 (3) 6.950 Net Income P202.. P 60. 8..440 _________ Total Revenue P514. 20x4 (First Year after Acquisition) Income Statement P Co S Co.00% (E5) Non-controlling interest in Net Income of Subsidiary………… 8.000 18. Cr.000 P360.

250 Investment in S Co……… 377.000 120.800 Accounts receivable…….000 (2) 216.200 P2.850 Accumulated depreciation .000 P 380. 20x5: (4) Investment income (P7.000 Land…………………………….200 (1 ) 72.610 ____94.000 (2) 192.buildings (3) 6.640 (2) 288.000 P 96.240 P 90.000 Discount on bonds payable (2) 4.440 P1. 36.426.equipment P 135.000 (2) 96.410 Total P1.000 (4) 36. 20x5 – December 31.000 Less: Depreciation expense 60.000 P 90.000 P 754.000 150.000 P 322.000 .000 Bonds payable………………… 240.440 P144.000 (3) 6.990.000 (1) 240.000 240.000 360.000 Common stock. P10 par……… 600.240 - Net income P 258.000 90.000 (4) 5.440 P1.000 Less: Cost of goods sold 216.440 144.000 Dividends paid P 72.000 (2) 7.000 Net income from its own separate operations P 192.200 265.000 - Retained earnings.000 60.000 (2) 21. P10 par……… 240.800 P 90.200 P 754. 120.000 P147.000 P 48. from above 490.000 48.440 Balance Sheet Cash……………………….000 120.000 x 80%)…………….000 Retained earnings.000 420. P 232.008.000 Inventory………………….426.200 x 80%) 5.000 Accounts payable…………… 120.000 54. Parent Company Equity Method Entry The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment: January 1.440 Non-controlling interest………… (4) 7.400 Record dividends from S Company.000 210.000 Add: Investment income 66.000 Accumulated depreciation 405.000 288. December 31. 12/31 to Balance Sheet P490.000 x 80%) 72.800 (3) 1.000 Gross profit P 324.640 - Total P1.000 _________ _________ __________ (5) 8.000 Investment income (P90.000 Common stock.990.000 Record share in net income of subsidiary.008.000 (3) 3.600 Goodwill…………………… (2) 15. S Co. December 31.760 . 38.000 490. 210.400 Investment in S Company (P48.000 (2) 84.000 (2) 6.000 24.000 No goodwill impairment loss for 20x5.750 11. S Company .000 P490.000 540. 20x5: (3) Investment in S Company 72.000 495..000 Buildings 720.000 180.000 P 168.000 600.200 Equipment 240. 90.850 20x5: Second Year after Acquisition P Co.000 Other expense 72. 20x5: (2) Cash……………………… 38.000 P2.044. Sales P 540.000 1.000 192.000 (3) 12.200 3.

7. 76. 144.000 5.. the investment balance and investment income in the books of P Company is as follows: Investment in S Cost.610 Investment in S Co……………………………………………….200 To provide for 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Depreciation/ Amortization Amortization ..000 x 20%)……………………….750 by 20%. Thus.000 (90. 1/1/x5 377.640 38.480 Investment Income Amortization NI of S (7.000 Interest expense………………………………… 1. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).760 72.. 1/1/x5………………………….000 + P6.000 x 80%) 72..000 Non-controlling interest [(P90. 20x5 and equity accounts of subsidiary on date of acquisition.goodwill impairment)* or (P3.000 – P3.200 x 80%) Balance.000 Retained earnings – S Co.750. (E3) Depreciation expense………………………. 6. full goodwill .000.760 Record amortization of allocated excess of inventory..000 x 80%) 307.000. 70.240 Balance.controlling interest (in net assets of subsidiary) on 1/1/20x5. equipment.200 x 80%) 5.200)….000 Investment in S Co (P384. Even though the goodwill of the consolidated entity is impaired.800 – P1. *this procedure would be more appropriate.000 Accumulated depreciation – buildings………………….000 portion of the differential related to goodwill related to goodwill is not adjusted on the parent’s books following Option 2 as referred to above for goodwill impairment loss..440 To eliminate investment on January 1. full-goodwill impairment – P3.000 Land………………………………………………………………………. Investment in S Company 5. instead of multiplying the full-goodwill impairment loss of P3. partial.760 (P7. 3.000 Discount on bonds payable………………………… 1.000 x 80%) 66.000) 84.400 Dividends – S (48.200 Accumulated depreciation – equipment………………. (E2) Accumulated depreciation – equipment (P96.200 Non-controlling interest (P384.800 To eliminate investment on January 1. and to establish non- controlling interest (in net assets of subsidiary) on 1/1/20x5. 12/31/x4 Consolidation Workpaper – Second Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries.600 Goodwill (P15.250 Buildings………………………………………. (E1) Common stock – S Co………………………………………… 240. 11.000) 198.000 – P12. and to establish non. buildings and bonds payable P Company’s P12. 12/31/x5 405.000 – P13.200) x 20%] + [P3. 216.750 x 20%)] 17.200 Discount on bonds payable (P4.[(P3. 20x5 and allocate excess of cost over book value of identifiable assets acquired. 6.000x 80%) NI of S Amortization (90. 12. with remainder to the original amount of goodwill.000 Accumulated depreciation – buildings (P192.750)…………………………….

560 Less: NCI on goodwill impairment loss on full- Goodwill 0 Non-controlling Interest in Net Income (NCINI) P 16.000 P 900..800 Multiplied by: Non-controlling interest %.480 (E5) Non-controlling interest in Net Income of Subsidiary………… 16.000 x 20%)………………. 9.760 (P7. Dr.000) Bonds payable _______ P 1. 1/1/20x5 27.560 Non-controlling interest ………….000 5.. (4) 66.840 (E4) Investment Income and dividends 405.560 Worksheet for Consolidated Financial Statements.000 x 80%)……. Investment in S Cost.S NI of S (90.200 ..000 Amortization of allocated excess [(E3)]….840 To eliminate intercompany dividends and investment income under equity method and establish share of dividends.200 1.. Consolidated Sales P540. Expense -Interest Total Inventory sold Equipment P 12.240 ___________ Total Revenue P606. 16..200 x 80%) Balance.200 x 80%) 5.200 P7.000x 80%) NI of S Amortization (90.600 Dividends paid – S…………………… 48.000 P360.000 Amortization Amortization (90. 20x5 (Second Year after Acquisition) Income Statement P Co S Co.480 307. .000 5.000 P1. Equity Method (Full-goodwill) 80%-Owned Subsidiary December 31.240 After the eliminating entries are posted in the investment account.200) P 82.240 .000 x 80%) 27.000 (3) 6.200 (E1) Investment. (3) 1.000 90.560 To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows: Net income of subsidiary……………………. Cr.200 Totals P 6.400 Dividends – S (48. 72. P 90.400 Dividends .000 Buildings ( 6.000 Depreciation expense 60. it should be observed that from consolidation point of view the investment account is totally eliminated. December 31. ( 7.200 (E4) Investment income 66... 20x5.840 66..000 P 408.200 x 80%) (P7. 1/1/x5 377.000 Investment income 66..640 38.000 x 80%) 72.480 405.000 Investment in S Company 27.000 P192... 20% Non-controlling Interest in Net Income (NCINI) P 16.000 P 900. 12/31/x5 405.760 (7.240 Non-controlling interest (P48.440 (E2) Investment.000 Cost of goods sold P216.760 72. 1/1/20x5 70.000 Interest expense .. Thus.000 24.000 P360.. computed as follows: Investment in S Investment Income NI of S 38..

000 Bonds payable………………… 240.000 120.650 P 796.000 P748. 20x4 and 20x5 are exactly the same (refer to Problem VII solution).800 (2) 17.000 Accumulated depreciation (2) 84.000 240. - Total Cost and Expenses P348.800 NCI in Net Income .250 Investment in S Co……… 405. January 1. January 1.680 P1.000 - Retained earnings.000 b. .000 552.200 Equipment 240.000 . non-controlling interests.200 2.240 P 90.200 P 102.000 Accounts payable…………… 120.680 P1..200 (5) 70.000 P 625.240 Total P748.000 960.250 11.000 . 5.000 Land…………………………….000 72.440 (4) 27.P Company. Non-controlling interest (full-goodwill).236.240 90.000 Goodwill impairment loss .440 P490. 1/1/20x4 a.000 600.000 (2) 198.000 258.000 P 102.680 186.000 1. the consolidated net income.000 48.680 Balance Sheet Cash……………………….600 (2 ) 76.560) Net Income to Retained Earnings P258.840 - Total P2.440 S Company P144. from above 258.Subsidiary .240 Statement of Retained Earnings Retained earnings.200 Accounts receivable…….000 Common stock. January 1.000 676. 210.044. 20x4 (date of acquisition) P360.680 Dividends paid P Company 72. 1/1 P Company P490. .000 P 258.000 Accumulated depreciation 450.000 Note: Using cost model or equity method. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings. 20x4…… P 240.000 180. consolidated retained earnings.000 Buildings 720.000 540.9480 (1) 307.650 P2. consolidated equity on December 31.000 324.236.000 108.000 420.000 120.074.000 P 796. P10 par……… 240.000 Net income.000 (3) 12.200 265.000 Inventory…………………. thus: Consolidated Retained Earnings.200 Net Income P258.000 P 367.610 ___ _____ __________ __________ (5) 16.000 (2) 7.000 (4) 48.000 P676.000 (3) 216. 20x4 Common stock – S Company.000 Retained earnings – S Company.560 __________ Total P2.000 54.400 Goodwill…………………… (2) 11. January 1. Other expenses 72.buildings (3) 6.600 (3) 1. from above 676.000 306.000 P2.240 P 90.000 126.000 (1) 240.000 Common stock. 180. P 265.equipment P 150. (5) 16.000 276.000 Discount on bonds payable (2) 3.560 ( 16. January 1.680 Non-controlling interest………… (3) 9.000 P 274.634. 20x4 Retained earnings .000 P270.634. P10 par……… 600. 216. 48. 20x4 120.000 .000 (1) 144.000 P 180. 12/31 to Balance Sheet P676.680 P234.000 360.000 S Company .074.000 Retained earnings.680 P186.

On subsequent to date of acquisition.000 Less: Amortization of allocated excess (refer to amortization table above) 13..000 c.750 25.000 . impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) P 8. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings.. December 31...000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 202.610 Consolidated Net Income for 20x4 P211.(over) undervaluation of assets and liabilities. a.750 by 20%. P202.000 Multiplied by: Non-controlling Interest percentage………….440 Add: Non-controlling Interest in Net Income (NCINI) 8. CNI.000 Fair value of stockholders’ equity of subsidiary.000 – P12..000 Non-controlling interest (partial-goodwill)………………………………….P Company...610 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P 60..000 Total P228. 20x4 Retained earnings . Non-controlling interest (full-goodwill).750 x 20%) or (P3.SHE P 960.000 Parent’s Stockholders’ Equity / CI . 20x4 P490.000.440 Total P562.000 NCI. date of acquisition (January 1..050 – refer to (a) d.. CI-CNI – P202.050 b.000) ___3..000 Consolidated SHE. December 31. January 1..000 S Company 60.200 Goodwill impairment (impairment under full-goodwill approach) 3.000 Add: NCI on full-goodwill (P15.000 Less: Non-controlling Interest in Net Income* P 8. 20x4…… P 240.000 Retained earnings 360. 20x4 (date of acquisition) P360. 1/1/20x4 ___93.000 Consolidated Retained Earnings.440 Less: Dividends paid – P Company for 20x4 72. NCI-CNI – P8. 20x4 P 360. c.000 Adjustments to reflect fair value . 20% Non-controlling Interest in Net Income (NCINI) P 9.610 *this procedure would be more appropriate. January 1.360 Less: Non-controlling interest on impairment loss on full-goodwill (P3. P 93. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired. December 31.610 Amortization of allocated excess (refer to amortization above) 13. 20x4…… P450..750 impairment on full-goodwill less P3.440 Consolidated Net Income for 20x4 Net income from own/separate operations: P Company P168. Consolidated SHE: Stockholders’ Equity Common stock.440 e.053.000 6. December 31. P211. January 1.800 Multiplied by: Non-controlling interest %. 1/1/20x4 P1.200 P 46. Stockholders’ equity – S Company. 20x4) 90. P 90. 20 Non-controlling interest (partial-goodwill)…………………………………. 20x4 Common stock – S Company. P10 par P 600. instead of multiplying the full-goodwill impairment loss of P3..560 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….

12/31/20x4 ___94.000) – P750 impairment loss 2. NCI-CNI – P16. CNI.. date of acquisition (January 1. 20x4 P120.440 NCI. December 31.000 Retained earnings 490.. 20% Non-controlling Interest in Net Income (NCINI) for 20x5 P 16.. December 31. On subsequent to date of acquisition. January 1.800 b.800 Multiplied by: Non-controlling interest %.000. 12/31/20x4 P1. 12/31/x4: [(P15. 20x4 P 384. December 31..560 *Non-controlling Interest in Net Income (NCINI) for 20x5 Net income of S Company P 90.200 Goodwill impairment (impairment under full-goodwill approach) 0 23...000 Total P282.000 Less: Non-controlling Interest in Net Income* P16. P258.760 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….800 – refer to (a) d.200) Fair value of stockholders’ equity of subsidiary.560 Consolidated Net Income for 20x5 P274.. Consolidated SHE: Stockholders’ Equity Common stock.400 P 82.. January 1. P10 par P 600.240 Add: Non-controlling Interest in Net Income (NCINI) 16.240 Consolidated Net Income for 20x5 Net income from own/separate operations P Company P192.000 Amortization of allocated excess (refer to amortization above) – 20x4 ( 13.560 c.000 Stockholders’ equity – S Company. 20x4) 90. 20x5 Retained earnings .. net of impairment loss.090. 20x4 Retained earnings – SCompany.P Company.000 full – P12.000 Total P180. 20x4…… P460. 20 Non-controlling interest (partial-goodwill. consolidated retained earnings would be computed as follows: Consolidated Retained Earnings. P 94.000 144..000 Adjustments to reflect fair value .850 12/31/20x5: a.560 Amortization of allocated excess (refer to amortization above) 7. CI-CNI – P258. 12/31/20x4…………….410 f.410 Consolidated SHE.800 Multiplied by: Non-controlling Interest percentage…………. 12/31/20x4…………………………. partial = P3.250 Non-controlling interest (full-goodwill). December 31.(over) undervaluation of assets and liabilities.800 . P 92.. 12/31/20x4 P1. Retained earnings – S Company. 20x5 (cost model P484.000 Less: Dividends paid – 20x4 36..000 Add: Net income of S for 20x4 60.000 S Company 90.184.440 P’s Stockholders’ Equity / CI – SHE...000 Less: Amortization of allocated excess / goodwill impairment for 20x5 (refer to amortization table above) 80.160 Add: Non-controlling interest on full goodwill . P274.

12/31/20x4 __101. 20x4 120. December 31. 20x5 P 426.000 Retained earnings 676.378.. 20x5 P676.000 Consolidated Retained Earnings.000 full – P12. 3.000 (P20.400) Fair value of stockholders’ equity of subsidiary. P 101.750 by 80%.000 Amortization of allocated excess (refer to amortization above) : 20x4 P 13..000 (P20.370 f. 12/31/20x4 P1..050 Problem XXVIII 1.. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired. P10 par P 600.250 Non-controlling interest (full-goodwill)…………………………………. 20x5 Common stock – S Company. e.800 Multiplied by: Controlling interests %. January 1.000.000 Less: Retained earnings – S.000 x . January 1..000 Total P234. AA should report income from its subsidiary of P15.000 Adjustments to reflect fair value . 80% P 8.200 ( 20. 20x5…… P 240. December 31. 750 x 80%) 3.370 Consolidated SHE... January 1.75) rather than dividend income of P9.680 NCI.. Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/P’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S...000 Less: Amortization of allocated excess – 20x4 13.000 x ..640 Consolidated Retained earnings. December 31... partial = P3.000 Less: Dividends paid – 20x5 48. instead of multiplying the full-goodwill impairment loss of P3.. Consolidated net income of P70.120 Add: Non-controlling interest on full goodwill . 20 Non-controlling interest (partial goodwill)…………………………………. December 31.000 186. December 31. P 99.. 20x4) 90.(over) undervaluation of assets and liabilities. net (P3.. December 31.. Non-controlling interest (full-goodwill).240 Total P748.25) should be assigned to the non-controlling interest in the 20x4 consolidated income statement.680 P’s Stockholders’ Equity / CI – SHE. computed as follows: Reported net income of AA P59. 20x5 P 144.640 Less: Goodwill impairment loss (full-goodwill)..440 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 258.680 Less: Dividends paid – P Company for 20x5 72. Consolidated SHE: Stockholders’ Equity Common stock.000) .200 20x5 7. January 1.276.750– P750)* or (P3. net of impairment loss [(P15.. date of acquisition (January 1.000 Add: Net income of S for 20x5 90.200 P 10. 20x5 P 490.000 Less: Dividend income from KR (9. 20x5…… P 495.. 20x5 Retained earnings – S Company.000 Increase in retained earnings since date of acquisition P 24.600 Multiplied by: Non-controlling Interest percentage………….. A total of P5.680 *this procedure would be more appropriate.000.0000 should be reported for 20X4. 12/31/20x4 P1.000) – P750 impairment loss 2.000 Retained earnings – S Company. 2.000 Stockholders’ equity – S Company.000 5.. 20x5 P144.

000 Net income of KR 20. P380.000 Multiplied by: Non-controlling interest %.. the dividend income from KR recorded by AA must be excluded from consolidated net income..000 = P217. P396..000 x 100% 20x4 Investment balance: P500.750 Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the same. However.000 4.000 + P150.461 3..500 – (P150.143 – P40.000 x 70%) = P124.000 – (P40.. 20% Non-controlling Interest in Net Income (NCINI) for 20x4 P 5. 30% Non-controlling Interest in Net Income (NCINI) for Year 3 P 58.000 Less: Amortization of allocated excess** 3. a Non-controlling Interest in Net Income (NCINI) for Year 3 Net income of S Company P240.000 would be attained by adding the income reported by AA (P59.000/70%) – P640. P320. 11. d – equivalent to consideration transferred. b 4. a 20x4 Investment income: Dividend of P10.000 8. Multiple Choice Problems 1. d – P45. a . d – equivalent to consideration transferred.250 **P270.000/80% = P337. Income of P79.000 5.000/15% = P300.750 Goodwill impairment (impairment under full-goodwill approach) 0 9. b – P500.000) = P37.000/ 10 years = __1. c Net income from own/separate operations P Company P 375.000 7.000 loss = 6..000 Less: Non-controlling Interest in Net Income* P5.000 S Company 30.250 Amortization of allocated excess (refer to amortization above) 3...000 Consolidated net income P70.000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….000 6.000 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P30. c Pigeon’s separate income P150..000 Less: 60% of Home’s P10.143 If partial goodwill: P600.750 P26..000 Less: Equipment depreciation P10..000 Total P405.000 = P177...500 10.000 2.000 Less: Amortization of allocated excess 45.000 – (P640.000 + P3. Operating income of AA P50.000 9.000 x 70%) = P152.000 P195...000 Consolidated net income P143. b Full-Goodwill: (P600..500 / 10 years = P3..250 Multiplied by: Non-controlling interest %..000) to the income reported by KR (P20.000)..

.......000 – P620. b As a general rule........... P1....000 15....... P660.000 x 4/12 5....000 Multiplied by: Non-controlling interest %......000 + P250..500 P487....000 P165.. 20% Non-controlling Interest in Net Income (NCINI) for 20x4 P 8.............000 Combined expenses ....... c Net income from own/separate operations P Company P 625..000 Less: Amortization of allocated excess 15..000 Less: Amortization of allocated excess 112..........000 16........000 – P620.... b Combined revenues ............000 P165.................. if problem is silent It is assumed that expenses are generated evenly throughout the year.............000) P180....500 / 10 years = P6.... 13. thus: Expenses (9/1/20x4-12/31/20x4): P620..............750 Multiplied by: Non-controlling interest %...000 P211...................250 P43........250 Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the same... ____20% Non-controlling Interest in Net Income (NCINI) for 20x4 P 22...........000) Excess acquisition-date fair value amortization . (9/1-12/31) 4/12 P 55..000 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P50...........500 – (P250.....667 14.000 S Company 50................000 Multiplied by: No of mos..750 Amortization of allocated excess (refer to amortization above) 6.....................750 **P450.000 Multiplied by: No of mos.............500 Multiplied by: Non-controlling interest %..000) = P62.000 x 4/12 P206.000 Total P675...........250 Goodwill impairment (impairment under full-goodwill approach) 0 15....... a Net income of S Company (P800..000 ..........000) P180....000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………......000 Less: Non-controlling Interest in Net Income* P 8......... (15.. c Net income of S Company (P800..000/80% = P562........................................667 Amortization of allocated excess: P15.250 12........ P385...000) Consolidated net income.000 Less: Amortization of allocated excess** 6. *Non-controlling Interest in Net Income (NCINI) for Year 3 Net income of S Company P600........... (700..100.... 30% Non-controlling Interest in Net Income (NCINI) for Year 3 P146......000 Less: Amortization of allocated excess 15....... (9/1-12/31) 4/12 P 55....

......000 Impairment of goodwill (if any)……………………..George (P500......... Parent .....000 x 3/12 = P1..............600) 0 Peters' income from independent operations 62.......500 x 30%.. 100........ 450 4/1/20y0 – 12/31/20y0 (9 months) P6.......20x5 = P33....................... 19....000)……..... P 22..... 0 Consolidated/Group Net Income…………………………...............000 P 400.............000 x 9/12 = P4.............400 33..000 Subsidiary ...........000) P129.....000 – P400..000 37............. c HH expense ....000 x 9/12 = P75....400 Consolidated Retained Earnings 20x4 20x5 Peter's 12/31 retained earnings (P80..... c ....000 + P64.......500 x 20%.........342...........80)(8/12)(P45...20x4 = P86......000 x 3/12 = P25..........500 Less: Amortization of allocated excess: 1/1/20y0 – 4/1/20y0 (3 months) P6....000 Less: Non-controlling interest in Net Income Subsidiary net income from own operations: 1/1/20y0 ......000 ÷ 10 yrs) .... Full-Goodwill Presentation: Net income from own operations.............000) Consolidated net income to controlling interest ....500 20....000 P161.500 ....400 Consolidated Net Income 20x4 20x5 Peters Company's reported net income 64.......000 Consolidated expenses ... c ... dividend income)..500 4/1/20y0 – 12/31/20y0 (9 months): P100..4/1/20y0 (3 months): P100....................000 17...............Keefe…………………………………… P 300.............000 Less: Amortization of allocated excess…………………… 6.000 Less: Peter's share of Smith's net loss in 20x4 (.............………… 0 Remaining 9 months: P 0 x 20%..... 15....... P621.............. 7...................000 Excess fair value amortization (70. P 394.....80  P5....... 19 21..150 CNI attributable to the controlling interest (CI-CNI)/ Profit attributable to equity holders of parent………………….......500 Add: Peter's share of Smith's net income in 20x4 since acquisition (...........500 Less: dividend income from Smith (1....e..... either full-goodwill or partial goodwill approach. Less: noncontrolling interest (P85....................400 37.500 – refer to No..000) Controlling Interest in Consolidated net income 86..... P1..000) 24.850 * It should be noted that the phrase without regard for this investment means that excluding any income arising from investment in subsidiary (i. b Step-acquisition........ the answer remains the same...... P351.... (34.............P15.... 900 Impairment of goodwill (if any): First 3 months: P 0 x 30%........20x4 = P151.........000 18.. 714....000 ........000 Total……………………………………………..........000 × 40%) ... P372.. b ..................................000 x 30%...000 x 20%................000 (4.. 0 21.....................000 NN expenses . P 7.

P 18.000 Total amortization……………………………… P 7. Add: Peter's share of the increase in Smith's retained earnings from the date of acquisition to the current date: (.000 Increase in buildings: P40.000) 18. Distributions (dividends) received in excess of such profits are regarded as a recovery of investment and are accounted for as a reduction of the cost of the investment (i.000 ** In case.000 Impairment of full-goodwill (if any)**………… 0 P 93. 21 23.000 P 93. b – P50. an investor recognizes its investment in the investee at cost. c . d Under the cost method.000 Less: Amortization of allocated excess*…………… 7. b – refer to No. 23 for further discussion. 23 for further discussion.P100.000 / 10 years = 4. a – P60.20x5 = P179.900 – refer to No. as a return of capital or liquidating dividend). there is an impairment of goodwill then the amount impaired under the full- goodwill method should also be allocated between controlling and non-controlling interests Partial Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations………. 25. 26.400 P151. d – refer to No.000 x 80% 28.000 Less: Amortization of allocated excess*…………….80  (P53.000 – P25. a – P40..000 x: Non-controlling interests………………………. 24.400 P179.900 22. the investment balance of P500.600 *Amortization of allocated excess: Increase in equipment: P30. Therefore.000 on the acquisition date remains to be the same.000 x 80% 27. 20% Non-controlling interest in Net Income…………………… P 18. 20% Non-controlling interest in Net Income………………….400 (.000)) 22. c Full/Gross-up Goodwill Presentation: Non-controlling interest in Net Income: .000 x: Non-controlling interests……………………….000 x 80% 29.000 / 10 years = P 3.80  (P48.000 – P25. 7.e. c Full/Gross-up Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations………. Income is recognized only to the extent that the investor receives distributions from the accumulated net profits (or dividend declared/paid by the investee) of the investee arising after the date of acquisition by the investor.P100.600 30.

20% Non-controlling interest in Net Income…………………… P 22.600 *Amortization of allocated excess: Increase in equipment: P30.P130.000 x: Non-controlling interests……………………….P130.000 P113.000 Total amortization……………………….000 Impairment of full-goodwill (if any)**……… 0 P123.000 / 10 years = P 3.000 Impairment of full-goodwill (if any)**……… 0 P113.000 Less: Amortization of allocated excess*…………… 7.000 ** In case. P 7.000 x: Non-controlling interests……………………….000 / 10 years = P 3. 20% Non-controlling interest in Net Income…………………… P 24.000 ** In case. P 7.000 Less: Amortization of allocated excess*…………… 7.000 x: Non-controlling interests………………………. 20% Non-controlling interest in Net Income…………………… P 24.600 *Amortization of allocated excess: Increase in equipment: P30. there is an impairment of goodwill then the amount impaired under the full- goodwill method should also be allocated between controlling and non-controlling interests Partial Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….000 / 10 years = 4.P120.000 Increase in buildings: P40. 20% Non-controlling interest in Net Income…………………… P 22.600 31.600 .P120. there is an impairment of goodwill then the amount impaired under the full- goodwill method should also be allocated between controlling and non-controlling interests Partial Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….000 / 10 years = 4.000 P123. Subsidiary net income from own operations……….000 Increase in buildings: P40.000 Total amortization……………………….000 Less: Amortization of allocated excess*…………… 7.000 Less: Amortization of allocated excess*…………… 7.000 x: Non-controlling interests………………………. a Full/Gross-up Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….

.000 + P30.000 Less: Dividends paid...000 33...... 1/1/20x4………………………….000 x 20%)*……………………………… 11.. 500.000 Increase in building: P40..... 400. P 625..000 Less: Over/Undervaluation of Assets and Liabilities: Increase in equipment: P30..000 x 80%......000 Retained earnings......000 Less: Accumulated amortization of allocated excess P7..... P 100. P 24..e. 12/31/20x4: Retained earnings.000 Fair value of Stockholders’ Equity of Subsidiary.. 12/31/20x5……………………………… P 300..000 Less: Over/Undervaluation of Assets and Liabilities (P40.. P 124. P 44...000 Book value of Stockholders’ Equity of Subsidiary..000). P 125..000 Add: Adjustments to reflect fair value (P30...600 Add: Non-controlling interest in Full Goodwill (P55.... 70.000)……………………..…..000 Less: Book value of Net Assets (Stockholders’ Equity ....………………………….000 260.000 Non-controlling Interest (full)……………………………… P 135.600 * this computation (i......………………………………... P55.. 20% Non-controlling Interest (partial goodwill)…………………..00........ Partial Goodwill: Fair value of Subsidiary: Fair value of consideration transferred: Cash………… P 500....000 + P200..000) x 80%. 70..…………………………………………..Subsidiary): (P300...……………… 40.000 Multiplied by: Non-controlling Interest %..000 56...000 Goodwill (Partial)………………………………………….. 12/31/20x5: .. 100. 7.000 x 80%...000 + P40.. 12/31/20x4……………………………… P 300........Subsidiary)………….000......000 Allocated Excess..P200....000 Less: Book value of Net Assets (Stockholders’ Equity ... P 55. 32..000 Add: Net income – 20x4…………………………….. 20x4…………..…………………………………………... a Book value of Stockholders’ Equity of Subsidiary Common stock. 12/31/x4 P 560.... 12/31/x4… P 623...32..000 Goodwill (Full/Gross-up).000 x 1 year……………………………………....000 Allocated Excess...000 x 20%) should only be use when the fair value of the non- controlling interest of acquiree (subsidiary) is not given.... e Book value of Stockholders’ Equity of Subsidiary Common stock.000 Retained earnings..000 Full-goodwill: (100%) Fair value of Subsidiary: (100%) Fair value of consideration transferred: P500.000 / 80%. full – P44...000 partial l) or (P55.

d – Economic Unit or Entity Concept (as required by PFRS 10) Net income from own/separate operations P Company P 500.000 x 20%)*……………………………… 11..000 S Company 100..000 x 20%) should only be use when the fair value of the non- controlling interest of acquiree (subsidiary) is not given..00.000 Add: NCINI __20.000 Less: Non-controlling Interest in Net Income* P 20... P580....000 330.. 1/1/20x5 (refer to No...000 CNI .. 20% .000 Total P600. 20x5…………………………… 50.. full – P44.000 Book value of Stockholders’ Equity of Subsidiary.. 120..000 Multiplied by: Non-controlling Interest %.e..000 x 3 years…………… 21. 32)…… P260. 35... 20% Non-controlling Interest (partial goodwill)…………………...000 Add: Adjustments to reflect fair value (P30.. P 137.000).000 Add: Adjustments to reflect fair value (P30...200 34.000 400. 70... 1/1/20x6………………………….000 Multiplied by: Non-controlling Interest %.00..000.........000 Less: Accumulated amortization of allocated excess – 2 yrs 14... 20x5……………………………….. 60...000 Fair value of Stockholders’ Equity of Subsidiary... 20x6……………………………… 130... P55.. e Book value of Stockholders’ Equity of Subsidiary Common stock.000 Less: Accumulated amortization of allocated excess (1/1/20x4 – 12/31/20x6): P7...000 Book value of Stockholders’ Equity of Subsidiary.000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….000 partial l) or (P55. Retained earnings..000). 12/31/x5… P 686... 70. 20x6…………………………. 20% Non-controlling Interest (partial goodwill)………………….200 Add: Non-controlling interest in Full Goodwill (P55. P 149. 12/31/x5 P 630.000 partial l) or (P55.000 Non-controlling Interest (full)……………………………… P 160......000 + P40. 12/31/x6… P 749.entity concept P600...000 Add: Net income..000.000 Non-controlling Interest (full)……………………………… P 148.P330.000 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P100. full – P44.000 Less: Amortization of allocated excess _______0 P100.000 Less: Dividends paid.....800 * this computation (i.. 12/31/20x6: Retained earnings.000 x 20%)*……………………………… 11.. 12/31/x6 P 700..000 Retained earnings..800 Add: Non-controlling interest in Full Goodwill (P55.000 Add: Net income..000 Multiplied by: Non-controlling interest %.000 Fair value of Stockholders’ Equity of Subsidiary....000 Amortization of allocated excess 0 Goodwill impairment (impairment under full-goodwill approach) _ 0 20.. 12/31/20x6……………………………… P 300...000 Less: Dividends paid.000 + P40.

…………....... 300............. Podex’s separate earnings for 20x6 ...........000 Total Comprehensive Income………………………......000 Less: Amortization of allocated excess……………..........000 *Non-controlling interest in Comprehensive Income: 20x4 20x5 Subsidiary’s: Net income from own operations…………..........000 10.750 Controlling Interest in Consolidated __________________ Comprehensive Income ….... P2..000 37......000 P 35. 20% Non-controlling Interest in Net Income (NCINI) for 20x4 P 20...... 25....000) Podex’s 20x6 net income .750 x: Non-controlling interests…………………………..P 30...... c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10) Net income from own/separate operations P Company P 500...000 Multiplied by: Non-controlling interest %..........000)…………………………….. …………………………P119.. P2... P2.000 Subsidiary’s Comprehensive Income………….....000 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company P100.000 P45...............000 P135.entity concept P580..……….000 Podex’s separate earnings for 20X6 P2.120......... P2.......000 35..… 6...........000 – P25...........................000 P125.....000 10...000............000 Podex’s 20x6 net income .......... b 40.....260....000 Amortization of allocated excess 0 Goodwill impairment (impairment under full-goodwill approach) _ 0 20.. __120.P 25..........750 P 38.750 P138.000 Podex’s equity in net income of Sodex .260... 20% 20% ............000 P131..000 Dividend income from Sodex . (40....250 Impairment of full....................000 Total P600..000 S Company 100........000 Less: Non-controlling Interest in Net Income* P 20.goodwill (if any)……………..750 7....000 Less: Amortization of cost in excess of book value . 0 0 Consolidated /Group Comprehensive Income…… P123.........000 36....000 Other Comprehensive Income (P30..000 Subsidiary……………………………………………...........000 CNI ..........000 39........ Non-controlling Interest in Net Income (NCINI) for 20x4 P 20....000 Less: Amortization of allocated excess _______0 P100........ P130.........250 6.000 P100.250 Impairment of full-goodwill (if any). 5.............000 P145..000 38...... 0 0 P 23. 6........ b Net Income from own operations: 20x4 20x5 Parent …………………………………………………P 100...............750 Less: Non-controlling interest in Comprehensive Income *…………………………………………… 4...........000.000 Less: Amortization of allocated excess*………….000 Subsidiary’s other comprehensive income………….250 6.... 5....

000 x P39) – P800.000 + P1.000 . 2. 40 43.000)]/10}2 54. a 48.P170.800.000/5) = P3.000)……………………………………. 7.000.000 – P200.000 PIC in excess of par [(1.refer to No.000 .000 Lawsuit liability………………………………………………………. Non-controlling interest in Comprehensive Income.(P450.000)]/20}2 57.000 Common stock. a Cost of Goods Sold P80. c P170.000 – P350.750 P 7.000 debit Depreciation Expense (P192.750 *Amortization of allocated excess: Increase in other intangibles: P50.000.28.P260.P170.000)/ 5 years ( 14.000. 500.000 . b [P320.{[P320. d P105.{[P405.000. a [(P250.000 debit Interest Expense: (P15.000.000 Investment in Shure………………………………………………… 6.000 x P1 par……………………………… 1.. b..000 x 4/6) = P40.000.250 41.P105.000 debit 50.000)]/20 .000 Retained earnings (acquisition-related expense – close to retained since only balance sheet accounts are being examined)…………………………………………………………………… 1.(P450. 1.000.P 4. d 56..000 . c Cost of Goods Sold (P60.000)/ 10 years 19.500.000 Investment in Shure………………………………………………… 34.000 46.000 .P180.000 . 45 47. 40 44. c – refer to No.000 45.000 . c Plochman’s acquisition entry is: Investment in Shure……………………………………………………………40.000)]/10 55.000/120) 7 = P11.000 .000 .200 debit 49. a [P405.000 Long-term debt……………………………………………………………….000)…………… 32.000 .000. 1. c – refer to No.000 . d Inventory – not yet sold in 20x4 P 0 Building: (P390.000 Eliminating entries are: Book value of stockholders’ equity: Stockholders’ equity-Shure………………………………………………… 6.000.000.000.000 Allocated excess (acquisition/purchase differential): Identifiable assets…………………………………………………………….(P300. d –refer to No. 40 42.000 Cash (P800.000) P 5.000)/10]7 51..000 / 8 years = P 6.000 . a 53.000 Goodwill……………………………………………………………………….(P300.000 Equipment (P280.000. c [(P380.000)/120]88 52.P105.

000) Depreciation 1/1/20x4 – 12/31/20x6 (P5....000 Adjustments to reflect fair value. (9...000) P 70.....000 P300.. 1/1/20x4 P 80...12/31/20x5 P 975.000 247....000) 100. d ..000 – P75...000 Less: Amortization of excess (P110... d BV of equipment. 1/1/20x4 P200..........000) 110...104....000 – P200. d – 1/2/20x4: BV of equipment.000) 100.. 1/1/20x4 (P80....500 (P 3....000 P497.12/31/20x6 P250..000) P285...000 – P90.....000/10 x 3 years) 1... 59.... 1/1/20x4 (P350. d – same with No........500 65... b P: BV.0000 – P20....000 Add: Adjustments to reflect fair value...... P36.000/20 x 3 years) ( 15....000 63..000) ( 5.000 S: BV of building.... P45. 20x5 ... c .000) 30...000 6. Patent fair value at January 1..........000 Adjustments to reflect fair value...000 – P200..000 – P15.. 12/31/20x5 P105.........000) (P 5.......000 – P75.. 1/1/20x4 (P300.The acquisition method consolidates assets at fair value at acquisition date regardless of the parent’s percentage ownership.......000) Patent reported amount December 31. c Consolidated Net Income for 20x4 Net income from own/separate operations P Company P30.. 1/1/20x4 (P300.........000 S Company (P100.......000 60....500 P 76. 1/1/20x4 P200. d P: BV.....000 Less: Non-controlling Interest in Net Income P 0 Amortization of allocated excess 0 Goodwill impairment ____0 ____0 ... 1/1/20x4 (P80.......000 Add: Adjustments to reflect fair value....500) 66..000 Amortization for 2 years (10 year life) ...000 Adjustments to reflect fair value..000 Less: Amortization of excess (P30.. 1/4/20x4 (P120.000) 40. 12/31/20x4 P170.. a Adjustments to reflect fair value.......An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life..000 – P45..200 – (P150......000/10) x 3 years 33.000 P1.000 – P240.....000 – P60.. b BV of building. 62 64.....000/10) x 2 years 129.58....000 61......000 Depreciation 1/1/20x4 – 12/31/20x6 (P100.000 Total P110. 20x4 ..000 67..000 S: BV of building.....000) Depreciation 1/1/20x4 – 12/31/20x6 (P5..000 62.000/10 x 3 years) 1.

. d Total assets (No....... 1/1/20x4 (cost method...000/4)…………… 1.000 + P200..000 Increase in equipment accounts……………………………...000 Increase…………………………………………….000 Add: CI – CNI (refer to No.000 Shipping (P25..000 Less: CI – Dividends (Dividend of parent only) 25..000 Book value…………………………………………... 12/31/20x4 (equity method same with CRE) P 235..000 72... same with equity method and consoiidated retained earnings since it is the date of acdquisition) P 150.... b Plimsol: P100.000 + P50.000 Retained earnings. d Decrease in buildings account (refer to No.... d Decrease in buildings account (refer to No.000 Less: Decrease due to depreciation (P4. 74) 190...000...000 + P75..000/10)………… 200 Decrease in buildings accounts……………………………..000 Less: Decrease due to depreciation (P4. 73)………… P 2.. a Increase in equipment account (refer to No...000 Les: Liabilities (No...000 P 525... 74)………… P 1...000 70. P 1. 72) P525. P 1. P 4. __18.... 71) 110. Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………... 76)………… P 4..000 69.Plimsol.000) P115......000 76... a Increase in equipment account (refer to No.000 Stockholders’ equity P335... 225.000 + P150. b Decrease in Buildings account: Fair value…………………………………………… P 8. P110.. Retained Earnings . 77)………… P 3..000 Less: Increase due to depreciation (P2. P 2....000 71.000 .... d Liabilities: Plimsol (P40......000 68..600 75.000 Decrease……………………………………………... P 2.800 74.000 Add: Non-controlling Interest in Net Income (NCINI) _____0 Consolidated Net Income for 20x4 P110.. __10.000/10)………… 200 Decrease in buildings accounts…………………………….. a Increase in Equipment account: Fair value…………………………………………… P 14.....000 P 190........000……………………………………………………………….P 300.000/4…………… 1...000) 75...000 Book value…………………………………………... P 3..000 77.000 Shipping: P75.000 73..000 Increase in equipment accounts…………………………….800 Less: Increase due to depreciation (P2......

………… 2.200 Increase in patent accounts…………………………………. b – refer to No.000) = P11.400 Allocated Excess P 25.000/90%) – (P160. 78.000 APIC – S: P15.000/5).300 85. e Increase in Patent account: Fair value…………………………………………… P 11.100–P16. no depreciation/amortization 81. 1/1: Common stock – S: P50.500 RE – S: P41. P 6. 5.000 Book value………………………………………….100) x 90% P 900 Increase in Eqpt. c Fair Value of Subsidiary: Consideration Transferred (5.000 Fair value of Stockholders’ Equity – S.000 APIC – S 15.000 x 90% 13.200 Less: Over/undervaluation of A & L: Increase in Inv.000 Book value…………………………………………. 1/1 P106.000/5).800 .800 83.000 + P7. _ 0 Increase…………………………………………….000 Increase……………………………………………. the amortization remains the same.000 – (P4.000–P10.600 84.000) = P20.………… 2.Starting January 1: Inventory: P1.000 79..700 10. no depreciation/amortization 80. (P48. 86)……………… P 8. P 8.000 / 10 years 300 P 3.000 Less: Decrease due to depreciation (P11.800 Positive Excess: Goodwill P 14. P 7. 1/1 P118.. Partial or full-goodwill approach..000 RE – S 41.000 x 90% 36. c Common stock – S P 50.000 Equipment: P8.000 Patents: P3. d Increase in patent account (refer to No.000 / 4 years 2.78.000 – P2. b – refer to No. 85)……………… P 11. 82.800 Less: Decrease due to depreciation (P11.400 shares) P120.000) x 90% 7. (P17.000 Add: Adjustments to reflect fair value 12.000 x 90% P 45.000 Stockholders’ equity – Subsidiary.000.000–P40. P 11.000 (P234.900 95.000 x: Non-controlling) interests 10% Non-controlling Interests (in net assets) P 11. 78.000) x 90% 2.600 Less: Book value of SHE-S.000 / 1 year P 1.200 Increase in Patents (P13. e Increase in patent account (refer to No.400 Amortization of allocated excess .000 + P80. a Increase in Land account: Fair value……………………………………………P 12.200 Increase in patent accounts………………………………….

a – P48.86.S.000 Less: Amortization of allocated excess (1 yr.090 Add: Non-controlling Interest in Net Income (NCINI) 610 Consolidated Net Income for 20x4 P32.S. b – refer to 91 for computation 94.000 x 90%) P26. 12/31 P 120. 10% P 610 Less: Non-controlling interest on impairment loss on full-goodwill ____0 Non-controlling Interest in Net Income (NCINI) P 610 92. 12/31 P 12. 1/1 (refer to No. 12/31 15.S.000..600.000 x 90% = P3. 87. 12/31 P 50.300) P 6.090 ..000 Additional paid-in capital ..000 Less: Non-controlling Interest in Net Income* P 610 Amortization of allocated excess 3...600 91.000 Retained earnings .. c – refer to 91 for computation 95. 102 P 48. 12/31 P 111. 89.S.400 Less: Dividends – S 4.000 Add: CI – CNI (refer to 106 and 109) 32. P32. c Consolidated Net Income for 20x4 Net income from own/separate operations P Company P30.300 Goodwill impairment ____0 3.400 Total P36. 88.400 Amortization of allocated excess – 20x4 ( 3.200 – (P4. b Controlling RE / RE Attributable to EH of Parent. the initial value 90.100 x: Noncontrolling Interest % 10% Noncontrolling Interest (in net assets).100 Multiplied by: Non-controlling interest %.700 *Net income of subsidiary – 20x4 P 9. 1/1 12.600 S Company 9.. 1/1/2011 P 41.300 Fair Value of Net Assets/SHE . parent only. 2011 9.400 Book value of SHE . b – P4.000 Add: NI-S. 12/31: RE-S. c Noncontrolling Interests (in net assets): Common stock . On the date of acquisition.S. the parent’s retained earnings is also the consolidated retained earnings.000 46.010 93.) 3... No requirement. a – P48. b – P120.910 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………..000.400 Add: Adjustments to reflect fair value.

..........000) Patented technology amortization .........................................000 Non-controlling interest percentage ...........................................000...........000 30% of net income for 9 months (¾ year × P240.... (8. 34............. 12/31 P 65....P1.............. 20x4 Book value of SHE – S.....000 104................000 .......000 ......... b – same with No.......................................000 Total P1...P125................... c P251... 40% Non-controlling interest in subsidiary income ...................................000) Trademark amortization .........................000 SS trademark balance ......... 54............................... b Combined revenues ........000 – P14..............000 .000...... P260................................300.....000) + (P190............000 excess amortizations) .........P100....... (800................000) Consolidated net income................................ 105) 65....010 Consolidated Equity P312.................................................................000 40% change in Scott book value since acquisition ........ c Non-controlling interest (full-goodwill)...........000 × 40%) .......000 Excess fair value ....................................... 95 97................... NCI – P260....................................................... a MM trademark balance........ P1.... Less: CI – Dividends (Dividend of parent only) 15....600 RE – P (refer to No.80) ..........800 102..........000) Consolidated trademarks ..............................000 / .............................000 99.........................400 shares x P10 par)] P154..700 98.......000 Excess fair value amortization (P14.. 200.000 103.........400...............000 Controlling RE / RE Attributable to EH of Parent............600 – (5.......000 × 30%) ..... 12/31/20x4 P1..............................000 APIC – P: [15.......... P219..............800 Subsidiary income (P100...................... P508.....400 Non-controlling interest at end of year .000)] 100..............000 101..... (5.................. c P95................. P180...000 ...... 52......000 Combined expenses .....P5... a Fair value of non-controlling interest on April 1 ........150...............................................090 Parent’s Stockholders Equity or Controlling Interest – Equity P300...............................................600) 40% current year income ...... P260.......................600 – (5.........................690 Noncontrolling Interest 12..... P86.......................000 Two years amortization (10-year life) .......................000 + [P120............................................. December 31.. P34.....................090 96...... P165.............000 Non-controlling interest December 31 ........20[(P956. 60.....000 = (P956........................................................................ P486..........400 Fair value of non-controlling interest at acquisition date ........ (6.... c Consolidated Equity: Controlling Interest / Equity Holders Attributable to Parent: Common stock – P: [P100...........000 = . (12...000 + P120................................................................... c NCI-CNI ..............P34......................000 + P239..........000 Add: Net income of S – 20x4 ___150....400 x P10)] 81....

..714 – P1...240.. But..000 ... P 140.000/..714..000 Add: Puma’s equity in net income of Slume (30% x P25.... 30% Non-controlling interest (partial) P 372... a . 107.. c – P60.. 1/1/20x4………………………………………………. b – (P50.P650..000 111....000 = P285..P50..000 .... a – assume the use of equity method Punn’s equity in net income of Sunn (3 months ended. 20.000 Less: Dividends received 18...000 Investment. December 31...000/70% = P1..714 – P200........000/5)2]}....000 Amortization of cost in excess of book value ..……………….P50..8) + [P75. Dividend income……………………………………………………………...000.. P 6..000 .......(over) undervaluation of assets and liabilities...000..000/10 years) x 30%..000 113....(P90.... partial goodwill It is assumed that full-goodwill is used....000 = P85.714 Non-controlling interest (full) P397..000/10 years) x 30%..000 .000 Add: Share in net income – 20x5 (P60....000 x 80%) 48..000). 20x4 200..1/1/20x4 P105. P 150.000 x 70%) = P60.......(P80.7) + [P160... full goodwill *P900.. Less: Dividends paid – 20x4 ____90.000 .000.... 1...P50.000 Add: Share in net income – 20x4 (P45..... P 7......000/..... d Investment balance.000 110..000 114........000 .3 109. P 180.000) Increase in Parent’s retained earnings……………………………………......000 + P70.000) ___25...000 x 70%) = P200..12/31/x6)…… P 200.000 ...000 Multiplied by: Non-controlling Interest percentage………….000/8)2]}..000 + P200.. c Investment.000 e . P 153......000 112.. b – P only.000 115..000..... 105.. 3. 12/31/20x4 P129. b {(P250....500 Puma’s 20x6 net income (equity method) .000 Add: NCI on full-goodwill P85...000 – (P200...000 Fair value of NCI (given) (20%)……………….... the answer would be P100.If cost model/cost method....000 Stockholders’ equity – S Company.P60. 20x5…… P1... it should be noted that PFRS 3 either partial or full- goodwill approach are considered acceptable..000/10 _( 20....000 Investment.... b Full—goodwill Aproach Fair value of Subsidiary (100%) Consideration transferred (80%)……………... 12/31/20x5 P159.000 Amortization of cost in excess of book value (P50. Year 2 P1.000 Less: Dividends received 12. date of acquisition January 1.......500 Less: Dividends (P30% x P10..000 106.....060...P30......………… 7.....285.000) Fair value of stockholders’ equity of subsidiary.000 . P 100.....500 Less: Amortization of cost in excess of book value (P50.000)...000 x 80% = P48.714 *P900..000 – (P1...500 Investment income – 20x4 (equity method)………………………………..714 – P60..........000) x 25% = P30....P80..000)……………………………………………..2 108.. b Puma’s equity in net income of Slume (30% x P25.P25. 1... December 31. ( 60...000 =P500.000 ...000 + P90..000 Adjustments to reflect fair value ...000 x 80%) 36..000 Amortization of allocated excess (refer to amortization above: P200.000 .000 + P210... d {(P420....

100 118..000 5 P 2.400 9. P 22.000 P 7.600 (P14.000 x 75% = P30.000 P 7.000 x 100%)……….. 230.000 5 5.000 x 100%)……………………. Fair value of Subsidiary (100%)……….500 Increase in equipment (P10.000 15.500 Positive excess: partial-goodwill (excess of cost over fair value)……………………………………………….000 x 90%) ___9.000 Allocated excess (excess of cost over book value)…. 180.000 Increase in equipment (P10.000 6..000 116.000 Amortization x 90%)…….000 12.000 Amortization x 90%)…….000 x 90%) NI of S (60. 10. 54.000 Less: Book value of stockholders’ equity of Son: Common stock (P100..400 117.000 5. P 180.000 x 75% = P22. P 40.000 P 2...000 x 90%)……………………...000 144..000 Allocated excess (excess of cost over book value)….000 x 90%)……………….000 x 90%) 1/1/x6 203. c Investment in Wisden 1/1/x6.. P 200.000 Less: Over/under valuation of assets and liabilities: Increase in land (P5... d Investment in Wisden 1/1/x4. 60..300 (7.000 Dividends – S (20.000 x 90%)……………………. d – 20x3: P30. P 4..000 Less: Book value of stockholders’ equity of S: Common stock (P100. 54. 27. P 25.500 A summary or depreciation and amortization adjustments is as follows: Over/ Annual Current Account Adjustments to be amortized under Life Amount Year(20x4) Subject to Annual Amortization Equipment (net)..000 Dividends – S (10.000 Retained earnings (P60.000 . P 100.000 Retained earnings (P60.000 x 90%) NI of S (30.000 Positive excess: Full-goodwill (excess of cost over fair value)……………………………………………….000 160.000 x 100%)………………. P 90.000 Patent 25.000 x 100%) ___10.000 Partial-Goodwill Approach Fair value of Subsidiary (90%) Consideration transferred………………………………..000 Less: Over/under valuation of assets and liabilities: Increase in land (P5.000 13.500 20x4: P40.. P 5..000 x 90%) 1/1/x6 215. P 36..000 18.

d Investment account.000 Tiny’s earnings..000 Equity in subsidiary income of Tiny……. Under the cost model share in net income or earnings of subsidiary does not affect investment.000 125.500 x 15%)* ______0 P 30..000 Net income from its own separate operations P 190.000 Less: Cost of goods sold Operating expenses 410. b – Dividend paid – S.000 P 300.000 [CI-CNI...000 Goodwill impairment ____0 45.000…………… 166.000 Amortization of allocated excess 15... P235.52.000 P 90. 110.000 Dividend revenue………………………………… 54.000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………. 20x4-20x77: 100% x P166. December 31.000 Less: Non-controlling Interest in Net Income* P 30. None – no answer available.000 Add: Non-controlling Interest in Net Income (NCINI) 30. December 31. b 124. 20x7…………………………….000 Multiplied by: Non-controlling interest %. P30. d – CNI amounted to P265...000 Consolidated Net Income for 20x5 Net income from own/separate operations P Company P190. 20x7: Original investment …………………………………………P 550.000 ..000_ P 75.000 123.000 and NCI-CNI.000 x 60% = P42.000 Less: Dividends received: 100% x P114.000 20x5 results of operations are as follows: Peer Sea-Breeze Sales P 600. 121. 120. 4..000 Less: Non-controlling interest on impairment loss on full-goodwill (P1.119. P235.000 Balance.000 210..000 Retained earnings beg…………………………. P602.000 S Company 90.000 Total P280. 40% P 30. a The adjusting entry required in 20x7 to convert from the cost to the equity method is: Investment in Tiny………………………………….000 *Net income of subsidiary – 20x4 P 90. a – no changes in investment unless there are dispositions of investment and permanent impairment.000 Amortization of allocated excess – 20x4 ( 15..000 Consolidated Net Income for 20x4 P265. P70.000 122.000……………… 114.

20x2 70.000 Consolidated Retained earnings.000 P 15.000) (5..000 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary.000 is the retained earnings of parent under the equity method...000 Add (deduct): (Over) under valuation of assets and liabilities (P140.. 125 for computations 128.000 280. the following rule should always be applied – b. c .. Date of acquisition: RE of Parent = Consolidated RE Regardless of the method used in the books of the subsidiary.000 360.. January 1. 20x5 P 300.000) Patent -10 -0. Consolidated Retained Earnings.000 Equipment (net)– 4 300. c – refer to No. December 31.000 Net P 140.000 100. 20x5 Retained earnings .6 300. January 1.000 10.000 Fair value of Subsidiary (100%) P 690. January 1..000 P 10. 60% P 111. P 140.. c ..000 x 100%) __550. Add: Investment income 45. Subsequent to date of acquisition: Retained earnings of Parent under equity method = CRE Since.000 Allocated excess (excess of cost over book value)….P811.000 – refer to note (b) of No.000 Computation of Goodwill: Fair value of Subsidiary (100%) Consideration transferred: Cash (60%) P 414.000 P 60. 20x5 (cost model) P700.000 Less: Book value of stockholders’ equity of Sea (P550.000 Less: Goodwill impairment loss (full-goodwill).000 Less: Amortization of allocated excess – 20x2 – 20x4 (P15...000 x 100%) 140..P811...000 Positive excess: Full-goodwill (excess of cost over fair value) P 0 Amortization of Allocated Excess Book Value Fair Value Over/under Amort.. 129.. 128 .000.000 P 185. 20x5 P 811.000 Note: a.000 Multiplied by: Controlling interests %.000 P 90.Parent Company. 0 111. 100. January 1. b – refer to No.000 126...000 (20.000 - Net income P 235..000 Increase in retained earnings since date of acquisition P 230.000 Less: Retained earnings – Subsidiary. 125 for computations 127.000 x 3 years) 45. Buildings (net). the P811. it should also be considered as the parent’s portion or interest in consolidated retained earnings or simply the consolidated retained earnings.000 Fair value of NCI (given) (40%) 276.

000 54.000 Amortization Amortization (90. 2015 P300. 128 131.Peer P 724.000 Stockholders’ equity – Subsidiary Company.000 x 60%)……. 2015 Common stock – Subsidiary Company.000 x 4) ( 60.000 135. 414.000 Total P1. 128 142. c – refer to No.131 133.000) Fair value of stockholders’ equity of subsidiary. December 31. December 31. ____0 Non-controlling interest (full) P 352.000 Less: Dividends paid – Subsidiary .000 Retained earnings 954. a – not applicable under equity method. date of acquisition (January 1. 131 .000 Total Stockholders’ Equity (Total Equity) P 985. 54. 118 and 119) P 811.000 42.000 Dividends – S NI of S Retro 111. c Investment in Sea-Breeze Investment Income 1/1/x2. 2015 P 800. d – refer to No. b – refer to No.000 x 60%) 9. 20x5 P 954. 143.000 Consolidated Retained Earnings. c – refer to No.130.000 45.000 Less: Dividends paid – Parent Company for 20x5 92.000 9. January 1.000 132.000 – refer to No. b – P111. c 137.000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 235. December 31. 2015…… P 480.046.000 x 60%) 12/31/x5 528. January 1.000 x 60% NI of S (90.000 Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 1. 20x5 (refer to Nos. 12/31/ 2015 P 880. c Non-controlling interest (partial-goodwill).678.000 320.000 x 60%) (P15.500 Total Liabilities and Stockholders’ Equity P2.(over) undervaluation of assets and liabilities.030.000 Amortization of allocated excess (refer to amortization above) – (P15. 131 144.000 Adjustments to reflect fair value . 125 138. 128 141.000 Retained earnings – Subsidiary Company.000 134.000 Add: Net income of subsidiary for 2015 90.000 Multiplied by: Non-controlling Interest percentage.000 Non-controlling interest** 352. d Consolidated Retained earnings. 125 139.000 (P15. d – refer to No. d – refer to No.000 136. 2015 Retained earnings – Subsidiary Company. c Stockholders’ Equity Common stock . c – refer to No. December 31. December 31. 40 Non-controlling interest (partial) P 352. 125 140. d – refer to No.2015 70. 2012) 140.000 (70.000 Add: NCI on full-goodwill…………………….

000 Gross profit P540.000 + P40.125 x 5 years) = P34.000 Consolidated Retained Earnings.000 / 16 3. c – P450.000 Overvaluation of buildings ( 30.000 P 0 148. c – refer to No.840.000 – P3.000 – (P8.000 153. b – (P750.000 = P670. a – P only (the stock issued In 20x0 includes already in the December 31. a Consolidated Retained Earnings. December 31. a – P900.000 60.000 + P180.000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 490. b Consideration transferred: 10.000 Other expenses 100.000 Trademark: P50.500 151.000 + P500. d – assumed that total expenses includes cost of goods sold which is different when the question is “total operating expenses” Cost of goods sold (P360. January 1. a – P only 156. 20x4 Consolidated Retained earnings.000) 180.000 Undervaluation/unrecorded trademark 50. P490..000 Depreciation expense (P140.375 Less: Dividends paid – P Company for 20x4 195. December 31. 133 146. P80.000 Net income P300.000 P200.000) / 20 (P1.645.000 P300.500 shares x P95 P997.000 40.350.000 152.625 150.000 P500.625 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….000) – P30.625 Goodwill impairment (impairment under full-goodwill approach) _ 0 9.000 + P60.000 Less: O/U valuation of A and L: Undervaluation of land P40.000 + P280.375 157.000 + P200.000 Less: Non-controlling Interest in Net Income P 0 Amortization of allocated excess (refer to amortization above) 9. c – (P300.400.500) Equipment.000 = P1.000 140. P140. 20x4 (equity method) P 1. 134 147.000 S Company 200.000 + (P1. d – refer to No. 155.000 Other expenses (P100.500 x 5 years) = P1.000 + P500.500 Allocated excess.000 200.000 149.007.375 154.000) Undervaluation of equipment 80.000 Amortization of allocated excess: Buildings: (P30.000 Non-controlling interest (full-goodwill).000 x 5 years) = P840. c . d – P50. 20x4 P Company P300.000 Total P500.000 / 10 8.000) P 560.500 Less: BV of SHE – S (?) 857.000) + P80.000 + P40.125 9. 20x4 balance. December 31.145.625 Total expenses P909.000) 160.375 Net Income from own operations: P Co S Co Sales P900.000 Less: Depreciation expense 140. 20x4 (under equity method) P1.375 Total P1.000 Less: cost of goods sold 360.

.000 Less: Amortization of allocated excess 9.. 1/1/20x6 (date to establish reciprocity – should always be beginning of the year.... ( 60...375 158....000 Cumulative net income less dividends since date of acquisition........12/31/x6)…… P 200...400 It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for amortization and depreciation...625 P190...750 159. (b) Net income of Subsidiary – 2015 and 2016 (P15. not 12/31/x6) P130...... P190. is a term used under equity method.. But.........000 161.........000 Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300...12/31/x6) 200.. 2017 ..000) Increase in Parent’s retained earnings……………………………………. Further. 12/31/20x6 190.000 x: Controlling interests 90% P117.000)……………………………………..........P 37........ P 140.. a – assume the use of equity method Punn’s equity in net income of Sunn (3 months ended.. not 12/31/17) / Increase in Retained earnings………………………………………………………………………………………....000 Cumulative net income less dividends since date of acquisition...000 + P9.. 2017 not December 31.000 163. it prohibits the use of equity method for a parent to consolidate a subsidiary..000) Punn’s 20x6 net income (equity method) ... the term used in the requirement “equity in subsidiary income”...140.000 Cumulative net income less dividends since date of acquisition......000........... ( 60..000 x: Controlling interests 80% P208......................000 Less: Retained earnings – S Company. 15...000 x: Controlling interests………………………………………………………………………………………… 70% P 15...000 Less: Dividends of Subsidiary – 2015 and 2016 (P6... but it should be noted that under PAS 27......000 x 8/12 P560.....000 x 100% P200....375..1250 / .. 1/1/20x6 (date to establish reciprocity – not 12/31/x6) P260..... the answer would be..P 22. P 100.20 = P15.000)……………………………………....000 Less: Amortization of cost in excess of book value .... P 6.000 + P22. a Net income of S (5/1/x5 – 12/31/x5): P840.. Dividend income……………………………………………………………....000. assuming the use of equity method.....If cost model/cost method.... 1/1/2017 (date to establish reciprocity – should always be beginning of the year.000 Add: Punn’s equity in net income of Sunn (3 months ended.... the answer would be P100. 1/1/20x4 P 60..... . Note: Normally...000 160. the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1.000 162....... P 6.. b Retained earnings – S Company...... a Punn’s separate earnings for 20x6.... c – P3.... Share in net income: P200.000 E .000 Amortization of cost in excess of book value ...

000 20x6: P14.000 P320.8 2.000)/5]}.000 P 18.000 - P200.P40.(P80.000 + P9. b [{(P84. d .000 .000 .P350.000 – P60.3 7.000/8)2]}.000 .000 .P150. P545.000 .000 . (a) Net income of Subsidiary – 2015 and 2016 (P15.000 .000) .000 .000 Less: Amortization of allocated excess [(P80. b .[(P130.P590.000)/20]2} .000)/5]}. P 37.000 .Intercompany receivables and payables from unconsolidated subsidiaries would not be eliminated.000 .000)/10] (4/12) + [(P380.[(P290.P30.000)/10 years x 2 years]……………… 4.P25.000)…………………………………… 15.000) 3/5] + [(P215.000 + [P100.000 = (P500.000 + P140. b – building account in the books of subsidiary at fair value 169.2 6.P160.000 .000 x: Controlling interests……………………………………………………………………………………….[(P300.000 Purchase differential amortization to investment income 20x5 20x6 .000 .[(P520.000 .In consolidating the subsidiary's figures.000) 4/6 .400 164. P15.000 + P50.000 . P36.500 P500. 15.000)/10] .000 + P105.000) 4/5] .400 {P80.P50.600 165.000 .000)/120] 8}. 20x5: P56.000 Less: Dividends of Subsidiary – 2015 and 2016 (P6.000) . December 31.(P30.000 .000) 173. 20x6 or January 1.000 + P22.000 .000 + P90.000 .8 166.000 .P160.000 .000/8)2].P300. all intercompany balances must be eliminated in their entirety for external reporting purposes.(P470. 1/1/2017………………………………. b {(P260.000 - P400.000 .500 {(P250.7 4.000 .000 .P220.[(P241.000 .000 – P20.000) .(P200.000)/8] + [(P160.[(P190.7 167.200 {P150.000/.000/5)2]. P388. d {(P190.000)/60] 5}.P50.P30.2 8.000 .P55.000)……………………………………. a – P540. b 172.P220.000 .000)]. P70. 175.P50. 70% Retroactive amount.P280. Even though the subsidiary is less than fully owned.000 + P150. 1/1/2017 would be as follows: Investment in Subsidiary………………………………………………………………… 15.P90.P230.[(P310.925 {P110.000)/5] (4/12)}.8 5.(P250.P160.000 + [P110.7 3.P450. the parent nonetheless controls it.(P75.000 .000) + [(P650. P13.000 .XVI 1.000 . Incidentally.000 . Quiz . 2017……………………………………… P 12.P100.P35. c – equivalent to the original cost 174.000)/5] (3/12)}. b {P150. the entry to convert from cost method to equity method or the entry to establish reciprocity at the beginning of the year. d – push-down accounting: equipment account in the books of subsidiary is at fair value 171.[(P550. e – building account in the books of subsidiary at book value 170.000 Increase in Retained earnings for 2 years……………………………………………………………… P 22.8 168.000 – P90.P40.000 .000 + P130.P250.000 .400 Retained earning – Parent Company.8) + [P75.

......000 Less: Amortization of cost in excess of book value (P30...000 Cumulative net income less dividends since .....900 Sandpiper’s share of Shore net income (P18....000 x 30%) P 5..000 Add:Dividend income from Slyco ................ P3.P240..............000 P56. Inventory (P300.000 To non-controlling interest (stockholders of Subbco) ___60.........000 P14.............600......... P2....000)/7].....000 Add:Plyco’s equity in net income of Slyco ..000 Subbco’s net income for the nine months ended 12/31/x6 200......000 x 8/12 P140..... P52... P3..000 14...500.000 ÷ 60%) ___50......600/6 ( 600) Amortization on patent P3.000 Plyco’s 20x6 net income P 3.200/8 years ( 400) Income from Shore/Income from subsidiary 2........000 P1.....000 + P300.000 15..000 Less: Parrco’s amortization of cost in excess of book value ( 30...000 .....000 10..............000 9.......000 Less: Dividend – S (11/1/20x5 – no need to pro-rate) 75....000) Plyco’s 20x6 net income .. 17........000)......000 Depreciation Expense 20..000 Plyco’s separate earnings for 20x6 P 3.000 (same amount as calculated in Requirement 16)..000 (P100..867. P3.......000 Parrco’s income from its own separate operations for 20x6 P 900... 400...........867.000 Plyco’s separate earnings for 20x6 ....900 11.....050...........600...000 P 0 Plant Assets [(P700.....000  60%) 120...........7 P42....050..000) 14.000 13....500........400 Add: Overvalued accounts receivable collected in 20x5 600 Undervalued accounts payable paid in 20x5 300 Less: Undervalued inventories sold in 20x5 ( 2...867......050...000 16...... P990... ( 33.....000 ..000 Net income of S (5/1/x5 – 12/31/x5): P210..000 Parrco’s income from its own separate operations for 20x6 P 900..... P3.000 Parrco’s equity in net income of Subbco Company for nine months ended 12/31/x6 (P200.000) Consolidated net income for 20x6 (economic unit concept) P1.000) Consolidated net income for 20x6 (parent company concept) P 990... P1... 100.....000 Less: Amortization of cost in excess of book value .7 14.....P560... Consolidation worksheet: Cost of Goods Sold P60.. P3......400) Depreciation on building undervaluation P3..000 Division of consolidated net income: To controlling interest (Parrco’s stockholders) P 990.000 12......... P400..

500 20.80)(8/12)(P45.000: not impaired) -0- Investment Income P 9.000)/10]2} .000 Equity-method account balance: Balance.000 + P9. Cost-method account balance (unchanged): P150.600) Balance.000 Less: Peter's share of Smith's net loss in 20x4 (.000 37.000) 24.200 Assignment of differential Purchase price P150.000 P161.[(P80.000 x .200 Pinta Company 20y4 equity-method income: Proportionate share of reported income (P30.600 .400 (. 12/31/20x5 (date to establish reciprocity – not or 1/1/20x6) P 65.80  P5. 20y4 P155.200 Dividends received (3.Dividend income.500 Add: Peter's share of Smith's net income in 20x4 since acquisition (.000 x .(P6.P15.80  (P48.000 .40) (128.000) Controlling Interest in Consolidated net income 86.000 x .500 Less: dividend income from Smith (1.500 – refer to No.000 Investment income 9. P12.40) P 12.000) 18.40) P 3. January 1.600 19.000 20. P9.000 x: Controlling interests 80% P 52.000 x .600 [{(P15. date of acquisition. 20x4 = P86.000 18.40) / 5 years] ( 2.800) Goodwill (P8.000) Proportionate share of fair value increase in buildings and equipment (P35. 20x5 = P179.000) .400 37. 20y4 (P9.000 (4.80  (P53. 20x4 = P151.400 Consolidated Net Income 20x4 20x5 Peters Company's reported net income 64. 20y4 P150.600 21.600 .000 .600) 0 Peters' income from independent operations 62. December 31.000 + P64.000) P129.400 P179.000 – P25.000 Amortization of differential assigned to: Buildings and equipment [(P35.400 33.400 P151.000 + P22.900 – refer to No. P3.7 = P12.P60.000)].500 Add: Peter's share of the increase in Smith's retained earnings from the date of acquisition to the current date: (.000)) 22. 19 21.000 x .900 22. 20x5 = P33.000 – P25.40) (14. 21 19.000) Goodwill P 8.000 Proportionate share of book value of net assets (P320.400 Consolidated Retained Earnings 20x4 20x5 Peter's 12/31 retained earnings (P80.

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