AFAR2 Dayag Solman

Chapter 12
Problem I
(a)Working Fund – Agency ……………………………… ……………………….. 5,000
Cash …………………………………………………………………………. 5,000
(b)Accounts Receivable …………………………………..................................... 50,000
Sales-Agency ………………………………………………………………. 50,000
(c)Cash ………………………………………………………..................................... 35,000

Accounts Receivable …………………………………………………….. 35,000
(d)Expenses-Agency ……………………………………………………………….. 4,500

Cash …………………………………………………………………………. 4,500
(e)Expenses-Agency ……………………………………………………………….. 2,250

Cash …………………………………………………………………………. 2,250
(f) Cost of Goods Sold-Agency …………………………………………………… 36,000

Merchandise Inventory - Agency ………………………………………. 36,000
2.
Sales……………………………………………………………………………….P 50,000
Less: CGS………………………………………………………………………… 36,000
GP………………………………………………………………………………….P 14,000
Less: Expenses (P4,500 + P2,250)…………………………………………….. 6,750
Net income – agency………………………………………………………….P 7,250
Problem II
(a) Branch Books:
(a) Cash ………………………………………………………….. 42,500

Home Office …………………………………………… 42,500
(b) Shipments from Home Office …………………………… 50,200

Home Office …………………………………………... 50,200
(c) Accounts Receivable ……………………………………. 60,000

Sales …………………………………………………….. 60,000
(d) Purchases …………………………………………………… 22,500

Accounts Payable …………………………………… 22,500
(e) Home Office ……………………………………………….. 53,400

Accounts Receivable ………………………….. 53,400
(f) Accounts Payable ………………………………………... 12,250

Cash …………………………………………………….. 12,250
(g) Furniture & Fixtures ………………………………………… 8,000

Cash …………………………………………………….. 8,000
(h) Expenses …………………………………………………….. 18,000

Cash …………………………………………………….. 18,000
(b) Home Office Books:
(a) Branch ………………………………………………………. 42,500

Cash ……………………………………………………. 42,500
(b) Branch ……………………………………………………… 50,200

Shipments to Branch ……………………………….. 50,200
(c) Accounts Receivable …………………………………... 105,000

Sales …………………………………………………… 105,000
(d) Purchases …………………………………………………. 122,500

Accounts Payable …………………………………. 122,500
(e) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600
(f) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000
(g) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600
(h) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400
(i) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000
BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets Liabilities
Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Accounts Receivable ……… 12,600 Accrued Expenses ……………
300
Merchandise Inv……………... 23,500 Home Office …………………..
37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities ………………….P48,450
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales …………………………………………………………………………… P66,000

Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less merchandise inv, December 31 ………………………….. 23,500
Cost of Goods Sold ……………………………………………….. 49,200
Gross Profit ……………………………………………………………………. P16,800
Expenses ………………………………………………………………………
18,200
Net loss ………………………………………………………………………... P 1,400
BARTON CO.
For Year Ended December 31, 20x4
Assets Liabilities & Stockholders’ Equity
Cash …………………………….. P 23,200 Liabilities

Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300
Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350 P22,650
Prepaid Expenses ……………. 2,050 Stockholders Equity
Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000
Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740 122,470
Branch ………………………… 37,900 Total liabilities and stockholders’
Total Assets …………………... P145,120 equity ………………… P145,120
BARTON CO.
Income Statement for Home Office
Sales …………………………………………………………………………….......
P105,000
Cost of goods sold:
Merchandise inventory, January 1 …………………………………. P 40,120
Purchases ………………………………………………………………... 122,500
Merchandise available for sale ……………………………………… P162,620
Less shipments to branch ……………………………………………... 50,200
Merchandise available for own sale ……………………………….. P112,420
Less merchandise inventory, December 31 ………………………. 48,500
Cost of Goods Sold …………………………………………………….
63,920
Gross Profit ………………………………………………………………………… P
41,080
Expenses ……………………………………………………………………………
27,630
Net income from own operations …………………………………………….. P
13,450
Deduct branch net loss ………………………………………………………….
1,400
Total Income ………………………………………………………………………. P
12,050
BARTON CO.
Sales ………………………………………………………………………………….
P171,000
Cost of goods sold:
Merchandise inventory, January 1 ………………………………….. P 40,120
Purchases ………………………………………………………………… 145,000
Merchandise available for sale ……………………………………… P185,120
Less merchandise inventory, December 31 ……………………….. 72,000
Cost of goods sold ……………………………………………………….
113,120
Gross profit ………………………………………………………………………….. P
57,880
Expenses ……………………………………………………………………………..
45,830
Net Income …………………………………………………………………………. P
12,050
(a) Branch Books:

Expenses ………………………………………………………………. 650
Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000
Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500
Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200
Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400
(b) Home Office Books

Expenses ………………………………………………………………. 1,180
Accumulated Depreciation – F&F………………………. 1,180
Sales …………………………………………………………………… 105,000

Shipments to Branch ……………………………………………….. 50,200
Income summary …………………………………………..
203,700
Income Summary …………………………………………………… 190,250

Merchandise Inventory ……………………………………
40,120
Purchases …………………………………………………….
122,500
Expenses ……………………………………………………..
27,630
Branch Income ……………………………………………………… 1,400

Branch ………………………………………………………. 1,400
Income Summary ………………………………………………….. 1,400

Branch Income …………………………………………… 1,400
Income Summary ………………………………………………….. 12,050

Retained Earnings ……………………………………….. 12,050
Problem III
Journal and Adjusting Entries – Home Office and Branch
Home Office Books Branch Books
INTERCOMPANY / INTER-OFFICE Transactions
1/1 a Branch Current . . . . . . . 1,500 Cash . . . . . . . . . . . . . . . . . . . . . . 1,500
Cash . . . . . . . . . . . . . . . 1,500 Home Office Current. . . . . . 1,500
b Shipment to branch, cost 10,200 Home Office Current . . . . . . . . 10,200
Branch Current . . . . . . 10,200 Shipments from Home Office 10,200
c SFF - Branch 3,000 No entry – eqpt accounts
Store Furniture & Fixt 3,000 maintained in the HO books
Acc. Depreciation – SFF 750 No entry – eqpt accounts
Acc. Deprec. SFF – Br. 750 maintained in the HO books
P3,000 x 10% x 2.5 yrs
SFF – Branch . . . . . . . . . . 900 Home Office Current . . . . . . . . 900
Branch Current . . . . . . 900 Cash . . . . . . . . . . . . . . . . . . . 900
d. Branch Current . . . . . . . 2,600 Accounts Receivable - HO 2,600
Accounts Receivable 2,600 Home Office Current. . . . . . 2,600
1/1 – 1/31 Transaction with Outsiders

Accounts Receivable . . . 34,600 Accounts Receivable . . . 6,200
Sales.. . . . . . . . . . . . . . . 34,600 Sales.. . . . . . . . . . . . . . . 6,200
Cash. . . . . . . . . . . . . . . . . . 40,000 Cash . . . . . . . . . . . . . . . . . . . . . . 2,600
Accounts Receivable 40,000 Accounts Receivable . . . . . 2,600
Purchases . . . . . . . . . . . . 31,600 Purchases. . . . . . . . . . . . . . . . . . 3,000
Accounts Payable . . 31,600 Accounts Payable. . . . . . . . 3,000
Accounts Payable . . . . . 36,200 Accounts Payable . .. . . . . . . . 1,450
Cash. . . . . . . . . . . . . . . 36.200 Cash. . . . . . . . . . . . . . . 1,450
Accrued expenses . . . . . 250 Expenses . .. . . . . . . . . . . . . . . . 1,250
Expenses. . . . . . . . . . . . . . 8,950 Cash. . . . . . . . . . . . . . .. . . . . 1,250
Cash. . . . . . . . . . . . . . . 9,200
1/1 – 1/31 Intercompany / INTER-OFFICE Transactions

Cash . . . . . . . . . . . . . . . . . . . . . . 1,600
Accts. Rec. – HO……………. 1,600
Allowance for D/A. . . . . 150 Home Office Current . . . . . . . . 150
Branch Current . . . . . . 150 Accts. Rec. – HO……………. 150
Shipment to branch ,cost 1,250 Home Office Current . . . . . . . . 1,250
Branch Current . . . . . . 1,250 Shipments from Home Office 1,250
Cash. . . . . . . . . . . . . . . . . 1,000 Home Office Current . . . . . . . . 1,000
Branch Current . . . . . . 1,000 Cash. . . . . . . . . . . . . . . . . . . 1,000
Adjusting Entries
a. Shipment to branch, cost 600 Home Office Current . . . . . . . . 600
Branch Current . . . . . . 600 Shipments from Home Office 600
b. Branch Current . . . . . . .. 475 Expenses. . . . . . . . . . . . . . . . . . . 475

Expenses. . . . . . . . . . . 475 Home Office Current . . . . . . 475
c. Branch Current.. . . . . . .. 35 Expenses. . . . . . . . . . . . . . . . . . . 35

Acc. Deprec. SFF – Br. 35 Home Office Current . . . . . . 35
P3,000/10 years x 1/12 = P25 (depreciation for one month; Asset life, 10 years); P900 / 7.5 years, remaining
life = P120 x 1/12= P10)
Expenses. . . . . . . . . . . . . . 100
Acc. Deprec. – SFF 100
[(P15,000 – P3,000)/10 x 1/12]
d. Included in closing entries
e. Expenses. . . . . . . . . . . . . . 750 Expenses. . . . . . . . . . . . . . 350
Accrued expenses. . . 750 Accrued expenses. . . 350
Closing Entries
Sales. . . . . . .. . . . . . . . . . . 34,600 Sales. . . . . . .. . . . . . . . . . . 6,200
Merch. inventory, ending 44,500 Merch. inventory, ending
Shipments to branch 12,050 (P9,800 + P600) 10,400
Merch. Inv. , beg……. 46,000 Income Summary. . . . . . . 560
Purchases. . . . . . . . . . 31,600 Merch. Inv. , beg……. 0
Expenses (9,200 – 250 Purchases. . . . . . . . . . 3,000
- 475 + 100 + 750)….. 9,325 Shipments from HO
Income Summary…… 4,225 (P10,200 + P1,250 +P600) 12,050
Expenses (1,250 + 475
+ 35 + 350)……………. 2,110
Branch Income Summary 560 Home Office Current . . . . . . . . 560

Branch Current………. 560 Income Summary . . . . . . . . 560
Income Summary……….. 560

Branch Income Sum 560
Income Summary……….. 3.665

Retained Earnings….. 3,665
EAGLE CO.
January 31, 20x4
Assets Liabilities
Cash …………............................ P 1,100 Accounts Payable ………………. P

1,550
Accounts Receivable ………….. 3,600 Accrued expenses ……………….
350
Accts. Rec.-home office ………. 850 Home Office ………………………
14,050
Merchandise Inventory ………… 9,800
Merchandise in Transit …………. 600
Total assets ………………… P15,950 Total Liabilities …………………….
P15,950
EAGLE CO.
For Month Ended January 31, 20x4
Sales …………………………………………………………………………………………. P 6,200

Cost of Goods Sold:
Merchandise inventory, beginning………………………………..P 0
Add: Purchases ………………………………………………………. 3,000
Shipments from home office (P11,450 +P600, in-transit) 12,050
Merchandise Available for Sale ……………………….. P 15,050
Less: Merchandise inv. Dec 31, 19x4 (P9,800 + P600)…. 10,400
Cost of Goods Sold ……………………………………………………………. 4,650
Gross Profit ………………………………………………………………………………… P 1,550
Expenses …………………………………………………………………………………… 2,110
Net Loss, from own operations………………………………………………………… P 560
EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash …………………………………………………………………… P 9,100
Accounts Receivable ……………………………………………… P34,000
Less allowance for doubtful accounts ……………….. 1,050 32,950
Store furniture and fixtures ………………………………………… P12,000
Less accumulated depreciation ………………………. 3,950 8,050
Store furniture and fixtures-branch ……………………………… P 3,900
Less accumulated depreciation ……………………… 785 3,315
Branch office ………………………………………………………... 14,050
Total Assets …………………………………………………………… P111,765
Liabilities
Accounts Payable …………………………………………….. P29,150

Accrued Expenses …………………………………………….. 750
Total Liabilities ………………………………………………….. P29,900
Stockholders’ Equity
Capital Stock …………………………………………………… P50,000

Retained earnings …………………………………………….. 31,865
Total stockholder’s equity …………………………………… 81,865
Total liabilities and stockholders’ equity …………………… P111,765
EAGLE CO.
Sales ……………………………………………………………………………… P 34,600

Cost of goods sold:
Merchandise inventory, January 1 …………………….. P46,000
Purchases …………………………………………………… 31,600
Merchandise available for sale ………………………… 77,600
Less shipments to branch ………………………………… 12,050
Merchandise available for own sales …………………. P65,550
Less merchandise inventory, January 31 ……………… 44,500
Cost of goods sold …………………………………………………………… 21,050
Gross Profit ………………………………………………………………………… P 13,650
Expenses …………………………………………………………………………… 9,325
Net income from own operations ……………………………………………. P 4,225
Deduct branch net loss ………………………………………………………… 560
Total Income …………………………………………………………………… P 3,665
EAGLE CO.
Assets Liabilities’ and Stockholders’ Equity
Liabilities
Cash …………………………….. ………. P 10,200 Accounts Payable …… P30,700
Accounts receivable ……….. P38,450 Accrued Expenses …… 1,100 P
31,800
Less allow for doubt-
Ful accounts ……….. 1,050 37,400
Merchandise Inventory ……………….. 54,900 Stockholders Equity
Store furn. & fixtures ………… P15,900 Capital Stocks …………P50,000
Less accum depr 4,735 11,165 Retained earnings …… 31,865
81,865
Total assets ……………………………… P113,665 Total liab. And stockholders’ equity .
P113,665
EAGLE CO.
Combined Income Statement for Home Office and Branch
Sales ………………………………………………………………………………….. P 40,800

Cost of goods sold:
Merchandise Inventory, January 1 ………………. P46,000
Purchases ……………………………………………... 34,600
Merchandise available for sale …………………... P80,600
Less merchandise inventory, Jan 31 ……………... 54,900
Cost of goods sold …………………………………............................... 25,700
Gross profit …………………………………………………………………………... P 15,100
Expenses ……………………………………………………………………………… 11,435
Net Income ………………………………………………………………………….. P 3,665
EAGLE CO.
Combined Balance Sheet
January 31, 20x4
Assets
Cash …………………………………………………………………… P 10,200
Accounts Receivable ……………………………………………… P38,450
Less: Allowance for doubtful accounts ………………………… 1,050 37,400
Store furniture and fixtures ………………………………………… P15,900
Less: Accumulated depreciation ……………………………….. 4,735 _ 11,165
Total Assets …………………………………………………………… P113,665
Liabilities
Accounts Payable …………………………………………….. P30,700
Accrued Expenses …………………………………………….. 1,100
Total Liabilities ………………………………………………….. P 31,800
Capital Stock …………………………………………………… P50,000

Retained earnings …………………………………………….. 31,865
Total stockholder’s equity …………………………………… 81,865
Total liabilities and stockholders’ equity …………………… P113,665
Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch Home Office
Ledger Ledger
Account Account
(Debit) (Credit)
Balances prior to adjustment P85,000 P33,500
Add: Merchandise shipped to branch 24,000
Less: Acquisition of office equipment by branch
(carried in accounting records of home office) (14,500)
Collection of branch trade accounts receivable (9,000)
Payment of cash by branch (22,000) _______
Adjusted balances P48,500 P48,500
2. (a) Accounting records of home office:
Office Equipment: Plato Branch 14,500
Investment in Plato Branch 14,500
To record acquisition of office equipment by branch.
Cash in Transit 22,000

Investment in Plato Branch 22,000
To record cash in transit from branch.
(b) Accounting records of branch:

Home Office 9,000
Trade Accounts Receivable 9,000
To record collection by home office of branch accounts
receivable.
Inventories in Transit 24,000

Home Office 24,000
To record shipment of merchandise in transit from
home office.
Problem V
((a) BRANCH HOME OFFICE
ACCOUNT ACCOUNT…
Balances before Adjustments ……………………………………….. P 8,400 P 9,735
Adjustments:
Additions:
Merchandise in transit to branch …………………. 615
Collection of Home office receivable by Branch 2,500
Understatement of branch net income for Nov.. 90
P10,990 P10,350
Deductions:
Merchandise return to home office in transit ……………. 640
Corrected Balances ……………………………………………… P10,350 P10,350
(b) Branch Books:

Shipments from Home Office-in Transit ……………………. 615
Home Office …………………………………………... 615
Home Office Books:

Branch …………………………………………………………… 2,500
Accounts Receivable ……………………………….. 2,500
Branch …………………………………………………………… 90
Retained Earnings ……………………………………. 90
Merchandise Returns from Branch – in Transit ……………. 640

Branch ………………………………………………….. 640
Problem VI
1.
Branch Home office
Account Account
Balances before adjustments P 77,150 P 56,450
Adjustments:
Additions:
Advertising charged to branch but not yet recorded
on branch books 600
Merchandise in transit to branch but not yet shown on
branch books 4,400
Collection of home office account by branch not yet
recorded by home office ____750 _______
P77,900 P61,450
Deductions:
Overstatement of branch profit for 20x0 on home
office books 540
Cash in transit to home office but not yet shown on
home office books 16,000
Overstatement of charge for merchandise from home
office on branch books (home office shipped 200 units
@ P37.85, or P7,570, and 200 units @ P44,95, or P8,990,
a total of P16,560; branch erroneously recorded
shipment at P16,650, an overstatement of P90
_______ ___90
Corrected balances P 61360 P 61,360
2. Home office books:

Jan. 31 Retained Earnings 540
Wilshire Branch 540
31 Cash in Transit 16,000

Wilshire Branch 16,000
31 Wilshire Branch 750

Accounts Receivable 750
Branch Books:
Jan. 31 Advertising Expense 600
Home Office 600
31 Shipments from Home Office – In Transit 4,400

Home Office 4,400
31 Home Office 90
Shipments from Home Office 90
Problem VII
1.
Branch Home Office
Account Account
Balances before adjustments P 59,365 P 57,525
Adjustments:
Additions:
Corrected branch income for January (P1,440 – P215)
1,225
Understatement of branch paid by home office for
December 310
Expenses of branch paid by home office _______ ____215
P 60,900 P 57,740
Deductions:
Collection by home office of branch receivable 65
Correction of branch income for January 215
Merchandise transferred to Brentwood branch but
incorrectly charged by Beverly Hills branch 1,400
Merchandise returns to home office in transit 840
Uncollectible accounts of branch __1,200 _______
Corrected Balances P 57,460 P 57,460
2. (a) Entries to bring branch books up to date:
Correction in Income of Prior Periods 215

Home Office 215
Home Office 215

Income Summary 215
Home Office 65
Accounts Receivable 65
(b) Entries to bring home office books up to date:

Beverly Hills Branch 1,225
Beverly Hills Branch Income 1,225
Beverly Hills Branch 310

Retained Earnings 310
Shipments to Beverly Hills Branch 1,400

Brentwood Branch 1,400

Shipments to Brentwood Branch 1,400
Merchandise Returns from Branch – In Transit – Beverly Hills

Branch 840
Beverly Hills Branch 840
Allowance for Doubtful Accounts – Beverly Hills Branch 1,200

Problem VIII
1.
Home Office
(b) Mdse. allowance by home (a) Charge for office furniture
office 350.00 by home office 780.00
(f) Truck repairs charged by home (d) Charge for labor by home
office 293.00 office 866.00
(e) Charge for freight by home
office 78.50
(h) Proceeds from sale of truck 475.00
643.00 2,199.50
Net credit Total 1,556.50 _______
1,229.50 2,199.50
Branch
(a) Purchase of office furniture for (b) Mdse. allowance for
branch 870.00 branch 300.00
(c) Branch charge for interest 325.00 (g) Proceeds from sale of 475.00
truck
(d) Branch charge for labor 433.00
(e) Branch charge for freight _785.00 ______
2,413.00 775.00
_______ Net Debit Total 1,638,000
2,413.00 _2,413.00
Balance in branch account per home office book, September 30, 20x2 P 131,690.00
Deduct net debit total per home office books for transactions that involve
discrepancies 1,638.00
P 130,052.00
Add net credit total per branch books for transaction that involve
discrepancies __1,556.50
Balance in home office account per branch books, September 30, 20x2 P 131,608.50
2.
Balance in home office account per branch books,
September 30, 20x2 P 131,608.50
Add: (a) Failure by branch to take up full furniture charges P 90.00
(b) Recognition by branch of excess merchandise
allowance 50.00
(c) Failure by branch to recognize charge by home
office for interest 325
(e) Failure by branch to recognize full freight
charges 706.50
(f) Truck repairs charge to home office account in
error 293.00 ___1,464.50
P 133,073.00
Deduct: (d) Recognition by branch of excess labor charges 433.00
(h) Credit entry to home office made in error on
sale of truck __475.00 ___908.00
Corrected interoffice balance, September 30, 20x2 P 132,265.00
3.
Balance in branch account per home office books,
September 30, 20x2 P 131,690.00
Add credit to branch account made in error for proceeds from sale of
truck _____475.00
Corrected interoffice balance, September 30, 20x2 P 132,265.00
4.
Office Furniture 90.00
Merchandise allowances 50.00
Home office interest charges payable 250.00
Interest expense 75.00
Freight In 706.50
Repairs on truck 293.00
Labor 433.00
Trucks 475.00
Home Office 556.50
Multiple Choice Problem

1. d
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest branch fund 2,000 1,500
Accounts receivable, January 1 55,000 43,500
Total Assets P 78,000 P 64,000
Less: Liabilities -0- -0-
Home Office Current Account P 78,000 P 64,000
2. b
Branch A Branch B
Assets:
Inventory, December 31 P 19,000 P 12,000
Imprest branch fund 2,000 1,500
Accounts receivable, December 31 70,000 53,500
Less: Liabilities -0- -0-
3. d – incidentally, the entry in the books of the branch would be as follows:

Profit and loss summary ………………………………………………………… xxx
Home Office Current……………………………………………………. Xxx
4. c
January 1,20x4 January 1, 20x5
Assets:
Inventory P 37,000 P 41,000
Petty cash fund 3,000 3,000
Accounts receivable 43,000 49,000
Less: Liabilities _____-0- _____-0-
5. a – refer to No. 4 for computations

6. a
Sales P 74,000
Less: Cost of goods sold:
SFHO…………………………………………………………… P67,680
Less: Inventory, ending……………………………………… 9,180 58,500
Gross profit…………………………………………………………… P 15,500
Less: Expenses – 6,820
Net Loss……………………………………………………………….. P 8,680
7. a
January 1, 20x6
Assets:
Cash P 4,200
Inventory 9,180
Accounts receivable 12,800
Total Assets P 26,180
Less: Liabilities _____-0-
Home Office Current Account P 26,180
8. a – nominal accounts have zero beginning balance.

9. d
Branch H. Office
Current Current
Unadjusted balance, 6/30/20x4 P 225,770
P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment 3150
2. Insurance premium recorded twice ( 675)
3. Erroneous recording of freight ( 90)
4. Discount on merchandise ( 800)
5. Failure by the branch to record share in advertising 700
6. error by the home office to record remittance of Cebu 3,000 ________
Adjusted balance, 6/30/20x4 P 228,770 P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.
10. c
(Branch Current- (Home Office Current –
Dr. balance) Cr. balance)
Unadjusted balance P518,575 P452,276
Add (deduct) adjustments:
In transit 10,500
Remittance ( 17,000)
Returns ( 775)
Cash in transit 25,000
Expenses - HO ( 800)
Expenses – branch 12,000
Error ________ _____224
Adjusted balance P 500,000 P 500,000
11. d
Excess freight ( 750)
Cash in transit ( 11,000)
Returns ( 4,000)
Expenses – branch ________ 5,000
12. c – refer to No. 11 for computations

14. d – refer to No. 11 for computations
15. d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.
16. a
Collection of branch receiv ( 9,000)
Shipments in transit 24,000
Purchase by branch of office
equipment ( 14,500)
Remittance ( 22,000) _________
17. b
Remittance (40,000)
Returns (15,000)
Error by the branch 300
Expenses – branch ________ 28,000
18. c
In transit 37,500
HO A/R collected by br. 10,500
Supplies returned ( 4,500)
Error in recording Br. NI ( 1,080)
Cash sent to branch
to General Expense by HO 25,000 25,000
19. d – refer to No. 18 for computation.
20. a
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
In transit 5,800
HO A/R collected by br. 500
Cash in transit 2,000 2,000
Error in recording Br. NI ( 3,600) _______
Adjusted balance P38,900 P38,900
22. a
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
Collection of branch A/R ( 800)
In transit 3,200
Purchase of furniture ( 1,200)
Return of excess merchandise ( 1,500)
Remittance ( 500) _______
Adjusted balance P46,400 P46,400
23. b – refer to No. 22 for computations

24. (C)
Sales (P350,000 + P100,000)………………………………………………………….P 450,000
Purchases (P400,000 + P50,000)……………………………. P 450,000
Less: Inventory, ending……………………………………… 90,000 360,000
Gross profit…………………………………………………………… P 90,000
Less: Expenses –
Salaries and commission…………………………………….. P 70,000
Rent……………………………………………………………… 20,000
Advertising supplies (P10,000 – P6,000)…………………… 4,000
Other expenses………………………………………………. 5,000 99,000
Net Loss……………………………………………………………….. P ( 9,000)
25. a
In adopting the imprest system for the agency working fund, the home office writes a check
to the agency for the amount of the fund. Establishment of the fund is recorded on the home
office books by a debit to the Agency working fund and credit cash. The agency will request
fund replenishment whenever the fund runs low and at the end of each fiscal period. Such a
request is normally accomplished by an itemized and authenticated statement of
disbursements and the paid vouchers. Upon sending the agency a check in replenishment of
the fund, the home office debits expense or other accounts for which disbursements from the
fund were reported and credits cash.
26. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.
Theories
1. decentralized 11. False 21. False 31. E 41. A
2. Home Office Current 12. False 22. True 32. B 42. C
3. Branch Income 13. False 23. True 33. c 43. B
4. Home Office 14. True 24. True 34. d 44. D
5. intracompany 15. True 25. False 35. A 45. D
6. True 16. False 26. C 36. C 46. C
7. True 17. True 27. A 37. A 47. B
8. False 18. False 28. A 38. B 48. B
9. False 19. True 29. D 39. B 49. C
10, True 20. True 30. A 40. B 50. C
51. C
52. D
Chapter 13
Problem I
1.
Branch Current 55,000 Shipm from Home Office 55,000
Shipments to Branch 50,000 Home Office Current 55,000
Unrealized Int Inv. Profit 5,000
Billed price P55,000 / 110%

Cost 50,000
Allowance for overvaluation of branch inventory/ _______
Unrealized Intercompany Inventory Profit/Deferred Profit P 5,000
2.
Sales......................................................................................................................................
P140,000
Cost of goods sold:
Merchandise inventory, September 1................................................ P 35,200
Purchases.............................................................................................. 24,000
Shipments from home office............................................................... 55,000
Merchandise available for sale.......................................................... P 114,200
Less: Merchandise Inventory, September 30..................................... 30,000
Cost of goods sold.......................................................................................................
84,200
Gross profit............................................................................................................................P
55,800
Operating expenses:
Selling expenses……………………………………..................................P 8,000
General expenses…………………......................................................... 12,000
Total operating expenses..........................................................................................
20,000
Unadjusted branch net income...................................................................................... P
15,800
3. Results of Branch Operations:
a. Branch Net Income/Loss from its own operations:
Branch Current………………........................................................................... 15,800
Branch Income Summary...................................................................
15,800
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/ Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,600
Branch Income Summary..................................................................
4,600
Unrealized Profit
Cost (Billing Price Minus
Billing Price (Billing/1.10) Cost)
Inventory, 9/1 *P 17,600 P 16,000 P 1,600
Shipments during December __55,000 __50,000 __ 5,000
Available for Sale (before adjustment) P 72,600 P 66,000 P 6,600
Less: Inventory, 9/30 (after adjustment) **22,000 __20,000 __2,000
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment) P 50,600 P 46,000 ***P 4,600
* P35,200 x 50% = P17,600
** P30,000 – P8,000
***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized Intercompany Inventory
Profit:
Therefore, the True/Real/Adjusted Branch Net Income or Branch Net Income in so far
as HO is concerned amounted to:
Unadjusted branch net income...............................................................................P15,800
Add: Allowance for Overvaluation of CGS…………………………………………….
4,600
Adjusted Branch Net
Income……………………………………………………………..P20,400
Problem II
Books of Home Office
Correcting entries:
A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ …………
35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made Correct/Should be Entry
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns...........................................................................................
750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made Correct/Should be Entry
Sales Returns……………… 750 Shipments to Branch………. 625
Branch Current……… 750 Unrealized Int. Inv Profit…… 125
Branch Current…………. 750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income Summary............................................................................... 2,600
Branch Current…................................................................................
2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/ Unrealized Intercompany Inventory Profit:
4,125
Unrealized Profit
Inventory, December 1 P 0 P 0 P 0
Shipments during December 42,000 35,000 7,000
Less: Returns _____750 ____625 ____125
Less: Inventory, Dec. 31 (after adjustment) 16,500 13,750 __2,750
(adjustment) P 24,750 P 20,625 *P 4,125
*or, P24,750 x 20/120 = P4,125;
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 – P125................... P6,875
Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750
Decrease in Allowance................................................................. P4,125
Branch Income Summary (P4,125 – P2,600)....................................................1,525
Income Summary....................................................................................
1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is
concerned, amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525
Problem III
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Unrealized Profit
Inventory, December 1 P 16,200 P 12,000 P 4,200
Shipments during December __20,250 _ 15,000 __ 5,250
Less: Inventory, Dec. 31 (after adjustment) __18,900 _14,000 __4,900
(adjustment) P 17,550 P 21,625 *P 4,550
* or, P17,550 x 35/135 = P4,550
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/

Unrealized Intercompany Inventory Profit (refer to “a” for computation):
4,550
c.
Shipments to Branch 400 Home Office Current 540
Unrealized Int Inv. Pr 140 Shipments to Branch 540
Branch Current 540
Cost of merchandise returned: P540/1.35, or P400.
Problem IV
1. The branch office inventory as of December 1 considered of:
Shipments from Home Office (see below)............................................................. P 12,000**
Purchases from outsiders (balance of inventory).................................................. 3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are
calculated as follows:
Unrealized Profit
Inventory, December 1 **P 12,000 *P 10,000 P 2,000
Shipments during December __9,600 _ 8,000 __ 1,600
Less: Inventory, Dec. 31 (after adjustment) __8,400 __7,000 __1,400
(adjustment) P 13,200 P 11,000 ***P 2,200
*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200
2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/

Unrealized Intercompany Inventory Profit (refer to “a” for computation):
Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income Summary.......................................................... 2,200
Problems V
(1) Individual Statements
SPENCER CO.
December 31,20x4
Assets
Liabilities____________________
Cash..................................................... P 2,650 Accounts
payable................................... P 4,200
Accounts receivable........................ 12,850 Accrued expenses...................................
105
Merchandise inventory..................... 14,600 Home office...............................................
29,239
Store supplies...................................... 300
Prepaid expenses............................... 120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation.............. 576 3,024
________
Total assets....................................... P 33,544 Total
liabilities............................................ P 33,544
SPENCER CO.
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P
20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P 14,400
Purchases.............................................................................................. 4,100
Shipments from home office............................................................... 10,200
Less: Merchandise Inventory, December 31..................................... 14,600
Cost of goods sold.......................................................................................................
14,100
Gross profit................................................................................................................................. P
5,900
Operating expenses:
Advertising expense............................................................................. P 2,800
Salaries and commissions expense..................................................... 2,350
Store supplies expense......................................................................... 280
Miscellaneous selling expense............................................................ 1,050
Rent expense........................................................................................ 1,500
Depreciation expense – furniture and fixtures.................................. 36
Miscellaneous general expense......................................................... 905
Total operating expenses..........................................................................................
8,921
Net loss...................................................................................................................................... P
3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Assets Liabilities and Stockholder’s
Equity_______
Cash..................................................... P10,350 Liabilities
Cash in transit..................................... 1,500 Accounts payable................ P 35,400
Accounts receivable........................ 26,200 Accrued expenses............... 260
P 35,660
Merchandise inventory..................... 24,200 Stockholders’ Equity
Store supplies...................................... 380 Capital Stock......................... P 65,000
Prepaid expenses............................... 350 Less deficit..............................
4,476 60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289 Total liabilities and
________
Total assets........................................ P 96,184 stockholder’s equity...............................
P 96,184
SPENCER CO.
Sales........................................................................................................................................... P
44,850
Cost of goods sold:
Merchandise inventory, December 1................................................ P 31,500
Purchases.............................................................................................. 27,600
Less: Shipments to branch................................................................... 8,500
Merchandise available for own sales................................................ P 50,600
Less: Merchandise Inventory, December 31..................................... 24,200
Cost of goods sold..........................................................................................
26,400
Gross profit................................................................................................................................. P
18,450
Operating expenses:
Advertising expense............................................................................. P 2,850
Salaries and commissions expense..................................................... 4,250
Store supplies expense......................................................................... 560
Miscellaneous selling expense............................................................ 1,850
Rent expense........................................................................................ 2,700
Depreciation expense – furniture and fixtures.................................. 85
Miscellaneous general expense......................................................... 2,510
Total operating expenses............................................................................. 14,805
Net income from own operations......................................................................................... P
3,645
Less: Branch net loss................................................................................................................
1,271
Total income............................................................................................................................ P
2,374
2. Refer to Word Document Worksheet

3, Combined Statements
SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4
Assets Liabilities and Stockholders’ Equity
Cash ………………………………. P 14,500 Liabilities

Accounts Receivable ………… 39,050 Accounts Payable ……….. P39,600
Merchandise Inv ………………. 36,850 Accrued Expenses ………. 365 P
39,965
Store Supplies ………………….. 680 Stockholders’ Equity
Prepaid Expenses …………….. 470 Capital Stock ……………… P65,000
Furniture & Fixtures ……… P12,100 Less deficit …………………. 4,476
60,524
Less accumulated
Depreciation …... 3,161 8,939
Total assets ……………………… P100,489 Total liabilities and SHEquity P100,489
SPENCER CO.
Sales ………………………………………………………………………………………………………… P64,850

Cost of goods sold:
Merchandise Inventory, December 1 …………………………………… P43,900
Purchases ……………………………………………………………………… 31,700
Merchandise available for sale …………………………………………… P75,600
Less merchandise inventory, December 31 ……………………………. 36,850
Cost of goods sold ………………………………………………………….. 38,750
Gross profit ……………………………………………………………………………… P26,100
Operating Expenses:
Advertising Expense ………………………………………………………… P 5,650
Salaries and Commissions expense ……………………………………… 6,600
Store supplies expense …………………………………………………….. 840
Miscellaneous selling expense …………………………………………… 2,900
Rent expense ………………………………………………………………… 4,200
Depreciation Expense – F&F ………………………………………………. 121
Miscellaneous general expense …………………………………………. 3,415
Total operating expense ………………………………………………………………………. 23,726
Net Income ………………………………………………………………………………………………… P 2,374
4. Adjusting and Closing Entries

(a) Branch Books
Dec 31 Income Summary …………………………………………….. 14,400
Merchandise Inventory …………………………….. 14,400
31 Merchandise Inventory ……………………………………… 14,600

Income Summary ……………………………………. 14,600
31 Store Supplies Expense ………………………………………. 280

Store Supplies ………………………………………… 280
Store supplies used: P580 – P300, or P280
Dec. 31 Prepaid Expenses ………………………………………………… 120

Miscellaneous General Expense ……………………. 120
31 Miscellaneous General Expense ……………………………… 105

Accrued Expenses …………………………………….. 105
31 Depreciation Expense – F&F ………………………………….. 36

Accumulated Depreciation ………………………… 36
Depreciation: 1% of P3,600
31 Miscellaneous General Expense …………………………….. 220

Home Office Current………………………………… 220
31 Sales ……………………………………………………………… 20,000

Income Summary ……………………………………. 20,000
31 Income Summary ……………………………………………… 22,221

Purchases ……………………………………………… 4,100
Shipments from Home Office ……………………… 10,200
Advertising Expense …………………………………. 2,800
Salaries and Commissions Expense ………………. 2,350
Store Supplies Expense ……………………………… 280
Miscellaneous Selling Expense …………………….. 1,050
Rent Expense …………………………………………. 1,500
Depreciation Expense – F&F ………………………. 36
Miscellaneous General Expense …………………. 905
31 Home Office Current………….………………………………. 3,021

Income Summary …………………………………….. 3,021
(b) Home Office Books
Dec 31 Income Summary ………………………………………………. 31,500

Merchandise Inventory ………………………………. 31,500
31 Merchandise Inventory ………………………………………... 24,200

Income Summary ……………………………………… 24,200
31 Store Supplies Expense …………………………………………. 560

Store Supplies …………………………………………… 560
Store supplies used: P940 – P380, or : 560
31 Prepaid Expense ………………………………………………… 350

Miscellaneous General Expense …………………… 350
31 Miscellaneous General Expense …………………………….. 260

Accrued Expenses ……………………………………. 260
31 Depreciation Expense ………………………………………….. 85

Accumulated Depreciation – F&F …………………. 85
Depreciation: 1% of P8,500, or P85
31 Cash in Transit …………………………………………………. 1,500
Branch Current………………………………………… 1,500
31 Sales …………………………………………………………… 44,850
Shipments to branch ………………………....................... 8,500
Income Summary …………………………………. 53,350
Dec 31 Income Summary ……………………………………………… 42,405
Purchases ……………………………………………… 27,600
Advertising Expense …………………………………. 2,850
Salaries and Commissions Expense ………………. 4,250
Store Supplies Expense ……………………………… 560
Miscellaneous Selling Expense …………………….. 1,850
Rent Expense …………………………………………. 2,700
Depreciation Expense – F&F ………………………. 85
Miscellaneous General Expense …………………. 2,510
31 Branch Income Summary…………………………………….. 3,021

Branch Current…………………………………………
3,021
31 Unrealized Intercompany Inventory Profit ………………. 1,750

Branch Income Summary………………………… 1,750
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 ……………………….. P3,700
Inventory merchandise received from
Home office at billed price on
December 31, P11,700
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 – P9,750 .... 1,950
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold …………………………………….. P1,750
31 Income Summary …………………………………………… 1,271

Branch Income Summary……………………. 1,271
31 Income Summary …………………………………………… 2,374

Retained Earnings …………………………………. 2,374
Problem VI
1.
Branch H. Office
Current Current
P 9,000
1 Cash in transit ( 10,000)
2. Merchandise in transit 10,000
3. Branch expenses paid by home office 12,000
4. Cash in transit from home office _______ 3,000
Adjusted balance, 12/31/20x4 P 34,000 P34,000
2. Refer to PDF Copy of the Worsheet
3. Combined Income Statement

Sales [(P350,000 – P105,000) + P150,000)……….......................................................
P395,000
Less: Cost of goods sold [(P220,000 – P84,000) +
(P93,000 + P3,600 – P21,000 – P1,200)]…………………………………….
210,400
Gross profit................................................................................................................... P184,600
Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000
Net income................................................................................................................... P 61,600
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch
Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5.................. 58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500
PAXTON CO.
Income Statement for Cincinnati Home Office
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5.................. 142,500
582,500
Gross profit.................................................................................................................. P477,500
Expenses...................................................................................................................... 382,000
Net income from own operations............................................................................ P 95,500
Add branch net income........................................................................................... 16,650
Total income............................................................................................................... P112,150
(2)
PAXTON CO.
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
779,350
Gross profit.................................................................................................................... P595,650
Operating expenses.................................................................................................... 483,500
Net income................................................................................................................... P112,150
(3) Merchandise Inventory, December 31................................................................ 58,500

Sales.......................................................................................................................... 315,000
Income Summary............................................................................................
373,500
Income Summary......................................................................................................... 398,000

Merchandise Inventory, January 1................................................................
44,500
Shipments from Home Office.........................................................................
252,000
Operating expenses........................................................................................
101,500
Home Office............................................................................................................... 24,500
Income Summary..........................................................................................
24,500
(4) Branch Income Summary........................................................................................ 24,500

Branch Current.....................................................................................................
24,500
Unrealized Intercompany Inventory Profit............................................................... 41,150

Branch Income Summary....................................................................................
41,150
Branch inventory, January 1, acquired from home office
at billed price...................................................................................... P 44,500
Less: Cost of inventory (P44,500/1.25)......................................................... 35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000.................................................... 42,000
P 50,900
Deduct balance to remain in unrealized profit account:

Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................ 48,750 9,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold.................................................................. 41,150
Branch Income Summary........................................................................................... 16,650

Income Summary............................................................................................
16,650
Merchandise Inventory, December 31...................................................................... 142,500

Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 210,000
Income Summary.............................................................................................
1,412,500
Income Summary......................................................................................................... 1,317,000

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

Retained Earnings............................................................................................
112,150
Problem VIII
(1)
RUGGLES CO.
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders................................................. 20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold............................................................................. 60,500
Gross profit.................................................................................................................... P 18,000
Net income................................................................................................................... P 5,500
RUGGLES CO.
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Merchandise available for own sales....................................... P 260,000
Gross profit................................................................................................................... P 51,000
Operating Expenses.................................................................................................... 60,000
Net loss from own operations..................................................................................... P ( 9,000)
Add: Adjusted branch net income............................................................................. 13,500
Combine net income.................................................................................................... P 4,500
(2)
RUGGLES CO.
Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4................... 80,000
Gross profit.................................................................................................................... P 77,000
Net income................................................................................................................... P 4,500
(3) Merchandise Inventory......................................................................................... 31,500

Sales.......................................................................................................................... 78,500
Income Summary............................................................................................
110,000
Income Summary......................................................................................................... 104,500

Merchandise Inventory...................................................................................
32,000
Shipments from Home Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses...........................................................................................................
12,500
Income Summary......................................................................................................... 5,500

Home Office.....................................................................................................
5,500
(4) Branch...................................................................................................................... 5,500

Branch Income................................................................................................
5,500
Unrealized Intercompany Inventory Profit............................................................... 8,000

Branch Income.............................................................................................. 8,000

Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P 24,500
Less: Cost of inventory (P24,500/1.225).................................................... 20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P40,000, cost of goods, P30,000.................................................... 10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500 6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold........................... 8,000
Branch Income............................................................................................................. 13,500
Income Summary............................................................................................
13,500
Merchandise Inventory................................................................................................ 55,000

Sales............................................................................................................................... 256,000
Shipments to Branch.................................................................................................... 30,000
Income Summary.............................................................................................
341,000
Income Summary......................................................................................................... 350,000

Merchandise Inventory...................................................................................
80,000
Purchases.........................................................................................................
210,000
Expenses...........................................................................................................
60,000
Income Summary.......................................................................................................... 4,500

Retained Earnings............................................................................................
4,500
Problem IX
1.
Branch H. Office
Current Current
P 51,500
1 Remittance I 1,700)
2. Cash in transit 1,800
3. Shipments in transit 5,800
Adjusted balance, 12/31/20x4 P 57,300 P 57,300
2. Income Statement - Branch

Sales................................................................................................................................ P
140,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4 (P11,550 – P1,000)....... P 10,550
Shipments from home office (P105,000 + P5,000 – P10,000)........ 100,000
Freight-in (P5,500 + P250)…………………………………………….. 5,750
Merchandise available for sale.....................................................P116,300
Less: Merchandise Inventory, December 31, 20x4...................... 14,770
Cost of goods sold.............................................................................
101,530
Gross profit.................................................................................................................... P
38,470
Operating expenses....................................................................................................
24,300
Net income................................................................................................................... P
14,170
Income Statement – Home Office
Sales.............................................................................................................................. P
155,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Merchandise available for sale................................................. P 213,000
Merchandise available for own sales....................................... P 113,000
Cost of goods sold........................................................................
83,000
Gross profit................................................................................................................... P
72,000
Operating Expenses....................................................................................................
42,000
Net loss from own operations..................................................................................... P
30,000
Add branch net income............................................................................................ 14,170
Combined net income.............................................................................................. P
44,170
3.
Sales.............................................................................................................................. P
295,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Freight-in……………………………………………………………… 5,750
Merchandise available for sale.................................................. P 229,300
Less: Merchandise Inventory, December 31, 20x4................... 44,770
Cost of goods sold........................................................................ 184,530
Gross profit.................................................................................................................... P
110,470
Net income................................................................................................................... P
44,170
Problem X
a. The cost of the merchandise destroyed was P30,000.
Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1...................................................................................... P26,400
Shipments from home office, Jan. 1-17....................................................... 20,000
P46,400
Cost of goods sold, January 1-17, at billed price:

Net sales, P13,000/1.25...................................................................................... 10,400
Merchandise on hand, January 17, at billed price....................................... P36,000
Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000
b. Branch Books:
Loss from Fire (or Home Office)............................................................ 36,000
Merchandise Inventory............................................................ 36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of the fiscal period,
when the branch earnings (including the loss from fire) are recognized and when the balance of
the account Unrealized Intercompany Inventory Profit is adjusted to conform to the branch
ending inventory. If it is desired to recognize the loss from fire on the home office books
immediately, the following entry may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch......................................................................................... 36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash......................................................................................... 1,500
b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................ 1,500
c. Books of Home Office:

Branch B............................................................................................... 1,500
Branch A.................................................................................. 1,500
Problem XII
a. Books of Branch No. 1 :
Home Office ……………………………………………………………. 1,950
Shipments from Home Office…………………………………….. 1,600
Freight In……………………………………………………………… 350
b. Books of branch No. 5:

Shipments from Home Office………………………………………… 1,600
Freight In…………………………………………………………………… 400
Home Office…………………………………………………………. 1,750
Cash…………………………………………………………………… 250
c. Books of the Home Office

Branch No. 5…………………………………………………………….. 1,750
Excess Freight on Inter branch Transfer of Merchandise……….. 200
Branch No. 1………………………………………………………… 1,950
Shipments to Branch No. 1…………………………………………….. 1,600

Shipments to Branch No. 5………………………………………… 1,600
Multiple Choice Problems
1. c - P50,400, billed price x 40/140 = P 14,400
2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140 P 31,000
From Outsiders 6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income P 5,000
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office. P 280,000
Less: Ending inventory, at billed
price (P50,000 – P6,600) 43,400
Cost of goods sold from home
office at billed price P 236,600
Multiplied by: Mark-up 40/140 67,600
Unrecorded branch expenses ( 2,500)
True Branch Net Income P 70,100
4. a – P30,000 x (90,000 – 60,000)/90,000
5. a
6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost
7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000
8. c – P700,000, since the problem stated that the “home office adjusted the intracompany Profit
Deferred account” and the amount of P700,000 is the amount of net income in the adjusted
financial statements of the home office, and therefore it is understood to be combined net
income.
9. b
Reported (unadjusted) branch net income (per branch books) ………………..P 30,000
Branch Income in so far as home office is concerned per home office books. 50,000
Overvaluation of branch cost of goods sold…………………………………………P 20,000
Cost of sales of Home Office…………………………………………………………….P500,000

Cost of sales of Branch…………………………………………………………………… 100,000
Overvaluation of branch cost of sales…………………………………………………( 20,000)
Combined cost of sales…………………………………………………………………...P580,000
10. c – the amount of net income as reported by Home office is considered the combined net
income.
11. a
True Branch Net Income P156,000
Less: branch Net Income as reported by the branch 60,000
Overvaluation of CGS P 96,000
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 70,000
Shipment from HO 350,000
COGAS P 420,000
Less: Inventory, December 31 84,000 336,000
CGS from home office, at cost P 240,000
Billing Price: P336,000 / P240,000 = 140%.
12. b – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x
40/140 = P24,000.
13. b
Net Income as reported by the Branch P 20,000
Less: Rental expense charged by the home office
(P1,000 x 6 months) 6,000
Adjusted NI as reported by the Branch P 14,000
Add: Overvaluation of CGS
Billed Price
MI, beginning 0
SFHO 550,000
COGAS 550,000
Less: MI, ending 75,000
CGS, at BP 475,000
X: Mark-up ratio 25/125 95,000
True/Adjusted/Real Branch Net Income P109,000
14. d
Sales (P537,500 + P300,000)……………………………………………….………. P 837,500
Less: Cost of goods sold
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases…………………………………………………. 500,000
Cost of Goods Available for Sale…………………………... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000 467,500
Gross profit………………………………………………………………. P 370,000
Less: Expenses (P120,000 + P50,000..………………………………. 170,000
Net Income……………………………………………………………… P 200,000
15. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment……………….P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120…………………………………………………………. 2,800
Overvaluation of Cost of Goods Sold……………………………………. ….P 4,400
Adjusted branch net income:

Sales………………………………………………………………………………………P60,000
Inventory, January 1, 2003……………………………….P 30,000
Add: Purchases…………………………………………..... 11,000
Shipments from home office…………………….. 19,200
Cost of Goods available for sale……………………… P 60,200
Less: Inventory, December 31, 2003…………………. 20,000 40,200
Gross profit…………………………………………………………………………….. P19,200
Less: Expenses………………………………………………………………………….. 12,000
Unadjusted branch net income…………………………………………………...P 7,800
Add: Overvaluation of Cost of Goods Sold……………………………………. 4,400
Adjusted branch net income……………………………………………………...P 12,000
16. d
Billed Price Cost Allowance
Merchandise Inventory, 12/31/2005 *P 36,000 P 30,000 P 6,000
Shipments 28,800 24,000 4,800
Cost of goods sold P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.
From outsiders: P45,000 – P36,000 = P9,000
17. d
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Sold P 3,600
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Merchandise inventory, December 1, 20x4…………………………………P 15,000

Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
18. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost……………………………………………… P 3,500
Branch: Outsiders, ……………………………...........................P 300
From Home Office (P2,500 – P300)/110%................. 2,000 2,300 P 5,800
Add Purchases (P240,000 + P11,000)…………………………….. 251,000
COGAS………………………………………………………………… P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost………………………………………………. P 3,000
Branch: Outsiders………………………………………………. P 150
From Home Office (P1,800 – P150)/110%................ 1,500 1,650 4,650
Cost of Goods Sold………………………………………………… P252,150
19. d
100% 60% 40%
Merchandise inventory, 1/1/x4 32,000
Shipments *60,000 36,000 *24,000
Cost of goods available for sale 56,000
Less: MI, 3/31/x4 (25,000 x 40%) 10,000
Overvaluation of CGS** 46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
20. d
Billed Cost Allowance
Price
Shipments (400,000 x 25%) 400,000 *100,,000
Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000
Overvaluation of CGS/RPBSales 120,000
21. b
(1) Sales P 40,000
Inventory, 1/1/2003 (P4,950 / 110%) P 4,500
Add: Shipments (P22,000 / 110%) 20,000
COGAS P 24,500
Less: Inventory, 12/31/2003 (P6,050 / 110%) 5,500 19,000
Gross profit P 21,000
Less: Expenses _ 13,100
Net income from own operations P 7,900
(2) Combined Cost of Goods Sold:

Merchandise Inventory, 1/1/2003:
of Home Office, cost……………………………………………..P 17,000
of Branch, cost: P4,950 / 110%…………………………………. 4,500 P 21,500
Add Purchases…………………………………………………………. 50,000
COGAS………………………………………………………………….. P 71,500
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost……………………………………………… P 14,000
of Branch, cost: P6,050 /100%………………………………….. 5,500 19,500
Cost of Goods Sold……………………………………………………. P 52,000
22. a - P48,000 / 120% = P40,000
23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the
ending inventory, so, the allowance related to the CGS, which is P10,00 in this case is
considered to be the adjustments in the books of Home Office to determine the adjusted
branch net income)
120% 100% 20%
Merchandise inventory, 1/1/x4 0
Shipments 108,000
Less: MI, 12/31/x4 (P60,000 x 80%) 48,000
Overvaluation of CGS (60,000 x 20/120) 60,000 10,000*
24. b
Sales (P148,000 + P44,000) P192,000
Less: Cost of Sales
Inventory, 1/1/20x4 P 0
Purchases 52,000
Shipments from home office 108,000
Cost of goods available for sale P 160,000
Less: Inventory, 12/31/20x4 60,000 100,000
Gross profit P 92,000
Less: Expenses (P76,000 + P24,000) 100,000
Net income, unadjusted P( 8,000)
Add: Overvaluation of CGS 10,000
Adjusted branch net income P 2,000
25. c
125% 100% 25%
Shipments 250,000
Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*
26. b – P326,000
Sales (P600,000 + P300,000) ………………………………………………….. P 900,000
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ………………………. … P 132,000
Add: Purchases…………………………………… 350,000
Cost of goods available for sale………………… P 482,000
Less: MI, ending
[P30,000 + (P60,000/1.25)] ………………………… 78,000 404,000
Gross profit……………………………………………………… P 496,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………. P 326,000
27. b
Sales (P537,500 + P300,000) ………………………………………………… P 837,500
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]…………………………….. P 87,500
Add: Purchases ……………………………………. 500,000
Cost of goods available for sale………………… P587,500
Less: MI, ending
[P70,000 + (P60,000/1.20)] …………………………. 120,000 467,500
Gross profit…………………………………………………….. P 370,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………… P 200,000
28. c
Sales (P120,000 + P60,000)……………………………………… P 180,000
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)]……………………………… P 66,000
Add: Purchases (P70,000 + P11,000)………………… 81,000
Cost of Goods Available for Sale……………………P 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200 89,800
Gross profit……………………………………………………… P 90,200
Less: Expenses (P28,000 + P12,000)………………………… 40,000
Net Income……………………………………………………. P 50,200
29. d
Sales (P100,000 – P33,000 + P50,000)…………………………………… P 117,000
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)] P20,000
Add: Purchases (P50,000 + P7,000)……………………………… 57,000
COGAS……………………………………………………………….. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%]……………………………………… 16,550 60,450
Gross profit…………………………………………………………………… P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)……………………………… 31,000
Combined Net income……………………………………………………. P 25,550
30. c
Sales ……………………………………………………………………... P155,000
Less: Cost of Sales
Inventory, 1/1/10…………………………………………….. P 23,000
Purchases …………………………………………………….. 190,000
Cost of goods available for sale ……………………….. P213,000
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)………………………………………… 100,000
Cost of goods available for HO
Sale………………………………………………….. P113,000
Less: Inventory, 12/31/10 ………………………………..... 30,000 83,000
Gross profit ………………………………………………………………... P 72,000

Less: Expenses ……………………………………………………………. 52,000
Net income – home office ……………………………………………. P 20,000
31. a
Sales …………………………………………………………………….... P140,000
Less: Cost of Sales
Inventory, 1/1/x4……………………………………………… P 11,550
Purchases ……………………………………………………. 105,000
Freight-in ……………………………………………………… 5,500
Shipment in transit (P5,000+P250) ………………………. 5,250
Cost of goods available for sale …………………………. P127,300
Less: Inventory, 12/31/x4
(P10,400 + P520 + P5,250) ………………………………………. 16,170 111,130
Gross profit. ……………………………………………………………. P 28,870
Less: Expenses ………………………………………………………… 28,000
Net income per branch books/unadjusted ……………………… P 870
Add: Overvaluation of CGS* ……………………………………….. 9,600
Net Income of Davao Branch, adjusted …………………………. P 10,470
BP Cost Allowance
MI. 1/1/20x4 1,000
Shipments 110,000 100,000 **10,000
Available for sale 11,000
-: MI, 12/31/x4 ***15,400 ****1,400
CGS 9,600
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
32. a
Inventory, 1/1 at billed price…………………………………….. P165,000
Add: Shipments at billed price………………………………….. 110,000
Cost of goods available for sale at billed price ……………… P275,000
Less: CGS at BP:
Sales……………………………………………………………… P169,000
Less: Sales returns and allowances ………………….. 3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)…………………………… 9,000
Net Sales of merchandise acquired from
home office ……………………………………….. P156,250
x: Intercompany cost ratio ………………………………... 100/125 125,000
Inventory, 8/1/2008 at billed price……………………………… P150,000
x: Cost ratio …………………………………………………………….. 100/125
Merchandise inventory at cost destroyed by fire ………………… P120,000
33. d
Freight actually paid by:
Home Office……………………………………………………………………P 500
Branch P………………………………………………………………………… 700
Total………………………………………………………………………………P 1,200
Less: Freight that should be recorded…………………………………………….. 800
Excess freight……………………………………………………………………………P 400
34. d – in arriving at the cost of merchandise inventory at the end of the period, freight charges
are properly recognized as a part of the cost. But a branch should not be charged with
excessive freight charges when, because of indirect routing, excessive costs are incurred.
Under such circumstances, the branch acquiring the goods should be charged for no more
than the normal freight from the usual shipping point. The office directing the inter-branch
transfers are responsible for the excessive cost should absorb the excess as an expense
because it represents management mistakes (or inefficiencies.)
35. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................ 60%
Ending inventory at billed price……………………………………...……P 22,620
Add: Freight (P1,300 x 60%)………………………………………………...... 780
P 23,400
Or, P39,000 x 60% = P23,400
36. b
Inventory in the published balance sheet, at cost
Shipments at cost…………………………………..........................................P 32,500
X: Ending inventory %.................................................................................... 60%
Ending inventory at billed price……………………………………………….P19,500
Add: Freight (P1,300 x 60%)………………………………………….......…….. 780
P 20,280
37. c
Home Office Books Davao Branch Baguio Branch
Davao Branch…39,000 SFHO…………….37,700
STB, cost……. 32,500 Freight-in………. 1,300
Unrealized profit 5,200 HOC………….. 39,000
Cash (freight)…. 1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO………18,850
Excess freight… 520 SFHO(50%)… 18,850 Freight-in.. 780
BC-Davao……. 20,150 Freight-in (50%) 650 HOC……... 19,630
Cash…………...... 650
38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,500

39. d
40. d
41. b – refer to No. 21
43. c – refer to No. 21
44. c
45. d
Theories
1. True 6. False 11. False 16. True 21. D
2. False 7. False 12. True 17. True 22. A
3. True 8. False 13. False 18. True 23. d
4. True 9. True 14. True 19. False 24. d
5. False 10. True 15. False 20. d 25. a
26. c
Chapter 14
Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900
Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 15,880,000
Positive excess: Goodwill 6,120,000
Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100
Costs to Issue and Register Stocks

APIC 500
Cash 500
2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900
Gain on acquisition 3,880
Cash 18,000,000
Less: MV of Assets and Liabilities
Acquired:
Cash 90,000
Receivables 190,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Noncompetition agreement 10,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 25,880,000
Negative excess: Gain on Acquisition ( 3,880,000)
Acquisition/merger expenses 1,100
Cash 1,100

APIC/Share Issue Costs 500
Cash 500
3.
Post-Combination Balance Sheet: (requirement 1)
Cash P 5,490,000 Current liabilities P 900,000
Receivables 2,190,000 Long-term liabilities 117,000,000
Plant and equipment 139,500,000
Trademarks 9,000,000 Common stock 2,100,000
Brand names 5,000,000 Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 23,900,000
Goodwill __6,120,,000 Treasury stock ( 1,000,000)
Total P201,300,000 Total P 201,300,000
*25,000,000 – 1,100,000, merger expenses = 23,900,000.
Post-Combination Balance Sheet: (requirement 2)

Cash P 5,490,000 Current liabilities P 900,000
Receivables 2,190,000 Long-term liabilities 117,000,000
Trademarks 9,000,000 Common stock 2,100,000
Brand names 5,000,000 Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 27,780,000
Noncompetition agreement _10,000,,000 Treasury stock __( 1,000,000)
Total P205,180,000 Total P 205,180,000
*25,000,000 – 1,100,000 + 3,880,000 = 27,780,000
Problem II
1. (in millions)
Cash and receivables 200
Inventories 400
Property, plant & equipment 5,500
Customer contracts 25
In-process R&D 300
Goodwill 2,035
Long-term debt 7,300
Warranty liability 10
Estimated liability for Contigent Cons. 50
Capital stock 700
Note: Read the topic “Items included in Goodwill” in Chapter 14 about “Skilled
(assembled) workforce” (they are not identifiable at the date of acquisition) and “Potential
Contracts” (they are not qualified as assets at the acquisition date).
Shares 700,000,000
Estimated liability for Contigent Cons. _50,000,000
Acquired:
Cash and receivables 200,000,000
Property, plant & equipment 5,500,000,000
Customer contracts 25,000,000
In-process R&D 300,000,000
Current liabilities ( 400,000,000)
Long-term debt (7,300,000,000)
Warranty liability ( 10,000,000) (1,285,000,000)
Positive excess: Goodwill 2,035,000,000
Acquisition/merger expenses 150
Cash 150

Share Issue Costs 100
Cash 100
2. (in millions)
Goodwill 1,500
Property, plant & equipment 1,500
Problem III
1.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 22,500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Additional paid-in capital 36,000,000
Cash 1,100,000
Shares (400,000 x P100) 40,000,000
Acquired:
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill 22,500,000

Share Issue 1,100
Costs/APIC
Cash 1,100
2.
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Gain on acquisition 7,500,000
Shares (100,000 x P100) 10,000,000
Acquired:
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Negative excess: Gain on acquisition ( 7,500,000)

Share Issue 800
Costs/APIC
Cash 800
3.
Investments 500,000
Land 6,000,000
Buildings 16,000,00
0
Equipment 2,000,000
Goodwill 500,000
0
Estimated liability for Contigent 8,000,000
Cons.
Shares (100,000 x P100) 10,000,000
Estimated liability for Contigent Cons. _8,000,000
Acquired:
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Positive excess: Goodwill 500,000

Share Issue Costs/APIC 800
Cash 800
4.
(a)
Estimated liability for
Contigent 3,000,000
Cons.
Goodwill 500,000
(b)
Contigent 3,000,000
Cons.
Gain on reduction in
liability 3,000,000
Problem IV
1. January 1, 20x4
Accounts Receivable (net) 65,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Accounts Payable 83,000
Note Payable 180,000
Cash 720,000
Estimated Liability for Contingent Consideration 135,000
Consideration transferred (P720,000 + P135,000) P855,000

Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill P 54,000
2. January 2, 20x6
Cash 135,000
3. January 2, 20x6
Gain on Contingent Consideration 135,000
Problem V
Current Assets 362,000

Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000) 2,013,000
Goodwill * 395,000
Liabilities 119,000
Long-term Debt 491,000
Common Stock (144,000 P5) 720,000
PIC - par (144,000 x P15 - P5)) 1,440,000
* (144,000 P15) – [P362,000 + P2,013,000 – (P119,000 + P491,000)] = P395,000
Total shares issued (P700,000 / P5) + P20,000 / P5) 144,000

Fair value of stock issued (144,000P15) = P2,160,000
Problem VI
Case A
Consideration transferred P130,000
Less: Fair Value of Net Assets 120,000
Goodwill P 10,000
Case B
Goodwill P 20,000
Case C
Gain (P 5,000)
Assets Liabilities Retained

Goodwill Current Assets Long-Lived Assets Earnings
(Gain)
Case A P10,000 P20,000 P130,000 P30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 5,000
Problem VII
Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 = P187,080
Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 = 344,098
Total Present value P531,178
Par value 600,000
Discount on bonds payable P 68,822
Cash 114,000
Accounts Receivable 135,000
Inventory 310,000
Land 315,000
Buildings 54,900
Equipment 39,450
Bond Discount (P40,000 + P68,822) 108,822
Current Liabilities 95,300
Bonds Payable (P300,000 + P600,000) 900,000
Gain on Acquisition of Stalton (ordinary) 81,872
Computation of Excess of Net Assets Received Over Cost

Consideration transferred (P531,178 plus liabilities assumed of P95,300
andP260,000) P886,478
Less: Total fair value of assets received _968,350
Excess of fair value of net assets over cost (P 81,872)
Problem VIII
Acquisition Method—Entry to record acquisition of Sampras
Estimated Liability for contingent Consideration 15,000
Consideration transferred (fair value) 315,000
Fair value of net identifiable assets 282,000
Goodwill P33,000
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
IPRD 30,000
Goodwill 33,000
Current liabilities 10,000
Estimated liability for contingent consideration 15,000
Cash 300,000
Acquisition related-expenses 10,000

Cash 10,000
Problem IX
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Total P 966,000
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash P 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess – Goodwill P
102,000
b. The journal entries by Peter Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 102,000
Accounts payable 62,000
Other liabilities 168,000
Estimated Liability for Contingent 36,000
Consideration
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
Acquisition-related expenses 78,000

Cash 78,000
Acquisition related costs – direct costs.
Paid-in capital in excess of par 32,400

Cash 32,400
Acquisition related costs – costs to issue and
register stocks.
Acquisition-related expenses 27,600

Cash 27,600
Acquisition related costs – indirect costs.
c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets
Cash P 162,000
Inventories 360,000
Land 348,000
Goodwill 102,000
Total Assets P2,748,000
Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 288,000
Total Liabilities P 912,000
Common stock, P10 par P 1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2 158,400
Total Stockholders’ Equity P1,836,000
Total Liabilities and Stockholders’ Equity P2,748,000
1
P240,000 + P446,400 – P32,400
2
P264,000 - P78,000 – P27,600
It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.
2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively
adjusted in value during the measurement period for new information that clarifies the
acquisition-date value. The adjustments affect goodwill since the measurement period is
still within one year (i.e., eight months) from the acquisition date. Therefore, the goodwill
to be reported then on the acquisition should be P78,000 (P102,000 – P24,000).
b.
Buildings 24,000
Goodwill 24,000
Adjustment to goodwill due to measurement date.
3.
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 +
P24,000).
b. The adjustment is still within the measurement period, the entry to adjust the liability would
be:
Goodwill 24,000
Adjustment to goodwill due to measurement date.
c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once
(last August 31, 20x5).
c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to
P48,000, the entry to adjust the liability would be:

Gain on estimated contingent consideration 12,000
Adjustment after measurement date.
In this case, the measurement period ends at the earlier of:

 one year from the acquisition date, or
 the date when the acquirer receives needed information about facts and
circumstances (or learns that the information is unobtainable) to consummate the
acquisition.
c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done
only once (last August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:
Loss on estimated liability contingent 30,000
consideration
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s average income in 20x5 is P270,000 and 20x6 is P260,000,
which means that the target is met, Peter Corporation will make the
following entry:
Loss on estimated contingent consideration 42,000
Cash 120,000
Settlement of contingent consideration.
4.
a.The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 106,386
Consideration
[(P25 – P10) x 30,000 shares] 450,000
c.
c.1. Goodwill remains at P106,385.
c.2. Theentry for Pure Corporation on December 31, 20x5 to record such occurrence would
be:
Gain on estimated contingent consideration 40,385
Since the contingent event does not happen, the position taken by PFRS 3 is that the
conditions that prevent the target from being met occurred in a subsequent period and
that Peter had the information to measure the liability at the acquisition date based on
circumstances that existed at that time. Thus the adjustment will flow through income
statement in the subsequent period.
d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent
consideration would be:
Loss on estimated contingent consideration 66,000
Cash [(P78,000 + P84,000)/2 – P30,000] x 2 102,000
5.
a. The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 30% probability 36,000
Contingent consideration (stock contingency) 18,000
Total P 984,000
Positive Excess – Goodwill P 120,000
b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 120,000
Consideration
Paid-in capital for Contingent Consideration
18,000
Additional paid-in capital [(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
c. PureCorporation will make the following entry for the issuance of 1,200 additional shares:
Paid-in capital for Contingent Consideration 18,000
6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event
occurs). Thus, the entry record the occurrence of such event to reassign the P750,000 original
consideration to 36,000 shares (30,000 original shares issued + 6,000 additional shares due to
contingency) would be:
7. On January 1, 20x7, the contingent event happens since the fair value per share fall below
P25. Thus, the entry record the occurrence of such event to reassign the P750,000 original
consideration to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to
contingency) would be:
* Deficiency: (P25 – P20) x 25,000 shares issued to acquire...P150,000
Divide by fair value per share on January 1, 20x7………….P 20
Added number of shares to issue………………………………. 7,500
8. The amount of goodwill on acquisition will be recomputed as follows:
Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
Positive Excess – Goodwill P 158,308
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 158,308
Paid-in capital in excess of par[(P25 – P10) x 30,000 shares] 450,000
On December 31, 20x5, the contingent event occurs, wherein Peter’s stock price had fallen to
P20, thus requiring Peter to issue additional shares of stock to the former owners of Saul
Corporation. The entry for Peter Corporation on December 31, 20x5 to record such
occurrence such event to reassign the P750,000 original consideration to 37,500 shares
(30,000 original shares issued + 7,500* additional shares due to contingency) would be:

Common stock, P10 par 75,000
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P 20
Added number of shares to issue……………………………… 7,500
Problem X
1.
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700
Homer Ltd
Inventory 39,000
Freehold Land 130,000
Buildings 40,000
Plant and Equipment 46,000
Payable to Tan Ltd 132,000
Common stock, P1 par x 40,000 shares 40,000
Additional paid-in capital 88,000
Gain on acquisition 29,700
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd 132,000

Cash 132,000
(Being payment of cash consideration)

Cash 1,200
(Being costs of issuing shares)
2.
Tan LTD
General Ledger
Liquidation
P P
Accounts Receivable 34,700 Additional paid in capital 26,800
Inventory 27,600 Retained earnings 32,000
Freehold Land 100,000 Receivable from Homer Ltd 260,000
Buildings 30,000
Goodwill 2,000
Interest Payable 4,000
Liquidation Expenses 2,400
Premium on Debentures 2,500
Shareholders’ Distribution 68,000
318,800 318,800
Liquidator’s Cash
P P
Opening Balance 12,000 Liquidation Expenses 2,400
Receivable from Homer Ltd 132,000 Mortgage and Interest 44,000
Debentures and Premium 52,500
144,000 144,000
Shareholders’ Distribution
P P
Shares in Homer Ltd 128,000 Common stock 60,000
Liquidation 68,0000
128,000 128,000
Problem XI
Cash 20,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Allowance for Uncollectible Accounts 10,000
Bonds Payable 200,000
Deferred Income Tax Liability 67,200
Cash 600,000

Less: Fair value of net assets acquired
(P784,000 – P10,000 – P54,000 – P180,000 - P67,200*) 472,800
Goodwill P127,200
* Increase in net assets

Increase inventory, land, and plantassets to fair value
P52,000 + P25,000 + P71,000) P148,000
Decrease bonds payable to fair value(20,000)
Increase in net assets P168,000
Establish deferred income tax liability(P168,000 x 40%)P67,200
1. c
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to effect
a business combination. Those costs include finder’s fee; advisory, legal, accounting,
valuation and other professional or consulting fees; general administrative costs,
including the costs of maintaining an internal acquisitions department; and costs of
registering and issuing debt and equity securities. Under PFRS 3 (2008), the acquirer is
required to recognize acquisition-related costs as expenses in the periods in which the
costs are incurred and the services are received, with one exception, i.e. the costs to
issue debt or equity securities are recognized in accordance with PAS 32 (for equity) and
PAS 39 (for debt).
2. P2,240,000, No answer available

Consideration transferred : FMV of shares issued by Robin (80,000 sh ×P28) = P2,240,000
3. P520,000, no answer available

Considerationtrasnferred P2,240,000
Less: Fair value of Hope’s net assets (P2,720,000+P200,000–P1,200,000) 1,720,000
Goodwill P 520,000
4. c
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
CurrentLiabilities 70,000
Long-termDebt 160,000
Cash 520,000
Gain on Acquisition 50,000
Considerationtrasnsferred : Cash P500,000

Less : Fair value of West’s net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
– P70,000 - P160,000) 550,000
BargainPurchase Gain (P50,000)
5.d
Accounts Receivable (net of P33,000 allowance) 198,000
Inventory 330,000
Land 550,000
Buildings and Equipment 1,144,000
Goodwill 848,000
Current Liabilities 275,000
Bonds Payable 450,000
Premium on Bonds Payable (P495,000 - P450,000) 45,000
Preferred Stock (15,000 x P100) 1,500,000
Common Stock (30,000 x P10) 300,000
PIC - par (P25 - P10) x 30,000 450,000
Cash 50,000
Consideration transferred: (P1,500,000 + P750,000 + P50,000) P2,300,000

Less: Fair value of net assets (198,000 + 330,000 + 550,000 +
1,144,000 – 275,000 – 495,000) = 1,452,000
Goodwill P 848,000
6.d
Current Assets 960,000
Plant and Equipment 1,440,000
Goodwill 336,000
Liabilities 216,000
Cash 2,160,00
0
7.c
Cash 1,400
Receivables 650
Investments 1,000
Maintenance supplies 400
Flight equipment 12,000
International routes 500
Leases 800
Goodwill 450
Long-term debt 6,000
Cash 8,000
8. c
The amount of the contingency is P500,000 (10,000 shares at P50 per share)
Goodwill 500,000
Paid-in-Capital for Contingent Consideration - 500,000
Issuable
9. c
Paid-in-Capital for Contingent Consideration – Issuable 500,000
Common Stock (P10 par) 100,000
Paid-In-Capital in Excess of Par 400,000
Platz Company does not adjust the original amount recorded as equity .
10.c
Accounts Receivable (net) 220,000
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 230,000
Cash 2,600,000
Consideration transferred (2,600,000 + 200,000)………………..P2,800,000

Fair value of net assets acquired(P3,440,000 – P870,000)……. 2,570,000
Goodwill………………………………………………………………...P230,000
Or, alternatively:
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 30,000
Allowance for Uncollectible Accounts 20,000
Cash 2,600,000
Consideration transferred P2,600,000

Fair value of net assets acquired
(P3,440,000 – P870,000) 2,570,000
Goodwill P 30,000
Goodwill 200,000
1/1/20x6:
Gain on Contingent Consideration 200,000
11. c
In accounting for the combination of NT and OTG, the fair value of the acquisition is allocated
to each identifiable asset and liability acquired with any remaining excess attributed to
goodwill.
Consideration transferred (shares issued) P750,000

Fair value of net assets acquired:
Cash P29,000
Receivables 63,000
Trademarks 225,000
Record music catalog 180,000
In-process R&D 200,000
Equipment 105,000
Accounts payable (34,000)
Notes payable (45,000) 723,000
Goodwill P27,000
Entry by NT to record combination with OTG:

Cash 29,000
Receivables 63,000
Trademarks 225,000
Record Music Catalog 180,000
Capitalized R&D 200,000
Equipment 105,000
Goodwill 27,000
Notes Payable 45,000
Common Stock (NewTune par value) 60,000
PIC - par 690,000
(To record merger with OTG at fair value)
PIC - par 25,000

Cash 25,000
(Stock issue costs incurred)
Post-Combination Balance Sheet:
Assets Liabilities and Owners’ Equity

Cash P 64,000 Accounts payable P 144,000
Receivables 213,000 Notes payable ___415,000
Trademarks 625,000 Total liabilities P 559,000
Record music catalog 1,020,000
Capitalized R&D 200,000 Common stock 460,000
Equipment 425,000 Paid-in capital - par 695,000
Goodwill 27,000 Retained earnings 860,000
Total P2,574,000 Total P2,574,000
12. P559,000, no answer available – refer to No. 11

13. d – refer to No. 11
14.c – refer to No. 11
15.c – refer to No. 11
16. d
Correction: …completion goals by December 31, 20x5 not 20x4.
Entry to record the acquisition on Pacifica’s records:

Cash 85,000
Receivables and inventory 180,000
PPE 600,000
Trademarks 200,000
IPRD 100,000
Goodwill 77,500
Liabilities 180,000
Common Stock (50,000 xP5) 250,000
Paid-In Capital in excess of par (50,000 xP15) 750,000
Contingent performance obligation 62,500
The goodwill is computed as:

Consideration transferred: 50,000 shares x P20 P1,000,000
Contingent consideration:
P130,000 payment x 50% probability x 0.961538 62,500

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

Cash 15,000
PIC - par 9,000

Cash 9,000
Note: The following amounts will appear in the income statement and statement of retained
earnings after business combination:
PP Inc.
Revenues (1,200,000)
Expenses (P875,000 + P15,000) 890,000
Net income (310,000)
Retained earnings, 1/1 (950,000)
Net income (310,000)
Dividends paid 90,000
Retained earnings, 12/31 *(1,170,000)
* or, P1,185,000 – P15,000 = P1,170,000
17. c – refer to No. 16 (P400,000 + P750,000 – P9,000 = P1,141,000)

21. d – refer to No. 16 [P77,500 + (P75,000 – P62,500)] = P90,000
22.b – refer to No. 16. It should be noted that goodwill can only be revised once, so, the goodwill
remains at P90,000, but the liability will be adjusted to P80,000, the entry would be
Loss on contingent consideration…………………………………. 5,000
Contingent performance obligation………………………. 5,000
23. a
10,000,000 x P5 x 0.20 P 10,000,000
15,000,000 x P5 x 0.10 ___7,500,000
P 17,500,000
17,500,000/(1.12)4 P 11,121,566
24. a – at fair value

25. a
26.a – (P100,000 x ½ = P50,000 x 1/1.05) or P50,000 x 0.909091 = P45,454
27. c
Fair value of Subsidiary
Consideration transferred………………………………………………………P 200
million
Add: Fair value of contingent consideration……………………………… 10 million
Fair value of subsidiary………………………………………………………… P 210
million
Less: Fair value of identifiable assets and liabilities of Homer...............… 116 million
Goodwill…………………………………………………………………………… P 94 million
Note: The consideration transferred should be compared with the fair value of the net
assets acquired, per PFRS3 par. 32. The contingent consideration should be measured
at its fair value at the acquisition date; any subsequent change in this cash liability
comes under PAS 39 Financial instruments: recognition and measurement and should
be recognized in profit or loss, even if it arises within the measurement period. See
PFRS3 pars. 39, 40 and 58.
28. b
29. b
30. d
P77,500,000 = P100,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000
+ P4,000,000 - P30,000,000).
31. b
P(12,500,000) = P10,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000
+ P4,000,000 - P30,000,000).
32. c
The correcting entry, within the measurement period, is:
Goodwill 2,000,000
Patents 2,000,000
33. a
The correcting entry, within the measurement period, is:
Liabilities 2,000,000
34. c
Goodwill 400,000
Estimated lawsuit liability 400,000
35.b
Loss on lawsuit 400,000
Estimated lawsuit liability 400,000
36.b
Assets 570,000,000
Liabilities 100,000,00
0
Capital stock 400,000,00
0
Cash 50,000,000
PIC-stock contingency 20,000,000
37. b - P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares
38. c
The contingency was originally recorded in equity at the amount of P20,000,000. However,
changes in the value of stock price contingencies do not affect the acquisition price or
income. Any changes in value are adjustments in equity.
PIC- stock contingency 20,000,000

PIC-other 30,000,000
39. b
40. c
41. c
42. b – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 –
P420,000)
= P104,000
43. d
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
44. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
45. b – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] =
P20,000
46. c AA records new shares at fair value
Value of shares issued (51,000 × P3) ............................................................... P153,000
Par value of shares issued (51,000 × P1)......................................................... 51,000
Additional paid-in capital (new shares) ....................................................... P102,000
Additional paid-in capital (existing shares) .................................................. 90,000
Consolidated additional paid-in capital ....................................................... P192,000
At the date of acquisition, the parent makes no change to retained earnings.

48. c
Depreciation expense:
Building, at book value (P200,000 – P100,000) / 10 years P 10,000
Building, undervaluation (P130,000, fair value
– P100,000, book value) / 10 years3,000
Equipment, at book value (P100,000 – P50,000) / 5 years 10,000
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years 5,000
Total depreciation expense= P 28,000
49. c - [(24,000 shares x P30) – P686,400] = P33,600

50. d - [(24,000 shares x P30) – (P270,000 + P726,000 – P168,000)] = P108,000, gain
51. c
A bargain purchase is a business combination in which the net fair value of the identifiable
assets acquired and liabilities assumed exceeds the aggregate of the consideration
transferred.
It should be noted that bargain purchase gain would arise only in exceptional
circumstances. Therefore, before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed. The acquirer should recognize any additional assets or liabilities
that are identified in that review.
2. Any balance should be recognized immediately in profit or loss.
52. b – no valuation to be recorded in the books of the acquirer

Cost P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs 18,000
Net book value P162,000
53. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)]
P312,000
Less: Shares issued at par (15,000 shares x P10 par) 150,000
APIC P162,000
Or: since, there is no excess, the P312,000 represents the amount of consideration
transferred, therefore the APIC should be P162,000 [P312,000 / 15,000 shares = P20,80 – P15
= P10.80 x 15,000 shares)
54. c
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The gain of P8 million results from a bargain purchase and
should be recognized in profit or loss, per PFRS3 par. 34.
55. c
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Bargain Purchase Gain 29,700
56. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are
measured at their acquisition-date fair values.
57.c
Selling price P 110,000
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000) 140,000
Loss on sale of business by the acquiree (Comb) P( 30,000)
58. d P215,000 = P130,000 + P85,000

59. b P23,000 = P198,000 – (P405,000 - P265,000 + P15,000 +
P20,000)
60 c P1,109,00 = Total Assets of TT Corp. P 844,000
. 0
Less: Investment in SS Corp. (198,000)
Book value of assets of TT Corp. P 646,000
Book value of assets of SS Corp. 405,000
Total book value P1,051,000
Payment in excess of book value
(P198,000 - P140,000) 58,000
Total assets reported P1,109,000
61 c P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 +
. P37,000
+P200,000)
62 d P257,500 = The amount reported by TT Corporation
.
63 a P407,500 = The amount reported by TT Corporation
.
64. c
Par value of shares outstanding before issuance P200,000
Par value of shares outstanding after issuance 250,000
Par value of additional shares issued P 50,000
Divided by: No. of shares issued* __12,500
Par value of common stock P 4
*Paid-in capital before issuance (P200,000 + P350,000) P 550,000

Paid-in capital after issuance (P250,000 + P550,00)800,000
Paid-in capital of share issued at the time of exchangeP250,000
Divided by: Fair value per share of stockP 20
Shares issued 12,500
65. a
Consideration transferred: Shares – 12,500 shares P250,000
Less: Goodwill 56,000
Fair value of identifiable net assets acquiredP194,000
66. a –
Blue Town:
Stockholders’ equity before issuance of shares (P700,000 + P980,000) P1,680,000
Issued shares: 34,000 shares x P35
1,190,000
Consolidated SHE/Net Assets P2,870,000
67. d
68. c
Common stock – combined…………………………………………………………P
160,000
Common – Acquirer Zyxel………………………………….. …………………….…
100,000
Common stock issued………………………………………………………………...P
60,000
Divided by: Par value of common stock………………………………………….P
2
Number of Zyxel shares to acquire Globe Tattoo………………………….....… 30,000
69. d
Paid-in capital books of Zyxel (P100,000 + P65,000)………………………........P
165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000)…………………………………………………….…
405,000
Paid-in capital from the shares issued to acquire Globe Tattoo…………... P 240,000
Divided by: No. of shares issued (No. 31)……………………………………..... 30,000
Fair value per share when stock was issued………………………………….... P 8
Or,
Par value of common stock of Zyxel……………………………………… P 2
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 – P65,000)/30,000…………............ 6
Fair value per share when stock was issued……………………………....... P 8
70.b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 – P50,000
- P250,000)…………………………………………………………………….
P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 – P75,000 - P350,000)…..........
497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition..…………………………………………………….. P227,000
71. a
Consideration transferred (30,000 shares x P8)………………………………… P240,000
Less: Fair value of net identifiable assets acquired (No. 49)……………….... 227,000
Goodwill……………………………………………………………………………….. P
13,000
72. c
Retained earnings:
Acquirer – Zyxel (at book value)………………………………………....
P105,000
Acquiree– Globe Tattoo (not acquired)……………………………… __ 0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs
which may affect retained earnings on the acquisition date.
73. a
II ____ _____JJ _ ____Total____
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at _10%
Total stock to be issued P1,152,000
Less: Net Assets (for P/S) 864,000
Goodwill (for Common Stock) P 288,000
Preferred stock (same with Net Assets):
864,000/P100 par 8,640 shares
Theories
1. True 21. False 41. True 61. c 81. b 101. c 121 a
2. False 22. True 42. False 62. b 82. a 102. d 122. b
3. True 23. False 43. a 63. c 83. d 103. d 123. b
4. True 24. True 44. c 64. d 84. a 104. d 124. c
5. False 25, True 45, b 65, d 85. c 105. c 125. b
6. True 26. False 46. b 66. a 86. d 106. d 126. c
7. False 27. True 47. d 67. a 87. c 107. d 127. c
8. True 28. False 48. c 68. d 88. a 108. d
9. True 29. True 49. c 69. a 89. c 109. b
10. True 30, True 50, b 70, b 90, d 110, c
11. True 31. False 51. a 71. c 91. b 111. c
12. True 32. True 52. b 72. A 92. a 112. c
13. False 33. True 53. c 73. c 93. C 113. a
14. False 34. False 54. a 74. c 94. B 114. d
15. False 35. True 55. c 75. a 95. D 115. d
16. True 36. True 56. b 76. d 96. A 116. c
17. False 37. False 57. a 77. a 97. A 117. b
18. True 38. True 58. c 78. d 98. c 118. b
19. True 39. False 59. a 79. b 99. d 119. b
20. False 40, False 60, c 80, c 100, d 120. a
Note for the following numbers:
2. A horizontal combination occurs when management attempts to dominate an industry.
5. A vertical combination exists when an entity purchases another entity that could have a
buyer-seller relationship with the acquirer. The combination described here is a
horizontal combination.
7. A conglomerate combination is one where an unrelated or tangentially related business
is acquired. A vertical combination occurs when a supplier is acquired.
13. Greenmail is the payment of a price above market value to acquire stock back from a potential acquirer.
15. The sale of the crown jewels results when a target sells assets that would be particularly valuable to the potential acquirer.
The scorched earth defense results when a target generally sells large amounts of assets without regard to the
specific desirability to the potential acquirer.
17. Golden parachutes are generally given only to top executives of the acquiree.
20. Control over the net assets of an entity can be accomplished by purchasing the net assets or by purchasing the acquiree
voting common stock that represents ownership of the assets.
21. The amount of cash will always equal the net assets recorded by the acquirer. As a result, the acquirer book value will not
change due to an acquisition.
23. There is no exchange of stock in an asset for asset acquisition so there cannot be a change in ownership structure of
either entity.
26. The acquiree corporation becomes an acquirer stockholder, not the acquiree
stockholders.
28. A combination that results in one of the original entities in existence after the
combination is a statutory merger.
31. The combination results in the stockholders of one entity controlling the other entity.
The Retained Earnings of the entity acquiring control is carried forward to the newly
formed corporation.
34. The stock of the acquiree company must be purchased by the acquirer, but the value
transferred to the acquiree stockholders does not have to be in stock. Payment may be
in another asset or the issuance of debt.
37. The consideration to be given by the acquirer is sometimes not completely known
because the consideration is based partially on acquiree future earnings or the market
value of acquirer debt or stock.
39. Any change in the number of shares of acquirer stock given returns the purchase price
to the agreed level. The adjustment is to stock and additional paid-in capital. The
investment account is unchanged.
40. The acquiree stockholders must continue to have an indirect ownership interest in the
acquiree net assets. Preferred stock or a nonvoting class of stock qualifies as an
indirect ownership as well as voting common stock.
42. A net operating loss carryforward cannot be acquired. They are only available to the
acquirer if the combination qualifies as a nontaxable exchange.
Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000  P40)] 3,100,000
Cash 2,500,000
Common Stock 30,000
Paid in capital in excess of par (P40 - P2)  15,000 570,000
Paid in capital in excess of par 30,000
Acquisition Expense 67,000

Deferred Acquisition Charges 90,000
Acquisition Costs Payable 7,000
Problem II
Cash consideration transferred P 300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P 315,000
Less: Book value of SS Company (P90,000 + P100,000) 190,000
Allocated excess P125,000
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100% P 40,000
Increase in customer list: P22,000 x 100% 22,000
Increase in R&D: P30,000 x 100% 30,000 __92,000
Goodwill P 33,000
Investment in SS Company 315,000

Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000

Cash 10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4 would
be:
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
Capitalized R&D 30,000
Goodwill 33,000
Investment in SS Company 315,000
Problem III
Case 1:
Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash……………………….......P12,000,000 (80%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P7,200,000 x 80%...................................... 5,760,000 (80%)
Allocated excess.……………………………………………….......P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 80%........................................... 1,920,000 (80%)
Positive excess: Goodwill (partial)…………………………….... P 4,320,000 (80%)
 Non-controlling interest
Book Value of stockholders’ equity of subsidiary…………. P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 – P7,200,000)….. 2,400,000
Fair value of stockholders’ equity of subsidiary…………… P 9,600,000
Multiplied by: Non-controlling interest percentage............ 20%
Non-controlling Interest (partial)……………………………….. P1,920,000
Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
Consideration transferred: Cash (P12,000,000 / 80%).. P 15,000,000 (100%)
– S Company: P7,200,000 x 100%.............................. 7,200,000 (100%)
Allocated excess.……………………………………………….. P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 100%.................................... 2,400,000 (100%)
Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%)
The full – goodwill of P5,400,000 consists of two parts:
Full-goodwill……………………………………………....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill…………………………….…. 4,320,000
NCI on full-goodwill…………………………………….......P 1,080,000
Non-controlling interest (partial)……………………………….......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 – P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)*…………………………………...... 1,080,000
Non-controlling interest (full)…………………………………........ P3,000,000
* applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Case 2:
Consideration transferred: Cash……………………….....P 7,560,000 (60%)
– S Company: P6,000,000 x 60%................................ 3,600,000 (60%)
Allocated Excess.……………………………………………….... P 3,960,000 (60%)
(P8,400,000 – P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary…………….P 8,400,000
Multiplied by: Non-controlling Interest percentage............. 40%
Non-controlling interest (partial)……………………………….P 3,360,000

 Full-goodwill
Consideration transferred: Cash ………………………...P 7,560,000 ( 60%)
Fair value of NCI (given)………………………………….. 4,800,000 ( 40%)
Fair value of subsidiary…………………………………………...P12,360,000 (100%)
– S Company: P6,000,000 x 100%........................... 6,000,000 (100%)
Allocated Excess.…………………………………………………..P 6,360,000 (100%)
(P8,400,000 – P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%)

Full-goodwill……………………………………………...P 3,960,000
or partial-goodwill……………………………. 2,520,000
NCI on full-goodwill……………………………………..P 1,440,000
Non-controlling interest (partial)………………………………P 3,360,000
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
Case 3;
Consideration transferred: Cash………………………..P 9,000,000 (75%)

– S Company: P7,200,000 x 75%............................. 5,400,000 (75%)
Allocated Excess.………………………………………………...P 3,600,000 (75%)
(P9,600,000 – P7,200,000) x 75%..................................... 1,800,000 (75%)
Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage.............. 25%
Non-controlling interest (partial)……………………………….P 2,400,000

 Full-goodwill
Fair value of subsidiary…………………………………………. P 11,640,000 (100%)
– S Company: P7,200,000 x 100%............................... 7,200,000 (100%)
Allocated Excess.………………………………………………….P 4,440,000 (100%)
(P9,600,000 – P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)

Full-goodwill……………………………………………...P 2,040,000
or partial-goodwill…………………………….... 1,800,000
NCI on full-goodwill……………………………………. .P 240,000
Non-controlling interest (partial)………………………………P 2,400,000
(P2,040,000 – P1,800,000 partial-goodwill)…..…….... . 240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
Case 4:
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 . (15%)
Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%)
– S Company: (P4,680,000 – P2,280,000) x 75%.......... 1,800,000 .(75%)
Allocated Excess.………………………………………………....P 1,440,000 (75%)
[(P6,120,000 – P2,280,000) –
(P4,680,000 – P2,280,000)] x 75%..................................... 1,080,000 (75%)
Positive excess: Goodwill (partial)……………………………...P 360,000 (75%)
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
Fair value of stockholders’ equity of subsidiary……………P 3,840,000
Multiplied by: Non-controlling Interest percentage............ 25%
Non-controlling interest (partial)………………………………P 960,000

 Full-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%...... 648,000 (15%)
Fair value of NCI (given)…………………………………. 1,080,000 (25%)
Fair value of subsidiary………………………………………….P 4,320,000 (100%)
– S Company: P2,400,000 x 100%.................................... 2,400,000 (100%)
Allocated Excess.…………………………………………………P 1,920,000 (100%)
(P3,840,000 – P2,400,000) x 100%................................ …..1,440,000 (100%)
Positive excess: Goodwill (full)…………………………………..P 480,000 (100%)
The full – goodwill of P480,000 consists of two parts:

Full-goodwill……………………………………………...P 480,000
or partial-goodwill…………………………….…... 360,000
NCI on full-goodwill……………………………………..P. 120,000
Non-controlling interest (partial)………………………………P 960,000
(P480,000 – P360,000 partial-goodwill)…..…………....... 120,000
Non-controlling Interest (full)……………………………………P 1,080,000
Problem IV
 Partial-goodwill (Proportionate Basis)
Consideration transferred: Cash……………………….. P270,000 (75%)
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 75%....................................... 189,000 (75%)
Allocated excess………………………………………………... P 81,000 (75%)
[(P612,000 – P228,000) – (P480,000 – P228,000) x 75% 99,000 (75%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only)………………. (P18,000) (75%)
 Full-goodwill (Fair Value Basis)
Consideration transferred: Cash……………………….. P270,000 ( 75%)
Fair value of non-controlling interest (given)………… 98,400 ( 25%)
Fair value of subsidiary ………………………………………… P368,400 (100%)
(net assets) – S Company:
(P480,000 – P228,000) x 100%..................................... 252,000 (100%)
Allocated excess………………………………………………... P116,400 (100%)
[(P612,000 – P228,000) – (P480,000 – P228,000) x 100% 132,000 (100%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only)………………. (P15,600) (100%)
Problem V
1.
A. Investment in Sewell 675,000
Cash 675,000
B. Investment in Sewell 675,000
Cash 675,000
C. Investment in Sewell 318,000
Cash 318,000
2.
A.
Fair value of Subsidiary:
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000
Allocated excess P( 30,000)
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 __10,000
Bargain Purchase Gain – full (P 40,000)
B.
Partial Goodwill
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% 634,500
Allocated excess P 40,500
Inventory (P30,000 – P20,000) x 90% (P9,000)
Land (P50,000 – P70,000) x 90% __18,000 __9,000
Goodwill – partial P 31,500
Full-Goodwill
Consideration transferred (P675,000/90%) P750,000
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 __10,000
Goodwill – full P 35,000
C.
Partial Goodwill
Allocated excess (P306,000)
Inventory (P30,000 – P20,000) x 80% (P 8,000)
Land (P50,000 – P70,000) x 80% __16,000 __8,000
Bargain Purchase Gain – partial (parent only) (P314,000)
Full-Goodwill
Consideration transferred P 318,000
FV of NCI* _158,000
P 476,000
Allocated excess (P304,000)
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 _10,000
Bargain Purchase Gain – full (parent only) (P314,000)
*BV of SHE of S P780,000
Adjustments to reflect fair value 10,000
FV of SHE of S P790,000
x: NCI% 20%
FV of NCI P158,000
3.
A.
Common Stock – Sewell 450,000
Paid in capital in excess of par – Sewell 180,000
Retained Earnings – Sewell 75,000
Land 20,000
Inventory 10,000
Investment in Sewell 675,000
Retained earnings (gain) – Parent (since
balance sheet accounts are being
examined) 40,000
B.
Partial-Goodwill (Proportionate Basis)
Land 20,000
Goodwill 31,500
Inventory 10,000
Non-controlling Interest 71,500
BV – SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
FV of SHE of Sewell P715,000
x: NCI% 10%
FV of NCI (partial) P 71,500
Full-Goodwill (Fair Value Basis)

Land 20,000
Goodwill 35,000
Inventory 10,000
(P450,000 + P180,000 + P75,000) P705,000
x: NCI% 10%
FV of NCI (partial) P 71,500
NCI on Full-Goodwill
(P35,000 – P31,500) 3,500
FV of NCI (full) P 75,000
C.
Partial-Goodwill (Proportionate Basis)
Land 20,000
Inventory 10,000
Retained earnings (gain)–Parent (refer to 3A) 314,000
(P620,000 + P140,000 + P20,000) P780,000
x: NCI% 20%
FV of NCI (partial) P158,000
Full-Goodwill (Fair Value Basis)

Land 20,000
Inventory 10,000
Retained earnings (gain)–Parent (refer to 3A) 314,000
(P620,000 + P140,000 + P20,000) P780,000
x: NCI% 20%
FV of NCI (full) P158,000
Problem VI
1.
January 1, 20x4
Investment in S 408,00
Company…………………………………………… 0
408,00
Cash………………………………………………………………… 0
…..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration P
transferred……………………………….. 408,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x
100%)………………….. P 240,000
Paid-in capital in excess of par (P24,000 x
100%)... 24,000
Retained earnings (P96,000 x
100%)………………... 96,000 360,000
Allocated excess (excess of cost over book P
value)…… 48,000
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)…………….. P 18,000
Increase in land (P72,000 x
100%)…………………… 72,000
Decrease in buildings and equipment
(P12,000 x
100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x
100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
P
value)…………………………………………………….. 12,000
(E1) Common stock – S Co………………………………………… 240,000

Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity of S
Co.
(E2) Inventory…………………………………………………………. 18,000

Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 48,000
Eliminate investment against allocated excess.
4.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*…………………………. P 12,000 P 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
Total Assets P1,320,000 P600,000 P1,602,000
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
5.
Assets
Cash P 72,000
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment (net) 828,000
Goodwill 12,000

Liabilities
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Common stock, P10 par P 600,000
Retained earnings 300,000
Total Stockholders’ Equity P 960,000
Problem VII
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration P
transferred……………………………….. 360,000
Less: Book value of stockholders’ equity of
Sky:
80%)……………………. P 192,000
Paid-in capital in excess of par (P96,000
x 80%).... 76,800
80%)……………….... 19,200 288,000
value)….. 72,000
liabilities:
80%)……………… P 14,400
80%)……………………. 57,600
(P12,000 x
80%)……………………………………..... ( 9,600)
80%)………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of
cost over
fair P
value)………………………………………………... 43,200
The over/under valuation of assets and liabilities are summarized as follows:
Sky Co. Sky Over/

Co. Under
Book Fair
value value Valuation
Inventory………………….…………….. 72,000 90,000 18,000
Land……………………………………… 48,000 120,000 72,000
Buildings and equipment (net)......... 360,000 348,000 ( 12,000)
Bonds payable………………………… (120,000) (162,000) 42,000
Net……………………………………….. 360,000 396,000 36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co. Sky Co.
Book value Fair value (Decrease)
Buildings and
equipment .................. 720,000 348,000 ( 372,000)
Less: Accumulated
depreciation….. 360,000 - ( 360,000)
Net book
value………………………... 360,000 348,000 ( 12,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky 360,00
Company…………………………………………… 0
360,00
Cash…………………………………………………………………… 0
..
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close
to
14,400
retained earnings since only balance sheets are
being
examined)……………………………………………………………
14,400
Cash……………………………………………………………………
.
Acquisition- related costs.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky 240,000
Co……………………………………………….
Additional paid-in capital – Sky 24,000
Co………………………………….
Retained earnings – Sky 96,000
Co…………………………………………...
Investment in Sky 288,000
Co…………………………………………………
Non-controlling interest (P300,000 x 72,000
20%)………………………..
Eliminate investment against stockholders’ equity of Sky Co.
(E2) 18,000
Inventory………………………………………………………………
….
Accumulated 360,00
depreciation…………………………………………. 0
72,000
Land……………………………………………………………………
….
43,200
Goodwill………………………………………………………………
….
Buildings and 372,00
equipment………………………………………….. 0
Premium on bonds 42,000
payable………………………………………
20%)………………………..
Co………………………………………………..
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000

Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,146,800
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
Retained earnings…………… 96,000 (1) 96,000
Non-controlling interest………… (1 ) 72,000
_________ _______ _________ (2) 7,200 _79,200
Equity P1,785,600 P960,000 P 853,200 P 853,200 P2,146,800
(1) Eliminate investment against stockholders’ equity of Sky Co.
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.
 Incidentally, the non-controlling interest on the date of acquisition is computed as follows:

Common stock – Sky company…………………………………… P
240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Co..……………………………………….
Book value of stockholders’ equity – Sky P
Co………..………….. 360,000
Adjustments to reflect fair value (over/
undervaluation 36,000
of assets and
liabilities)………………………………………….
Fair value of stockholders’ equity of P
subsidiary………………… 396,000
Multiplied by: Non-controlling Interest 20
percentage…………...
Non-controlling interest P
(partial)………………………………….. 79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 43,200

Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
Non-controlling interest 79,200
Total Stockholders’ Equity (Total Equity) P 1,024,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)

Consideration transferred (P360,000 / P
80%)………….. 450,000
Sky:
100%)…………………. P 240,000
Paid-in capital in excess of par (P96,000
x 100%).. 96,000
100%)…………….... 24,000 360,000
value)….. 90,000
liabilities:
100%)…………… P 18,000
100%)…………………. 72,000
(P12,000 x
100%)…………………………………..... ( 12,000)
100%)……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost
over
fair P
value)………………………………………………... 54,000
January 1, 20x4
(1) Investment in Sky 360,00
Company…………………………………………… 0
360,00
Cash…………………………………………………………………… 0
..
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close

to
retained earnings since only balance sheets are 14,400
being
examined)……………………………………………………………
14,400
Cash……………………………………………………………………
.
240,000
(E1) Common stock – Sky
Co……………………………………………….
Additional paid-in capital – Sky 24,000
Co………………………………….
Co…………………………………………...
Co…………………………………………………
20%)………………………..
Eliminate investment against stockholders’ equity of Sky Co.
(E2) 18,000
Inventory………………………………………………………………
….
Accumulated 360,00
depreciation…………………………………………. 0
72,000
Land……………………………………………………………………
….
54,000
Goodwill………………………………………………………………
….
equipment………………………………………….. 0
Premium on bonds 42,000
payable………………………………………
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – 18,000
P36,000)]…………………………………………….
Co………………………………………………..
Subsidiary (Full-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*………………………
…. P 45,600 P 60,000 P 105,600
Accounts
receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land………………………
……. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000

Goodwill…………………
… (2) 54,000 54,000
(1) 288,000
Co…………. (2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,157,600
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
120,00
Accounts payable…………… 0 120,000 240,000
240,00
Bonds payable………………… 0 120,000 360,000
600,00
Common stock, P10 par……… 0 600,000
285,60
Retained earnings**…………… 0 285,600
(1 )
72,000
Non-controlling interest…………
_______ _____ _______ (2)
__ __ __ 18,000 _90,000
Equity P1,785,600 P960,000 P 864,000 P 864,000 P2,157,600
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

(partial)………………………………….. 79,200
Add: Non-controlling interest (P54,000, full –
P43,200, partial). 10,800
Non-controlling interest P 90,000
(full)……………………………………….
The balance sheet;
Peer Company and Subsidiary

Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 54,000

Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the P 945,600
Owners of the Parent
Total Stockholders’ Equity (Total Equity) P 1,035,600
Problem VIII
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Common stock: 12,000 shares x P25
per share…... P 300,000
of S:
80%)……………………. P 9,600
(P108,000 x 80%)... 86,400
80%)……………….... 57,600 153,600
Allocated excess (excess of cost over
book value)…… P 146,400
liabilities:
80%)……………… P 4,800
80%)……………………. 28,800
Increase in buildings and
equipment
(P150,000 x
80%)…………………………………...... 120,000
Increase in copyrights (P60,000 x
80%)…………….. 48,000
Increase in contingent liabilities –
estimated
liability for contingencies (P6,000
x 80%)……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)…………….. (P 50,400)
S Co.
Book S Co. Over/Under
value Fair value Valuation
P
Inventory………………….……………... 60,000 P 66,000 P 6,000
Land………………………………………. 48,000 84,000 36,000
Buildings and equipment (net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000

Estimated liability for contingencies..
0 ( 6,000) ( 6,000)
P
Net undervaluation……………………. 330,000 P 576,000 P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S 300,000
Company…...……………………………………
Common stock, P1 12,000
par………………………………………………
Paid-in capital in excess of par (P300,000 – 288,000
P12,000 par)……..
Acquisition of S Company.
(E1) Common stock – S 12,000
Co…………………………………………….
Additional paid-in capital – S 108,000
Co……………………………….
Retained earnings – S 72,000
Co…………………………………………
Co………………………………………………
20%)………………………..
Eliminate investment against stockholders’ equity of S Co
(E2) 6,000
Inventory………………………………………………………………
…..
36,000
Land……………………………………………………………………
…..
equipment……………………………………………… 0
60,000
Copyright………………………………………………………………
....
Estimated liability for 6,000
contingencies……………………………..
Co……………………………………………... 0
20%)……………………….
Retained earnings (bargain purchase gain - closed
to
being
examined).............................................................................
Subsidiary (Proportionate Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of
par** 723,840 723,840
(1) (1)
Paid-in capital in excess of par 108,000 108,000
Retained earnings 577,200 (2) 50,400 627,600
_________ _______ _________ (2) 49,200 _87,600
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Co………………………………………
Book value of stockholders’ equity – S P
Co…………………. 192,000
Adjustments to reflect fair value (over/
of assets and
liabilities)………………………………………….
Fair value of stockholders’ equity of P
subsidiary………………… 438,000
Multiplied by: Non-controlling Interest 20
percentage…………...
(partial)………………………………….. 87,600
The balance sheet:

Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,395,600
Total Stockholders’ Equity (Total Equity) P1,483,200
Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Common stock: 12,000 x P25
(80%)……………… P 300,000
Fair value of NCI (given)
(20%)………………………. 90,000
Fair value of subsidiary
(100%)………………………. P 390,000
of S:
100%)……………………. P 12,000
(P108,000 x 100%). 108,000
100%)………………... 72,000 192,000
Allocated excess (excess of cost over
book value)…… P 198,000
liabilities:
100%)……………… P 6,000
100%)…………………… 36,000
Increase in buildings and
equipment
(P150,000 x
100%)………………………………….... 150,000
Increase in copyrights (P60,000 x
100%)…………… 6,000
Increase in contingent liabilities –
estimated
liability for contingencies (P6,000
x 100%)…….. ( 6,000) 246,000
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)…………….. (P 48,000)
January 1, 20x4
Company…...……………………………………
par………………………………………………
Paid-in capital in excess of par (P300,000 – 288,000
P12,000 par)……..
Co…………………………………………….
Additional paid-in capital – S 108,000
Co……………………………….
Co…………………………………………
Co………………………………………………
20%)………………………..
Eliminate investment against stockholders’
equity of S Co
(E2) 6,000
Inventory………………………………………………………………
…..
36,000
Land……………………………………………………………………
…..
equipment……………………………………………… 0
60,000
Copyright………………………………………………………………
....
Estimated liability for 6,000
contingencies……………………………..
Co……………………………………………... 0
Non-controlling interest (P90,000 given – 51,600
P38,400)……………
Retained earnings (bargain purchase gain - closed
to
being
examined).............................................................................
Subsidiary (Fair Value Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of par** 723,840 723,840
(2) (1)
Paid-in capital in excess of par 108,000 108,000
Retained earnings 577,200 (2) 48,000 625,200
_________ _______ _________ (2) 51,600 _90,000
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
The balance sheet:
Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000

Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,393,200
Total Stockholders’ Equity (Total Equity) P1,483,200
Problem IX
1.

Common stock: 24,000 shares x P14
per share P 336,000
of Sky:
100%)………………….. P 240,000
(P96,000 x 100%)... 96,000
100%)………………... 24,000 360,000
Allocated excess (excess of book value
over cost)…… (P 24,000)
liabilities:
100%)…………….. P 18,000
100%)…………………… 72,000
Decrease in buildings and
equipment
(P12,000 x
100%)……………………………………... ( 12,000)
Increase in patent (P24,000 x
100%)………………... 24,000
Increase in contingent liability
(P18,000 x 100%)…. ( 18,000)
Increase in bonds payable (P42,000
x 100%)…….. ( 42,000) 42,000
Negative excess: Bargain Purchase Gain
(excess of
fair value over
cost)…………………………………… (P 66,000)
2. Gain on acquisition, P66,000
Problem X
1.
January 1, 20x4
Company…………………………………………… 0
288,00
Cash………………………………………………………………… 0
…..
par…………………………………………….. 0
Paid-in capital in excess of 24,000
par…………………………………….
(2) Retained earnings (acquisition-related expense -

close to
being
examined)…………………………………………………………
…
12,000
Cash…………………………………………………………………
….
(3) Paid-in capital in excess of 8,400

par………………………………………..
8,400
Cash…………………………………………………………………
….
Costs to issue and register stocks.
2.
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per P
share….. 144,000 432,000
100%)………………….. P 240,000
100%).. 96,000
100%)………………... 24,000 360,000
value)…… 72,000
Add: Existing Goodwill of Sky Co. (P6,000 x
100%)……… 6,000
Adjusted allocated P
excess…………………………………. 78,000
liabilities:
100%)…………….. P 18,000
100%)…………………… 72,000
Decrease in buildings and equipment ( 12,000)
(P12,000 x
100%)……………………………………...
100%)…….. ( 42,000) 36,000
P
value)…………………………………………………….. 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
P
Consideration 432,00
transferred……………………………………………………… 0
Less: Book value of stockholders’ equity of 360,00

S……………………………….. 0
value)…………………………. 72,000
liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair P
value)…………………... 36,000
Add: Existing
Goodwill……………………………………………………………… 6,000
value)……………………………………………………………………… P
…… 42,000
3.
Eliminations
Cash*………………………….. P 111,600 P 54,000 P 165,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (4) 360,000
(5) 72,000 -
Total Assets P1,443,600 P600,000 P1,725,600
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par**…..… 720,000 720,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
*** P50,000 + P20,000 – P7,000 = P63,000.
****P300,000 – P12,000 = P288,000.
4.
Assets
Cash P 165,600
Inventories 210,000
Land 330,000
Goodwill 42,000

Liabilities
Additional paid-in capital in excess of par 75,600
Total Stockholders’ Equity P 1083,600
Problem XI
1.

Consideration transferred (P408,000 – P
P6,000)…….. 402,000
100%)………………….. P 240,000
100%)... 96,000
100%)………………... 24,000 360,000
value)…… 42,000
liabilities:
100%)…………….. P 18,000
100%)…………………… 72,000
(P12,000 x
100%)……………………………………... ( 12,000)
100%)…….. ( 42,000) 36,000
P
value)…………………………………………………….. 6,000
2. Goodwill, P6,000
Problem XII
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
Fair value of consideration given P 576,000

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

investment account is eliminated.
Problem XIII
1. Inventory (P120,000 + P20,000) P140,000
2. Land (P70,000 – P10,000) P 60,000
3. Buildings and Equipment (P480,000 + P70,000) 550,000
4. Full-Goodwill, P57,500
Add: FV of NCI 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Less: Over/under valuation of A and L: Inc.
(Dec.)
Inventory P
20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
or,
Fair value of consideration given by Ford P470,000
Fair value of noncontrolling interest 117,500
Total fair value P587,500
Book value of Slim’s net assets P450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Fair value of identifiable net assets (530,000)
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
5. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20) P117,500
6.
or,
BV – SHE of SS P450,000
Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000
FV of SHE of SS P530,000
Multiplied by: NCI % 20%
NCI – partial goodwill P106,000
Add: NCI on full-goodwill (P57,500 – P46,000) 11,500
NCI – full goodwill P117,500
Problem XIV
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XV
1. P57,000 = (P120,000 - P25,000) x .60
2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XVI (assuming that acquisition-related costs is treated as expenses)

In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a
limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired.
1. Inventory = P670,000 (P's book value plus Sun's fair value)

2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem XVII
1. Investment in Craig Company .......................................................... 950,000
Cash .................................................................................................. 950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value P 50,000
Building (P700,000 fair – P600,000 book value) 100,000
Discount on bonds payable P280,000 fair – P300,000
book value) 20,000
Deferred tax liability (P40,000 fair – P50,000 book value) 10,000
Goodwill P 50,000
3. Adjustments on Craig books:

Land ........................................................................................................ 50,000
Building ................................................................................................... 100,000
Discount on Bonds Payable ............................................................... 20,000
Goodwill ................................................................................................. 50,000
Deferred Tax Liability ........................................................................... 10,000
Retained Earnings ................................................................................ 420,000
Paid-In Capital in Excess of Par .................................................... 650,000
4. Elimination entries:
Common Stock..................................................................................... 300,000
Paid-In Capital in Excess of Par ......................................................... 650,000
Investment in Craig Company ..................................................... 950,000
Problem XXI
1.
* Man Mask
(Public Co.) (Private Co.)
Currently issued…………………… 10 M 40% 4 M 40%
Additional shares issued……….. 15 M 60% ** 6 M / 60%
Total shares………………………… 25 M 10 M
**15M/25M
FV of net assets………………………P 18 M P30 M
BV of net assets (same with FV)…. 18 M ?
Fv per share of stock……………….P 8 P 6
2.
Consideration transferred (4,000,000 shares* x P6)…………………………..P24,000,000
Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess …………………………………………………………………..P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)……………………………………………… 0
Goodwill………………………………………………………………………………P 6,000,000
Problem XXII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting and
tax purposes for this stock acquisition.
1. Investment in Seely Company 570,000

Common Stock*** 95,000
Additional Paid-in-Capital 475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of common
stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely 80,000

Other Contributed Capital – Seely 132,000
Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000

Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
Problem XXIII
 HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.
 TPC (Nos. 1, 2 and 3 of the requirement are part of the information)
a. The purpose of consolidated financial statements is to present the financial position and
results of operations of a group of businesses as if they were a single entity. They are
designed to provide information useful for making business and economic decisions—
especially assessing amounts, timing, and uncertainty of prospective cash flows.
Consolidated statements also provide more complete information about the resources,
obligations, risks, and opportunities of an enterprise than separate statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
 The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
 The equity investors in the VIE lack any one of the following three characteristics of a
controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g., another
firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has one
or both of the characteristics that would require consolidation of the variable interest
entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
 At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
to 85% of the project's cost. Thus, a potential 15% risk.
 During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
 Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
 If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the
VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
 Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decision-
making ability (end of five-year lease term)
 Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
 Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XXIV
1. Implied valuation and excess allocation for SP.
FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000)
+ P40,000 – P120,000) __100,000
Excess net asset value fair value/Bargain purchase gain P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All SP’
assets and liabilities are recognized at their individual fair values.
Cash P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
- 0-
2. Implied valuation and excess valuation for SP.

FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000)
+ P40,000 – P120,000) __60,000
Excess fair value over net assets/ Goodwill P 20,000
Noncontrolling interest fair value 60,000

Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash P20,000
Marketing software 120,000
Computer equipment 40,000
Goodwill (excess business fair value) 20,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
PT equity interest (20,000)
-0-
1. c – at fair value
2. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
3. d
Less: Book value of SHE of S (P100,000 + P115,000) 215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 85,000
4. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.
5. d
Less: Book value of SHE of S (P40,000 + P52,000) 92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 58,000
6. b – [P150,000 – (P173,000 – P40,000 – P5,000)]
7. d - P600,000 - P15,000 - P255,000 = P330,000
8. c - P475,000 - P300,000 = P175,000 debit
9. b – fair value
10. d – fair value
11. d – fair value
12. c -
Full-goodwill:
Add: FV of NCI 100,000 P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000
Inventory (P65,000 – P70,000) x 100% P( 5,000)
Land (P100,000 – P90,000) x 100% 10,000
Buildings and equipment (P300,000 – P250,00) x 100% 50,000 __55,000
If partial-goodwill, no answer available, computed as follows:

Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000
Inventory (P65,000 – P70,000) x 75% P( 3,750)
Land (P100,000 – P90,000) x 75% 7,500
Buildings and equipment (P300,000 – P250,00) x 75% 37,500 __41,250
13. a – Investment in Silver will be eliminated in the consolidated balance sheet
14. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ……………………………… 55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%.................................................................... 25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P100,000
* same with the NCI given per problem
15. b – P135,000 = P90,000 + P45,000

16. d
Full-goodwill:
Add: FV of NCI _40,000 P200,000
Less: BV of SHE of Silver (P40,000 + P120,000) x 100% _160,000
Inventory (P45,000 – P40,000) x 100% P 5,000
Land (P60,000 – P40,000) x 100% 20,000 25,000
17. a
Total Assets of Gulliver (Jonathan) P610,000
Less: Investment in Sea-Gull Corp. (160,000)
P 450,000
Book value of assets of Sea Corp. 230,000
Book value reported by Gulliver/Jonathan and Sea P 680,000
Increase in inventory (P45,000 – P40,000) 5,000
Increase in land (P60,000 – P40,000) 20,000
Goodwill (full)* 15,000
Total assets reported P 720,000
18. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
19. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) -
(P40,000 + P40,000)………….……………………………… 25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%.................................................................... 20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)……………….. 3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Less: BV of SHE of S (P40,000 + _128,000
P120,000) x 80%
Less: Over/under valuation of A and L:
Inc. (Dec.)
Inventory (P5,000 x 80%) P
4,000
Land (P20,000 x 80%) 16,000 __20,000
20. a - The amount reported by Jonathan Corporation

21. a
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19…………………………………….. 40,000
Consolidated stockholders’ equity……………………………………. P445,000
22. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
23. b
Total Assets of P. P1,278,000
Less: Investment in Swimmer Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (full)* 26,667
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
If partial-goodwill:
Total Assets of P. P1,278,000
Less: Investment in S Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (partial)* 20,000
*[P440,000 – (P702,000 – P142,000) x 75%]
24. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)

25. a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
26. c
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**given amount, but it should not be lower than the fair value of SHE –
subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)… 35,000
FV of SHE of SS……………………………………………… P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)……………………………………………..P 52,500
27. b
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (full) 40,000
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (partial) 28,000
28. d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
29. a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
30. d
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
Add: NCI on full-goodwill (P40,000 – P12,000)…………...
12,000
FV of NCI (full)…………………………………………………..P 64,500
31. d P205,000 = The amount reported by Power Corporation
32. c P419,500 = (P150,000 + P205,000) + P64,500

Stockholders’ equity: P419,500
Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
33. b
Consideration transferred ........................................................................................ P60,000
Less: Strand's book value (P50,000 x 80%) .............................................................. (40,000)
Fair value in excess of book value .......................................................................... P20,000
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ............................................................ P 8,000
34. c
Consideration transferred (P60,000 ÷ 80%) ............................................................ P75,000
Less: Strand's book value .......................................................................................... (50,000)
Fair value in excess of book value .......................................................................... P25,000
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ............................................................ P10,000
35. a
Park current assets ....................................................................................................... P 70,000
Strand current assets ................................................................................................... 20,000
Excess inventory fair value ......................................................................................... 15,000
Consolidated current assets ...................................................................................... P105,000
36. c
Park noncurrent assets ............................................................................................... P 90,000
Strand noncurrent assets ........................................................................................... 40,000
Excess fair value to goodwill (partial) ..................................................................... ___8,000
Consolidated noncurrent assets .............................................................................. P140,000
37. d
Park noncurrent assets ................................................................................................ P 90,000
Strand noncurrent assets ............................................................................................ 40,000
Excess fair value to goodwill (full) ............................................................................. __10,000
Consolidated noncurrent assets ............................................................................... P140,000
38. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
39. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
40. b
Park stockholders' equity ........................................................................................... P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%........................................................................ 20% 13,000
Total stockholders' equity ......................................................................................... P93,000
41. c
Park stockholders' equity ......................................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%......................................................................... 20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)………… 15,000
Total stockholders' equity P95,000
42. b
P’s acquisition entry is:
Investment in Silicon 2,500,000
Merger expenses 250,000
C/S (100,000@P1) 100,000
APIC [(100,000@P24) – P400,000] 2,000,000
Cash (P400,000 + P250,000) 650,000
Eliminating entries are:

Capital stock 560,000
AOCI 195,000
Treasury stock 35,000
Customer lists 700,000

Goodwill 800,000

44. a – refer to No. 42
47. b
48. a – P150,000 + P500,000
50. b
FV, stocks issued………………………………………………… P 4,200,000
Less: Par value of stocks issued (500,000 shares x P5)…….. __2,500,000
APIC P 1,700,000
Add: APIC of P 7,500,000
Less: Stock issuance cost ___100,000
P 9,100,000
51. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000
53. c
54. a
[P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
55. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE –
P300,000 – P500,000) = P550,000
56. a
57. d (P1,000,000 + P250,000) = P1,250,000 P only.
58. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000
59. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
61. a - P only
62. d
Book value of Assets (P80,000 + P50,000 + P200,000) P330,000
Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000
P 65,000
63. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
64. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
65. a - P15,000 = (P115,000 + P46,000) - P146,000
66. b - P65,000 = (P148,000 - P98,000) + P15,000
67. BB, P70,000; SS, P24,000, no answer available
SS: P24,000 = P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000 = P94,000 - P24,000
68. P259,000, no answer available
Fair value of SS as a
whole:
P200,000 Book value of SS shares
10,000 Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000 Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000 Differential assigned to goodwill
P259,000 Fair value of SS
69. c - 65 percent = 1.00 – (P90,650 / P259,000)

70. a
Capital Stock = P120,000
Retained Earnings = P115,000
71. d - A total of P210,000 (P120,000 + P90,000) should be reported.
72. a - As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS.
The amount paid was P30,000 greater than the book value of the net assets of SS and is
reported as goodwill in the consolidated balance sheet at January 1, 20X5.
73. c - In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for
P25,000 (P10,000 + P15,000).
74. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
75. P100,000, the par value of B's stock outstanding is P100,000, no answer available
76. c**/d*
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity,
does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are
considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant
and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of investment in
associate, joint venture or subsidiary but it is possible that the scope of the project might be expanded in future.
(IGAAP 2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as
expenses in the consolidated accounts.
Revised PAS 27 does not define what is meant by “cost”, but in the glossary to PFRS provides an over-riding definition
of “cost” as “the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction”
As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the
acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction
costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not
separately define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements.
Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate financial statements includes any
costs incurred even if such costs are expensed in the consolidated financial statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate
Financial Statements” not consolidated statements; therefore PFRS 3 which is a standard for business
combination/consolidation will not be the basis for the definition of “cost”). Unlike before the revision of PAS 27 and
implementation of PFRS 10, the basis of the old PAS 27, which is “Consolidated and Separate Statements”, is PFRS 3,
wherein the definition of “cost” was clearly defined. That is why the general rule in the definition of “cost” was
applied. This view is also as suggest by the IASB since they introduced the requirement to expense acquisition costs
within PFRS 3, it only applies to financial statements in which a business combination is accounted for under PFRS 3. It
follows that this requirement does not extend to the individual (or separate) financial statements of the investing or
parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38
(Intangible Assets) wherein the direct costs is capitalized in the books of parent entity and eventually become
expense through eliminating entry to prepare consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to
any acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal
costs, due diligence costs – such as finder’s fee are expensed off and not included in the consideration transferred.
The key reasons given for this approach are provided in paragraph BC366:
 Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
 They are separate transactions for which the buyer pays the fair value for the services received.
 These amounts do not generally represent assets of the acquirer at acquisition date because the benefits
obtained are consumed as the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and
liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at
cost. The following items are worth noting to justify the use of this approach:
1. This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7th Edition
(2013) which is an IFRS based discussion, in the solution they presented in one of their end-of-chapter
problems, they expensed the direct costs in recording the investment in subsidiary in the book of parent
company
2. Similar with No. 1 above, in the book Applying IFRS, 3rd edition (2013), by Picker, et al (which is also Ernst and
Young book, which seems to contradict their position in the discussion above) in chapter 24 end-of-the
chapter problems, the direct costs (or “costs incurred in undertaking taking the acquisition” as the term used
in the book) were not part of the investment in subsidiary as evidenced by the amount in the eliminating
entry.
3. One respected author in accounting even commented that, despite the above analysis capitalizing the
direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and
PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it may be a
problem when there will be an impairment test which will reveal the costs are in fact unrecoverable and thus
that there must be an impairment charge at the parent level (in which the direct costs is included as part the
investment), which would have the effect of bringing the parent’s accounting (with the impairment investment
including the direct costs) in line with what would later appear on the consolidated financial statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of
“costs” in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be
part of the investment in the books of parent entity. But because of the three reasons mentioned above, the author
believes that the direct costs still be considered as expenses applying PFRS 3, aside from the fact that in substance
the ultimate objective is to consolidate, eventhough there was a separation of standard between Revised PAS 27
and PFRS 10.
77. a
78. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made.
Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
79. d
80. a
81. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in full.
82. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated in
their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
83. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.
84. c
85. c
An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 ....................................................................... P45,000
Amortization for 2 years (10 year life)...................................................................... (9,000)
Patent reported amount December 31, 2010 ...................................................... P36,000
86 a
PP - building................................................................................................................... P510,000
TT building acquisition-date fair value P300,000
Amortization for 3 years (10-year life) (90,000) 210,000
Consolidated buildings ............................................................................................... P720,000
-OR-
PP - building ................................................................................................................... 510,000
TT building 12/31/x4 P182,000
Excess acquisition-date fair value allocation 40,000
Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000
Consolidated buildings ............................................................................................... P720,000
87. b
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
88. c
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
89. c
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.
90. d
Cost of Investment (40 shares* x P40)………………………………………………………P 1,600
Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%............................................ 1,100
Allocated excess……………………………………………………………………………… P 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%......................... 140
Goodwill………………………………………………………………………………………….P 360
100%
* Pedro Ltd Santi Ltd
Currently issued…………………… 100 40% 40 40%
Additional shares issued……….. 150 60%** 60 / 60%
Total shares………………………… 250 100
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M P ?
BV of net assets (same with FV)……….. 1.1 M ?
Fv per share of stock……………………… P 16 P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
½) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger
and 150 new shares held by former shareholders in Santi Ltd. In essence, the former
shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd
shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has
been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal
parent. The usual circumstance creating a reverse acquisition is where an entity (the legal
parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of
the exchange transaction, it issues enough voting equity as consideration for control of the
combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the
assets and liabilities of Santi Ltd to be valued at fair value.
91. b – building account in the books of subsidiary at fair value

92. e – building account in the books of subsidiary at book value
93. d – push-down accounting: equipment account in the books of subsidiary is at fair value
94. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from
P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1. c 6. B 11. c 16. d 21. b 26. d 31 c 36. d
2. a 7. b 12. c 17. c 22. a 27. c 32. d 37. d
3. e 8. A 13. d 18. b 23. a 28. c 33. b 38. c
4. e 9. D 14. d 19. c 24. b 29. d 34. d 39. b
5. b 10, a 15, b 20. c 25. c 30. b 35. d 40. c
41. c 46. b 51. c 56. c

42. c 47. a 52. b 57. d
43. c 48. c 53. a
44. c 49. d 54. a
45. c 50, b 55, b
Chapter 16
Problem I - Cost Model/Method versus Equity Method

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

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

Investment income 10,500
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
x 75%)……. 60,000 19,500 impairment impairment 19,500 60,000 x 75%)
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div - Son NI of Son
(90,000 75%Amort& Amortization (90,000
12/31/x6632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model P
600,000
Retroactive adjustments: (Small’s net income less
dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P
632,025
2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700
b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (2,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . . . P 532,000
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . 20
FV of Non-controlling interest (partial goodwill), 12/31/20x6 . . . . . . . . . . . . . . . . . P 133,000
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… ___4,825 ___*77,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6may also be computed as follows (Note: This is the
American version of computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6………………………………………………… P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) …………………………………………………. 90,000
Dividends – Subsidiary 20x6………………………………………………….( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………………. P560,000
Adjustments to reflect fair value (Increase in Net Assets)………………P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)………………………………………….. 42,000
Impairment of goodwill – 20x6……………………………………..( 19,300) 282,700
FV of SHE of Small……………………………………………………………… P 842,700
Multiplied by: NCI%..................................................................................... 25%
FV of NCI, 12/31/20x6………………………………………………………….. P 210,675
Or, alternatively:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment __282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . ______25%
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

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

Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025
Or, alternatively: to compute CRE, 12/31/20x6

Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, December 31, 20x6 (cost model) P630,000
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000) P 160,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2 (28,000)
P 62,000
Multiplied by: Controlling interests %................... _____75%
P 46,500
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%) __14,475 __32,025
Consolidated Retained earnings, December 31, 20x6 P 662,025
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – P170,000
(P40,000 x 75%)]
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or
Profit P233,525
attributable to equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 14,000)
P
104,000
Multiplied by: Non-controlling interest %..........
25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ___4,825
( (P19,300 x 25%)*
Non-controlling Interest in Net Income (NCINI) P
21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
e. P21,175 – refer to (d) for computations
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly
the same.
Problem II
A.
1.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Profit P87,725
b. P5,775
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 _____225
(P1,500 x 15%)*
Non-controlling Interest in Net Income (NCINI) P 5,775
c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
same with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method [P55,000 + (P9,000 x _62,650
85%)]
P
137,650
Less: Dividends of P Company ___5,000
Retained Earnings of P Co, 12/31/20x4 under cost model P
132,650
d.3
Retained earnings of P company (same with P75,000
Consolidated RE), 1/1/20x4
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
2.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
Profit P87,725
b. P5,775
P 40,000
P 6,000
(P1,500 x 15%)*
d.
d.2
Add; Net income under equity method {P55,000 +
[(P40,000 x 85%) -
(P1,500, impairment loss x 85%) – (P0, amortization)}
_87,725
P162,725
Retained Earnings of P Co., 12/31/20x4 under equity P157,725
method
d.3
Retained earnings of P Co., (same with Consolidated RE), P75,000
1/1/20x4
Add; Controlling Interest in CNI same with Net Income in
d.2 above under
equity method but not cost model
_87,725
P162,725
Consolidated Retained Earnings, 12/31/20x4 P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
3. Reconciliation of Investment balance – Cost Model to Equity Method

238,000
Retroactive adjustments: (Sill’s net income less
dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Investment balance under equity method P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost P
model(requirement 1 d.2) 132,650
dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Retained earnings, 12/31/20x4 under equity P157,725
method(requirement 2 d.2)
B.
4.
a. P87,725
Pill Company [P62,650 – (P9,000 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Profit P87,725
b. P5,775
P 40,000
P 6,000
(P1,500 x 15%)*

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same
with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Add; Net income under cost method (given) _62,650
P
137,650
P
Retained Earnings of P Co, 12/31/20x4 under cost model 132,650
d.3
Retained earnings of P company (same with P75,000
Consolidated RE), 1/1/20x4
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
5. Correction: Pill’s net income should be P87,725 instead of P86,725

a. P87,725
Pill Company [P87,725 – (P40,000 x 85%) + P55,000
(P1,500 x 85%)]
Sill Company 40,000
Total P95,000
Profit P87,725
b. P5,775
P 40,000
P 6,000
(P1,500 x 15%)*

d.
d.2
Add; Net income under equity method (given)
_87,725
P162,725
Retained Earnings of P Co., 12/31/20x4 under equity P157,725
method
d.3
Retained earnings of P Co., (same with Consolidated RE), P75,000
1/1/20x4
Add; Controlling Interest in CNI same with Net Income in
d.2 above under
equity method but not cost model
_87,725
P162,725
Consolidated Retained Earnings, 12/31/20x4 P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
5. Reconciliation of Investment balance – Cost Model to Equity Method

238,000
dividends)
Sill’s net income – 20x4 P
40,000
Less: Sill’s dividend – 20x4 ___9,000
Increase in retained earnings (NI less dividend) P
31,000
Less: Cumulative amortization of allocated excess _______0
P
31,000
P
26,350
Less: Impairment of goodwill (P1,500 x 85%) ___1,275 __25,075
Investment balance under equity method P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost P
model(requirement 1 d.2) 132,650
dividends)
Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 ___9,000
Increase in retained earnings (NI less dividend) P 31,000
Less: Cumulative amortization of allocated excess _______0
P 31,000
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) ___1,275 __25,075
Retained earnings, 12/31/20x4 under equity P157,725
method(requirement 2 d.2)
Problem III
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000
Annu
al Current
Account Adjustments to Over/ Lif Amou Year(20x
be amortized under e nt 5) 20x6 20x7
P70,00 P
Inventory 0 1 70,000 P 70,000 P - P -
Subject to Annual
Amortization
__9,00 ___9,00 ___9,00
Patents 90,000 10 0 ___9,000 0 0
P160,0 P P P
00 79,000 P 79,000 9,000 9,000,
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec.
31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Net income from own/separate
operations
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + P(57,750)
(P15,000 x 85%)]
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in P(7,350) P
Net Income* 6,450
Amortization of allocated 79,000 9,000
excess
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss)
attributable to equity P(13,650) P(21,200)
holders of parent
Add: Non-controlling Interest in Net ( 7,350) 6,450
Income (NCINI)
Consolidated Net P(21,000) P(14,750)
Income/Loss(CNI)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P(7,350) P
6,450
Less: Non-controlling interest on impairment loss on full- _______- ___
goodwill _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P6,450
2. CI-CNI – refer to computation in No. 1

20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000).............................................................7,350
20x6: 15%  (52,000 – 9,000)............................................................... 6,450
(2)
20x5 20x6
NI (loss) Pen 28,000 (45,000)
Less: Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) ________ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)
3. CRE, 12/31/20x6 – P73,150

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

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000( 15,000)
167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
Multiplied by: NCI% _____15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill ______ _0
FV of NCI (full),12/31/20x6 P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1)
P114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) P167,000
Less: Retained earnings, 12/31/20x4 (date of acquisition)100,000
Increase since acquisition P 67,000
Less: Amortization of allocated excess (79,000 + 9,000)88,000
P( 21,000)
Multiplied by: NCI’s share ____ 15%
( 3,150)
Non-controlling interest (full) 12/31/20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec.
31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment, cost model 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000)88,000
( 21,000)
Multiplied by: CI share 85% (17,850)
Invest. account – equity method as at Dec. 31, 20x6
628,150
Implied value of 100% (628,150 / 85%) 739,000

Silk –Common shares 500,000
Retained earnings – Silk, 12/31/20x6 167,000
667,000
Balance unamortized allocated excess – Patents 72,000
Problem IV
Additional information:
Parent’s net income from own operations - 20x4, P100,000; 20x5, P120,000
Parent’s dividend declared – 20x4, P30,000; 20x5, P40,000
1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020

20x4
Parent – Davis Company P100,000
Subsidiary - Martin Company 60,000
Total P160,000
Amortization of allocated excess** 18,000
Goodwill impairment _______0 __26,400
Profit P133,600
Add: Non-controlling Interest in Net Income (NCINI) ___8,400
Amortization of allocated excess – 20x4 (P2,000 + P16,000) ( 18,000)
P 42,000
20%
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill _______0
** Amortization of allocated excess

Partial-Goodwill Approach:
Consideration transferred:.................................................................. 300,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 80%)............ 144,000
Retained earnings – Martin (60,000 x 80%)......................... 48,000192,000
Increase in Patents (20,000 x 80%).......................................... 16,000 28,800
Full-Goodwill Approach:
Fair value of Subsidiary P300,000/80%..................................................
Consideration transferred:.................................................................. 375,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 100%)............ 180,000
Retained earnings – Martin (60,000 x 100%)......................... 60,000 240,000
Increase in Patents (20,000 x 100%).......................................... 20,000 36,000

Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5
Inventory P16,000 1 P 16,000 P 16,000 P -
Subject to Annual Amortization
Patents 20,000 10 2,000 2,000 ___2,000
Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - ________ _____ ___9,900
P 18,000 P 18,000 P 11,900
20x5
Parent – Davis Company P120,000
Subsidiary - Martin Company 72,000
Total P192,000
Amortization of allocated excess** 2,000
Goodwill impairment ___9,900 __23,920
Profit P168,080
P70,000
20%
P 14,000
Less: Non-controlling interest on impairment loss on full-goodwill
(P99,000 x 10% = ___1,980
P9,900 x 20%)
2. CI – CNI for 20x4, P133,600; CI – CNI for 20x5, P168,080

3. CRE, 12/31/20x5, P208,080
Correction: RE on January 1, 20x5 instead of December 31, 20x5.
Retained earnings of P Co, 1/1/20x5, equity method (same P 80,000
with CRE)
Add; CI – CNI 168,080
P248,080
Less: Dividends of P Company __40,000
Retained Earnings of P Co., 12/31/20x4 under equity method P208,080
4. NCI, 12/31/20x5
Non-controlling interest, December 31, 20x5
Common stock – Martin Company, December 31, 20x5…… P 180,000
Retained earnings – Martin Company, December 31, 20x4
Retained earnings – Martin Company, January 1, 20x4 P 60,000
Add: NI of Martin for 20x4 and 20x5 (60,000 + 72,000) 132,000
Total P192,000
Less: Dividends paid – 20x4 and 20x5 (12,000 + 15,000) 27,000 165,000
Stockholders’ equity – S Company, December 31, 20x4 P 345,000
Adjustments to reflect fair value - (over) undervaluation of
assets and liabilities, date of acquisition (January 1, 20x4)
(20,000 + 16,000) 36,000
Amortization of allocated excess (refer to amortization
above – 20x4 and 20x5 (P2,000 + 16,000 + 2,000) ( 20,000)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 361,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill), 12/31/20x5……….. P 72,200
Add: Non-controlling interest on full goodwill , net of
impairment loss, 12/31/x5:[(P99,000 full – P79,200, partial
= P19,800) – (P99,000 x 10%, impairment loss x 20%) 17,820
Non-controlling interest (full-goodwill), 12/31/20x5…………….. P 90,020
5.
Partial (80%) Full (100%)
Goodwill balance, 1/1/20x4 79,200 99,000
Less Impairment – 20x4 ____-0- ____-0-
Less Impairment – 20x5 (99,000 x 10% = 9,900) _7,920 __9,900
6.
Patents, 1/1/20x4 20,000

Less: Amortization (20,000/10 years = 2,000 x 2) _4,000
Consolidated Patents, 12/31/20x5 16,000
Problem V
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM ............................ P664,000
Noncontrolling interest fair value .................................... 166,000*

air 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 ........................... P664,000
Less: Book value of SHE – S (P600,000 x 80%)…….. 480,000
Allocated excess…………………………………….. P184,000
P80,000 x 80%................................................. 64,000
Goodwill - partial......................................................... P120,000
3. Full-goodwill
Common Stock - TT .................................................................. 300,000
Additional Paid-in Capital - TT ............................................... 90,000
Retained Earnings - TT.............................................................. 210,000
Investment in TT Company (80%) .................................. 480,000
Non-controlling interest (20%) ........................................ 120,000
Buildings .................................................................................... 80,000

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

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

Dividends received (80%) ............................................................. P 8,000
Investment in Taylor—12/31/x4 (original value paid)………… P664,000
Equity Method
Income accrual (80%) .................................................................. P56,000
Excess amortization expense ....................................................... (3,200)
Investment income ................................................................. P52,800
Initial fair value paid ..................................................................................... P664,000

Income accrual 20x4–20x6 (P260,000 × 80%) ........................... 208,000
Dividends 20x4–20x6 (P45,000 × 80%) ......................................... (36,000)
Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................ (9,600)
Investment in TT—12/31/x6 ..................................................... P826,400
5. Same answer with No. 4.
6. Using the acquisition method, the allocation will be the total difference (P80,000) between
the buildings' book value and fair value. Based on a 20 year life, annual excess amortization
is P4,000.
MM book value—buildings ................................................... P 800,000
TT book value—buildings ....................................................... 300,000
Allocation ................................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. (8,000)
Consolidated buildings account ………………… P1,172,000
7. Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) ................................................. P 150,000
Goodwill-partial (see No. 1 above)……………………………… P 120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem VI
1. Common stock of TT Company on December 31, 20x4 P 90,000
Retained earnings of TT Company
January 1, 20x4 P 130,000
Sales for 20x4 195,000
Less: Expenses (160,000)
Dividends paid (15,000)
Retained earnings of TT Company
on December 31, 20x4 150,000
Net book value on December 31, 20x4 P240,000
Proportion of stock acquired by QQ x .80
Purchase price P192,000
2. Net book value on December 31, 20x4 P240,000
Proportion of stock held by
noncontrolling interest x .20
Balance assigned to noncontrolling interest P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was earned
after the date of purchase and, therefore, none can be included in consolidated net income.
4. Consolidated net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VII
(Several valuation and income determination questions for a business combination involving a
non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration transferred by
the acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PS’s consideration transferred (P31.25 × 80,000 shares) ............................................. P2,500,000

Non-controlling interest fair value (P30.00 × 20,000 shares) ...................................... P600,000
SR’s total fair value 1/1/09................................................................................................ P3,100,000
1. Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.
3. SR’s total fair value 1/1/09................................................................................................ P3,100,000

SR’s net assets book value ............................................................................................... 1,290,000
Excess acquisition-date fair value over book value ................................................... P1,810,000
Adjustments from book to fair values ............................................................................
Buildings and equipment ........................................................ (250,000)
Trademarks ................................................................................ 200,000
Patented technology .............................................................. 1,060,000
Unpatented technology ......................................................... 600,000 1,610,000
Goodwill ................................................................................................................... P200,000
4. Combined revenues ......................................................................................................... P4,400,000

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

A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1(stockholders' equity accounts)
(P100,000 + P600,000 + P700,000)....................... P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ................................ P120,000
Dividends .............................................................. (20,000)
Change during year .................................................. P100,000
Change during first six months of year ........... 50,000
Book value of RR, 7/1 (acquisition date) . P1,450,000
(Full-Goodwill)
Consideration transferred by KL(P1,330,000 +
P30,000) ................................................................... P1,360,000
Non-controlling interest fair value .................................. 300,000
RRs’ fair value (given)........................................................ P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV
of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR) ....................................... P1,450,000

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

P30,000) ................................................................... P1,360,000
Non-controlling interest fair value .................................. ___320,000
RRs’ fair value (given)........................................................ P1,680,000
Book value of RR, 7/1 ........................................................ (1,450,000)
Fair value in excess of book value.................................. P 230,000 Annual Excess
Excess fair value assigned Life Amortizations
Trademarks ...................................................................... 150,000 5 years P30,000
Goodwill (full-goodwill) .................................................. P 80,000 indefinite -0-
Total .......................................................................... P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount – refer to computation
above). The rationale behind such rule is to avoid having a lower amount of goodwill
under the full-goodwill approach as compared to goodwill computed under the partial-
goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL...................................... P1,360,000
Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000
Allocated excess………………………………………….P 200,000
P150,000 x 80%.............................................. 120,000
Goodwill - partial P80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the same
because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
 Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of P15,000.
 Dividends paid = P80,000
 Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
 Equipment, none
 Depreciation expense, none
 Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2]
 Buildings, none
 Goodwill (full), P80,000; Goodwill (partial), P80,000
 Consolidated Net Income, P245,000
 Sales (1) P1,050,000
 Cost of goods sold (2) 540,000
 Operating expenses (3) __265,000
 Net Income P 245,000
 Non-controlling Interest in Sub. Income (4) P 9,000
 Controlling Interest in CNI P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary
operating expenses) plus ½ year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% × (120,000 – 30,000) × ½ year] = P9,000
 Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the subsidiary
was acquired during the current year)
 Trademark = P935,000 (add the two book values and the excess fair value allocation
after taking one-half year excess amortization)
 Goodwill (full)= P80,000 (the original allocation)
 Goodwill (partial) = P80,000 (the original allocation)
Problem IX: Consolidated balances after a mid-year acquisition)

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

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

Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................ P740,000
Increase in book value-net income (dividends
were paid after acquisition) .................................................. P100,000
Time prior to purchase (3 months) .............................................. ×¼ 25,000
Book value of DD, 4/1/x4 (acquisition date) ............................ P765,000
* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD) . …………………… P765,000

Adjustments to reflect fair value (undervaluation) ( 30,000)
FV of SHE of Subsidiary (DD)................................. P735,000
Multiplied by: NCI%................................................ _______40%
FV of NCI……………………………………………. P294,000
(Partial-Goodwill)
Consideration transferred .................................. P 526,000
Less: Book value of SHE – DD (P765,000 x 60%) 459,000
Allocated excess………………………………… . P 67,000
(P30,000 x 60%)........................................... ................................. ( 18,000)
Goodwill - partial .................................................. P 85,000
1. Consolidated Income Statement:

Revenues (1) P825,000
Cost of goods sold (2) P405,000
Operating expenses (3) 214,500 619,500
Consolidated net income P 205,500
Noncontrolling interest in CNI (4) 28,200
Controlling interest in CNI P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary
operating expenses) less nine month excess overvalued equipment depreciation
reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
2.
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus
P4,500 nine months excess amortization)
Common Stock = P630,000 (P company balance only)
Buildings = P1,124,000 (add the two book values)
Dividends Paid = P80,000 (P company balance only)
Problem X
1. AA should report income from its subsidiary of P15,000 (P20,000 x .75) rather than dividend
income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the non-controlling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA P59,000
Less: Dividend income from KR (9,000)
Operating income of AA P50,000
Net income of KR 20,000
Consolidated net income P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA
must be excluded from consolidated net income.
Problem XI
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XII
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization
JJ’s acquisition-date fair value .. P206,000
Book value of JJ ............................................ (140,000)
Fair value in excess of book value ............ 66,000
Excess fair value assigned to specific
accounts based on individual fair values Annual Excess
Life Amortization
Equipment .............................................. 54,400 8 yrs. P6,800
Buildings (overvalued) .......................... (10,000) 20 yrs. (500)
Goodwill .................................................. P21,600 indefinite -0-
Total .......................................................... P6,300
Investment in JJ Company—12/31/x6
JJ’s acquisition-date fair value ............................................................ P206,000
20x4 Increase in book value of subsidiary 40,000
20x4 Excess amortizations (Schedule 1) ............................................ (6,300)
20x5 Increase in book value of subsidiary ........................................ 20,000
20x6 Increase in book value of subsidiary ........................................ 10,000
Investment in J Company ............................................................ P257,100
2. Equity in Subsidiary Earnings

Income accrual ................................................................... P30,000
Excess amortizations (Schedule 1) ................................. (6,300)
Equity in subsidiary earnings ....................................... P23,700
3.Consolidated Net Income
Consolidated revenues (add book values) ..................................... P414,000
Consolidated expenses (add book values) .................................... (272,000)
Excess amortization expenses (Schedule 1) .................................... (6,300)
Consolidated net income ................................................................... P135,700
4. Consolidated Equipment
Book values added together ............................................................. P370,000
Allocation of purchase price .............................................................. 54,400
Excess depreciation (P6,800 × 3) ....................................................... (20,400)
Consolidated equipment ............................................................. P404,000
5.Consolidated Buildings ...........................................................................................
Book values added together ............................................................. P288,000
Allocation of purchase price .............................................................. (10,000)
Excess depreciation (P500 × 3) ........................................................... 1,500
Consolidated buildings .................................................................. P279,500
6. Consolidated goodwill
Allocation of excess fair value to goodwill ....................................... P21,600
7. Consolidated Common Stock ............................................................................ P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings ....................................................................... P410,000
Tyler's balance of P410,000 is equal to the consolidated total because the equity
method has been applied.
Problem XIII – 80% Partial Goodwill - Cost Model

Correction: The dividend income in the trial balance should be P38,400 instead P48,000
Requirements 1 to 4:
Consideration P
transferred……………………………….. 372,000
80%)……………………. P192,000
80%)………………... 96,000 288,000
value)….. 84,000
liabilities:
80%)……………… P 4,800
80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x
80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x
80%)…… 3,840 72,000
cost over
fair P
value)………………………………………………... 12,000

S Co. (Over)
Book S Co. Under
P
Inventory………………….…………….. 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
P
Net……………………………………….. 204,000 P 294,000 P 90,000
S Co. S Co. Increase
Equipment .................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 192,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)

Annu
Over/ al Current
Account Adjustments to be Unde Lif Amou Year(20x
amortized r e nt 4) 20x5
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as
follows:

Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son
(P360,000 x 100%) __360,000
Allocated excess (excess of cost over book value)….. P 105,000
Add (deduct): (Over) under valuation of assets and
liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over P 15,000
fair value)………………………………………………...
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..
January 1, 20x4 – December 31, 20x4:
(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid………… 36,000
Cash……. 36,000
Dividends paid by S Co..
Consolidation Workpaper – Year of Acquisition
Co…………………………………………
Retained earnings – S 120.000
Co……………………………………
Co……………………………………………
20%)………………………..
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) 6,000
Inventory………………………………………………………………
….
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,00
0
7,200
Land……………………………………………………………………
….
Discount on bonds 4,800
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
20%)………………………..
Co……………………………………………….
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000

Depreciation expense……………………….. 6,000
Accumulated depreciation – 6,000
buildings…………………..
Interest expense………………………………… 1,200
Goodwill impairment 3,000
loss……………………………………….
6,000
Inventory…………………………………………………………..
equipment………………..
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortization
Sold expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % of
Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of
Total
Goodwill impairment loss attributable to P or P 80.00%
controlling 3,000
Interest
Goodwill impairment loss applicable to 750 20.00%
NCI……………………..
Goodwill impairment loss based on 100% fair
value or full- P 3,750 100.00%
Goodwill
(E4) Dividend income - P………. 28,800
20%)………………..
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Non-controlling interest in Net Income of 9,360

Subsidiary…………
Non-controlling interest ………….. 9,360
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000

Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800
Multiplied by: Non-controlling interest %.......... 20%
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P508,800 P240,000 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 28,000 (3) 6,000 90,000
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P310,000 P180,000 P508,200
Net Income P196,800 P 60,000 P211,800
NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)
Net Income to Retained Earnings P196,800 P 60,000 P202,440
Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 196,800 60,000 202,440
Total P552,000 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 372,000 (4) 288,000
(5) 84,000 -
Total P1,984,800 P1,008,000 P2,424,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings, from above 484,800 144,000 490,440
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,984,800 P1,008,000 P 745,560 P 745,560 P2,424,600
20x5: Second Year after Acquisition

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

Cash……………………… 38,400
Consolidation Workpaper – Second Year after Acquisition
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company………………………… 19,200

Retained earnings – P 19,200
Company………………………
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P144,000
Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200

Co…………………………………………
Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co (P384,000 x 307,200
80%)…………………………
20%)………………………..
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
Non-controlling interest (P90,000 x 20%) 18,000
Co……………………………………………….
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5
[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 2,640
20%)…………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

20%)………………..
share of dividends.

P 82,800
Non-controlling Interest in Net Income (NCINI P 16,560

December 31, 20x5 (Second Year after Acquisition)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 P 408,000
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 625,200
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P 90,000 P 258,240
P Company P484,800 (2) 13,560 (1) 19,200 P 490,440
S Company P 144,000 (2) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,707,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (5) 9,600
(4) 2,640 (2 ) 76,800
(3) 18,000
___ _____ _________ __________ (6) 16,560 ____99,120
Total P2,203,200 P1,074,000 P 821,160 P 821,160 P2,707,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the consolidated
retained earnings, thus:
Retained earnings - P Company, January 1, 20x4 (date P360,000
of acquisition)
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
c.
Consolidated SHE:
P’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the P’s share. NCI is measured
as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P202,440
Add: Non-controlling Interest in Net Income (NCINI) 9,360
Consolidated Net Income for 20x4 P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 46,800
c. CNI, P211,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
equity holders of parent for 20x4 202,440
Total P562,440
Less: Dividends paid – P Company for 20x4 72,000
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 240,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P120,000
Add: Net income of S for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
f.
Consolidated SHE:
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
Net income from own/separate operations:
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment for 20x5
P 82,800
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Retained earnings - P Company, January 1, 20x5 (cost model P484,800
Retained earnings – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
P 10,800
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
Consolidated Retained earnings, January 1, 20x5 P 490,440
equity holders of P for 20x5 258,240
Total P748,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.
e.
Total P234,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Non-controlling interest (partial goodwill)………………………………….. P 99,120
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Problem XIV – 80% Full Goodwill – Cost Model
Consideration transferred P
(80%)…………….. 372,000
(20%)……………….. 93,000
P
Fair value of Subsidiary (100%)………. 465,000
Son:
100%)………………. P 240,000
100%)………... 120,000 360,000
value)….. 105,000
liabilities:
100%)……………… P 6,000
100%)……………………. 7,200
100%)………..... ( 24,000)
100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost
over
fair P
value)………………………………………………... 15,000
Annu
Over/ al Current
Account Adjustments to be unde Lif Amou Year(20x
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper – First Year after Acquisition
Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full – 21,000
P12,000, partial goodwill)]…………
Co……………………………………………….
loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Cost of Goods Depreciation/ Amortization Amortization
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

20%)………………..
P 46,800
P 9,360
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill less
P2,500, impairment on partial-goodwill)* 750
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
Cost Model (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P211,050
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 86,400
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (6) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850
P Co. S Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
230,400 90,000
Dividends paid P P
72,000 48,000

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

Cash……………………… 38,400
Dividend income (P48,000x 80%)……………. 38,400
(E1) Investment in S Company………………………… 19,200
year, 1/1/20x5.

Co…………………………………………
80%)…………………………
20%)………………………..
(E3) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….
(P16,950 x 80%) 13,560
20%)…………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

20%)………………..
share of dividends.

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


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

P Company P484,800 (3) 13,560 (5) 19,200 P 490,440
S Company P 144,000 (6) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 57,600 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(8) 3,390 (2 ) 76,800
(3) 21,000
___ _____ _________ __________ (6) 16,560 ____101,370
Total P2,203,200 P1,074,000 P 824,910 P 824,910 P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Fair value of stockholders’ equity of S, January 1, 20x4…… P450,000
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
equity holders of P………….. P202,440
b. NCI-CNI – P8,610
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling int. on impairment loss on full-goodwill (P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)* 750
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss
of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be

Total P562,440
e.
Total P180,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
Goodwill impairment (impairment under full-goodwill approach) 0 23,760
P 82,800

consolidation or to establish reciprocity:/P’s share in adjusted net
Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Non-controlling interest (full-goodwill)………………………………….. P 101,370
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XV – 80% Partial Goodwill – Equity Method

Consideration P
transferred……………………………….. 372,000
80%)……………………. P192,000
80%)………………... 96,000 288,000
value)….. 84,000
liabilities:
80%)……………… P 4,800
80%)……………………. 5,760
80%)………..... ( 19,200)
80%)…… 3,840 72,000
cost over
fair P
value)………………………………………………... 12,000

S Co. (Over)
Book S Co. Under
P
Inventory………………….…………….. 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
P
Net……………………………………….. 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 192,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)
Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4

1,200 1,200 1,200
P P
13,200 P 13,200 7,200
The goodwill impairment loss of P3,125 based on 100% fair value would be
allocated to the controlling interest and the NCI based on the percentage of total
goodwill each equity interest received. For purposes of allocating the goodwill
impairment loss, the full-goodwill is computed as follows:
Less: Book value of stockholders’ equity of S (P360,000
x 100%) __360,000
liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000

Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

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

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

(4) Investment income [(P13,200 x 80%) + P3,000*, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment, buildings and
bonds payable and goodwill impairment loss.
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
Co…………………………………………
Co……………………………………
Investment in Son 288,000
Co……………………………………………
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
20%)………………………..
Co……………………………………………….
loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % of
Total
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of
Total
Goodwill impairment loss attributable to parent P 80.00%
or controlling 3,000
Interest
Goodwill impairment loss applicable to 625 20.00%
NCI……………………..
Goodwill
(E4) Investment income 34,440

20%)………………..
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(60,000 Amortization & Amortization (60,000
5,640 34,440
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of Son Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4
84,000 (E2) Investment, 1/1/20x4
5,640 (E4) Investment Income
and dividends
377,640 377,640


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

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

P Co. S Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
Add: Investment income 66,240
-
Net income P P
258,240 90,000
Dividends paid P P
72,000 48,000
The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
(2) Cash……………………… 38,400
Investment in S Company (P48,000 x 38,400
80%)…………….
December 31, 20x5:
December 31, 20x5:
(4) Investment income (P7,200 x 80%) 5,760
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable
Investment in S
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete guidance for
the worksheet eliminating entries:
Co…………………………………………
Retained earnings – S Co, 144.000
1/1/x5………………………….
Investment in S Co (P384,000 x 80%) 307,200
20%)………………………..
(E2) Accumulated depreciation – equipment (P96,000 – 84,000
P12,000)
Accumulated depreciation – buildings (P192,000 + 198,00
6,000) 0
7,200
Land……………………………………………………………………
….
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,00
0
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
Co……………………………………………….
(E3) Depreciation expense……………………….. 6,000
payable…………………………
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200

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


P 82,800

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

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

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 16,560 ____99,120
Total P2,236,680 P1,074,000 P 794,400 P 794,400 P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings,
non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer
to Problem VI solution).
5. 1/1/20x4
b.
c.
Consolidated SHE:
NCI, 1/1/20x4 ___90,000
6.
12/31/20x4:
a. CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
equity holders of P………….. P202,440
b. NCI-CNI
P 46,800

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

P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
f.
Consolidated SHE:
NCI, 12/31/20x4 ___99,120
Problem XVI - 80% Full Goodwill – Equity Method
(80%)…………….. 372,000
(20%)……………….. 93,000
P
Son:
100%)………………. P 240,000
100%)………... 120,000 360,000
value)….. 105,000
liabilities:
100%)……………… P 6,000
100%)……………………. 7,200
100%)………..... ( 24,000)
100%)…… 4,800 90,000
over
fair P
value)………………………………………………... 15,000

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
Investment in S
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4

guidance for the worksheet eliminating entries on January 1, 20x4:
0
Retained earnings – S Co…………………………………… 120.00
0
Co…………………………………………… 0
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….
loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200

20%)………………..
NI of S 28,800 Dividends – S NI of Son
(60,000 Amortization & Amortization & (60,000
x 80%)……. 48,000 13,560 Impairment Impairment 13,560 48,000 x 80%)
5,640 34,440
Investment in S
(60,000 x 80%) 40,000 13,560 Impairment
84,000 (E2) Investment, 1/1/20x4
and dividends
377,640 377,640

P 46,800
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI

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

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,990,440 P1,008,000 P 754,200 P 754,200 P2,426,850
P Co. S Co.
Sales P P
540,000 380,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
258,240 90,000
Dividends paid P P
72,000 48,000
(2) Cash……………………… 38,400
80%)…………….
December 31, 20x5:

December 31, 20x5:

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

guidance for the worksheet eliminating entries.
Co…………………………………………
1/1/x5………………………….
20%)………………………..
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.

P12,000)
P6,000) 0
7,200
Land……………………………………………………………………
….
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,00
0
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
– P3,000, partial- goodwill impairment)* 17,610
or (P3,750 x 20%)]
Co……………………………………………….
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

20%)………………..

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

P 82,800
Goodwill 0

Sales P540,000 P360,000 P 900,000
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800
P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(5) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,634,000
- equipment P 150,000 P 102,000 (3) 12,000 P 180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest…………
(3) 9,600
(2 ) 76,800
(2) 17,610
___ _____ __________ __________ (5) 16,560 __________
Total P2,236,680 P1,074,000 P 796,650 P 796,650 P2,634,000
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling
interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem VII solution).
5. 1/1/20x4
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___93,000
6.
a. CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)* 750

Total P562,440
e.
Retained earnings – SCompany, January 1, 20x4 P120,000
Total P180,000
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
P 82,800
as follows:
consolidation or to establish reciprocity:/P’s share in adjusted net
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XVII
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds……………………………………… P
720,000
Fair value of retained non-controlling interest equity 420,000
investment (35%)
Carrying value of the non-controlling interest before
deconsolidation 120,000
(15% or prior outside non-controlling interest in
Subsidiary)
P1,260,000
Less: Carrying value of Subsidiary’s net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI

or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem XVIII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds……………………………………… P
84,000
Less: Carrying value of non-controlling interest 72,000
(P720,000* x 10%)
“Gain” – transfer within equity in “Additional paid-in P
capital” account 12,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Because P Company continues to have the ability to control S Company, the sale of S’s shares is
treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer
Company’s additional paid-in capital increases by P60,000.
Problem XIX
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares …..P210,000

Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance…P720,000
x: Non-controlling interest……………. 20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance…………………….P720,000
Additional issuance…………………..…210,000
BV of SHE after issuance……………….P930,000
x: Non-controlling interest……………... 36%** 334,800 190,800
“Gain” – transfer within equity in
“Additional paid-in capital” account...P 19,200
* (120,000 – 96,000) / 120,000 = 20% ownership before additional issuance of shares.

** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
PCompany recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to P595,200
[P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.

1. b
Full-Goodwill: (P600,000/70%) – P640,000 = P217,143 – P40,000 = P177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
2. b – P500,000 + P3,461
3. b
4. d – equivalent to consideration transferred, P320,000
5. d – equivalent to consideration transferred, P380,000
6. a
7. P2,120,000
Podex’s separate earnings for 20x6...................................................... P2,000,000
Dividend income from Sodex ................................................................ __120,000
Podex’s 20x6 net income ....................................................................... P2,120,000
8. P2,260,000
Podex’s separate earnings for 20X6 P2,000,000
Podex’s equity in net income of Sodex ............................................... 300,000
Less: Amortization of cost in excess of book value ............................ (40,000)
Podex’s 20x6 net income ....................................................................... P2,260,000
9. b
10. c
Retained earnings of Parent, 12/31/20x6, Cost Method 310,000
Add: Increased in Retained earnings of Subsidiary _80,000
RE of Parent, 12/31/20x6, Equity Method (same with 390,000
Consolidated RE)
11. c
Investment balance 12/31/x6, Cost Method 200,000
Add: Increased in Retained earnings of Subsidiary 80,000
Investment balance 12/31/x6, Equity Method 280,000
12. d
Add: Increased in Retained earnings of Subsidiary _240,000
Consolidated RE)
13. b – dividends of subsidiary considered as dividend income in the parent’s separate income
statement.
14. b
Less: Decreased in Retained earnings of Subsidiary _40,000
Consolidated RE)
15. d – 20x3: P30,000 x 75% = P22,500

20x4: P40,000 x 75% = P30,000
16. a – no changes in investment unless there are dispositions of investment and permanent
impairment.
17. c - 20x4 = P86,400
Consolidated Net Income 20x4 20x5
Peters Company's reported net income64,000 37,500
Less: dividend income from Smith (1,600) _____0
Peters' income from independent operations62,400 37,500
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000)24,000
Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 ______ (4,000)
Controlling Interest in Consolidated net income86,400 33,500
18. c - 20x5 = P33,500 – refer to No. 17

19. b - 20x4 = P151,400
Consolidated Retained Earnings 20x4 20x5
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000)) 22,400
(.80  (P48,000 – P25,000) ________18,400
P151,400 P179,900
20. c - 20x5 = P179,900 – refer to No. 19
21. c
P Company P30,200 – (P150,0000 – P20,000 – P70,000
P60,000)
S Company (P100,000 – P15,000 – P45,000) 40,000
Total P110,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment ____0 ____0
Profit P110,000
Add: Non-controlling Interest in Net Income (NCINI) _____0
22. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P300,000
Shipping: P75,000 + P150,000………………………………………………………………. 225,000
P525,000
23.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoilidated retained earnings since it is the date of acquisition)P 150,000
Add: CI – CNI (refer to No. 21) 110,000
Less: CI – Dividends (Dividend of parent only)25,000
Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000
24. d
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P
190,000
25. d
Total assets (No. 22) P525,000
Les: Liabilities (No. 24) 190,000
Stockholders’ equity P335,000
26. c – P60,000 x 80% = P48,000

27. c
Investment.1/1/20x4 P105,000
Add: Share in net income – 20x4 (P45,000 x 80%) 36,000
Less: Dividends received 12,000
Investment, 12/31/20x4 P129,000
Add: Share in net income – 20x5 (P60,000 x 80%) 48,000
Less: Dividends received 18,000
Investment, 12/31/20x5 P159,000
28. a
Investment. 4/1/20x6 P500,000
Add: Share in net income – 20x6
(3 quarters x P30,000 x 90%) 81,000
Less: Dividends declared of Satz (3 quarters x P10,000 x 90%) 27,000
Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate) 10,000
Investment, 12/31/20x6 P544,000
29. c
Patz’s equity in net income of Sats (90% x P30,000 x 3 qtrs) P81,000
Less: Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate) 10,000
Investment income – 20x4 (equity method)P 71,000
30. d
Investment balance, 1/1/20x4……………………………………………….. P150,000
Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500
Less: Dividends (P30% x P10,000)……………………………………………. 3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Puma’s 20x6 net income (equity method) ............................................... P153,000
31. b
Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Investment income – 20x4 (equity method)………………………………. P 6,000
32. a – under equity method, the Parent’s retained earnings is the same with Consolidated RE.
33. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
34. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
35. b
Consideration transferred: 10,500 shares x P95 P997,500
Less: BV of SHE – S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
36. a – P900,000 + P500,000 = P1,400,000
37. d – assumed that total expenses includes cost of goods sold which is different when the
question is “total operating expenses”
Cost of goods sold (P360,000 + P200,000) P 560,000
Depreciation expense (P140,000 + P40,000) 180,000
Other expenses (P100,000 + P60,000) 160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20 (P1,500)
Equipment; P80,000 / 10 8,000
Trademark: P50,000 / 16 3,125 9,625
Total expenses P909,625
38. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
39. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
40. c – P450,000 + P180,000 + P40,000 = P670,000
41. d – P50,000 – P3,125 x 5 years) = P34,375
42. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
43. a – P only
44. a
Consolidated Retained earnings, January 1, 20x4 (equity method) P 1,350,000
Total P1,840,375
Consolidated Retained Earnings, December 31, 20x4 (under equity method) P1,645,375
Net Income from own operations: P Co S Co
Sales P900,000 P500,000
Less: cost of goods sold 360,000 200,000
Gross profit P540,000 P300,000
Other expenses 100,000 60,000
Net income P300,000 P200,000

P Company P300,000
S Company 200,000
Total P500,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment (impairment under full-goodwill approach) _ 0 9,625
45. c
Note: Normally, the term used in the requirement “equity in subsidiary income”, is a term used
under equity method, but it should be noted that under PAS 27, it prohibits the use of equity
method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the
answer would be, P190,375.
Share in net income: P200,000 x 100% P200,000
Less: Amortization of allocated excess 9,625
P190,375
46. a
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P
200,000
Amortization of cost in excess of book value ........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
47. a
Punn’s net income from own operations, 12 months ended, 12/31/x6
P6,000,000
Add: Increase in RE of Sunn:
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)P200,000
Amortization of cost in excess of book value ............................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
Punn’s net income for 20x6 under the equity method……………………… P6,140,000
48. b
Full—goodwill Aproach
(80%)…………….. 180,000
(20%)……………….. 20,000
P
Son:
100%)………………. P 100,000
100%)………... 60,000 160,000
value)….. 40,000
liabilities:
100%)……………………. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
Positive excess: Increase in Patent (excess of
cost over
fair P
value)………………………………………………... 25,000

Annu
al Current
Account Adjustments to be Over/ Lif Amou Year(20x
amortized under e nt 4)
Subject to Annual
Amortization
P
Equipment (net)......... 10,000 5 2,000 P 2,000
Patent 25,000 5 5,000 5,000
P
7,000 P 7,000
49. d
Investment in Wisden
1/1/x4. 180,000 18,000 Dividends – S
(20,000 x 90%)
NI of S
(60,000 Amortization
x 90%)……. 54,000 12,600 (P14,000 x 90%)
1/1/x6203,400
50. c
Investment in Wisden
1/1/x6. 230,400 9,000 Dividends – S
(10,000 x 90%)
NI of S
(30,000 Amortization
x 90%)……. 27,000 6,300 (7,000 x 90%)
1/1/x6215,100
51. a
20x4 Investment income: Dividend of P10,000 x 100% = P10,000
20x4 Investment balance: P500,000
52. b
Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..………. P 80,000
Less: Amortization of cost in excess of book value
Inventory: P20,000 x 100%……………………………………………….. 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... 5,000

Add: Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..…80,000
Less: Dividends (100% x P10,000)……………………………………………. 10,000
Amortization of cost in excess of book value:
Inventory: P20,000 x 100%……………………………………………… 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... ___5,000
Investment balance, equity method, 12/31/20x4…………………………. P545,000
53. d
Under the cost method, an investor recognizes its investment in the investee at cost. Income is
recognized only to the extent that the investor receives distributions from the accumulated
net profits (or dividend declared/paid by the investee) of the investee arising after the date
of acquisition by the investor. Distributions (dividends) received in excess of such profits are
regarded as a recovery of investment and are accounted for as a reduction of the cost of the
investment (i.e., as a return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the same.
54. d – refer to No. 53 for further discussion.

55. b – refer to No. 53 for further discussion.
56. a – P40,000 x 80%
57. b – P50,000 x 80%
58. a – P60,000 x 80%
59. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P100,000
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**………… 0
P 93,000
x: Non-controlling interests……………………………. 20%
Non-controlling interest in Net Income………………………..P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization……………………………… P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full-
goodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Less: Amortization of allocated excess*………………7,000
P 93,000
Non-controlling interest in Net Income…………………. P 18,600
60. c
Less: Amortization of allocated excess*…………….. 7,000
Impairment of full-goodwill (if any)**………… 0
P113,000
Non-controlling interest in Net Income………………………..P 22,600

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

Less: Amortization of allocated excess*…………….. 7,000
P113,000
Non-controlling interest in Net Income…………………………P 22,600
61. a
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**……… 0
P123,000
x: Non-controlling interests………………………….. 20%
Non-controlling interest in Net Income……………………… P 24,600
Total amortization………………………. P 7,000
interests

Less: Amortization of allocated excess*……………… 7,000
P123,000
x: Non-controlling interests……………………………… 20%
Non-controlling interest in Net Income………………..P 24,600
62. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4……………………………… P 300,000
Retained earnings, 1/1/20x4………………………….P200,000
Add: Net income – 20x4…………………………….. 100,000
Less: Dividends paid, 20x4…………..………………40,000 260,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year…………………………………….…. 7,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P623,000
Multiplied by: Non-controlling Interest %........................... ____ 20%
Non-controlling Interest (partial goodwill)………………….. P124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of consideration transferred: Cash………… P 500,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary): (P300,000 + P200,000) x 80%.. 400,000
Allocated Excess.…………………………………………. P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%......................... 32,000 56,000
Goodwill (Partial)………………………………………….. P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%........………………………….. P 625,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary)…………................................... 500,000
Allocated Excess.…………………………………………. P 125,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 55,000
63. e
Common stock, 12/31/20x5……………………………… P 300,000
Retained earnings, 1/1/20x5 …………………..……P260,000
Add: Net income, 20x5………………………………. 120,000
Less: Dividends paid, 20x5…………………………… 50,000 330,000
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5… P 686,000
Multiplied by: Non-controlling Interest %.............................. 20%
Non-controlling Interest (partial goodwill)………………….. P 137,200
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 148,200
64. e
Common stock, 12/31/20x6……………………………… P 300,000
Retained earnings, 1/1/20x6………………………….P330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6…………………………..60,000 400,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6… P 749,000
Multiplied by: Non-controlling Interest %............................ 20%
Non-controlling Interest (partial goodwill)………………….. P 149,800
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
65. P542,400
Add: Bell’s equity in net income of Demers – x4 (80% x P100,000)..……80,000
Less: Dividends (80% x P40,000)……………………………………………….32,000
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
66. c
Add: Bell’s equity in net income of Demers – x4 (80% x P120,000)..…… 96,000
Less: Dividends (80% x P50,000)………………………………………………. 40,000
67. b
Add: Bell’s equity in net income of Demers – x4 (80% x P130,000)..…… 104,000
Less: Dividends (80% x P60,000)………………………………………………. 48,000
68. a
Bell’s equity in net income of Demers (80% x P100,000)………………. P 80,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200) 5,600
69. a
(P2,400 + P3,200) 5,600
70. c
(P2,400 + P3,200) 5,600
71. c
Subsidiary net income from own operations…………………………… P100,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 93,000
x: Non-controlling interests……………………………………………….. 20%
Non-controlling interest in Net Income…………………………………P 18,600
72. c
(P3,000 + P4,000)………………………………………..……………. 7,000
P 113,000
Non-controlling interest in Net Income………………………………… P 22,600
72. c
(P3,000 + P4,000)………………………………………..……………. 7,000
P 123,000
Non-controlling interest in Net Income………………………………… P 24,600
73. a – same with No. 62 (cost method)

74. e – same with No. 63 (cost method)
75. d – same with No. 64 (cost method)
76. b
77. b – Dividend paid – S, P70,000 x 60% = P42,000
78. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000
P Company P190,000
SCompany 90,000
Total P280,000
Amortization of allocated excess 15,000
Goodwill impairment ____0 45,000
Profit P235,000

Amortization of allocated excess – 20x4 ( 15,000_
P75,000
P 30,000
Less: Non-controlling interest on impairment loss on full-goodwill ______0
(P1,500 x 15%)*
P 30,000
20x5 results of operations are as follows:

Peer Sea-Breeze
Sales P 600,000 P 300,000
Less: Cost of goods sold Operating expenses 410,000 210,000
Net income from its own separate operations P 190,000 P 90,000
Add: Investment income 45,000 -
Net income P 235,000 P 90,000
Computation of Goodwill:
Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) __550,000
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0

Book Value Fair Value Over/under Amort.
Buildings (net)- 6 300,000 360,000 P 60,000 P 10,000
Equipment (net)– 4 300,000 280,000 (20,000) (5,000)
Patent -10 -0- 100,000 100,000 10,000
Net P 140,000 P 15,000

81. c - P811,000.
Retained earnings - Parent Company, January 1, P700,000
20x5 (cost model)
Adjustment to convert from cost model to equity
method for
purposes of consolidation or to establish
reciprocity:/Parent’s
share in adjusted net increased in subsidiary’s
retained earnings:
Retained earnings – Subsidiary, January 1, P
20x5 300,000
Less: Retained earnings – Subsidiary, January 70,000
1, 20x2
Increase in retained earnings since date of P
acquisition 230,000
Less: Amortization of allocated excess – 20x2
– 20x4
(P15,000 x 3 years) 45,000
P
185,000
Multiplied by: Controlling
interests %................... 60%
P
111,000
Less: Goodwill impairment loss (full-goodwill), 0
111,000
Consolidated Retained earnings, January 1, 20x5 P
811,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary, the
following rule should always be applied –
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
Since, the P811,000 is the retained earnings of parent under the equity
method, it should also be considered as the parent’s portion or interest in
consolidated retained earnings or simply the consolidated retained
earnings.
82. c - P811,000 – refer to note (b) of No. 81

83. b – P111,000 – refer to No. 81
84. d
Consolidated Retained earnings, January 1, 20x5 (refer to P
Nos. 81 and 82) 811,000
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5
235,000
Total P1,046,0
00
Less: Dividends paid – Parent Company for 20x5
92,000
Consolidated Retained Earnings, December 31, 20x5 P
954,000
86. c
Non-controlling interest (partial-goodwill), December 31, 2015
Common stock – Subsidiary Company, December 31, P
2015……
480,000
Retained earnings – Subsidiary Company,
December 31, 2015
Retained earnings – Subsidiary Company, P300,000
January 1, 2015
Add: Net income of subsidiary for 2015 90,000
Less: Dividends paid – Subsidiary - 2015 70,000 320,000
Stockholders’ equity – Subsidiary Company, P
December 31, 2015 800,000
Adjustments to reflect fair value - (over)
of assets and liabilities, date of acquisition
(January 1, 2012)
Amortization of allocated excess (refer to
amortization above) –
(P15,000 x 4) ( 60,000)
Fair value of stockholders’ equity of subsidiary, P
12/31/ 2015 880,000
Multiplied by: Non-controlling Interest
percentage. 40
Non-controlling interest (partial) P
352,000
Add: NCI on full-goodwill……………………. ____0
Non-controlling interest (full) P
352,000
87. c
Common stock - Peer P
724,000
Parent’s Stockholders’ Equity/Equity
Attributable to the
Owners of the Parent P
1,678,000
Non-controlling interest** 352,000
Total Stockholders’ Equity (Total Equity) P 985,500
88. c
Investment in Sea-Breeze Investment Income
1/1/x2. 414,000 42,000 Dividends – S NI of S
Retro 111,000 (70,000 x 60%
NI of S
x 60%)……. 54,000 9,000 (P15,000 x 60%) (P15,000 x 60%) 9,000 54,000 x 60%)
12/31/x5528,000 45,000
89. c
95. a – not applicable under equity method.
100. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
101. b
Retained earnings – S Company, 1/1/20x4 P 60,000
Less: Retained earnings – S Company, 12/31/20x6 190,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
should always be beginning of the year, not 12/31/x6) P130,000
x: Controlling interests 90%
P117,000
102. (b)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)……………………………………... 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity –should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings………………………………………………………………………………………... P 22,000
x: Controlling interests……………………………………………………………………………………..70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to
established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for
amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 20 17 not
December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at the
beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary………………………………………………………………… 15,400
Retained earning – Parent Company, 1/1/2017………………………………. 15,400
103. (a)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000
Increase in Retained earnings for 2 years……………………………………………………………… P 22,000
Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]………………… 4,000
P 18,000
x: Controlling interests………………………………………………………………………………………. 70%
Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600
104. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
105. a - under the cost model share in net income or earnings of subsidiary does not affect
investment.
106. d
Investment account, December 31, 20x7:
Original investment …………………………………………..P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000……………166,000
Less: Dividends received: 100% x P114,000………………114,000
Balance, December 31, 20x7……………………………..P602,000
107. a
The adjusting entry required in 20x7 to convert from the cost to the equity methodis:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny……. 110,000
108. d – P45,000/15% = P300,000

109. d
Pigeon’s separate income P150,000
Less: 60% of Home’s P10,000 loss = 6,000
Less: Equipment depreciation
P10,000/ 10 years = __1,000
Controlling Interest in Consolidated Net Income P143,000
Add: NCI in CNI
NL of S Company P( 10,000)
Less: Amortization of allocated excess (P1,000/60%) 1,667
P (11,667)
Multiplied by: NCI% 40% ( 4,667)
Consolidated Net Income P138,333
110. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
P195,000
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
111. c
P Company P 375,000
S Company 30,000
Total P405,000

Less: Amortization of allocated excess** 3,750
P26,250
**P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
112. a
*Non-controlling Interest in Net Income (NCINI) for Year 3
P487,500
Non-controlling Interest in Net Income (NCINI) for Year 3 P146,250
113. c
P Company P 625,000
S Company 50,000
Total P675,000

Less: Amortization of allocated excess** 6,250
P43,750
**P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
114. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667
Amortization of allocated excess: P15,000 x 4/12 5,000
P211,667
115. c
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
116. a
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
117.b Combined revenues .................................................................................................. P1,100,000

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

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

P Company P 500,000
S Company 100,000
Total P600,000
Add: NCINI __20,000
CNI - entity concept P600,000

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

Less: Amortization of allocated excess _______0
P100,000
122. b
Net Income from own operations: 20x420x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P125,000 P135,000
Subsidiary’s other comprehensive income…………..5,000 10,000
Total Comprehensive Income……………………….....P130,000 P145,000
Less: Amortization of allocated excess…………….… 6,250 6,250
Impairment of full- goodwill (if any)…………. 0 0
Consolidated /Group Comprehensive Income…… P123,750 P138,750
Less: Non-controlling interest in Comprehensive
Income *…………………………………………… 4,750 7,750
Controlling Interest in Consolidated __________________
Comprehensive Income …. …………………………P119,000 P131,000
*Non-controlling interest in Comprehensive Income: 20x420x5

Subsidiary’s:
Net income from own operations………….......P 25,000 P 35,000
Other Comprehensive Income (P30,000 –
P25,000)…………………………….…………... 5,000 10,000
Subsidiary’s Comprehensive Income…………........P 30,000 P45,000
Less: Amortization of allocated excess*………….. 6,250 6,250
Impairment of full-goodwill (if any)....………. 0 0
P 23,750 P 38,750
x: Non-controlling interests……………………………. 20% 20%
Non-controlling interest in Comprehensive IncomeP 4,750P 7,750

Increase in other intangibles: P50,000 / 8 years = P 6,250

125. b- refer to No. 122
126. d
Inventory – not yet sold in 20x4 P 0
Building: (P390,000 – P200,000)/ 10 years 19,000
Equipment (P280,000 – P350,000)/ 5 years ( 14,000)
P 5,000
127. c
Plochman’s acquisition entry is:
Investment in Shure……………………………………………………………40,000,000
Retained earnings (acquisition-related expense – close to
retained since only balance sheet accounts are being
examined)…………………………………………………………………… 1,000,000
Common stock, 1,000,000 x P1 par……………………………… 1,000,000
PIC in excess of par [(1,000,000 x P39) – P800,000)…………… 32,000,000
Cash (P800,000 + P1,000,000)…………………………………….. 1,800,000
Eliminating entries are:

Book value of stockholders’ equity:
Stockholders’ equity-Shure………………………………………………… 6,000,000
Investment in Shure………………………………………………… 6,000,000
Allocated excess (acquisition/purchase differential):
Identifiable assets……………………………………………………………. 7,000,000
Long-term debt………………………………………………………………. 500,000
Goodwill………………………………………………………………………..28,500,000
Lawsuit liability………………………………………………………. 2,000,000
Investment in Shure………………………………………………… 34,000,000
128. d –refer to No. 127

129. a
130. a
Cost of Goods Sold P80,000 debit
Depreciation Expense (P192,000/120) 7 = P11,200 debit
131. c
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
132. a [(P250,000 - P180,000)/10]7
133. c
[(P380,000 - P260,000)/120]88
134. No question available
135. a
136.c
P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
137.b
[P320,000 - (P300,000 - P170,000)]/10
138.d
139.d
P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
140. a
[P405,000 - (P450,000 - P105,000)]/20
141. d - The acquisition method consolidates assets at fair value at acquisition date regardless
of the parent’s percentage ownership.
142. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
143. b
P: BV,12/31/20x5 P 975,000
S:
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 129,000 6,000
P1,104,000
144. c - An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 ........................................................................ P45,000
Amortization for 2 years (10 year life)...................................................................... (9,000)
Patent reported amount December 31, 20x5....................................................... P36,000
145. b
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
146. d – same with No. 145
147. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
148. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
149. d – 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
P300,000
150. b
Decrease in Buildings account:
Fair value……………………………………………P 8,000
Book value………………………………………….. __10,000
Decrease…………………………………………….P 2,000
151. d
Decrease in buildings account (refer to No. 73)………… P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,800
152. d
Decrease in buildings account (refer to No. 74)………… P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,600
153. a
Increase in Equipment account:
Fair value……………………………………………P 14,000
Book value………………………………………….. __18,000
Increase…………………………………………….P 4,000
154. a
Increase in equipment account (refer to No. 76)………… P 4,000
Less: Decrease due to depreciation (P4,000/4)…………… 1,000
Increase in equipment accounts……………………………..P 3,000
155. a
Increase in equipment account (refer to No. 77)………… P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts……………………………..P 2,000
156. a
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
157. b – refer to No. 156, no depreciation/amortization

158. b – refer to No. 156, no depreciation/amortization
159. e
Increase in Patent account:
Fair value……………………………………………P 11,000
Book value………………………………………….. _ 0
Increase…………………………………………….P 11,000
(P234,000/90%) – (P160,000 + P80,000) = P20,000 – (P4,000 – P2,000 + P7,000) = P11,000.

Partial or full-goodwill approach, the amortization remains the same.
160. e
Increase in patent account (refer to No. 159)……………… P 11,000
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 8,800
161. d
Increase in patent account (refer to No. 160)……………… P 8,800
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 6,600
162. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares) P120,600
Less: Book value of SHE-S, 1/1:
Common stock – S: P50,000 x 90% P 45,000
APIC – S: P15,000 x 90% 13,500
RE – S: P41,000 x 90% 36,900 95,400
Allocated Excess P 25,200
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100–P16,100) x 90% P 900
Increase in Eqpt. (P48,000–P40,000) x 90% 7,200
Increase in Patents (P13,000–P10,000) x 90% 2,700 10,800
Positive Excess: Goodwill P 14,400
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year P 1,000
Equipment: P8,000 / 4 years 2,000
Patents: P3,000 / 10 years 300
P 3,300
163. c
Common stock – S P 50,000
APIC – S 15,000
RE – S 41,000
Stockholders’ equity – Subsidiary, 1/1 P106,000
Add: Adjustments to reflect fair value 12,000
Fair value of Stockholders’ Equity – S, 1/1 P118,000
x: Non-controlling) interests 10%
Non-controlling Interests (in net assets) P 11,800
164. a – P48,000, parent only.
165. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the consolidated
retained earnings.
166. b – P120,600, the initial value
167. b – P4,000 x 90% = P3,600
168. c
P CompanyP30,200 – (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Amortization of allocated excess 3,300
Goodwill impairment ____0 3,910
Profit P32,090
Add: Non-controlling Interest in Net Income (NCINI) 610

P 6,100
P 610
Less: Non-controlling interest on impairment loss on full-goodwill ____0
Non-controlling Interest in Net Income (NCINI) P 610
169. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31 15,000
Retained earnings - S, 12/31:
RE-S, 1/1/2011 P 41,000
Add: NI-S, 2011 9,400
Less: Dividends – S 4,000 46,400
Book value of SHE - S, 12/31 P 111,400
Add: Adjustments to reflect fair value, 1/1 12,000
Less: Amortization of allocated excess (1 yr.) 3,300
Fair Value of Net Assets/SHE - S, 12/31 P 120,100
x: Noncontrolling Interest % 10%
Noncontrolling Interest (in net assets), 12/31 P 12,010
170. b – refer to 168 for computation
171. c – refer to 168 for computation
172. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102 P 48,000
Add: CI – CNI (refer to 168) 32,090
Less: CI – Dividends (Dividend of parent only) 15,000
Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090
173. b – same with No. 172
174. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000
APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600
RE – P (refer to No. 172) 65,090
Parent’s Stockholders Equity or Controlling Interest – Equity P300,690
Noncontrolling Interest 12,010
Consolidated Equity P312,700
175. c P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
176. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]
177. b Combined revenues .................................................................................................. P1,300,000

Combined expenses .................................................................................................. (800,000)
Trademark amortization ............................................................................................ (6,000)
Patented technology amortization......................................................................... (8,000)
Consolidated net income ......................................................................................... P486,000
178. c
Subsidiary income (P100,000 – P14,000 excess amortizations)........................... P86,000
Non-controlling interest percentage ...................................................................... __40%
Non-controlling interest in subsidiary income ........................................................ P34,400
Fair value of non-controlling interest at acquisition date ................................... P200,000

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

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

30% of net income for 9 months (¾ year×P240,000 × 30%) ................................ 54,000
Non-controlling interest December 31 ................................................................... P219,000
181. c
Book value of SHE – S, 12/31/20x4 P1,000,000
Add: Net income of S – 20x4 ___150,000
Total P1,150,000
Less: Dividends paid – 20x4 ____90,000
Stockholders’ equity – S Company, December 31, Year 2 P1,060,000
liabilities, date of acquisition January 1, 20x4 200,000
Amortization of allocated excess (refer to amortization above: P200,000/10 _( 20,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P1,240,000
Multiplied by: Non-controlling Interest percentage…………... 30%
Non-controlling interest (partial) P372,000
Add: NCI on full-goodwill P85,714 – P60,000) ___25,714
Non-controlling interest (full) P397,714
*P900,000/70% = P1,285,714 – P1,000,000 = P285,714 – P200,000 =
P85,714, full goodwill
*P900,000 – (P1,000,000 x 70%) = P200,000 – (P200,000 x 70%) = P60,000,
partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3
either partial or full-goodwill approach are considered acceptable.
182. b – (P50,000 + P70,000) x 25% = P30,000
183. b – P only.
184. b
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
185. d
{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
186. a - P650,000 =P500,000 + P200,000 - P50,000
187. b
188. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)
189. c – equivalent to the original cost
190. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
191. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Theories
1. c 6. b 11. C** 16. c 21. d 26. c 31 c 36. d 41. a
2. d 7. c 12. b 17. c 22. a 27. d 32. b 37. b 42. c
3. d 8. d 13. d 18. d 23. b 28. c 33. c 38. b 43. a
4. d* 9. d 14. c 19. d 24. c 29. c 34. c 39. c 44.
5. d 10, a 15, c 20. b 25. c 30. b 35. d 40. d 45.
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.
Chapter 17
Problem I
1.
P Company’s net income from own/separate operations…………. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000
S Company’s net income from own operations…………………………………. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P1,206,000
Less: Non-controlling Interest in Net Income* * 92,000
equity holders of parent – 20x5………….. P 1,114,000
*that has been realized in transactions with third parties.
Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit
Ending inventory: P1,200,000 x ¼ = P300,000 x 20/120 = P50,000 profit
Or, alternatively
S Company’s realized net income from separate operations*…….….. P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess…………………… 0 92,000
equity holders of parent………….. P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P 1,206,000
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P460,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P460,000
Less: Amortization of allocated excess _____0
P460,000
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000
2. Books of Puma
(a) Cost Method
20x4
Dividend – Smarte Company:
None, since, there is no amount given
20x5
Dividend – Smarte Company:
(b) Equity Method

20x4
Net income – Smarte
Investment in Smarte (400,000 x 80%) 320,000
Equity in Subsidiary Income 320,000
Dividend – Smarte
Cash/Dividends receivable 0
Investment in Smarte 0
Amortization of Allocated excess:

Equity in Subsidiary Income 0
Realized Profit in BI:

Unrealized Profit in EI:

Investment in Smarte 36,000
20x5
Net income – Smarte
Investment in Smarte (460,000 x 80%) 368,000
Dividend – Smarte


Investment in Smarte 36,000

Equity in Subsidiary Income 50,000 50,000
Investment in Smarte
3. Downstream Sales
20x4
Sales………………………………………………………………………………… 1,080,000
Purchases (Cost of Goods Sold)……………………………………... 1,080,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[216,000 –
(216,000/1.20)]………..………………………………………….. 36,000
Inventory (Ending Inventory in Balance Sheet)……………………..
36,000
20x5
100% Interscompany Sales
Sales………………………………………………………………………………….1,200,000
Purchases (Cost of Goods Sold)………………………………….. 1,200,000
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………………….....
36,000
Cost of Sales (Beginning Inventory in Income Statement)…..
36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 –
(300,000/1.20)]………..………………………………………….. 15,000
Inventory (Ending Inventory in Balance Sheet)………………..
15,000
Problem II
1.
P Company’s net income from own/separate operations…………. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 1, 720,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Son Company’s realized net income from separate operations*…….….. P 589,000 589,000
Total P2,309,000
equity holders of parent – 20x5………….. P 2,250,100
Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit
Ending inventory: P1,020,000 x ¼ = P255,000 x 25/125 = P51,000 profit
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (________0)
P Company’s realized net income from separate operations*…….….. P1,720,,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)
Total P2,309,000
Amortization of allocated excess…………………… 0 __58,900

(Reported net income of Son Company) P600,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Company’s realized net income from separate operations……… P589,000
P589,000
2. Books of Pinta
(a) Cost Method
20x4
Dividend – Simplex Company:
20x5
Dividend – Simplex Company:
(b) Equity Method

20x4
Net income – Simplex
Investment in Simplex (600,000 x 90%) 540,000
Dividend – Simplex
Investment in Simplex 0



20x5
Net income – Simplex
Dividend – Simplex



3. Upstream Sales:
100% Interscompany Sales
Sales…………………………………………………………………………………1,020,000
Purchases (Cost of Sales)………………………………………. ……. 1,020,000
To eliminate intercompany sales.
***100% RPBI of P: (if equity method Investment in S instead of RE – P,

beg.)
Retained Earnings – P, beginning (90% x P40,000)……………...….
36,000
NCI ……………………………………………….………………………….
4,000
Cost of Sales (Beginning Inventory in Income Statement)
40,000
To recognize unrealized profit in beginning inventory realized during the year.
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income
Statement)………………51,000
Inventory (Ending Inventory in Balance Sheet)………………
51,000
To eliminate unrealized intercompany profit in ending inventory.
Problem III
1.
Non-controlling Interest in Net Income (NCINI) for 20x4
(Reported net income of Son Company) P3,000,000
Realized profit in beginning inventory of P Company (upstream sales): P525,000 x 25/125 105,000
Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x 25/125 ( 250,000)
Son Company’s realized net income from separate operations……… P 2,855,000
P3,055,000
2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of

parent – 20x5 – cannot be solved, since there is no net income from separate operations for
P Company.
Incidentally, the eliminating entries are as follows:

Sales 4,000,000
Cost of Goods Sold 4,000,000
Cost of Goods Sold 250,000
Ending Inventory (Balance Sheet) 250,000
[P1,250,000 - (P1,250,000/1.25)]
Retained Earnings, beginning – P Company (80%) 84,000
Noncontrolling interest (20%) 21,000
Cost of Goods Sold (Beginning Inventory) 105,000
[P525,000 – (P525,000/1.25)] = P105,000
3.
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P5,400,000
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)
Less: Unrealized profit in ending inventory of P Company (upstream sales) 250,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P5,150,000
Non-controlling interest (in net assets)…………………………….. P1,030,000
Problem IV
Consideration P
transferred……………………………….. 372,000
Son:
80%)……………………. P 192,000
80%)………………... 96,000 288,000
value)….. 84,000
liabilities:
80%)……………… P 4,800
80%)……………………. 5,760
80%)………..... ( 19,200)
80%)…… 3,840 72,000
cost over
fair P
value)………………………………………………... 12,000

SCo. (Over)
Book S Co. Under
P
Inventory………………….…………….. 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
P
Net……………………………………….. 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. SCo.
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 192,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 48000 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:

(P360,000 x 100%) __360,000
liabilities
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of
Total
The goodwill impairment loss would be allocated as follows

Value % of
Total
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Intercompany
Year Sales of Merchandise Unrealized
Parent to in 12/31 Inventory Intercompany Profit in
Subsidiary of S Company Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% =
P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% =
P40,000
Upstream Sales:
Intercompany
Subsidiary to in 12/31 Inventory Intercompany Profit in
Parent of S Company Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% =
P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P
5,000

January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
20%)………………………..
Co……………………………………………….

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
book value of S’s identifiable assets and liabilities as follows:
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200

20%)………………..
share of dividends.
(E5) Sales………………………. 150,000

Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000

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


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


Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 36,000 _________
Cost of goods sold P204,000 P138,000 (3) 6,000 (5) 150,000 P 168,000
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,800

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 196,800 __60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - __36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 355,200
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 12000 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(7) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
(11)
Accumulated depreciation 405,000 288,000 192,000
- buildings (12) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 6,960 ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600

P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Total P198,000

S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
S Company’s realized net income from separate operations……… P 48,000
P 34,800
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss
on goodwill and impairment losses are not shared with NCI.

P Co. S Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
230,400 90,000
Dividends paid P P
72,000 48,000
20x5: Parent Company Cost Model Entry

Cash……………………… 38,400
Dividend income (P48,000 x 38,400
80%)…………….

Cash 48,000

(E1) Investment in S 19,200
Company…………………………

Co…………………………………………
Retained earnings – S Co., 1/1/20x5 144.000
80%)…………………………
20%)………………………..
(E3) 6,000
Inventory………………………………………………………………
….
equipment……………….. ....
buildings………………….. ... 0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
216,00
Buildings………………………………………........................... 0
20%)............................
Co……………………………………………….

20%)…………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
Total P 13,560

20%)………………..
share of dividends.
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Beginning Retained Earnings – P

Company…… 18,000
Cost of Goods Sold (Ending Inventory –
Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in the
prior period.
(E9) Beginning Retained Earnings – P Company

(P12,000 x 80%) 9,600
Noncontrolling interest (P12,000 x 20%)…… 2,400
To realized profit in beginning inventory deferred in the prior period.


Realized profit in beginning inventory of P

Company - 20x5 (upstream sales) 12,000
Company - 20x5 (upstream sales) ( 6,000)
S Company’s Realized net income* P 96,000
P 88,800
Non-controlling Interest in Net Income (NCINI )
*from separate transactions that has been realized in transactions
with third persons.


Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 (10) 24,000 (6) 120,000
(11) 6,000 (7) 75,000 213,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (4) 13,560
(8) 18,000 (9) 19,200 P 462,840
(9) 9,600
(10)
S Company P 144,000 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (11) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(14) 9,600 (2 ) 76,800
(9) 2,400 (3) 18,000
___ _____ _________ __________ (12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:

Retained earnings – P Company, January 1, 20x4 (date of acquisition) P360,000
b.
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Non-controlling interest (partial) P 90,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___90,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Total P198,000
P 34,800

as follows:

Total P534,840
e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized. The NCI on December 31, 20x4 are computed as follows:
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
f.
Consolidated SHE:
NCI, 12/31/20x4 ___89,760
12/31/20x5:
a. CI-CNI
Total P282,000
equity holders of parent – 20x5………….. P257,040
Or, alternatively
Total P282,000
Amortization of allocated excess…………………… 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable toequity
holders of parent………….. P257,040
b. NCI-CNI
P 88,800

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S
Company (downstream sales) –20x5 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000
(P 1,200)
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Total P748,680
Less: Dividends paid – Parent Company for 20x5 72,000
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
NCI, 12/31/20x4 ___97,920
Problem V
(80%)…………….. 372,000
(20%)……………….. 93,000
P
Son:
100%)………………. P 240,000
100%)………... 120,000 360,000
value)….. 105,000
liabilities:
100%)……………… P 6,000
100%)……………………. 7,200
100%)………..... ( 24,000)
100%)…… 4,800 90,000
over
fair P
value)………………………………………………... 15,000

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200

January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
Record dividends from Son Company.
On the books of Son Company, the P36,000 dividend paid was recorded as follows:

Cash……. 36,000
Dividends paid by SCo..

Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

20%)………………..
share of dividends.
(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000




P 34,800
– partial goodwill
P3,000, impairment on partial-goodwill) 750
– full goodwill P 6,210
Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 28,800 _________
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,050

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(9) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
(15)
- buildings (16) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ (9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Son Co.
Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
230,400 90,000
Dividends paid P P
72,000 48,000

20x5: Parent Company Cost Model Entry

Cash……………………… 38,400
80%)…………….

Cash 48,000
Dividends paid by SCo..

year, 1/1/20x5.


0
Retained earnings – S Co., 1/1/20x5 144.00
0
80%)………………………… 0
20%)………………………..
(E3) 6000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….
(P16,950 x 80%) 13,560
20%)…………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

20%)………………..
share of dividends.
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Beginning Retained Earnings – P

Company…… 18,000
prior period.
(E9) Beginning Retained Earnings – P Company

(P12,000 x 80%) 9,600
To realized profit in upstream beginning inventory deferred in the
prior period.


Son Company’s Realized net income* P 96,000
P 88,800
- partial goodwill
Goodwill 0
with third persons.


Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
(11) 6,000 (7) 90,000
(8) 21,600
(9) 14,400
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (5) 13,560
(8) 18,000
(9) 96000 (12) 19,200 P 462,840
(13)
S Company P 144,000 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (14) 6,000 (4) 6,000
(10) 24,000 294,000
(11) 6,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(17) 9,600 (2 ) 76,800
(9) 2,400 (3) 21,000
___ _____ _________ __________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial)………………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___93,000
6.
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Perfect Company’s realized net income from separate operations*…….….. P150,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
P 34,800
Non-controlling Interest in Net Income (NCINI) – partial P 6,960
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
c. CNI – P181,050 – refer to (a)

as follows:
Total P534,840
e.
Non-controlling interest ), December 31, 20x4
Total P180,000
Non-controlling interest (full-goodwill)…………….. P 92,010
f.
Consolidated SHE:
Common stock, P10 par P
600,000
Retained earnings
462,840
Parent’s Stockholders’ Equity / CI - SHE P1,062,8
40
NCI, 1/1/20x4 ___92,0
10
40
12/31/20x5:
a. CI-CNI – P257,040
Total P282,000
Or, alternatively
Total P282,000
P 88,800
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760

as follows:

Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
parties.. P466,800
(P 1,200)
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 ( 3,960)
Total P719,880
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
20x4 and 20x5 (P13,200 + P7,200) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 28,680
e.
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170
Problem VI
Consideration P
transferred……………………………….. 372,000
Son:
80%)……………………. P 192,000
80%)………………... 96,000 288,000
value)….. 84,000
liabilities:
80%)……………… P 4,800
80%)……………………. 5,760
80%)………..... ( 19,200)
80%)…… 3,840 72,000
cost over
fair P
value)………………………………………………... 12,000

S Co. (Over)
Book S Co. Under
P
Inventory………………….…………….. 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
P
Net……………………………………….. 204,000 P 294,000 P 90,000
S Co. S Co.
Book Fair Increase
value value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. S Co.
Book Fair
value value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 192,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)

Over/ Annu CurrentY
Account Adjustments to be Unde LifalAmo ear(20x4
amortized r e unt ) 20x5
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 48000 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:

(P360,000 x 100%) __360,000
liabilities
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
Value % of
Total
Value % of
Total
Interest
Goodwill
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Intercompany
Parent to in 12/31 Inventory Intercompany Profit in
Subsidiary of S Company Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% =
P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% =
P40,000
Upstream Sales:
Intercompany
Subsidiary to in 12/31 Inventory Intercompany Profit in
Parent of S Company Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% =
P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P
5,000
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..
(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
December 31, 20x4:

To adjust investment income for downstream sales - unrealized profit in ending
inventory of S.
December 31, 20x4:

To adjust investment income for upstream sales - unrealized profit in ending
inventory P .
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son (P15,000 x 100%)
9,600 UPEI of Perfect (P10,000 x80%)
Balance, 12/31/x4 350,040
Investment Income
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4

Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
To eliminate investment on January 1, 20x4 and equity accounts of
subsidiary on date of acquisition; and to establish non-controlling interest
(in net assets of subsidiary) on date of acquisition.
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
20%)………………………..
Co……………………………………………….
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400

20%)………………..
follows:

18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son
9,600 UPEI of Perfect
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000




Son Company’s realized net income from
Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
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.


Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
(5) P 168,000
Cost of goods sold P204,000 P138,000 (3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 60,000 P181,800

PCompany P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P462,840 P144,000 P 642,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 387,360
Inventory…………………. 120,000 90,000 (1) 5,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 220,000 180,000 380,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000
-
Total P1,635,700 P1,006,000 P2,394,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 6,960 ____89,760
Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600
Second Year after Acquisition

P Co. S Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
257,040 90,000
Dividends paid P P
72,000 48,000
20x5: Parent Company Equity Method Entry

(2) Cash……………………… 38,400
80%)…………….
December 31, 20x5:
December 31, 20x5:

December 31, 20x5:

To adjust investment income for downstream sales - unrealized profit
in ending inventory of Son (UPEI of S).
December 31, 20x5:

(6) Investment in S Company…………….. 18,000
Investment income (P18,000 x 100%)……….. 18,000
To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

To adjust investment income for upstream sales - unrealized profit in
ending inventory Perfect (UPEI of P).
December 31, 20x5:

To adjust investment income for upstream sales - realized profit in
beginning inventory of Perfect (RPBI of P)
Investment in S
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)
RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5

guidance for the worksheet eliminating entries:

Co…………………………………………
1/1/x5………………………….
Investment in SCo (P384,000 x 80%) 307,200
20%)………………………..

P12,000)
P6,000) 0
7,200
Land……………………………………………………………………
….
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,00
0
Investment in S Co………………………………………………. 70,440
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.

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/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

20%)………………..
follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Investment in Son Company……………………. 18,000

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

prior period.
Investment in S
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
RPBI of P(P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280



Less: Amortization of allocated excess ( 7,200)
P 88,800
with third persons.

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P777,456 P223,200 P 777,456
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
(9) 9,600 (6) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400 (2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 17,760 ____97,920
Total P2,207,880 P1,074,000 P1,046,400 P1,046,400 P2,677,800
5 and 6. Refer to Problem IX for computations

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

(80%)…………….. 372,000
(20%)……………….. 93,000
P
Son:
100%)………………. P 240,000
100%)………... 120,000 360,000
value)….. 105,000
liabilities:
100%)……………… P 6,000
100%)……………………. 7,200
100%)………..... ( 24,000)
100%)…… 4,800 90,000
over
fair P
value)………………………………………………... 15,000
Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200

January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%.
There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI
December 31, 20x4:

in ending inventory of S.
December 31, 20x4:

ending inventory P .
Thus, the investment balance and investment income in the books of P Company is as follows
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Balance, 12/31/x4 324,000
Investment Income
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400

20%)………………..
follows:
Investment Income
Investment in S
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000





Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
– full goodwill P 6210
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,750 by 20%. There might be situations
where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired (refer to Illustration 15-6).
Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
(5) P 168,000
Cost of goods sold P204,000 P138,000 (3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 50,000 P150,875

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P 414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P462,840 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000
-
Total P1,635,700 P1,008,000 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 6,210 ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Son Co.
Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
257,040 90,000
Dividends paid P P
72,000 48,000

(2) Cash……………………… 38,400
80%)…………….
December 31, 20x5:

December 31, 20x5:

December 31, 20x5:

in ending inventory of S (UPEI of S).
December 31, 20x5:

To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

ending inventory P (UPEI of P).
December 31, 20x5:
To adjust investment income for upstream sales - realized profit
inbeginning inventory of P (RPBI of P)
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
(90,000 x 80%) 72,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of (P18,000 x 100%) 18,000 4,800 UPEI of P (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P (P12,000 x 80%)
65,040 Balance, 12/31/x5

guidance for the worksheet eliminating entries.
Co…………………………………………
1/1/x5………………………….
Investment in SCo (P384,000 x 80%) 307,200
20%)………………………..

P12,000)
P6,000) 0
7,200
Land……………………………………………………………………
….
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,00
0
impairment
or (P3,750 x 20%)]
Co……………………………………………….
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%.
There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer
to Illustration 15-6).

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

20%)………………..
follows:

NI of Son 38,400 Dividends – S NI of S
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Investment in Son Company……………………. 18,000

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

prior period.
Investment in S
NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
404,280 404,280




Son Company’s Realized net income* P 96,000
P 88,000
Goodwill 0
with third persons.

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P647,880 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(9) 9,600 (7) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400 (1 ) 76,800
(2) 17,610
___ _____ _________ __________ (14)17,760 ____100,170
Total P2,207,880 P1,074,000 P1,048,650 P1,048,650 P2,680,050
5 and 6. Refer to Problem V for computations

20x5 are exactly the same (refer to Problem V solution).
Problem VIII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 – P72,000) ....................... P48,000
Inventory remaining at year's end ....................................................................................... 30%
Unrealized Intercompany Gross profit, 12/31/x4 ........................... P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 – P200,000) .................... P50,000
Inventory remaining at year's end ....................................................................................... 20%
Unrealized intercompany gross profit, 12/31/x5 ............................ P10,000
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate
intercompany sales of P250,000)
 Cost of goods sold:
Benson's book value ...................................................................... P535,000
Broadway's book value ................................................................ 400,000
Eliminate intercompany transfers ............................................... (250,000)
Realized gross profit deferred in 20x4 ........................................ (14,400)
Deferral of 20x5 unrealized gross profit ..................................... 10,000
Cost of goods sold ................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include
intangible amortization for current year)
 Dividend income = -0- (intercompany transfer eliminated in
consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is
not included because they were downstream)
Broadway reported income for 20x5 ........................................................................... P100,000
Intangible amortization ................................................................................................... (10,000)
Broadway adjusted income ........................................................................................... 90,000
Outside ownership ........................................................................................................... 30%
Noncontrolling interest in Broadway’s earnings.......................................................... P 27,000
or,
P Company’s net income from own/separate operations (P800-P535-P100) P 165,000
S Company’s net income from own operations (P600 – P400 – P100) P 100,000
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000
Consolidated Net Income for 20x5 P 259,400
equity holders of parent – 20x5………….. P 232,400

(Reported net income of S Company) P 100,000
Less: Amortization of allocated excess __10,000
P 90,000
 Inventory = P988,000 (add the two book values less the P10,000 ending
unrealized gross profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value ....................................... P285,000
Excess January 1 intangible allocation (30% × P295,000).... 88,500
Noncontrolling Interest in Broadway’s earnings ............................................................. 27,000
Dividends (30% × P50,000)................................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5 ................................. P385,500
2. (Computation of selected consolidation balances as affected by upstream inventory

transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 – P72,000) ...................... P48,000

Inventory remaining at year's end ............................................. 30%
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 – P200,000) .................... P50,000
Inventory remaining at year's end ............................................. 20%
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate the
Intercompany transfer)
 Cost of goods sold:
Benson's COGS book value ......................................................... P535,000
Broadway's COGS book value ................................................... 400,000
Eliminate intercompany transfers ............................................... (250,000)
Realized gross profit deferred in 20x4 ........................................ (14,400)
Deferral of 20x5 unrealized gross profit ..................................... 10,000
Consolidated cost of goods sold .......................................... P680,600
 Operating expenses = P210,000 (add the two book values and include
intangible amortization for current year)
 Dividend income = -0- (interco. transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is
included because they were upstream)
Broadway reported income for 20x5 ............................................................................................ P100,000

Intangible amortization .................................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ..................................................................................... 14,400
20x5 gross profit deferred ....................................................................................................... (10,000)
Broadway realized income for 20x5 ...................................................................................... P94,400
Outside ownership ........................................................................................................................... 30%
Noncontrolling interest .................................................................................................................... P28,320
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000

Less: Amortization of allocated excess __10,000
P 94,400
 Inventory = P988,000 (add the two book values and defer the P10,000
ending unrealized gross profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% × P935,600) ............................... P280,680
Excess intangible allocation (30% × P295,000) .................... (88,500)
Noncontrolling Interest in Broadway’s earnings ................. 28,320
Dividends (30% × P50,000)............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5 .............................. P382,500
Problem IX
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold ...................................................................................... P290,000
SW’s cost of goods sold ..................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ....................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost = P12,000 unrealized gross profit) ..................................................... 12,000
Consolidated cost of goods sold ....................................................... P381,000
Consolidated Inventory
PP book value ............................................................................................... P346,000
SW book value .............................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) ........................... (12,000)
Consolidated Inventory .............................................................................. P444,000
Non-controlling Interest in Subsidiary’s Net Income
Because all intercompany sales were downstream, the deferrals do not affect SW.
Thus, the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods
sold and expenses) reported income or P11,600.
or
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
Total P 254,000
Less: Amortization of allocated excess…………………… ____0

(Reported net income of Son Company) P 58,000
Less: Amortization of allocated excess ____0
P 58,000
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................................... P290,000
SW book value ..................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold ..................................................................... P411,000
Consolidated Inventory
PP book value ...................................................................................................... P346,000
SW book value ..................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income .......................................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) ................................... 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ........................ (10,000)
SW realized income ............................................................................................ P54,000
Outside ownership percentage ....................................................................... 20%
Non-controlling interest in SW’s income .................................................. P10,800
or
Realized profit in beginning inventory of S Company (downstream sales)
Total P 254,000

Less: Amortization of allocated excess ____0
P 54,000
Problem X
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
P Company’s realized net income from separate operations*…….….. P 3,609,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200
equity holders of parent – 20x4………….. P6,970,800
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)
P Company’s realized net income from separate operations*…….….. P3,609,,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess…………………… 0 __541,200
Add: Non-controlling Interest in Net Income (NCINI) _541,200
**Salad
(Reported net income of S Company) P1,500,000
Son Company’s realized net income from separate operations……… P1,509,000
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
**Tuna
Son Company’s realized net income from separate operations……… P2,394,000
P2,394,000
Realized Profit in Beginning inventory:

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

Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125 69,000
Problem XI
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 – P120,000) ................................................ P40,000

Inventory Remaining at Year's End .......................................................................... 20%
Unrealized Intercompany Gross profit, 12/31 .............................................................. P8,000
Consolidated Totals:
 Inventory = P592,000 (add the two book values and subtract the ending unrealized
gross profit of P8,000)
 Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
 Cost of Goods Sold = P548,000 (add the two book values and subtract the
intercompany transfer and add [to defer] ending unrealized gross profit)
 Operating Expenses = P443,000 (add the two book values and the amortization
expense for the period)
 Gross profit: P1,240,000 – P548,000 = P692,000
 Controlling Interest in CNI:
Gross profit ...................................................................................................... P692,000

Less: Operating expenses ............................................................................ 443,000
Consolidated Net Income .......................................................................... P249,000
Less: NCI-CNI ................................................................................................... 8,700
CI-CNI .............................................................................................................. P240,300
or
Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)
Total P 262,000
Or, alternatively

Total P 262,000

Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)
P 29,000
 Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported
income after subtracting 13,000 excess fair value amortization and deferring P8,000
ending unrealized gross profit) Gross profit is included in this computation because the
transfer was upstream from SS to PT.
Problem XII
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):…………………........................................................ P15,000
RPBI of P (upstream sales)………………………....................................................... 10,000
UPEI of S (downstream sales)……………………………………………………..……. 20,000
UPEI of P (upstream sales)………………………………………………….…………… 5,000
Consolidated Net Income for 2014
P Company’s net income from own/separate operations (P724,000 – P24,000 P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
Consolidated Net Income for 2014 P788,000
equity holders of parent – 2014………….. P769,400
Or, alternatively
P Company’s net income from own/separate operations P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
**Non-controlling Interest in Net Income (NCINI) for 2014

P 93,000
Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending

balance of the current year) -
Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000
-: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000
Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 170,000
Accumulated amortization (1/1/2011 – 12/31/2014):
P 2,000 x 4 years………………………………………………..( 8,000)
UPEI of P (up) – 2014 or RPBI of P (up) – 2015………………........( 5,000)
P157,000
x: Controlling Interests………………………………………… 80% 125,600
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………. P 3,605,600
Or, compute first the RE – P on January 1, 2014 (use work back approach),
Retained earnings – Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000
-: UPEI of S (down) – 2013 or RPBI of S (down) – 2014..…………. 15,000
Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000
Retained earnings – Subsidiary, 1/1/2011………………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000
(cumulative net income – cumulative dividends)…………P 110,000
Accumulated amortization (1/1/2011 – 1/1/2014):
P 2,000 x 3 years………………………………………………. ( 6,000)
UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)
P 94,000
X: Controlling Interests………………………………………… 80% 75,200
RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400
-: Dividends – P………………………..……………………… 25,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….P3,605,600
Sales Cost of Sales

P P2,500,000 P1,250,000
S 1,200,000 875,000
Intercompany sales - downstream ( 320,000) ( 320,000)
Intercompany sales - upstream ( 290,000) ( 290,000)
RPBI of S (downstream sales)* ( 15,000)
RPBI of P (upstream sales)*** ( 10,000)
UPEI of S (downstream sales)** 20,000
UPEI of P (upstream sales)**** _________ 5,000
Consolidated P3,090,000 P1,515,000
Working Paper Eliminating Entries:
1. Intercompany Sales and Purchases:
Downstream Sales:
Sales………………………………………………………………………….. 320,000
Cost of Sales (or Purchases)…………………………………….... 320,000
Upstream Sales:
Sales………………………………………………………………………….. 290,000
Cost of Sales (or Purchases)……………………………………… 290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning………………………………………..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)…............ 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)……………… 20,000
Inventory (Ending Inventory in Balance Sheet)……………….. 20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning…………………………………...…….. 16,000
NCI ……………………………………………….……………………………... 4,000
Cost of Sales (Beginning Inventory in Income Statement)…........ 20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………………… 5,000
Inventory (Ending Inventory in Balance Sheet)……………….. 5,000

1. a
20x4 and 20x5:: P12,000 x 80% = P9,600
20x6: P18,000 x 80% = P14,400
2. c
20x4: (P84,000 x 80%) = P67,200 – (P1,440 x 30% x 80%) = P66,854.40
20x5: (P102,000 x 80%) + (P1,440 x 30% x 80%) - (P4,800 x 30% x 80%) = P80,793.60
20x6: (P112,800 x 80%) + (P4,800 x 30% x 80%) – (P3,600 x 30% x 80%) = P90,258.00
3. No requirement.
4. b – (P14,400 + P432 – P1,440 = P13,392)

Analysis: Eliminating entries
Upstream Sales:
Sales………………………………………………………………………….. 14,400
Cost of Sales (or Purchases)…………………………………… 14,400
100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.):

(P1,440 x 30% = P432)
Retained Earnings – P, beginning…………………………………...….. 345.60
NCI ……………………………………………….…………………………… 86.40
Cost of Sales (Beginning Inventory in Income Statement).. 432.00
100% UPEI of P: (P4,800 x 30% = P1,440)

Cost of Sales (Ending Inventory in Income Statement)…………….. 1,440
Inventory (Ending Inventory in Balance Sheet)……………... 1,440
5. a – there are no intercompany profit in 20x3 (prior year), so need to adjust retained earnings.
6. a - Investment income, P5,000 x 80% = P4,000; Investment in Leisure, P100,000.
7.c
Investment in Leisure
Cost, 1/1/x3 109,070 4,000 Dividends – Lei (5,000x 80%)
NI of Leisure 4,800 Amortization (6,000 x 80%)
(13,000 x 80%) 10,400 850 Impairment (1,000 x 85%)*
RPBI of LP (350 x 80%) 280 336 UPEI of LP (420 x 80%)
Balance, 12/31/x3 109,764
Investment Income
Amortization 4,800 NI of Leisure
Impairment* 850 10,400 (13,000 x 80%)
UPEI of LP (420 x 80%)) 336 280 RPBI of LP (350 x 80%)
4,694 Balance, 12/31/x4
RPBI of LP: P1,350 x 35/135 = P350

UPEI of LP: P1,620 x 35/135 = P420
Partial
Consideration P
transferred . . . . . . . . . . . . . . . . . . . . . . 100,000
Less: Book value of stockholders’ equity of LP
(P10,000 x
80%)………………………………………... ____8,000
value) . . . 92,000
liabilities:
Increase in favorable leases (P30,000 x
80%) . . . . . ___24,000
cost over
fair
value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 68,000
Full
(80%). . . . . . . . . . . . . . . . . . 100,000
Fair value of NCI (given) (20%)…………………………….. ___20,000
P
Fair value of Subsidiary (100%) ……………………………. 120,000
Less: Book value of stockholders’ equity of LP
(P10,000 x
100%)………………………………………. ___10,000
value) . . . 110,000
liabilities:
Increase in favorable leases (P30,000 x
100%) . . . . ___30,000
cost over
fair
value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 80,000
Note: The controlling interests of parent to subsidiary of 80% is not an outright

application to impairment of goodwill, it still depends on the resulting goodwill of
partial and full goodwill, for instance in Questions 6 to 10, the CI is 85% and NCI is
15% for impairment computed as follows:
Partial goodwill 68,000 85%

NCI on Full Goodwill 12,000 _15%
Full-goodwill 80,000 100%
8. a
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . 350
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . ( 420)
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Impairment of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . ___1,000
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 25,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236
equity holders of parent – 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P24,694
Or, alternatively
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000) P 13,000
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,236
Impairment of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 8,236
equity holders of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,694
Add: Non-controlling Interest in Net Income (NCINI) . . . . . . . . . . . . . . . . . . . . . . _ _ 1,236
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P25,930

S Company’s realized net income from separate operations . . . . . . . . . . P 12,930
Less: Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
P 6,930
Multiplied by: Non-controlling interest % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill . . . . . . . . . . . P 1,386
Less: NCI on goodwill impairment loss on full goodwill (P1,000 x 15%). . . . . . . . . 150
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . . P 1,236
Or, alternatively
CI-CNI NCINI CNI

Parent’s net income own operations 20,000
Subsidiary’s reported net income 10,400 2,600
Favorable leases amortization (4,800) (1,200)
Goodwill impairment loss (850) (150)
Upstream beg. inv. profit confirmed 80 70
Upstream end. inv. profit unconfirmed (336) (84)
24,694 1,236 25,930
9. b
Retained earnings of Parent Company (under equity method) /
Consolidated Retained earnings , January 1, 20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
equity holders of parent for 20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,694
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 64,694
Less: Dividends paid – Parent Company for 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Retained earnings of Parent Company (under equity method) /
Consolidated Retained Earnings, December 31, 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 54,694
Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance
(which is under equity method) is always the same.
10. Ignore, there are some missing figures particularly the details of subsidiary’s stockholders
equity since the date of acquisition.
11. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
Less: Amortization of allocated excess _ 0
P 152,000
12. b Combined cost of sales P 160,000

Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
13. d
Cost method: P40,000 x 70% = P28,000, dividend income
Equity Method: (P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary income
14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
15. b
Cost method: P60,000 x 80% = P48,000
Equity Method: (P120,000 x 80%) –(P200,000 x 50% = P100,000 x 20% = P20,000)=P76,000
16. d Downstream situation

S Company’s net income from own/separate operations P120,000
x: NCI % 20%
P 24,000
17. c
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
18. b
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
19. b - P45,000 + P110,000 - P50,000 - P80,000 = P25,000 increase
20. a
Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000
Ending inventory profit = P750,000 - P750,000/1.25 = P150,000
Downstream sales only affect equity in net income. P165,000 - P150,000 = P15,000 increase.
21. c - There is no unconfirmed profit in beginning or ending inventory, so the only eliminating
entry is to debit sales revenue and credit cost of goods sold for P1,000,000.
22. b
23. a
24. c – P400,000 x 1/4 = P100,000 x 30% = P30,000
25. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
26. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]

27. c – P100,00 sales to unrelated/unaffiliated company.
28. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
29. a
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
S Company’s net income from own operations (P90,000 – P67,000) P23,000
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
Or, alternatively
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
equity holders of parent………….. P 51,490

Less: Amortization of allocated excess 0
P 16,100
30. d – P27,000 x 67/90 = P20,100

31. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
32. a – the cost of inventory produced by the parent (downstream sales)
33. c
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales) ()
Total P 58,000
Or, alternatively
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales ()
Total P 58,000

P 30,000
34. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales – upstream sales 60,000 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500
35. d – refer to No. 34 for computation

36. c – (P10,140,000 – P7,604,500) = P2,535,500
37. c
Sales
P Company 10,000,000
S Company __200,000
Total 10,200,000
Less: Intercompany sales – downstream sales 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________
Consolidated 10,140,000
38. a – (P40,000 x 140% = P56,000)

39. a – (P56,000 – P40,000 = P16,000)
40. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
41. c - refer to No. 40 for computations

42. b
P Company’s net income from own/separate operations P 225,000
S Company’s net income from own operations P 90,000
Realized profit in beginning inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000 )
Total P 300,000
Less: Amortization of allocated excess…………………… _0

P 75,000

44. c
45 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
46. e Consolidated sales P140,000

Cost of goods sold (60,000)
Income to Dresser’s noncontrolling
interest:
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
47. A Inventory reported by Lorn P 24,000

Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
48. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
49. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
50. a Selling price P 50,000

Less: Cost of sales _40,000
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000
51. a
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
52. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
53. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
54. d
Cost of
Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
55. b
Cost of
Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
56. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent)Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180)= P16,000, 70%:30%
( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
57. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
(Reported net income of S Company) P 400,000 P 480,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Company’s realized net income from separate operations……… P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
58. a
(Reported net income of S Company) P 0
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Company’s realized net income from separate operations……… P( 3,000)
P( 3,000)
Non-controlling Interest in GP P(300)
Non-controlling Interest in GP P( 300)
59. a
60. a Selling price P 60,000
Less: Cost of sales ( 48,000 )
Unrealized profit 12,000
Unsold fraction 1/3
Credit to Inventory P 4,000
61. a – the cost from parent of P48,000 x 45/60 = P36,000
Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold – P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000
62. b – the cost from parent of P48,000 x 15/60 = P12,000

63. a
Sales Cost of Sales
Intercompany
Parent 60,000 60,000
Subsidiary 1 60,000 45,000
Add: Cost of EI in S2 Co.

[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000
*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
64. b – refer to No. 63 for computation
65. d – P15,000 x [(60-48)/60] = P3,000
66. a
S Company’s net income from own operations P150,000
[P105,000 x 20/120) ( 17,500 )
Total P 357,500
67. c
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250
Or, alternatively
S Company’s net income from own operations ( P135,000
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250

P126,250
68. a – refer to No. 67 for computation.
69. d
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Or, alternatively
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250

P 236,250
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875

71. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
72. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 47,000
73. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
74. a or e - if full goodwill method.

Total P364,000
Less: Dividends paid – 20x4 0 364,000
20x5 (P35,000/7 years) ( 5,000)
Add: NCI on full-goodwill (P70,000 – P56,000) 14,000
Non-controlling interest (full- goodwill)………………………………….. P 120,800
Partial-goodwill
Consideration P
transferred……………………………….. 364,000
80%)……………………. P112,000
80%)………………... 168,000 280,000
value)….. 84,000
Increase in equipment (P35,000 x 80%) ___28,000
Positive excess: Partial-goodwill (excess of cost over P 56,000
fair value)………………………………………………...
Full-goodwill
P
Consideration transferred: Cash (P364,000/80%) 455,000
Less: Book value of stockholders’ equity of S (P350,000 x
100%) __350,000
P
Allocated excess (excess of cost over book value)….. 105,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P35,000 x 100% 35,000
Positive excess: Full-goodwill (excess of cost over P
fair value)………………………………………………... 70,000
75. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
76. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
77. d Add the two book values and remove P100,000 intercompany transfers.
78. c Intercompany gross profit (P100,000 - P80,000) ................................................... P20,000
Inventory remaining at year's end .......................................................................... 60%
Unrealized intercompany gross profit .................................................................... P12,000
CONSOLIDATED COST OF GOODS SOLD

Parent balance ................................................................................................... P140,000
Subsidiary balance ............................................................................................. 80,000
Remove intercompany transfer ....................................................................... (100,000)
Defer unrealized gross profit (above) ............................................................. 12,000
Cost of goods sold ..................................................................................................... P132,000
79. c Consideration transferred .............................................. P260,000

Non-controlling interest fair value................................... 65,000
SZ total fair value ................................................................ P325,000
Book value of net assets ................................................... (250,000)
Excess fair over book value P75,000
Annual Excess
Life Amortizations
Excess fair value assigned to undervalued assets:
Equipment .................................................................... 25,000 5 years P5,000
Secret Formulas .......................................................... 50,000 20 years 2,500
Total ................................................................................. P -0- P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
80. a
Total P260,000
Less: Dividends paid – 20x4 0 260,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill)………………………………….. P 85,500
Partial-goodwill
Consideration P
transferred……………………………….. 260,000
Common stock (P100,000 x P
80%)……………………. 80,000
80%)………………... 120,000 200,000
value)….. 60,000
Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
P
Consideration transferred: Cash (80%) 260,000
FV of NCI (20%) ___65,000
P
Fair value of Subsidiary (100%) 325,000
Less: BV of stockholders’ equity of S (P100,000 +
P150,000) x 100% __250,000
value)….. 75,000
liabilities
Increase in equipment P25,000 x 100% 25,000
P
Increase in secret formulas: P50,000 x 100% 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
81. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
82. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) .................................................. P20,000
Inventory Remaining at Year's End ........................................................................ 60%
Unrealized Intercompany Gross profit, 12/31 ....................................................... P12,000
83. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
84. c – refer to No. 83 for computation.

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

91. b – refer to No. 86 for computation.
92. a – none, since intercompany profit starts only at the end of 20x3.
93. b – the amount of unrealized profit at the end of 20x3.
94. c – the amount of unrealized profit at the end of 20x4.
95. d P32,000 = (P200,000 + P140,000) – P308,000
96. b P6,000 = (P26,000 + P19,000) – P39,000
97. c P9,000 = Inventory held by Spin P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) – P52,000] (3,000)
Carrying cost of inventory for
Power P 9,000
98. B .20 = P14,000 / [(Stockholders’ Equity P50,000)

+(Patent P20,000)]
99 B 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]
100. c (P10,000 x 80%)
101. d – the original cost
102. d
Date of Acquisition (1/1/2010) Partial Full
Fair value of consideration given…………………P 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess.…………………………………….P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)…………………………….. 16,000
Goodwill ………….…………………………………...P 20,000 / 80% P 25,000
RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050

RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of Parent
P60,000 x 30% = P18,000 x 25/125………………………………. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400
Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
Total P 126,050
Or, alternatively
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
Total P 126,050
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320

P 26,600

104. a – P124,050 – refer to No. 102
107. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2.…………..….…………………………….. P 150,000
Retained earnings - S, 12/31/20x2:

RE- S, 1/1/20x2…………….……………………………………………….P300,000
+: NI-S…………………………………………………………………………. 30,000
-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 .………………………….. 20,000
Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)
Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000
UPEI of P (up)…………………………………………………………………… ( 2,400)
Realized SHE – S,12/31/20x2…………………………………………………. P 481,600
x: NCI %.......................................................................................................... _ 20%
Non-controlling Interest (in net assets) - partial………………………….. P 96,320
+: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000
Non-controlling Interest (in net assets) – full…………………………….... P 101,320
109. d
Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginning
Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000
-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P698,950
Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000
Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000
Accumulated amortization (1/1/20x0 – 1/1/20x2):
P 2,000 x 2 years…………………………………………………( 4,000)
UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………...... ( 1,000)
P 65,000
X: Controlling Interests………………………………………….........____80% 52,000
RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730
-: Dividends – P……………………………………………………………… 60,000
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680
Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 744,400
Less: Retained earnings – Subsidiary, 12/31/20x2
(P300,000 + P20,000 – P10,000)………………………........ 320,000
P 2,000 x 3 years……………………………………………….. ( 6,000)
UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. .. ( 2,400)
P 81,600
X: Controlling Interests………………………………………………. 80% 65,280
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680
110. b
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000
111. a
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000
112. c
Non-controlling interest , December 31, 20x1
Retained earnings – Subsidiary Company, December 31, 20x1 8,600
Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)
Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P 17,400
Non-controlling interest. December 31, 20x1 ………………………………….. P 3,480
113. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000
114. c
RPBI of P (upstream sales)……..………………………..………………………… 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................………………………..…. 15,000

Total P 150,750
Or, alternatively
Total P 150,750
Amortization of allocated excess…………………… ___0 10,125
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125

Less: Amortization of allocated excess _0
P101,250
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90  (P180,000 – P150,000)) 27,000
Beginning Retained Earnings-Paque Co.
27,000
To establish reciprocity as of 1/1/20x8
(2) Sales
300,000
Purchases (Cost of Goods Sold)
300,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 15,000

Ending Inventory (Balance Sheet)
15,000
To eliminate unrealized intercompany profit in ending inventory (P75,000 
0.20)
(4) Beginning Retained Earnings - Paque Co. (P45,000  0.90) 40,500

Non-controlling Interest P45,000  0.10) 4,500
Beginning Inventory (Income statement)
45,000
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year
(5) Dividend Income (P60,000  0.90) 54,000

Dividends Declared
54,000
To eliminate intercompany dividends
(6) Beginning Retained Earnings- Segal Co. 180,000
Common Stock - Segal Company 750,000
Investment in Segal Company (P810,000 + P27,000)
837,000
Non-controlling Interest (P750,000 + P180,000) x .10 93,000
To eliminate investment account and create non-controlling interest
account
115. c
Preferred Solution - since what is given is the RE – P, 1/1/20x8 -
Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400
Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400
Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000
Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000
(cumulative net income – cumulative dividends)………P 49,000
Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)
P 49,000
X: Controlling Interests…………………………………………… 90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500
+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700
-: Dividends – P………………………..………………………………… 110,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….. P 711,200

Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Amortization of allocated excess…………………… _____0 6,300

P 63,000

RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000
UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000
Net income:
Pruitt Co. Sedbrook
Sales P1,210,000 P 636,000
Inventory, 1/1 165,000 132,000
Purchases 935,000 420,000
Inventory, 12/31 (220,000) __880,000 (144,000) __408,000
Gross profit P 330,000 P 228,000
Less: Other expense 198,000 165,000
Net income from its own
separate operations P 132,000 P 63,000
Add: Dividend income 31,500 -
Net income P 163,500 P 63,000
Dividends declared P 110,000 P 35,000
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400
Add: NI of Parent as reported – 20x8 under cost model…………… 163,500
Less: Dividend of Parent – 20x8………………………………………….. 110,000
Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900
-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000
Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900
Retained earnings – Subsidiary, 1/1/20x4………… P 95,000
Retained earnings – Subsidiary , 1/1/20x8..… P144,000
Add: NI of Subsidiary – 20x8…………………… 63,000
Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)
UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........( 0)
P 97,000
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200
(Not required)
(1) Investment in Sedbrook Company (0.90 (P144,000 – P95,000))
44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8
(2) Sales 250,000

250,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 10,000

Ending Inventory (Balance Sheet) 10,000
To eliminate unrealized intercompany profit in ending
inventory (P60,000 – (P60,000/1.2)
(4) Beginning Retained Earnings - Pruitt Co. 25,000

Beginning Inventory (Income Statement) 25,000
To recognize intercompany profit in beginning inventory
realized during the year
(5) Dividend Income (P35,000 .90) 31,500

Dividends Declared 31,500
(6) Beginning Retained Earnings - Sedbrook Co. 144,000

Common Stock - Sedbrook Co. 600,000
Investment in Sedbrook Co.(P625,500 + P44,100)
669,600
Non-controlling Interest (P744,000 x .10) 74,400
To eliminate investment account and create non-controlling interest
account
116. P941,000.
Fair value of consideration given…………………P1,360,000
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess.…………………………………….P 200,000
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000
P 0
RPBI of S (downstream sales):…………………........................................................ P30,000

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

S Company’s net income from own operations…………………………………. P270,000
Total P1,005,000
Or, alternatively
Total P1,005,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000

S Company’s net income of Subsidiary Company from its own operations P270,000
S Company’s realized net income from separate operations……… P280,000
P270,000
(Not required)
(1) Sales
120,000
120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS) 15,000
Inventory (Balance Sheet)
15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
(3) Beginning Retained Earnings – Paul Company (P20,000  0.8)
16,000
Beginning Inventory – Income Statement (CGS)
20,000
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year
(4) Beginning Retained Earnings – Paul Company. 30,000

Beginning Inventory – Income Statement (CoGS)
30,000
To recognize profit in beginning inventory (downstream sales)
realized during the year and to reduce consolidated retained
earnings at beginning of the year for the amount of unrealized
downstream intercompany profit at the beginning of the year
117. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000
Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000
118. P54,000 – refer to No. 116 for computation

119. a
Full-goodwill
Consideration transferred: Cash P9,375,00
(P7,500,000/80%) 0
Less: Book value of stockholders’ equity of S _6,000,00
(P6,000,000 x 100%) 0
Allocated excess (excess of cost over book P3,375,00
value)….. 0
Add (deduct): (Over) under valuation of
assets and liabilities P( 150,000
Decrease in inventory: P(150,000 x 100%) ) ___300,00
Increase in building: P450,000 x 100% ___450,000 0
over
fair P3,075,00
value)………………………………………………... 0
Partial-goodwill
Consideration P7,500,00
transferred……………………………….. 0
Common stock (P1,000,000 x
80%)……………………. P 800,000
Retained earnings (P5,000,000 x
80%)………………... 4,000,000 4,800,000
Allocated excess (excess of cost over book P2,700,00
value)….. 0
liabilities:
Add (deduct): (Over) under valuation of P( 120,000
assets and liabilities )
Decrease in inventory: P(150,000 x 80%) ___360,00
Increase in building: P450,000 x 80% 0 240,000
Positive excess: Partial-goodwill (excess of cost
over
fair P2,460,00
value)………………………………………………... 0
Amortization schedule
Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000
120. a
Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Common stock – S Company, December 31, 20x2…… P1,000,000
Retained earnings – S Company, December 31, 20x2 5,000,000
Stockholders’ equity – S Company, December 31, 20x2 P6,000,000
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000
Non-controlling interest (partial goodwill)………………………………….. P 1,260,000
Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000
Non-controlling interest (full- goodwill)………………………………….. P1,875,000
121. d – P2,393,800
Non-controlling interest , December 31, 20x4
Common stock – S Company, December 31, 20x4 P1,000,000
Retained earnings – S Company, December 31, 20x4 7,524,000
Stockholders’ equity – S Company, December 31, 20x4 P8,524,000
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P8,914,000
Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill)………………………………….. P2,393,800
RPBI of P (upstream sales):

Sales of Subsidiary EI % EI of P GP% of Subsidiary
P100,000 x 60% = P60,000 x 50,000/100,000………………………..…. 30,000
UPEI of P (upstream sales): (given)………………………………………………………. 20,000
Or, alternatively:
Balance of NCI on acquisition — December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit — 20x4 ( 20,000)
Adjusted change in retained earnings of Jane since
acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800
122. b
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 0
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P11,900,000
Retained earnings – Subsidiary, 12/31/20x2…………………..P5,000,000
Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000
(cumulative net income – cumulative dividends)……….P2,524,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)……….. 90,000
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)
P2,594,000
x: Controlling Interests………………………………………… 80% 2,075,200
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P13,975,200
122. b - (P125,000 - P93,000) .8 = P25,600

123. c - (P125,000 - P93,000) .2 = P6,400
124. d
125. a - (P125,000 - P93,000) .7
126. c - (P125,000 - P93,000) .3
127. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080
Theories
1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a
2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b
3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e
4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d
5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d
41. b 46. c 51. a 56. c 61. a 66. b 71 b 76. c

42. c 47. b 52. c 57. b 62. a 67. b 72. a 77. c
43. a 48. c 53. c 58. c 63. b 68. c 73. a 78. a
44. c 49. a 54. d 59. b 64. c 69. d 74. a 79. c
45. d 50, d 55, c 60. c 65. a 70. b 75. c 80. e
Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,00
0
80%) . . . . . . . . . . . . . . . . . . . . . . . 0
Net Income – S Company

No entry

No entry
Unrealized Gain on Sale of Equipment

No entry
Realized Gain on Sale – depreciation

No entry
Equity Method – 20x5

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,00
0
Investment in S Co (60,000 x 32,00
80%) . . . . . . . . . . . . . . . . . . . . . . . 0

Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P820,000 x 656,000
80%). . . . . . . . . . . . . . . . . . . . .

None, since there is no amount available

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince 100,000
Accumulated Depreciation 640,000
Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince 25,000
Equity Method
Equipment 540,000
Investment in S Co. 100,000

Investment in S Co. 25,000
3 Controlling Interest in Consolidated Net Income:

Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
4. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000
5. NCI-CNI (No. 4) P 169,000

CI-CNI (No. 3) 3,946,000
CNI P4,115,000
or,
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Total P4,115,000
Or, alternatively
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Company’s realized net income from separate operations…….….. P 845,000 845,000
Total P4,115,000

P845,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Controlling Interest in Consolidated Net Income:
through depreciation in 2014 25,000
P3,295,000
Reported net income of S Company P820,000
× .8
Noncontrolling Interest Calculation:
Reported income of S Company P820,000
Noncontrolling interest in S Company
(.20 × 820,000) P164,000
NCI-CNI P 164,000
CI-CNI 3,951,000
CNI P4,115,000
or,
Realized gain on sale of equipment (downstream sales) through depreciation ____25,000
Realized gain on sale of equipment (upstream sales) through depreciation* 0
Total P4,115,000
Or, alternatively
Realized gain on sale of equipment (downstream sales) through depreciation 25,000
Realized gain on sale of equipment (upstream sales) through depreciation 0
Total P4,115,000

Realized gain on sale of equipment (upstream sales) through depreciation 0
P820,000
B. Upstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,00
0
80%) . . . . . . . . . . . . . . . . . . . . . . . 0

No entry

No entry

No entry
Realized Gain on Sale – depreciation

No entry
Equity Method – 20x5

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,00
0
Investment in S Co (60,000 x 32,00
80%) . . . . . . . . . . . . . . . . . . . . . . . 0

Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80%). . . . . . . . . . . . . . . . . . . . .

None, since there is no amount available

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince (P100,000 × .80) 80,000
Noncontrolling Interest (P100,000 × .20) 20,000

Beginning R/E – Prince (P25,000 × .80) 20,000
Equity Method
Equipment 540,000
Investment in S Co. (P100,000 × .80) 80,000

Investment in S Co. (P25,000 × .80) 20,000
3 Controlling Interest in Consolidated Net Income:

Reported net income of Serf Company P820,000
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
4. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000
5. NCI-CNI (No. 4) P 169,000
CI-CNI (No. 3) 3,946,000
CNI P4,115,000
or,
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Total P4,115,000
Or, alternatively
Total P4,115,000

P845,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Computation of gain on sale of truck:

Price paid by Minnow P245,000
Cost of truck to Frazer P300,000
(P300,000 / 10 years) x 3 years ( 90,000) (210,000)
Gain on sale of truck P 35,000
Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 4 years] P120,000
Reported [(P245,000 / 7 years) x 1 year] (35,000)
Required increase P 85,000
E(1) Truck 55,000

Retained Earnings 30,000

Reported [(P245,000 / 7 years) x 2 years] (70,000)
Required increase P 80,000
Problem III
a. Eliminating entry, December 31, 20x8:
E(1) Truck 90,000

Gain on Sale of Truck 30,000
Computation of gain on sale of truck:

Price paid by MM P210,000
Cost of truck to FF P300,000
(P300,000 / 10 years) x 4 years (120,000) (180,000)
Gain on sale of truck P 30,000
b. Eliminating entry, December 31, 20x9:
E(1) Truck 90,000

Retained Earnings, January 1 30,000

Recorded [(P210,000 / 6 years) x 1 year] (35,000)
Required increase P115,000
Problem IV
1. Consolidated net income for 20x9:
Operating income reported by BW P100,000

Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
2. Consolidated net income for 20x9 would be unchanged.
E(1) Buildings and Equipment 30,000

Eliminate unrealized profit on building.
Adjustment to buildings and equipment
Amount paid by TW to acquire building P300,000

Amount paid by BW on intercompany sale (270,000)
Adjustment to buildings and equipment P 30,000
Adjustment to retained earnings, January 1, 20x9
Unrealized gain recorded January 1, 20x4 P 30,000

Amount realized following intercompany sale
(P2,500 x 2) (5,000)
Unrealized gain, January 1, 20x9 P 25,000
Proportion of ownership held by Baywatch x .80
Required adjustment P 20,000
Adjustment to Noncontrolling interest, January 1, 20x9
Unrealized gain at January 1, 20x9 P 25,000

Proportion of ownership held by non-controlling
interest x .20
Adjustment to depreciation expense
Depreciation expense recorded by BW

Industries (P270,000 / 12 years) P 22,500
Depreciation expense recorded by TW
Corporation (P300,000 / 15 years) (20,000)
Adjustment to depreciation expense P 2,500
Adjustment to accumulated depreciation
Amount required (P20,000 x 6 years) P120,000

Amount reported by BW (P22,500 x 3 years) (67,500)
Problem V
20x5 20x6
1.
Noncontrolling interest in P 7,000 (1) P 46,200 (2)
Consolidated net income
Controlling interest in 290,500 (3) 279,300 (4)

(1) .4(P70,000 – P63,000 + P10,500) = P7,000

(2) .4(P105,000 + P10,500) = P46,200
(3) P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500
(4) P210,000 + .6(P105,000 + P10,500) = P279,300
20x5 20x6
2.
Noncontrolling interest in P 28,000 (5) P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7) 283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VI
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on equipment
P 320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000
Problem VII
Requirements 1 to 4
Consideration P
transferred……………………………….. 372,000
80%)……………………. P 192,000
80%)………………... 96,000 288,000
value)….. 84,000
liabilities:
80%)……………… P 4,800
80%)……………………. 5,760
80%)………..... ( 19,200)
80%)…… 3,840 72,000
cost over
fair P
value)………………………………………………... 12,000

S Co. (Over)
Book S Co. Under
P
Inventory………………….…………….. 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
P
Net……………………………………….. 204,000 P 294,000 P 90,000
Equipment.................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 1992,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
follows:

x 100%) __360,000
liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over P 15,000
fair value)………………………………………………...
Value % of
Total

Value % of
Total
Interest
Goodwill
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealize Remaini Realized

of Seller Price Value d* ng gain – 20x4
Sale Gain on Life depreciatio
sale n**
4/1/20 P Co. P90,0 P75,0 P15,000 5 years P3,000/year P2,2
x4 00 00 50
1/2/20 S Co. 31,200 8 years P3,9
x4 60,00 28,80 P3,900/year 00
0 0
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250

January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
20%)………………………..
Co……………………………………………….

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200

20%)………………..
share of dividends.
(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

Equipment 12,000
To eliminate the upstream intercompany gain and restore to its
(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
separate operations P 63,900
P 50,700
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage
or what option used to value non-controlling interest or goodwill.

Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)
Net Income to Retained P 207,810
Earnings P211,800 P 91,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to
Balance
Sheet P499,800 P175,200 P 495,810
Balance Sheet
P
Cash………………………. 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(11) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600
Accumulated depreciation (12) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
(18)
- buildings (19) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (20) 7,200 (1 ) 72,000 (2)
18,000
_________ _________ __________ (9) 10,140 ____92,940
Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600

P Co. S Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
230,400 90,000
Dividends paid P P
72,000 48,000


Cash……………………… 38,400

Cash 48,000

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company…………………………

44,160

Entry (1) above is needed only for firms using the cost method to account for their investments in
the subsidiary. If the parent is already using the equity method, there is no need to convert to
equity.
Co…………………………………………
80%)…………………………
20%)………………………..
(E3) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
Co……………………………………………….

20%)…………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
Total P 13,560

20%)………………..
share of dividends.
(E5) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
(E6) Retained Earnings–P Company, 1/1/20x5 24,960
(P31,200 x 80%)
Equipment 12,000

Depreciation expense (current
year)…………… 3,000
Retained Earnings–P Company, 1/1/20x5
(prior year) 2,250

Depreciation expense (current year) 3,900
Retained Earnings–P Co. 1/1/20x5 (P3,900 x
80%) 3,120
Non-controlling interest (P31,200 x 20%) 780
(P31,200/85 years x 1 year = P3,900).


P 86,700
with third persons.


Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(8) 3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (1) 13,560 (1) 44,160
(21) 15,000 (23) 2,250
(22) 24,960 (24) 3,120 P 495,810
S Company P 175,200 (2) 175,200
Net income, from above 230,400 __90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (15) 6,000 (16) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800
Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 2,640 (2 83,040
(5) 9,600 (3) 18,000
(6) 6,240 (8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained
earnings, thus:
b.
Non-controlling interest (partial goodwill),……………………………….. P 90,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___90,000
6.
recognized.
12/31/20x4:
a. CI-CNI - P
Unrealized gain on sale of equipment (downstream sales) (15,000)
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Total P234,150
P 50,700

as follows:

Total P567,810
e.
The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed as follows:
Total P211,200
f.
Consolidated SHE:
NCI, 12/31/20x4 ___92,940
12/31/20x5:
a. CI-CNI – P264,360
Total P288,900
Or, alternatively
Total P288,900
(Reported net income of Son Company)
P 86,700

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
parties.. P487,050
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Total P760,170
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
20x4 and 20x5 (P11,000 + P6,000) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss 3,000 39,720
e.
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, P1,288,170
12/31/20x5
NCI, 12/31/20x5 __100,680
Problem VIII
Requirements 1 to 4
(80%)…………….. 372,000
(20%)……………….. 93,000
P
Son:
Common stock (P240,000 x P
100%)………………. 240,000
100%)………... 120,000 360,000
value)….. 105,000
liabilities:
Increase in inventory (P6,000 x P
100%)……………… 6,000
100%)……………………. 7,200
100%)………..... ( 24,000)
100%)…… 4,800 90,000
over
fair P
value)………………………………………………... 15,000

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800

Cash……. 36,000
Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity
goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment
loss to be pro-rated between the parent and NCI on the same basis as that on which profit or loss
is allocated. In other words, the impairment loss is not pro-rated in accordance with the proportion
of goodwill recognized by parent and NCI.

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

20%)………………..
share of dividends.
Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P31,200/85 years x 1 year = P3,900).


P 50,700
P3,000, impairment on partial-goodwill) 750
Sales P480,000 P240,000 P 720,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P499,800 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,984,800 P1,008,000 P 843,690 P 843,690 P2,468,850

P Co. S Co.
Sales P P
540,000 360,000
Less: Cost of goods sold 216000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
230,400 90,000
Dividends paid P P
72,000 48,000

Cash……………………… 38,400

Cash 48,000



Co…………………………………………
80%)…………………………
20%)………………………..
(E3) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
full – 21,000
Co……………………………………………….

Non-controlling interests (P16,950 x 20%) or (P13,200
x 20% + 3,390
(P3,750 – P3,000 = P750)
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
Total P 13,560

20%)………………..
share of dividends.
(E6) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
(E7) Retained Earnings–P Company, 1/1/20x5 24,960

(P31,200 x 80%)
Equipment 12,000

year)…………… 3,000
Retained Earnings–P Company, 1/1/20x5
(prior year) 2,250

Retained Earnings–P Co. 1/1/20x5 (P3,900 x
80%) 3,120
(P31,200/85 years x 1 year = P3,900).

P 86,700
Goodwill 0
with third persons.


Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(9) 3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (2) 13,560 (1) 44,160
(6) 15,00 (8) 2,250
(7) 24,960 (9) 3,120 P 495,810
S Company P 175,200 (1) 175,200
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (6) 30,000
(7) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 90,000 -
Total P2,203,200 P1,074,000 P2,752,050

- equipment (8) 5,250 (6) 45,000
(9) 7,800 (7) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(5) 9,600 (3) 21,000
(7) 6,240 (9) 780
___ _____ _________ __________ (10) 17,340 ____102,930
Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050
5. 1/1/20x4
b.
Non-controlling interest (partial goodwill),……………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
recognized.
12/31/20x4:
a. CI-CNI – P207,810
Unrealized gain on sale of equipment (downstream sales) (15,000)
Total P234,150
P 50,700
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750

as follows:
Total P567,810
e.
Total P211,200
Non-controlling interest (full-goodwill)…………….. P 95,190
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, P1,095,810
12/31/20x4
NCI, 12/31/20x4 ___95,190
12/31/20x5:
a. CI-CNI – P281,700
Total P288,900
Or, alternatively
Total P288,900
P 86,700
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
parties.. P487,050
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000
__ 8,760
Total P760,170
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
20x4 and 20x5 (P13,200 + P7,200) 20,400
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
e.
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
f.
Consolidated SHE:
NCI, 12/31/20x5 __102,930
Problem IX
Requirements 1 to 4
Consideration P
transferred……………………………….. 372,000
80%)……………………. P 192,000
80%)………………... 96,000 288,000
value)….. 84,000
liabilities:
80%)……………… P 4,800
80%)……………………. 5,760
80%)………..... ( 19,200)
80%)…… 3,840 72,000
cost over
fair P
value)………………………………………………... 12,000

S Co. S Co. (Over)
Book Fair Under
value value Valuation
P
Inventory………………….…………….. 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
P
Net……………………………………….. 204,000 P 294,000 P 90,000
Equipment.................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 1992,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200

P P
13,200 P 13,200 7,200
follows:

x 100%) __360,000
liabilities
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
Value % of
Total
Value % of
Total
Interest
Goodwill
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealize Remaini Realized
of Seller Price Value d* ng gain – 20x4
Sale Gain on Life depreciatio
sale n**
4/1/20 P P90,0 P75,0 P15,000 5 years P3,000/year P2,2
x4 00 00 50
1/2/20 S 31,200 8 years P3,9
x4 60,00 28,80 P3,900/year 00
0 0
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P P
480,000 240,000
138,000
Gross profit P P
276,000 102,000
Other expenses 48,000
18,000
P P
168,000 60,000
Add: Gain on sale of equipment 15,000
31,200
-
Net income P P 91,200
207,810
January 1, 20x4:
(1) Investment in S Company……………………………………… 372,000
Cash…………………………………………………………… 372,000

(2) Cash……………………… 28,800
December 31, 20x4:
December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable and goodwill
impairment loss.
December 31, 20x4:
To adjust investment income for downstream sales -
unrealized gain on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales -
unrealized gain on sale of equipment..
December 31, 20x4:

realized gain on sale of equipment..
December 31, 20x4:

Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010
Investment Income
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
acquisition.
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
12,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
20%)………………………..
Co……………………………………………….

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400

20%)………………..
follows:

Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
372,000 372,000
Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P26,000/85 years x 1 year = P3,250).


P 50,700

Sales P480,000 P240,000 P 720,000
(6) 31,200
(7) 2,250 83,850
Depreciation expense 60,000 24,000 (3) 6,000 (8)
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,950

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 5,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,466,600

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 10,140 92,940
Total P1,980,810 P1,008,000 P 840,690 P 840,690 P2,466,600

P Co. S Co.
Sales P P
540,000 360,000
192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
264,360 90,000
Dividends paid P P
72,000 48,000

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable
December 31, 20x4:
realized gain on sale of equipment.
December 31, 20x4:
Investment in S
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Co…………………………………………
Retained earnings – S Co, 175,200
1/1/x5………………………….
20%)………………………..

P12,000)
P6,000) 0
6,000
Land……………………………………………………………………
….
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 180,00
0
Co……………………………………………….
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200
(E4) Investment income 72.360

20%)………………..
follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360
(E5) Investment in S Company 15,000

Equipment 30,000
Accumulated depreciation – equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation –

equipment ……….. 5,250
year)…………… 3,000
Investment in S Company (prior year) 2,250
(E8) Accumulated depreciation- equipment…….. 7,800

(P31,200/85 years x 1 year = P3,900).

P 86,700
with third persons.

Sales P540,000 P360,000 P 900,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 83,100
3,000
(8)
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
Investment in Son Co……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,749,800

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 69,200
(6) 6,240 (2) 15,360
(8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,233,170 P1,074,000 P 930,750 P 930,750 P2,749,800
5 and 6. Refer to Problem V for computations

20x5 are exactly the same (refer to Problem X solution).
Problem X
Requirements 1 to 4
(80%)…………….. 372,000
(20%)……………….. 93,000
P
Son:
100%)………………. P 240,000
100%)………... 120,000 360,000
value)….. 105,000
liabilities:
100%)……………… P 6,000
100%)……………………. 7,200
100%)………..... ( 24,000)
100%)…… 4,800 90,000
over
fair P
value)………………………………………………... 15,000

Annu
Over/ al Current
P P P
Inventory 6,000 1 6,000 P 6,000 -
Subject to Annual
Amortization
96,00 12,00
Equipment (net)......... 0 8 12,000 12,000 0
(24,0 ( 6,000 (6,00
Buildings (net) 00) 4 ) ( 6,000) 0)
Bonds payable… 4,800 4 1,200 1,200 1,200
P P
13,200 P 13,200 7,200
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P P
480,000 240,000
138,000
Gross profit P P
276,000 102,000
Other expenses 48,000
18,000
P P
168,000 60,000
Add: Gain on sale of equipment 15,000
31,200
-
Net income P P 91,200
207,810
January 1, 20x4:
Company…………………………………………… 0
372,00
Cash…………………………………………………………………… 0
..

(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, 13,560
goodwill
impairment loss)]
Record amortization of allocated excess of
inventory, equipment, buildings and bonds
payable and goodwill impairment loss.
December 31, 20x4:

To adjust investment income for downstream
sales - unrealized gain on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream
sales - unrealized gain on sale of equipment..
December 31, 20x4:

To adjust investment income for downstream
sales - realized gain on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream
sales - realized gain on sale of equipment..
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010
Investment Income
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Co…………………………………………
Co……………………………………
Co……………………………………………
20%)………………………..
acquisition.
(E2) 6,000
Inventory………………………………………………………………
….
0
7,200
Land……………………………………………………………………
….
payable………………………………………….
15,000
Goodwill………………………………………………………………
….
Buildings……………………………………….. 216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000
full – 21,000
Co……………………………………………….

loss……………………………………….
6,000
Inventory…………………………………………………………..
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400
20%)………………..
follows:

Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
372,000 372,000

Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P31,120/85 years x 1 year = P3,900).


P 50,700

Sales P480,000 P240,000 P 720,000
(6) 31,200
(8)
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850
Second Year after Acquisition

Perfect Son Co.
Co.
Sales P P
540,000 360,000
1216,000 192,000
Gross profit P P
324,000 168,000
54,000
-
Net income P P
264,360 90,000
Dividends paid P P
72,000 48,000

(2) Cash……………………… 38,400
80%)…………….
December 31, 20x5:

December 31, 20x5:

December 31, 20x4:

To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales - realized gain on sale
of equipment..
Investment in S
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

0
Retained earnings – S Co, 1/1/x5…………………………. 175.20
0
0
20%)………………………..
P12,000)
P6,000) 0
7,200
Land……………………………………………………………………
….
Goodwill (P15,000 – P3,900)…………………………….. 11,250
Buildings……………………………………….. 216,00
0
impairment
or (P3,750 x 20%)]
Co……………………………………………….
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There
might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to
Illustration 15-6).

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Totals P 6,000 P1,200 P7,,200

Non-controlling interest (P48,000 x 20%)……………….. 9,600
follows:

x 80%)……. 72,000 5,760 (P72,000 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360

Equipment 30,000
Accumulated depreciation – equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation –

equipment ……….. 5,250
year)…………… 3,000
(E8) Accumulated depreciation- equipment…….. 7,800

(P31,200/85 years x 1 year = P3,900).


P 86,700
Goodwill 0
with third persons.
Sales P540,000 P360,000 P 900,000
(7) 83,100
3,000
Depreciation expense 60,000 24,000 (3) 6,000 (8)
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 83,040
(6) 6,240 (2) 17,610
(8) 780
___ _____ _________ __________ (9) 17,340 ____102,930
Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050
5 and 6. Refer to Problem VI for computations
20x5 are exactly the same (refer to Problem X solution).
Problem XI
(Determine consolidated net income when an intercompany transfer of equipment occurs.
Includes an outside ownership)
1. Income—ST ........................................................................................................... P220,000

Income—BB ........................................................................................................... 90,000
Excess amortization for unpatented technology .......................................... (8,000)
Remove unrealized gain on equipment ........................................................ (50,000)
(P120,000 – P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 ÷ 5) .......................................................... 10,000
Consolidated net income ................................................................................. P262,000
2. Income calculated in (part a.) ........................................................................ P262,000

Non-controlling interest in BB's income
Income—BB .............................................................................. P90,000
Excess amortization ................................................................. (8,000)
Adjusted net income .............................................................. P82,000
Non-controlling interest in BB’s income (10%).......................................... (8,200)
Consolidated net income to parent company ............................................. P253,800
3. Income calculated in (part a.) ........................................................................ P262,000

Non-controlling interest in BB's income (see Schedule 1) ........ (4,200)
Consolidated net income to parent company ............................................. P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary ................................................................. P90,000
Excess amortization.............................................................................................. (8,000)
Eliminate unrealized gain on equipment transfer ........................................ (50,000)
Eliminate excess depreciation (P50,000 ÷ 5) .................................................. 10,000
Bennett's realized net income .......................................................................... P42,000
Outside ownership .............................................................................................. 10%
Non-controlling interest in subsidiary's income .............................................. P 4,200
4. Net income 20x5—ST .......................................................................................... P240,000

Net income 20x5—BB ......................................................................................... 100,000
Excess amortization.............................................................................................. (8,000)
Eliminate excess depreciation stemming from transfer
(P50,000 ÷ 5) (year after transfer) .............................................................. 10,000
Consolidated net income ...................................................................... P342,000
Problem XII
1. On the consolidated balance sheet, the machine must be reported at its original cost when
Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry debited
the machine account for P22,000 which must be the amount needed to bring the machine
account up to P120,000, Buzzard must have recorded the machine at P98,000. Since the
remaining useful life is seven years, Buzzard will record P14,000 of depreciation expense each
year.
2. The correct balances on the consolidated balance sheet for the Machine and Accumulated
Depreciation accounts are the balances that would be in the accounts if there had been
no sale. The balance in the machine account would be the original purchase price to Tool
or P120,000. The balance in the Accumulated Depreciation account will be the original
amount of annual depreciation, (P12,000) times the number of years the machine has been
depreciated (4), or P48,000.
3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the machine
and is increased by the piecemeal recognition of the gain, which is P2,000. The net result of
P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-controlling
interest.
Problem XIII
1. Downstream sale of land:
20x4 20x5
VV’s separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VV’s realized operating income P 65,000 P110,000
Spawn’s realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000
2. Upstream sale of land:

20x4 20x5
VV’s separate operating income P 90,000 P110,000
SS’s net income P60,000
Less: Unrealized gain on sale of land (25,000)
Spawn’s realized net income 35,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P35,000 x .25) (8,750)
(P40,000 x .25) (10,000)
Income to controlling interest P116,250 P140,000
Problem XIV
1. Consolidated net income for 20x4 will be greater than PP Company's income from operations
plus SS's reported net income. The eliminating entries at December 31, 20x4, will result in an
increase of P16,000 to consolidated net income.
2. As a result of purchasing the equipment at less than Parent's book value, depreciation
expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would have
been recorded by PP. Thus, depreciation expense must be increased by P2,000 when
eliminating entries are prepared at December 31, 20x5. Consolidated net income will be
decreased by the full amount of the P2,000 increase in depreciation expense.
Problem XV
Loss on Sale of Building 36,000
Eliminate unrealized loss on building.
2. Consolidated net income and income to controlling

interest for 20x9:
Operating income reported by BB P125,000

Net income reported by TT P 15,000
Add: Loss on sale of building 36,000
Realized net income of TT 51,000
Income to non-controlling interest (P51,000 x .30) (15,300)
Income to controlling interest P160,700
3. Eliminating entry, December 31, 20y0:

Eliminate unrealized loss on building.
Adjustment to buildings and equipment

Amount paid by TT to acquire building P300,000
Amount paid by BB on intercompany sale (144,000)
Adjustment to buildings and equipment P156,000
Adjustment to depreciation expense

Depreciation expense recorded by TT
Company (P300,000 / 15 years) P 20,000
Depreciation expense recorded by BB
Corporation (P144,000 / 9 years) (16,000)
Adjustment to depreciation expense P 4,000
Adjustment to accumulated depreciation
Amount required (P20,000 x 7 years) P140,000
Amount reported by BB (P16,000 x 1 year) (16,000)
Required adjustment P124,000
Adjustment to retained earnings, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by BB x .70
Adjustment to Noncontrolling interest, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by non-controlling
Interest x .30
4. Consolidated net income and income assigned to

controlling interest in 20y0:
Operating income reported by BB P150,000
Net income reported by TT P40,000
Adjustment for loss on sale of building (4,000)
Realized net income of TT 36,000
Income assigned to non-controlling interest
(P36,000 x .30) (10,800)
Income assigned to controlling interest P175,200
Problem XVI
1.
20x4 20x5 20x6
Consolidated net income as P 750,000 P 600,000 P 910,000
reported
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net P 743,000 P 600,000 P 917,000
income
2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem XVII
1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of depreciation
expense showing on the separate income statements minus the piecemeal recognition of the
gain on the sale of the equipment. Thus, the consolidated amount of depreciation expense
was P95,000 + P32,000 – (P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Problem XVIII
E(1) Gain on Sale of Land 10,000
Land 10,000
Eliminating entry, December 31, 20x8:

E(1) Retained Earnings, January 1 10,000
Land 10,000

Land 10,000

Land 10,000
Problem XIX
Land 45,000

Land 45,000
2. Eliminating entries, December 31, 20x4 and 20x5:

E (1) Retained Earnings, January 1 30,000
Land 30,000

1. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000
Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000
2. a
Original cost of P1,100,000
Accumulated depreciation, 1/1/20x4 P

250,000
Add: Additional depreciation (P1,100,000 – P100,000) / 20 ____50,000
years
300,000
3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost
of P416,000 + P256,000 = P672,000.
5. a The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.
6. e
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000
Accumulated depreciation, 12/31/20x6 P 60,000
7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Depreciation expense Depreciation expense
(P50,000 /5 years) 10,000 (P80,000 / 5 years) 16,000
Acc. Depreciation 8,000 Acc. depreciation 16,000
9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
12. e
Original cost of P
100,000

40,000
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000
70,000
13. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)
14. a
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

(P60,000 /6 years) 10,000 (P48,000 / 6 years) 8,000
15. c
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
16. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
17. b
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000
= P5,000
“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
18. c
19. b
20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation
would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses………………………………………….. 1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
22. b
Realized gain on sale of equipment (downstream sales) through depreciation ___0
Unrealized gain on sales of equipment (upstream sales) (15,000)
(P15,000 / 3 years) 5,000
Total P143,000
Or, alternatively
(P15,000 / 3 years) 5,000
Total P143,000
Amortization of allocated excess…………………… ____0 18,000

Unrealized gain on sales of equipment (upstream sales) ( 15,000)
P 45,000
23. a - refer to No. 22 computation

24. a
25. a
26. b
27. d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 4,000
Depreciation expenses (current year) – P6,000/3 years…. 2,000
Retained earnings (prior year – 20x4)……………………….. 2,000
28. d – the entry under the cost model would be as follows ;

Accumulated depreciation……………………………………………. 10,000
Depreciation expenses (current year) – P15,000/3 years.. 5,000
Retained earnings (prior year – 20x5)……………………….. 5,000
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000
33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
Consolidated income statement P139,625
34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain – depreciation: P56,000/8 years P 7,000
35. c – (P22,500 x 4/15 = P6,000)

36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK
Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will
debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG Company
had the equipment recorded at P40,000; thus, a debit of P1,000 will raise the equipment
balance back to its original cost from the viewpoint of the consolidated entity.
39. b Reported net income of GG Company P 45,000

Reported gain on sale of equipment P15,000
Intercompany profit realized in 20x6 (5,000) (10,000)
Realized net income of GG Company P 35,000
Proportion of stock held by
non-controlling interest x .40
Income assigned to non-controlling interests P 14,000
40. c Operating income reported by TLK Corporation P 85,000

Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
41. b
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Parent Books – Mortar Subsidiary Books – Granite

Cash 390,000 Equipment 390,000
Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000
Mortar
Selling price P390,000
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
42. a – refer to No. 41 for computation

43. b - refer to No. 41 for computation
44. d
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
45. c
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of P2,500,000
and accumulated depreciation of (P2,500,000/10) x 2 = P500,000. Depreciation expense
is P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Eliminating entries at the end of the second year are:

Investment in subsidiary 1,530,000
Equipment 1,700,000
Equipment 200,000
Accumulated 200,000
depreciation

49. d
50. d
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a
gain on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The consolidated
statements show depreciation expense for the year at P600,000 (P3,000,000/5) and a gain
on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 - (3)(P600,000))]. Therefore the
eliminating entries increase depreciation expense by P100,000 and reduce the gain by
P200,000, for a net effect on consolidated income of: P300,000 decrease.
51. a
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year ( 0)
Total P190,000

Cost, 1/1/20x4 P500,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss – depreciation: P20,000/4 years P( 5,000)
Or, alternatively
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
Total P190,000

Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
P 50,000
52. b
Consolidated Net Income for 20y0
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
Total P202,000
Consolidated Net Income for 20y0 P202,000
equity holders of parent – 20y0………….. P194,500
Or, alternatively
Total P202,000
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 25,000
53. d
Building 3,000
Gain 8,250
Parent Books – Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Building 36,000
Gain 8,250
Sky, 7/1/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Realized gain – depreciation: P8,250/5.5 years P 1,500
54. a - refer to No. 53 for computation

55. b
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 x ½ years) 2,250 (P33,000 / 5.5 years x ½ yrs) 3,000
56. c
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
57. d
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500
58. d - P60,000 - P36,000 = P24,000 debit

59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64. d When only retained earnings is debited, and not the non-controlling interest, a gain has
been recorded in a prior period on the parent's books.
65. d
66. a
67. b
68. b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
70. d – P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000
71. d – P110,000 – P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000
72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
(P180,000/9 x 6 yrs) 120,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
73. d –(P100,000 + P50,000 = P150,000)

S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000
74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Equipment,1/1/20x4 P 90,000
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
77. b
Sort Fort Consolidated
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Equipment, 12/30/20x3 P 10,000
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
80. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
P 135,000
81. a
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
equity holders of parent – 20y2………….. P316,800
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Less: Cost of goods sold 942,000 795,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000
Sexton, 1/1/20y1
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Unrealized gain on sale of equipment P120,000
Or, alternatively
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000

83. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)] 112,000
Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s
parties.. P1,188,000
Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000
Less: Amortization of allocated excess – 20x9 to – 20y0 0
20y1 0
P 240,000
P192,000
Less: Goodwill impairment loss 0 _192,000
Consolidated Retained earnings, January 1, 20x5 P1,380,000
Total P1,696,800
Less: Dividends declared – Parent Company for 20y1 120,000
Consolidated Retained Earnings, December 31, 20y1 P1,576,8000
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
transactions with third parties.. P1,356,800
Retained earnings – Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Accumulated amortization of allocated excess 0
12/31/20y2 _______0
P 275,000
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800
84. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
Amortization of allocated excess (refer to amortization above) : 0
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
Multiplied by: Non-controlling Interest percentage…………... _ 20
85. c
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Equipment, 1/1/20y1 P 120,000
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000

Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Accumulated Remaining
Cost Depreciation Carrying Value Life
Depreciation
Original Cost P400,000 P160,000 P240,000 15 yr P 16,000
Intercompany Selling Price 360,000_______ 360,000 15 yr 24,000
Difference P 40,000 P160,000 P120,000 P 8,000
(1) Investment in Sexton Company 192,000

Retained Earnings - Prout 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
(2) Equipment 40,000
Beginning Retained Earnings - Prout 120,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at
the beginning of the year, to restate property and equipment to its book value to Prout
Company on the date of the intercompany sale.
(3) Accumulated Depreciation 16,000

Beginning Retained Earnings - Prout 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount
of intercompany profit as realized
(4) Dividend Income 80,000

Dividends Declared 80,000
(5) Beginning Retained Earnings – Sexton 1,040,000

Common Stock – Sexton 1,200,000
Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years)48,000
Loss on Sale of Equipment 12,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement
necessary to prepare consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Gain on Sale of Equipment 92,000
Cost to the Affiliated Companies P400,000

Accumulated Depreciation Based on Original Cost ((12/25)x P400,000)
192,000
Book Value, 1/1/y3 P 208,000
Proceeds from Sale to Non-affiliate (300,000)
Gain from consolidated point of view P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the
affiliates on their books (P120,000 - P12,000 = P108,000) is equal to
the amount of profit considered realized in the consolidated
financial statements (P8,000 + P8,000 + P92,000) = P108,000.
88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4) Partial Full
Fair value of consideration given…………………….P 700,000
(P300,000 + P500,000) x 80%........................... 640,000
Allocated Excess.………………………………………….P 60,000
Increase in Bldg. (P75,000 x 80%)……………… 60,000
Goodwill ………….………………………………………….P 0 P 0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale – 4/1/20x5):
Sales.......................................................................................................P
60,000
Less: Book value of
equipment………………………………………………………………. 30,000
Unrealized Gain (on sale of
equipment)……………………………………………………P 30,000
Realized gain on sale of equipment:

20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-
12/31/20x5)…………………………. .P 4,500
20x6 ………………..……………………………………………………………………………P
6,000
Downstream Sale of Machinery (date of sale – 9/30/20x5):
Sales.........................................................................................................................
........... P75,000
Less: Book value of
machinery………………………………………………………………. 40,000
Unrealized Gain (on sale of
machinery)…………………………………………………… P35,000
Realized gain on sale of machinery:

20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-
12/31/20x5)………. ……………… .P 875
20x6………….. ………………………………………………………………………………...P
3,500
89. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %…………………………………………………………. 80%
Dividend income of Parent……………………………………………………..P 40,000
90. d
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375
Or, alternatively
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375

Unrealized gain on sales of equipment (upstream sales) ( 30,000)
P 121,500

93. a
Non-controlling Interests (in net assets): 20x5
20x6
Common stock - S, 12/31..….………………………… P 300,000
P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1.…………………………………………….P600,000 P
700,000
+: NI-S………………………………………………… 150,000
200,000
-: Div – S…………………………………………….. 50,000 700,000
70,000 830,000
Book value of Stockholders’ equity, 12/31…….... P1,000,000
P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..… 75,000
75,000
Accumulated amortization (P3,000 per year)*.…… ( 6,000)
( 9,000)
Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000
P1,196,000
Unrealized gain on sale of equipment (upstream) ( 30,000)
**( 25,500)
Realized gain thru depreciation (upstream)……… 4,500
6,000
Realized SHE – S,12/31………………………………….. P1,043,500
P1,176,500
x: NCI %........................................................... ………… ___ 20%
20%
Non-controlling Interest (in net assets) – partial... P 208,700
P 235,300
+: NCI on full goodwill……..…………………………….. 0
0
Non-controlling Interest (in net assets) – full…….. P 208,700 P
235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning
Retained earnings – Parent, 1/1/20x5 (cost)……………………………
P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain
0
Adjusted Retained earnings – Parent, 1/1/20x5 (cost)………………
P 800,000
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P
500,000
Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000
(cumulative net income – cumulative dividends)…………P
100,000
Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year…….. ( 3,000)
Upstream Sale – 2010 or prior to 20x5,
Net unrealized
gain……………………………..……………….( 0)
P 97,000
X: Controlling Interests %..……………………………………………
80% 77,600
RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5…………………
P 877,600
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….
363,075
-: Dividends – P…………………………………………………………………..
100,000
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P
1,140,675
Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5
should be use.
Retained earnings – Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, P’s reported NI – P100,000)………………
P1,040,000
-: Downstream sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 – P875)…………………………….
34,125
Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..……
P1,005,875
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P
500,000
(P600,000 + P150,000 – P50,000)..…………..…………….
700,000
(cumulative net income – cumulative dividends)……. ….P
200,000
P 3,000 x 2
years……………………………………………. .( 6,000)
Upstream Sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500)
P 168,500
x: Controlling Interests %..………………………………………… 80%
134,800
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….
P1,140,675
94. c – refer to No, 93 computations.
97. b
Common stock – P (P only)……………………………………….. .P 1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
98. d – the original cost of land
99. b – no intercompany gain or loss be presented in the CFS.
100. a
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
S3 Company’s net income from own operations…………………………………. P100,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200
101. b
Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sales of equipment (upstream sales) – year of sale -
(P14,500 – P9,000) / 5 years 1,100
P 41,100
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).

It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method. Since, the cost model
is presumed to be the method used, the unrealized gain of P15,000 (P60,000 – P45,000) will
not be recorded in the books of parent company, which give rise to no equity-adjustments
at year-end.
103. c
Cliff reported income P225,000
Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliff’s adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
104. c
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250
105 c
P30,000 - (1/4 x P30,000) = P 22,500
106. d - P60,000 – P48,000)/4 years = P3,000

107. a
Simon, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Realized gain – depreciation: P19,500/9.75 years P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
Share in subsidiary net income (100,000 x 90%) 90,000
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500
Net 72,000
112. b
20x5
Net 110,000
113. d
20x6
Net 119,000
114. c
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
115. b
20x4
Unrealized gain on sale of equipment (upstream sales); ( 9,600)
12,000 x 80%
Realized gain on sale of equipment (upstream sales)
through depreciation _ 1,600
P2,000 x 80%
Net 14,400
116. c
20x5
Realized gain on sale of equipment (upstream sales)
through depreciation _ 1,600
P2,000 x 80%
Net 27,200
117. d
Equipment 36,000
Gain 12,000
Parent – Smeder Subsidiary - Collins

Cash 84,000 Equipment 84,000
Equipment 120,000
Gain 12,000
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
P12,000 / 6 years or P14,000 – P12,000
“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

(P72,000 /6 years) 12,000 (P84,000 / 6 years) 14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of accumulated
depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
119. d
Cash 5,000
Loss 5,000
Parent – Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000
Stark Parker Consolidated

Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
120. b – refer to No. 119 for eliminating entry
121. b
Cash 5,000
122. e
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
123. d
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
124. b
Stark Parker Consolidated
Selling price P 80,000 P P 92,000
92,000
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of P ( 5,000) P P 7,000
equipment 12,000
125. a – refer to No. 124 for computation

126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but
not in the subsequent years.
127. c
20x6
Intercompany realized loss on sale of land (upstream sales): _
P5,000 x 90% ( 4,500)
Net 193,500
Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. c 17. a 22. d 27. c
3. d 8. a 13. d 18. a 23. c 28. b
4. d 9. a 14. b 19. c 24. c 29. c
5. b 10, c 15, d 20. a 25. b 30. c
Chapter 19
Problem I
1. Indirect Exchange Rates
Philippine Viewpoint:
1 $ = P40; 1 Peso = $0.025 ($1/P40)
1 Singapore dollar = P32.00; 1 Peso = 0.03125 Singapore (1 Singapore Dollar/P32)
Peso P8,000
2. FCU = = = $200; or
Direct Exchange Rate P40.00
= P8,000 x $1/P40 = $200
3. 4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Arrival Date Departure Date
1 Singapore dollar = P33.00 1 Singapore Dollar = P32.50

Direct
Exchange Rate (P33,000 / 1,000 Singapore (P3,250 / 100 Singapore
dollars) dollars)
P1.00 = .03 Singapore dollars P1.00 = .03 Singapore dollars

Indirect
Exchange Rate (1,000 Singapore dollars / (100 Singapore dollars /
P33,000) P3,250))
2. The direct exchange rate has decreased. This means that the peso has strengthened
during Mr. Alt's visit. For example, upon arrival, Mr. Alt had to pay P33 per each dollar.
Upon departure, however, each dollar is worth just P32.50. This means that the relative
value of the peso has increased or, alternatively, the value of the dollar has
decreased.
3. The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 = P3,300
Departure date
100 dollars x P32.50 = 3,250
Foreign Currency Transaction Loss P 50
Mr. Alt held dollars for a time in which the dollars was weakening against the peso.
Thus, Mr. Alt experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign currency
unit. If the indirect exchange rate increases, the peso strengthens relative to the foreign
currency unit.
2.
Settlement Direct Exchange Rate Indirect Exchange Rate

Transaction Currency Increases Decreases Increases Decreases
Importing Peso NA NA NA NA
Importing L G G L
LCU
Exporting Peso NA NA NA NA
Exporting LCU G L L G
Problem IV
1.
December 1, 20x4 (Transaction date):
Purchases…………………….. 973,200
Accounts payable ($24,000 x P40.55)……………………………… 973,200
December 31, 20x4 (Balance sheet date):

Foreign currency transaction loss….………………….. 6,000
Accounts payable [$24,000 x (P40.80 – P40.55)]……… 6,000
Accounts payable valued at 12/31 Balance Sheet

($24,000 x P40.80)……… P979,200
Accounts payable valued at 12/1 Date of Transaction
($24,000 x P40.55)……… 973,200
Adjustment to accounts payable needed……….. P 6,000
March 1, 20x5 (Settlement date):

Accounts payable………………… 979,200
Foreign currency transaction gain [$24,000 x (P40.80 – P40.65)] 3,600
Cash ($24,000 x P40.65)……………. 975,600
2.
a.
a.1. None – transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 – spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 – spot rate on the transaction date or historical rate on the balance sheet
date.
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receivable ($60,000 x P40.00)……………………………… 2,400,000
Sales 2,400,000
Accounts receivable……….. 42,000
Foreign currency transaction gain [$60,000 x (P40.70 – P40.00)] 42,000
Accounts receivable valued at 12/31 Balance Sheet

($60,000 x P40.70)……… P2,442,000
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)……… 2,400,000
Adjustment to accounts receivable needed……….. P 42,000
March 1, 20x5 (Settlement date):

Cash ($60,000 x P40,60)……………….. 2,436,000
Foreign currency transaction loss……… 6,000
Accounts receivable ($60,000 x P40.70)………. 2,442,000
2.
a.
a.1. None – transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 – spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 – spot rate on the transaction date or historical rate on the balance sheet date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are as
follows:
November 1, 20x4 (Transaction date):

Equity investment (FVTPL)/Financial Asset …………… 3,840,000
Cash 3,840,000
To record the purchase of shares in Pineapple Computers at a cost of
$96,000 at the exchange rate of P40.
December 10, 20x4 (Transaction date):

Equipment ………………………… 636,000
Cash 636,000
To record the purchase of equipment costing 12,000 euros at the
exchange rate of P53.

Equity investment (FVTPL)/Financial Asset …………… 1,020,000
Unrealized gain in fair value of equity investment (financial asset) 1,020,000
To record gain in fair value of Pineapple Computer’s share.
12/31/x4: Revalued Investment and translated at the rate on

the date of revaluation (closing/current rate):
(1,200 units x $100 x P40.50)……………. P4,860,000
11/1/x4: Investment, cost (1,200 units x $80 x P40.00) 3,840,000
Unrealized gain on equity investment P1,020,000
Less: Foreign currency transaction gain – equity investment
11/1/20x4: Date of transaction (1,200 units x $80 x P40).. P3,840,000
Less: 12/31/20x4: B/S Date (1,200 units x $80 x P40.50)…. 3,888,000 48,000
Other unrealized gain in the fair value of equity investment... P 972,000
Foreign currency transaction loss….………………….. 19,200

Accounts payable [$96,000 x (P53.20 – P53)]……… 19,200
To record exchange loss on accounts payable in euros.
Accounts payable valued at 12/31 Balance Sheet

(1,200 x $80 x P53.20)……… 5,107,200
Accounts payable valued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)……… 5,088,000
Adjustment to accounts payable needed……….. P 19,200
February 3, 20x5 (Settlement date):

Accounts payable………………… 5,107,200
Foreign currency transaction loss [$96,000 x (P53.80 – P53.20)] 57,600
Cash ($96,000 x P53.80)……………. 5,164,800
To record exchange loss on accounts payable in euros and settlement of
accounts payable in euros at the spot rate of P53.80.
Note the following:

 The investment in Pineapple Computers, Inc shares is a non-monetary item that is
carried at fair value as it is classified as equity investment through profit or loss (or
a financial asset – FVTPL refer PF RS 9). The investment is revalued and translated at
the rate on the date of revaluation, that is, December 31, 20x4.
 The equipment is translated at the spot rate at the date of purchase and, being a
non-monetary item, is carried at cost. It is not adjusted for the change in the exchange
rate at balance sheet date. The accounts payable in euros is a monetary item and is
remeasured using the c u rre nt/ closing rate at balance sheet date. The exchange loss is
expensed off to the income statement
Problem VII
1. May 1 Inventory (or Purchases) 8,400
Foreign purchase denominated in pesos
June 20 Accounts Payable 8,400

Cash 8,400
Settle payable.
July 1 Accounts Receivable 10,000

Sales 10,000
Foreign sale denominated in pesos
August 10 Cash 10,000

Collect receivable.
2. May 1 Inventory (or Purchases) 8,400

Accounts Payable (FC1) 8,400
Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
June 20 Foreign Currency Transaction Loss 600

Accounts Payable (FC1) 600
Revalue foreign currency payable to
peso equivalent value:
P9,000 = FC1 1,200,000 x P.0075 June 20 spot rate
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)

Foreign Currency Units (FC1) 9,000
Settle payable denominated in FC1.
July 1 Accounts Receivable (FC2) 10,000

Sales 10,000
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
August 10 Accounts Receivable (FC2) 1,000

Foreign Currency Transaction Gain 1,000
Revalue foreign currency receivable
to U.S. dollar equivalent value:
P 11,000 = FC2 50,000 x P.22 Aug. 10 spot rate
- 10,000 = FC2 50,000 x P.20 July 1 spot rate
P 1,000 = FC2 50,000 x (P.22 - P.20)

Accounts Receivable (FC2 11,000
Receive FC 2 in settlement of receivable
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
12/1/x4 12/31/x4 1/15/x5
Transaction Balance Sheet Settlement

Date Date Date
Direct
Exchange P.70 P.66 P.68
Rate
2. December 1, 20x4
Inventory (or Purchases) 10,500
Accounts Payable (FC) 10,500
P10,500 = FC 15,000 x P.70
December 31, 20x4

Accounts Payable (FC) 600
Foreign Currency Transaction Gain 600
Revalue foreign currency payable to
equivalent peso value:
P 9,900 = FC 15,000 x P.66 Dec. 31 spot rate
-10,500 = FC 15,000 x P.70 Dec. 1 spot rate
P 600 = FC 15,000 x (P.66 - P.70)
January 15, 20x5

Foreign Currency Transaction Loss 300
Accounts Payable (FC) 300
Revalue payable to current peso equivalent
P10,200 = FC 15,000 x P.68 Jan. 15, 20x5, value
- 9,900 = FC 15,000 x P.66 Dec. 31, 20x4, value
P 300 = FC 15,000 x (P.68 - P.66)
Accounts Payable (FC) 10,200

Foreign Currency Units (FC) 10,200
P10,200 = FC 15,000 x P.68
Accounts Payable (FC)

(FC 15,000 x P.70) 12/1/x4 10,500
AJE 12/31/x4 600
(FC 15,000 x P.66) Bal 12/31/x4 9,900
AJE 1/15/x5 300
(FC 15,000 x P.68) Bal 1/15/ x5 10,200
1/15/x5 Settlement 10,200
Bal 1/16/x5 -0-
Problem IX
1. December 31, 20x6
Accounts Receivable (FC1) 10,000
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000

Adjust payable denominated in foreign
currency to current peso equivalent
and recognize exchange gain:
P175,300 = Preadjusted Dec. 31, 20x6, value
- 170,100 = FC2 21,000,000 x P.0081, Dec. 31 spot rate
P 5,200
2. Accounts Receivable (FC1) 1,900

Adjust receivable denominated in FC1
to equivalent peso value on
settlement date:
P85,500 = FC1 475,000 x P.180 20x7 collection date value
- 83,600 = FC1 475,000 x P.176 Dec. 31, 20x6, spot rate
P 1,900 = FC1 475,000 x (P.180 - P.176)
Cash 164,000
Accounts Receivable (FC1) 85,500
Accounts Receivable (P) 164,000
Collect all accounts receivable.
3. Accounts Payable (FC2) 6,300

Adjust payable to equivalent peso
value on settlement date:
P163,800 = FC2 21,000,000 x P.0078 20x7 payment date value
- 170,100 = FC2 21,000,000 x P.0081 Dec. 31, 20x6, spot rate
P 6,300 = FC2 21,000,000 x (P.0078 - P.0081)
Accounts Payable (P) 86,000

Cash 86,000
Payment of all accounts payable.
4. Transaction gain on FC:

December 31, 20x6 P10,000 gain
December 31, 20x7 1,900 gain
Overall P11,900 gain
5. Transaction gain on FC2:

December 31, 20x6 P 5,200 gain
December 31, 20x7 6,300 gain
Overall P11,500 gain
6. Overall foreign currency transactions gain:

Gain on FC1 transaction P11,900
Gain on FC2 transaction 11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only those
denominated in foreign currency units. The accounts receivable denominated in
FC1 could be hedged by selling FC1 in the forward market, thereby locking in the
value of the FC1. The accounts payable denominated in FC2 could be hedged by
buying FC2 in the forward market, thereby locking in the value of the FC2.
Problem X
Foreign
Foreign Currency Currency
Accounts Transaction Exchange Transaction
Receivable Accounts Payable Loss Exchange Gain
Case 1 NA P16,000(a) NA P2,000(b)
Case 2 P38,000(c) NA NA P2,000(d)
Case 3 NA P27,000(e) P3,000(f) NA
Case 4 P6,250(g) NA P1,250(h) NA

(a) LCU 40,000 x P.40
(b) LCU 40,000 x (P.40 - P.45)
(c) LCU 20,000 x P1.90
(d) LCU 20,000 x (P1.90 - P1.80)
(e) LCU 30,000 x P.90
(f) LCU 30,000 x (P.90 - P.80)
(g) LCU 2,500,000 x P.0025
(h) LCU 2,500,000 x (P.0025 - P.003)
1. c C$1 / P.90 (C$1.11 = P1.00)
2. d – (correction: the question should be April 20, 20x5 not 20x4)

20x4 20x5
P.4895 x FC30,000 P14,685 P.4845 x FC30,000 P14,535
P.4845 x FC30,000 14,535 P.4945 x FC30,000 14,835
Gain P 150 Loss P (300)
3. b
20x4
Date of transaction (12/1/20x4) P .0095
Balance sheet date (12/31/20x4) .0096
Foreign exchange currency loss per FC P .0001
Multiplied by: No. of FC 1,000,000
Foreign exchange currency loss P 100
20x5
Balance sheet date (12/31/20x4) P .0096
Date of settlement (1/10/20x5) .0094
Foreign exchange currency gain per FC P .0002
Foreign exchange currency gain P 200
4. c
Balance sheet date (12/31/20x4) P125,000
Date of settlement (7/1/20x5) 140,000
Foreign exchange currency loss P 15,000
5. b January 15
Foreign Currency Units (LCU) 300,000
Exchange Loss 15,000
Accounts Receivable (LCU) 315,000
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
6. c – spot rate on the date of transaction

7. a - spot rate on the date of transaction
8. d P120,000 = July 1, 20x4, Peso equivalent value
P140,000 = December 31, 20x4, Peso equivalent value
(LCU 840,000 / P140,000) = LCU 6 / P1
-105,000 = July 1, 20x5, Peso equivalent value
(LCU 840,000 / 8) = P105,000
P(35,000) Foreign currency transaction loss
9. d P27,000 = P6,000 + P20,000 + P1,000
Accounts Payable (FCU)

1/20/x4 90,000
AJE 6,000
3/20/x4 96,000
Foreign Exchange Loss 6,000

Accounts Payable (FCU) 6,000
Notes Payable (FCU)

7/01/x4 500,000
AJE 20,000
12/31/x4 520,000
Notes Payable (FCU) 20,000
Interest Payable (FCU)

(FCU500,000 x .10 x 1/2 year) 25,000
AJE 1,000
12/3/x4 26,000
Interest expense 25,000
Interest Payable (FCU) 25,000

Interest Payable (FCU) 1,000
10. c P5,000
Accounts Receivable (FCU)
10/15/x4 100,000
AJE 5,000
11/16/x4 105,000 Settlement 11/16/x4 105,000
Accounts Receivable (FCU) 5,000

Foreign Exchange Gain 5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were shipped,
not on September 1, 20x4, when the order was received.
11. b P1,000
Accounts Payable (FCU)
(10,000 x P.60) 4/08/x4 6,000
x4 AJE 500
(10,000 x P.55) 12/31/x4 5,500
X5 AJE 1,000
(10,000 x P.45) 3/01/x5 4,500
Settlement 4,500
Bal. -0-
X5 AJE Accounts Payable (FCU) 1,000
Foreign Exchange Gain 1,000
12. b P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is
computed using spot rates on the transaction date (November 30, 20x4) and the
balance sheet date (December 31, 20x4). The forward exchange rates are not
used because the transaction was not hedged.
13. c –
Date of transaction (7/7) P 2.08
Balance sheet date (8/31) 2.05
Foreign exchange currency gain per FCU P .03
Multiplied by: No. of FCU 350,000
Foreign exchange currency gain P 10,500
14. b – The value of the asset acquired should be the spot rate on the date of transaction, i.e.
P-80. Therefore, the final recorded value of the electric generator should be P40,000 (P.80 x
50,000 FCs)
15. a
Date of transaction P .75
Date of settlement .80
16. d
Date of transaction (12/15) P .60
Balance sheet date (12/31) .65
17. b
Date of transaction (11/30) P 1 .65
18. b
Date of transaction (11/30) P1.49
19. a
Date of arrival (P1,000 / 480,000 FC) P .00208
Date of departure (P100/50,000 FC) .00200
Foreign exchange currency loss per FCU P .00008
20. b
Date of transaction (10/1) P 1.20
Foreign exchange currency gain per LCU P .10
Multiplied by: No. of LCU 5,000
21. d
Date of transaction (11/2) P 1. 08
Foreign exchange currency gain per LCU P .02
Multiplied by: No. of LCU 23,000
22. a
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC P . 85
Date of settlement (10/10) .90
Multiplied by: No. of FC 20,000
23. a
Balance sheet date (12/31) .262
24. d
Balance sheet date (12/31) P .262
25. c
Foreign exchange currency gain (No. 25) P 300
Foreign exchange currency loss (No. 26) _ 200
Overall gain , net P 100
or,
26. b – any gain or loss on foreign currency should be considered ordinary.

27. d
Date of transaction (4/8) : P1 / .65 FC (direct quote) P 1.54
Date of settlement (5/8): P1/ .70 FC (direct quote) 1.43
28. d – the amount of sales should be the spot rate on the date of transaction (or the balance
sheet date - historical rate). I.e., P1.7241 x 10,000 FCs = P17,241.
29. e
1/1: Date of transaction – spot rate P 1.7241
12/31: Balance sheet date 1.8182
30. b
Balance sheet date (12/31/20x4) P 1.8182
Date of settlement (1/30/20x5) 1.6666
31. a – since accounts payable is an exposed account meaning their value will fluctuate based
on the spot exchange rates, the value of the accounts payable should be the value on May
8, i.e., the spot rate of P1.25 (P.15 x 2,000,000 FCs = P2,500,000).
32. c
5/8: Date of transaction – spot rate P 1.25
5/31: Balance sheet date 1.26
Foreign exchange currency loss per FC P 0.01
33. e – in a two-transaction approach, the recognition of foreign exchange gain or loss is separate
from the settlement, therefore, the amount of accounts payable to be settled should be the
spot rate on the settlement date, i.e., P1.20 (P1.20 x 2,000,000 FCs = P2,400,000)
34. a
35. d
4/8/20x3: Date of transaction P 97,000
12/31/20x3: Balance sheet date 103,000
36. d
37. d
11/4/x6: Date of transaction – spot rate P .70
12//31/x6: Balance sheet date .67
38. d
39. b
Income statement:
Foreign exchange currency gain per FC P 0.003
Balance sheet: Inventory should be spot rate on the transaction date:
P.798 x 1,000,000 = P798,000.
40. a
Income statement:
Sales should be spot rate on the transaction date:

P.181 x 1,000,000 = P181,000
41. b - 70,000 x P.65

42. b - 70,000 x P.65
43. a - 70,000 x P.72
44. c - 70,000 x (P.72 - P.65)
45. b - 70,000 x (P.69 - P.72)
46. d - 25,000 x P1.14
47. b - 25,000 x P1.06
48. a - 25,000 (P1.14 - P1.06)
49. d - 25,000 (P1.06 - P1.09)
50. d – spot rate on the date of settlement
51. b – spot rate on the date of purchase/transaction
52. b - spot rate on the date of transaction
53. a – refer to page 646 of the book for the discussion of “one-transaction theory”
54. c – (P.82 – P.82) x 1,000 FCUs
55. a - P5 exchange gain = (P.81 – P.8050) x 1,000 FCUs
56. b – spot rate on the date of transaction(loan date) – 5,000,000 x P1.150
57. d – spot rate on the balance sheet date – (5,000,000 x 5%) x P1.1490
58. a – (P1.15 – P1.149) x 5,000,000 = P5,000 gain
59. d – spot rate on the date of transaction(loan date) – (5,000,000 x 5%) x P1.1485
60. d
P78,000/P.80 per FCU = P 97,500
P78,000/P.78 per FCU = _100,000
Difference in FCU = P (2,500)
Difference in pesos (2,500) x .78 = P (1,950)
61. b - P97,500 francs (from 60 above) x P.78 = P76,050

62. d
Indirect exchange rate:
for the Singapore dollars: 1/07025 = 1.4235
for the HK dollars: 1/2.5132 = .3979
63. a - HK$10,000 x P2.5132/HK$ = P25,132

64. b - P10,000/P.7025 = 14,235 Singapore dollars
65. b – FC 1,000,000 x (P0.77 - P0.80) = P30,000 loss
66. d – FC 5,000 x P0.77 = P3,850
Theories
Completion Statements
1. International Accounting Standards Board
2. International Accounting Standards
3. commodities
4. conversion
5. translation
6. indirect
7. direct
8. floating, free
9. spot
10. differential rates of inflation
11. purchasing power parity theory
12. denominated
13. measures
14. exposed asset position
15. exposed liability position
16. transaction date
17. bank wire transfers
True or False/Multiple Choice

1. False 6. False 11. True 16. False 21. False 26. True 31. True 36. False
2. True 7. True 12. False 17. True 22. True 27. False 32. False 37. True
3. False 8. False 13. True 18. False 23. True 28. False 33. False 38. False
4. True 9. True 14. False 19. False 24. False 29. True 34. True 39. True
5. False 10. False 15. True 20. False 25. True 30. False 35. False 40. True
41. False 46. b 51. c 56. d 61. c 66. d 71. d 76. b

42. True 47. b 52. a 57. c 62. b 67. c 72. c 77. a
43. False 48. d 53. a 58. d 63. a 68. c 73. b 78. d
44. True 49. b 54. b 59. a 64. c 69. b 74. a 79. b
45. True 50. d 55. d 60. c 65. c 70. d 75. c 80. d
81. b 86. d 91. c 96. b

82. d 87. b 92. a 97. a
83. d 88. b 93. a 98. d
84. c 89. b 94. d 99. c
85. d 90. d 95. c/d 100. d

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Chapter 12

(c)Cash ………………………………………………………..................................... 35,000

(d)Expenses-Agency ……………………………………………………………….. 4,500

(e)Expenses-Agency ……………………………………………………………….. 2,250

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

(a) Cash ………………………………………………………….. 42,500

(b) Shipments from Home Office …………………………… 50,200

(c) Accounts Receivable ……………………………………. 60,000

(d) Purchases …………………………………………………… 22,500

(e) Home Office ……………………………………………….. 53,400

(f) Accounts Payable ………………………………………... 12,250

(g) Furniture & Fixtures ………………………………………… 8,000

(h) Expenses …………………………………………………….. 18,000

(a) Branch ………………………………………………………. 42,500

(b) Branch ……………………………………………………… 50,200

(c) Accounts Receivable …………………………………... 105,000

(d) Purchases …………………………………………………. 122,500

(e) Cash ……………………………………………………….. 113,600

(f) Accounts Payable ………………………………………. 124,000

(g) Expenses …………………………………………………… 26,600

(h) Cash ……………………………………………………….. 53,400

(i) Retained Earnings ………………………………………. 10,000

Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Sales …………………………………………………………………………… P66,000

Assets Liabilities & Stockholders’ Equity

Cash …………………………….. P 23,200 Liabilities

(a) Branch Books:

Income Summary …………………………………………………… 90,900

Home Office ………………………………………………………… 1,400

(b) Home Office Books

Sales …………………………………………………………………… 105,000

Income Summary …………………………………………………… 190,250

Branch Income ……………………………………………………… 1,400

Income Summary ………………………………………………….. 1,400

Income Summary ………………………………………………….. 12,050

1/1 – 1/31 Transaction with Outsiders

1/1 – 1/31 Intercompany / INTER-OFFICE Transactions

b. Branch Current . . . . . . .. 475 Expenses. . . . . . . . . . . . . . . . . . . 475

c. Branch Current.. . . . . . .. 35 Expenses. . . . . . . . . . . . . . . . . . . 35

Branch Income Summary 560 Home Office Current . . . . . . . . 560

Income Summary……….. 560

Income Summary……….. 3.665

Cash …………............................ P 1,100 Accounts Payable ………………. P

Sales …………………………………………………………………………………………. P 6,200

Accounts Payable …………………………………………….. P29,150

Capital Stock …………………………………………………… P50,000

Sales ……………………………………………………………………………… P 34,600

Sales ………………………………………………………………………………….. P 40,800

Capital Stock …………………………………………………… P50,000

Cash in Transit 22,000

(b) Accounting records of branch:

Inventories in Transit 24,000

(b) Branch Books:

Home Office Books:

Merchandise Returns from Branch – in Transit ……………. 640

2. Home office books:

31 Cash in Transit 16,000

31 Wilshire Branch 750

31 Shipments from Home Office – In Transit 4,400

2. (a) Entries to bring branch books up to date:

Correction in Income of Prior Periods 215

Home Office 215

(b) Entries to bring home office books up to date:

Beverly Hills Branch 310