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Consolidation at the Date of Acquisition

Pre-acquisition balance sheets of Parent and Subsidiary as of December 31, 2018:
Parent Company Subsidiary Company
Book value Fair value Book value Fair value Useful Life
Cash P 8,000 P 6,000 P 1,000 P 1,000
Receivables 4,000 4,000 3,000 3,000
Inventory 3,000 3,500 2,000 2,500
Land 8,000 10,000 6,000 8,000
Building, net 10,000 10,000 5,000 6,000 10 years
Equipment, net 6,000 7,000 3,000 2,000 4 years
Total assets P 39,000 P 20,000
Payables P 20,000 20,000 P 5,000 5,000
Ordinary shares 15,000 10,000
Share premium 2,000 3,000
Retained earnings 2,000 2,000
Total liabilities and equity P 39,000 P 20,000
On December 31, 2018:
- Parent Company purchased 80% of Subsidiary Company by issuance of P10,000 par value
shares with P21,000 fair value.
- Stock issue costs on the issuance were 500.
- Direct acquisition costs were P1,000 while indirect acquisition cost were P500.
- Both Parent and Subsidiary uses FIFO method for inventories. The non-controlling interest
was valued at its sP4,000 fair value.

Required: Prepare Consolidated FS at the date of acquisition.

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Consolidation Subsequent to Date of Acquisition

Balance sheets of Parent and Subsidiary as of December 31, 2019:
Parent Subsidiary
Cash P 2,000 P 3,500
Receivables 10,000 14,500
Investment in subsidiary 21,000 -
Inventory 4,500 6,000
Land 8,000 6,000
Building 10,800 4,500
Equipment 4,800 2,500
Total assets P 61,100 P 37 ,000
Payables P 16,100 P 14,000
Ordinary shares 25,000 10,000
Share premium 12,500 3,000
Retained earnings 7,500 10,000
Total liabilities and equity P 61,100 P 29,000
2019 Income Statement Parent Subsidiary 2019 FACTS
Sales P 50,000 P 30,000 No inter-company transaction
Less: Cost of sales 25,000 14,000 except for the P1,000 dividends
Gross Profit P 25,000 P 16,000 declared by Subsidiary.
Dividend income 800 -
Less: Depreciation expense 2,800 1,300 Parent also declared
Other expense 12,000 5,700 P4,000 dividends.
Profit P 11,000 P 9,000

Required: Prepare Consolidated FS as of December 31, 2019.

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INTER-COMPANY ELIMINATION: INVENTORY

Illustrative: Parent Company owns 80% of Subsidiary Company. The following were their
income statements for the years 2019 and 2020:
2019 2020
Parent Subsidiary Parent Subsidiary
Sales P 8,000,000 P 5,000,000 P 10,000,000 P 4,000,000
Cost of sales 4,000,000 2,500,000 6,000,000 1,500,000
Less: Expenses 2,000,000 1,500,000 3,000,000 1,000,000
Net income P 2,000,000 P 1,000,000 P 1,000,000 P 1,500,000
Inventory P 800,000 P 600,000 P 900,000 P 700,000

A review of intercompany transactions revealed the following balances as of year-end:

Intercompany transaction Amount Margin/Mark-up Unsold by purchaser

In 2019:
- Parent to Subsidiary P1,000,000 30% margin 1/3
- Subsidiary to Parent 800,000 25% mark-up 1/4
In 2020:
- Parent to Subsidiary P 1,200,000 30% margin 1/5
- Subsidiary to Parent P 650,000 30% mark-up 1/3

Required:
1. Prepare a consolidated income statement
2. Determine the consolidated balance of ending inventory

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INTER-COMPANY ELIMINATION: MULTILATERAL TRANSACTION

King Company owns 80% of Rhad, Inc. King Company

and 70% of Andrix, Inc. Company
80% 70%
Rhad, Inc. Andrix, Inc.

The three companies reported the following figures for 2019:

King Rhad Andrix

Sales P150,000 P 80,000 P 60,000
Cost of sales 100,000 40,000 36,000
Gross profit P 50,000 P 40,000 P 24,000
Administrative & selling expense 30,000 25,000 15,000
Profit P 20,000 P 15,000 P 9,000

The following shows the summary of unsold goods:

Summary of intra- Sales Profit

group transaction amount Margin Amount unsold by buying affiliate
King to Andrix P 5,000 50% P 1,000 unsold by Andrix
Andrix to Rhad P 6,000 1/3 P 1,200 unsold by Rhad
Rhad to Andrix P 6,000 50% P 1,500 unsold by Andrix
Rhad to King P 5,000 20% P 500 unsold by King

Required: Prepare consolidated financial statements.

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