Demonstration Problem:

On January 1, 2014, Padre Company purchased 90% of the outstanding shares of

Salve Company by paying P693,000. On that date, Salve Company had P300,000 of
capital stock and P400,000 of retained earnings. Excess, if any, is attributable to
undervalued machinery with a remaining life of 20 years. All other assets and liabilities
of Salve Company had book value approximated their fair market values.
On January 2, 2014, there is an intercompany sale of equipment for P42,000. The cost
and accumulated depreciation are P70,000 and P40,000, respectively. The equipment
has a remaining life of six (6) years.
The net income from own operations and dividends paid of Padre Company and its
subsidiary are as follows (fiscal year ends December 31)
 
Company                     Net income 14 Net income 15 Dividends 14   Dividends 15
Padre                           P160,000         P120,000         P10,000           P7,000
Salve                            P70,000           P40,000           P12,000           P8,000
Required:
Assuming that Padre Company is the seller (downstream sale), in the books of Padre
Company
Using cost method,

1. The investment account on December 31, 2014 and 2015.

2. The dividend account on December 31, 2014 and 2015.

Using equity method, assuming the investment balance on January 1, 2019 amounted
to P810,000

3. The investment account on December 31, 2014 and 2015

4. The equity in subsidiary income or net earnings account on December 31, 2014
and 2015

Assuming that Padre Company is the seller (downstream sale), in the consolidated
financial statements of Padre Company and Salve Company

5. The investment account on December 31, 2014 and 2015

6. The dividend income account on December 31, 2014 and 2015 if cost method is
used
7. The equity in subsidiary income or net earnings account on December 31, 2014
and 2015 if equity method is used
8. The profit attributable to equity holders of parent/controlling interest in
consolidated net income for 2014 and 2015
9. The noncontrolling interest in net income for 2014 and 2015
10. Consolidated/group net income for 2014 and 2015

Assuming that Salve Company is the seller (upstream sale), in the books of Padre
Company
Using cost method,

1. The investment account on December 31, 2014 and 2015.

2. The dividend account on December 31, 2014 and 2015.

Using equity method, assuming the investment balance on January 1, 2019 amounted
to P810,000

3. The investment account on December 31, 2014 and 2015

4. The equity in subsidiary income or net earnings account on December 31, 2014
and 2015

Assuming that Salve Company is the seller (downstream sale), in the consolidated
financial statements of Padre Company and Salve Company

5. The investment account on December 31, 2014 and 2015

6. The dividend income account on December 31, 2014 and 2015 if cost method is
used
7. The equity in subsidiary income or net earnings account on December 31, 2014
and 2015 if equity method is used
8. The profit attributable to equity holders of parent/controlling interest in
consolidated net income for 2014 and 2015
9. The noncontrolling interest in net income for 2014 and 2015

Consolidated/group net income for 2014 and 2015