ResA The Review School of Accountancy Papa Cor. 5. H. Loyola Sts., Sampaloc, Manila ‘@ Tel Nos. 734-39-89 & 735-98-07 Advanced Financial Accounting & Reporting Consolidated Financial Statements - Intercompany Sales of Fixed Assets Summary of Worksheet Elimination Entries - intercompany Gain on Sales of Equipment (or any Depreciable Asset Selling Affiliate is the Parent-Downstream Sales) (Selling Entries in Year of Intercompany Sale (Cost and Equity Model/Method) Upstream Sales) Eliminate Unrealized Gain (UG) on intercompany sale in year of sole cnd to restore equipment to its original cost and accumulated to its balance on the date of intercompany sole: Gain on sale : te [equipment — | Accumulated depreciation. To recognize Realized Gain thru depreciation based on the remaining of the depreciable asset: _ TAccumuloted depreciation | Accumulated depreciation ve |_Depreciation expense xx | Depreciation expense, \ On January 1, 2019, Padre Company purchased 90% of the outstanding shares of Salve Company by paying P693,000. On that date, Salve Company hed £:399,000 of Capital Stock and P400,000 of Retained Eamings. Excess. f any, is attributable fo undervalue 1 machinery with a remaining lite of 20 years. All other assels Gnd liabilities of Saive Company titi hor x value approximated their fair market value. LEguoment “ae! Accumuaied depreciation ox On January 2, 2019. there is an inter-company sale of equipment for P42,000. The cost ond accumulated depreciation are P70,000 and P40,000 respectively. The equipment has a remaining lite 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). L ~T "202g | 2019 | it —P120,000 | P10,000 | i 12,000 Required: ‘A. Assuming that Padre Company is the seller (Downstream Sale), in the books of Padre Company: Using Cost Model/Method: 1, The investment account on December 31, 2017 anc 7020 2. The dividend income account on December 31, 2919 and 2020 Using Equity Method: 3. The investment account on December 31, 2017 ond 7570 1. The equity in subsidiary income or ne! earrings account on December 31, 2019 and 2020 B. Assuming that Padre Company is the seller (Dowrstream Sale), in the consolidated financial statements of Padre Company and Salve Company: '5, The investment account on December 31. 2019 ene 2020. &. the dividend income account on December 31, 2019 cand 2020 i cos! model/method is uses 7 the equity in subsidiary income or nel eamings account on December 31, 2019 and 20. equity method is used. & the Profit Altribulable to Equity Holders of Parent/Controling Interest (Parent's Interests Consolidated Net income for 2019 and 2020 9. The Non-controliing interest in net income for 21 aad 2920 10. Consolidated/Group Net Income for 2019 and 2020 11. The cost of equipment on January 2. 2019, December 31, 2019 and December 31, 2020. 12. The accumulated depreciation on Januar’ 2, 2019. December 31, 2019 and December 31 2020. 13, The net book value on January 2. 2019, December 3i, 2019 and December 31, 2020, AFAR-11(Ex Advanced Financial Accounting & Reporting G72) Consotdated Financka stohrnents- subsequent fo Date of Acquistion: CE intercompany Sales of xed Assets Page 2 C. Assuming that Salve Company is the seller (Upstream Sale), in the books of Padre Company: Using Cost Model/Method: 14, The investment account on December 31, 2019 and 2020 15, The dividend income account cn December 31, 2019 and 2020 Using Equity Method: 16. The investment account on Deceraher 33, 2019 and 2020 17. The equity in subsidiary income or net earings account on December 31, 2019 and 2020 D. Assuming that Saive Company Is the seller (Upstream Sole), in the consolidated financial statements of Padre Company and Salve Company: 18, The investment account on December 31, 20!9 and 2020 19. The dividend income account on Decerber 33. 2019 and 2020 it cost model/method is used 20. The eauity in subsidiary income or net euinings account on December 31, 2019 and 2020 if equity method is used 21. The Profit Attributable to Equity Holclers of Porent/Controlling Interest (Parent's Interests) in Consolidated Net income for 261 arc 2020 22. The Non-controliing interest in: net income for 2019 and 2020 23. Consolidated/Group Net income for 2019 and 2020 24, The cost of equipment on January 2. 2017, December 31, 2019 and December 31. 2020. 25. The accumulated depreciation on January 2, 2019, December 31, 2019 and December 31 2020 26. The net book valve on January 2. 2017, Becember 31, 2019 and December 31. 2020 N- Upstream enc! Downstveom Sale of Plant Assets (On January 1. 2014, P Company purcnosed 51) psicent of the outstanding shares of S Company by Paying P700,000. On that date. $ Company ixast £300,000 capital stock and P500,000 of retained earings. An undervalued asset attribuizibie to building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilfies of S Company had book value approximated their fair market value. (On January 1, 2015. P's common: stock of P1.000,000 and retained eamings amounted of P800,000 {cost method) and P877,600 (equity method) of retained eamings, while S Company's retained ‘earnings is P600,000. The 2015 separate net income fr ollows: P. Company 'SCompany T ' i “P150,000_|__ P 50,000. (On Apt 1, 2015, S Company sold equipment wiih « b00k value of P30,000 to P Company for P60,000. The gain on the sale is included in the net income of S Company indicated above. The equipment is expected fo have a remaining uselulfe of five years from the date of the sale. On September 30, 2015, P Company sold machinery with a book value of P40,000 to $ Company for 75,000, The gain on the sale is also included in the net income of P Company indicated above. The machinery is expected to last for fen (10) years frome tre date of sale. 1. The Investment in Subsidiary uccount unser cost model on December 31, 2015; 1a. P74B,500 ©. 721,500 b. P725,000 d_ P700,000 2. The Dividend income/Investment income under cost model/method for 2015: a. PBB,500 c. P61,600 'b. P65,000 d. 40,000 3. The bolance of Investment as of Lecember 31, 2015 under equity method assuming the investment balance on January 1. 2015 mounted to P777,600 should be: «3. P800,675 41,680 . P675,000 3. P340,000 4. The equity in subsidiary loss or aet loss/loss trom subsidiary under equity method for 2015 should be: o. (57,725) ‘c, 63,075 . (P54.525) d. P21,925 AFAR-11AFAR 11-A Advanced Financial Accounting & Reporting Solution Guide Problem I - [aaa Equipment 179, 1 42,000 Less: Acc. depr. | 49/000 - - 1 Net Book Value | 20,00 L Gain “200 1 t isis 12/31/2019. | - Depreciation exp | 5,000 7,098 2,000 | — hminating ety for 160% Unrealced Gact on sete of Fed Asses, Jan. 2 and restore the Fred Assets 0 snail book wake Gain 12,000 Equipment. 28,000 ‘Accumulated depreciation 40,000 Gain 2. Elana entry for 100% Realized Gan thi 20% ‘Accumulated Depreciation, , 2,000 Depreciation Expense . 2,000 PCo. (should be) Co. (recorded as) Depr. Expense... 5,000 Depr. Expense... 7,000 ‘Ace Dep. 5,000 Ace. Dep. 7,000 Problem 11 Date of Acquisition (1/1/2014) Fair value of consideration given. Less: Book value of SHE - Subsidiary): (P300,000 + P500,000) x 80% ... Allocated Excess. Less: Over/Undervaluation of Assets & Liabilities Increase in Bldg. (P75,000 x 60%) 60,000 Goodwill 0. po ‘Amortization of allocated excess: building - P75,000 / 25 years = P3,000 Less: Book value of equipment Unrealized Gain (on sae of e¢ Realized gain on saic of e9 uprient). 2015: —P30,000/5 years = P6,000 x 9/12 (4/1/2011-12/31/2011). P..4,500 2016 ~ 2019. -P. 6,000 2020: P6,000 x 3/12 P_1,500 Downstream Sale of Machinery (date of sale — 9/30/2015): Sales. . seveon eevee evsneoae Less: Book value of machinery. Unrealized Gain (on sale of machinery), Realized gain on sale of machin2r, ‘2015: P35,000/10 years = °°, 50" x 3/12 (9/30/2011-12/31/2011).......P._ 875 2016 - 2024 "p 3,500 2025: P3,500 x 9/12 “p2,625 1.) Investment in subsidiary, 12/31/2015 (presumed to be cost model since there's no indication as to the method being used.), P700,000). 2. (d) ~ refer to No. 1 for cost mode! Dividend paid or declarea ~ S 50,000 x: Controlling Interest ‘ Dividend income of ParentAdvanced Financial Accounting & Reporting a) AFAR 11-B ~ To ‘Sub cucecnn| ov N Oper ations: i oo 30,000 stream) (6,000) gain thru depreciat 900, Unrealized gain (downstream) _ Realized gain thru deprecation (iownstream) | : | | Amortization _ (600) | +} fee 24,300 | 387,375] x \ re idee 1 be as Parent’ reported net income which ndudes dividend fncame from Profit Attributable to Equity NC Interest Holders of Parent in Net Income 6. (c) ~ refer to No. 5 for computation 7. (d) refer to No. 5 for computation 8. (@) 'Non-controliing Interests {in cet assets): Common stock - §, 12/31. Retained earnings - S, 12/31 RES, Yl nncrnn +: NI = DWV = Soo Book value of Stockholders’ equity, 12/31. Adjustments to reflect fair value of net assets Increase in equipment, 1/1/2030...» 75,000 ‘Accumulated amortization (3,009 per yer)". 6,000) Fair Value of Net Assets/SHE, 12/3 too. mmm 1,069,000 Unrealized gain on sale of eqiiprnent (upstream) (30,000) Realized gain thru depreciation (upstream)... 4,500 Realized SHE ~ S,12/31 P1,043,500 x: NCI %. a“ 20% Non-controling Interest (in net assets) ~ partial P 208,700 +: NCI on full goodwill... __ "9 Non-controling Interest (in net assots) ~ full 208,700 * 2011: P3,000 x 2 years; 2012: 2,010 x 3 years: +++ 930,000 ~ 4,500 realized gain in 2011 = P25,500, 9. (c)- refer to No. 8 for soiution. 10. (b) ~ refer to No. 8 for solution - bok vz 11. (4) 12. 2,349,375: Consolidated Stockholders’ Equity, 12/31/2015: ‘Controlling Interest / Parent’s Interest / Parent’s Portion / Equity Holders of Parent ~ SHE, 12/31/2015: Common stock ~ P (P Only).....0:m0 Retained Eamings - P (equity method), 12/31/2015. Controling Interest / Pavent’s stockholders’ Equity ‘Non-controlling interest, 12) 31/2015 (partial/full). Consolidated Stockholders’ Equity, 12/3%/2015... "No one kncws what he can do until he tries* *Not knowing when the dawn will come, | open every door 1,196,000 **( 25,500) ——5,000 1,176,500 20% 235,300 —__0 P_235,300 “The great thing in the world is net so much where you are but in what direction you are going* “There are endy two things in the werld to werry over; the things you can contrel, and the things yeu can't control. Fix th first forget the second.* No cto hindnast na metter how meals evar wated A TAR J 1 (One Individiued plus cecrage is a majority.Advanced Financial Accounting & Reporting AFAR 11-C Computation of RE, 12/31/2015 if COST MODEL/METHOD is used: Note: Preferred solution - since what is given is the RE — P, 1/1/2015 (beginning balance of the current year) - Retained earnings ~ Parent, 1/1/20'5 (cost) P 800,000 : Downstream sale ~ 2014 or prior to 2015, Net unrealized gain ___0 ‘Adjusted Retained earnings - Parent, 1/1/2015 (cost) P 800,000 Retroactive Adjustments to convert Cost to “Equity”: Retained earnings - Subsidiaty, 1/1/2014... .P 500,000 Less: Retained earnings ~ Svbsidiary, 1/1/2015. 600,000 Increase in Retained earnings since acquisition (cumulative net income - cumulative dividends).......P 100,000 ‘Accum. amortization (1/1/14 1/1/15): P2,000 x 1 year... 3,000) Upstream Sale ~ 2010 or prior to 2015, Net unrealized gain _ «__o P 97,000 X: Controling Interests 9. 80% __77,600 RE ~P, 1/1/2015 (equity method) = CRE, 1/1/2015. 877,600 +: CI~CNI or Profit Attributuble to Equity Holders of Parent. 363,075, Dividends - P. is __100,000 RE ~ P, 12/31/2015 (equity method) = CRE, 12/31/2015 : 1,140,675 Or, if RE ~ P is not given on January 1, 2015, then RE - P on December 31, 2035 should be use. Retained earnings ~ Parent, 12/31/2015 (cost model): (P800,000 + P340,000, P's reported NI - P100,000). 1,040,000 Downstream sale ~ 2015 or prior to 12/31/2015, Net unrealized gain ~ (P35,000 ~ P875). 34,125 Adjusted Retained earnings ~ Parent, 1/1/2015 (cost model). 1,005,875 Retroactive Adjustments to convert Cast to “Equity”: Retained earnings ~ Subsidiary, 2/1/2014 .P 500,000 Less: Retained earnings ~ Subsidiary, 12/31/2015 (P600,000 + P150,000 ~ P50,000). ‘ 700,000 Increase in Retained earrings since acquisition (cumulative net income - cumulative dividends), .P 200,000 Accumulated amortization (1/1/2014 ~ 12/31/2015): 3,000 x 2 years. { 6,000) Upstream Sale ~ 2015 or prior to 12/31/2015, ‘Net unrealized gain - (P30,000 ~ P4,500) (_25,500) P 168,500 x: Controlling Interests %.. ___80% _134,800 RE ~ P, 12/31/2015 (equity method) = CRE, 12/31/2015, Pi,140,675 1 asl not for a larger garden, but for a finer seeds. * ‘ask not for « lighter burden, but for a broader shoulder. wear to you there are divine things more beautiful than words can tell °** “sebaatence is biter but is fr Is swreetaoe= ‘Great passions can elevate ut to the things that we want to deliver ‘Once ins Lone White ‘Once in a long while, someone special wail inte your life and really makes a difference. They take the time to show you so many little ways that you matter, Thay 100 and hear the wort in you and uatet in you, but they dent walle away Infact, they may care you. ‘Their heart break with yours, their tears fall with yours, their laughter is shared with yours. ‘Once in a long while, somebody spacial walle into your life and then has to go and separate ways. Every time you see a certain gesture, hear a certain laugh or phrase or return to a certain place, it ‘reminds you of them. Your eyes filled with tears, and a big :mile comes across your face, and then you thank GOD that someone can still touch your heart s0 deeply. You remember thelr words, thelr look, their expressions, you remember how much of themselves they ‘gave ~ not just to you, but to all, Vou remember the strength thot amazed you, the courage that Impressed you, and the love thot touched