Problem 1 On January 1, 2030, Papa acquired 80% outstanding ordinary shares of

Mama for P2,000,000 and 25% outstanding shares of Honey for P800,000. On the same
date Mama acquired 30% outstanding share of Honey for P1,000,000.
The carrying amount of net identifiable assets of Mama and Honey on January l, 2030 is
equal to fair value amounting to P2,200,000 and P1,200,000, respectively.
Papa Co. opted to measure the non-controlling interest at fair value of P500,000 to Mama
and P800,000 to Honey.
On December 31, 2030, Mama and Honey reported net income of P440,000 and
P360,000.
1. How much is the total goodwill to be presented in the consolidated financial statements
on December 31, 2030?
2. How much is the non-controlling interest in net income of subsidiary?

3. How much is the non-controlling interest in net assets of subsidiary?

4. How much Goodwill is attributable to Mama at the date of acquisition?

5. How much Goodwill is attributable to Honey at the date of acquisition?

Suggested Solution
Parent Ownership Mama Honey
Direct holding interest 80% 25%
Indirect holding interest in Mama (80% x 30%) 24%
NCI 20% 51%
Total 100% 100%

Mama Honey
Acquisition Costs
Cash Consideration 2,000,000 800,000
Indirect Consideration Transferred 1,000,000
Indirect holding adjustments (1,000,000 x 20%) (200,000)
NCINAS 500,000 800,000
Total 2,500,000 2,400,000
FV of net identifiable assets of subsidiary (2,200,000) (1,200,000)
Goodwill - P1,500,000 300,000 1,200,000

Req. 2
Net Income of Mama (440,000 x 20%) 88,000
Net Income of Honey (360,000 x 51%) 183,600
NCINIS 271,600

Req. 3
Mama Total Parent (80%) NCI 20%)
Acquisition Cost 2,500,000 2,000,000 500,000
FV of Identifiable Assets (2,200,000) (1,760,000) (400,000)
Goodwill 300,000 240,000 60,000

Honey Total Parent (49%) NCI 51%)

Acquisition Cost 2,400,000 1,600,000 800,000
FMV of Identifiable Assets (1,200,000) (588,000) (612,000)
Goodwill 1,200,000 1,012,000 188,000

Mama Honey
NCI date of acquisition 500,000 800,000
Share in Net Income
(440,000 x 20%) 88,000
 (360,000 x 51%) 183,600
Indirect holding adjustments (200,000)
NCINAS - December 31, 2030 588,000 783,600

Problem 2: On January 1, 2030, Paul Corp. acquired 70% interest in Sy Co. for P875,000
when the carrying amount of the net identifiable assets were equal to fair value of the net
identifiable assets amounting to P600,000. Paul Corp. opted to measure the non-
controlling interest at fair value of P375,000. On January 2, 2030, Sy Co. acquired 60%
of the outstanding shares of Tee Inc. for P360,000 when the carrying amount of the net
identifiable assets were equal to fair value of the net identifiable assets amounting to
P300,000. Sy Co. opted to measure the non-controlling interest at fair value of P240,000.
On December 31, 2030, the group determined that the goodwill has been impaired by
P20,000 to Sy and P10,000 to Tee.
On December 31, 2030, Paul; Sy and Tee reported net income from their own operations
of P200,000; P50,000 and P 100,000, respectively.
1. What is the total goodwill to be reported by Paul in the consolidated financial statements
on December 31, 2030?
2. What is the non-controlling interest in net assets to be presented in the consolidated
financial on December 31, 2030? (xxx,xxx.50)
3. What is the total consolidated net income attributable to Paul on December 31, 2030?
(xxx,xxx.50)
4. What is the non-controlling interest in net income of Sy?
5. What is the non-controlling interest in net income of Tee?

Suggested Solution
Sy Tee
Acquisition Costs
Consideration Transferred 875,000 360,000
Indirect holding adjustments* - (108,000)
NCINAS 375,000 240,000
Total 1,250,000 492,000
FV of net identifiable assets of subsidiary (600,000) (300,000)
Goodwill 650,000 192,000
Impairment loss (20,000) (10,000)
Goodwill - December 31, 2030 - P812,000 630,000 182,000
*Indirect holding adjustments = 360,000 consideration x NCI in Sam 30% = 108,000

Req. 2
Paul Ownership Sy Tee
Direct holding interest 70% 0%
Indirect holding interest (70% x 60%) 0% 42%
NCI 30% 58%
Total 100% 100%

Distribution of Goodwill
Sy Total Parent (70%) NCI (30%)
Acquisition Cost 1,250,000 875,000 375,000
FMV of Net Identifiable Assets 600,000 420,000 180,000
Goodwill 650,000 455,000 195,000

Tee Total Parent (42%) NCI 58%)

Acquisition Cost 492,000 525,000 240,000
FMV of Net Identifiable Assets 300,000 126,000 174,000
Goodwill 192,000 126,000 66,000
 Sy Tee
Net Assets date of acquisition 600,000 300,000
Net Income 50,000 100,000
Net Assets December 31, 2030 650,000 400,000
x NCI % 30% 58%
Total 195,000 232,000
NCI share in Goodwill 195,000 66,000
Impairment loss on Goodwill (20,000 x 195/650) (6,000)
Impairment loss on Goodwill (10,000 x 66/192) (3,437.50)
Indirect holding adjustments (108,000)
Total P570,562.50 384,000 186,562.50

Req. 3
CNI - Parent
Parent Net income 200,000
Sy Net Income (50,000 x 70%) 35,000
Tee Net income (100,000 x 42%) 42,000
Share in Impairment loss
(20,000 x 455/650) (14,000)
(10,000 x 126/192) (6,562.50)
Total 256,437.50

Req. 4
NCI - Sy NCI - Tee
Sy Net Income (50,000 x 30%) 15,000
Tee Net income (100,000 x 58%) 58,000
Share in Impairment loss
(20,000 x 195/650) (6,000)
(10,000 x 66/192) (3,437.50)
Total 9,000 54,562.50

Problem 3: AB Co. current receivables from affiliated companies at December 31, 2030
are as follows:
- P750,000 cash advance to CD Co. (a 40% own entity and accounts for the
investment under equity method).
- A receivable of P2,600,000 from EF Co. (a 100% owned entity and it is included in
AB's consolidated financial statements).
- A receivable of P2,000,000 from GH Co. (a 80% owned entity, unconsolidated
subsidiary of AB accounted for under equity method).
1. In the current assets sections of its December 31, 2030 consolidated financial position,
AB should report accounts receivables from investee amounting:
Suggested Solution
Cash Advance to CD - equity method 750,000
Receivable from GH - equity method 2,000,000
Total 2,750,000

Problem 4: On January 1 2030, Pol acquired 60% of the outstanding ordinary share of
Sotto Inc. at book value. On January 2,2031, Sotto sold an equipment to Pol and recorded
the journal entry its separate books at:
Cash 195,000
Accumulated Depreciation 80,000
Equipment 200,000
Gain in sale of equipment 75,000
For the year 2031, Pol and Sotto reported net income from their own operations of
P425,000 and P225,000, respectively. The dividends declared by Pol and Sotto were
P100,000 and P50,000. The remaining useful life of equipment sold by Sotto was 3 years.
1. What is the consolidated net income attributable to Pol in year 2031?
2. How much is the unrealized gain on sale of equipment?
3. How much is the realized gain on the sale of equipment?
4. How much is the net unrealized gain on the sale of equipment?
Suggested Solution

Pol Net Income (own operations) 425,000

Sotto Net Income (225,000 x 60%) 135,000
Unrealized Gain on Sale of Equipment (75,000 x 60%) (45,000)
Realized Gain (Depreciation 75,000 / 3 years x 60%) 15,000
Consolidated Net Income attributable to Pol 530,000

Problem 5: Peter purchased 80% interest in Sheng Corp. on January 11, 2030 at a cost
equal to book value and fair value. On 2030, Sheng sold land to Peter costing P1,000,000
to P2,000,000. On August 1, 2035, Peter sold the land to unrelated party for P3,400,000.
1. What was the gain on sale of the land on 2035 to be reported in the consolidated
financial statements?
Suggested Solution
Selling Price to unrelated party 3,400,000
Original cost of land (1,000,000)
Gain on Sale of Land 2,400,000

Problem 6: Papa Inc. acquired 90% interest in Son Corp. on January 1, 2030 On January
1, 2031, Son sold a building with book value of P480,000 to Papa for P600,000. The
building had a remaining useful life of 10 years. Both entities used straight line
depreciation method. The separate financial of the entities on December 31,2031 include
the following balances:
Papa Son
Buildings 2,000,000 920,000
Accumulated Depreciation 720,000 316,000
1. The consolidated building on December 31, 2031?
2. The consolidated accumulated depreciation on December 31, 2031?

Suggested Solution
Combined Building amount (2,000,000 + 920,000) 2,920,000
Less: Intercompany gain (600,000 — 480,000) (120,000)
Consolidated Building 2,800,000

Combined Accumulated Depreciation (720,000 + 316,000) 1,036,000

Gain Recognized (120,000 / 10) (12,000)
Consolidated Accumulated Depreciation 1,024,000

Problem 7: Goal Corporation acquired a 60% interest in LAPIT NA Corp. on January 1,

2035, when LAPIT NA’s book values and fair values were equivalent. On January 1, 2035,
LAPIT NA sold a building with a book value of P600,000 to Goal for P700,000. The
building had a remaining life of 10 years, no salvage value and was depreciated by the
straight-line method. LAPIT NA reported net for P2,000,000 for 2035. (3 qs)
1. What was the non-controlling interest for 2035?
2. What is the gain on sale on the intercompany transaction?
3. What is the Realized gain on the intercompany transaction?
Suggested Solution
Net Income - Subsidiary 2,000,000
Gain on Sale - upstream (100,000)
Realized Gain - upstream (100,000/
10yrs) 10,000
Total 1,910,000
x NCI % 40%
NCINIS 764,000

Problem 8: Pete Enterprises owns 60% of the outstanding stock of Susie Company,
which it purchased for P50,000 above the underlying book value of P720,000 on
December 31, 2028. For the year 2031, Susie included in its net income P90,000 of
unrealized gain on a year-end sale of depreciable assets to Pete. The NCI of Susie was
assigned P 12,000 of income in the 2031 consolidated financial statements. The excess
allocated to equipment is amortized over 20 years.
1. What is the .net income reported by Susie for 2031?
Suggested Solution
Adjusted net income – Susie (P 12,000 / 40%) P 30,000
Add back unrealized gain – Upstream 90,000
Net income of Susie – 2031 P120,000

Problem 9: Pixar purchased 90% interest in Disney Inc. in 2030 when Disney’s book
values equivalent to fair values. Disney sold equipment with book value of P320,000 to
Pixar for P520,000 on January 1, 2032, Pixar is fully depreciating the equipment over 4
year period by using the straight line method. Disney reported net income of P 1,280,000
for 2032.
1. The share of Pixar in the income of Disney in 2032 is?
2. The gain on intercompany sale excluded from the computation of Pixar’s share in the
income from Disney in 2032
3. The realized profit on gain of sale included in the computation of Pixar’s share in the
income from Disney in 2032
Suggested Solution
Share of Pixar in net income of Disney (1,280,000 x 90%) 1,152,000
Gain on intercompany sale (520,000 - 320,000) x 90% (180,000)
Realized profit on gain on sale (200,000/4 years) x 90% 45,000
Income from Disney 1,017,000

Problem 10: On January 2, 2022, POLICE Company acquired 90% of the outstanding
shares of SON Inc. at book value. During 2022 and 2023 intercompany sales amounted
to P2,000,000 and P4,000,000 respectively. POLICE Company consistently recognized
a 25% mark-up based on cost while SON Inc. had a 25% gross profit on sales. The
inventories of the buying affiliate, which all came from inter-company transactions show:
December 31, 2022 December 31, 2023
POLICE 240,000 160,000
SON 100,000 40,000

On October 1, 2022, SON Inc., purchased a piece of land costing P1,000,000 from
POLICE Company for P1,500,000. On December 1, 2023, SON Inc., sold this land to
unrelated party for P 1,500,000. On the other hand, on July 1, 2023, SON Inc., sold a
used photo-copier with a carrying value of P60,000 and remaining life of 3 years to
POLICE Company for P42,000.
Separate Statement of Comprehensive Income for the two companies for the year 2023
follow:
POLICE Company SON Inc.
Sales 25,000,000 14,000,000
Cost of Sales (15,000,000) (8,400,000)
Gross Profit 10,000,000 5,600,000
Operating Expenses (6,000,000) (3,800,000)
Operating Profit
4,000,000 1,800,000
Loss on Sale of Office Equipment (18,000)
Dividend Revenue 40,000
Net Income 40,000,000 1,822,000
Compute the following amounts for/as of December 31, 2023
1. Consolidated Gross Profit

2. Consolidated Net Income attributable to Parent

3.the non-controlling interest in Net Income

4. the consolidated Operating Expense

Suggested Solution
Req. 1
Parent Sales 25,000,000
Subsidiary Sales 14,000,000
Intercompany Sales (4,000,000)
Consolidated Sales 35,000,000

Parent - COGS 15,000,000

Subsidiary - COGS 8,400,000
Intercompany Purchase (4,000,000)
Overstatement in Beg. Inventory
Upstream (240,000 x 25%) (60,000)
Downstream (100,000 x 25/ 125) (20,000)
Overstatement of ending inventory
Upstream (160,000 x 25%) 40,000
Downstream (40,000 x 25/125) 8,000
Consolidated COGS 19,368,000

Consolidated Sales 35,000,000

Consolidated COGS (19,368,000)
Consolidated Gross Profit 15,632,000

Req. 2
Parent Net Income own operations 4,000,000
Subsidiary Net income (1,822,000 x 90%) 1,639,800
Realized Profit on Beg. Inventory
Upstream (240,000 x 52% x 90%) 54,000
Downstream (100,000 x 25/125) 20,000
Unrealized Profit on Ending Inventory
Upstream (160,000 x 25% x 90%) (36,000)
Downstream (40,000 x 25/125) (8,000)
Realized Gain on Sale of Land (downstream) 500,000
Unrealized loss on sale of photo copier -Upstream (18,000 x 90%) 16,200
Realized loss on sale of photocopier -Upstream (18,000/3 yrs. x 6/ 12
x 90%) (2,700)
CNI attributable to Parent 6,183,300

Req. 3
 Subsidiary Net income (1,822,000 x 10%) 182,200
Realized Profit on Beginning Inventory Upstream (240,000 x 25% x
10%) 6,000
Unrealized Profit on Ending Inventory Upstream (160,000 x 25% x
10%) (4,000)
Unrealized loss on sale of photocopier Upstream (18,000 x 10%) 1,800
Realized loss on sale of photocopier Upstream (18,000/3 yrs x 6/ 12
x 10%) (300)
NCINIS 185,700

Req. 4
Operating Expenses - Parent 6,000,000
Operating Expenses - Subsidiary 3,800,000
Realized loss on sale of photocopier - Upstream 3,000
Total Consolidated operating expenses 9,803,000

Problem 11: Papa Inc. acquired 80% of Honey ordinary share and 70% of Babe ordinary
share. During 2030, Papa sold inventory purchased in 2029 for P192,000 to Honey for
P240,000. Honey subsequently sold the inventory at its cost of P240,000 to Babe. Prior
to December 31, 2030, Babe sold P180,000 of inventory to a non-affiliate for P268,000
and held P60,000 in inventory at December 31, 2030.
1 What amount of cost of goods sold should be reported in the 2030 consolidated financial
.statements?

2. What is the amount of inventory should be reported in the 2030 consolidated financial
statements?

3. What amount of cost of goods must be eliminated from the consolidated income
statement for 2030?

4. What amount of sales should be reported in the consolidated financial statements in

2030?

5. What amount of inventory must be eliminated in the consolidated financial statements?

Suggested Solution
Req. 1 Cost of Goods Sold - Babe (subsidiary 2) 180,000
Cost of Goods Sold - Honey (subsidiary 1) 240,000
Cost of Goods Sold - Papa (parent) 192,000
Intercompany Purchases (240,000 + 240,000) (480,000)
Add: Unrealized Purchases Profit on Ending Inventory (EI 60,000
x GP 48K/Sale 240K) 12,000
Consolidated Cost of Goods Sold 144,000

Req. 2
Ending Inventory of Babe (subsidiary 2) 60,000
Unrealized Profit on Ending Inventory (60,000 x 48K / 240K) (12,000)
Total Ending Inventory 48,000

Req. 3
Intercompany Purchases (240,000 + 240,000) (480,000) (480,000)
Add: Unrealized profit on Ending Inventory (60,000 x 48K/240K) 12,000
Cost of Goods sold to be eliminated (468,000)

Req. 4
Sales – Papa (Parent) 240,000
Sales – Honey (subsidiary 1) 240,000
Sales – Babe (subsidiary 2) 268,000
Intercompany Sales (240,000 + 240,000) (480,000)
Consolidated Sales 268,000

Req. 5
Unrealized profit on Ending Inventory (60,000 x 48K/240K) 12,000