Less: Book Value

Less: Book value:
procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired.
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 equity method (given) _87,725
P162,725
Less: Dividends of P Company ___5,000
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
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

Investment balance under cost model P 238,000
Retroactive adjustments: (Sill’s net income less 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
X: Controlling interests ____85%
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 model(requirement 1 P 132,650
d.2)
P 31,000
P 26,350
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
Retained earnings 100,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000
85%  (52,000 – 9,000) ________ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)
Less: Book value:
acquired.

d.
d.2
P162,725
d.3
under
P162,725

P 31,000
P 26,350

d.2)
P 31,000
P 26,350
Problem III
600,000
Patents 90,000
85%  (52,000 – 9,000) ________ 36,550_
acquired.

d.
d.2
P162,725
d.3
under
P162,725

P 31,000
P 26,350

d.2)
P 31,000
P 26,350
Problem III
600,000
Patents 90,000
85%  (52,000 – 9,000) ________ 36,550_
3. CRE, 12/31/20x6 – P73,150

Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
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:
acquired.

d.
d.2
P162,725
d.3
under
P162,725

P 31,000
P 26,350

d.2)
P 31,000
P 26,350
Problem III
600,000
Patents 90,000
85%  (52,000 – 9,000) ________ 36,550_
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. . . . . . . . . . . . . . . . . . . . . . . . . .
........
Investment income (P25,000 x 100%). . . . . . . . . . . . . 25,000
........
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
Equity Method
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,00
.. 0
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . 32,00
.. 0
Net Income – S Company

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . 656,000
........
........
Amortization of Allocated Excess

None, since there is no amount available
Unrealized Gain on Sale of Equipment

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. . . . . . . . . . . . . . . . . . . . . . . . . .
........
........
2. Working Paper Elimination Entries:
Cost Model
Equipment 540,000
Accumulated Depreciation 640,000
Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Equity Method
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – (P40,000 x P170,
75%)] 000
Small Company 90,00
0
Total P260,
000
Less: Non-controlling Interest in Net Income* P
21,17
5
Amortization of allocated excess (14,0
00)
Goodwill impairment _19,3 __26,4
00 75
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,
525
Add: Non-controlling Interest in Net Income (NCINI) __21,1
75
Consolidated Net Inco P254,
procedure would be not be applicable where the NCI on goodwill impairment loss would not be 700
proportionate to NCI acquired.
procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
........
Investment income (P820,000 x 80%). . . . . . . . . . . . .
........

No entry
1/1/20x4
Selling price………………………………………
P740,000
Less: Book value:
procedure would be not be applicable where the NCI on goodwill impairment
loss would not be proportionate to NCI acquired.

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
Add; Net income under equity method (given)
Less: Dividends of P Company

Retained Earnings of P Co., 12/31/20x4 under equity method
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4
under
equity method but not cost model

Consolidated Retained Earnings, 12/31/20x4
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500,

impair, x 85%)

Investment balance under cost model
Sill’s net income – 20x4
Less: Sill’s dividend – 20x4
Increase in retained earnings (NI less dividend)
Less: Cumulative amortization of allocated excess
X: Controlling interests
Less: Impairment of goodwill (P1,500 x 85%)

Investment balance under equity method
Retained earnings, 12/31/20x4 under cost model(requirement 1
d.2)

Retained earnings, 12/31/20x4 under equity
Problem III
Cost of 85% investment
646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
760,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4
160,000
Increase in Inventory
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4
114,000
85%  (52,000 – 9,000) ________
36,550_
Pen’s shareholders (13,650)
(21,200)
3. CRE, 12/31/20x6 – P73,150

Retained earnings - Pen Company, December 31, 20x6 (cost model
procedure would be not be applicable where the NCI on goodwill impairment loss would not be
........
........


No entry
1/1/20x4
P740,000
Less: Book value:

d.
d.2

d.3
under

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500,

impair, x 85%)



d.2)

Problem III
646,000
760,000
600,000
160,000
Patents 90,000
114,000
85%  (52,000 – 9,000) ________
36,550_
(21,200)
3. CRE, 12/31/20x6 – P73,150

procedure would be not be applicable where the NCI on goodwill impairment loss would not be
........
........


No entry
1/1/20x4
P740,000
Less: Book value:

d.
d.2

d.3
under

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500,

impair, x 85%)



d.2)

Problem III
646,000
760,000
600,000
160,000
Patents 90,000
114,000
85%  (52,000 – 9,000) ________
36,550_
(21,200)
3. CRE, 12/31/20x6 – P73,150
me for 20x6
*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
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
attributable to equity holders of parent………….. P87,725
Consolidated Net Income for 20x4 P93,500
Problem II
A.
1.
a. P87,725
Sill Company 40,000
Total P95,000
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 (P1,500 _____225
x 15%)*
NCI acquired.

d.
d.2
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P
137,650
Retained Earnings of P Co, 12/31/20x4 under cost model P
132,650
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
Increase in retained earnings since date of acquisition P 60,000
Less: Amortization of allocated excess – 20x4 26,000
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
Parent Company: Large Company [P200,000 – (P40,000 P170,000
x 75%)]
Small Company 90,000
Total P260,000
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
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%)*
NCI acquired.
e. P21,175 – refer to (d) for computations
Problem II
A.
1.
a. P87,725
Sill Company 40,000
Total P95,000
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 (P1,500 _____225
x 15%)*
NCI acquired.

d.
d.2
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P
137,650
Retained Earnings of P Co, 12/31/20x4 under cost model P
132,650
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 dollars) (P3,250 / 100 Singapore dollars)
P1.00 = .03 Singapore dollars P1.00 = .03 Singapore dollars
Indirect
Exchange Rate (1,000 Singapore dollars / (100 Singapore dollars / P3,250))
P33,000)
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
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

Less: Book Value

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c. P93,500 – refer to computation in (a)

5. Reconciliation of Investment balance – Cost Model to Equity Method

Reconciliation of Retained Earnings – Cost Model to Equity Method

c. P93,500 – refer to computation in (a)

5. Reconciliation of Investment balance – Cost Model to Equity Method

Reconciliation of Retained Earnings – Cost Model to Equity Method

c. P93,500 – refer to computation in (a)

5. Reconciliation of Investment balance – Cost Model to Equity Method

Reconciliation of Retained Earnings – Cost Model to Equity Method

3. CRE, 12/31/20x6 – P73,150

c. P93,500 – refer to computation in (a)

5. Reconciliation of Investment balance – Cost Model to Equity Method

Reconciliation of Retained Earnings – Cost Model to Equity Method

Realized Gain on Sale – depreciation 25,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Net Income – S Company

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

Realized Gain on Sale – depreciation 25,000

Accumulated Depreciation (P100,000/4) × 2 50,000

c. P93,500 – refer to computation in (a)

Unrealized Gain on Sale of Equipment

c. P93,500 – refer to computation in (a)

Less: Dividends of P Company

Less: Dividends of P Company

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500,

5. Reconciliation of Investment balance – Cost Model to Equity Method

Less: Impairment of goodwill (P1,500 x 85%)

Less: Impairment of goodwill (P1,500 x 85%)

3. CRE, 12/31/20x6 – P73,150

c. P93,500 – refer to computation in (a)

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

c. P93,500 – refer to computation in (a)

Less: Dividends of P Company

Less: Dividends of P Company

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500,

5. Reconciliation of Investment balance – Cost Model to Equity Method

Less: Impairment of goodwill (P1,500 x 85%)

Reconciliation of Retained Earnings – Cost Model to Equity Method

Less: Impairment of goodwill (P1,500 x 85%)

3. CRE, 12/31/20x6 – P73,150

c. P93,500 – refer to computation in (a)

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

c. P93,500 – refer to computation in (a)

Less: Dividends of P Company

Less: Dividends of P Company

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500,

5. Reconciliation of Investment balance – Cost Model to Equity Method

Less: Impairment of goodwill (P1,500 x 85%)

Reconciliation of Retained Earnings – Cost Model to Equity Method

Less: Impairment of goodwill (P1,500 x 85%)

e. P21,175 – refer to (d) for computations

c. P93,500 – refer to computation in (a)

e. P21,175 – refer to (d) for computations

c. P93,500 – refer to computation in (a)

= P8,000 x $1/P40 = $200

3. 4,000 Singapore dollars x P32 = P128,000

1 Singapore dollar = P33.00 1 Singapore Dollar = P32.50

Settlement Direct Exchange Rate Indirect Exchange Rate