ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Problem VII
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 360,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P240,000 x 80%)……………………. P 192,000
Paid-in capital in excess of par (P96,000 x 80%).... 76,800
Retained earnings (P24,000 x 80%)……………….... 19,200 288,000
Allocated excess (excess of cost over book value)….. P 72,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 80%)……………… P 14,400
Increase in land (P72,000 x 80%)……………………. 57,600
Decrease in buildings and equipment
(P12,000 x 80%)……………………………………..... ( 9,600)
Increase in bonds payable (P42,000 x 80%)………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 43,200
The over/under valuation of assets and liabilities are summarized as follows:
Sky Co. Sky Co. Over/ Under
Book value Fair value Valuation
Inventory………………….…………….. 72,000 90,000 18,000
Land……………………………………… 48,000 120,000 72,000
Buildings and equipment (net)......... 360,000 348,000 ( 12,000)
Bonds payable………………………… (120,000) (162,000) 42,000
Net……………………………………….. 360,000 396,000 36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co. Sky Co.
Book value Fair value (Decrease)
Buildings and equipment .................. 720,000 348,000 ( 372,000)
Less: Accumulated depreciation….. 360,000 - ( 360,000)
Net book value………………………... 360,000 348,000 ( 12,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company…………………………………………… 360,000
Cash…………………………………………………………………….. 360,000
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)…………………………………………………………… 14,400
Cash……………………………………………………………………. 14,400
Acquisition- related costs.
The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating
entries on January 1, 20x4:
(E1) Common stock – Sky Co………………………………………………. 240,000
Additional paid-in capital – Sky Co…………………………………. 24,000
Retained earnings – Sky Co…………………………………………... 96,000
Investment in Sky Co………………………………………………… 288,000
Non-controlling interest (P300,000 x 20%)……………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.

(E2) Inventory…………………………………………………………………. 18,000

 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Accumulated depreciation…………………………………………. 360,000

Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 43,200
Buildings and equipment………………………………………….. 372,000
Premium on bonds payable……………………………………… 42,000
Non-controlling interest (P30,000 x 20%)……………………….. 7,200
Investment in Sky Co……………………………………………….. 72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary
(Partial-goodwill)

Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000

Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000

Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,146,800
Liabilities and Stockholders’ Equity
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings**…………… 285,600 285,600
Retained earnings…………… 96,000 (1) 96,000
Non-controlling interest………… (1 ) 72,000 (2)
_________ _______ _________ 7,200 _79,200
Total Liabilities and Stockholders’
Equity P1,785,600 P960,000 P 853,200 P 853,200 P2,146,800
(1) Eliminate investment against stockholders’ equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

 Incidentally, the non-controlling interest on the date of acquisition is computed as follows:

Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities)…………………………………………. 36,000
Fair value of stockholders’ equity of subsidiary………………… P 396,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 79,200

The balance sheet:

Peer Company and Subsidiary
 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Consolidated Balance Sheet

January 1, 20x4
Assets
Cash P 105,600
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 43,200
Total Assets P1,666,800

Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Stockholders’ Equity
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
Non-controlling interest 79,200
Total Stockholders’ Equity (Total Equity) P 1,024,800
Total Liabilities and Stockholders’ Equity P1,666,800