ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Problem VIII
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred:
Common stock: 12,000 shares x P25 per share…... P 300,000
Less: Book value of stockholders’ equity of S:
Common stock (P12,000 x 80%)……………………. P 9,600
Paid-in capital in excess of par (P108,000 x 80%)... 86,400
Retained earnings (P72,000 x 80%)……………….... 57,600 153,600
Allocated excess (excess of cost over book value)…… P 146,400
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P36,000 x 80%)……………………. 28,800
Increase in buildings and equipment
(P150,000 x 80%)…………………………………...... 120,000
Increase in copyrights (P60,000 x 80%)…………….. 48,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 80%)……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 50,400)

The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. Over/Under

Book value Fair value Valuation
Inventory………………….……………... P 60,000 P 66,000 P 6,000
Land………………………………………. 48,000 84,000 36,000
Buildings and equipment (net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000
Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)
Net undervaluation……………………. P 330,000 P 576,000 P246,000

The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company…...…………………………………… 300,000
Common stock, P1 par……………………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par)…….. 288,000
Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating
entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Non-controlling interest (P192,000 x 20%)……………………….. 38,400
Eliminate investment against stockholders’ equity of S Co

(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Non-controlling interest (P246,000 x 20%)………………………. 49,200

Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are being
examined)............................................................................. 50,400
Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary
(Proportionate Basis)

Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000

Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Liabilities and Stockholders’ Equity
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Common stock, P1 par……… 12,000 (1) 12,000
Paid-in capital in excess of
par** 723,840 723,840
Paid-in capital in excess of par 108,000(1) (1) 108,000
Retained earnings 577,200 (2) 50,400 627,600
Retained earnings…………… 72,000 (1) 72,000
Non-controlling interest………… (1 ) 38,400 (2)
_________ _______ _________ 49,200 _87,600
Total Liabilities and Stockholders’
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
(2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
 Incidentally, the non-controlling interest on the date of acquisition is computed as follows:
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Retained earnings – S Co……………………………………… 72,000
Book value of stockholders’ equity – S Co…………………. P 192,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities)…………………………………………. 246,000
Fair value of stockholders’ equity of subsidiary………………… P 438,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 87,600

The balance sheet:

Assets
Cash P 334,800
Accounts receivables 110,400
Inventories 162,000
Land 204,000
 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Buildings and equipment (net) 1,116,000

Copyright 60,000
Total Assets P1,987,200
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable P 138,000
Estimated liability for contingencies 6,000
Bonds payable 360,000
Total Liabilities P 504,000
Stockholders’ Equity
Common stock, P1 par P 44,160
Paid-in capital in excess of par 723,840
Retained earnings 627,600
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P1,395,600
Non-controlling interest 87,600
Total Stockholders’ Equity (Total Equity) P1,483,200
Total Liabilities and Stockholders’ Equity P1,987,200

Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Common stock: 12,000 x P25 (80%)……………… P 300,000
Fair value of NCI (given) (20%)………………………. 90,000
Fair value of subsidiary (100%)………………………. P 390,000
Less: Book value of stockholders’ equity of S:
Common stock (P12,000 x 100%)……………………. P 12,000
Paid-in capital in excess of par (P108,000 x 100%). 108,000
Retained earnings (P72,000 x 100%)………………... 72,000 192,000
Allocated excess (excess of cost over book value)…… P 198,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)……………… P 6,000
Increase in land (P36,000 x 100%)…………………… 36,000
Increase in buildings and equipment
(P150,000 x 100%)………………………………….... 150,000
Increase in copyrights (P60,000 x 100%)…………… 6,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 100%)…….. ( 6,000) 246,000
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 48,000)

The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in S Company…...…………………………………… 300,000
Common stock, P1 par……………………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par)…….. 288,000
Acquisition of S Company.

The schedule of determination and allocation of excess provides complete guidance for the worksheet eliminating
entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Non-controlling interest (P192,000 x 20%)……………………….. 38,400
Eliminate investment against stockholders’ equity of S Co

(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P90,000 given – P38,400)…………… 51,600
Retained earnings (bargain purchase gain - closed to
retained earnings since only balance sheets are being
examined)............................................................................. 48,000
Eliminate investment against allocated excess.

Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned Subsidiary
(Fair Value Basis)

Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000

Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Liabilities and Stockholders’ Equity
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Common stock, P1 par……… 12,000 (2) 12,000
Paid-in capital in excess of par** 723,840 723,840
Paid-in capital in excess of par 108,000(2) (1) 108,000
Retained earnings 577,200 (2) 48,000 625,200
Retained earnings…………… 72,000 (1) 72,000
Non-controlling interest………… (1 ) 38,400 (2)
_________ _______ _________ 51,600 _90,000
Total Liabilities and Stockholders’
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
(2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.

The balance sheet:

Assets
Cash P 334,800
Accounts receivables 110,400
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Total Assets P1,987,200

Liabilities and Stockholders’ Equity

 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Liabilities
Accounts payable P 138,000
Estimated liability for contingencies 6,000
Bonds payable 360,000
Total Liabilities P 504,000
Stockholders’ Equity
Common stock, P1 par P 44,160
Paid-in capital in excess of par 723,840
Retained earnings 652,200
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P1,393,200
Non-controlling interest 90,000
Total Stockholders’ Equity (Total Equity) P1,483,200
Total Liabilities and Stockholders’ Equity P1,987,200