ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Problem VII
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%)

Consideration transferred (P360,000 / 80%)………….. P 450,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P240,000 x 100%)…………………. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)…………….... 24,000 360,000
Allocated excess (excess of cost over book value)….. P 90,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)…………… P 18,000
Increase in land (P72,000 x 100%)…………………. 72,000
Decrease in buildings and equipment
(P12,000 x 100%)…………………………………..... ( 12,000)
Increase in bonds payable (P42,000 x 100%)……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over
fair value)………………………………………………... P 54,000

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:
240,000
(E1) Common stock – Sky Co……………………………………………….
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

Accumulated depreciation…………………………………………. 360,000
Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 54,000
Buildings and equipment………………………………………….. 372,000
Premium on bonds payable……………………………………… 42,000
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – P36,000)]……………………………………………. 18,000
Investment in Sky Co……………………………………………….. 72,000
Eliminate investment against allocated excess.

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

Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

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) 54,000 54,000
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,157,600
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 (2) 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) 18,000 _90,000
Total Liabilities and Stockholders’
Equity P1,785,600 P960,000 P 864,000 P 864,000 P2,157,600
(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:

Non-controlling interest (partial)………………………………….. P 79,200
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000

The balance sheet;

Peer Company and Subsidiary

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 54,000
Total Assets P1,677,600

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
 ADVANCE ACCOUNTING 2015 | ANTONIO DAYAG JR.

Retained earnings 285,600

Parent’s Stockholders’ Equity/Equity Attributable to the P 945,600
Owners of the Parent
Non-controlling interest 90,000
Total Stockholders’ Equity (Total Equity) P 1,035,600
Total Liabilities and Stockholders’ Equity P1,677,600