ACTIVITY CHAPTER 5

1. How much is the total unrealized gross profit from the intercompany sales
of inventory?
Ans. 800
Solution:
Downstream Upstream Total
Sale price of intercompany sale 20,000 12,000
Cost of intercompany sale (12,000) (9,600)
Profit from intercompany sale 8,000 2,400
Multiply by: Unsold portion as of yr.-end 1/4 4/12
Unrealized gross profit 2,000 800 2,800

2. How much is the NCI in net assets as of December 31, 20x1?

Ans. 21,070
Solution:
Step 2: Analysis of net assets
XYZ, Inc. Acquisition Consolidation Net
date date change
Share capital 50,000 50,000

Retained earnings 24,000 50,150

Other components of equity - -

Totals at carrying amounts 74,000 100,150

Fair value adjustments at acquisition 16,000 16,000
date
Subsequent depreciation of FVA NIL (10,000)*

Unrealized profits (Upstream only) NIL (800)**

Subsidiary's net assets at fair 90,000 105,350 15,350

value

Step 3: Goodwill computation

The problem states that goodwill on acquisition date was ₱3,000. This is also the amount at year-end
because there is no impairment of goodwill during the year.

Step 4: Non-controlling interest in net assets

XYZ's net assets at fair value – Dec. 31, 20x1 (Step 2) 105,350
Multiply by: NCI percentage 20%
Total 21,070
Add: Goodwill to NCI net of accumulated impairment losses - *
Non-controlling interest in net assets – Dec. 31, 20x1 21,070

3. How much is the consolidated retained earnings?

Ans. 130,280
Solution
Step 5: Consolidated retained earnings
ABC's retained earnings – Dec. 31, 20x1 120,000
Consolidation adjustments:
ABC's share in the net change in XYZ's net assets (a) 12,280
Unrealized profits (Downstream only) - (Step 1) (2,000)
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to Parent -
Net consolidation adjustments 10,280
Consolidated retained earnings – Dec. 31, 20x1 130,280

4. How much is the consolidated profit or loss?

Ans. 83,350
Solution:
Step 6: Consolidated profit or loss

Parent Subsidiary Consolidated

Profits before adjustments 70,000 26,150 96,150
Consolidation adjustments:
Unrealized profits - (Step 1) (2,000) (800) (2,800)
Dividend income from ( - ) N/A ( - )
subsidiary Gain or loss on
extinguishment
of bonds ( - ) ( - ) ( - )
Net consolidation adjustments (2,000) (800) (2,800)
Profits before FVA 68,000 25,350 93,350
Depreciation of FVA (b) (8,000) (2,000) (10,000)
Impairment loss on goodwill ( - ) ( - ) ( - )
Consolidated profit 60,000 23,350 83,350

5. How much is the consolidated profit or loss attributable to

Ans. Owners parent 80,280, NCI 3,070
Solution:
Step 7: Profit or loss attributable to owners of parent and NCI
Owners Consolidated
of parent NCI
ABC's profit before FVA 68,000 N/A 68,000
(Step 6)
Share in XYZ’s profit 20,280 5,070 25,350
(c)
before FVA
Depreciation of FVA (2,000
(Step 6) (8,000) ) (10,000)
Share in impairment ( - ) ( - ( - )
loss on goodwill )
Totals 80,280 3,070 83,350