Reference Vid: Company’s stockholders’ equity amounts to

https://www.youtube.com/watch?v=MDS_YOe0hyE P700,000. The excess cost over book value was

assigned to goodwill which is not amortized.
MODULE 10: CONSOLIDATION WITH
Income statements of the two companies for 2018
INTERCOMPANY TRANSACTIONS
are as follows:
INTERCOMPANY SALE OF INVENTORIES
P Corp S Corp
• Downstream Sale
Sales P1,000,000 P500,000
Parent > Subsidiary > External Customers
Dividend
112,000
• Upstream Sale income from S

Subsidiary > Parent > External Customers Cost of Sales (400,000) (250,000)

- NCI has share in elimination Operating

(220,000) (100,000)
Expenses
PFRS 10 states that the Group should “eliminate in
full intragroup assets and liabilities, equity, income, Net Income 492,000 150,000
expenses and cash flows relating to transactions
between entities of the group (profits or losses
resulting from intragroup transactions that are During 2017, S sold inventory to P for P80,000.
recognized in assets, such as inventory and fixed This merchandise cost S P50,000, and one-fourth
assets, are eliminated in full).” of it remained in P’s Dec. 31, 2017 inventory.
During 2018, S’s sales to P amounted to P90,000.
Parent Subsidiary Elimination
This merchandise cost S P63,000 and one-half of it
Interco Cash 100 Inv. 100 remained in P’s Dec. 31, 2018 inventory. What is
Sales the consolidated net income attributable to parent
Sales 100 Cash 100 in 2018?
& COS
SOLUTION:
COS 75
Unrealized Profit on Ending Inventory:
Inv. 75
Sales 90,000
If sold to external Cash 125 Sales 100 COS (63,000)
customers: Gross Profit 27,000
Sales 125 COS 100

COS 100 GP Rate: 27,000/90,000 = 30%

UPEI = 90,000 × ½ × 30%
Inv. 100 =P13,500
If unsold at year-end: Sales 100 Realized Profit on Beginning Inventory:
Unrealized Profit on Ending Inventory COS 75 Sales-S 80,000
COS (50,000)
Inv. 25
Gross Profit 30,000
If sold the ff. year: Inv. 25
Realized Profit on Beginning Inventory
COS 25 GP Rate: 30,000/80,000 = 37.5%
RPBI =80,000 × ¼ × 37.5%
= P7,500
PROBLEM 1: INTERCOMPANY SALE OF 2018 CNI P Corp S Company
INVENTORIES – UPSTREAM
Net Income 492,000 150,000
P Corp purchased 80% interest in S Company for
P600,000 on Jan 1, 2017, at which time S Dividend (112,000) -0-
Income UPEI (13,500)

UPEI (13,500) RPBI 7,500

RPBI 7,500 P374,000 P150,000

P380,000 P144,000 CNI: P374,000 + P150,000 = P524,000

CNI: P380,000 + P144,000 = P524,000 CNI – Parent: P374,000 + (P150,000 × 80%)

CNI – Parent: P380,000 + (P144,000 × 80%) = P495,200

= P495,200
INTERCOMPANY SALE OF FIXED ASSETS

PROBLEM 2: INTERCOMPANY SALE OF • Downstream Sale

INVENTORIES – DOWNSTREAM
Parent > Subsidiary > Depreciation (thru use)/Sale
P Corp purchased 80% interest in S Company for
P600,000 on Jan 1, 2017, at which time S • Upstream Sale
Company’s stockholders’ equity amounts to Subsidiary > Parent > Depreciation (thru use)/Sale
P700,000. The excess cost over book value was
assigned to goodwill which is not amortized. - NCI has share in elimination
Income statements of the two companies for 2018 Parent Subsidiary Elimination
are as follows:
Gain. Loss Cash 100 FA. 100 G/L on Sale 25
P Corp S Corp on sale
Acc. Dep – FA 35 Cash 100 FA 25

Sales P1,000,000 P500,000 G/L on Sale 25

Fixed assets 110

Dividend
112,000
income from S Annual Dep. Exp 20 Acc. Dep 5
Depreciation
Cost of Sales (400,000) (250,000) Acc. Dep 20 Dep. Exp. 5
(assuming Selling Price 100
5yrs RUL, BV (110-35) 75
Operating SLD) Gain on Sale 25 -Diff in depreciation
(220,000) (100,000) -Gain/loss on sale
Expenses divided by RUL

Net Income 492,000 150,000

PROBLEM 3: INTERCOMPANY SALE OF FIXED

During 2017, P sold inventory to S for P80,000. ASSETS
This merchandise cost P P50,000, and one-fourth
of it remained in S’s Dec. 31, 2017 inventory. On January 1, 2016 S Company purchased a
During 2018, P’s sales to S amounted to P90,000. computer with an expected life of 5 years. On
This merchandise cost P P63,000 and one-half of it January 1, 2018, S Company sold the computer to
remained in S’s Dec. 31, 2018 inventory. What is PMN Corporation and recorded the following entry:
the consolidated net income attributable to parent Cash 39,000
in 2018? Accumulated Depreciation 6,000
SOLUTION: Computer Equipment 40,000
Gain on sale of Equipment 15,000
2018 CNI P Corp S Company
P Corporation holds 60% of the voting shares of S
Net Income 492,000 150,000 Company. S Company and P Company reported
income from its own operations of P45,000 and
Dividend
(112,000) -0- P85,000 for 2018, respectively. There is no change
Income
in the estimated life of the equipment as a result of
intercompany sale.
What is the consolidated net income attributable to
parent for 2018?
SOLUTION:

2018 CNI P Corp S Company

Net Income 85,000 45,000

Gain on Sale (15,000)

Depreciation
5,000
(15,000/3)

P85,000 P35,000

CNI: P85,000 + P35,000 = P120,000

CNI – Parent: P85,000 + (P35,000 × 60%)
= P106,000