c3 Answers

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C3 - answers
Advanced Financial Accounting and Reporting (University of San Carlos)
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Chapter 3
Problem I
Cost Model
1. January 1, 20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
b. NCI (Partial/Full)
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets
and liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
Add: NCI on full-goodwill (P15,000 – P12,000) 3,000
Non-controlling interest (full-goodwill/fair value basis)………………………………….. P 93,000
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 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated depreciation….. 96,000 - ( 96,000)
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
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c. Partial/Proportionate Goodwill
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
P’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 (b) 90,000
Consolidated SHE, 1/1/20x4 P1,050,000
Full-Goodwill/Fair Value Basis

Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 (b) 93,000
2, The following items for December 31, 20x4 and December 31, 20x5 in the Consolidated
Financial Statements: (refer to requirement 6 as a guide)
December 31, 20x4 December 31, 20x5

Partial Full- Partial Full-Goodwill
Consolidated Amounts Goodwill Goodwill Goodwill
a. Cash P 322,800 P 322,800 P 367,200 P 367,200
b. Accounts receivable 150,000 150,000 276,000 276,000
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 273,000 273,000 240,000 240,000
f. Buildings (net) 549,000 549,000 492,000 492,000
g. Investment in Sax -0- -0- -0- -0-
h. Total Assets 1,782,600 1,784,850 1,975,800 1,978,050
i. Accounts payable 240.000 240.000 240,000 240,000
j. Bonds payable 360,000 360,000 360,000 360,000
k. Total Liabilities 600,000 600,000 600,000 600,000
l. Common stock/Ordinary share 600,000 600,000 600,000 600,000
m. Retained earnings/Accumulated 490,440 490,440 676,680 676,680
P&L
n. Sales 720,000 720,000 900,000 900,000
o. Cost of Goods sold 348,000 348,000 408,000 408,000
p. Gross profit 372,000 372,000 492,000 492,000
q. Expenses (including GW 160,200 160,950 217,200 217,200
impairment)
r. Dividend income -0- -0- -0- -0-
s. Controlling Interests in Net Income 202,440 202,440 258,240 258,240
t. Non-controlling Interests in Net 9,360 8,610 16,560 16,560
Income
u. Net Income or CNI 211,800 211,050 274,800 274,800
v. Common stock/Ordinary share* 600,000 600,000 600,000 600,000
w. Retained Earnings/Accumulated
P&L* 490,440 490,440 676,680 676,680
x. Controlling Interests / Equity
Holders of Parent/ Parent’s
Stockholders’ Equity 1,090,440 1,090,440 1,276,680 1,276,680

y. Non-Controlling Interests 92,160 94,410 99,120 101,370
z1. Stockholders’ Equity 1,182,600 1,184,850 1,375,800 1,378,050
z2. Liabilities and Stockholders’ Equity 1,782,600 1,784,850 1,975,800 1,978,050
Alternative Solution (refer also to the worksheet)

80% Owned: Partial/Proportionate-Goodwill
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
Amortization Table: A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
12/31/20x4:
CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P168,000
S Company 60,000
Total P228,000
Less: Non-controlling Interest in Net Income* P 9,360
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P202,440
Add: Non-controlling Interest in Net Income (NCINI) 9,360
Consolidated Net Income for 20x4 P211.800
NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess / goodwill
impairment (refer to amortization table above) 13,200
P 46,800

Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 9,360
CNI, Controlling Interest in Consolidated Net Income or Profit attributable to

On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x4
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 202,440
Total P562,440
Less: Dividends paid – P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P490,440
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 240,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P120,000
Add: Net income of S for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – S Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Consolidated SHE:
Consolidated SHE:
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 92,160
12/31/20x5:
CI-CNI
Net income from own/separate operations:
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) 7,200 23,760
Consolidated Net Income for 20x5 P274,800
NCI-CNI
Less: Amortization of allocated excess / goodwill impairment for
20x5 (refer to amortization table above) 80,400

P 82,800
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
CNI, P274,800
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Retained earnings - P Company, January 1, 20x5 (cost model P484,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – S, January 1, 20x5 P
144,000
Less: Retained earnings – S, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
P 10,800
Multiplied by: Controlling interests %................... 80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
Consolidated Retained earnings, January 1, 20x5 P 490,440
equity holders of P for 20x5 258,240
Total P748,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss
would not be proportionate to NCI acquired.
Total P234,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600
Non-controlling interest (partial goodwill)………………………………….. P 99,120
Consolidated SHE:
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 99,120

80% Owned: Full-Goodwill/Fair Value Basis
12/31/20x4:
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured
as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
equity holders of P………….. P202,440
NCI-CNI – P8,610
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling int. on impairment loss on full-goodwill (P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)* 750
*this procedure would be more appropriate, instead of multiplying the full-goodwill
impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill
impairment loss would not be proportionate to NCI acquired.
CNI, P211,050

Total P562,440
Non-controlling interest (full-goodwill), December 31, 20x4
Total P180,000

Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 94,410
12/31/20x5:
CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
Goodwill impairment (impairment under full-goodwill approach) 0 23,760
NCI-CNI – P16,560
P 82,800
CNI, P274,800
as follows:
consolidation or to establish reciprocity:/P’s share in adjusted net
Retained earnings – Subsidiary, January 1, 20x5 P
144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640

Total P748,680
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment 2,250
loss
Non-controlling interest (full-goodwill)………………………………….. P 101,370
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 101,370
80% Partial Goodwill - Cost Model – First Year

3. 20x4: First Year after Acquisition
Parent Company Cost Model
Entry January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………….. 372,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid………… 36,000
Cash……. 36,000
Dividends paid by S Co..
4. Schedule of Determination and Allocation of Excess (Partial-goodwill)

Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)

Consideration transferred……………………………….. P 372,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 80%)……………………. P192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as
follows:
Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of S (P360,000 x 100%) 360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over P 15,000

fair value)………………………………………………...
5. Consolidation Workpaper – 20x4 Year of Acquisition (Partial-goodwill)

(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%) 72,000
………………………..
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%)……………………….. 18,000
Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost Depreciation/
of Amortization Amortization
Goods Expense -Interest Total
Sold
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or P 3,000 80.00%
controlling Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%

(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling
interest share of dividends.
(E5) Non-controlling interest in Net Income of Subsidiary………… 9,360

Non-controlling interest ………….. 9,360
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000

Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800
6. Worksheet for Consolidated Financial Statements, December 31,

20x4. Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800
Total Revenue P508,800 P240,000 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 28,000 (3) 6,000 90,000
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P310,000 P180,000 P508,200
Net Income P196,800 P 60,000 P211,800
NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)
Net Income to Retained Earnings P196,800 P 60,000 P202,440
Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 196,800 60,000 202,440
Total P552,000 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _
Retained earnings, 12/31 to
Balance Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,424,600

Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 484,800 144,000 490,440
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
(5) 9,360 92,160
Total P1,984,800 P1,008,000 P 745,560 P 745,560 P2,424,600
80% Partial Goodwill - Cost Model – Second Year

3. 20x5: Second Year after
Acquisition Parent Company Cost
Model Entry
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400
Cash 48,000
20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.
4. Schedule of Determination and Allocation of Excess (Partial-goodwill) – refer to the
schedule above.
5. Consolidation Workpaper – 20x5 Second Year after Acquisition
The working paper eliminations (in journal entry format) on December 31, 20x5, are as
follows:
(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P144,000
Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200

Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co (P384,000 x 80%)………………………… 307,200
of subsidiary and to establish non-controlling interest (in net
assets of subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5
[(P13,200 x 80%) + P3,000, impairment loss
on partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
To provide for years 20x4 and 20x5 depreciation and amortization
on differences between acquisition date fair value and book value
of S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

P 82,800
Non-controlling Interest in Net Income (NCINI P 16,560

20x5. Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co SCo. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 625,200
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P90,000 P 258,240
P Company P484,800 (2) 13,560 (1) 19,200 P 490,440
S Company P (2) 144,000
144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _
Balance Sheet
Cash………………………. P 265,200 P P 367,200
114,000
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,707,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (5) 9,600
(4) 2,640 (2 ) 76,800
(3) 18,000
(6) 16,560 99,120
Total P2,203,200 P1,074,000 P 821,160 P 821,160 P2,707,800
80% Full-Goodwill - Cost Model – First Year


Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company………………………………………… 372,000
Cash…………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
Cash……. 36,000
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
4. Schedule of Determination and Allocation of Excess (Full-goodwill)

Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Decrease in buildings (P24,000 x 100%) ( 24,000)
……….....
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
follows:
(P90,000 x 100%) 90,000

fair value)………………………………………………... P 15,000
5. Consolidation Workpaper – 20x4 Year of Acquisition (Full-goodwill)

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
– P12,000, partial goodwill)]………… 21,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Cost of Goods Depreciation/ Amortization Amortization
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Totals P 6,000 P 6,000 P1,200
P 46,800
P 9,360
Less: Non-controlling interest on
impairment loss on full-goodwill
(P3,125 x 20%) or (P3,125
impairment on full-goodwill less 750
P2,500, impairment on partial-goodwill)*
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment
loss of P3,125 by 20%. There might be situations where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired (refer to Illustration 15-6).

20x4. Cost Model (Full-goodwill)

Sales P480,000 P240,000 P 720,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P211,050
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (6) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
(5) 8,610 94,410
Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850
80% Full-Goodwill - Cost Model – Second Year

3. 20x5: Second Year after
Acquisition Parent Company Cost
Model Entry
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400

Cash 48,000
20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
4. Schedule of Determination and Allocation of Excess (Full-goodwill) – refer to the
schedule above.
(E1) Investment in S Company………………………… 19,200

Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Retained earnings – S Company, 1/1/20x5 P144,000
Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200
Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co (P384,000 x 80%)………………………… 307,200
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
– P12,000, partial goodwill)]………… 21,000
(E4) Retained earnings – P Company, 1/1/20x5

(P16,950 x 80%) 13,560
Non-controlling interests (P16,950 x 20%)……………………. 3,390
Inventory………………………………………………………….. 6,000

Goodwill…………………………………… 3,750
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,750
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560



P 82,800
P 16,560
Less: NCI on goodwill impairment loss on full-
Goodwill 0

20x5. Cost Model (Full-goodwill)

Sales P540,000 P360,000 P 900,000
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P 90,000 P 258,240
P Company P484,800 (3) 13,560 (5) 19,200 P 490,440
S Company P 144,000 (6) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _
Retained earnings, 12/31 to Balance P643,200 P186,000 P 676,680

Sheet
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(8) 3,390 (2 ) 76,800
(3) 21,000
(6) 16,560 101,370
Total P2,203,200 P1,074,000 P 824,910 P 824,910 P2,710,050
Problem II
Equity Method
1. January 1, 20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
b. NCI (Partial/Full)
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Add: NCI on full-goodwill (P15,000 – P12,000) 3,000
Non-controlling interest (full-goodwill/fair value basis)………………………………….. P 93,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000

Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
c. Partial/Proportionate Goodwill
Consolidated SHE:
P’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 (b) 90,000
Full-Goodwill/Fair Value Basis
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 (b) 93,000
2, The following items for December 31, 20x4 and December 31, 20x5 in the Consolidated
Financial Statements: (refer to requirement 6 as a guide)
December 31, 20x4 December 31, 20x5

Partial Full- Partial Full-
Consolidated Amounts Goodwill Goodwill Goodwill Goodwill
a. Cash P P 367,200
P 322,800 P 322,800 367,200
b. Accounts receivable 150,000 150,000 276,000 276,000
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 273,000 273,000 240,000 240,000
f. Buildings (net) 549,000 549,000 492,000 492,000
g. Investment in Sax -0- -0- -0- -0-
h. Total Assets 1,782,600 1,784,850 1,975,800 1,978,050
i. Accounts payable 240.000 240.000 240,000 240,000

j. Bonds payable 360,000 360,000 360,000 360,000
k. Total Liabilities 600,000 600,000 600,000 600,000
l. Common stock/Ordinary share 600,000 600,000 600,000 600,000
m. Retained earnings/Accumulated 490,440 490,440 676,680 676,680
P&L
n. Sales 720,000 720,000 900,000 900,000
o. Cost of Goods sold 348,000 348,000 408,000 408,000
p. Gross profit 372,000 372,000 492,000 492,000
q. Expenses (including GW 160,200 160,950 217,200 217,200
impairment)
r. Investment Income/Equity in -0- -0- -0- -0-
Subsidiary Income
s. Controlling Interests in Net Income 202,440 202,440 258,240 258,240
t. Non-controlling Interests in Net 9,360 8,610 16,560 16,560
Income
u. Net Income or CNI 211,800 211,050 274,800 274,800
v. Common stock/Ordinary share* 600,000 600,000 600,000 600,000
w. Retained Earnings/Accumulated
P&L* 490,440 490,440 676,680 676,680
x. Controlling Interests / Equity
Holders of Parent/ Parent’s
Stockholders’ Equity 1,090,440 1,090,440 1,276,680 1,276,680
y. Non-Controlling Interests 92,160 94,410 99,120 101,370
z1. Stockholders’ Equity 1,182,600 1,184,850 1,375,800 1,378,050
z2. Liabilities and Stockholders’ Equity 1,782,600 1,784,850 1,975,800 1,978,050
Alternative Solution (refer also to the worksheet)
80% Owned: Partial/Proportionate-Goodwill
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
Amortization Table: A summary or depreciation and amortization adjustments is as follows:

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)

Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
12/31/20x4:
CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
NCI-CNI
Less: Amortization of allocated excess / goodwill
impairment (refer to amortization table above) 13,200
P 46,800
CNI, P211,800
as follows:
Total P562,440
Total P180,000
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Consolidated SHE:
Consolidated SHE:

NCI, 12/31/20x4 92,160
12/31/20x5:
CI-CNI
P Company P192,000
S Company 90,000
Total P282,000
Amortization of allocated excess (refer to amortization above) 7,200 23,760
NCI-CNI
P 82,800
CNI, P274,800
Retained earnings – S, January 1, 20x5 P
144,000
Less: Retained earnings – S, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
equity holders of P for 20x5 258,240
Total P748,680

Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Consolidated SHE:
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 99,120
80% Owned: Full-Goodwill/Fair Value Basis

12/31/20x4:
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured
as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
NCI-CNI – P8,610
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling int. on impairment loss on full-goodwill (P3,750 x
20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on 750
partial-goodwill)*
*this procedure would be more appropriate, instead of multiplying the full-goodwill
impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill
impairment loss would not be proportionate to NCI acquired.
CNI, P211,050

Total P562,440
Total P180,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 94,410
12/31/20x5:
CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
Goodwill impairment (impairment under full-goodwill approach) 0 23,760
NCI-CNI – P16,560
P 82,800

CNI, P274,800
consolidation or to establish reciprocity:/P’s share in adjusted net
Retained earnings – Subsidiary, January 1, 20x5 P
144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment 2,250
loss
Non-controlling interest (full-goodwill)………………………………….. P 101,370
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 101,370

80% Partial Goodwill – Equity Method – First Year
Parent Company Cost Model
Entry January 1, 20x4:
Cash…………………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Investment in S Company (P36,000 x 80%)……………. 28,800
December 31, 20x4:

(3) Investment in S Company 48,000
Investment income (P60,000 x 80%) 48,000
Record share in net income of subsidiary.
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x
NI of S 80%) Amortization &
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
4. Schedule of Determination and Allocation of Excess (Partial-goodwill)

Consideration transferred……………………………….. P 372,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 80%)……………………. P192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000

Book Fair Valuation
value value

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
follows:
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
5. Consolidation Workpaper – 20x4 Year of Acquisition (Partial-goodwill)

………………………..
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000

Buildings……………………………………….. 216,000
controlling interest (in net assets of subsidiary) on date of
acquisition.
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost Depreciation/
of Amortization Amortization
Goods expense -Interest Total
Sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P 6,000 P1,200 13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or P 3,000 80.00%
controlling Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
(E4) Investment income 34,440

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of
(60,000 Amortization & Amortization S
x 80%)……. 48,000 13,560 impairment impairment 13,560 (60,000
5,640 48,000 x 80%)

After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of Son Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4
84,000 (E2) Investment, 1/1/20x4
5,640 (E4) Investment Income
and dividends
377,640 377,640


P 46,800

20x4. Equity Method (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
Investment income 34,440 - (4) 34,440
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,800

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Balance Sheet P490,440 P144,000 P490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000

Investment in S Co……… 377,640 (2)
288,000
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,424,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (9) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
(5) 9,360 92,160
Total P1,990,440 P1,008,000 P 751,200 P 751,200 P2,424,600
80% Partial Goodwill – Equity Method – Second Year

3. 20x5: Second Year after Acquisition
P Co. S Co.
Sales P 540,000 P 360,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000
Parent Company Equity Method Entry

The following are entries recorded by the parent in 20x5 in relation to its subsidiary
investment:
(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
follows:
Investment in S
NI of S 80%) Amortization
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income

Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4
4. Schedule of Determination and Allocation of Excess (Partial-goodwill) – refer to the

schedule above.
Consolidation Workpaper – Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete guidance
for the worksheet eliminating entries:
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
………………………..
(E2) Accumulated depreciation – equipment (P96,000 – 84,000
P12,000)
Accumulated depreciation – buildings (P192,000 + 6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
(E3) Depreciation expense……………………….. 6,000
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,,200

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

NI of S 38,400 Dividends – S NI of
(90,000 Amortization Amortization S
x 80%)……. 72,000 5,760 (P7,200 x (P7,200 x 80%) 5,760 (90,000
80%) 72,000 x 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S

NI of S Amortization
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480


P 82,800

20x5. Equity Method (Partial-goodwill)
Income Statement Co SCo. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800

P Company P490,440 P490,440
S Company P144,000 (1)
144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 1,044,000
216,000
Goodwill…………………… (2) 9,000 9,000

(2) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,707,800
Accumulated depreciation (2) 84,000

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(2 ) 76,800
(2) 15,360
(5) 16,560 99,120
Total P2,236,680 P1,074,000 P 794,400 P 794,400 P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same
6. Worksheet for Consolidated Financial Statements, December 31, 20x5.

Equity Method (Partial-goodwill)
Income Statement P Co SCo. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P90,000 P 258,240
P Company P484,800 (4) 13,560 (9) 19,200 P 490,440
(10)
S Company P 144,000
144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _
Balance Sheet
Cash………………………. P 265,200 P P 367,200
114,000
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200 -

(3) 84,000
Total P2,203,200 P1,074,000 P2,707,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(4) 2,640 (2 ) 76,800
(3) 18,000
(6) 16,560 99,120
Total P2,203,200 P1,074,000 P 821,160 P 821,160 P2,707,800
80% Full-Goodwill – Equity Method – First Year

Common stock (P240,000 x 100%)………………. P 240,000
……….....
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition
investment:
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
buildings and bonds payable and goodwill impairment loss.
follows:
Investment in S
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
4. Schedule of Determination and Allocation of Excess (Full-goodwill)
Common stock (P240,000 x 100%)………………. P 240,000
……….....
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

follows:
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
5. Consolidation Workpaper – 20x4 Year of Acquisition (Full-goodwill)

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E2) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P 6,000 P1,200 13,200
NI of S 28,800 Dividends – S NI of Son
(60,000 Amortization & Amortization & (60,000
x 80%) 48,000 13,560 Impairment Impairment 13,560 48,000 x 80%)

5,640
34,440
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
(60,000 x 80%) 40,000 13,560 Impairment
84,000 (E2) Investment, 1/1/20x4
and dividends
377,640 377,640


P 46,800
Less: Non-controlling interest on
impairment loss on full-goodwill
(P3,750 x 20%) or (P3,750
impairment on full-goodwill less 750
P3,000, impairment on partial-goodwill)*
P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
20x4. Equity Method (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,050

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800

Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 1,044,000
216,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 377,640 (2)
288,000
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
(5) 8,610 94,410
Total P1,990,440 P1,008,000 P 754,200 P 754,200 P2,426,850
80% Full-Goodwill - Equity Method – Second

Year
3. 20x5: Second Year after Acquisition
P Co. S Co.
Sales P 540,000 P 380,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000
investment:
(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
P Company’s P12,000 portion of the differential related to goodwill related to goodwill is

not adjusted on the parent’s books following Option 2 as referred to above for goodwill
impairment loss. Even though the goodwill of the consolidated entity is impaired,

follows:
Investment in S
NI of S 80%) Amortization
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4
4. Schedule of Determination and Allocation of Excess (Full-goodwill) – refer to the schedule

above.
5. Consolidation Workpaper – Second Year after Acquisition

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
………………………..
To eliminate investment on January 1, 20x5 and equity
accounts of subsidiary on date of acquisition; and to establish
non- controlling interest (in net assets of subsidiary) on
1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – 84,000

P12,000)
Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
– P3,000, partial- goodwill 17,610
impairment)* or (P3,750 x 20%)]
(E3) Depreciation expense……………………….. 6,000
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

NI of S 38,400 Dividends - S NI of
(90,000 Amortization Amortization S
x 80%)……. 72,000 5,760 (P7,200 x (P7,200 x 80%) 5,760 (90,000
80%) 72,000 x 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480

P 82,800
Less: NCI on goodwill impairment loss on full-
Goodwill 0

20x5. Equity Method (Full-goodwill)
Income Statement Co SCo. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800
Net Income to Retained Earnings P258,240 P 90,000 P 258,240
P Company P490,440 P490,440
S Company P144,000 (1)
144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200

Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(5) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,634,000
Accumulated depreciation (2) 84,000
- equipment P 150,000 P 102,000 (3) 12,000 P 180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest…………
(3)
9,600 (2 ) 76,800
(2) 17,610
(5) 16,560
Total P2,236,680 P1,074,000 P 796,650 P 796,650 P2,634,000
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-
controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem VII
solution).
Problem III - Cost Model/Method versus Equity Method

Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred: P600,000.............................................. 600,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’
equity
Common/Ordinary shares – Small (400,000 x 75%)............ 300,000
Retained earnings – Small (100,000 x 75%)......................... 75,000 375,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 225,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (40,000 x 75%)........................................ 30,000
Decrease in Patents (70,000 x 75%).......................................... (52,500) ( 22,500)
Positive Excess: Goodwill - partial 247,500
Full-Goodwill Approach:
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’
equity
Common/Ordinary shares 400,000
500,000
Increase in Inventory 40,000
Decrease in Patents (70,000) (30,000)
Positive Excess: Goodwill - full 330,000
Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5 20x6
Inventory P40,000 1 P 40,000 P 40,000 P - P -
Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)
Amortization P 26,000 P 26,000 P(14,000) P(14,000)
Impairment of goodwill (full) 330,000 - 19,300
P 26,000 P 26,000 P(14,000) P 5,300

For purposes of comparison between Cost Model/Method and Equity Method
Cost Model
Journal Entries Year 1 Year 2 Year 3
Investment
Investment in Small 600,000
Cash 600,000
Dividend of Subsidiary
Cash 18,750 7,500 30,000
Dividend income 18,750 7,500 30,000
Investment in Son Dividend Income
1/1/x4 CI…… 600,000
18,750 - Div–S (75
12/31/x4 600,000 x80%)
18,750
12/31/x5 600,000 7,500 - Div–S (10
x80%)
12/31/x6 600,000 18,750
30,000 - Div–S (40
x80%)
Equity Method
1. Year 1 Year 2 Year 3
Investment
Cash 600,000
Net Income (Loss) of Subsidiary:

Investment in Small (75% x Small’s profit) 60,000 67,500
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess

Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment income 10,500
Investment in Son Investment Income (loss)

1/1/x4: CI 600,000
NI of S 18,750 75% Div - NI of Son
(80,000 Son 75% Amortization (80,000
x 75%)……. 60,000 19,500 Amort& impairment 19,500 60,000 x 75%)
impairment 40,500
12/31/x4 621,750 75% NL –
75% NL – Sub Sub
26,250 (35,000 x 75%) (35,000 x 26,250
7,500 75% Div - Son 75%) 75% Amort&
75% impairment
Amort& 10,500
Impairment 10,500 15,750
12/31/x5 598,500 NI of Son
NI of S 30,00075% Div – Son Amortization (90,000
(90,000 75%Amort& impairment 3,975 67,500 x 75%)
x 75%)……. 67,500 3,975 impairment 63,525
2.Cost method:
Investment in Son Dividend Income

1/1/x4 CI…… 600,000

18,750 - Div–S (75
12/31/x4 600,000 x80%)
18,750
12/31/x5 600,000 7,500 - Div–S (10
x80%)
12/31/x6 600,000 18,750
30,000 - Div–S (40
x80%)
Equity Method
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - NI of Son
(80,000 Son 75% Amortization (80,000
x 75%)……. 60,000 19,500 Amort& impairment 19,500 60,000 x 75%)
impairment 40,500
12/31/x4 621,750 75% NL –
75% NL – Sub Sub
26,250 (35,000 x 75%) (35,000 x 26,250
7,500 75% Div - Son 75%) 75% Amort&
75% impairment
Amort& 10,500
Impairment 10,500 15,750
12/31/x5 598,500 NI of Son
NI of S 30,000 75% Div – Amortization (90,000
(90,000 Son impairment 3,975 67,500 x 75%)
x 75%)……. 67,500 75%Amort& 63,525
3. Balances on January 1, 20x6:

a. P247,500 (refer to above computation)
b. P330,000 (refer to above computation)
c. 20x4: P26,000
20x5, (P14,000); 20x6, (P14,000)
d. P180,900
Non-controlling interest (full-goodwill), January 1, 20x6
Common stock – Subsidiary Company, January 1 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000)……………………………............................. P155,000
Less: Net loss of Small for 20x5……………………………………………….. 35,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P120,000
Less: Dividends paid – 20x5…………………………………………………………. 10,000 110,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . P 510,000
..
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 …………………… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,000) 12,000
Fair value of stockholders’ equity of subsidiary, December 31, 20x5 . . . . . . . . P 492,000
...
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . 20
.
FV of Non-controlling interest (partial goodwill), 12/31/20x5 . . . . . . . . . . . . . . . P 98,400
..
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI ……………………………………………………… 0 *82,500
FV of Non-controlling interest (full-goodwill), 12/31/20x5. . . . . . . . . . . . . . . . . . . . . P 180,900
e. Consolidated Retained Earnings, 1/1/20x6 – P498,500 (same with the RE, beginning of 20x6
given per problem)
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Retained earnings – Small, January 1, 20x6

(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of 100,000
acquisition)
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 0 ( 1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500
4.
a. Goodwill, 12/31/20x6 [P247,500 – (P19,300 x 75%), partial goodwill P
233,025 Goodwill, 12/31/20x6 (P330,000 – P19,300), full goodwill P
310,700
b. FV of NCI, 12/31/20x6:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . P 560,000
..
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (2,000)
......
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . P 532,000
...
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . 20
.
FV of Non-controlling interest (partial goodwill), P 133,000
12/31/20x6 . . . . . . . . . . . . . . . . .
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… 4,825 *77,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6 may also be computed as follows (Note: This is the
American version of computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6………………………………………….. P
400,000 Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)...........P 110,000
Add: NI – Subsidiary (20x6).....................................................................90,000
Dividends – Subsidiary 20x6….........................................( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………… P560,000
Adjustments to reflect fair value (Increase in Net Assets)....P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)…............................................42,000
Impairment of goodwill – 20x6…...................................( 19,300) 282,700
FV of SHE of Small………………………………………………………… P 842,700
Multiplied by: NCI%............................................................................... 25%
FV of NCI, 12/31/20x6…………………………………………………….. P 210,675
Or, alternatively:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000

(P100,000 + P80,000 – P25,000 – P35,000 – P10,000)..............................
P110,000 90,000 P200,000 40,000
Add: Net income of Small for 20x6………………………………………………..
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Dividends paid – 20x6…………………………………………………………. 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment 282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . 25% P 210,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . .
The CRE, December 31, 20x6 would be as follows:

Consolidated Retained earnings, January 1, 20x6 (refer to 3e) P498,500
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to 233,525
equity holders of Large for 20x6
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Or, alternatively: to compute CRE, 12/31/20x6

Retained earnings - Large Company, December 31, 20x6 (cost model) P630,000
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P 160,000
P40,000)
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2 (28,000)
P 62,000
P 46,500
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%) 14,475 32,025
Consolidated Retained earnings, December 31, 20x6 P 662,025
d. P233.525
Parent Company: Large Company [P200,000 – (P40,000 x P170,000
75%)]
Small Company 90,000
Total P260,000
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,525
*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 4,825
25%)*

*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
e. P21,175 – refer to (d) for computations

f. P254,700 – refer to (d) for
computations g.
The CRE, December 31, 20x6 would be as follows:
Consolidated Retained earnings, January 1, 20x6 (refer to 3e) P498,500
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to 233,525
equity holders of Large for 20x6
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Or, alternatively: to compute CRE, 12/31/20x6

(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P 160,000
P40,000)
P 62,000
P 46,500
Note: Regardless of the method used (cost or equity) answers for 3 (a) to (g) above are
exactly the same.
5.
a. Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests 75%
P 32,025
Less: Impairment of goodwill 0 _32,025
Investment balance under equity method P 632,025
b. Reconciliation of Retained Earnings Account from Cost to Equity Method:

(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P
P40,000) 160,000

P 62,000
P 46,500
Problem IV
A.
1.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
Amortization of allocated excess 0
Goodwill impairment 1,500 7,275
b. P5,775
Amortization of allocated excess – 20x4 ( 0))
P 40,000
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 225
15%)*
c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
same with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P 137,650
Less: Dividends of P Company 5,000
Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Consolidated Retained Earnings, 12/31/20x4 P 157,725

e. P238,000
2.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
b. P5,775
P 40,000
P 6,000
15%)*
c. P93,500 – refer to computation in
(a) d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be
the
d.2
Add; Net income under equity method {P55,000 + [(P40,000 x 85%) -
(P1,500, impairment loss x 85%) – (P0, amortization)} _87,725
P162,725
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Consolidated Retained Earnings, 12/31/20x4 P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
3. Reconciliation of Investment balance – Cost Model to Equity Method

Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000

Less: Cumulative amortization of allocated excess 0
31,000
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 25,075
Investment balance under equity method P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
31,000
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725
B.
4.
a. P87,725
Pill Company [P62,650 – (P9,000 x 85%)] P55,000
Sill Company 40,000
Total P95,000
b. P5,775
P 40,000
P 6,000
15%)*

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
d.2
Add; Net income under cost method (given) _62,650
P 137,650

P 132,650
Retained Earnings of P Co, 12/31/20x4 under cost model
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
5.
a. P87,725
Pill Company [P87,725 – (P40,000 x 85%) + (P1,500 x 85%)] P55,000
Sill Company 40,000
Total P95,000
b. P5,775
P 40,000
P 6,000
15%)*

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be
the same with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Add; Net income under equity method (given) _87,725
P162,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725

Consolidated Retained Earnings, 12/31/20x4 P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
5. Reconciliation of Investment balance – Cost Model to Equity Method

Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 9,000
P 31,000
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) 1,275 25,075
Investment balance under equity method P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 9,000
P 31,000
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) 1,275 25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725
Problem V
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
600,000
Allocated Excess: Acquisition differential – December 31, 160,000
20x4
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000
amortized under Life Amount Year(20x5) 20x6 20x7
Inventory P70,000 1 P 70,000 P 70,000 P - P -
Patents 90,000 10 9,000 9,000 9,000 9,000
P160,000 P 79,000 P 79,000 P 9,000 P 9,000,
Unamortized balance of allocated excess:

Balance Balance

Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment 0 71,650 0 15,450
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent P(13,650) P(21,200)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss(CNI) P(21,000) P(14,750)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P(7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill - _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P6,450
2.CI-CNI – refer to computation in No.
1 20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000).................................................................7,350
20x6: 15%  (52,000 – 9,000).....................................................................6,450
(2)
20x5 20x6
NI (loss) Pen 28,000 (45,000)
Less: Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) 36,550_
Consolidated profit (loss) attributable to

Pen’s shareholders (13,650) (21,200)

3. CRE, 12/31/20x6 – P73,150
Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P 167,000
P15,000)
Less: Retained earnings – Silk, December 31, 20x4 (date of 100,000
acquisition)
Amortization of allocated excess – 20x6 9,000
P (21,000)
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 0 ( 17,850)
4. NCI, 12/31/20x6: P110,850

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000( 15,000)
167,000 Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000)
( 88,000) FV of SHE of
S P 739,000
Multiplied by: NCI% 15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill _0
FV of NCI (full),12/31/20x6 P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) P167,000
Less: Retained earnings, 12/31/20x4 (date of
acquisition)100,000 Increase since acquisition P 67,000
Less: Amortization of allocated excess (79,000 +
9,000)88,000
P( 21,000)
Multiplied by: NCI’s share 15% ( 3,150)
Non-controlling interest (full) 12/31/20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000

Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment, cost model 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000

( 21,000)
Multiplied by: CI share 85% (17,850)
Invest. account – equity method as at Dec. 31, 20x6 628,150
Implied value of 100% (628,150 / 739,000

85%) Silk –Common 500,000
shares
Retained earnings – Silk, 12/31/20x6 167,000
667,000
Balance unamortized allocated excess – Patents 72,000
Problem VI
1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020
20x4
Parent – Davis Company P100,000
Subsidiary - Martin Company 60,000
Total P160,000
Amortization of allocated excess** 18,000
Goodwill impairment 0 26,400
Amortization of allocated excess – 20x4 (P2,000 + P16,000) ( 18,000)
P 42,000
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill 0
** Amortization of allocated excess

Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred:.................................................................. 300,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 80%)............ 144,000
Retained earnings – Martin (60,000 x 80%)......................... 48,000192,000
Increase in Patents (20,000 x 80%).......................................... 16,000 28,800
Full-Goodwill Approach:
Fair value of Subsidiary P300,000/80%..................................................
Consideration transferred:.................................................................. 375,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 180,000
100%)............
Retained earnings – Martin (60,000 x 100%)......................... 60,000 240,000

Increase in Patents (20,000 x 100%).......................................... 20,000 36,000
amortized Under Life Amount Year(20x4) 20x5
Inventory P16,000 1 P 16,000 P 16,000 P -
Patents 20,000 10 2,000 2,000 2,000
Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - 9,900
P 18,000 P 18,000 P 11,900
20x5
Parent – Davis Company P120,000
Subsidiary - Martin Company 72,000
Total P192,000
Amortization of allocated excess** 2,000
Amortization of allocated excess – 20x5 ( 2,000)
P70,000
P 14,000
Less: Non-controlling interest on impairment loss on full-goodwill (P99,000 x 10% =
P9,900 x 20%) 1,980
2. CI – CNI for 20x4, P133,600; CI – CNI for 20x5, P168,080

3. CRE, 12/31/20x5, P208,080
Retained earnings of P Co, 1/1/20x5, equity method (same with CRE) P 80,000
Add; CI – CNI 168,080
P248,080
4. NCI, 12/31/20x5
Non-controlling interest, December 31, 20x5
Common stock – Martin Company, December 31, 20x5…… P 180,000
Retained earnings – Martin Company, December 31, 20x4
Retained earnings – Martin Company, January 1, 20x4 P 60,000
Add: NI of Martin for 20x4 and 20x5 (60,000 + 72,000) 132,000
Total P192,000
Less: Dividends paid – 20x4 and 20x5 (12,000 + 15,000) 27,000 165,000
Adjustments to reflect fair value - (over) undervaluation
of assets and liabilities, date of acquisition (January 1,
20x4) 36,000
(20,000 + 16,000)

Amortization of allocated excess (refer to
amortization above – 20x4 and 20x5 (P2,000 + ( 20,000)
16,000 + 2,000)
Fair value of stockholders’ equity of S, December 31, P 361,000
20x5……
Non-controlling interest (partial-goodwill), P 72,200
12/31/20x5………..
Add: Non-controlling interest on full goodwill , net of
impairment loss, 12/31/x5:[(P99,000 full – P79,200, partial
= P19,800) – (P99,000 x 10%, impairment loss x 20%) 17,820
5.
Partial (80%) Full (100%)
Goodwill balance, 1/1/20x4 79,200 99,000
Less Impairment – 20x4 -0- -0-
Less Impairment – 20x5 (99,000 x 10% = 9,900) _7,920 9,900
6.
Patents, 1/1/20x4 20,000

Less: Amortization (20,000/10 years = 2,000 x 2) _4,000
Consolidated Patents, 12/31/20x5 16,000
Problem VII
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM................................P664,000
Noncontrolling interest fair value..........................................166,000*

air value of Subsidiary.....................................P830,000
Less: Book value of SHE – S…..……………………. (600,000)
Positive excess ......................................................... 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000 20 years P4,000
Goodwill - full P150,000 indefinite-------------0-
Total ..................................................................... P4,000
2. P150,000 – full goodwill (see No. 1
above) P120,000 – partial-goodwill:
Consideration transferred by MM................................P664,000
Less: Book value of SHE – S (P600,000 x 80%)..... 480,000
Allocated excess.............................................P184,000
Less: Over/under valuation of A and L:
P80,000 x 80%............................................................. 64,000
Goodwill - partial................................................................P120,000
3. Full-goodwill
Common Stock - TT ............................................................... 300,000
Additional Paid-in Capital - TT ............................................. 90,000
Retained Earnings - TT ........................................................... 210,000
Investment in TT Company (80%) ................................. 480,000

Non-controlling interest (20%) ...................................... 120,000
Buildings ................................................................................. 80,000

Goodwill ................................................................................ 150,000
Non-controlling interest (P166,000 – P120,000) ........... 46,000
Partial-goodwill
Common Stock - TT ............................................................... 300,000
Additional Paid-in Capital - TT ............................................. 90,000
Retained Earnings - TT ........................................................... 210,000
Non-controlling interest (20%) ...................................... 120,000
Buildings ................................................................................. 80,000

Goodwill ................................................................................ 120,000
Non-controlling interest (20% x P80,000) ...................... 16,000
4.Cost Model/Initial Value Method
Dividends received (80%) .......................................................... P 8,000
Investment in Taylor—12/31/x4 (original value paid)………… P664,000
Equity Method
Income accrual (80%) ................................................................ P56,000
Excess amortization expense .................................................... (3,200)
Investment income .............................................................. P52,800
Initial fair value paid ................................................................................. P664,000

Income accrual 20x4–20x6 (P260,000 × 80%) .......................... 208,000
Dividends 20x4–20x6 (P45,000 × 80%) ....................................... (36,000)
Excess Amortizations 20x4–20x6 (P3,200 × 3) ........................... (9,600)
Investment in TT—12/31/x6 ................................................... P826,400
5. Same answer with No. 4.
6. Using the acquisition method, the allocation will be the total difference (P80,000)
between the buildings' book value and fair value. Based on a 20 year life, annual
excess amortization is P4,000.
MM book value—buildings ................................................. P 800,000
TT book value—buildings ..................................................... 300,000
Allocation .............................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2)...................(8,000)
Consolidated buildings account ………………… P1,172,000
7. Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) ............................................... P 150,000
Goodwill-partial (see No. 1 above)……………………………… P 120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000

Problem VIII
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds……………………………………… P 720,000

Fair value of retained non-controlling interest equity investment (35%) 420,000
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary) 120,000
P1,260,000
Less: Carrying value of Subsidiary’s net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI
or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem IX
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds……………………………………… P 84,000

Less: Carrying value of non-controlling interest (P720,000* x 10%) 72,000
“Gain” – transfer within equity in “Additional paid-in capital” account P 12,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance
sheet. Because P Company continues to have the ability to control S Company, the sale of S’s
shares is treated as an equity transaction. Therefore, no gain or loss is recognized. Instead,
Palmer Company’s additional paid-in capital increases by P60,000.
Problem X
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ….. P210,000

Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance…P720,000
x: Non-controlling interest............. 20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance…...................P720,000
Additional issuance…...................210,000
BV of SHE after issuance…............P930,000
x: Non-controlling interest............... 36%** 334,800 190,800
“Gain” – transfer within equity in
“Additional paid-in capital” account... P 19,200
* (120,000 – 96,000) / 120,000 = 20% ownership before additional issuance of shares.

** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of
shares
PCompany recognizes an increases in its Investment in S from P576,000 (P720,000x 80%)

to P595,200 [P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.
Problem XI
(Several valuation and income determination questions for a business combination involving
a non-controlling interest.)

Business combinations are recorded generally at the fair value of the consideration transferred
by the acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PS’s consideration transferred (P31.25 × 80,000 shares).................................................P2,500,000

Non-controlling interest fair value (P30.00 × 20,000 shares) ....................................
P600,000 SR’s total fair value 1/1/09.........................................................P3,100,000
1. Each identifiable asset acquired and liability assumed in a business combination

should initially be reported at its acquisition-date fair value.
2. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported
at their acquisition-date fair values adjusted for amortization and depreciation. Except
for certain financial items, they are not continually adjusted for changing fair values.
3. SR’s total fair value 1/1/09.....................................................................................................P3,100,000

SR’s net assets book value .......................................................................................... 1,290,000
Excess acquisition-date fair value over book value.......................................................P1,810,000
Adjustments from book to fair values ........................................................................
Buildings and equipment..................................................... (250,000)
Trademarks ............................................................................ 200,000
Patented technology .......................................................... 1,060,000
Unpatented technology...................................................... 600,000 1,610,000
Goodwill .............................................................................................................. P200,000
4. Combined revenues....................................................................................................................P4,400,000
Combined expenses.....................................................................................................................(2,350,000)
Building and equipment excess depreciation ......................................................... 50,000
Trademark excess amortization .................................................................................. (20,000)
Patented technology amortization ........................................................................... (265,000)
Unpatented technology amortization..................................................................................... (200,000)
Consolidated net income..........................................................................................................P1,615,000
To non-controlling interest:
SR’s revenues...................................................................................P1,400,000
SR’s expenses ......................................................................................................... (600,000)
Total excess amortization expenses (above) ..................................................... (435,000)
SR’s adjusted net income ..................................................................................... P365,000
Non-controlling interest percentage ownership................................................ 20%
Non-controlling interest share of consolidated net income ............................ P73,000
To controlling interest:
Consolidated net income...................................................................................................P1,615,000
Non-controlling interest share of consolidated net income ............................ (73,000)
Controlling interest share of consolidated net income..........................................P1,542,000
-OR-
PS’s revenues....................................................................................P3,000,000
PS’s expenses ......................................................................................................... 1,750,000
PS’s separate net income....................................................................P1,250,000
PS’s share of SR’s adjusted net income
(80% × P365,000) ....................................................................................... 292,000
Controlling interest share of consolidated net income..........................................P1,542,000

5. Fair value of non-controlling interest January 1, 20x4.............................................. P600,000
20x4 income.................................................................................................................................................73,000
Dividends (20% × P30,000) ........................................................................................... (6,000)
Non-controlling interest December 31, 20x4............................................................. P 667,000
6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.
SR’s total fair value 1/1/09......................................................................P2,250,000
Collective fair values of SR’s net assets.....................................................P2,300,000
Bargain purchase ......................................................................................................... P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities
assumed be recognized at their acquisition date fair values regardless of the assessed fair
value. Therefore, none of SR’s identifiable assets and liabilities would change as a result
of the assessed fair value. When a bargain purchase occurs, however, no goodwill is
recognized.
Problem XII (Full-Goodwill)

A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1(stockholders' equity
accounts)
(P100,000 + P600,000 + P700,000) ..................... P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) .............................. P120,000
Dividends ........................................................... (20,000)
Change during year ............................................... P100,000
Change during first six months of year .......... 50,000
Book value of RR, 7/1 (acquisition date) . P1,450,000
(Full-Goodwill)
Consideration transferred by KL(P1,330,000 +
P30,000)..............................................................................P1,360,000
Non-controlling interest fair value ................................
300,000 RRs’ fair value (given)..............................P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of
NCI amounting to P300,000 (refer to above computation), which is lower compared
to the FV of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR)....................................P1,450,000

Adjustments to reflect fair value (undervaluation) 150,000
FV of SHE of Subsidiary (RR)...................................P 1,600,000
Multiplied by: NCI%..................................................... 20%
FV of NCI…....................................................P 320,000
Consideration transferred by KL(P1,330,000 +

P30,000)..............................................................................P1,360,000
Non-controlling interest fair value..................................... 320,000
RRs’ fair value (given)..........................................P1,680,000
Book value of RR, 7/1..............................................................(1,450,000)
Fair value in excess of book value ................................ P 230,000 Annual Excess
Excess fair value assigned Life Amortizations
Trademarks .................................................................. 150,000 5 years P30,000
Goodwill (full-goodwill) ............................................... P 80,000 indefinite-------------0-
Total ....................................................................... P30,000

It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount – refer to
computation above). The rationale behind such rule is to avoid having a lower
amount of goodwill under the full-goodwill approach as compared to goodwill
computed under the partial-goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL......................................P1,360,000
Less: Book value of SHE – RR (P1,450,000 x 80%).....1,160,000
Allocated excess………………………………………….P 200,000
P150,000 x 80%........................................................120,000
Goodwill - partial P80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the
same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
 Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-
acquisition subsidiary operating expenses) plus ½ year excess amortization of
P15,000.
 Dividends paid = P80,000
 Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
 Equipment, none
 Depreciation expense, none
 Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2]
 Buildings, none
 Goodwill (full), P80,000; Goodwill (partial), P80,000
 Consolidated Net Income, P245,000
 Sales (1) P1,050,000
 Cost of goods sold (2) 540,000
 Operating expenses (3) 265,000
 Net Income P 245,000
 Non-controlling Interest in Sub. Income (4) P 9,000
 Controlling Interest in CNI P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of
P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value
amortization
[20% × (120,000 – 30,000) × ½ year] = P9,000
 Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the subsidiary
was acquired during the current year)
 Trademark = P935,000 (add the two book values and the excess fair value
allocation after taking one-half year excess amortization)
 Goodwill (full)= P80,000 (the original allocation)
 Goodwill (partial) = P80,000 (the original allocation)
Problem XIII
1. AA should report income from its subsidiary of P15,000 (P20,000 x .75) rather than
dividend income of P9,000.

2. A total of P5,000 (P20,000 x .25) should be assigned to the non-controlling interest in the
20x4 consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as
follows: Reported net income of AA P59,000
Less: Dividend income from KR (9,000)
Operating income of AA P50,000
Net income of KR 20,000
Consolidated net income P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to
the income reported by KR (P20,000). However, the dividend income from KR recorded
by AA must be excluded from consolidated net income.
Problem XIV
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in
retained earnings of the subsidiary subsequent to acquisition is not included in the
parent's retained earnings. Thus, this amount must be added to the total retained
earnings reported by the parent in arriving at consolidated retained earnings.
Problem XV: Consolidated balances after a mid-year acquisition)

Note: Investment account balance indicates the initial value method.
Consideration transferred ...................................... P526,000
Non-controlling interest fair value ......................... 300,000
FV of SHE - subsiary ................................................... P826,000
Less: Book value of DD (below) (765,000)
..............................
Fair value in excess of book value (positive) P 61,000
........
Excess assigned Annual Excess
based on fair value: Life Amortizations
Equipment .................................................... (30,000) 5 years P(6,000)
Goodwill (full) ............................................... P 91,000 indefinite -0-
Total .................................................................... P(6,000)
Amortization for 9 months ................................ P(4,500)
Acquisition-Date Subsidiary Book Value
Book value of Duncan, 1/1/x4 (CS + 1/1 RE) P740,000
...........................
Increase in book value-net income (dividends
were paid after acquisition) ................................................ P100,000
Time prior to purchase (3 months) ×¼ 25,000
............................................
Book value of DD, 4/1/x4 (acquisition date) P765,000
...........................

* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD).. …………………… P765,000
Adjustments to reflect fair value (undervaluation)(
30,000) FV of SHE of Subsidiary (DD) ...............................
P735,000
Multiplied by: NCI% ............................................. 40%
FV of NCI……………………………………………. P294,000
(Partial-Goodwill)
Consideration transferred ................................ P 526,000
Less: Book value of SHE – DD (P765,000 x 60%) 459,000
Allocated excess………………………………… P 67,000
(P30,000 x 60%)........................................... ( 18,000)
Goodwill - partial ............................................... P 85,000
1. Consolidated Income Statement:
Revenues (1) P825,000
Cost of goods sold (2) P405,000
Operating expenses (3) 214,500 619,500
Consolidated net income P
205,500
Noncontrolling interest in CNI (4) 28,200
Controlling interest in CNI P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition
subsidiary operating expenses) less nine month excess overvalued
equipment depreciation reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
2.
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair
value plus P4,500 nine months excess amortization)
Common Stock = P630,000 (P company balance
only) Buildings = P1,124,000 (add the two book
values) Dividends Paid = P80,000 (P company
balance only)

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Advanced Financial Accounting and Reporting (University of San Carlos)

Studocu is not sponsored or endorsed by any college or university

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

A summary or depreciation and amortization adjustments is as follows:

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Full-Goodwill/Fair Value Basis

December 31, 20x4 December 31, 20x5

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Alternative Solution (refer also to the worksheet)

Amortization Table: A summary or depreciation and amortization adjustments is as follows:

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CNI, Controlling Interest in Consolidated Net Income or Profit attributable to

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On subsequent to date of acquisition, consolidated retained earnings would be

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80% Partial Goodwill - Cost Model – First Year

4. Schedule of Determination and Allocation of Excess (Partial-goodwill)

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

A summary or depreciation and amortization adjustments is as follows:

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5. Consolidation Workpaper – 20x4 Year of Acquisition (Partial-goodwill)

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

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(E5) Non-controlling interest in Net Income of Subsidiary………… 9,360

Net income of subsidiary…………………….. P 60,000

6. Worksheet for Consolidated Financial Statements, December 31,

Statement of Retained Earnings

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80% Partial Goodwill - Cost Model – Second Year

20x5: Second Year after Acquisition

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6. Worksheet for Consolidated Financial Statements, December 31,

80% Full-Goodwill - Cost Model – First Year

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4. Schedule of Determination and Allocation of Excess (Full-goodwill)

A summary or depreciation and amortization adjustments is as follows:

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5. Consolidation Workpaper – 20x4 Year of Acquisition (Full-goodwill)

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

6. Worksheet for Consolidated Financial Statements, December 31,

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80% Full-Goodwill - Cost Model – Second Year

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20x5: Second Year after Acquisition

(E1) Investment in S Company………………………… 19,200

(E4) Retained earnings – P Company, 1/1/20x5

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(E5) Dividend income - P………. 38,400

(E6) Non-controlling interest in Net Income of Subsidiary………… 16,560

Net income of subsidiary…………………….. P 90,000

6. Worksheet for Consolidated Financial Statements, December 31,

Income Statement P Co S Co. Dr. Cr. Consolidated

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

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A summary or depreciation and amortization adjustments is as follows:

December 31, 20x4 December 31, 20x5

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