Problems for Discussion Only

Instruction: Please try to solve the following problems before you enter in the discussion room/you
watch the recorded video discussion for faster and better understanding of concepts. Thank you!

Problem 1
(Subsequent to Business Combination)

On January 1, 2020, Entity A acquired 70% of outstanding ordinary shares of Entity B at a price of
P210,000. On the same date, the net assets of Entity B is reported at P260,000. On January 1, 2020 Entity
A reported retained earnings of P2,000,000 while Entity B reported retained earnings of P200,000.

All the assets and liabilities of Entity B are fairly valued except machinery which is undervalued by P80,000
and inventory which is overvalued by P10,000. The said machinery has remaining useful life of four years
while 40% of the said inventory remained unsold at the end of 2020.

For the year ended December 31, 2020, Entity A reported net income of P1,000,000 and declared dividends
of P200,000 in its separate financial statements while Entity B reported net income of P150,000 and
declared dividends of P20,000 in its separate financial statements.

Entity A accounted its investment in Entity B using cost method in its separate financial statements.

1. What is the noncontrolling interest in net income for the year ended December 31, 2020?
2. What is the noncontrolling interest in net assets on December 31, 2020?
3. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2020?
4. What is the consolidated retained earnings on December 31, 2020?

Problem 2
(Intercompany Sale of Inventory)

On January 1, 2019, Entity A acquires 60% of outstanding ordinary shares of Entity B at a gain on bargain
purchase of P40,000. For the year ended December 31, 2020, Entity A and Entity B reported sales revenue
of P2,000,000 and P1,000,000 in their respective separate income statements. At the same year, Entity A
and Entity B reported cost of sales of P1,200,000 and P700,000 in their respective separate income
statements.

During 2019, Entity A sold inventory to Entity B at a selling price of P280,000 with gross profit rate of
40% based on cost. On the other hand, Entity B sold inventory to Entity A at a selling price of P400,000
with gross profit rate of 30% based on sales during 2020.

On December 31, 2019, ¼ of the goods coming from Entity A remained in Entity B’s inventory but all were
eventually sold to third persons during 2020. As of December 31, 2020, 2/5 of the goods coming from
Entity B were eventually sold to third persons.

For the year ended December 31, 2020, Entity A reported net income of P500,000 while Entity B reported
net income of P200,000 and distributed dividends of P50,000. Entity A accounted for its investment in
Entity B using cost method in its separate financial statements.
 1. What is the consolidated sales revenue for the year ended December 31, 2020?
2. What is the consolidated gross profit for the year ended December 31, 2020?
3. What is the non-controlling interest in net income for the year ended December 31, 2020?
4. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2020?

Problem 3
(Intercompany Sale of Land and Depreciable Asset )

On January 1, 2019, Entity A acquires 80% of outstanding ordinary shares of Entity B at a gain on bargain
purchase of P180,000. The following intercompany transactions occurred for between the two entities:

 On January 1, 2019, Entity B sold a land to Entity A with a cost of P1,000,000 at a selling price of
P1,100,000. The land was eventually sold by Entity A to third person during 2020.

 On January 1, 2019, Entity A sold a white machinery to Entity B with a cost of P200,000 and
accumulated depreciation of P40,000 at a selling price of P180,000. The machinery is already 4
years old at the date of sale. The residual value of white machinery is immaterial.

 On July 1, 2020, Entity B sold a black machinery to Entity A at with a cost of P270,000 and
accumulated depreciation of P180,000 at a selling price of P60,000. The machinery is already 6
years old at the date of sale. The residual value of black machinery is immaterial.

For the year ended December 31, 2020, Entity A reported net income of P800,000 while Entity B reported
net income of P500,000 and distributed dividends of P150,000. Entity A accounted for its inventory in
Entity B using cost method in its separate financial statements.

1. What is the consolidated depreciation expense of machinery for the year ended December 31, 2020?
2. What is the consolidated book value of machinery on December 31, 2020?
3. What is the noncontrolling interest in net income for the year ended December 31, 2020?
4. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2020?