t_ 7 . Crepe 6 retined eamings at December 31,2017 can be calculated as folows, groups ‘The group’ oon rat eine xing ne a East i espe le seow {BeTras0 MOOD, (am ‘Share of post-acquisition profits of S Inc. — i ett 3.08) 400 “The non-controlling interest at December 31,2017 is calculated as follows, CIs share of net assets at acquisition date [NCTs share of goodwill on combination Nctatacquistion-date fir value NEtSshar of post-acquisition profs 45%x30.000) nslidated Statement of Fancil Psion cs Date of Acie 97 pUSH-DOWN ACCOUNTING Inour example of P Company and § Company, the investment in sneha Cr mein Company vas specific assets and liabilities and goodwill was only recorded through working paper climination entries. Under push-down accounting, the allocations recorded in the Books of the subsidiary by means of adjusting entries, thereby affecting its separate financial statements. The adjustment of identifiable assets and liabilities ofthe acquired subsidiary and the recognition of goodwill are accompanied by a write-off ofthe subsidiary’s retained earnings. The balance is added to additional paid in capital. Push-down accounting does not affect consolidated financial statements. Infact, it simplifies the ‘consolidation process. Ifpush-down accounting were sed tothe example in Case 4on pag’ Tahry would be made by tne subsiiaryonits rakes nha 7S he lowing ‘This NClat December 31, 2017 can also be calculated directly as follows: ea 40.000 Nessa of net ase a Deceiber 31,2017 (58x 180,00) bulings am NETS oral onconbinton Epspmen ry Gobet po ‘Consolidated Statement of Financial Position Retained earnings — S Company 120,000 The consolidated financial stalement of financial position as of December 31,2017 isas ‘Additional pd in coptal 770,000 follows: rate statement of repared Consolidated Statement of Financial Position fot es erig teas actviee unten pevealenteeaee ates eras As of December 31, 2017 In consolidating the statement of financial positions of P Company and S Company on - December 1,017 after the push-down entries are made on $ Company's books, the Investment in $ Company account on P Company's books is eliminated against S — ___ Company's common stock and additional paid in capital as follows: Prope plant and equipment Gokbul bocombivton ¢t) Common sock Company 20000 Carentiees Additional paid in capital (P180,000 + P770,000) 950,000 Total sets Tesinentin 5 Compary 0,000 Share canital NCI 170,000 Shae pial Resin’ eamigs “Take note ofthe following: : + Push-down accounting revalues subsidiary aocounts directly on the books ofthe ‘inthe D & Aof Excess: schedule, subsidiary based on the adjustments shown in th ss $0 + Noallocation of excess (o adjust accounts) is required onthe consolidation working Paper. ‘Non-controlling interest Cure ibis ‘Non-current liabilitiespy REVERSEACQUISITION ae 5 unting purposes, areverse acquisition occurs. BERS 3 proves hal paler ace eid the seq ee any a is yess are aud (te legal subsidy or aurea fescue: : when aprvate frm wants o become a pub Regocsozuston ee ise cares Toozomplh is pb si ‘its shares to acquire an interest in a larger Pr) ‘company. 7 wil ar anode he privacy owned nm eg athe owe i oars than the original owners ofthe public firm, Fa a egal paretngurerbecase issued SOT eat ear ate firm isthe legal subsidiary acquire because ts equity Interests yey scquited. following illustration (based ciretly onthe example wsedin (IFRS 3) illustrates, en cs rrevese anasto Ase De following atementoffiencg postions of Private Company and Public Company prior to acquisition: Consolidated Scemen' of Finan Poston - Dae of Acqusion 99 Additonal information a. OnSeptember 30, 2017 Public Company issues 2.5 shares in exchange foreach ordinary shar of Private Company. Al of Private Company’ shareholders e ir shares. Therefore, Public Company issues in exchany forall 0 share of Private Company. Tar” Ss 190 shares exchenge bb. The fair value of each share of Private Company at September “ompany at September 30,2017 is P40 The quoted market price of Public Company's shares at that dates P16 per share. cc. The fairvalues of Public Companys identifiable assets and liabilities at September 30,2017 are the same as their book values, except thatthe fair value of Public ‘Company's non-current assets at September 30, 2017 is P1,500. Calculating the Fair Value of Consideration Transferred Asaresult of Public Company (legal parent, accounting acquiree) issuing 150 shares, Private Companys shareholders own 60% of the issued shares ofthe combined entity (150/250 issued shares). ‘The remaining 40% are owned by Public Company's shareholders (NCD) “The fair value ofthe consideration effectively transfered should be based on the most reliable measure. inthis example, the quoted market price of Public Company's shares ‘Statement of Fiaancal Position Ee provides a more reliable basis for measuring the consideration effectively transferred Anes _____hahos ent Ely than the estimated fair vale ofthe shares in Private Company. Therefore, the consideration Current assets P 500 Current liabilities P 0 is (P1,600), measured using the market price of Public Company's shares 100 shares. Non-current assets 1300 Non-curret liabilities ‘with afair value per share of P16. ‘Common stock 100 shares, (P!1 par) 100 ‘Additonal paid in capital » ‘Measuring Goodwill Retained earings » Toial assets 1800 Total liabilities and equity PLsOo Goodwill is measured as the excess ofthe fair value of the consideration effectively _— transferred (the group's interest in Public Company) over the net amount of Public Private Company (legal subsidiary, but for accounting, the acquirer) ‘Company's recognized identifiable assets and liabilities, as follows: Statement of Financial Position tid " serene et Consideration effectively transferred P1,600 aa Tiabilides and Equity Less fair value of Public Company's net identifiable assets: a - Current assets P 500 arent aac P 700 Current abilities P 60 NGS creatTasene 1500 Non-current assets 3,000 Non-current liabilities 1,100 Current liabilities: (300) Common stock (60shares.(Pl par) Non-curren liabilities (400) 130 ‘Additional paid in capital 0 Pom Retained earnings ro) Goodwill 3,700 Toval assets 3,700 Total liabilities and equity —— entities and equiy me| Chay _—_—_—— a fog Pas Consolidated Statement “The consolidated statement of financial stolons canpeny Public Company and Subsidiary Private Compat ‘Statement of Financial Position Sepumr0,2017 Current assets (P700 + P500) [on-current assets (P3,000 ¥P1,500) Goodwil Total assets of Financial Position 7 ninety afetbesinsconing, Lisbititiesand Equity Current liabilities (P600 + P300) ‘Non-current abilities (100 *P400) ‘oral labiliies ‘Stockholders’ Equity ‘Common stock, 150 sheres, Pl par P 10 ‘Additional paid in capital ua Retained earnings ate Controlling interest Y ‘Non-controling interest (NCI) 1,600 3600 6,000 otal iabiltes and equity ‘The following features of the consolidated statement of financial position should be noted: + Theconsolidated statement of financial positions in the name of Public Compay, the legal parent. + The consolidated equity accounts balances at date of combination are thatof Private Company only (legal subsidiary). + The APICiscomputedas follows: Total paid in capital of Private Company (P60 + PS40) Net shares issued (150 shares x Pl par) Apic + TheNClrepresens the renining shares of the originl Public Corapany, comput sno Common stock (P100 + P150) P 250 APIC [P200 + (P1600 x 60%) P10} 1,010 Retained earnings 300 Controting interest (P1, 100 x 60%) (660) ‘Adjustment ofnon-curent assets and goodwill (200+300)x 40%] _200 Total NCI Pi,600 onslideted Statement of Fnac Peston De Consolidated Statement of Financ easton jor 1, In stock acquisition resulting in a parent comp. sid nt company ~ subsidiary relationship, differences between current fair values and book values of the subsidiary's identifiable net assets on the date of acquisition are: a. Disregarded .__ Entered in the accounting records ofthe subsidiary 6 Account foin eprops ied ledger accounts inte parent company’s accounting records A. Provided ina working paper elimination 2, Consolidated financial statements are prepared when a parent-subsidiary ‘elationship exists, in recognition ofthe accounting principle or concept of a. Materiality be Entity c. Reliability d. Goingconcemn 3. Inacquisition of stock resulting ina parent-subsidiary relationships, the parent company’s Investment in Subsidiary Stock account balances: a, Allocated to individual asset and ibility accounts ina parent company journal entry. 2D. Eliminated with a working paper elimination forthe working paper. ¢. Displayed among noncurrentassets in the consolidated statement of financial position. 4. Used as a besis for adjusting the subsidiary’s asset and liability account ‘balances in the subsidiary's books to current fair values. 4. Working paper eliminations are entered in: a. Both the parent company’s and the subsidiary’s accountingrecords 6. (Neither the parent company’s nor the subsidiary's aocounting records ¢, “The parent company’s accounting records only 4. Thesubsidiary’s accounting records onlyit ‘stock the of acquisition of stock 5. On queso he subsidiary =identilable ME (77 eluded na working ptt ra ability accounts ofthe subs xy Ree he applicable aset and abit accounts of the parent § ASsouniedforinsome other manner 6. Consolidated financial staiements are intended primarily forthe use of: a. Stockholders of the parent company b, Taxingauthotites _# Management of the parent company 4. Creditors ofthe parent company 7. Hows thenon-controlling interest displayed in aconsolidated statement of fnanciay position? a. Asaseparate item between the liabilities and stockholders’ equity deduction from goodwill ifany 2 Bymeans ofa note to consolidated financial statements 4. Asasepatate item in the stockholders’ equity-section asubsi cash, when thefairvalue ofits net eases was lower than of acquisition. A consolidated Statement of financial position prepared immediately after the acquisition would include this difference in: & Goodwill b, Retainedeamings ¢. Income statement 4. Equipment 9. Palawan Company acquired a subsidiary for cash on January 2,2017. The price paid was greater than the fur value ofthe subsidiary’snet assets. The subsidiary ‘owned inventory witha fair value greater than its cost. A consolidated statement of financial position prepared immediately after the combination would: Include part of the excess as cost of goods sold 6 Include at least some oftheexcessas part of inventory © Include all ofthe excess as part of a Notindudeteerces eeer consolidated Statement of Final Poston Dat of equsion 103 10. Pasig Corporation acquired subsidiary in combination accounted for asa purchase. ‘The fair market valuc of the identifiable net assets acquired exceeds the price paid. Under International Financial Reporting Standard IFRS 3 the difference should be recognized as: Income from acquisition A reduction ofthe amounts to non-current assets Goodwill Pro-rated reduction of the amounts assigned toa assets AL, The stockholders’ equity section of consolidated statement of financial position fora parent and its patally owned subsidiary consists of ‘The parent’ stockholders’ equity accounts The parent's and the subsidiary’ stockholders’ equity accounts “The parent's equity accounts and the non-controling interest ‘The parent's equity accoums, the subsidiary's equity accounts and the non- controlling interest eAge 12, The retained eamings that appears on the consolidated statement of financial ion of a parent company and its 60% owned subsidiary is a. Theparent company’s retained earings plus 100% ofthe subsidiary’ retained ccarings b. Theparent company’s retained earings plus 60% of the subsidiary’s retained camings. 2 Theparent company's retained eamings 4. Pooledzetained earingste, See, _ 10s date Sttment of Fan — WT 14-3: Onthe day of aquisition Pll Company and Mall Coxnpany had the folowing ed all of the outstandis sssetsund labile deere + On July 1.2017, Sony Company purchas ading stock, _ uss oun. Soest et emeattasngy | | Se Sat financial position showed net assets ofP2,500,000- Ae Company's ssa, _ Book value "Fir valve Book Value Fair Vole nancies ad fai market values iffeent fom their book values, flog Current ascts Pogo ~Piaopo0——«POgDD——~PICNO0 a Plat assets (met) 20000 34000013000 180000 — Book Value Fair Vala —~ Libis 09900 aaa) (50900) ___ 0.00) Property and equipment - net Sea OA Pall Company paid P140,000in cash for 80% of the outstanding tock of Mall Other assets ery oy ‘Company. Inthe consolidated statement of financial position at acquisition, Longstermaebe eo plant assets shouldbe shown at what amount? nati ifany, will be sh ‘Asaresultofthe combination above, what amount, if any, will be shown ay a P350,000 ‘goodwill in the July 1, 2017 consolidated statement of financial position os ‘390,000 ‘Sony Company and its wholly ‘owned subsidiary, Aiwa Company? ‘c. P400,000 4 520,000 oP 0 . 4 P600,000 14-4: On December 31,2017, Ping Company Inc. paid P495,000 cash for all the < P800,000 outstanding stock of Sing Company. Sing's asses and liabilities om that day 4. P700,000 were as follows: oa 5 a = : ian 14.2: Ontheday of acquisition, Sub Inc, had the followingassets and liabilities: a Pony Property and equipment (net of accumulated depreciation Book Value Fair Value P1000) " 3000 ‘Current assets| 109.000 100,000 Liabilities Plant assets (0et) 720,000 260,000 ; —_ - baie (40,000) (40,000) ‘Onthe day ofbusiness conibination the fair value ofthe inventory was P125,000 and the fair value of the property and equipment (net) was P385,000. The Pub Company paid P450,000 for 90% of the outstanding voting stock of Sub. ‘The goodwill in the consolidated statement of financial position at acquisitions P180,000 P130,000 P170,000 P220,000 ADE ‘goodwill (income from acquisition) resulting from this aequistion amounts to; a. (P5,000) . b. P85,000 c. P40,000 4. P 5,000 Be _—_eeeeeeeseee ee —— : 1,2017,Pop Company wequred 80% of the outstanding 168 One ineash Relevant information for Sap getty emt i 106 Conlideted Statement of Finan Poston Date of Aequsion Sap Company for P3$0,000 in isas follows: ty 14-6, Continued common ck, P00 per P2049) Immetiately arth combination, th ‘ 7 onthe amounts to be reported for inventor feated eam "e.09 and plantnd equipment inthe consolidated statement ancl postions: — ta ical Vis Fah a P490,000 Tr 000 for inventory and P920,000 for plant and equipment. — Pao Rea & 360,00 for inventory and 940000 for plant and euipment ines ang "one 6 P480.00 or inventory and P30 000 for plant and eupent 1 ase 000 for inventory and PS00,000 for plant and equipment. 35,000 30,000 a ! 14-7; OnDecember1,2013,Sisa Company held the following asses: ‘Mortgage payablo ‘The consolidated stalement of financial position at January 1, 2017 shoul shy, ‘Current assets the amount of goodwill. a P107,500 eae b. P127,500 TT @ P 97,500 On this date Plo Company purchased all of Sisa Company's common stock ap 0 for P440,000. ce eeeneane ees 14-6: Panay Company purchased 100 percent of the common stock of Sulu Compan, ‘What amounts will Sisa's building and land be reported in the consolidated on January 1, 2017 for P400,000. Selected accounts from Panay Companys ‘statement of financial position prepared at the date of combination? ‘statement of financial position atthe date of combination areas follows: , Building Land Inventory 360,000, ge P180,000 90,000 Plant and equipment (net) $00,000 b P150,000 70,000 Common stock 420,000 c. — P160,000 ‘90,000 $0,000 d PI66,667 ~——P83,333 Selected account from the statement of financial position of Sulu Companyat 14-8: On October 1,2017, Par Company acquired 80% of the outstanding common acquisition areas follows: stock of Son Company for P480,000. The working paper elimination entry —- for Par Company and subsidiary on October 1, 2017 was as follows: Inventory: P120,000 lant and equipment (net) 440,000 Cammon stock Son Company 100,000 ‘Common stock 175,000 APIC Son Company {120,000 225,000 ‘Retained earnings - Son Company 180,000 01000 ae 50,000 pan Goodwill anne of purchase, Sulu Comy entory i “vestment in Son Compary ; pany inv ‘and plant and equipment ‘Non-controlling interest z had fair values of P130,000 and P420,000, respectively. ——————————— |tF Pw Su 148, Continued const stevie ae fAenasition 109 interests recorded at estimated fair value. What ———— {Pita Company acquires a contiolling interec een a dterredngtn,, + Meine eerie ong ano ‘Sutement of financial position prepared at of acquisition? "lida the date of acquisition is P125 000 fans “sPital stock of Soda Company at Goodell yznon i hare of Soda Company is P120 per share. In the 2. PI30,000 P120,000 consolidated statecentaf fran sa et a : & Prado? 90.000 controling interest wouldshow abner Se ofseatiition. now P1500 P 90,000 @ P120,000 + P1S0,000 a 40,000 35,000 ; 41,2017, Pepe Company borrowed P160,000 to purchase Os tas: py coding common stock of Sara Company. Ths loa, cay P= heen sw annual rate is payable in 10 annual installments beginning jot ae 018. Summarized portions of Pepe Company's and Sara Company's stten’ of financial position as of June 30, 2017, areas follows: seme 14-12: On December 1; 2017, Pepsi Company purchased an 80 percent interest in ‘Sarsi Company. On that date, the book values and fair values of Sersi Company's Pape Company Sara Company assets and liabilities were the same, A consolidated statement of financial position Joluste 88000800 0G) prepared on that date is as follows: Tou liabilities 250,000 185,00 Total stockholders’ equity 530,000 145,000 aoe _—_eaae$ser“‘“*—w—_w_ Toomer Caren eet ail ‘ 1P200,000 The book values of Sara Company’ asses and ilies approximated ma | Cet eee ree $00,000 values except for accounts payable, which had a fair value that was P: ae 250,000, ‘more than the book value. Any’ dierceisatbuabies pn Total 9s000 ‘Theamountsto pe recorded on te consol dated statement of financial poste Bee at July 1,2017, for total assets and total liabilities are: Liabiites and Stockholders’ Equity Curest liabilities isoa0o as Es Sr s R mon 200,000 b. PI,100,000 P565,000 ined earnin $00,000 ¢ Bisa — baakrs0 Reine carmings & PI,160,000 P570,000 ‘Total Pas0.900 14-10: On December 31, 2017, Palo Company pai A outstanding conon sock of Sota Compas The emarng ‘Bechet ‘The price paid by Pepsi Company for its 80 percent investment in Soda ‘stockholder who was unwilling to sell the stock, Sota Company's net assets Company is: hada book value of 50,000 anda i market value of P600,000 when thenon company I Soa Company uses push-down accountg, a 700,000 2 P8500 ported at: 6. P250,000 4 P $000 e P850,000 é Fae a — P600,000 CNWO Se a : ired most of the outstanding common et Onda 12017 en, bee wring pee clini ong of Sota Company ot snidated sateento financial position of Paco ndits subsidiary are shown below: tle ty Ste Company 70700 BO Steno Sat Coma 247.005 > re ae pene 183 “ Investment in Sota Company 69, 955 we “Assuming NClis measured at fir value, what isthe amount of goodwill 0 by repored in consolidated statement of financial position on June 1,20177 a. P20,000 b PI9,570 c. P25,000 a PI0,000 Consider the following information for questions 14-14 to 14.20 below: ‘Statement of financial position for Puro Corporation and Sato Company on December 31, 2017, are given below: Puro Sato Corporation _" Company Cash and cash equivalents P 70,000 P 90,000 Inventory 100,000 60,000 Property and equipment (net) 500,000 250,000 Investment ja Sato Company / 260,000 Total nasets P930,000 Current liabilities 180,000 P 60,000 Longeterm liabilities 200,000 90,000 Common stock 300,000 100,000 Retained earnings 250,000 150,000 otal linbilivies and stockhol 930,000 400,000 nana Penton Date of pasion mt Puro Corporation purchased 80 percent ownership of Sato Comy December 31,2017, for P260,00.On that date, Sato Company's Proper ‘and equipment hada fair value of PS0,000 more than the book value shown, while its long-term liabilities had a market value of P150,000. All other book values approximated fait values. In the consolidated statement of financial positionon December 31, 2017 What amount of total property and equipment will be reported? @ 500,000 ' &. P750,000 e. P790,000 4. P800,000 14-15: What amount of goodwill will be reported? aP oO b. P85,000 c. P25,000 d. P60,000 14-16: What amount of consolidated retained earnings will be reported? a, P250,000 6. P280,000 c. P370,000 4. P400,000 14-17: Whatamount of total stockholders’ equity will be reported? a. PSS0,000 5. 615,000 ¢. 750,000 d. P 800,00 14-18: What amount of non-controlling interest will be reported? a. P 65,000 4. P 60,000 cc PL10,000 d. P160,000 eeeEE wa 14-19: “ypmtamountof toa abies wil reports” 240,000 & 290,000 c P590,000 a P530,000 14-20: What amount of total assets will be a. 1,205,000 & P1,070,000 ce. PL,145,000 @. PL,140,000 reported? ‘orporation is in Hoya Company on Ja 1: Pacman C yurchased a 10% interest in He a 1 Pad so ah available for sae investment fora price oF 60,000, ary poration purchased000 additional 2, 2017, Pacman Corporation P nal sha nie Company ‘joan existing shareholders for B630,000. The purch = raised Pacman's interest t Hoya Company had the following statement Fr ncial position jut pri to Pacman's second purchase: ~ ‘Liabilities and Equi —_— es Ee ‘Current assets 7530000 Liabilities PI30000 Buildings (net) "280,000 Common stock, P20 par 20000 Equipment (net) __220000__ Retained earings _ 0m oval assets Ps10000_ Total en 810000 Onthe date ofthe second racman determines that Hoya's equipment was ty P100,000 and hada 5-year remaining life. Al other book Hae imate air values. Any remaining excess is attributed to goodwill, Whats the estimated fur value of the 20% non-controling interest on January 2, 2017? a. 180,000 b. P188,750 ¢. P172,000 4. P168,000 14-22: Using the data in 14-21, what is the amount of goodwill to be reported in consolidated statement of financial position on J 60.000 posit january 2, 2017? bP 53,750 120,000 4 P110,000 | Conslideed Stotement of Fan a ere Autti 13 tems 14-23 1014-27 are based on the following d wing data: Primo Corporation acquired majority consol ofthe stock pf Sonia on Jan 2017 an scons iene of inca sb ws pep Fail ace follow Corporation, Soni Company, ane the consolidated exity prim Corprton ad Seals ange ee Saceary 22017 sowo him Sonia Consolidated Accounts Corporation Company "Entity ee rinse ¥ a oF won ec ee ea ete tren ee ell = um eae ee 0 ‘Goodwill . a Dw aoe os ji) using the equity method as described in PAS 28 Se 129 Cost Method “The cost method is used when the acquizer (Parent) owns directly or indirectly more than balfof the voting power ofthe acquire (Subsidiary), thereby exctesing COstrok (AS 27). OS EDSERY CETEIER ‘Under this method. the Jnvestment in Subsidiary account is retained at its original cost-of- acquisition balance. income on the investment is limited to dividends received from the subsidiary. This method is usually used in practice, therctore detailed explanation trill be presented in this chapter involving the preparation of consolidated statements Subsequent to acquisition. Fair Value Method IRS 10,1FRS 12 and LAS 27 require a parent thats an investment entity to measure its investments in particular subsidiaries at far value through profit ot loss in accordance with IFRS 9 (or [AS 39) instead of consolidating those subsidiaries in its consolidated ‘and separate financial statements. An investment entity is defined as an entity that: 48) Obtains finds from one or mor’ investors for the purpose of providing those Jnyestors with investment management services; 6) Commits to its investors that its business purpose isto invest funds solely for retums from capital appreciation, investment income or both; and ©) Measures and evaluates the performance of substantially al ofits investments ona fair value basis. = = A parent ofan investment entity has o consolidate al entiiesthat itoontrots. Example Entity Xia vehicle manufacturer isthe parent company of investment entity B. B has holdings in various companies that are not active inthe automobile sector. While X is ‘not an investment entity pursuant to IRS 10, Bis classed as an investment entity pursuant toIFRS 10. For purposes ofthis example, it should be assumed that both X and B must prepare consolidated financial statements, Analysis: Since Bis an investment entity it must report companies in which itholds a controllinwinterestat fair value through profit oross. Conversely, X must fully consolidate allitssubsidiarics, including B. ‘| Equity Method 5 ‘The equity method is used when the investor/acquirer owns 20% or more (less than 50%) ofthe voting power of theinvestee/acquiree; thereby exercising significant influence over the operations ofthe investee. This method is applied to investments in associates, and joint ventures. This i discussed in Chapter 18.EO ee ‘CONSOLIDATION: Value $$ Shrn, SUBSIDIARY AS ne WHOLLY OWNED: s TION |RAFTERACQUIS! ao 1017, Pete Corporation sequires al Se Semmmon stag. 2.2017 Sake Comper RS T200.00 of coy or P300 me 500,000. Analysis ofthe aequisign ™% for reine eae be FIRSTYE! ‘Sake Company stock outstandi ; ee follows: ___— P00 005 Freep arimerest woted 100%)” onan bes Poumon tock 100,000 300.000 Retained ara Fs Excess ——— ee ee g results ofits: . san ak 7 SC opens eoMRETEHS FISD = P 30,000 30,000 ‘Netincom Di ideads paid Parent Company Entries Pete Corporation would make the following entries: Using the cost method, 300,000 sin 2 beset in Sake Company en To record the purchase of Sake Company stock 30,000 DC and nome 30,000 ‘To record 100% uf dividend from Sake Company: ‘Afler posting the above joumal entxies, Pete Corporation's Investment in Sake Compary and Dividend Income accounts will have a balance of: Investment in Sake Company 300,000 Dividend income 30,000 [CO?w=—_i Lllti(‘i‘OCSCiSY conolete Finan Stems Su Working Paper Elimination Entries ‘When the acquisition of asubsdiry sat book value, the al i ; is Sok vale, the following working paper Climination procedres are used before te consolidation ofthe nana Sateen (1) Elmina Dividend Income astount agains te Dividend Declared the (2) Eliminate hs pre's sty inthe subir’ sockolder esta date Using the above procedures, the working paper elimination entries for Pete C: ration fed subsidiary on December31, 2017 one yea alr acausvon ate as follows (9) Dividend Income Batol Dividends declared ~ Sake Company 30,000 1 eliminate intercompany dividends 12) Common stock ~ Sake Company 200,000 Retained earnings ~ Sake Company 100,000 Investment in Sake Company 300,000 {To eliminate investment and equity accounts at date of acquisition Consolidation Working Paper—First Year A number of different working paper formats for preparing consolidated financial statements are used in practice. One of the most widely used format is the three~ section working paper, consisting of one section for each three basic financial statements: the Income Statement, the Statement of Retained Eamings, and the Statement of Financial Position (FP). Other format such as the trial Balance approach format may also be used. This format has the following columns: Trial Balances ofthe parent and the subsidiary, eliminations and adjustments, Statement of CI, NCI (if any), Controlling Retained Earnings, and the Consolidated Statement of Financial Position. ‘The three-section consolidation working paper will be used through out the chapter (unless stated). ‘The consolidation working paper for Pete Corporation and subsidiary for the year ended December 31, 2017 is presented in Illustration 15-1 onthe next page.satin 16 f Fete Coparatin wad Sabir } ‘Workag Por for Consldated Flom { Year Ended Decenier 3 aaa es eee { Dora ose L soe | (gets fas | ae] Talent apes | eton0 | noun (cared frward {170,000 | 50,000 | | Ream eounp, ney | | Sas ‘ee Caponica | 300000 | Sone | Frepaenms | tomato | 2 100,000 bm soe 0.00 130910 teal | #70a00 | isto 40000 re dc | | | ee Coerion 0000 | com ste Comasy | 30.00 (30000 Real ining, Deen 31 | — Cie owe 00 | 124000 Suxmen of | | os 210000 | 5.000 285.008 ‘ec ecb rso00 | Soave Iason inventory swt.a00 | 38.000 sap Brera cavemen ow) | sagn0 | a36o0 uiom iment omeay | Sano | @) 300.00 i oo | 0000 | ; oa a 1210900 | 520000 se rte 100,090 | 109,000 | | 200,000 a 201000 | 0.00 | Suv.oo Pee Corpeaion 50, Sake Conary } soe | $00.00 7 200000 | ‘Retained earaing, ftom above 419,000 | 120,000 | Total abilities and equity | eeniy [210090 | 2000 | (2) 200,000, 330.000, 330,000 Working Paper Relationships The followingaspets ofthe working pape f Pete Corporation and Sabsiiny shoo es 1 133 consolidated financial statements of nphasized; ‘The wo elimination erivies have been eneredin the working paper and the mwas totaled across and down io complete the working paper Each of the first wo sections of the working paper telescopes” ino the section bbelow inallogial progression, As Patol tral acco ‘isclosed to retained carnings and reflected in i the laement of Hancial poston, therein eangsiseamied rand Similalyintheconsoidatn wo tothe statement of final postion Using te louble-cntry bookkeeping, tol debits must equal total credits forany ination enry and for the working paper asa whole. The totals ofall the very boitom of the statement of financial position section are equal because the cumulative balances from the two upper sections ae eatied forward tothe satement of financial position section, Elimination (2) deals with the intercompany investment and subsidiary equity accounts on the dave of acquisition. This accounting technique is necessary bbocause the parent's Investment in Sake Company account is maintained at the cost ofthe original investment under the cost method. ‘The consolidated Cl and consolidated retained earings inthe working paper may be verified as follows, to assure their accuracy: Pete Corporation Ct Pi70000 Sake Company Ct 59.000 Dividend income (20.000) Consolidated C1 Consolidated Retained Earnings: Retained of Pete Corporation, December 31 ‘Ada: Pete's share of net increase in Sake's retained earings (P50,000 ~P30,000) x 100%] Consolidated retained earnings CONSOLIDATED FINANCIAL STATEMENTS. The consolidated statement of comprehensive income and retained earings, and statement of financial postion of Pete Corporation and Subsidiary fr the year ended December 31,2017, are presented on thenext page. ‘The amountsof the consolidated. al statements ere taken from the consolidated column of the consolidation working Paper (Illustration 15-1).corporation and Subsiiary Pet toyed Statement of Comprehensive Incomes 17 od Retained Faraings Po Set apa rasa 4 meets “ae Sora pons ea Src Consolidated CL Retained earings, January I~ Pete Corporation Teal Dividends paid - Pete Corporation Dee.31 a Consolidated retained earnings, ete Corporation and Subsidiary i ‘Consolidated Statement of Fi December 31,2017 Assets Current assets P 285000 Cath 2000 fecouns receivable Ey To cuentas : seson0 Proper ond equipment (net) saan) Total assets Libis and Stockholders Equity iabautes 5 ‘Accounts payable -P 200000 Bonds Payable 3onq0 Tal ibis Son.000 Stockholders” Equity Common stock so.000 Reuined earings ~ 439000 _930000 ‘Total ibliies and stockboleis’ equity 1,430,000 consoled Finance Steen Suse — a FAceintion Bs SECOND AND SUBSEQUENT YRARS AFTER ACQUISITION “pe copeolation procedures obese thereafter are basicaly the same those wed eng oe eR din periods ‘each year’s consolidation procedures | ‘as if there hag fist yea. n. essence, re had never Goch penn Consiton 9984 einige — ‘orporation an Font a Fete Corporation and Sake Company. On Decenber Saati Ws Cenean reported ence oP75.000 an plddcsieBagage eee CO Parent Company Entries Pete Corporation wl only record the divi following entry on Decerber31, 2018, mi Teewed from Sake Company bythe cash Dividend income 00 0 To record dividends received frm Soke (100%) a (On December 31, 2018, the balances ofthe Investment in « Dividend Income account are: "stment in Sake Company account and “evesiet in Sake Company torial aay Foo Dividerd income 7 Stora con) ra Working Paper Elimination Entries ‘The two elimination entries tobe presented in the working paper areas follows: {) Dividend income 40,000 Dividends declared — Sake Company 40,000 To eliminate intercompany dividends Q) Common stock ~ Sake Company 200,000 Retained earnings ~ Sake Company 100,000 Investment in Sake Company To eliminate investment and subsidiary’s Equity accounts at date of acquisition. 300,000 ‘Take note that after posting the above elimination entries inthe working paper, the Retained Earnings account of Sake Company isnot fully eliminated. The difference ‘of P20,000 represents Pete Corporation's share in the undistributed eamings of Sake Company in prior years [(P50,000— P30,000) x 100%]. This is because the earnings ofthe subsidiary under the cost method are nof recorded by the parent company. w¥t =——_ |26 ee a i Second year. After posting the elimination, ion Working Paper Scoot aper, the Work PAPET aS compe Eid EO a daria pedscusedinslaon vith igge shown below All the wor town qe ine second year as Well: 132. a ad Ses at Steels sat Ganon Finan ering Fae ar, 3018 Sod Yat Fea] Se = ption | Coupon [Gat “Terai i : | Some .a900 | 300.000 1 a «soa | 22020 4, soono = “al reverse o,000 | 300,000 ea van.oo0 | 14,000 Ma cat et 90m | “Seco st Sher eens |__so,ooe | _4s.oc | 13565 mcs und gece; [200000 | 225,000 [ae cae ev 20m000 | 75,000 | Casa mann of Rie aris Noe ming, Jy "eo Copericn 430000 09 Bie canes 120,900 | (2) 100,000 am cain shove aev,ooo | ‘75000 | rg ‘30,000 | 195000 6550 Diets ees ae taporscn «0,000 soon Ea Campany 0,900 40,000 tind caning, December 31 7 Crd ares srago0_| 155,000 Stone of PP Cash ” 265,000 | 85,000 350,000 ‘sw etl iszauo | $0000 bom isrenary {ae.ave | 90:00 | Dom Hip ia eqipnest cc | 473,000 | 30,000 Tsai Invent Ske Company | 300,000 (0) 300,000 Tal ave iara000 | $55.000 Lease 100.000 | 100,000 nat au.a00 | 100,000 Joost | sonsoo Soosat 2aea0o | (2) 200,000 s7qo00 | 185:000 | axs00 Tat ates ed euty [1 oS ewvty [sau |_sssana | __saoooo | -_ 340.000 [0% i te, Whenaaubsiiarispartally owned Misbs ally modited Som bnscaarerncomea: tesosniain ‘controlling interest (NCI). ‘carlierto include recognition ofmon- FIRST YEAR AFTER ACQUISITION (of Sake Company forP240,000. Alloa data nc rca ee she Seong eh Aleta ee Fae book valuc of interest acquired: 228 Faso F sh000 Sm itngr Stony | real = a ea tmuiad megan Book value Prana as ra ae Pete Corporation would recoid its investment in Sake Company stock, and the receipt of dividends from Sake Company as follows: an Jan. 2 Investment in Sake Company 240,000 Cash 240,000 To record purchase of Sake Company stock Dec, 31 Cash 24,000 Dividend income 24,000 TT record share in dividends patd by Sake (P30,000 x 80%) After posting the above entries for 2017 under the cost method of accounting, the ‘balance ofthe Investment in Sake Company and Dividend income accounts are P240,000 ‘and P24,000, respectively,sin imination Entries Paper Elimination _— ai ec weti tepreis sain Se a aS Tre clinton controling Imerestin Comprehensive yee rezogniin ofthe NCL ane No eliminaion entries on December 31,2917 Pe reas follows " 24000 ut) Dividend income (809) +000 ner 20%) p I and declared Ste Como ro imate nercompary 7 mt ini Pret Pe 30,009 4 —Sote Compa 200,000 1 orined earings ~ Se COMPO 700,000 “encement Sake COMP sone imarcompany tesa an ey aos Pm im ae of asuion and textes minor rear ner ses of sia. 240,009 60.000 10,000 G) NCIin Cl of subsidiary 2 ONG 10,000 To recognize NCI in subsidiary’s net income forthe year 2013 (P50,000 x 20%) Consolidation Working Paper ~ First Year ‘The working paper for consolidated statements for Pete Corporation and partially owned subsidiary for the year ended December 31,2017, is shown on the next page (Illustration 15.3). The following should be noted in the working paper. Although only 80% of Sake Company stock is owned by Pete Corporation, 100% ofssales, cost of goods sold and operating expenses are carried to the consolidated column. This is because the financial statements are considered to be those oft consolidated entity. This approach requires that the NCI in CI of subsidiary of P10,000 be subtracted to arrive at the consolidated net income attributable to parent of P190,000. Elimination entry (2 eliminates the investment account balance at its acquistoe cost (P240,000) This results tothe elimination of the equity accounts of Sake Gampany and the recognition of the NCI of P60,000. limination entry (1) eliminate the inter ivi af die emit einescompany dividends and NCI share limination entry (3) recognizes the NCI in Cl of subsidiary for year 2017. concider 153 seer Soeporaton and Subsidiary ing Paper for Co dati Finan tomers Sabu Dee of pation 39 we Beer enn — ‘iva income 24,000 | pipe xe Soaree ' cos pot sl Treo | see] Sera expenses 30,000 am | ei ines raat costs and expenses eeaneliated income Rawat Nida awe sonnet of Retained Ears ‘Rcd exnigs Jay Puc Corporation Soke Company ‘cin above Toul ivideods dea "pete Corporation Sate Company ein eamings, Deeb 31 se. Statement of FP Cast ‘Recounts reeivable Inventory 240.00 | 10,000 50.000 300,000 6,000 404,900 | | 100,000 \ | sso | “SS | 64.000 150.000 | 30,000 > to.000 | “19.000 190,000 40,000) | | 300.000 £2) 100,000 \ 180,000 “480,000 60,000 ‘Accounts payable Bonds payable Common stock "Pte Corporation Sake Company Retained eaags fom above Nei 404,000 200,000 120,000 “Toad libies and equity paeed 264000 | 75.000 7si00 | soto. | roo.000 | 78000. | 528,000 | 320;000 |_ 220.000 | | 1,204,000 | 520,000 100,000 | 100,000. | 200,000 | 100,000 500,900 30,000 420,00 339,000 125,000, 175,000 145,000,eee) xc ean be verified by the fol, the working paper COR 7 HE Pog } 5. ‘The NCL of P64,000 in i comput aor SC pay cry oe } Keres ermine. 2017 r ee 2830) _ 20499 Dien Pye, 1279172017 -S COMPRES E2200 ) Na a ezDe- P09 ————— .d Cl of P190,000 in the working, a san be prove 6 The consolidates Paper can De Proven by the i seliing op Pi Coro S368) ieee C8 sssrtecne = fed forward to the consolidated retained earnings is Clattribtiahy, ‘The Clear to parent (P190,000 — P10,000). fP420,000 may a0 be Verified bye 7, The consolidated retained earnings icwnyeomptaios Fe Company reained ering, DE ee Cary er nrese 10 Sake' ruts Pee at 30,000 730,000) 80%) 16,000 ed earings an) Consolidated ret CONSOLIDATED FINANCIALSTATEMENTS “a ‘ned comprehensive income and retained earnings, ang ‘ecu stem ete ae Cyan Sc Cy forthe year ended December 31, 20] 7 are shown below. amounts are taken from the consolidated column inthe working paper in Ilustration 15-3, ete Corporation and Subsidiary i Consolidated Statement of Cand Retained Earnings Year banded December 31,2017 Sales Cost and expenses: ost of goods sold 285,000 Gperating expenses 70,000 Other expenses 55,000 Consolidsted CL NCH inCl of subsidiary ‘Autribuble to parent company Retained earings a the beginning of year ~ Pet i Dividends pad et Corporauon ee CovPoraton Consolidated retained earings, December 31, 2017 fr clot ramen Sveren a eto Gh Corporation and Subiary Fee oa ied Statement ot Fase Peon Sonetber 31,2017 Juuas ee Bient esses ret P 339,000, Cea Roseivable nn try oo tort Curent Ase isi 00 Property and Equipment (nes) ‘rota assets Liabilities and Stopkholders' Equity Liabilities ‘Accounts Payable Bonds Payable ‘Total Liabilities ‘Stockholders? Equity Cnmon Stock psonpan a ings <9 Tor conzoling interest ad Fe soling ere 7) ona 1,484,000 les andequity CONSOLIDATION: PARTIALLY OWNED SUBSIDIARY ~ Acquisition at Other Than Book Value Insome cases, the consideration given ofthe parents not equalto the book value of the interest acquired from the subsidiary. As discussed in Chapter 15, the excess between the consideration given and the book value of the interest acquired must be allocated to the specific assets and liabilities ofthe subsidiary. This allocation must be made inthe consolidation paper each time consolidated statements are prepared. In addition, ifthe allocation relates to assets subject to depreciation or amortization, appropriate entries, rust be made in the working paper for the depreciation or amortization to reduce consolidated net income accordingly. ‘The following elimination procedures may be used to eliminate inter-compeny transactions ‘when the investment costis not equal to the book value of the interest acquired: (1). Fliminate intercompany dividends and recognize NCI share of subsidiary’s dividends declared. ‘Total liabi_ hy 142 - of acquisition aga 7 4 ~ . ns oh ben win oe No Ag cand Pract Sera: Sgt of 3 (2) Elimisate OC and liabilities of the subsidiary 1h. 4) ™™ — Z — account and in te speci we digcussed in Chapter 15, ly ste fir your mimes afer the } o ‘pe clit er pn corte th secon sogumans {afer sequithon, Sake Company repora the followin: oy Amerie sige es, Eémprehenive income = items i ubsidiary to NCL Dividends paid ae 5) Assignincome : FIRST YEARAFTER' COMBINATION - 2017 Parent Company Entries ‘ se, assume tat Pete Corporation purchay, ; { sng te dain oe Copy on fawn 2201 fo PO md Dring 2017. ander the cont method, Pete Corpration erste following ee on of the comma ‘the combination, i Pf Sake Coy {ks books: at onthe dle of viltucs except forthe following: -°™ urine Puket values equal oer book oes el Jan 2 Ivxmet nate Company 00.000 _. ——_—_—_- (Under) Over. = " 300,000 Book Value Fair value valuation — To record purchase of Sake Company stock amie P 60,000 P 65,000 7 $,000) Dee 31 Cash ; ca ee ae ee mn nO 425,000_P(65,000) Fanta Bon ee Pom Sete Compeny ‘On December'31,2017, after posting the above entries, Pete Corporation's Investment from the above ownership situation isas follo PrSake Company and DWvidend Income accouts wotld show elancevaf P300,000 Parent Price NCI at FV ‘and P24,000 respectively. Total (80%) (20%) Fair value of subsidiary 375,000 75,000, Amortization of Allocated Excess Less book value of net assets acquired: _ . £55 bo vamstock=S Company 200,000 ‘Theamortizaton ofthe allocated excess not recordedin the books ofthe parent The Retained earnings - S Company amortization is only a working paper entry computed as follow’ Total 300,000 300,000 abstain atten tte Interest acquired 80% 20% “located — anortation Book value —_————— rer 20132014 10 2008 Excess 75,000 Inventory wo OR Allocations (adjustments) Plant and equipment ‘ao P6900 Inventory : PC 5,000) Goodwill 40,000 Property and equipment (60,000) ae Total (65,000) Goodwill . , = P 10,000 ‘Note that the allocated excess to inventory is totally amortized at the end of the first year after acquisition. Because the inventory was sold during 2017, thus itis nolonger held by Sake Company. Therefore no amortization is needed in the working paper in allocated excess to plant and equipment is amortized over its ‘Goodwill is not amortized but subject to impairment. All the inventory on January 2, 2017 to which the diffe aE Id during 20 7etereore none lef inte ending rupert an equipm ; herefo iginventory. The} ‘and equipment havet future periods. Th ‘emaning lie of 10 years from te date of acquisition, and sagt line method remaining life of 10 yeas. i| o { 1 RF mune -~ fear Cast quent to Date of A Paper Elimination Entries - First Subnet to Date of deuiion 4s } re vosngrprlinsoneni fo Pee Cosson sa Sion Consolidation Working Paper— First Year { follows: * ‘The working paper for consolidated fin gro areas cuom a ei can te hansen fo Bete Corporation and 4 w 7 aoc owing the ivectiminton ents, donno ee oe December 3, 2017 } ner js | |= Sake Company 30,0 ‘The following are the features of « pet teary dnd canny 00 vnieen ‘ "the working paper forthe second year afer acquisition: ¥ yidends (P30,000 x. L ion entr sliminates i Ines share of dividends (P againstthe din noone eee fiidend declared by Sake Company ‘Common stock - Sake Company 200,000 2. Elimination entry 2) eliminates the teak eee ae the shaze ofthe NCL 1 cna tS aoe enn a ene OC N 2 3, Elimination entry 3)allocates NCL, Tne Sate Compo sao Ejmitation entry (3) allocates excess by adjusting the assets of Sake Company to " {. Elimination entry (4) amortizes the To-eliminate equity accounts of subsidiary and 2 aon allocated excess 's 5. Elimination (5) i Ni S, . ieee ot fi pet sr ont Etiminatlon ent ¢ recognizes the NCI in the Cl of Sake Company, adjusted for Invent 5,000 6. The NClofP76,800 can be verified by the following c nase BO ey fi cea by the following computation: Zopee anon ‘1000 ‘eset S6),IADBOTT Sake Company soos “Investment in Sake Company 60,000 Increase in undistributed earnings (PS0,000 — P30,000) Y NCI 15,000 Ne i” ae 5 let assets, 12/31/2017 at book value - Sake Compan ee ecto 1294207 anak Coogey ase ae oni Netassets at fir value, 12/31-2017 ~Sake Company 7384,000 1NC1(P384,000.x20%6) 5 HD Cost of goods sold 5000 aan 76,800 Opeing pews 6000 som 7. Theconsotdted lnderte nity cocetan its lloatoncnasobe vated Bo ant RE ad euiiman ne 6,000 _ ze allocated exces 10 Idenifable ase. Pete Corporation Gi mann BE) NCI nC of subsidiary ra00 Dividend income ae NCI “ Pe 7800 ete Corporation CI from own operations Prao.a00 Pernt Nn sad Sake Company C from own operations: icone, as follows: a ‘50,000 Clof subsidi \mortization i iain po 4) 50,000 Amontizatic (1,000) 39,000 rn 1,000 ‘Consolidated CI ‘179,000 djusted Cl of subsidiary 39,000 Attributable to NCI (P39,000 x 20%) 7,800 eta 3920320 nn wim o pese stirs “an oe ii6. —~ canola Fnac Senet Siseventt Dee canada Finan) Seteners Steven Date of eton 47 jlidated retained earnings on Dec 7 Consol "tained earnings on December 31,2017 may be verified by the \ ammetoe 24 sitiry Fre Corer ergnned Financia Sateen 7 Year red Decomber 3120 ee following computation _——_—_—_—_— The | [_—Btiinations & Acrestencs _| ee - -orporation_| Company [Det > ‘Retained earnings, December 31,2017 — Pete Coporaion OT ‘a Po Corton ree shad oud x of Sake Company [(P20,000 Pr distributed earings —sa ooo 0) Te 00 24000 consolidated retained ea ee 720 See ane | “2es00 | Consolidated “e400 Loge Tre.000 | 115,000 | «4 $000 Or conser gi | (soma |) S000 ———— myo [eine | asec scene Ta caliper oro Rad Consolidated Cl auributable wo paren Tonks xen x ae enn vex | pa tat wait [ os tm (aa Te aes pie Capt _ [-1ss.000 | tae stained earings, December core [104,000 | Lan ‘Retained earnings, December 31,2017 —Pete Corporation mum mths Ei eet cag, ny SECOND YEAR AFTER COMBINATION ~ aa cape 300,000 — somone 2018 55 Coapnr ati Cl from sbove |_164,000_} j 171.200 ‘Consolidation procedures in the second year follow the same procedures in the first m — tian Conon rometresi nt a a a One ree 60,000 so. Jrowed the following results of operations: ; Sih Crapo 30,00 (1) 30,000 Tinian seers an Cemmprebensve income sae wis 04000 | 120000 1120 Dividends paid faoa aatonent of FP canal oso | 75,000 279.000 Parent Company Entries Sons ecvabe 9) | So. ice fore sooo | #8900] 4) so00 | 135009, Pg exons oey | 23008 | sane) (2) 6080 gon) wee On Desember31, 2018, Pete Corporation under the cost method of accounting would ° |G) 60.000 - record only the dividends received from Sake Company by the following entry: ron @ 1900 ogee ea s.000 Toa et ianeoo_| $20,000 rast Dividend income 32,000 zs = 1o record dividends received from Sake Company Accu pale Too.a00 | 192000 20am Bon py 2ralooo | isa.o00 Seo. (40,000 x 80%) a Coortin i Esk Corp 500.00 | 100,000 | 2)200,000 eee ‘OnDecember31,2018 before the preparation of consolidated financial statements the eit ama 11 fon tow! ogono | T2008 : or talance of Pete Corporation's Investmentin Sake Company and Dividend income ae: 0) 6000 | 2) 6000076 5} ton [EE = 8 "00 Investment in Sake Company (et original cost) ea) ail ivi i 324 Tutte nd Eun [206,000 | S0E,000 | —_eaB Roo |” 423,800 | TARR | Dividend incomeoe Sve, us second Year 2018) ~ —— Tninaton Enis econ crettetteeisome Setar finnin Working sated working paperatthe end of 2018 are sini ‘Retained earnings ~ Sake Compary inthe consolidated working rere Toows: s Gperating expenses 11.000 { liinating entses ne cept for E (4) 80 iivetory 6000 those atthe end of 2017 32,000 Property and equipment a reaol ‘o provide for yours 2010 and 2011 amortiation er ) ay Dividend income ul ton inc aloet cs 009 ar 2017 amounts are debited 1 Soles retained earnings } te ere OEY yay IE ote nou ee et ed ei To eliminate inter-cOMDOY 740,000 x 209%). 6) NCIin Cl of subsidiary re) IE Trane of tends peid ©? NCI Y 13800 t 200,000 To recognize NCI in Sake Companys adjusted C1 for 2018 2) Common stock Sale Compa, yoao00 {75,000 - P6,000) x 2086 { Coned earings ~ 5 a 40,000 ‘Take note that after posting the above elimination inthe worki the retained | "estment in Sake COMPTY 60,000 earings of Sake Company willnot be flly eliminated. The balanosotP1 500 represents wer runts of Sake and investment Pete Corporation's share in the adjusted undistributed earnings of Sake Company elite ey Nr (P9,000 x 80%) which is not recorded by Pete Corporation under the cost method. sect apt the parent . 5,000 Consolidation Working Paper — Second Year after Acquisition | 3) mentor’ a “The following computation shouldbe noted inthe consolidated working paper (Ilustation | Pepe ae orien 40.900 60,000 15-5) for verification purposes: inthe vhmestment in Sake Compary stock 15,000 [Now-controlling Interest (NCD: NCI Net assets (SE), 1/1/2018 — Sake Compam 320.000 Ieallocate excess . Increase in undistributed carnings (P15,000 ~P40,000) 38.000 1,800 ‘Net assets, 12/31/2018 at book value ~ Sake Cor 5.000 a) Retained earings ~ Sake, January ! 1800 Unamortized excess(P75,000~P17,000) “Sacto sean tence sce tse [Net asses a fair value, 1/31/2018 ~ Sake Company 3,000 ofthe increase in the subsidiary’ adjusted undistributed NCT(PA13,000x20%) Son earings that acured beeen he acusion aa and ny the beginning ofthe current period This i comput Pete Corporation's CI rom own operations (P192,000~P32,000) PI6a.000 a follows: Se Company adjusted Com own peatons: PS 000 Retained eamings Sake Company, an 1,2018 0,900 ‘Amortization of ellocated diference C6000) _ 68900 ‘Rerained earnings ~ Sake Company, January 2, 2017 m0 Consolidated CL Pago . tri le to NCI (P69, 000 x 20%) am reste ot Attributable er P215,200 ) ‘Amortization of allocated excess in prior years (11,000) ibutable to parent company F215200 ie Be Consolidated Retained Earnin ‘Adjusted undistributed earnings 9,000 Retained earnings, December 31,2018—Pete Corporation 536,000 P Ad: ete Corpora’ har of Sake Company aed nt eae Assignable to NCI (P9,000 x 20%) Pl in earnings from date of acquisition to the current year’ 1,000 — 19/000x2056) a P17 000)3 80°) 30.400 566.400 7 |? ee Consolidated retained earings, December31, 2018 2 O~™--srt‘é‘—é—“—FF}!O.CY4 10 strain 185 sy Pete Corporation snd Sw Crean ch Fl } Working Cr ecerber 31, 2018 Second Ye aa ieee ore ae eet 3 Airmen) Company a Credit oS | corporation | Compan” } + | } I ay — venowm | 300000 peered 28 y s.080 “Sag ‘ Ce “732,000 | 300,000 "eal cote yams] 18 |) 6000 sealers ee werrmeconee | mam | scoot von 78 | a0 senate Cit RE 7 cn of tin aig smi sea « ‘Pete Corporation a (2) 100,000 0 Tay rao | 1g " tea set swomo| 13010 ane vot at | moe | gem po? | an «ay «0000 |_*#™ eon cing, Dobe 3 ws ne 536.000 | _155,000 samo of Cash id 234,000, a isso & age |p am eet qigoen oe | HEORE he ]43 S000 | eee fom nections S003 Baa Bane oot 10080 wai ‘ad ae Tsao | sH800 ess pte veoon | on 090 Sp 00083 | ee Cope on son. ‘Saks Company " 200,000 | (2) 200,06 Retmed ening 1201 fum above] $36,000} 155.000 S daaacad co noe fy ane 8 fon (4) 1,800 ne {xan el i ed 1336.000 | _ss,000 [447,600 | _447,600_| 1.64800 LS LUC Conplted Fineviel Soret Sabwpuen Dae offen Stef tute 1st SUBSIDIARY THAT HAS A DIFFERENT REPORTING DATE However, IFRS 10 permits consolidation of a subsidiary Mere pering ac posse rane stent. parent and any ofits subsidiaries shall be no more than 3 months, kor example, accounts of a subsidiary with a financial year ended 30 September 2016 or with financial year ended 31 March 2017 or any financial year ended in between those dates ‘and the date of the parent's financial statements, snes Inpractice, one way of consolidating the financial ea of consoldation only) so thats revised financial statements have a financial yea Ut coincides with the year end of the parent. For this purpose, rmamagemedi osu for ‘the period of the difference in dates may be required to make those adjustments, The alternative way isto consolidate the subsidiary’ accounts as they stand and adjust only the effects of significant events or transactions that occurred in the period of dhe dillarence in dates. lmespective of which way the financial statemens ofthe subsidiary re to be consolidated, itis important thatthe length of the reporting period and any difference in reporting dates shal be the same from period to perio.Se, ™ ) eee asofDeoember31 20h Yea: XY ng, } ABI rergemenisto Seplember SOCAN YR: 1 a fanuey 1,2017, AB In. acquired a 100%interestin the equity dora, faery 12017, si AB arid ail Sateen easy } ‘Statement of Profit or Loss and Other Comprehensive Income ang Pay ( Earnings pm wn onde Ssir2017 Year end. Sate at ee 12,009 Peer Ce GB, 1400 ar Pit en “3B 2 ied etrings eared forward “ram 2am Statements of Financial Position ABs a ad tino aso hina P00 pea ilo. vores feat? oan lovesment in XY nc, Sandy nt se a 81,000 ‘The profits of XY lnc, accrued evenly inthe financial yer ended September 30,20, ‘The management accounts of XY Inc. showed a profit before tax of P4,500 forthe fit quater of its 2018 financial year Required: @) _Explainhow the financial statements of XY Inc. may be consolidated for the final ‘year ended December 31, 2017 and prepare the consolidated financial statemen’s forthe 2017 financial year; and (©) Suppose the profit forthe first quarter of XY Inc.'s 2018 financial year includeds exceptional gain of P2,000,000 on sale of pro financial statements of AB Ine. ‘for the year forthe effects of significant items, ee , prepare the consolidatd December 31, 2017 by adjustint Sterns Sabrequento Day eo Df epuiten 153 jution 1 frst way to consolidate oar On ee oreaaidate the financial satements of XY Inc isto adjusts e¢ 31,2016 period shal be ded 5 Joe ofitof the first quarter ofits 2018 fase cee eo shal be deducted whi financial year (Le. Decomt 51,2017 period) shall be added. For the financial atten hone eee inancial postion, however, the assets an Fiabilties at September 30, 2017 shall be vidal forte : Sit Tooter raster eens of the 2018 financial year In practice, the financial postion es at December 31-2017 sed on management accounts may also be used for this purpose. ° Consolidate Statement of rote oss and Other Comprehensive Income & Retained Earnings serchanne For the eor ended Decombe 31, 2017 profisbefore tax P00 P1000 ABIne 0000 XY In. (123000-3,000 4,500) 1330 x0 Less Income tx expense ABIne. p00 XY Ine 6,600-900 +1350) 50 x Proftafier ta Bao Retained earnings brought forward 25000 Retained earnings carried forward 9450 Consolidated Statement of Financial Position ‘As at December 31, 2017 ‘000 000 ‘Share capital ofP1.00 each 00,000 Retained earnings 8490, 149.450 Goodwill on combination (Sch. 1) 5300 Sundry net assets (80,000 61,000) 141,900 Increase in neet asset of XY Ine. to 1231/2017 3,50ne ee ‘Sch. 1 Goodwill on combination ooo nestmentia XY ae Narases sca: 49.000 ‘Rercned eaings brought forward 12,600 } Reruistion profit (6400/8) 210 Goodwill on combination ! ‘The other way is to consolid ‘would be included in the consolidated profit or loss and other compre! September 30,2017. The effects would be as follows: Consolidated Statement of Profit or Li ‘& Retained Earnings fate the financial statements of XY Inc. as they, results of operations of XY Inc. 4 stat hensive income with effect from January 1,59 ‘oss and Other Comprehensive Income consldated Prac Stterats Subsequent Dane & Retained £ For the seco suid Earnings ¥r ended December 31,2017 before tx [20:000+ 12,003,000 Grin on sale of property : profitbefore tax {eas Income tx [6,000+ 3,600 900): profiafier tx Retained earings brought forward Rotained earings carried forward Consotidaved Stat Hidatd Statement of Financial Postion a December 31,2017 For the your ended December 31, 2017 900 Profit before x 20,000 + 12,000 ~3,000] 29000 P00 Less: Income tax [6,000 + 3,600-900] 8:10 ‘Share capital of P1.00 each cae Profiatr x 2osx0 numer ‘0 Retained earnings brought forward 2600 Retained earnings carried forward 46,300 ‘Goodwill on combination =e Sandy net asset (80,000 + 61,000] Consolidated Statement of Financial Position Increase in net asset of exceptional gain ‘As at December 31, 2017 P'000 Share capita of P1.00 each 100.000 Retained earnings 46,300 1630 Goodwill on combination 5,300 ‘Sundry net assets (80,000 + 61,000) 141,000 146300 : (b) Using the first way, the effect of any significant it i , thee pnificanttem would have been included teamed hereon the gop cco, Under hee teprpenyestollows: exceptional gain arising from the set! 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