Correction: Research and Development Should Be P5,000 Not P50,000

Chapter 2
Problem I (Correction: Research and development should be P5,000 not P50,000)

1. Case 1: Date of Acquisition -
Investment in SS Company 315,000
Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000

Cash 10,000
Case 2: Date of Acquisition -

Cash 237,500

Cash 239,400

Cash 229,500

Cash 205,200
Cash 205,000
2. Schedule of Determination and Allocated Excess: (Correction: Research and development

should be P5,000 not P50,000)
Fair value of Subsidiary:
Consideration transferred:
Cash P300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100% _190,000
Allocated excess P125,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100% (P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100% 26,000
Increase in Customer list (P5,000 x 100%) 5,000
Increase in Favorable lease agreement (P3,000 x 100%) 3,000
Increase in Customer contract (P2,000 x 100%) 2,000
Increase in Purchased IPRD (P5,000 x 100%) 5,000 __31,000
Goodwill P 94,000

a. Proportionate Basis (Partial-goodwill Approach)
Consideration transferred – cash P 237,500 (80%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 80% _152,000 (80%)
Allocated excess P 85,500 (80%)
Decrease in Inventory (P20,000 – P30,000) x 80% (P 8,000)
Increase in Purchased IPRD (P5,000 x 80%) _4,000 24,800 (80%)
Goodwill – partial P 60,700 (80%)
b. Fair Value Basis (Full-goodwill Approach)
Consideration transferred – cash (P237,500 / 80%) P 296,875 (100%)
Increase in Purchased IPRD (P5,000 x 100%) _5,000 __31,000 (100%)
Goodwill – full P 75,875 (100%)

Consideration transferred - cash P 239,400 (60%)
Increase in Purchased IPRD (P5,000 x 60%) __3,000 __18,600 (60%)

Consideration transferred – cash P 239,400 ( 60%)
Fair value of NCI (given)** _152,000 ( 40%)
Fair value of Subsidiary P 391,400 (100%)
Goodwill – full P 170,400 100%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage............................................................... 40%
P 88,400
Therefore, the given amount of P152,000 is higher compared to P88,400. In the event that the
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)
should be used to determine the FV of Subsidiary.

Fair value of Subsidiary

Fair value of Subsidiary – given P 322,525 (100%)
Case 5: Date of Acquisition – Step-Acquisition

Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15% ___51,300 (15%)
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75% _142,500 (75%)
BV FV
Identifiable Assets P370,500 P484,500 P114,000
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 75% P 85,500 ___85,500 (75%)

Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15% 51,300 ( 15%)
Fair value of NCI (given)* __85,500 ( 25%)
BV FV
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 100% **P114,000 _114,000 (100%)
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000**
P 76,000
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
Case 6: Date of Acquisition – Bargain Purchase Gain

BV FV
Liabilities 172,000 172,000 P - 0-
Bargain purchase gain – partial (P 12,500) (75%)

BV FV
Liabilities 172,000 172,000 P - 0-
Increase in Net Assets (P190,000 – P290,000 x 100% **P100,000 _100,000 (100%)
Bargain purchase gain – full (P 10,800)(100%)
P 72,500
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000)
3. Working Paper Eliminating Entries

Common stock – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Additional paid-in capital – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Retained earnings – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease agree0ments….………………………………………………………. 3,000
Customer contract…………………………………………………………… 2,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,000
Inventory…………………………………………………………………….. 10,000
Eliminate investment against allocated excess
Schedule of Determination and Allocated Excess: (Correction: Research and
development should be P5,000 not P50,000)
Cash P300,000
Fair value of Subsidiary P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100% _190,000
Increase in Purchased IPRD (P5,000 x 100%) 5,000 __31,000
Goodwill P 94,000
Case 2: Date of Acquisition –

Common stock – SS Co ............................ . . . . . . . . . . . . . . . . . . . . . . 90,000
Additional paid-in capital – SS Co . ……………………. . . . . . . . . . . . 80,000
Retained earnings – SS Co …………………... . . . . . . . . . . . . . . . . . . . . 20,000
NCI/NCINAS (NCI in Net Assets) – (190,000 x 20%)…………………. 38,000

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease agreements….………………………………………………………. 3,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,700
NCI/NCINAS (NCI in Net Assets): P31,000 x 20%.............................. 6,200
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW (or P38,000 + P6,200)...………………………………………………………..P 44,200

Proportionate Basis (Partial-goodwill Approach)
Increase in Purchased IPRD (P5,000 x 80%) _4,000 24,800 (80%)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,875
NCI: (P31,000 x 20%) + (P75,875 – P60,700)…………………………... 21,375
Inventory…………………………………………………………………….. 10,000
NCI:
Add: NCI on Full-GW (P75,875 – P60,700)………………………………………………………… 15,175
FV-NCI - Full GW………………………………………………………………………………………..P 59,375

Fair Value Basis (Full-goodwill Approach)
Consideration transferred – cash (P237,500 / 80%) P 296,875 (100%)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,800
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW (or P76,000 + P12,400)...………………………………………………………P 88,400



Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,400
NCI: (P31,000 x 40%) + (P170,400 – P106,800)………….……………... 76,000
Inventory…………………………………………………………………….. 10,000
NCI:
Add: NCI on Full-GW (P170,400 – P106,800)…………………………………………………….. 63,600
FV-NCI - Full GW………………………………………………………………………………………..P 152,000

Fair value of NCI (given)** _152,000 ( 40%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
P 88,400
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,750
Inventory…………………………………………………………………….. 10,000
NCI:



Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,525
NCI: (P31,000 x 25%) + (P101,525 – P63,750)………….……………... 45,525
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW…………………………...………………………………………………………..P 55,250
Add: NCI on Full-GW (P101,525 – P63,750)………………………………………………………. 37,775
FV-NCI - Full GW (P47,500 + P45,525)……………………………………………………………….P 93,025

Fair value of Subsidiary - given P 322,525 (100%)
Case 5: Date of Acquisition – Step-Acquisition

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,500
NCI/NCINAS (NCI in Net Assets): (P304,000-P190,000) x 25%......... 28,500
NCI:
FV-NCI Partial GW (P47,500 + P28,500)….....……………………………………………………..P 76,000
Schedule of Determination and Allocated Excess:

Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15% ___51,300 (15%)
BV FV
Liabilities 180,500 180,500 P -0-

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
NCI [(P304,000-P190,000) x 25%] + (P38,000 – P28,500)…………….. 38,000
NCI:
FV-NCI Partial GW………………………….. ...………………………………………………………P 76,000
Add: NCI on Full-GW (P38,000 – P28,500)………………………………………………………... 9,500
FV-NCI - Full GW (P47,500 + P38,000) - the NCI given per problem is the same………P 85,500

Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15% 51,300 ( 15%)
BV FV
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 100% **P114,000 _114,000 (100%)
P 76,000
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
Case 6: Date of Acquisition - – Bargain Purchase Gain

a. Proportionate Basis (Partial-goodwill Approach) refer to Page 169 for reference
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Retained earnings (bargain purchase gain –closed to RE since
only BS or real accounts are being examined)………………… 12,500
NCI (P290,000-P190,000) x 25%........................................................... 25,000
NCI:
FV-NCI-Partial Gain (P47,500 + P25,000).....………………………………………………………P 72,500

BV FV
Liabilities 172,000 172,000 P - 0-
Bargain purchase gain – partial (P 12,500) (75%)
b. Fair Value Basis (Full-goodwill Approach) – refer to Page 169 for reference
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Retained earnings (bargain purchase gain –closed to RE since
only BS or real accounts are being examined)………………… 10,800
NCI (P74,200, given – P47,500).......................................................... 26,700
Investment in SS Co . . . . . . . . . . . . 62,500
NCI:
FV-NCI Partial Gain……………………….......………………………………………………………P 72,500
Add: NCI on Full-Gain)- P12,500 – P10,800……………………………………………………….. 1,700
FV-NCI-Full, Gain (P47,500 + P62,500) – given …………………………………………………...P 74,200

BV FV
Liabilities 172,000 172,000 P - 0-
Increase in Net Assets (P190,000 – P290,000 x 100% **P100,000 _100,000 (100%)
Bargain purchase gain – full (P 10,800)(100%)
P 72,500
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000)
Problem II
1. Schedule of Determination and Allocation of Excess
Case 1: Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred P 408,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%) 24,000
Retained earnings (P96,000 x 100%) 96,000 360,000
Allocated excess (excess of cost over book value) P 48,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment (P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair value) P 12,000
Case 2: Date of Acquisition - January 1, 20x4

Cash P 288,000
Common stock: 12,000 shares x P12 _ 144,000
Fair value of Subsidiary P 432,000
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%)... 24,000
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred……………………………….. P 360,000
Common stock (P240,000 x 80%) P 192,000
Positive excess: Partial-goodwill (excess of cost over fair value) P 43,200
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Consideration transferred (P360,000 / 80%) P 450,000
Common stock (P240,000 x 100%) P 240,000
Decrease in buildings and equipment
(P12,000 x 100%) ( 12,000)
Positive excess: Full -goodwill (excess of cost over fair value) P 54,000

Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)………………... 24,000 360,000
Allocated excess (excess of cost over book value)…… P 72,000
Add: Existing Goodwill of SS Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess P 78,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
Consideration transferred (P408,000 – P6,000)…….. P 402,000
Common stock (P240,000 x 100%) P 240,000
2. Consolidated Balance Sheet – Date of Acquisition, January 1, 20x4

Case 1
a. P1,602,000
b. P642,000
c. P600,000
d. P60,000
e. P300,000
f. P960,000
g. None, since it is wholly-owned
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Accounts receivables (P90,000 + P60,000) 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000) 828,000
Goodwill (refer to Requirement 1- Case1) 12,000
Total Assets (a) P1,602,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable (P120,000 + P120,000) P 240,000
Bonds payable (P240,000 + P210,000) P 360,000
Premium on bonds payable (P162,000 - P120,000) 42,000 402,000
Total Liabilities (b) P 642,000
Stockholders’ Equity
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
Total Stockholders’ Equity P 960,000
Total Liabilities and Stockholders’ Equity P1,602,000
Case 2
a. P1,725,600
b. P642,000
c. P720,000
d. P75,600
e. P288,000
f. P1,083,600
Assets
Cash (P420.000 – P288,000 – P12,000 – P8,400) + P60,000 P 171,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Liabilities
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.
Case 3
A. Proportionate Basis (Partial-goodwill Approach)
a. P1,666,800
b. P642,000
c. P600,000
d. P60,000
e. P285,600
f. P1,024,800
g. P79,200
Assets
Cash (P420,000 – P360,000 – P14,400 = P45,600) + P60,000 P 105,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (P480,000 + P360,000 – P12,000) 828,000
Goodwill – partial 43,200
Total Assets P1,666,800
Liabilities
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings (P300,000 – P14,400 ) 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600
Non-controlling interest* 79,200
Total Stockholders’ Equity (Total Equity) P 1,024,800
*Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities)…………………………………………. 36,000
Fair value of stockholders’ equity of subsidiary………………… P 396,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 79,200
B. Fair Value Basis (Full-goodwill Approach)

a. P1,677,600
b. P642,000
c. P600,000
d. P60,000
e. P285,600
f. P1,035,600
g. P90,000
Assets
Cash (P420,000 – P360,000 – P14,400 = P45,600) + P60,000 P 105,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (P480,000 + P360,000 – P12,000) 828,000
Goodwill – full 54,000
Liabilities
Retained earnings (P300,000 – P14,400) 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600
Non-controlling interest 90,000
*Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Non-controlling interest (partial) – refer to Case 3A……………….. P 79,200
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
Case 4
a. P1,725,600
b. P642,000
c. P720,000
d. P75,600
e. P288,000
f. P1,083,600
Assets
Cash (P420,000 – P288,000 – P12,000 – P8,400 = P111,600 + P54,000) P 165,600
Accounts receivables 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000 828,000
Goodwill (P6,000 + P36,000) 42,000
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Common stock, P10 par (P600,000 + P120,000 (12,000 shares x P10 par) P 720,000
Paid-in capital in in excess of par {P60,000 + 12,000 x [P12-P10] – P8,400} 75,600
Retained earnings (P300,000 – P12,000) 288,000
Case 5
a. P1,596,000
b. P636,000
c. P600,000
d. P60,000
e. P300,000
f. P960,000
Assets
Cash (P420,000 – P408,000 + P60,000) P 72,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000 828,000
Goodwill 6,000
Liabilities
Dividends payable (P6,000 – P6,000) -0-
Paid-in capital in in excess of par 60,000
Retained earnings 300,000
For Case 1
3.
January 1, 20x4
Investment in S Company…………………………………………… 408,000
Cash…………………………………………………………………….. 408,000
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 1)
Date of Acquisition – January 1, 20x4
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 12,000
4. WPEN
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity-S Co
(E2)
Inventory…………………………………………………………. 18,000
Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 48,000
Eliminate investment against allocated excess.
5.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*…………………………. P 12,000 P 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
Total Assets P1,320,000 P600,000 P1,602,000
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
6.
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case1) 12,000
Liabilities
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
For Case 2
3.
January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
Cash…………………………………………………………………….. 288,000
Common stock, P10 par…………………………………………….. 120,000
Paid-in capital in excess of par……………………………………. 24,000
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)…………………………………………………………… 12,000
Cash……………………………………………………………………. 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. 8,400
Cash……………………………………………………………………. 8,400
Costs to issue and register stocks.
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 2)
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess…………………………………. P 78,000
Increase in inventory (P18,000 x 100%)…………….. P 18,000
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
value)…………………………………………………….. P 42,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
value)…………………………………………………………………………… P 42,000
4.
Additional paid-in capital – S Co…………………………… 24,000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity of S Co.
(E2) Inventory…………………………………………………………. 18,000

Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 42,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 78,000
5.
Eliminations
Cash*………………………….. P 111,600 P 54,000 P 165,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (1) 360,000
(2) 72,000 -
Total Assets P1,443,600 P600,000 P1,725,600
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par**…..… 720,000 720,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity of Sky Co.
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
**P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
***P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
****P300,000 – P12,000 = P288,000.
6.
Assets
Cash (P420.000 – P288,000 – P12,000 – P8,400) + P60,000 P 171,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Liabilities
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.
For Case 3
7. The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company………………………………………… 360,000
Cash……………………………………………………………….. 360,000
Acquisition of Sia Company.
(2) Retained earnings (acquisition-related expense - close to
examined)…………………………………………………………… 14,400
Cash……………………………………………………………………. 14,400
Acquisition- related costs.

Partial-goodwill Approach
Common stock (P240,000 x 80%)……………………. P 192,000
Paid-in capital in excess of par (P96,000 x 80%).... 76,800
Retained earnings (P24,000 x 80%)……………….... 19,200 288,000
Allocated excess (excess of cost over book value)….. P 72,000
Increase in inventory (P18,000 x 80%)……………… P 14,400
Increase in land (P72,000 x 80%)……………………. 57,600
(P12,000 x 80%)……………………………………..... ( 9,600)
Increase in bonds payable (P42,000 x 80%)………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sia Co. Sia Co. Over/ Under
Book value Fair value Valuation
Inventory………………….…………….. 72,000 90,000 18,000
Land……………………………………… 48,000 120,000 72,000
Buildings and equipment (net)......... 360,000 348,000 ( 12,000)
Bonds payable………………………… (120,000) (162,000) 42,000
Net……………………………………….. 360,000 396,000 36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sia Co. Sia Co.
Book value Fair value (Decrease)
Buildings and equipment .................. 720,000 348,000 ( 372,000)
Less: Accumulated depreciation….. 360,000 - ( 360,000)
Net book value………………………... 360,000 348,000 ( 12,000)
Full-goodwill Approach
Consideration transferred (P360,000 / 80%)………….. P 450,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P240,000 x 100%)…………………. P 240,000
Retained earnings (P24,000 x 100%)…………….... 24,000 360,000
Increase in inventory (P18,000 x 100%)…………… P 18,000
Increase in land (P72,000 x 100%)…………………. 72,000
(P12,000 x 100%)…………………………………..... ( 12,000)
Increase in bonds payable (P42,000 x 100%)……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over
fair value)………………………………………………... P 54,000

Partial Goodwill
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky Co……..………………………………………. 240,000
Additional paid-in capital – Sky Co…………………………………. 24,000
Retained earnings – Sky Co…………………………………………... 96,000
Investment in Sky Co………………………………………………… 288,000
Non-controlling interest (P300,000 x 20%)……………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…..……………………………………………………………. 18,000

Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 43,200
Buildings and equipment………………………………………….. 12,000
Premium on bonds payable……………………………………… 42,000
Investment in Sky Co……………………………………………….. 72,000
Full-Goodwill
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky Co……………………………………………. 240,000
Additional paid-in capital – Sky Co……………………………. 24,000
Retained earnings – Sky Co……………………………………... 96,000
Investment in Sky Co…………………………………… 288,000
Non-controlling interest (P300,000 x 20%)………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory……………………………………………………………. 18,000

Land……………………………………………………………………. 72,000
Goodwill……………………………………………………………. 54,000
Buildings and equipment………………………………….. 12,000
Premium on bonds payable…………………………… 42,000
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – P36,000)]……………………………. 18,000
Investment in Sky Co……………………………………….. 72,000
10. Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,305,600 P600,000 P 1,666,800
Accounts payable…………… P 120,000 P120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
Retained earnings…………… 96,000 (1) 96,000
Non-controlling interest………… (1 ) 72,000
_________ _______ _________ (2) 7,200 _79,200
Equity P1,305,600 P600,000 P 493,200 P 493,200 P1,666,800
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.
 Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Full-goodwill)
Eliminations
Assets Per Co. Sia Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Goodwill…………………… (2) 54,000 54,000
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,305,600 P600,000 P 1,677,600
Accounts payable…………… P120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
_________ _______ _________ (2) 18,000 _90,000
Equity P1,305,600 P600,000 P 504,000 P 504,000 P1,677,600
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

follows:
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
11. The balance sheet: Partial-Goodwill

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 828,000
Goodwill 43,200
Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
The balance sheet: Fulll-Goodwill

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 828,000
Goodwill 54,000
Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the P 945,600
Owners of the Parent
Problem III
1. The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
Investment in S Company…...…………………………………… 300,000
Common stock, P1 par…………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par).. 288,000
Acquisition of S Company.

a. Partial-goodwill Approach (Proportionate Basis)
Common stock: 12,000 shares x P25 per share…... P 300,000
Common stock (P12,000 x 80%)……………………. P 9,600
Retained earnings (P72,000 x 80%)……………….... 57,600 153,600
Increase in buildings and equipment
(P150,000 x 80%)…………………………………...... 120,000
Increase in copyrights (P60,000 x 80%)…………….. 48,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 80%)……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 50,400)
S Co. S Co. Over/Under
Inventory………………….……………... P 60,000 P 66,000 P 6,000
Land………………………………………. 48,000 84,000 36,000
Buildings and equipment (net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000
Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)
Net undervaluation……………………. P 330,000 P 576,000 P246,000
b. Full-goodwill Approach (Fair Value Basis)

Common stock: 12,000 x P25 (80%)……………… P 300,000
Fair value of NCI (given) (20%)………………………. 90,000
Fair value of subsidiary (100%)………………………. P 390,000
Common stock (P12,000 x 100%)……………………. P 12,000
Paid-in capital in excess of par (P108,000 x 100%). 108,000
Increase in buildings and equipment
(P150,000 x 100%)………………………………….... 150,000
Increase in copyrights (P60,000 x 100%)…………… 6,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 100%)…….. ( 6,000) 246,000
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 48,000)
a. Partial-goodwill Approach (Proportionate Basis)
The schedule of determination and allocation of excess provides complete guidance for
the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P246,000 x 20%)………………………. 49,200
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 50,400
b. Full-goodwill Approach (Fair Value Basis)

The schedule of determination and allocation of excess provides complete guidance for
the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P90,000 given – P38,400)…………… 51,600
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 48,000
5. Consolidated Workpaper
Subsidiary (Proportionate Basis)
Eliminations
Consolidate
Assets P Co. S Co. Dr. Cr. d
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for contingencies (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of
par** 723,840 723,840
Paid-in capital in excess of par 108,000(1) (1) 108,000
Retained earnings 577,200 (2) 50,400 627,600
_________ _______ _________ (2) 49,200 _87,600
Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
follows:
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Retained earnings – S Co……………………………………… 72,000
Book value of stockholders’ equity – S Co…………………. P 192,000
Subsidiary (Fair Value Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of par** 723,840 723,840
Paid-in capital in excess of par 108,000(2) (1) 108,000
Retained earnings 577,200 (2) 48,000 625,200
_________ _______ _________ (2) 51,600 _90,000
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
6. Consolidated Balance Sheet

Partial-goodwill Approach (Proportionate Basis)
Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,395,600
Total Stockholders’ Equity (Total Equity) P1,483,200
Fair Value Basis

Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,393,200
Total Stockholders’ Equity (Total Equity) P1,483,200
Problem IV
1. P297,462 (Full-goodwill approach)
Fair value of subsidiary (100%):
Consideration transferred: Cash (P1,901,250 + P562,500) P2,463,750
Less: Control premium…………………………………………. ( 82,500)
P2,381,250/65% P3,663,462
Add: Control premium…………………………………………. ____82,500
Fair value of subsidiary ………………………………………… P3,745,962
Less: Book value of stockholders’ equity
(net assets) – Guidance Company – given per problem 2,925,000
Allocated excess………………………………………………... P 820,962
Less: Over/undervaluation of assets and liabilities:
(P75,000 + P375,000 + P73,500) 523,500
Positive excess: Goodwill P 297,462
2. P222,225 (Partial/Proportionate goodwill approach)

(net assets) – Guidance Company
(P2,925,000 x 65%)…………………………………………… 1,901,250
(P75,000 + P375,000 + P73,500) x 65% 340,275
3. P395,250 (Full-goodwill approach)

FV of NCI…………………….……………………………………. _1,380,000
Fair value of subsidiary ………………………………………… P3,843,750
(net assets) – Guidance Company – given per problem 2,925,000
(P75,000 + P375,000 + P73,500) 523,500
Problem V - None
Problem VI
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
Fair value of consideration given P 576,000

Less; Book value of SHE 450,000
Allocated excess: P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory P 20,000
Land (10,000)
Buildings and equipment 70,000 80,000
Goodwill P 46,000
5. Investment in AA Corporation: Nothing would be reported; the balance in the

investment account is eliminated.
Problem VII
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are
a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired.
1. Inventory = P670,000 (P's book value plus SS fair value)

2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem VIII
1. Inventory (P120,000 + P20,000) P140,000
2. Land (P70,000 – P10,000) P 60,000
3. Buildings and Equipment (P480,000 + P70,000) 550,000
4. Full-Goodwill, P57,500
Consideration transferred P470,000
Add: FV of NCI 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Inventory P 20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
Goodwill – full P 57,500
or,
Fair value of consideration given by Ford P470,000
Fair value of noncontrolling interest 117,500
Total fair value P587,500
Book value of Slim’s net assets P450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Buildings and equipment (net) 70,000
Fair value of identifiable net assets (530,000)
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
Goodwill – partial P 46,000
5. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
6. P830,000
Total assets:
Unadjusted total assets P750,000
Add (deduct): adjustments
Increase in inventory 20,000
Decrease in land ( 10,000)
Increase in buildings and equipment 70,000
Adjusted assets P830,000
7. P300,000 (no adjustments)

8. No available data
9. Noncontrolling Interest (P587,500 x .20) P117,500
or,
BV – SHE of SS P450,000
Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000
FV of SHE of SS P530,000
Multiplied by: NCI % 20%
NCI – partial goodwill P106,000
Add: NCI on full-goodwill (P57,500 – P46,000) 11,500
NCI – full goodwill P117,500
10. Incomplete data
Problem IX
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem X
1. P57,000 = (P120,000 - P25,000) x .60
2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XI
1. Investment in Craig Company ........................................................... 950,000
Cash ................................................................................................... 950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Allocated excess P 230,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value P 50,000
Building (P700,000 fair – P600,000 book value) 100,000
Discount on bonds payable P280,000 fair – P300,000
book value) 20,000
Deferred tax liability (P40,000 fair – P50,000 book value) 10,000
Buildings and equipment (net) 180,000
Goodwill P 50,000
3. Adjustments on Craig books:

Land......................................................................................................... 50,000
Building.................................................................................................... 100,000
Discount on Bonds Payable ................................................................ 20,000
Goodwill.................................................................................................. 50,000
Deferred Tax Liability ............................................................................ 10,000
Retained Earnings ................................................................................. 420,000
Paid-In Capital in Excess of Par ..................................................... 650,000
4. Elimination entries:
Common Stock ..................................................................................... 300,000
Paid-In Capital in Excess of Par .......................................................... 650,000
Investment in Craig Company...................................................... 950,000
Problem XII
1.
* Man Mask
(Public Co.) (Private Co.)
Currently issued…………………… 10 M 40% 4 M 40%
Additional shares issued……….. 15 M 60% ** 6 M / 60%
Total shares………………………… 25 M 10 M
**15M/25M
FV of net assets………………………P 18 M P30 M
BV of net assets (same with FV)…. 18 M ?
Fv per share of stock……………….P 8 P 6
2.
Consideration transferred (4,000,000 shares* x P6)…………………………..P24,000,000
Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess …………………………………………………………………..P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)……………………………………………… 0
Goodwill………………………………………………………………………………P 6,000,000
Problem XIII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting
and tax purposes for this stock acquisition.
1. Investment in Seely Company 570,000

Common Stock*** 95,000
Additional Paid-in-Capital 475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of common
stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely 80,000
Other Contributed Capital – Seely 132,000
Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000
Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
Problem XIV
 HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.
 TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

a. The purpose of consolidated financial statements is to present the financial position
and results of operations of a group of businesses as if they were a single entity. They
are designed to provide information useful for making business and economic
decisions—especially assessing amounts, timing, and uncertainty of prospective cash
flows. Consolidated statements also provide more complete information about the
resources, obligations, risks, and opportunities of an enterprise than separate
statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
 The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
 The equity investors in the VIE lack any one of the following three characteristics of
a controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g.,
another firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has
one or both of the characteristics that would require consolidation of the variable
interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
 At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
to 85% of the project's cost. Thus, a potential 15% risk.
 During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
 Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
 If lease is not renewed, TPC must either purchase the facility or sell it on behalf of
the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
 Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decision-
making ability (end of five-year lease term)
 Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
 Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XV
1. Implied valuation and excess allocation for SP.
FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000)
+ P40,000 – P120,000) __100,000
Excess net asset value fair value/Bargain purchase gain P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All SP’
assets and liabilities are recognized at their individual fair values.
Cash P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
- 0-
2. Implied valuation and excess valuation for SP.

FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000)
+ P40,000 – P120,000) __60,000
Excess fair value over net assets/ Goodwill P 20,000
Noncontrolling interest fair value 60,000

Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash P20,000
Marketing software 120,000
Computer equipment 40,000
Goodwill (excess business fair value) 20,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
PT equity interest (20,000)
-0-
Multiple Choice Problems
1. c -
Cash consideration transferred P 300,000
Fair value of Subsidiary P 315,000
Less: Book value of SS Company (P90,000 + P100,000) 190,000
Increase in building: P40,000 x 100% P 40,000
Increase in customer list: P22,000 x 100% 22,000
Increase in R&D: P30,000 x 100% 30,000 __92,000
Goodwill P 33,000
Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000
Cash 10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4
would be:
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
Capitalized R&D 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
2. d - P600,000 - P15,000 - P255,000 = P330,000

3. c - P475,000 - P300,000 = P175,000 debit
4. d
Less: Book value of SHE of S (P40,000 + P52,000) 92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 58,000
5. b – [P150,000 – (P173,000 – P40,000 – P5,000)]
6. d
Book value of Assets (P80,000 + P50,000 + P200,000) P330,000
Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000
P 65,000
7. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
8. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
9. c
10. a
[P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
11. c – at fair value
12. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
13. d
Less: Book value of SHE of S (P100,000 + P115,000) 215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential” P 85,000
14. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.
15. b
P’s acquisition entry is:
Investment in Silicon 2,500,000
Merger expenses 250,000
C/S (100,000@P1) 100,000
APIC [(100,000@P24) – P400,000] 2,000,000
Cash (P400,000 + P250,000) 650,000
Eliminating entries are:

Capital stock 560,000
AOCI 195,000
Treasury stock 35,000
Customer lists 700,000

Goodwill 800,000
16. b – refer to No. 15

17. a – refer to No. 15
20. b
21. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000
22. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE –
P300,000 – P500,000) = P550,000
23. a
24. d (P1,000,000 + P250,000) = P1,250,000 P only.
25. d - A total of P210,000 (P120,000 + P90,000) should be reported.
26. a - As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS.
The amount paid was P30,000 greater than the book value of the net assets of SS and is
reported as goodwill in the consolidated balance sheet at January 1, 20X5.
27. c - In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for
P25,000 (P10,000 + P15,000).
28. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
29. c- P100,000, the par value of B's stock outstanding is P100,000
30. a
(net assets) – Son Company
(P180,000 + P165,000 + P90,000) x 80% __348,000
Increase in land (P420,000 – P264,000) x 80% P124,800
Increase in building: P96,000 x 80% __76,800 __201,600
31. b
FV of NCI 147,300
Control premium 27,600
P 774,900
(P180,000 + P165,000 + P90,000) x 100% __435,000
32. c
Less: Control premium 44,400
P555,600/80% P 694,500
Add: Control premium __44,400
P 738,900
(P180,000 + P165,000 + P90,000) x 100% __435,000
33. b
FV of S: CT - Acquisition cost P 13,000,000
Less: Book value (P20,000,000 + P36,000,000) 56,000,000
Allocated Excess of book value over cost P(43,000,000)
Add: Existing goodwill 40,000,000
Adjusted Allocated excess P( 3,000,000)
Less: Over/undervaluation of A & L __________-0-
Bargain purchase gain/Gain on acquisition P( 3,000,000)
34. b - Proportionate Basis (Partial-goodwill Approach)

 Partial-goodwill
Consideration transferred: Cash……………………….....P 7,560,000 (60%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P6,000,000 x 60%................................ 3,600,000 (60%)
Allocated Excess.……………………………………………….... P 3,960,000 (60%)
(P8,400,000 – P6,000,000) x 60%................................... 1,440,000 (60%)
Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)
35. c - Fair Value Basis (Full-goodwill Approach)

 Full-goodwill
Consideration transferred: Cash ………………………...P 7,560,000 ( 60%)
Fair value of NCI (given)………………………………….. 4,800,000 ( 40%)
Fair value of subsidiary…………………………………………...P12,360,000 (100%)
– S Company: P6,000,000 x 100%........................... 6,000,000 (100%)
Allocated Excess.…………………………………………………..P 6,360,000 (100%)
(P8,400,000 – P6,000,000) x 100%................................ 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 3,960,000 (100%)
The full – goodwill of P3,960,000 consists of two parts:

Full-goodwill……………………………………………...P 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill (No. 34)………………. 2,520,000
NCI on full-goodwill……………………………………..P 1,440,000
36. b
 Non-controlling interest (refer to No. 34)
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary…………….P 8,400,000
Multiplied by: Non-controlling Interest percentage........... 40%
Non-controlling interest (partial)………………………………..P 3,360,000
37. c -
 Non-controlling interest
Non-controlling interest (partial) – refer to No. 36…………P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
38. d - Proportionate Basis (Partial-goodwill Approach)

Consideration transferred: Cash………………………..P 9,000,000 (75%)
– S Company: P7,200,000 x 75%............................... 5,400,000 (75%)
Allocated Excess.………………………………………………....P 3,600,000 (75%)
(P9,600,000 – P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)

 Full-goodwill
Fair value of subsidiary…………………………………………. P 11,640,000 (100%)
– S Company: P7,200,000 x 100%............................. 7,200,000 (100%)
Allocated Excess.………………………………………………….P 4,440,000 (100%)
(P9,600,000 – P7,200,000) x 100%.............................. 2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)
The full – goodwill of P2,040,000 consists of two parts:

Full-goodwill……………………………………………...P 2,040,000
or partial-goodwill……………………………. 1,800,000
NCI on full-goodwill…………………………………….P 240,000
40. b -
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage........... 25%
Non-controlling interest (partial)……………………………….P 2,400,000
41. c -
Non-controlling interest (partial) – refer to No. 40…………P 2,400,000
(P2,040,000 – P1,800,000 partial-goodwill)………..... 240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
42. b - Proportionate Basis (Partial-goodwill Approach)

Consideration transferred: Cash………………………..P 2,592,000 ( 60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%..... 648,000 ( 15%)
Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%)
– S Company: (P4,680,000 – P2,280,000) x 75%......... 1,800,000 .(75%)
Allocated Excess.……………………………………………….....P1,440,000 (75%)
[(P6,120,000 – P2,280,000) –
(P4,680,000 – P2,280,000)] x 75%................................ 1,080,000 (75%)
Positive excess: Goodwill (partial)……………………………...P 360,000 (75%)

 Full-goodwill
Consideration transferred: Cash………………………..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%..... 648,000 (15%)
Fair value of NCI (given)………………………………… 1,080,000 (25%)
Fair value of subsidiary…………………………………………. P 4,320,000 (100%)
– S Company: P2,400,000 x 100%............................. 2,400,000 (100%)
Allocated Excess.…………………………………………………P 1,920,000 (100%)
(P3,840,000 – P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full)…………………………………..P 480,000 (100%)
The full – goodwill of P480,000 consists of two parts:

Full-goodwill……………………………………………...P 480,000
or partial-goodwill……………………………... 360,000
NCI on full-goodwill……………………………………..P. 120,000
44. b
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
Fair value of stockholders’ equity of subsidiary……………P 3,840,000
Multiplied by: Non-controlling Interest percentage............ 25%
Non-controlling interest (partial)………………………………P 960,000
45. c
Non-controlling interest (partial) –refer to No. 44.…………P 960,000
(P480,000 – P360,000 partial-goodwill)…………....... 120,000
Non-controlling Interest (full)……………………………………P 1,080,000
46. b – fair value

47. d – fair value
48. d – fair value
49. c -
Full-goodwill:
Add: FV of NCI 100,000 P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000
Inventory (P65,000 – P70,000) x 100% P( 5,000)
Land (P100,000 – P90,000) x 100% 10,000
Buildings and equipment (P300,000 – P250,00) x 100% 50,000 __55,000
If partial-goodwill, no answer available, computed as follows:

Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000
Inventory (P65,000 – P70,000) x 75% P( 3,750)
Land (P100,000 – P90,000) x 75% 7,500
Buildings and equipment (P300,000 – P250,00) x 75% 37,500 __41,250
50. a – Investment in Silver will be eliminated in the consolidated balance sheet
51. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ……………………………… 55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%.................................................................... 25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P 100,000
* same with the NCI given per problem
52. b – P135,000 = P90,000 + P45,000

53. d
Full-goodwill:
Add: FV of NCI _40,000 P200,000
Less: BV of SHE of Silver (P40,000 + P120,000) x 100% _160,000
Inventory (P45,000 – P40,000) x 100% P 5,000
Land (P60,000 – P40,000) x 100% 20,000 25,000
54. a
Total Assets of Gulliver (Jonathan) P610,000
Less: Investment in Sea-Gull Corp. (160,000)
P 450,000
Book value of assets of Sea Corp. 230,000
Book value reported by Gulliver/Jonathan and Sea P 680,000
Increase in inventory (P45,000 – P40,000) 5,000
Increase in land (P60,000 – P40,000) 20,000
Goodwill (full)* 15,000
Total assets reported P 720,000
55. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
56. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) -
(P40,000 + P40,000)………….……………………………… 25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%.................................................................... 20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)……………….. 3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Less: BV of SHE of S (P40,000 + P120,000) x 80% _128,000
Inventory (P5,000 x 80%) P 4,000
Land (P20,000 x 80%) 16,000 __20,000
57. a - The amount reported by Jonathan Corporation

58. a
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19…………………………………….. 40,000
Consolidated stockholders’ equity……………………………………. P445,000
59. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
60. b
Total Assets of P. P1,278,000
Less: Investment in Swimmer Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (full)* 26,667
Total assets reported P1,566,667
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
If partial-goodwill:
Total Assets of P. P1,278,000
Less: Investment in S Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Book value reported by P and S P1,380,000
Increase in plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (partial)* 20,000
*[P440,000 – (P702,000 – P142,000) x 75%]
61. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)
62. a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
63. c
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**given amount, but it should not be lower than the fair value of SHE – subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)… 35,000
FV of SHE of SS……………………………………………… P 175,000
Multiplied by: NCI%.......................................................... 30%
FV of NCI (partial)……………………………………………..P 52,500
64. b
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (full) 40,000
Total Assets of Power Corp. P 791,500
Less: Investment in Silk Corp. (150,500)
P 641,000
Book value of assets of Silk Corp. 405,000
Book value reported by Power and
Silk P1,046,000
Increase in inventory (P85,000 - P70,000) 15,000
Increase in land (P45,000 - P25,000) 20,000
Goodwill (partial) 28,000
65. D P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
66. a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
67. D
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
FV of SHE of SSD P 175,000
Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000
FV of NCI (full)…………………………………………………..P 64,500
68. D P205,000 = The amount reported by Power Corporation
69. C P419,500 = (P150,000 + P205,000) + P64,500

Stockholders’ equity: P419,500
Consolidated SHE:
Common stock P150,000
Retained Earnings 205,000
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (partial-goodwill) 52,500
Consolidated SHE P404,500
70. b
Consideration transferred ........................................................................................ P60,000
Less: Strand's book value (P50,000 x 80%) .............................................................. (40,000)
Fair value in excess of book value ......................................................................... P20,000
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ........................................................... P 8,000
71. c
Consideration transferred (P60,000 ÷ 80%) ............................................................ P75,000
Less: Strand's book value .......................................................................................... (50,000)
Fair value in excess of book value ......................................................................... P25,000
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ........................................................... P10,000
72. a
Park current assets ....................................................................................................... P 70,000
Strand current assets ................................................................................................... 20,000
Excess inventory fair value ......................................................................................... 15,000
Consolidated current assets ...................................................................................... P105,000
73. c
Park noncurrent assets ............................................................................................... P 90,000
Strand noncurrent assets ........................................................................................... 40,000
Excess fair value to goodwill (partial) ..................................................................... ___8,000
Consolidated noncurrent assets .............................................................................. P140,000
74. d
Park noncurrent assets ................................................................................................ P 90,000
Strand noncurrent assets ............................................................................................ 40,000
Excess fair value to goodwill (full) ............................................................................. __10,000
Consolidated noncurrent assets ............................................................................... P140,000
75. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
76. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
77. b
Park stockholders' equity ........................................................................................... P80,000
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%........................................................................ 20% 13,000
Total stockholders' equity ......................................................................................... P93,000
78. c
Park stockholders' equity .......................................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%......................................................................... 20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)………… 15,000
Total stockholders' equity P95,000
79. d [P99,000 + P26,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000

80. a [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
81. a - P only
82. d – (P960,000 – P330,000) + P565,000 = P1,195,000
83. a - P15,000 = (P115,000 + P46,000) - P146,000
84. b - P65,000 = (P148,000 - P98,000) + P15,000
85. a. BB, P70,000; SS, P24,000,
SS: P24,000 = P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000 = P94,000 - P24,000
86. d - P259,000,
Fair value of SS as a
whole:
P200,000 Book value of SS shares
10,000 Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000 Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000 Differential assigned to goodwill
P259,000 Fair value of SS
87. c - 65 percent = 1.00 – (P90,650 / P259,000)

88. a
Capital Stock = P120,000
Retained Earnings = P115,000
89. b – full-goodwill
FV of S: P600,000/70%...........................................................................................P 857,143
Less: BV – SHE of Stork …………………………………………………………………. 640,000
Allocated excess………………………………………………………………………..P 217,143
Less: Increase in equipment………………………………………………………….. 40,000
+ Excess: Goodwill (full)………………………………………………………………...P 177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
90. a – P150,000 + P500,000

91. a – at fair value
92. b
FV, stocks issued………………………………………………… P 4,200,000
Less: Par value of stocks issued (500,000 shares x P5)…….. __2,500,000
APIC P 1,700,000
Add: APIC of P 7,500,000
Less: Stock issuance cost ___100,000
P 9,100,000
93. a – at fair value

94. c**/d* - Please read the discussion below
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity,
does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are
considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant
and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of investment in
associate, joint venture or subsidiary but it is possible that the scope of the project might be expanded in future.
(IGAAP 2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as
expenses in the consolidated accounts.
Revised PAS 27 does not define what is meant by “cost”, but in the glossary to PFRS provides an over-riding definition
of “cost” as “the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction”
As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the
acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction
costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not
separately define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements.
Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate financial statements includes any
costs incurred even if such costs are expensed in the consolidated financial statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate
Financial Statements” not consolidated statements; therefore PFRS 3 which is a standard for business
combination/consolidation will not be the basis for the definition of “cost”). Unlike before the revision of PAS 27 and
implementation of PFRS 10, the basis of the old PAS 27, which is “Consolidated and Separate Statements”, is PFRS 3,
wherein the definition of “cost” was clearly defined. That is why the general rule in the definition of “cost” was
applied. This view is also as suggest by the IASB since they introduced the requirement to expense acquisition costs
within PFRS 3, it only applies to financial statements in which a business combination is accounted for under PFRS 3. It
follows that this requirement does not extend to the individual (or separate) financial statements of the investing or
parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38
(Intangible Assets) wherein the direct costs is capitalized in the books of parent entity and eventually become
expense through eliminating entry to prepare consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to
any acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal
costs, due diligence costs – such as finder’s fee are expensed off and not included in the consideration transferred.
The key reasons given for this approach are provided in paragraph BC366:
 Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
 They are separate transactions for which the buyer pays the fair value for the services received.
 These amounts do not generally represent assets of the acquirer at acquisition date because the benefits
obtained are consumed as the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and
liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at
cost. The following items are worth noting to justify the use of this approach:
1. This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7th
Edition (2013) which is an IFRS based discussion, in the solution they presented in one of their end-of-chapter
problems, they expensed the direct costs in recording the investment in subsidiary in the book of parent
company
2. Similar with No. 1 above, in the book Applying IFRS, 3rd edition (2013), by Picker, et al (which is also Ernst and
Young book, which seems to contradict their position in the discussion above) in chapter 24 end-of-the
chapter problems, the direct costs (or “costs incurred in undertaking taking the acquisition” as the term
used in the book) were not part of the investment in subsidiary as evidenced by the amount in the
eliminating entry.
3. One respected author in accounting even commented that, despite the above analysis capitalizing the
direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and
PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it may be a
problem when there will be an impairment test which will reveal the costs are in fact unrecoverable and
thus that there must be an impairment charge at the parent level (in which the direct costs is included as
part the investment), which would have the effect of bringing the parent’s accounting (with the impairment
investment including the direct costs) in line with what would later appear on the consolidated financial
statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of
“costs” in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be
part of the investment in the books of parent entity. But because of the three reasons mentioned above, the author
believes that the direct costs still be considered as expenses applying PFRS 3, aside from the fact that in substance
the ultimate objective is to consolidate, even though there was a separation of standard between Revised PAS 27
and PFRS 10.
95. a
96. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be
made. Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
97. d
98. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in full.
99. a
100. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
101. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.
102. c
An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 2010 ...................................................... P36,000
103. a
PP - building .................................................................................................................. P510,000
TT building acquisition-date fair value P300,000
Amortization for 3 years (10-year life) (90,000) 210,000
Consolidated buildings ............................................................................................... P720,000
-OR-
PP - building ................................................................................................................... 510,000
TT building 12/31/x4 P182,000
Excess acquisition-date fair value allocation 40,000
Excess amortization for (P40,000/ 10 x 3 years) (12,000) 210,000
Consolidated buildings ............................................................................................... P720,000
104. b
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
105. c
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
106. c
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.
107. d
Cost of Investment (40 shares* x P40)………………………………………………………P 1,600
Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%...................................... 1,100
Allocated excess………………………………………………………………………………P 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%..................... 140
Goodwill………………………………………………………………………………………….P 360
100%
* Pedro Ltd Santi Ltd
Currently issued…………………… 100 40% 40 40%
Additional shares issued……….. 150 60%** 60 / 60%
Total shares………………………… 250 100
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M P ?
BV of net assets (same with FV)……….. 1.1 M ?
Fv per share of stock……………………… P 16 P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
½) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger
and 150 new shares held by former shareholders in Santi Ltd. In essence, the former
shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi
Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there
has been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal
parent. The usual circumstance creating a reverse acquisition is where an entity (the legal
parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of
the exchange transaction, it issues enough voting equity as consideration for control of the
combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the
assets and liabilities of Santi Ltd to be valued at fair value.
108. b – building account in the books of subsidiary at fair value

109. e – building account in the books of subsidiary at book value
110. d – push-down accounting: equipment account in the books of subsidiary is at fair value
111. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance
from P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1. c 6. B 11. c 16. d 21. b 26. D 31 c 36. d
2. a 7. b 12. c 17. c 22. a 27. C 32. d 37. d
3. e 8. A 13. d 18. b 23. a 28. C 33. b 38. c
4. e 9. D 14. d 19. c 24. b 29. D 34. d 39. b
5. b 10, a 15, b 20. c 25. c 30. B 35. d 40. c
41. c 46. b 51. c 56. c

42. c 47. a 52. b 57. d
43. c 48. c 53. a
44. c 49. d 54. a
45. c 50, b 55, b
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
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

S Co. S Co. (Over) Under
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
S Co. S Co. Increase
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)
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
c. Partial/Proportionate Goodwill
Consolidated SHE:
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
600,000 600,000
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, P211,800
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
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
P 82,800
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
CNI, P274,800
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

follows:
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
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
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:
Cash…………………………………………………………….. 372,000
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)

Common stock (P240,000 x 80%)……………………. P192,000
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
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
fair value)………………………………………………... P 15,000
5. Consolidation Workpaper – 20x4 Year of Acquisition (Partial-goodwill)
Investment in S Co…………………………………………… 288,000
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
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 of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
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 controlling P 3,000 80.00%
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
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 P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000

- equipment
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
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
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
Non-controlling interest (P90,000 x 20%) 18,000
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
share of dividends.
P 82,800
Non-controlling Interest in Net Income (NCINI P 16,560

December 31, 20x5 (Second Year after Acquisition)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
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 P 90,000 P 258,240
P Company P484,800 (2) 13,560 (1) 19,200 P 490,440
S Company P 144,000 (2) 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 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 114,000 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) 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
Accumulated depreciation
- 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

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
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
(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 (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)
Bonds payable _______ _______ P 1,200
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
P2,500, impairment on partial-goodwill)* 750
*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).

Cost Model (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
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 _ ________
Sheet P484,800 P144,000 P 490,440
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) 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
Cash……………………… 38,400
Cash 48,000

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

4. Schedule of Determination and Allocation of Excess (Full-goodwill) – refer to the schedule
above.

year, 1/1/20x5.
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

(P16,950 x 80%) 13,560
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

share of dividends.

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


Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

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
(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

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
Consolidated SHE:
NCI, 1/1/20x4 (b) ___90,000
Consolidated SHE:
NCI, 1/1/20x4 (b) ___93,000

Partial Full- Partial Full-
Consolidated Amounts Goodwill Goodwill Goodwill Goodwill
a. Cash P P 367,200
P 322,800 P 322,800 367,200
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
h. Total Assets 1,782,600 1,784,850 1,975,800 1,978,050
j. Bonds payable 360,000 360,000 360,000 360,000
P&L
n. Sales 720,000 720,000 900,000 900,000
p. Gross profit 372,000 372,000 492,000 492,000
impairment)
r. Investment Income/Equity in -0- -0- -0- -0-
Subsidiary Income
Income
600,000 600,000
P&L* 490,440 490,440 676,680 676,680
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
12/31/20x4:
CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
NCI-CNI
P 46,800
CNI, P211,800
follows:
Total P562,440
Total P180,000
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
follows:
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:
NCI, 12/31/20x5 ___99,120

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
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
CNI, P211,050
follows:
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
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
NCI-CNI – P16,560
P 82,800
CNI, P274,800
follows:
consolidation or to establish reciprocity:/P’s share in adjusted net
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)
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 __101,370
80% Partial Goodwill – Equity Method – First Year
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 80%)
NI of S 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

Common stock (P240,000 x 80%)……………………. P192,000
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
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Sold expense -Interest Total
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
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 controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
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 S
(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
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

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 -
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
(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

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 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

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 – P12,000) 84,000

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)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200

follows:

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
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
(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

Sales P540,000 P360,000 P 900,000
Investment income 66,240 - (4) 66,240 ___________
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 -
Sheet P676,680 P186,000 P676,680
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) 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

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800
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 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 114,000 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) 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
The following are entries recorded by the parent in 20x4 in relation to its subsidiary
investment:
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

December 31, 20x4:

follows:
Investment in S
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
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
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000

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
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
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
*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 (refer to Illustration 15-6).
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 -
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) 15,000 (3) 3,750 11,250
(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

P Co. S Co.
Sales P 540,000 P 380,000
Net income P 258,240 P 90,000
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:

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,
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
(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

above.
5. Consolidation Workpaper – Second Year after Acquisition

guidance for the worksheet eliminating entries.
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.

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
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 impairment)*
or (P3,750 x 20%)] 17,610
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
Investment in S
(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
Goodwill 0

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 -
Sheet P676,680 P186,000 P676,680
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
- 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)
(2 ) 76,800 9,600
(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:
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 x80%)
12/31/x4 600,000 18,750
7,500 - Div–S (10 x80%)
12/31/x5 600,000 18,750
30,000 - Div–S (40 x80%)
12/31/x6 600,000 30,000
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 - Son NI of Son
(80,000 75% Amort& Amortization (80,000
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div – Son NI of Son
(90,000 75%Amort& Amortization (90,000
12/31/x6632,025 63,525
2. Cost method:
Investment in Son Dividend Income
1/1/x4 CI…… 600,000
18,750 - Div–S (75 x80%)
12/31/x4 600,000 18,750
7,500 - Div–S (10 x80%)
12/31/x5 600,000 18,750
30,000 - Div–S (40 x80%)
12/31/x6 600,000 30,000
Equity Method
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,000 75% Div – Son NI of Son
(90,000 75%Amort& Amortization (90,000
12/31/x6 632,025 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 acquisition) 100,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
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
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), 12/31/20x6 . . . . . . . . . . . . . . . . . P 133,000
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… ___4,825 ___*77,675
*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
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
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%
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 – P40,000) P 160,000
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 75%)] P170,000
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
Add: Non-controlling Interest in Net Income (NCINI) __21,175
*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 25%)* ___4,825
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
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 – P40,000) P 160,000
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 – P40,000) P 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
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
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
Less: Dividends of P Company ____5,000
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
d.
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
X: Controlling interests __85%
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
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
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

d.
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
Less: Dividends of P Company ____5,000
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

d.
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
Less: Cumulative amortization of allocated excess _______0
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
Less: Cumulative amortization of allocated excess _______0
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, 20x4 160,000
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 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
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 / 85%) 739,000

Silk –Common shares 500,000
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
Add: Non-controlling Interest in Net Income (NCINI) ___8,400

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:
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 100%)............ 180,000
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
Goodwill impairment ___9,900 __23,920

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
Less: Dividends of P Company __40,000
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)
(20,000 + 16,000) 36,000
Amortization of allocated excess (refer to amortization
above – 20x4 and 20x5 (P2,000 + 16,000 + 2,000) ( 20,000)
Non-controlling interest (partial-goodwill), 12/31/20x5……….. P 72,200
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)

1. b – P500,000 + P3,461
2. b
3. c P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
4. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]
5 a Fair value of non-controlling interest on April 1 .................................................... P165,000
30% of net income for 9 months (¾ year×P240,000 × 30%) ................................ 54,000
Non-controlling interest December 31 ................................................................... P219,000
6. c
Book value of SHE – S, 12/31/20x4 P1,000,000
Add: Net income of S – 20x4 ___150,000
Total P1,150,000
Less: Dividends paid – 20x4 ____90,000
Stockholders’ equity – S Company, December 31, Year 2 P1,060,000
liabilities, date of acquisition January 1, 20x4 200,000
Amortization of allocated excess (refer to amortization above: P200,000/10 _( 20,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P1,240,000
Multiplied by: Non-controlling Interest percentage…………... 30%
Non-controlling interest (partial) P372,000
Add: NCI on full-goodwill P85,714 – P60,000) ___25,714
Non-controlling interest (full) P397,714
*P900,000/70% = P1,285,714 – P1,000,000 = P285,714 – P200,000 = P85,714, full goodwill
*P900,000 – (P1,000,000 x 70%) = P200,000 – (P200,000 x 70%) = P60,000, partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3 either partial or full-
goodwill approach are considered acceptable.
6. b – (P50,000 + P70,000) x 25% = P30,000
7. b – P only.
8. b - {(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
9. d - {(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
10. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
11. b
P: BV,12/31/20x5 P 975,000
S:
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 6,000 129,000
P1,104,000
12. b
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
13. d – same with No. 12
14. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
15. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
16. d – 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
P300,000
17. b
Decrease in Buildings account:
Fair value……………………………………………P 8,000
Book value………………………………………….. __10,000
Decrease…………………………………………….P 2,000
18. d
Decrease in buildings account (refer to No. 73)………… P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,800
19. d
Decrease in buildings account (refer to No. 74)………… P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,600
20. a
Increase in Equipment account:
Fair value……………………………………………P 14,000
Book value………………………………………….. __18,000
Increase…………………………………………….P 4,000
21. a
Increase in equipment account (refer to No. 76)………… P 4,000
Less: Decrease due to depreciation (P4,000/4)…………… 1,000
Increase in equipment accounts……………………………..P 3,000
22. a
Increase in equipment account (refer to No. 77)………… P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts……………………………..P 2,000
23. a
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
24. b – refer to No. 23, no depreciation/amortization

25. b – refer to No. 23, no depreciation/amortization
26. e
Increase in Patent account:
Fair value……………………………………………P 11,000
Book value………………………………………….. _ 0
Increase…………………………………………….P 11,000
(P234,000/90%) – (P160,000 + P80,000) = P20,000 – (P4,000 – P2,000 + P7,000) = P11,000.

Partial or full-goodwill approach, the amortization remains the same.
27. e
Increase in patent account (refer to No. 159)……………… P 11,000
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 8,800
28. d
Increase in patent account (refer to No. 160)……………… P 8,800
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 6,600
29. d – equivalent to consideration transferred, P320,000
30. d – equivalent to consideration transferred, P380,000
31. a
32. P2,120,000
Podex’s separate earnings for 20x6 ..................................................... P2,000,000
Dividend income from Sodex ................................................................ __120,000
Podex’s 20x6 net income ....................................................................... P2,120,000
33. P2,260,000
Podex’s separate earnings for 20X6 P2,000,000
Podex’s equity in net income of Sodex ............................................... 300,000
Less: Amortization of cost in excess of book value ........................... (40,000)
Podex’s 20x6 net income ....................................................................... P2,260,000
34. b
35. c
Retained earnings of Parent, 12/31/20x6, Cost Method 310,000
Add: Increased in Retained earnings of Subsidiary _80,000
RE of Parent, 12/31/20x6, Equity Method (same with Consolidated RE) 390,000
36. c
Investment balance 12/31/x6, Cost Method 200,000
Add: Increased in Retained earnings of Subsidiary 80,000
Investment balance 12/31/x6, Equity Method 280,000
37. d
Add: Increased in Retained earnings of Subsidiary _240,000
38. b – dividends of subsidiary considered as dividend income in the parent’s separate income
statement.
39. c - 20x4 = P86,400
Consolidated Net Income 20x4 20x5
Peters Company's reported net income 64,000 37,500
Less: dividend income from Smith (1,600) _____0
Peters' income from independent operations 62,400 37,500
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000) 24,000
Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 ______ (4,000)
Controlling Interest in Consolidated net income 86,400 33,500
40. c - 20x5 = P33,500 – refer to No. 39

41. b - 20x4 = P151,400
Consolidated Retained Earnings 20x4 20x5
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000)) 22,400
(.80  (P48,000 – P25,000) ________ 18,400
P151,400 P179,900
42. c - 20x5 = P179,900 – refer to No. 19
43. b
Less: Decreased in Retained earnings of Subsidiary _40,000
44. d – 20x3: P30,000 x 75% = P22,500

20x4: P40,000 x 75% = P30,000
45. a – no changes in investment unless there are dispositions of investment and permanent
impairment.
46. c
P Company P30,200 – (P150,0000 – P20,000 – P60,000) P70,000
S Company (P100,000 – P15,000 – P45,000) 40,000
Total P110,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment ____0 ____0
Add: Non-controlling Interest in Net Income (NCINI) _____0
47. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P300,000
Shipping: P75,000 + P150,000………………………………………………………………... 225,000
P525,000
48.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoilidated retained earnings since it is the date of acquisition) P 150,000
Add: CI – CNI (refer to No. 46) 110,000
Less: CI – Dividends (Dividend of parent only) 25,000
Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000
49. d
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P 190,000
50. d
Total assets (No. 47) P525,000
Les: Liabilities (No. 49) 190,000
Stockholders’ equity P335,000
51. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares) P120,600
Less: Book value of SHE-S, 1/1:
Common stock – S: P50,000 x 90% P 45,000
APIC – S: P15,000 x 90% 13,500
RE – S: P41,000 x 90% 36,900 95,400
Allocated Excess P 25,200
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100–P16,100) x 90% P 900
Increase in Eqpt. (P48,000–P40,000) x 90% 7,200
Increase in Patents (P13,000–P10,000) x 90% 2,700 10,800
Positive Excess: Goodwill P 14,400
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year P 1,000
Equipment: P8,000 / 4 years 2,000
Patents: P3,000 / 10 years 300
P 3,300
52. c
Common stock – S P 50,000
APIC – S 15,000
RE – S 41,000
Stockholders’ equity – Subsidiary, 1/1 P106,000
Add: Adjustments to reflect fair value 12,000
Fair value of Stockholders’ Equity – S, 1/1 P118,000
x: Non-controlling) interests 10%
Non-controlling Interests (in net assets) P 11,800
53. a – P48,000, parent only.
54. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the
consolidated retained earnings.
55. b – P120,600, the initial value

56 b – P4,000 x 90% = P3,600
57. c
P CompanyP30,200 – (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Amortization of allocated excess 3,300
Goodwill impairment ____0 3,910
Add: Non-controlling Interest in Net Income (NCINI) 610

P 6,100
P 610
Less: Non-controlling interest on impairment loss on full-goodwill ____0
Non-controlling Interest in Net Income (NCINI) P 610
58. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31 15,000
Retained earnings - S, 12/31:
RE-S, 1/1/2011 P 41,000
Add: NI-S, 2011 9,400
Less: Dividends – S 4,000 46,400
Book value of SHE - S, 12/31 P 111,400
Add: Adjustments to reflect fair value, 1/1 12,000
Less: Amortization of allocated excess (1 yr.) 3,300
Fair Value of Net Assets/SHE - S, 12/31 P 120,100
x: Noncontrolling Interest % 10%
Noncontrolling Interest (in net assets), 12/31 P 12,010
59. b – refer to 57 for computation
60. c – refer to 57 for computation
61. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 53 P 48,000
Add: CI – CNI (refer to 57) 32,090
Less: CI – Dividends (Dividend of parent only) 15,000
Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090
62. b – same with No. 61
63. c
Consolidated Equity:
Controlling Interest / Equity Holders Attributable to Parent:
Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000
APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600
RE – P (refer to No. 61/62) 65,090
Parent’s Stockholders Equity or Controlling Interest – Equity P300,690
Non-controlling Interest 12,010
Consolidated Equity P 312,700
64. c – P60,000 x 80% = P48,000
65. c
Investment.1/1/20x4 P105,000
Add: Share in net income – 20x4 (P45,000 x 80%) 36,000
Less: Dividends received 12,000
Investment, 12/31/20x4 P129,000
Add: Share in net income – 20x5 (P60,000 x 80%) 48,000
Less: Dividends received 18,000
Investment, 12/31/20x5 P159,000
66. a
Investment. 4/1/20x6 P500,000
Add: Share in net income – 20x6
(3 quarters x P30,000 x 90%) 81,000
Less: Dividends declared of Satz (3 quarters x P10,000 x 90%) 27,000
Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate) 10,000
Investment, 12/31/20x6 P544,000
67. c
Patz’s equity in net income of Sats (90% x P30,000 x 3 qtrs) P 81,000
Less: Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate) 10,000
Investment income – 20x4 (equity method) P 71,000
68. d - {(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7

69. b
Full—goodwill Aproach
Common stock (P100,000 x 100%)………………. P 100,000
Increase in land (P5,000 x 100%)……………………. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
Positive excess: Increase in Patent (excess of cost over P 25,000
fair value)………………………………………………...

Account Adjustments to be amortized under Life Amount Year(20x4)
Equipment (net)......... 10,000 5 P 2,000 P 2,000
Patent 25,000 5 5,000 5,000
P 7,000 P 7,000
70. d
Investment in Wisden
1/1/x4. 180,000 18,000 Dividends – S
(20,000 x 90%)
NI of S
(60,000 Amortization
x 90%)……. 54,000 12,600 (P14,000 x 90%)
1/1/x6203,400
71. c
Investment in Wisden
1/1/x6. 230,400 9,000 Dividends – S
(10,000 x 90%)
NI of S
(30,000 Amortization
x 90%)……. 27,000 6,300 (7,000 x 90%)
1/1/x6215,100
72. a – under equity method, the Parent’s retained earnings is the same with Consolidated RE.
73. a
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value ........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
74. a
Punn’s net income from own operations, 12 months ended, 12/31/x6 P6,000,000
Add: Increase in RE of Sunn:
Punn’s equity in net income of Sunn (3 months ended,12/31/x6) P200,000
Amortization of cost in excess of book value ................................. ( 60,000)
Increase in Parent’s retained earnings……………………………… P 140,000
Punn’s net income for 20x6 under the equity method.………………… P6,140,000
75. b
Consideration transferred: 10,500 shares x P95 P997,500
Less: BV of SHE – S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
76. a – P900,000 + P500,000 = P1,400,000
77. d – assumed that total expenses includes cost of goods sold which is different when the
question is “total operating expenses”
Cost of goods sold (P360,000 + P200,000) P 560,000
Depreciation expense (P140,000 + P40,000) 180,000
Other expenses (P100,000 + P60,000) 160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20 (P1,500)
Equipment; P80,000 / 10 8,000
Trademark: P50,000 / 16 3,125 9,625
Total expenses P909,625
78. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
79. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
80. c – P450,000 + P180,000 + P40,000 = P670,000
81. d – P50,000 – P3,125 x 5 years) = P34,375
82. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
83. a – P only
84. a
Consolidated Retained earnings, January 1, 20x4 (equity method) P 1,350,000
Total P1,840,375
Consolidated Retained Earnings, December 31, 20x4 (under equity method) P1,645,375
Net Income from own operations: P Co S Co

Sales P900,000 P500,000
Less: cost of goods sold 360,000 200,000
Gross profit P540,000 P300,000
Other expenses 100,000 60,000
Net income P300,000 P200,000

P Company P300,000
S Company 200,000
Total P500,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment (impairment under full-goodwill approach) _ 0 9,625
85. c
Note: Normally, the term used in the requirement “equity in subsidiary income”, is a term used
under equity method, but it should be noted that under PAS 27, it prohibits the use of equity
method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the
answer would be, P190,375.
Share in net income: P200,000 x 100% P200,000
Less: Amortization of allocated excess 9,625
P190,375
86. b
Net Income from own operations: 20x4 20x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P 125,000 P 135,000
Subsidiary’s other comprehensive income………….. 5,000 10,000
Total Comprehensive Income……………………….....P130,000 P145,000
Less: Amortization of allocated excess…………….… 6,250 6,250
Impairment of full- goodwill (if any)…………. 0 0
Consolidated /Group Comprehensive Income…… P123,750 P138,750
Less: Non-controlling interest in Comprehensive
Income *…………………………………………… 4,750 7,750
Controlling Interest in Consolidated ___________________
Comprehensive Income …. ……………………………..P119,000 P131,000
*Non-controlling interest in Comprehensive Income: 20x4 20x5

Subsidiary’s:
Net income from own operations………….......P 25,000 P 35,000
Other Comprehensive Income (P30,000 –
P25,000)…………………………….…………... 5,000 10,000
Subsidiary’s Comprehensive Income…………........P 30,000 P 45,000
Less: Amortization of allocated excess*………….. 6,250 6,250
Impairment of full-goodwill (if any)....………. 0 0
P 23,750 P 38,750
x: Non-controlling interests……………………………. 20% 20%
Non-controlling interest in Comprehensive Income P 4,750 P 7,750
*Amortization of allocated excess:

Increase in other intangibles: P50,000 / 8 years = P 6,250
87. c – refer to No. 86

89. b- refer to No. 86
90. a
20x4 Investment income: Dividend of P10,000 x 100% = P10,000
20x4 Investment balance: P500,000
91. b
Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..………. P 80,000
Less: Amortization of cost in excess of book value
Inventory: P20,000 x 100%……………………………………………….. 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... 5,000
Investment income – 20x4 (equity method)………………………………. P 55,000
Investment balance, 1/1/20x4……………………………………………….. P500,000

Add: Pedro’s equity in net income of Sanburn – x4 (100% x P80,000).. 80,000
Less: Dividends (100% x P10,000)……………………………………………. 10,000
Amortization of cost in excess of book value:
Inventory: P20,000 x 100%……………………………………………… 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... __ _5,000
Investment balance, equity method, 12/31/20x4…………………………… P545,000
92. d
Under the cost method, an investor recognizes its investment in the investee at cost. Income
is recognized only to the extent that the investor receives distributions from the accumulated
net profits (or dividend declared/paid by the investee) of the investee arising after the date
of acquisition by the investor. Distributions (dividends) received in excess of such profits are
regarded as a recovery of investment and are accounted for as a reduction of the cost of
the investment (i.e., as a return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the
same.
93. d – refer to No. 92 for further discussion.

94. b – refer to No. 92 for further discussion.
95. a – P40,000 x 80%
96. b – P50,000 x 80%
97. a – P60,000 x 80%
98. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P100,000
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**………… 0
P 93,000
x: Non-controlling interests……………………………. 20%
Non-controlling interest in Net Income………………………..P 18,600
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization……………………………… P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full-
goodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Less: Amortization of allocated excess*……………… 7,000
P 93,000
Non-controlling interest in Net Income…………………. P 18,600
99. c
Less: Amortization of allocated excess*…………….. 7,000
Impairment of full-goodwill (if any)**………… 0
P113,000
Non-controlling interest in Net Income……………………….. P 22,600

Total amortization………………………. P 7,000
interests

Less: Amortization of allocated excess*…………….. 7,000
P113,000
Non-controlling interest in Net Income…………………………P 22,600
100. a
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**……… 0
P123,000
x: Non-controlling interests………………………….. 20%
Non-controlling interest in Net Income……………………… P 24,600
Total amortization………………………. P 7,000
interests

Less: Amortization of allocated excess*……………… 7,000
P123,000
x: Non-controlling interests……………………………… 20%
Non-controlling interest in Net Income………………..P 24,600
101. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4……………………………… P 300,000
Retained earnings, 1/1/20x4………………………….P200,000
Add: Net income – 20x4…………………………….. 100,000
Less: Dividends paid, 20x4…………..………………40,000 260,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year…………………………………….…. 7,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P623,000
Multiplied by: Non-controlling Interest %........................... ____ 20%
Non-controlling Interest (partial goodwill)………………….. P124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of consideration transferred: Cash………… P 500,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary): (P300,000 + P200,000) x 80%.. 400,000
Allocated Excess.…………………………………………. P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%......................... 32,000 56,000
Goodwill (Partial)………………………………………….. P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%........………………………….. P 625,000
Equity - Subsidiary)…………................................... 500,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 55,000
102. e
Common stock, 12/31/20x5……………………………… P 300,000
Retained earnings, 1/1/20x5 …………………..……P260,000
Add: Net income, 20x5………………………………. 120,000
Less: Dividends paid, 20x5…………………………… 50,000 330,000
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5… P 686,000
Multiplied by: Non-controlling Interest %.............................. 20%
Non-controlling Interest (partial goodwill)………………….. P 137,200
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 148,200
103. e
Common stock, 12/31/20x6……………………………… P 300,000
Retained earnings, 1/1/20x6………………………….P330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6………………………….. 60,000 400,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6… P 749,000
Multiplied by: Non-controlling Interest %............................ 20%
Non-controlling Interest (partial goodwill)………………….. P 149,800
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
104. P542,400
Add: Bell’s equity in net income of Demers – x4 (80% x P100,000)..…… 80,000
Less: Dividends (80% x P40,000)………………………………………………. 32,000
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
Investment balance, equity method, 12/31/20x4…………………………. P542,400
105. c
106. b
107. a
Bell’s equity in net income of Demers (80% x P100,000)………………. P 80,000
Less: Amortization of cost in excess of book value (refer to No. 104):
(P2,400 + P3,200) 5,600
108. a
(P2,400 + P3,200) 5,600
109. c
(P2,400 + P3,200) 5,600
110. c
Subsidiary net income from own operations…………………………… P100,000
Less: Amortization of allocated excess (refer to No. 104)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 93,000
x: Non-controlling interests……………………………………………….. 20%
Non-controlling interest in Net Income………………………………… P 18,600
111. Ignore
112. c
(P3,000 + P4,000)………………………………………..……………. 7,000
P 113,000
113. c
(P3,000 + P4,000)………………………………………..……………. 7,000
P 123,000
114. a – same with No. 101 (cost model)
115. e – same with No. 102 (cost model)
116. d – same with No. 103 (cost model)
117. b
118. b – Dividend paid – S, P70,000 x 60% = P42,000
119. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000
P Company P190,000
SCompany 90,000
Total P280,000
Goodwill impairment ____0 45,000

Amortization of allocated excess – 20x4 ( 15,000_
P75,000
P 30,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ______0
P 30,000
20x5 results of operations are as follows:

Peer Sea-Breeze
Sales P 600,000 P 300,000
Less: Cost of goods sold Operating expenses 410,000 210,000
Net income P 235,000 P 90,000
Computation of Goodwill:
Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) __550,000
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0
Book Value Fair Value Over/under Amort.
Buildings (net)- 6 300,000 360,000 P 60,000 P 10,000
Equipment (net)– 4 300,000 280,000 (20,000) (5,000)
Patent -10 -0- 100,000 100,000 10,000
Net P 140,000 P 15,000
120. c – refer to No. 119 for computations
121. b – refer to No. 119 for computations
122. c - P811,000.
Retained earnings - Parent Company, January 1, 20x5 (cost model) P700,000
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:
Less: Amortization of allocated excess – 20x2 – 20x4
(P15,000 x 3 years) 45,000
P 185,000
P 111,000
Less: Goodwill impairment loss (full-goodwill), 0 111,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary, the following rule should always be
applied –
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parent’s portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.
123. c - P811,000 – refer to note (b) of No. 122

124. b – P111,000 – refer to No. 122
125. d
Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 122 and 123) P 811,000
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5 235,000
Total P1,046,000
Less: Dividends paid – Parent Company for 20x5 92,000
Consolidated Retained Earnings, December 31, 20x5 P 954,000
126. d – refer to No. 125
127. c
Common stock – Subsidiary Company, December 31, 20x5…… P 480,000
Retained earnings – Subsidiary Company, January 1, 20x5 P300,000
Add: Net income of subsidiary for 20x5 90,000
Less: Dividends paid – Subsidiary – 20x5 70,000 320,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 800,000
Adjustments to reflect fair value - (over) undervaluation
of assets and liabilities, date of acquisition (January 1, 20x2) 140,000
Amortization of allocated excess (refer to amortization above) –
(P15,000 x 4) ( 60,000)
Fair value of stockholders’ equity of subsidiary, 12/31/ 20x5 P 880,000
Multiplied by: Non-controlling Interest percentage. 40
Non-controlling interest (partial) P 352,000
Add: NCI on full-goodwill……………………. ____0
Non-controlling interest (full) P 352,000
128. c
Common stock - Peer P 724,000
Owners of the Parent P 1,678,000
Non-controlling interest** 352,000
Total Stockholders’ Equity (Total Equity) P 985,500
129. c
Investment in Sea-Breeze Investment Income
1/1/x2. 414,000 42,000 Dividends – S NI of S
Retro 111,000 (70,000 x 60%
NI of S
x 60%)……. 54,000 9,000 (P15,000 x 60%) (P15,000 x 60%) 9,000 54,000 x 60%)
12/31/x5528,000 45,000
130. Ignore
131. c
136. a – not applicable under equity method.
141. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
142. b
Retained earnings – S Company, 1/1/20x4 P 60,000
Less: Retained earnings – S Company, 12/31/20x6 190,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
should always be beginning of the year, not 12/31/x6) P130,000
x: Controlling interests 90%
P117,000
143. (b)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)……………………………………... 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity –should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings………………………………………………………………………………………... P 22,000
x: Controlling interests……………………………………………………………………………………. .70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to
established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for
amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 2017 not
December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at the
beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary………………………………………………………………… 15,400
Retained earnings – Parent Company, 1/1/2017………………………………. 15,400
144. (a)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000
Increase in Retained earnings for 2 years……………………………………………………………… P 22,000
Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]………………… 4,000
P 18,000
x: Controlling interests………………………………………………………………………………………. 70%
Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600
145. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
146. a - under the cost model share in net income or earnings of subsidiary does not affect
investment.
147. d
Investment account, December 31, 20x7:
Original investment …………………………………………..P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000…………… 166,000
Less: Dividends received: 100% x P114,000……………… 114,000
Balance, December 31, 20x7…………………………….. P602,000
148. a
The adjusting entry required in 20x7 to convert from the cost to the equity method is:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny……. 110,000
149. d – P45,000/15% = P300,000

150. d
Pigeon’s separate income P150,000
Less: 60% of Home’s P10,000 loss = 6,000
Less: Equipment depreciation
P10,000/ 10 years = __1,000
Controlling Interest in Consolidated Net Income P143,000
Add: NCI in CNI
NL of S Company P( 10,000)
Less: Amortization of allocated excess (P1,000/60%) 1,667
P (11,667)
Multiplied by: NCI% 40% ( 4,667)
Consolidated Net Income P138,333
151. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
P195,000
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
152. c
P Company P 375,000
S Company 30,000
Total P405,000

Less: Amortization of allocated excess** 3,750
P26,250
**P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
153. a
*Non-controlling Interest in Net Income (NCINI) for Year 3
P487,500
Non-controlling Interest in Net Income (NCINI) for Year 3 P146,250
154. c
P Company P 625,000
S Company 50,000
Total P675,000

Less: Amortization of allocated excess** 6,250
P43,750
**P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
155. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667
Amortization of allocated excess: P15,000 x 4/12 5,000
P211,667
156. c
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
157. a
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
158. b Combined revenues .................................................................................................. P1,100,000
Combined expenses .................................................................................................. (700,000)
Excess acquisition-date fair value amortization ................................................... (15,000)
Consolidated net income......................................................................................... P385,000
Less: Non-controlling interest (P85,000 × 40%) ....................................................... (34,000)
Consolidated net income to controlling interest ................................................. P351,000
159. c HH expense .................................................................................................................. P621,000
NN expenses ................................................................................................................ 714,000
Excess fair value amortization (70,000 ÷ 10 yrs) ..................................................... 7,000
Consolidated expenses ............................................................................................. P1,342,000
160. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the
same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe…………………………………… P 300,000
Subsidiary - George (P500,000 – P400,000)…….. 100,000
P 400,000
Less: Amortization of allocated excess…………………… 6,000
Impairment of goodwill (if any)……………………. 0
Consolidated/Group Net Income…………………………. P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................ P 7,500
4/1/20y0 – 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................ 15,000
Total…………………………………………….. P 22,500
Less: Amortization of allocated excess:
1/1/20y0 – 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%.......... 450
4/1/20y0 – 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%........... 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%.......………… 0
Remaining 9 months: P 0 x 20%............... 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent…………………. P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
161. d – Economic Unit or Entity Concept (as required by PFRS 10)
P Company P 500,000
S Company 100,000
Total P600,000
Add: NCINI __20,000
CNI - entity concept P600,000

Less: Amortization of allocated excess _______0
P100,000
162. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10)
P Company P 500,000
S Company 100,000
Total P600,000

Less: Amortization of allocated excess _______0
P100,000
163. d
Inventory – not yet sold in 20x4 P 0
Building: (P390,000 – P200,000)/ 10 years 19,000
Equipment (P280,000 – P350,000)/ 5 years ( 14,000)
P 5,000
164. c
Plochman’s acquisition entry is:
Investment in Shure……………………………………………………………40,000,000
Retained earnings (acquisition-related expense – close to
retained since only balance sheet accounts are being
examined)…………………………………………………………………… 1,000,000
Common stock, 1,000,000 x P1 par……………………………… 1,000,000
PIC in excess of par [(1,000,000 x P39) – P800,000)…………… 32,000,000
Cash (P800,000 + P1,000,000)…………………………………….. 1,800,000
Eliminating entries are:

Book value of stockholders’ equity:
Stockholders’ equity-Shure………………………………………………… 6,000,000
Investment in Shure………………………………………………… 6,000,000
Allocated excess (acquisition/purchase differential):
Identifiable assets……………………………………………………………. 7,000,000
Long-term debt………………………………………………………………. 500,000
Goodwill………………………………………………………………………..28,500,000
Lawsuit liability………………………………………………………. 2,000,000
Investment in Shure………………………………………………… 34,000,000
165. d –refer to No. 164

166. a
167. a
Cost of Goods Sold P80,000 debit
Depreciation Expense (P192,000/120) 7 = P11,200 debit
168. c
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
169. a [(P250,000 - P180,000)/10]7
170. c
[(P380,000 - P260,000)/120]88
171. d
P Company P 200,000
S Company 100,000
Total P300,000
Add: NCINI __21,000

Less: Amortization of allocated excess __30,000
P 70,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P469,000 / 70%........………………………….. P 670,000
Equity - Subsidiary)…………................................... 500,000
Less: Over/Undervaluation of Assets and Liabilities
(P20,000 + P10,000 + P40,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 100,000
Amortization:
Inventory: P20,000 / 1 year = P20,000
Land…………………………….. 0
Equipment (P40,000/4)……… 10,000
P30,000
172. a
173. c - P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
174. b - [P320,000 - (P300,000 - P170,000)]/10
175. d
176. d - P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
177. a - [P405,000 - (P450,000 - P105,000)]/20
178. d - The acquisition method consolidates assets at fair value at acquisition date regardless
of the parent’s percentage ownership.
179. c - An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 20x5 ...................................................... P36,000
180. a - P650,000 =P500,000 + P200,000 - P50,000
181. b Combined revenues .................................................................................................. P1,300,000
Combined expenses .................................................................................................. (800,000)
Trademark amortization ............................................................................................ (6,000)
Patented technology amortization ........................................................................ (8,000)
Consolidated net income......................................................................................... P486,000
182. c
Subsidiary income (P100,000 – P14,000 excess amortizations) .......................... P86,000
Non-controlling interest percentage ...................................................................... __40%
Non-controlling interest in subsidiary income ....................................................... P34,400
Fair value of non-controlling interest at acquisition date ................................... P200,000

40% change in Scott book value since acquisition ............................................. 52,000
Excess fair value amortization (P14,000 × 40%) ..................................................... (5,600)
40% current year income .......................................................................................... __34,400
Non-controlling interest at end of year .................................................................. P280,800
183. a MM trademark balance............................................................................................ P260,000
SS trademark balance .............................................................................................. 200,000
Excess fair value .......................................................................................................... 60,000
Two years amortization (10-year life) ...................................................................... (12,000)
Consolidated trademarks ......................................................................................... P508,000
184. b
185. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)
186. c – equivalent to the original cost
187. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
188. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Theories
1. c 6. b 11. C** 16. c 21. d 26. c 31 c 36. d 41. a
2. d 7. c 12. b 17. c 22. a 27. d 32. b 37. b 42. c
3. d 8. d 13. d 18. d 23. b 28. c 33. c 38. b 43. a
4. d* 9. d 14. c 19. d 24. c 29. c 34. c 39. c
5. d 10, a 15, c 20. b 25. c 30. b 35. d 40. d
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.
Chapter 4
Problem I
Cost Model
1. January 1, 20x4

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
Consolidated SHE:
NCI, 1/1/20x4 (b) ___90,000

Consolidated SHE:
NCI, 1/1/20x4 (b) ___93,000

a. Cash P 355,200 P 322,800 P 367,200 P 367,200
c. Inventory 180,000 180,000 294,000 294,000
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
h. Total Assets 1,752,600 1,754,850 1,945,800 1,948,050
j. Bonds payable 360,000 360,000 360,000 360,000
P&L
n. Sales 510,000 510,000 705,000 705,000
p. Gross profit 342,000 342,000 492,000 492,000
impairment)
Income
600,000 600,000
P&L* 462,840 462,840 647,880 647,880
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
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.
CI-CNI – P174,840
P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
S Company’s net income from own operations…………………………………. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
S Company’s realized net income from separate operations*…….….. P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income* * P 6,960
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
*that has been realized in transactions with third parties.
NCI-CNI – P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Company’s realized net income from separate operations……… P 48,000
P 34,800
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960
CNI, P181,800
follows:
Total P534,840
Total P180,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 ___89,760
12/31/20x5:
CI-CNI
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Son Company’s realized net income from separate operations*…….….. P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * 17,760
equity holders of parent – 20x5………….. P257,040
Or, alternatively
Total P282,000
Amortization of allocated excess…………………… 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040
NCI-CNI
P 88,800
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040
follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S
Company (downstream sales) –20x5 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000
(P 1,200)
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Total P748,680
proportionate to NCI acquired
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model)
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company.
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 – partial goodwill ___97,920

12/31/20x4:
recognized.
CI-CNI – P174,840
Perfect Company’s realized net income from separate operations*…….….. P150,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
NCI-CNI – P6,210
P 34,800
Non-controlling Interest in Net Income (NCINI) – partial P 6,960
Less: Non-controlling interest 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
Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,210
CNI – P181,050
follows:
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Total P534,840
Non-controlling interest ), December 31, 20x4
Total P180,000
Non-controlling interest (partial-goodwill), December 31, 20x4 P 89,760
Non-controlling interest (full-goodwill), December 31, 20x4 P 92,010
Consolidated SHE:
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P1,062,840
NCI, 12/31/20x4 – full ___92,010
12/31/20x5:
CI-CNI – P257,040
Total P282,000
Or, alternatively
Total P282,000
NCI-CNI – P16,560
P 88,800
Less: NCI on goodwill impairment loss on full goodwill 0
CNI, P274,800
follows:
parties.. P466,800
(P 1,200)
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 ( 3,960)
Total P719,880
Or, alternatively:
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
20x4 and 20x5 (P13,200 + P7,200) 20,400
P 39,600
P 31,680
(P3,750 x 80%) 3,000 28,680
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Consolidated SHE:
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,247,880
NCI, 12/31/20x5 – full goodwill ___100,170

January 1, 20x4:
Cash…………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Cash……. 36,000
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000

SCo. S Co. (Over) Under
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. SCo.
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… 48000 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 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:
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-
controlling interest of 20% computed as follows:
Value % of Total
The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales,
are as summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Investment in Son Co………………………………………………. 84,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
book value of S’s identifiable assets and liabilities as follows:
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200

share of dividends.
(E5) Sales………………………. 150,000

Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000

To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000

Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.

To defer the upstream sales - unrealized profit in ending inventory


Unrealized profit in ending inventory of P
Company (upstream sales)……………………….. ( 12,000)
S Company’s realized net income from
separate operations*…….….. P 48,000
Less: Amortization of allocated excess [(E3)]…. 13,200
P 34,800
Non-controlling Interest in Net Income (NCINI)
– partial goodwill P 6,960
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment
loss on goodwill and impairment losses are not shared with NCI.

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 28,800 _________
Cost of goods sold P204,000 P138,000 (3) 6,000 (5) 150,000 P 168,000
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,800
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 196,800 __60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - __36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
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) 12000 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
- 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) 18,000
_________ _________ __________ (9) 6,960 ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600

Cash……………………… 38,400
Cash 48,000

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

above.
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:


Retained earnings – S Co., 1/1/20x5 144.000
(E3) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. .... 96,000
Accumulated depreciation – buildings………………….. ... 192,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings………………………………………........................... 216,000
Non-controlling interest (P90,000 x 20%)............................ 18,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
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%
Total P 13,560

share of dividends.
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Beginning Retained Earnings – P Company…… 18,000

Cost of Goods Sold (Ending Inventory – Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in the
prior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600

Noncontrolling interest (P12,000 x 20%)…… 2,400
To realized profit in beginning inventory deferred in the prior period.



Realized profit in beginning inventory of P

Company - 20x5 (upstream sales) 12,000
Company - 20x5 (upstream sales) ( 6,000)
S Company’s Realized net income* P 96,000
P 88,800
Non-controlling Interest in Net Income (NCINI )
*from separate transactions that has been realized in transactions
with third persons.
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 (10) 24,000 (6) 120,000
(11) 6,000 (7) 75,000 213,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (2) 13,560
(8) 18,000
(9) 9,600 (1) 19,200 P 462,840
S Company P 144,000 (2) 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
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
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
- 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
(5) 9,600 (2 ) 76,800
(9) 2,400 (3) 18,000
___ _____ _________ __________ (12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800

January 1, 20x4:
Cash…………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Cash……. 36,000

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
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

share of dividends.
(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000





P 34,800
– partial goodwill
P3,000, impairment on partial-goodwill) 750
– full goodwill P 6,210

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 28,800 _________
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,050

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
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 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (7) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ (9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850

Cash……………………… 38,400
Cash 48,000

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

above.
year, 1/1/20x5.


Retained earnings – S Co., 1/1/20x5 144.000
(E3) Inventory…………………………………………………………………. 6000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

(P16,950 x 80%) 13,560
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

share of dividends.
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Beginning Retained Earnings – P Company…… 18,000

prior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600

To realized profit in upstream beginning inventory deferred in the
prior period.




Son Company’s Realized net income* P 96,000
P 88,800
- partial goodwill
Goodwill 0
with third persons.


Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
(11) 6,000 (7) 90,000
(8) 21,600
(9) 14,400
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (3) 13,560
(8) 18,000
(9) 96000 (4) 19,200 P 462,840
S Company P 144,000 (5) 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000
(10) 24,000
(11) 6,000 294,000
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
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
- 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) 9,600 (2 ) 76,800
(9) 2,400 (3) 21,000
___ _____ _________ __________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
Problem II
Equity Method
1. January 1, 20x4

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
Consolidated SHE:
NCI, 1/1/20x4 (b)- partial goodwill ___90,000

Consolidated SHE:
NCI, 1/1/20x4 (b) – full goodwill ___93,000

a. Cash P 322,800 P 322,800 P 367,200 P 367,200
c. Inventory 180,000 180,000 294,000 294,000
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
h. Total Assets 1,752,600 1,752,600 1,945,800 1,948,050
j. Bonds payable 360,000 360,000 360,000 360,000
P&L
n. Sales 510,000 510,000 705,000 705,000
p. Gross profit 342,000 342,000 492,000 492,000
impairment)
r. Investment Income/Equity in -0- -0- -0- -0-
Subsidiary Income
Income
600,000 600,000
P&L* 462,840 462,840 647,880 647,880
recognized.

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
12/31/20x4:
CI-CNI – P174,840
Total P198,000
NCI-CNI – P6,960
P 34,800
CNI – P181,050
follows:
Total P534,840
Total P180,000
Non-controlling interest (full-goodwill)…………….. P 92,010
Consolidated SHE:
Consolidated SHE:
NCI, 1/1/20x4 - partial ___92,010
12/31/20x5:
CI-CNI – P257,040
Total P282,000
Or, alternatively
Total P282,000
NCI-CNI – P16,560
P 88,800
CNI, P274,800
Add: Non-controlling Interest in Net Income (NCINI) – partial _ 17,760
follows:
parties.. P466,800
(P 1,200)
(P 960)
(P3,750 x 80%) 3,000 ( 3,960)
Total P719,880
proportionate to NCI acquired
Or, alternatively:
20x4 and 20x5 (P13,200 + P7,200) 20,400
P 39,600
P 31,680
(P3,750 x 80%) 3,000 28,680
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 – partial ___97,920

12/31/20x4:
recognized.
CI-CNI – P174,840
Total P198,000
NCI-CNI – P6,210
P 34,800
20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on
CNI – P181,050
follows:
Total P534,840
Total P180,000
Non-controlling interest (full-goodwill), December 31, 20x4 P 92,010
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 – full ___92,010
12/31/20x5:
CI-CNI – P257,040
Total P282,000
Or, alternatively
Total P282,000
NCI-CNI – P16,560
P 88,800
CNI, P274,800
follows:
parties.. P466,800
(P 1,200)
(P 960)
(P3,750 x 80%) 3,000 ( 3,960)
Total P719,880
Or, alternatively:
20x4 and 20x5 (P13,200 + P7,200) 20,400
P 39,600
P 31,680
(P3,750 x 80%) 3,000 28,680
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 – full goodwill ___100,170

January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
December 31, 20x4:

To adjust investment income for downstream sales - unrealized profit
in ending inventory of S.
December 31, 20x4:

To adjust investment income for upstream sales - unrealized profit in
ending inventory P .
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son (P15,000 x 100%)
9,600 UPEI of Perfect (P10,000 x80%)
Balance, 12/31/x4 350,040
Investment Income
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
Common stock (P240,000 x 80%)……………………. P 192,000
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. SCo.
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… 48000 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
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:
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total

Value % of Total
Interest
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200

share of dividends.
(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000





P 34,800
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment
loss on goodwill and impairment losses are not shared with NCI.
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
(5) P 168,000
Cost of goods sold P204,000 P138,000 (3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 60,000 P181,800

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 ________
Sheet P462,840 P144,000 P 642,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (1) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
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
(2) 84,000
-
Total P1,962,840 P1,008,000 P2,394,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 6,960 ____89,760
Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 257,040 P 90,000
20x5: Parent Company Equity Method Entry

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

December 31, 20x5:

in ending inventory of Son (UPEI of S).
December 31, 20x5:

(6) Investment in S Company…………….. 18,000
Investment income (P18,000 x 100%)……….. 18,000
To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

ending inventory Perfect (UPEI of P).
December 31, 20x5:

To adjust investment income for upstream sales - realized profit in
beginning inventory of Perfect (RPBI of P)
Investment in S
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)
RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5

above.
guidance for the worksheet eliminating entries:
Investment in SCo (P384,000 x 80%) 307,200

Land………………………………………………………………………. 7,200
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.

To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Investment in Son Company……………………. 18,000

prior period.
(E9) Investment in Son Company (P12,000 x 80%) 9,600

prior period.
Investment in S
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
RPBI of P(P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280



Less: Amortization of allocated excess ( 7,200)
P 88,800
with third persons.
6. Worksheet for Consolidated Financial Statements, December 31, 20x5

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P777,456 P223,200 P 777,456
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
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) 9,000 9,000
(9) 9,600 (2) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800

- 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
(9) 2,400 (2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 17,760 ____97,920
Total P2,207,880 P1,074,000 P1,046,400 P1,046,400 P2,677,800
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

January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

December 31, 20x4:

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125
by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be
December 31, 20x4:

in ending inventory of S.
December 31, 20x4:

ending inventory P .
Thus, the investment balance and investment income in the books of P Company is as follows
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Balance, 12/31/x4 324,000
Investment Income
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4

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

controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400

follows:
Investment Income
Investment in S
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000





Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
– full goodwill P 6210
*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 (refer to Illustration 15-6).


Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
(5) P 168,000
Cost of goods sold P204,000 P138,000 (3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 50,000 P150,875

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P 414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P462,840 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
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
(2) 84,000
-
Total P1,635,700 P1,008,000 P2,396,850
Accumulated depreciation P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000

- equipment
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 6,210 ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 257,040 P 90,000

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

December 31, 20x5:

in ending inventory of S (UPEI of S).
December 31, 20x5:

To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

ending inventory P (UPEI of P).
December 31, 20x5:

To adjust investment income for upstream sales - realized profit in
beginning inventory of P (RPBI of P)
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
(90,000 x 80%) 72,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of (P18,000 x 100%) 18,000 4,800 UPEI of P (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P (P12,000 x 80%)
65,040 Balance, 12/31/x5
5. Consolidation Workpaper – Second Year after Acquisition (Full-goodwill)

Investment in SCo (P384,000 x 80%) 307,200

Land………………………………………………………………………. 7,200
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000
or (P3,750 x 20%)] 17,610
*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
(refer to Illustration 15-6).

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

follows:

NI of Son 38,400 Dividends – S NI of S
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Investment in Son Company……………………. 18,000

prior period.
(E9) Investment in Son Company (P12,000 x 80%) 9,600

Non-controlling interest (P12,000 x 20%)…… 2,400
prior period.
Investment in S
NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
404,280 404,280




Company - 20x5 (upstream sales) (6,000)
Son Company’s Realized net income* P96,000
Less: Amortization of allocated excess (7,200)
P88,000
Goodwill 0
with third persons.
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P647,880 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
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
(9) 9,600 (3) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050

- 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
(9) 2,400 (1 ) 76,800
(2) 17,610
___ _____ _________ __________ (14)17,760 ____100,170
Total P2,207,880 P1,074,000 P1,048,650 P1,048,650 P2,680,050
Problem III
1.
P Company’s net income from own/separate operations…………. P 760,000
P Company’s realized net income from separate operations*…….….. P 746,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
Total P1,206,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P1,206,000
equity holders of parent – 20x5………….. P 1,114,000
Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit
Ending inventory: P1,200,000 x ¼ = P300,000 x 20/120 = P50,000 profit
Or, alternatively
S Company’s realized net income from separate operations*…….….. P460,000 460,000
Total P1,206,000
Amortization of allocated excess…………………… 0 92,000
equity holders of parent………….. P1,114,000
Consolidated Net Income for 20x5 P 1,206,000

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P460,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P460,000
Less: Amortization of allocated excess _____0
P460,000
2. Books of Puma
(a) Cost Model
20x4
Dividend – Smarte Company:
None, since, there is no amount given
20x5
Dividend – Smarte Company:
(b) Equity Method

20x4
Net income – Smarte
Investment in Smarte (400,000 x 80%) 320,000
Equity in Subsidiary Income 320,000
Dividend – Smarte
Cash/Dividends receivable 0
Investment in Smarte 0
Amortization of Allocated excess:
Equity in Subsidiary Income 0
Realized Profit in BI:
Unrealized Profit in EI:
Investment in Smarte 36,000
20x5
Net income – Smarte
Investment in Smarte (460,000 x 80%) 368,000
Dividend – Smarte
3. Downstream Sales
20x4
100% Interscompany Sales
Sales……………………………………………………………………… 1,080,000
Purchases (Cost of Goods Sold)…………………………… 1,080,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[216,000 – (216,000/1.20)]………..………………………………….. 36,000
Inventory (Ending Inventory in Balance Sheet)…………….. 36,000
20x5
Sales…………………………………………………………………………1,200,000
Purchases (Cost of Goods Sold)……………………………. 1,200,000
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………….. 36,000
Cost of Sales (Beginning Inventory in Income Statement)….. 36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 – (300,000/1.20)]………..………………………………………….. 15,000
Inventory (Ending Inventory in Balance Sheet)……………….. 15,000
Problem IV
1.
P Company’s net income from own/separate operations…………. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 1, 720,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Total P2,309,000
equity holders of parent – 20x5………….. P 2,250,100
Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit
Ending inventory: P1,020,000 x ¼ = P255,000 x 25/125 = P51,000 profit
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (________0)
P Company’s realized net income from separate operations*…….….. P1,720,,000
Total P2,309,000
Amortization of allocated excess…………………… 0 __58,900

(Reported net income of Son Company) P600,000
Son Company’s realized net income from separate operations……… P589,000
P589,000
2. Books of Pinta
(a) Cost Method
20x4
Dividend – Simplex Company:
20x5
Dividend – Simplex Company:
(b) Equity Method

20x4
Net income – Simplex
Investment in Simplex (600,000 x 90%) 540,000
Dividend – Simplex
Investment in Simplex 0



20x5
Net income – Simplex
Dividend – Simplex



3. Upstream Sales:
Sales…………………………………………………………………………1,020,000
Purchases (Cost of Sales)……………………………………. 1,020,000
To eliminate intercompany sales.
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning (90% x P40,000)………… 36,000
NCI ……………………………………………….………………… . 4,000
Cost of Sales (Beginning Inventory in Income Statement) 40,000
To recognize unrealized profit in beginning inventory realized during the year.
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………51,000
Inventory (Ending Inventory in Balance Sheet)……… 51,000
To eliminate unrealized intercompany profit in ending inventory.
Problem V
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):…………………........................................................ P15,000
RPBI of P (upstream sales)………………………....................................................... 10,000
UPEI of S (downstream sales)……………………………………………………..……. 20,000
UPEI of P (upstream sales)………………………………………………….…………… 5,000
P Company’s net income from own/separate operations (P724,000 – P24,000 P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
Or, alternatively
P Company’s net income from own/separate operations P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
P 93,000
Note: Preferred Solution - since what is given is the RE – P, 12/31/20x4 (ending balance of the
current year) -
Retained earnings – Parent, 12/31/20x4 (cost)…………………… P 3,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5……. 20,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost)…….. P 3,480,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x1………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/20x4……… 320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)….. P 170,000
Accumulated amortization (1/1/20x1 – 12/31/20x4):
P 2,000 x 4 years………………………………………….( 8,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………..( 5,000)
P 157,000
x: Controlling Interests……………………………………… 80% 125,600
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……. P 3,605,600
Or, compute first the RE – P on January 1, 20x4 (use work-back approach),

Retained earnings – Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000
-: UPEI of S (down) – 2013 or RPBI of S (down) – 20x4..…………. 15,000
Adjusted Retained earnings – Parent, 1/1/20x4 (cost)……………… P2,786.000
Retained earnings – Subsidiary, 1/1/20x1……………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/20x4…………… 260,000
(cumulative net income – cumulative dividends)…… P 110,000
P 2,000 x 3 years…………………………………………… ( 6,000)
UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4……………… ( 10,000)
P 94,000
X: Controlling Interests………………………………………… 80% 75,200
RE – P, 1/1/20x4 (equity method) = CRE, 1/1/20x4…………… P2,861,200
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400
-: Dividends – P………………………..……………………… 25,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4…………. P3,605,600
Sales Cost of Sales
P P2,500,000 P1,250,000
S 1,200,000 875,000
Intercompany sales - downstream ( 320,000) ( 320,000)
Intercompany sales - upstream ( 290,000) ( 290,000)
RPBI of S (downstream sales)* ( 15,000)
RPBI of P (upstream sales)*** ( 10,000)
UPEI of S (downstream sales)** 20,000
UPEI of P (upstream sales)**** _________ 5,000
Consolidated P3,090,000 P1,515,000
Consolidated GP (P3,090,000 – P1,515,000) P1,575,000
Working Paper Eliminating Entries:

1. Intercompany Sales and Purchases:
Downstream Sales:
Sales……………………………………………………………………. 320,000
Cost of Sales (or Purchases)……………………………….... 320,000
Upstream Sales:
Sales…………………………………………………………………….. 290,000
Cost of Sales (or Purchases)………………………………… 290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)…... 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)……… 20,000
Inventory (Ending Inventory in Balance Sheet)……….. 20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning……………………………….. 16,000
NCI ……………………………………………….…………………... 4,000
Cost of Sales (Beginning Inventory in Income Statement)… 20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)……… 5,000
Inventory (Ending Inventory in Balance Sheet) …….. 5,000
Problem VI
1.
Non-controlling Interest in Net Income (NCINI) for 20x4
(Reported net income of Son Company) P3,000,000
Realized profit in beginning inventory of P Company (upstream sales): P525,000 x 25/125 105,000
Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x 25/125 ( 250,000)
Son Company’s realized net income from separate operations……… P 2,855,000
P3,055,000
2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of

parent – 20x5 – cannot be solved, since there is no net income from separate operations for
P Company.
Incidentally, the eliminating entries are as follows:

Sales 4,000,000
Cost of Goods Sold 4,000,000
Cost of Goods Sold 250,000
Ending Inventory (Balance Sheet) 250,000
[P1,250,000 - (P1,250,000/1.25)]
Retained Earnings, beginning – P Company (80%) 84,000
Noncontrolling interest (20%) 21,000
Cost of Goods Sold (Beginning Inventory) 105,000
[P525,000 – (P525,000/1.25)] = P105,000
3.
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P5,400,000
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P5,150,000
Non-controlling interest (in net assets)…………………………….. P1,030,000
Problem VII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 – P72,000) ........................................................... P48,000
Inventory remaining at year's end ........................................................................................ 30%
Unrealized Intercompany Gross profit, 12/31/x4 ................................................................ P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000
Inventory remaining at year's end ........................................................................................ 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................................. P10,000
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate intercompany sales of P250,000)
 Cost of goods sold:
Benson's book value ........................................................................................................ P535,000
Broadway's book value ................................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Cost of goods sold .................................................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
 Dividend income = -0- (intercompany transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is not included because
they were downstream)
Broadway reported income for 20x5 ............................................................................ P100,000
Intangible amortization .................................................................................................... (10,000)
Broadway adjusted income ............................................................................................ 90,000
Outside ownership ........................................................................................................... 30%
Noncontrolling interest in Broadway’s earnings .......................................................... P 27,000
or,
P Company’s net income from own/separate operations (P800-P535-P100) P 165,000
S Company’s net income from own operations (P600 – P400 – P100) P 100,000
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000
Consolidated Net Income for 20x5 P 259,400
equity holders of parent – 20x5………….. P 232,400

(Reported net income of S Company) P 100,000
P 90,000
 Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value ......................................................................... P285,000
Excess January 1 intangible allocation (30% × P295,000)...................................... 88,500
Noncontrolling Interest in Broadway’s earnings ............................................................. 27,000
Dividends (30% × P50,000) .................................................................................................. (15,000)
Total noncontrolling interest at 12/31/x5 .................................................................. P385,500
2. (Computation of selected consolidation balances as affected by upstream inventory

transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 – P72,000) .......................................................... P48,000
Inventory remaining at year's end ................................................................................ 30%
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000
Inventory remaining at year's end ................................................................................ 20%
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
 Cost of goods sold:
Benson's COGS book value ............................................................................................ P535,000
Broadway's COGS book value ...................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Consolidated cost of goods sold ........................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
 Dividend income = -0- (interco. transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is included because they
were upstream)
Broadway reported income for 20x5 ............................................................................................ P100,000

Intangible amortization .................................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ..................................................................................... 14,400
20x5 gross profit deferred ....................................................................................................... (10,000)
Broadway realized income for 20x5 ...................................................................................... P94,400
Outside ownership ........................................................................................................................... 30%
Noncontrolling interest .................................................................................................................... P28,320

Total P 269,400
Less: Amortization of allocated excess…………………… __10,000

P 94,400
 Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross
profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% × P935,600) ................................................................ P280,680
Excess intangible allocation (30% × P295,000) ..................................................... (88,500)
Noncontrolling Interest in Broadway’s earnings ................................................... 28,320
Dividends (30% × P50,000) ............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5 ............................................................... P382,500
Problem VIII
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold ...................................................................................... P290,000
SW’s cost of goods sold ..................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ....................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost = P12,000 unrealized gross profit) ..................................................... 12,000
Consolidated cost of goods sold ....................................................... P381,000
Consolidated Inventory
PP book value ............................................................................................... P346,000
SW book value .............................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) .......................... (12,000)
Consolidated Inventory .............................................................................. P444,000
Non-controlling Interest in Subsidiary’s Net Income
Because all intercompany sales were downstream, the deferrals do not affect SW.
Thus, the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods
sold and expenses) reported income or P11,600.
or
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
Total P 254,000
Less: Amortization of allocated excess…………………… ____0

(Reported net income of Son Company) P 58,000
Less: Amortization of allocated excess ____0
P 58,000
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................................... P290,000
SW book value .................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold .................................................................... P411,000
Consolidated Inventory
PP book value ...................................................................................................... P346,000
SW book value .................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income .......................................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) .................................. 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000)
SW realized income ............................................................................................ P54,000
Outside ownership percentage ....................................................................... 20%
Non-controlling interest in SW’s income .................................................. P10,800
or
Realized profit in beginning inventory of S Company (downstream sales)
Total P 254,000

Less: Amortization of allocated excess ____0
P 54,000

1. c
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 – P120,000) ............................................... P40,000
Inventory Remaining at Year's End ......................................................................... 20%
Unrealized Intercompany Gross profit, 12/31 ...................................................... P8,000
Consolidated Totals:
 Inventory = P592,000 (add the two book values and subtract the ending unrealized
gross profit of P8,000)
 Sales = P1,240,000 (add the two book values and subtract the P160,000
intercompany transfer)
 Cost of Goods Sold = P548,000 (add the two book values and subtract the
intercompany transfer and add [to defer] ending unrealized gross profit)
 Operating Expenses = P443,000 (add the two book values and the amortization
expense for the period)
 Gross profit: P1,240,000 – P548,000 = P692,000
 Controlling Interest in CNI:
Gross profit ...................................................................................................... P692,000
Less: Operating expenses ............................................................................ 443,000
Consolidated Net Income ............................................................................P249,000
Less: NCI-CNI..................................................................................................... 8,700
CI-CNI.................................................................................................................P240,300
or
Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)
Total P 262,000
Or, alternatively

Total P 262,000

P 29,000  N
Non-controlling Interest in Net Income (NCINI) – partial goodwill
onc P 8,700
+: NCI on full goodwill (not determinable) ontr ______-0-
Non-controlling Interest in Net Income (NCINI) – full goodwill ollin P 8,700
g
Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported income after
subtracting 13,000 excess fair value amortization and deferring P8,000 ending
unrealized gross profit) Gross profit is included in this computation because the
transfer was upstream from SS to PT.
2. c - Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
3. c - Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany
transfer and add [to defer] ending unrealized gross profit)
4. c - Gross profit: P1,240,000 (No. 2 above) – P548,000 (No. 3 above) = P692,000
5. d - Operating Expenses = P443,000 (add the two book values and the amortization expense
for the period)
9. a
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
P Company’s realized net income from separate operations*…….….. P 3,609,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200
equity holders of parent – 20x4………….. P6,970,800
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)
P Company’s realized net income from separate operations*…….….. P3,609,,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess…………………… 0 __541,200
Add: Non-controlling Interest in Net Income (NCINI) _541,200
**Salad
(Reported net income of S Company) P1,500,000
Son Company’s realized net income from separate operations……… P1,509,000
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
**Tuna
Son Company’s realized net income from separate operations……… P2,394,000
P2,394,000
Realized Profit in Beginning inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125 63,000
Unrealized Profit in Ending inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125 69,000

12. b Combined cost of sales
P 160,000
Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
13. d
Cost method: P40,000 x 70% = P28,000, dividend income
Equity Method: (P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary income
14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
15. d
Cost method: P60,000 x 80% = P48,000
Equity Method:
Equity In Subsidiary Income/Investment Income
*UPEI of Parent 20,000 96,000 NI-S (P120,000 x 80%)
76,000
* P200,000 x ½ = P100,000 x 20% = P20,000 x 100% (downstream) = P20,000
16. d Downstream situation

S Company’s net income from own/separate operations P120,000
x: NCI % 20%
P 24,000
17. c - There is no unconfirmed profit in beginning or ending inventory, so the only eliminating
entry is to debit sales revenue and credit cost of goods sold for P1,000,000.
18. c – P100,00 sales to unrelated/unaffiliated company.
19. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
20. a
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
S Company’s net income from own operations (P90,000 – P67,000) P23,000
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
Or, alternatively
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
equity holders of parent………….. P 51,490

Less: Amortization of allocated excess 0
P 16,100
21. d – P27,000 x 67/90 = P20,100

22. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
23. a – the cost of inventory produced by the parent (downstream sales)
24. c
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales) ()
Total P 58,000
Or, alternatively
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales ()
Total P 58,000

P 30,000
25. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales – upstream sales 60,000 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500
26. d – refer to No. 25 for computation

27. c – (P10,140,000 – P7,604,500) = P2,535,500
28. c
Sales
P Company 10,000,000
S Company __200,000
Total 10,200,000
Less: Intercompany sales – downstream sales 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________
Consolidated 10,140,000
29. a – (P40,000 x 140% = P56,000)

30. a – (P56,000 – P40,000 = P16,000)
31. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
32. c - refer to No. 31 for computations

33. b
P Company’s net income from own/separate operations P 225,000
S Company’s net income from own operations P 90,000
Realized profit in beginning inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000 )
Total P 300,000
Less: Amortization of allocated excess…………………… _0

P 75,000
34. c – refer to No. 33 for computations

35. a
20x4 and 20x5:: P12,000 x 80% = P9,600
20x6: P18,000 x 80% = P14,400
36. c
20x4: (P84,000 x 80%) = P67,200 – (P1,440 x 30% x 80%) = P66,854.40
20x5: (P102,000 x 80%) + (P1,440 x 30% x 80%) - (P4,800 x 30% x 80%) = P80,793.60
20x6: (P112,800 x 80%) + (P4,800 x 30% x 80%) – (P3,600 x 30% x 80%) = P90,258.00
37. b – (P14,400 + P432 – P1,440 = P13,392)
Analysis: Eliminating entries
Upstream Sales:
Sales………………………………………………………………………….. 14,400
Cost of Sales (or Purchases)…………………………………… 14,400
100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.):

(P1,440 x 30% = P432)
Retained Earnings – P, beginning…………………………………...….. 345.60
NCI ……………………………………………….…………………………… 86.40
Cost of Sales (Beginning Inventory in Income Statement).. 432.00
100% UPEI of P: (P4,800 x 30% = P1,440)

Cost of Sales (Ending Inventory in Income Statement)…………….. 1,440
Inventory (Ending Inventory in Balance Sheet)……………... 1,440
38. a – there are no intercompany profit in 20x3 (prior year), so need to adjust retained earnings.
39. c
40 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
41. e Consolidated sales P140,000
Cost of goods sold (60,000)
Income to Dresser’s noncontrolling
interest:
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
42. A Inventory reported by Lorn P 24,000
Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
43. a
S Company’s net income from own operations P150,000
[P105,000 x 20/120) ( 17,500 )
Total P 357,500
44. c
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250
Or, alternatively
S Company’s net income from own operations ( P135,000
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250

P126,250
45. a – refer to No. 44 for computation.

46. d
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Or, alternatively
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250

P 236,250
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875
47. a – refer to No. 46 for computation.
48. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
49. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
50. a Selling price P 50,000

Less: Cost of sales _40,000
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000
51. a
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
52. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
53. d
Combined cost of sales P 480,000
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
54. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
55. b
Cost of Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
56. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000
57. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent)Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180)= P16,000, 70%:30%
( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
58. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
(Reported net income of S Company) P 400,000 P 480,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Company’s realized net income from separate operations……… P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
59. b
(Reported net income of S Company) P 30.000
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Company’s realized net income from separate operations……… P( 27,000)
Less: Amortization of allocated excess ________0
P( 27,000)
Multiplied by: Non-controlling interest %.......... ____10%
Non-controlling Interest in GP P( 2,700)
Non-controlling Interest in GP P ( 2.700)
60. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
Less: Amortization of allocated excess _ 0
P 152,000
61. a - Investment income, P5,000 x 80% = P4,000; Investment in Leisure, P100,000.

62 . c
Investment in Leisure
Cost, 1/1/x3 109,070 4,000 Dividends – Lei (5,000x 80%)
NI of Leisure 4,800 Amortization (6,000 x 80%)
(13,000 x 80%) 10,400 850 Impairment (1,000 x 85%)*
RPBI of LP (350 x 80%) 280 336 UPEI of LP (420 x 80%)
Balance, 12/31/x3 109,764

Investment Income
Amortization 4,800 NI of Leisure
Impairment* 850 10,400 (13,000 x 80%)
UPEI of LP (420 x 80%)) 336 280 RPBI of LP (350 x 80%)
4,694 Balance, 12/31/x4
RPBI of LP: P1,350 x 35/135 = P350

UPEI of LP: P1,620 x 35/135 = P420
Partial
Consideration transferred . . . . . . . . . . . . . . . . . . . . . . P 100,000
Less: Book value of stockholders’ equity of LP
(P10,000 x 80%)………………………………………... ____8,000
Allocated excess (excess of cost over book value) . . . P 92,000
Increase in favorable leases (P30,000 x 80%) . . . . . ___24,000
fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 68,000
Full
Consideration transferred (80%). . . . . . . . . . . . . . . . . . P 100,000
Fair value of NCI (given) (20%)…………………………….. ___20,000
Fair value of Subsidiary (100%) ……………………………. P 120,000
Less: Book value of stockholders’ equity of LP
(P10,000 x 100%)………………………………………. ___10,000
Allocated excess (excess of cost over book value) . . . P 110,000
Increase in favorable leases (P30,000 x 100%) . . . . ___30,000
fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 80,000
Note: The controlling interests of parent to subsidiary of 80% is not an outright

application to impairment of goodwill, it still depends on the resulting goodwill of
partial and full goodwill, for instance in Questions 6 to 10, the CI is 85% and NCI is
15% for impairment computed as follows:
Partial goodwill 68,000 85%

NCI on Full Goodwill 12,000 _15%
Full-goodwill 80,000 100%
63. a
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . 350
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . ( 420)
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Impairment of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . ___1,000
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 25,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236
equity holders of parent – 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P24,694
Or, alternatively
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000) P 13,000
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,236
Impairment of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 8,236
equity holders of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,694
Add: Non-controlling Interest in Net Income (NCINI) . . . . . . . . . . . . . . . . . . . . . . _ _ 1,236
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P25,930

S Company’s realized net income from separate operations . . . . . . . . . . P 12,930
Less: Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
P 6,930
Multiplied by: Non-controlling interest % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill . . . . . . . . . . . P 1,386
Less: NCI on goodwill impairment loss on full goodwill (P1,000 x 15%). . . . . . . . . 150
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . . P 1,236
Or, alternatively
CI-CNI NCINI CNI
Parent’s net income own operations 20,000
Subsidiary’s reported net income 10,40 2,600
Favorable leases amortization (4,800) (1,200)
Goodwill impairment loss (850) (150)
Upstream beg. inv. profit confirmed 80 70
Upstream end. inv. profit unconfirmed (336) (84)
24,694 1,236 25,930
64. b
Retained earnings of Parent Company (under equity method) /
Consolidated Retained earnings , January 1, 20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
equity holders of parent for 20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,694
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 64,694
Less: Dividends paid – Parent Company for 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Retained earnings of Parent Company (under equity method) /
Consolidated Retained Earnings, December 31, 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 54,694
Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance
(which is under equity method) is always the same.
65. Ignore, there are some missing figures particularly the details of subsidiary’s stockholders
equity since the date of acquisition.
66. c
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
67. b
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
68. b - P45,000 + P110,000 - P50,000 - P80,000 = P25,000 increase
69. a
Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000
Ending inventory profit = P750,000 - P750,000/1.25 = P150,000
Downstream sales only affect equity in net income. P165,000 - P150,000 = P15,000 increase.
70. b
71. a
72. c – P400,000 x 1/4 = P100,000 x 30% = P30,000
73. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
74. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]
75. c
76 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
77. e Consolidated sales P140,000

Cost of goods sold (60,000)
Income to Dresser’s noncontrolling
interest:
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
78. A Inventory reported by Lorn P 24,000

Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
79. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
80. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573

Less: Cost of sales _40,000
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000
82. a
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
83. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Consolidated sales P 1,025,000
84. d
Combined cost of sales P 480,000
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
85. a
86. a – the cost from parent of P48,000 x 45/60 = P36,000
Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold – P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000
87. b – the cost from parent of P48,000 x 15/60 = P12,000

88. a
Sales Cost of Sales
Intercompany
Parent 60,000 60,000
Subsidiary 1 60,000 45,000
Add: Cost of EI in S2 Co.

[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000
*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
89. b – refer to No. 88 for computation
90. d – P15,000 x [(60-48)/60] = P3,000
Less: Cost of sales ( 48,000 )
Unrealized profit 12,000
Unsold fraction 1/3
Credit to Inventory P 4,000
92. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
93. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 47,000
94. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
95. a or e - if full goodwill method.

Total P364,000
Less: Dividends paid – 20x4 0 364,000
20x5 (P35,000/7 years) ( 5,000)
Add: NCI on full-goodwill (P70,000 – P56,000) 14,000
Non-controlling interest (full- goodwill)………………………………….. P 120,800
Partial-goodwill
Common stock (P140,000 x 80%)……………………. P112,000

Increase in equipment (P35,000 x 80%) ___28,000
fair value)………………………………………………... P 56,000
Full-goodwill
Consideration transferred: Cash (P364,000/80%) P 455,000
P
Allocated excess (excess of cost over book value)….. 105,000
Increase in equipment P35,000 x 100% 35,000
fair value)………………………………………………... P 70,000
96. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
97. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
98. d Add the two book values and remove P100,000 intercompany transfers.
99. c Intercompany gross profit (P100,000 - P80,000) ................................................... P20,000
Inventory remaining at year's end ......................................................................... 60%
Unrealized intercompany gross profit .................................................................... P12,000
CONSOLIDATED COST OF GOODS SOLD
Parent balance ................................................................................................... P140,000
Subsidiary balance ............................................................................................. 80,000
Remove intercompany transfer ....................................................................... (100,000)
Defer unrealized gross profit (above) ............................................................. 12,000
Cost of goods sold ..................................................................................................... P132,000
100. c Consideration transferred ....................................... P260,000

Non-controlling interest fair value .................................. 65,000
SZ total fair value ............................................................... P325,000
Book value of net assets ................................................... (250,000)
Excess fair over book value P75,000
Annual Excess
Life Amortizations
Excess fair value assigned to undervalued assets:
Equipment .................................................................... 25,000 5 years P5,000
Secret Formulas .......................................................... 50,000 20 years 2,500
Total ................................................................................. P -0- P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
101. a
Total P260,000
Less: Dividends paid – 20x4 0 260,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill)………………………………….. P 85,500
Partial-goodwill
Common stock (P100,000 x 80%)……………………. P 80,000

Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
FV of NCI (20%) ___65,000
Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
102. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
103. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) .................................................. P20,000
Inventory Remaining at Year's End ........................................................................ 60%
Unrealized Intercompany Gross profit, 12/31 ....................................................... P12,000
104. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
105. c – refer to No. 104 for computation.

106. d – refer to No. 104 for computation.
107. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5
S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000
RPBI of P Company (upstream sales) 0 300 1,000
UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)
S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250
Less: Amortization of allocated excess 0 0 0
P 69,700 P 84,300 P 94,250
Multiplied by: Non-controlling interest %.......... 10% 10% 10%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425
Less: NCI on goodwill impairment loss on full goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425

110. c– refer to No. 107 for computation.
111. c– refer to No. 107 for computation.
113. a – none, since intercompany profit starts only at the end of 20x3.
114. c – the amount of unrealized profit at the end of 20x3.
115. a– the amount of unrealized profit at the end of 20x4.
116. d P32,000 = (P200,000 + P140,000) – P308,000
117. b P6,000 = (P26,000 + P19,000) – P39,000
118. c P9,000 = Inventory held by Spin P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) – P52,000] (3,000)
Carrying cost of inventory for
Power P 9,000
119. B .20 = P14,000 / [(Stockholders’ Equity P50,000)

+(Patent P20,000)]
120. B 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]
121. c (P10,000 x 80%)
122. d – the original cost
123. d
Date of Acquisition (1/1/20x0) Partial Full
Fair value of consideration given…………………P 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess.…………………………………….P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)…………………………….. 16,000
Goodwill ………….…………………………………...P 20,000 / 80% P 25,000
RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050

RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of Parent
P60,000 x 30% = P18,000 x 25/125………………………………. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400
Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
Total P 126,050
Or, alternatively
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
Total P 126,050
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320

P 26,600

125. a – P124,050 – refer to No. 123
128. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2.…………..….…………………………….. P 150,000
Retained earnings - S, 12/31/20x2:
RE- S, 1/1/20x2…………….……………………………………………….P300,000
+: NI-S…………………………………………………………………………. 30,000
-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 .………………………….. 20,000
Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)
Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000
UPEI of P (up)…………………………………………………………………… ( 2,400)
Realized SHE – S,12/31/20x2…………………………………………………. P 481,600
x: NCI %.......................................................................................................... _ 20%
Non-controlling Interest (in net assets) - partial………………………….. P 96,320
+: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000
Non-controlling Interest (in net assets) – full…………………………….... P 101,320
130. d
Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginning
balance of the current year) -
Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000
-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P698,950
Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000
Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000
(cumulative net income – cumulative dividends)…………P 70,000
P 2,000 x 2 years…………………………………………………( 4,000)
UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………...... ( 1,000)
P 65,000
X: Controlling Interests………………………………………….........____80% 52,000
RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730
-: Dividends – P……………………………………………………………… 60,000
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680
Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 744,400
Less: Retained earnings – Subsidiary, 12/31/20x2
(P300,000 + P20,000 – P10,000)………………………........ 320,000
P 2,000 x 3 years……………………………………………….. ( 6,000)
UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. .. ( 2,400)
P 81,600
X: Controlling Interests………………………………………………. 80% 65,280
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680
131. b
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000
132. a
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000
Error in Problem Numbering

122. c
Non-controlling interest , December 31, 20x1
Retained earnings – Subsidiary Company, December 31, 20x1 8,600
Amortization of allocated excess (refer to amortization above) – 20x1 ( 0)
Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200
Realized stockholders’ equity of subsidiary, December 31, 20x1…… P 17,400
Non-controlling interest. December 31, 20x1 ………………………………….. P 3,480
123. c
RPBI of P (upstream sales)……..………………………..………………………… 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................………………………..…. 15,000

Total P 150,750
Or, alternatively
Total P 150,750
Amortization of allocated excess…………………… ___0 10,125
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125

Less: Amortization of allocated excess _0
P101,250
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90  (P180,000 – P150,000)) 27,000
Beginning Retained Earnings-Paque Co. 27,000
To establish reciprocity as of 1/1/20x8
(2) Sales 300,000

Purchases (Cost of Goods Sold) 300,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 15,000

To eliminate unrealized intercompany profit in ending inventory (P75,000  0.20)
(4) Beginning Retained Earnings - Paque Co. (P45,000  0.90) 40,500

Non-controlling Interest P45,000  0.10) 4,500
Beginning Inventory (Income statement) 45,000
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year
(5) Dividend Income (P60,000  0.90) 54,000

Dividends Declared 54,000
To eliminate intercompany dividends
(6) Beginning Retained Earnings- Segal Co. 180,000

Common Stock - Segal Company 750,000
Investment in Segal Company (P810,000 + P27,000) 837,000
Non-controlling Interest (P750,000 + P180,000) x .10 93,000
To eliminate investment account and create non-controlling interest account
124. c
Preferred Solution - since what is given is the RE – P, 1/1/20x8 -
Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400
Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400
Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000
Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000
(cumulative net income – cumulative dividends)………P 49,000
Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)
P 49,000
X: Controlling Interests…………………………………………… 90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500
+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700
-: Dividends – P………………………..………………………………… 110,000
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8………….. P 711,200

Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Amortization of allocated excess…………………… _____0 6,300

P 63,000

RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000
UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000
Net income:
Pruitt Co. Sedbrook
Sales P1,210,000 P 636,000
Less: Cost of goods sold
Inventory, 1/1 165,000 132,000
Purchases 935,000 420,000
Inventory, 12/31 (220,000) __880,000 (144,000) __408,000
Less: Other expense 198,000 165,000
Net income from its own
separate operations P 132,000 P 63,000
Net income P 163,500 P 63,000
Dividends declared P 110,000 P 35,000
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400
Add: NI of Parent as reported – 20x8 under cost model…………… 163,500
Less: Dividend of Parent – 20x8………………………………………….. 110,000
Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900
-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000
Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900
Retained earnings – Subsidiary, 1/1/20x4………… P 95,000
Retained earnings – Subsidiary , 1/1/20x8..… P144,000
Add: NI of Subsidiary – 20x8…………………… 63,000
Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000
(cumulative net income – cumulative dividends)………… P 97,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)
UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........( 0)
P 97,000
x: Controlling Interests………………………………………… 90% 69,300
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200
(Not required)
(1) Investment in Sedbrook Company (0.90 (P144,000 – P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8
(2) Sales 250,000

To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 10,000

To eliminate unrealized intercompany profit in ending
inventory (P60,000 – (P60,000/1.2)
(4) Beginning Retained Earnings - Pruitt Co. 25,000

Beginning Inventory (Income Statement) 25,000
To recognize intercompany profit in beginning inventory
realized during the year
(5) Dividend Income (P35,000 .90) 31,500

(6) Beginning Retained Earnings - Sedbrook Co. 144,000

Common Stock - Sedbrook Co. 600,000
Investment in Sedbrook Co.(P625,500 + P44,100) 669,600
Non-controlling Interest (P744,000 x .10) 74,400
To eliminate investment account and create non-controlling interest account
125. P941,000.
Fair value of consideration given…………………P1,360,000
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess.…………………………………….P 200,000
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000
P 0
RPBI of S (downstream sales):…………………........................................................ P30,000

RPBI of P (upstream sales)………………………....................................................... 20,000
UPEI of S (downstream sales)……………………………………………………..……. 5,000
UPEI of P (upstream sales)………………………………………………….…………… 10,000

S Company’s net income from own operations…………………………………. P270,000
Total P1,005,000
Or, alternatively
Consolidated Net Income for 2014
Total P1,005,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000
**Non-controlling Interest in Net Income (NCINI) for 2014

S Company’s net income of Subsidiary Company from its own operations P270,000
S Company’s realized net income from separate operations……… P280,000
P270,000
(Not required)
(1) Sales 120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS) 15,000

Inventory (Balance Sheet) 15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
(3) Beginning Retained Earnings – Paul Company (P20,000  0.8) 16,000

Beginning Inventory – Income Statement (CGS) 20,000
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year
(4) Beginning Retained Earnings – Paul Company. 30,000

Beginning Inventory – Income Statement (CoGS) 30,000
To recognize profit in beginning inventory (downstream sales)
realized during the year and to reduce consolidated retained
earnings at beginning of the year for the amount of unrealized
downstream intercompany profit at the beginning of the year
126. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000
Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000
(cumulative net income – cumulative dividends)………… P 510,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000
x: Controlling Interests………………………………………… 80% 368,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000
127. P54,000 – refer to No. 125 for computation

128. a
Full-goodwill
Consideration transferred: Cash (P7,500,000/80%) P9,375,000
Less: Book value of stockholders’ equity of S (P6,000,000 x 100%) _6,000,000
Allocated excess (excess of cost over book value)….. P3,375,000
Decrease in inventory: P(150,000 x 100%) P( 150,000)
Increase in building: P450,000 x 100% ___450,000 ___300,000
fair value)………………………………………………... P3,075,000
Partial-goodwill
Consideration transferred……………………………….. P7,500,000
Common stock (P1,000,000 x 80%)……………………. P 800,000
Retained earnings (P5,000,000 x 80%)………………... 4,000,000 4,800,000
Allocated excess (excess of cost over book value)….. P2,700,000
Decrease in inventory: P(150,000 x 80%) P( 120,000)
Increase in building: P450,000 x 80% ___360,000 240,000
fair value)………………………………………………... P2,460,000
Amortization schedule
Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000
129. a
Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Common stock – S Company, December 31, 20x2…… P1,000,000
Retained earnings – S Company, December 31, 20x2 5,000,000
Stockholders’ equity – S Company, December 31, 20x2 P6,000,000
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000
Non-controlling interest (partial goodwill)………………………………….. P 1,260,000
Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000
Non-controlling interest (full- goodwill)………………………………….. P1,875,000
130. d – P2,393,800
Non-controlling interest , December 31, 20x4
Common stock – S Company, December 31, 20x4 P1,000,000
Retained earnings – S Company, December 31, 20x4 7,524,000
Stockholders’ equity – S Company, December 31, 20x4 P8,524,000
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P8,914,000
Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill)………………………………….. P2,393,800
RPBI of P (upstream sales):

Sales of Subsidiary EI % EI of P GP% of Subsidiary
P100,000 x 60% = P60,000 x 50,000/100,000………………………..…. 30,000
UPEI of P (upstream sales): (given)………………………………………………………. 20,000
Or, alternatively:
Balance of NCI on acquisition — December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit — 20x4 ( 20,000)
Adjusted change in retained earnings of Jane since
acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800
131. b
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 0
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P11,900,000
Retained earnings – Subsidiary, 12/31/20x2…………………..P5,000,000
Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000
(cumulative net income – cumulative dividends)……….P2,524,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)……….. 90,000
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)
P2,594,000
x: Controlling Interests………………………………………… 80% 2,075,200
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P13,975,200
132. b - (P125,000 - P93,000) .8 = P25,600

133. c - (P125,000 - P93,000) .2 = P6,400
134. d
135. a - (P125,000 - P93,000) .7
136. c - (P125,000 - P93,000) .3
137. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080
Theories
1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a
2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b
3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e
4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d
5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d
41. b 46. c 51. a 56. c 61. a 66. b 71 b 76. c

42. c 47. b 52. c 57. b 62. a 67. b 72. a 77. c
43. a 48. c 53. c 58. c 63. b 68. c 73. a 78. a
44. c 49. a 54. d 59. b 64. c 69. d 74. a 79. c
45. d 50, d 55, c 60. c 65. a 70. b 75. c 80. e
Chapter 5
Problem I
Cost Model
1. January 1, 20x4

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
Consolidated SHE:
NCI, 1/1/20x4 (b) ___90,000

Consolidated SHE:
NCI, 1/1/20x4 (b) ___93,000
d. Partial/Proportionate Goodwill or Full-Goodwill/Fair Value Basis

P Co. S Co. CBS
Equipment P 240,000 P 180,000 P 420,000
Less: Accumulated depreciation 135,000 96,000 231,000
Net book value P 105,000 P 84,000 P 189,000
a. Cash P 322,800 P 322,800 P 367,200 P 367,200
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 232,950 232,950 206,850 206,850
f. Buildings (net) 549,000 549,000 492,000 492,000
h. Total Assets 1,742,500 1,744,800 1,942,650 1,944,900
i. Accounts payable 193.800 193,800 193,800 193,800
j. Bonds payable 360,000 360,000 360,000 360,000
P&L
n. Sales 720,000 720,000 900,000 900,000
p. Gross profit 372,000 372,000 492,000 492,000
impairment)
Income
600,000 600,000
P&L* 495,810 495,810 688,170 688,170
Common stock (P240,000 x 80%)……………………. P 192,000
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

Value % of Total
Interest
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –
of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
12/31/20x4:
recognized.
CI-CNI – P207,810
Unrealized gain on sale of equipment (downstream sales) (15,000)
Realized gain on sale of equipment (downstream sales) through depreciation 2,250
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Total P234,150
NCI-CNI – P10,140
P 50,700
CNI, P217,950
follows:
Total P567,810
Total P211,200
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 ___92,940
12/31/20x5:
CI-CNI – P264,360
Total P288,900
Or, alternatively
Total P288,900
NCI-CNI – P17,340
(Reported net income of Son Company)
P 86,700
CNI, P281,700

follows:
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
parties.. P487,050
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Total P760,170
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
20x4 and 20x5 (P11,000 + P6,000) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss 3,000 39,720
NCI/NCINAS.
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 __100,680

Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000
12/31/20x4:
recognized.
CI-CNI – P207,810
Total P234,150
NCI-CNI – P10,140
P 50,700
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
CNI, P217,950

follows:
Total P567,810
Total P211,200
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 ___95,190
12/31/20x5:
CI-CNI – P281,700
Total P288,900
Or, alternatively
Total P288,900
NCI-CNI – P17,340
P 86,700
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340
CNI, P281,700

follows:
(P15,000 – P2,250) 12,750
parties.. P487,050
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000
__ 8,760
Total P760,170
Or, alternatively:
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
20x4 and 20x5 (P13,200 + P7,200) 20,400
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
(P31,200 – P3,900 – P3,900) 23,400
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 __102,930

January 1, 20x4:
Cash…………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Cash……. 36,000
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4, and unrealized profits in ending inventory.

Common stock (P240,000 x 80%)……………………. P 192,000
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. SCo.
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… 48000 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-
controlling interest of 20% computed as follows:
Value % of Total

Value % of Total
Interest
Goodwill P 3,750 100.00%

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200

share of dividends.
(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

Equipment 12,000
To eliminate the upstream intercompany gain and restore to its
(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).


Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
separate operations P 63,900
P 50,700
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P499,800 P175,200 P 495,810
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 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600
Accumulated depreciation (3) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 10,140 ____92,940
Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600

Cash……………………… 38,400
Cash 48,000

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

above.
5. Consolidation Workpaper – 20x5 (Second ) Year of Acquisition (Partial-goodwill)


Entry (1) above is needed only for firms using the cost method to account for their investments
in the subsidiary. If the parent is already using the equity method, there is no need to convert
to equity.
(E3) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
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%
Total P 13,560

share of dividends.
(E5) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
(E6) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960

Equipment 12,000

Depreciation expense (current year)…………… 3,000
Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250

Depreciation expense (current year) 3,900
Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120
Non-controlling interest (P31,200 x 20%) 780
(P31,200/85 years x 1 year = P3,900).


P 86,700
with third persons.

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(7) 83,100
3,000
Depreciation expense 60,000 24,000 (4) 6,000 (8)
3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (1) 13,560 (1) 44,160
(5) 15,000 (7) 2,250
(6) 24,960 (8) 3,120 P 495,810
S Company P 175,200 (2) 175,200
Net income, from above 230,400 __90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (1) 6,000 (2) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800
Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 2,640 (2 83,040
(5) 9,600 (3) 18,000
(6) 6,240 (8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800

January 1, 20x4:
Cash…………………………………………………………….. 372,000
(2) Cash……………………… 28,800
Cash……. 36,000

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
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity
goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment
loss to be pro-rated between the parent and NCI on the same basis as that on which profit or
loss is allocated. In other words, the impairment loss is not pro-rated in accordance with the
proportion of goodwill recognized by parent and NCI.
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

share of dividends.

Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P31,200/85 years x 1 year = P3,900).


P 50,700
P3,000, impairment on partial-goodwill) 750

Sales P480,000 P240,000 P 720,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P499,800 P175,200 P 495,810
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 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… _________ (3) 7,200 (1 ) 72,000 ____95,190
_________ (2) 21,000
__________ (9) 9,390
Total P1,984,800 P1,008,000 P 843,690 P 843,690 P2,468,850

Cash……………………… 38,400
Cash 48,000

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

above.
5. Consolidation Workpaper – 20x5 (Second) Year after Acquisition



(E3) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 – P3,000 = P750) 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
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%
Total P 13,560

share of dividends.
(E6) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
(E7) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960

Equipment 12,000

Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250

Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120
(P31,200/85 years x 1 year = P3,900).


P 86,700
Goodwill 0
with third persons.

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(8) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (2) 13,560 (1) 44,160
(6) 15,00 (8) 2,250
(7) 24,960 (9) 3,120 P 495,810
S Company P 175,200 (1) 175,200
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to Balance P658,200 P217,200 P 688,170
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 (6) 30,000
(7) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 90,000 -
Total P2,203,200 P1,074,000 P2,752,050

- equipment (8) 5,250 (6) 45,000
(9) 7,800 (7) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(5) 9,600 (3) 21,000
(7) 6,240 (9) 780
___ _____ _________ __________ (10) 17,340 ____102,930
Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050
Problem II
Equity Method
1. January 1, 20x4

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
Consolidated SHE:
NCI, 1/1/20x4 (b) ___90,000

Consolidated SHE:
NCI, 1/1/20x4 (b) ___93,000
d. Partial/Proportionate Goodwill or Full-Goodwill/Fair Value Basis

P Co. S Co. CBS
Equipment P 240,000 P 180,000 P 420,000
Less: Accumulated depreciation 135,000 96,000 231,000
Net book value P 105,000 P 84,000 P 189,000
a. Cash P 322,800 P 322,800 P 367,200 P 367,200
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 232,950 232,950 206,850 206,850
f. Buildings (net) 549,000 549,000 492,000 492,000
h. Total Assets 1,742,500 1,744,800 1,942,650 1,944,900
i. Accounts payable 193.800 193,800 193,800 193,800
j. Bonds payable 360,000 360,000 360,000 360,000
P&L
n. Sales 720,000 720,000 900,000 900,000
p. Gross profit 372,000 372,000 492,000 492,000
impairment)
r. Investment income -0- -0- -0- -0-
Income
600,000 600,000
P&L* 495,810 495,810 688,170 688,170

Common stock (P240,000 x 80%)……………………. P 192,000
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

Value % of Total
Interest
Goodwill P 3,750 100.00%
12/31/20x4:
recognized.
CI-CNI – P207,810
Total P234,150
NCI-CNI – P10,140
P 50,700
CNI, P217,950
follows:
Total P567,810
Total P211,200
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 ___92,940
12/31/20x5:
CI-CNI – P264,360
Total P288,900
Or, alternatively
Total P288,900
NCI-CNI – P17,340
(Reported net income of Son Company)
P 86,700
CNI, P281,700

follows:
(P15,000 – P2,250) 12,750
parties.. P487,050
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Total P760,170
Or, alternatively:
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
20x4 and 20x5 (P11,000 + P6,000) 20,400
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss 3,000 39,720
NCI/NCINAS.
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
(P31,200 – P3,900 – P3,900) 23,400
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 __102,930

Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000
12/31/20x4:
recognized.
CI-CNI – P207,810
Total P234,150
NCI-CNI – P9.390
P 50,700
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
CNI, P217,200

follows:
Total P567,810
Total P211,200
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x4 ___95,190
12/31/20x5:
CI-CNI – P281,700
Total P288,900
Or, alternatively
Total P288,900
NCI-CNI – P17,340
P 86,700
CNI, P281,700

follows:
(P15,000 – P2,250) 12,750
parties.. P487,050
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Total P760,170
Or, alternatively:
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
20x4 and 20x5 (P13,200 + P7,200) 20,400
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
(P31,200 – P3,900 – P3,900) 23,400
Consolidated SHE:
Consolidated SHE:
NCI, 12/31/20x5 __102,930

January 1, 20x4:
(1) Investment in S Company……………………………………… 372,000
Cash…………………………………………………………… 372,000

(2) Cash……………………… 28,800
Record dividends from Son Company.
December 31, 20x4:
December 31, 20x4:

impairment loss)]
Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable and goodwill
impairment loss.
December 31, 20x4:

To adjust investment income for downstream sales -
unrealized gain on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales -
December 31, 20x4:

realized gain on sale of equipment..
December 31, 20x4:

Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010
Investment Income
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Common stock (P240,000 x 80%)……………………. P 192,000
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. SCo.
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… 48000 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total

Value % of Total
Interest
Goodwill P 3,750 100.00%
5. Consolidation Workpaper – 20x4 (First0 Year of Acquisition (Partial-goodwill)

Retained earnings – S Co…………………………………… 120,000
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400

follows:

Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
372,000 372,000
Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P26,000/85 years x 1 year = P3,250).


P 50,700

Sales P480,000 P240,000 P 720,000
(6) 31,200
(7) 2,250 83,850
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,950

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 5,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,466,600

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 10,140 92,940
Total P1,980,810 P1,008,000 P 840,690 P 840,690 P2,466,600

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 264,360 P 90,000

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

equipment, buildings and bonds payable
December 31, 20x4:
realized gain on sale of equipment.
December 31, 20x4:
Investment in S
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

above.

guidance for the worksheet eliminating entries:
Retained earnings – S Co, 1/1/x5…………………………. 175,200

Land………………………………………………………………………. 6,000
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 180,000
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200
(E4) Investment income 72.360

follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360
(E5) Investment in S Company 15,000

Equipment 30,000
Accumulated depreciation – equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation – equipment ……….. 5,250

Investment in S Company (prior year) 2,250
(E8) Accumulated depreciation- equipment…….. 7,800

(P31,200/85 years x 1 year = P3,900).

P 86,700
with third persons.

Sales P540,000 P360,000 P 900,000
(7) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
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 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
Investment in Son Co……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,749,800

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 69,200
(6) 6,240 (2) 15,360
(8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,233,170 P1,074,000 P 930,750 P 930,750 P2,749,800

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
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income P 207,810 P 91,200

January 1, 20x4:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
Record dividends from Son Company.
December 31, 20x4:

December 31, 20x4:

impairment loss)]
equipment, buildings and bonds payable and goodwill
impairment loss.
December 31, 20x4:

December 31, 20x4:

To adjust investment income for upstream sales - unrealized
gain on sale of equipment..
December 31, 20x4:
To adjust investment income for downstream sales - realized
December 31, 20x4:

To adjust investment income for upstream sales - realized
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010
Investment Income
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 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
5. Consolidation Workpaper – 20x4 (First) Year of Acquisition (Full-goodwill)

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000 full –

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400

follows:

Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
372,000 372,000

Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P31,120/85 years x 1 year = P3,900).


P 50,700
Sales P480,000 P240,000 P 720,000
(6) 31,200
(7) 2,250 83,850
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
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) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850
Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 264,360 P 90,000

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

December 31, 20x4:

To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales - realized gain on
sale of equipment..
Investment in S
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5
5. Consolidation Workpaper – Second Year after Acquisition (Full-goodwill)
Land………………………………………………………………………. 7,200
Goodwill (P15,000 – P3,900)…………………………….. 11,250
Buildings……………………………………….. 216,000
or (P3,750 x 20%)] 17,610
*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

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Totals P 6,000 P1,200 P7,,200

follows:

x 80%)……. 72,000 5,760 (P72,000 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360

Equipment 30,000
Accumulated depreciation – equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation – equipment ……….. 5,250

(E8) Accumulated depreciation- equipment…….. 7,800

(P31,200/85 years x 1 year = P3,900).


P 86,700
Goodwill 0
with third persons.

Sales P540,000 P360,000 P 900,000
(7) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
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 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 83,040
(6) 6,240 (2) 17,610
(8) 780
___ _____ _________ __________ (9) 17,340 ____102,930
Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050
Problem II
A. Downstream Sale
1. a. Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
b. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000
c. NCI-CNI (b) P 169,000

CI-CNI (a) 3,946,000
CNI P4,115,000
or,
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Total P4,115,000
Or, alternatively
S Company’s realized net income from separate operations…….….. P 845,000 845,000
Total P4,115,000

P845,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Controlling Interest in Consolidated Net Income:

through depreciation in 2014 25,000
P3,295,000
Reported net income of S Company P820,000
× .8
Noncontrolling Interest Calculation:
Reported income of S Company P820,000
Noncontrolling interest in S Company
(.20 × 820,000) P164,000
NCI-CNI P 164,000
CI-CNI 3,951,000
CNI P4,115,000
or,
Realized gain on sale of equipment (downstream sales) through depreciation ____25,000
Realized gain on sale of equipment (upstream sales) through depreciation* 0
Total P4,115,000
Or, alternatively
Realized gain on sale of equipment (upstream sales) through depreciation 0
Total P4,115,000

Realized gain on sale of equipment (upstream sales) through depreciation 0
P820,000
3.
a. Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000
Net Income – S Company

No entry

No entry
Unrealized Gain on Sale of Equipment

No entry
Realized Gain on Sale – depreciation

No entry
b. Equity Method – 20x5

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 32,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,000
Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . . 656,000

None, since there is no amount available

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince 100,000
Accumulated Depreciation 640,000
Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince 25,000
Equity Method
Equipment 540,000
Investment in S Co. 100,000

Investment in S Co. 25,000
B. Upstream Sale
4. a. Controlling Interest in Consolidated Net Income:
Reported net income of Serf Company P820,000
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
b. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000
c. NCI-CNI (No. 5) P 169,000

CI-CNI (No. 4) 3,946,000
CNI P 4,115,000
or,
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Total P4,115,000
Or, alternatively
Total P4,115,000

P845,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
5.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000

No entry

No entry

No entry
Realized Gain on Sale – depreciation

No entry
Equity Method – 20x5

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 32,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,000

None, since there is no amount available

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince (P100,000 × .80) 80,000
Noncontrolling Interest (P100,000 × .20) 20,000

Beginning R/E – Prince (P25,000 × .80) 20,000
Equity Method
Equipment 540,000
Investment in S Co. (P100,000 × .80) 80,000

Investment in S Co. (P25,000 × .80) 20,000
Problem IV
Eliminating entry, December 31, 20x8:
1.
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Computation of gain on sale of truck:

Price paid by Minnow P245,000
Cost of truck to Frazer P300,000
(P300,000 / 10 years) x 3 years ( 90,000) (210,000)
Gain on sale of truck P 35,000
Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 4 years] P120,000
Reported [(P245,000 / 7 years) x 1 year] (35,000)
Required increase P 85,000
2. Eliminating entry, December 31, 20x9:
E(1) Truck 55,000

Retained Earnings 30,000

Reported [(P245,000 / 7 years) x 2 years] (70,000)
Required increase P 80,000
Problem V
E(1) Truck 90,000
Gain on Sale of Truck 30,000
Computation of gain on sale of truck:

Price paid by MM P210,000
Cost of truck to FF P300,000
(P300,000 / 10 years) x 4 years (120,000) (180,000)
Gain on sale of truck P 30,000

E(1) Truck 90,000
Retained Earnings, January 1 30,000

Recorded [(P210,000 / 6 years) x 1 year] (35,000)
Required increase P115,000
Problem VI
1. Downstream sale of land:
20x4 20x5
VV’s separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VV’s realized operating income P 65,000 P110,000
Spawn’s realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000
2. Upstream sale of land:

20x4 20x5
VV’s separate operating income P 90,000 P110,000
SS’s net income P60,000
Less: Unrealized gain on sale of land (25,000)
Spawn’s realized net income 35,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P35,000 x .25) (8,750)
(P40,000 x .25) (10,000)
Income to controlling interest P116,250 P140,000
Problem VII
(Determine consolidated net income when an intercompany transfer of equipment occurs.
Includes an outside ownership)
1. Income—ST ........................................................................................................... P220,000

Income—BB ........................................................................................................... 90,000
Excess amortization for unpatented technology .......................................... (8,000)
Remove unrealized gain on equipment ........................................................ (50,000)
(P120,000 – P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 ÷ 5) .......................................................... 10,000
Consolidated net income ................................................................................. P262,000
2. Income calculated in (part a.) ........................................................................ P262,000

Non-controlling interest in BB's income
Income—BB .............................................................................. P90,000
Excess amortization ................................................................. (8,000)
Adjusted net income .............................................................. P82,000
Non-controlling interest in BB’s income (10%) .......................................... (8,200)
Consolidated net income to parent company ............................................. P253,800
3. Income calculated in (part a.) ........................................................................ P262,000

Non-controlling interest in BB's income (see Schedule 1) ........ (4,200)
Consolidated net income to parent company ............................................. P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary ................................................................. P90,000
Excess amortization ............................................................................................. (8,000)
Eliminate unrealized gain on equipment transfer ........................................ (50,000)
Eliminate excess depreciation (P50,000 ÷ 5) .................................................. 10,000
Bennett's realized net income .......................................................................... P42,000
Outside ownership .............................................................................................. 10%
Non-controlling interest in subsidiary's income .............................................. P 4,200
4. Net income 20x5—ST .......................................................................................... P240,000

Net income 20x5—BB ......................................................................................... 100,000
Excess amortization ............................................................................................. (8,000)
Eliminate excess depreciation stemming from transfer
(P50,000 ÷ 5) (year after transfer) .............................................................. 10,000
Consolidated net income ...................................................................... P342,000
Problem VIII
1. On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry
debited the machine account for P22,000 which must be the amount needed to bring the
machine account up to P120,000, Buzzard must have recorded the machine at P98,000.
Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation
expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account
will be the original amount of annual depreciation, (P12,000) times the number of years the
machine has been depreciated (4), or P48,000.
3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the
machine and is increased by the piecemeal recognition of the gain, which is P2,000. The
net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-
controlling interest.
Problem IX
1. Consolidated net income for 20x9:
Operating income reported by BW P100,000
Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
2. Consolidated net income for 20x9 would be unchanged.

E(1) Buildings and Equipment 30,000
Eliminate unrealized profit on building.
Adjustment to buildings and equipment
Amount paid by TW to acquire building P300,000
Amount paid by BW on intercompany sale (270,000)
Adjustment to buildings and equipment P 30,000
Adjustment to retained earnings, January 1, 20x9
Unrealized gain recorded January 1, 20x4 P 30,000
Amount realized following intercompany sale
(P2,500 x 2) (5,000)
Unrealized gain, January 1, 20x9 P 25,000
Proportion of ownership held by Baywatch x .80
Required adjustment P 20,000
Adjustment to Noncontrolling interest, January 1, 20x9

Unrealized gain at January 1, 20x9 P 25,000
Proportion of ownership held by non-controlling
interest x .20
Adjustment to depreciation expense

Depreciation expense recorded by BW
Industries (P270,000 / 12 years) P 22,500
Depreciation expense recorded by TW
Corporation (P300,000 / 15 years) (20,000)
Adjustment to depreciation expense P 2,500
Adjustment to accumulated depreciation

Amount required (P20,000 x 6 years) P120,000
Amount reported by BW (P22,500 x 3 years) (67,500)
Problem X
20x5 20x6
1.
Noncontrolling interest inP 7,000 (1) P 46,200 (2)
Consolidated net income
Controlling interest in 290,500 (3) 279,300 (4)

(1) .4(P70,000 – P63,000 + P10,500) = P7,000

(2) .4(P105,000 + P10,500) = P46,200
(3) P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500
(4) P210,000 + .6(P105,000 + P10,500) = P279,300
20x5 20x6
2.
Noncontrolling interest in P 28,000 (5) P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7) 283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem XI
1. Consolidated net income for 20x4 will be greater than PP Company's income from
operations plus SS's reported net income. The eliminating entries at December 31, 20x4, will
result in an increase of P16,000 to consolidated net income.
2. As a result of purchasing the equipment at less than Parent's book value, depreciation
expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would
have been recorded by PP. Thus, depreciation expense must be increased by P2,000 when
eliminating entries are prepared at December 31, 20x5. Consolidated net income will be
decreased by the full amount of the P2,000 increase in depreciation expense.
Problem XII
Loss on Sale of Building 36,000
Eliminate unrealized loss on building.
2. Consolidated net income and income to controlling

interest for 20x9:
Operating income reported by BB P125,000

Net income reported by TT P 15,000
Add: Loss on sale of building 36,000
Realized net income of TT 51,000
Income to non-controlling interest (P51,000 x .30) (15,300)
Income to controlling interest P160,700
3. Eliminating entry, December 31, 20y0:

Eliminate unrealized loss on building.
Adjustment to buildings and equipment

Amount paid by TT to acquire building P300,000
Amount paid by BB on intercompany sale (144,000)
Adjustment to buildings and equipment P156,000
Adjustment to depreciation expense

Depreciation expense recorded by TT
Company (P300,000 / 15 years) P 20,000
Depreciation expense recorded by BB
Corporation (P144,000 / 9 years) (16,000)
Adjustment to depreciation expense P 4,000
Adjustment to accumulated depreciation

Amount required (P20,000 x 7 years) P140,000
Amount reported by BB (P16,000 x 1 year) (16,000)
Required adjustment P124,000
Adjustment to retained earnings, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by BB x .70
Adjustment to Noncontrolling interest, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by non-controlling
Interest x .30
4. Consolidated net income and income assigned to

controlling interest in 20y0:
Operating income reported by BB P150,000
Net income reported by TT P40,000
Adjustment for loss on sale of building (4,000)
Realized net income of TT 36,000
Income assigned to non-controlling interest
(P36,000 x .30) (10,800)
Income assigned to controlling interest P175,200
Problem XIII
E(1) Gain on Sale of Land 45,000
Land 45,000
Eliminating entry, December 31, 20x5:

E(1) Retained Earnings, January 1 31,500
Land 45,000
2. Eliminating entries, December 31, 20x4 and 20x5:

E (1) Retained Earnings, January 1 30,000
Land 30,000
Problem XIV
1.
20x4 20x5 20x6
Consolidated net income as reported P 750,000 P 600,000 P 910,000
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net income P 743,000 P 600,000 P 917,000
2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem XV
1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of

depreciation expense showing on the separate income statements minus the piecemeal
recognition of the gain on the sale of the equipment. Thus, the consolidated amount of
depreciation expense was P95,000 + P32,000 – (P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Problem XVI
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment P 320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000

1. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000
Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000
2. a
Original cost of P1,100,000
Accumulated depreciation, 1/1/20x4 P 250,000

Add: Additional depreciation (P1,100,000 – P100,000) / 20 years ____50,000
3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost
of P416,000 + P256,000 = P672,000.
5. a The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.
6. e
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000
7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Depreciation expense Depreciation expense
(P50,000 /5 years) 10,000 (P80,000 / 5 years) 16,000
Acc. Depreciation 8,000 Acc. depreciation 16,000
9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
12. e
Original cost of P
100,000
Accumulated depreciation, 1/1/20x6 P

40,000
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000
Accumulated depreciation, 12/31/20x4 P
70,000
13. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)
14. a
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

(P60,000 /6 years) 10,000 (P48,000 / 6 years) 8,000
15. c
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000
Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
16. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
17. b
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000
= P5,000
“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
18. c
19. b
20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation
would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses………………………………………….. 1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
22. b
Realized gain on sale of equipment (downstream sales) through depreciation ___0
Unrealized gain on sales of equipment (upstream sales) (15,000)
(P15,000 / 3 years) 5,000
Total P143,000
Or, alternatively
(P15,000 / 3 years) 5,000
Total P143,000
Amortization of allocated excess…………………… ____0 18,000

Unrealized gain on sales of equipment (upstream sales) ( 15,000)
P 45,000
23. a - refer to No. 22 computation

24. a
25. a
26. b
27. d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 4,000
Depreciation expenses (current year) – P6,000/3 years…. 2,000
Retained earnings (prior year – 20x4)……………………….. 2,000
28. d – the entry under the cost model would be as follows ;

Accumulated depreciation……………………………………………. 10,000
Depreciation expenses (current year) – P15,000/3 years.. 5,000
Retained earnings (prior year – 20x5)……………………….. 5,000
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000
33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
Consolidated income statement P139,625
34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain – depreciation: P56,000/8 years P 7,000
35. c – (P22,500 x 4/15 = P6,000)

36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK
Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will
debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG
Company had the equipment recorded at P40,000; thus, a debit of P1,000 will raise
the equipment balance back to its original cost from the viewpoint of the
consolidated entity.
39. b Reported net income of GG Company P 45,000

Reported gain on sale of equipment P15,000
Intercompany profit realized in 20x6 (5,000) (10,000)
Realized net income of GG Company P 35,000
Proportion of stock held by
non-controlling interest x .40
Income assigned to non-controlling interests P 14,000
40. c Operating income reported by TLK Corporation P 85,000

Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
41. b
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Parent Books – Mortar Subsidiary Books – Granite

Cash 390,000 Equipment 390,000
Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000
Mortar
Selling price P390,000
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
42. a – refer to No. 41 for computation

43. b - refer to No. 41 for computation
44. d
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
45. c
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of
P2,500,000 and accumulated depreciation of (P2,500,000/10) x 2 = P500,000.
Depreciation expense is P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Eliminating entries at the end of the second year are:

Investment in subsidiary 1,530,000
Equipment 1,700,000
Equipment 200,000
Accumulated 200,000
depreciation

49. d
50. d
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a
gain on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The
consolidated statements show depreciation expense for the year at P600,000
(P3,000,000/5) and a gain on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 -
(3)(P600,000))]. Therefore the eliminating entries increase depreciation expense by
P100,000 and reduce the gain by P200,000, for a net effect on consolidated income of:
P300,000 decrease.
51. a
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year ( 0)
Total P190,000

Cost, 1/1/20x4 P500,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss – depreciation: P20,000/4 years P( 5,000)
Or, alternatively
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
Total P190,000

Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
P 50,000
52. b
Consolidated Net Income for 20y0
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
Total P202,000
Consolidated Net Income for 20y0 P202,000
equity holders of parent – 20y0………….. P194,500
Or, alternatively
Total P202,000
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 25,000
53. d
Building 3,000
Gain 8,250
Parent Books – Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Building 36,000
Gain 8,250
Sky, 7/1/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Realized gain – depreciation: P8,250/5.5 years P 1,500
54. a - refer to No. 53 for computation

55. b
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 x ½ years) 2,250 (P33,000 / 5.5 years x ½ yrs) 3,000
56. c
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
57. d
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500
58. d - P60,000 - P36,000 = P24,000 debit

59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64. d When only retained earnings is debited, and not the non-controlling interest, a gain
has been recorded in a prior period on the parent's books.
65. d
66. a
67. b
68. b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
70. d – P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000
71. d – P110,000 – P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000
72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
(P180,000/9 x 6 yrs) 120,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
73. d –(P100,000 + P50,000 = P150,000)

S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000
74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Equipment,1/1/20x4 P 90,000
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
77. b
Sort Fort Consolidated
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Equipment, 12/30/20x3 P 10,000
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
80. d – the original cost of land

81. b – no intercompany gain or loss be presented in the CFS.
82. a
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
S3 Company’s net income from own operations…………………………………. P100,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200
83. b
Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sales of equipment (upstream sales) – year of sale -
(P14,500 – P9,000) / 5 years 1,100
P 41,100
84. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
P 135,000
85. a
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
equity holders of parent – 20y2………….. P316,800
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000
Sexton, 1/1/20y1
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Unrealized gain on sale of equipment P120,000
Or, alternatively
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000

87. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)] 112,000
Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s
parties.. P1,188,000
Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000
Less: Amortization of allocated excess – 20x9 to – 20y0 0
20y1 0
P 240,000
P192,000
Less: Goodwill impairment loss 0 _192,000
Consolidated Retained earnings, January 1, 20x5 P1,380,000
Total P1,696,800
Less: Dividends declared – Parent Company for 20y1 120,000
Consolidated Retained Earnings, December 31, 20y1 P1,576,8000
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
transactions with third parties.. P1,356,800
Retained earnings – Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Accumulated amortization of allocated excess 0
12/31/20y2 _______0
P 275,000
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800
88. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
Amortization of allocated excess (refer to amortization above) : 0
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
Multiplied by: Non-controlling Interest percentage…………... _ 20
89. c
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Equipment, 1/1/20y1 P 120,000
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000

Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Accumulated Remaining
Cost Depreciation Carrying Value Life Depreciation
Original Cost P400,000 P160,000 P240,000 15 yr P 16,000
Intercompany Selling Price 360,000 _______ 360,000 15 yr 24,000
Difference P 40,000 P160,000 P120,000 P 8,000
(1) Investment in Sexton Company 192,000

Retained Earnings - Prout 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
(2) Equipment 40,000

Beginning Retained Earnings - Prout 120,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the
year, to restate property and equipment to its book value to Prout Company on the date of the
intercompany sale.
(3) Accumulated Depreciation 16,000

Beginning Retained Earnings - Prout 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent
amount of intercompany profit as realized
(4) Dividend Income 80,000

(5) Beginning Retained Earnings – Sexton 1,040,000

Common Stock – Sexton 1,200,000
Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000
Loss on Sale of Equipment 12,000
Plant and Equipment 360,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare
consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Gain on Sale of Equipment 92,000
Cost to the Affiliated Companies P400,000

Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) 192,000
Book Value, 1/1/y3 P 208,000
Proceeds from Sale to Non-affiliate (300,000)
Gain from consolidated point of view P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books
(P120,000 - P12,000 = P108,000) is equal to the amount of profit considered realized in the
consolidated financial statements (P8,000 + P8,000 + P92,000) = P108,000.
92. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4) Partial Full
Fair value of consideration given…………………….P 700,000
(P300,000 + P500,000) x 80%........................... 640,000
Allocated Excess.………………………………………….P 60,000
Increase in Bldg. (P75,000 x 80%)……………… 60,000
Goodwill ………….………………………………………….P 0 P 0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale – 4/1/20x5):
Sales.......................................................................................................P 60,000
Less: Book value of equipment………………………………………………………………. 30,000
Unrealized Gain (on sale of equipment)……………………………………………………P 30,000
Realized gain on sale of equipment:

20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5)…………………………. .P 4,500
20x6 ………………..……………………………………………………………………………P 6,000
Downstream Sale of Machinery (date of sale – 9/30/20x5):
Sales.................................................................................................................................... P75,000
Less: Book value of machinery………………………………………………………………. 40,000
Unrealized Gain (on sale of machinery)…………………………………………………… P35,000
Realized gain on sale of machinery:

20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)………. ……………… .P 875
20x6………….. ………………………………………………………………………………...P 3,500
93. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %…………………………………………………………. 80%
Dividend income of Parent……………………………………………………..P 40,000

P 121,500
95. d
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375
Or, alternatively
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375

P 121,500
96. d – refer to No. 95 for computations

97. a
Non-controlling Interests (in net assets): 20x5 20x6
Common stock - S, 12/31..….………………………… P 300,000 P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1.…………………………………………….P600,000 P 700,000
+: NI-S………………………………………………… 150,000 200,000
-: Div – S…………………………………………….. 50,000 700,000 70,000 830,000
Book value of Stockholders’ equity, 12/31…….... P1,000,000 P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..… 75,000 75,000
Accumulated amortization (P3,000 per year)*.…… ( 6,000) ( 9,000)
Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000 P1,196,000
Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500)
Realized gain thru depreciation (upstream)……… 4,500 6,000
Realized SHE – S,12/31………………………………….. P1,043,500 P1,176,500
x: NCI %........................................................... ………… ___ 20% 20%
Non-controlling Interest (in net assets) – partial... P 208,700 P 235,300
+: NCI on full goodwill……..…………………………….. 0 0
Non-controlling Interest (in net assets) – full…….. P 208,700 P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning balance of the
current year) -
Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0
Adjusted Retained earnings – Parent, 1/1/20x5 (cost)……………… P 800,000
Retroactive Adjustments to convert Cost to “Equity”:
Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000
Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year…….. ( 3,000)
Upstream Sale – 2010 or prior to 20x5,
Net unrealized gain……………………………..……………….( 0)
P 97,000
X: Controlling Interests %..…………………………………………… 80% 77,600
RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5………………… P 877,600
+: CI – CNI or Profit Attributable to Equity Holders of Parent……. 363,075
-: Dividends – P………………………………………………………………….. 100,000
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P 1,140,675
Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5 should be use.
Retained earnings – Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, P’s reported NI – P100,000)……………… P1,040,000
-: Downstream sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 – P875)…………………………… 34,125
Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..…… P1,005,875
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4…………………….P 500,000
(P600,000 + P150,000 – P50,000)..…………..……………. 700,000
(cumulative net income – cumulative dividends)……. ….P 200,000
P 3,000 x 2 years……………………………………………. .( 6,000)
Upstream Sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500)
P 168,500
x: Controlling Interests %..………………………………………… 80% 134,800
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………. P1,140,675
98. c – refer to No. 97 computations
Correction: …. Using the same information in Nos 98 and 99 instead of 93 and 94

99. b – refer to No. 97 computations
100. d – refer to No. 97 for computations
101. b
Common stock – P (P only)……………………………………….. .P 1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method. Since, the cost
model is presumed to be the method used, the unrealized gain of P15,000 (P60,000 –
P45,000) will not be recorded in the books of parent company, which give rise to no
equity-adjustments at year-end.
103. c
Cliff reported income P225,000
Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliff’s adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
104. c
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250
105 c
P30,000 - (1/4 x P30,000) = P 22,500
106. d - P60,000 – P48,000)/4 years = P3,000

107. a
Simon, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Realized gain – depreciation: P19,500/9.75 years P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
Share in subsidiary net income (100,000 x 90%) 90,000
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500
Net 72,000
112. b
20x5
Net 110,000
113. d
20x6
Net 119,000
114. c
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
115. b
20x4
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
P2,000 x 80% _ 1,600
Net 14,400
116. c
20x5
P2,000 x 80% _ 1,600
Net 27,200
117. d
Equipment 36,000
Gain 12,000
Parent – Smeder Subsidiary - Collins

Cash 84,000 Equipment 84,000
Equipment 120,000
Gain 12,000
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
P12,000 / 6 years or P14,000 – P12,000
“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

(P72,000 /6 years) 12,000 (P84,000 / 6 years) 14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of
accumulated depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
119. d
Cash 5,000
Loss 5,000
Parent – Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000
Stark Parker Consolidated

Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
120. b – refer to No. 119 for eliminating entry
121. b
Cash 5,000
122. e
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
123. d
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
124. b
Stark Parker Consolidated
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
125. a – refer to No. 124 for computation

126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4
but not in the subsequent years.
127. c
20x6
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)
Net 193,500
Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. d 17. a 22. d 27. c
3. d 8. a 13. b 18. a 23. c 28. b
4. d 9. c 14. c 19. c 24. c 29. b
5. b 10, b 15, d 20. a 25. b 30. c

Correction: Research and Development Should Be P5,000 Not P50,000

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Correction: Research and Development Should Be P5,000 Not P50,000

Uploaded by

Copyright:

Available Formats

Chapter 2

Problem I (Correction: Research and development should be P5,000 not P50,000)

Acquisition Expense (or Retained earnings) 10,000

Case 2: Date of Acquisition -

Case 3: Date of Acquisition -

Case 4: Date of Acquisition -

Case 5: Date of Acquisition -

2. Schedule of Determination and Allocated Excess: (Correction: Research and development

Case 2: Date of Acquisition -

Case 3: Date of Acquisition -

b. Fair Value Basis (Full-goodwill Approach)

Case 4: Date of Acquisition -

b. Fair Value Basis (Full-goodwill Approach)

Case 5: Date of Acquisition – Step-Acquisition

b. Fair Value Basis (Full-goodwill Approach)

Case 6: Date of Acquisition – Bargain Purchase Gain

b. Fair Value Basis (Full-goodwill Approach)

3. Working Paper Eliminating Entries

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Case 2: Date of Acquisition –

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 3: Date of Acquisition -

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 4: Date of Acquisition -

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 5: Date of Acquisition – Step-Acquisition

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Schedule of Determination and Allocated Excess:

b. Fair Value Basis (Full-goodwill Approach)

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Schedule of Determination and Allocated Excess:

Case 6: Date of Acquisition - – Bargain Purchase Gain

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Schedule of Determination and Allocated Excess:

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Schedule of Determination and Allocated Excess:

Case 2: Date of Acquisition - January 1, 20x4

Case 4: Date of Acquisition - January 1, 20x4

2. Consolidated Balance Sheet – Date of Acquisition, January 1, 20x4

B. Fair Value Basis (Full-goodwill Approach)

(E2) Inventory…………………………………………………………. 18,000

8. Schedule of Determination and Allocation of Excess

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

9. Working Paper Eliminating Entries

(E2) Inventory…..……………………………………………………………. 18,000

(E2) Inventory……………………………………………………………. 18,000

Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Buildings and equipment 480,000 360,000 (2) 12,000 828,000

 Incidentally, the non-controlling interest on the date of acquisition is computed as

11. The balance sheet: Partial-Goodwill